Citycon Oyj

Good morning and welcome Citicon's Q2 Result webcast. My name is Valtteri Piri and I'm working as Legal and Investor Relations Manager here in Citicon. Today with me, we have our CEO Henrikka Jindström and CFO Sakari Järvelä. They will now present the key highlights from the first half of the year. And after that, we open the line for the questions. Henrikka, please go ahead.

And welcome also on my behalf to this Q2 webcast. The first half of the year, what's characterized again by strong underlying business performance, like for like net rental income increased by 5.9%, and that was supported by both rent indexations and also strong performance in our core assets. Total net rental income grew a little bit more by 9.9%, and that was supported by the Chist acquisition, which was executed in February this year. EPRA earnings increased by 5.4% following the strong net rental income development and was slightly offset by the higher admin expenses due to the one-time reorganization costs and the increased financial expenses. Like-for-like tenant sales increased 2.6%. All our main retail segments continue to show strong sales growth. And retail occupancy landed at a solid 95.2%. Strong operational performance is also supporting the development of our fair values. There were small upward yield revisions in a few of our prime assets, but these changes were more than offset by positive cash flow growth driven by the rent indexations. In general, I would say we see a stabilization in the valuations in the market. Average rents increased by 4.8% compared to last year. Leasing spreads have remained flat on average, meaning that we've been able to push through the full indexation to our tenants. And it's good to note that the occupancy cost ratio has remained at the modest level. And that is due to the fact that the tenant sales have increased in the same pace as rents. Because of the low OCR, we see more room for rental growth also going forward. Occupancy increased by 30 basis points from the last quarter and has increased by 70 basis points compared to Q2 last year. And we continue to see good demand in our assets. Like for like, net rental income development was strong throughout our Nordic portfolio. Our strategy to focus on everyday convenience with grocery and public service anchors works equally well in all of our markets. And it's good to note that our like-for-like net rental income development has been above the average indexations, as we've been able to increase both occupancy, recovery rates and also other income items like, for example, specialty leasing and parking income. Like-for-like net rental income increased by 6.3% in Norway, which is currently the strongest market in our portfolio in terms of consumer spending and tenant demand. In Sweden, the net rental income increased by 10.7%. The high increase was partly due to some negative one-time items in the comparison period. And also in Finland and Estonia, we have strong growth figures. Following the GIST acquisition, approximately 21% of our net rental income is generated in Sweden. And Finland is still our biggest segment, with 37% share of the net rental income, followed by Norway with 28%. As mentioned, like-for-like tenant sales were up 2.6%, and this was due to strong performance, especially in Norway and in Finland. Consumer confidence is slowly improving also in Sweden, and our sales development was particularly impacted by Åkasberga Centrum, where we are doing relocations in the tenant mix. And it's good to note that the average purchase continues to increase in our portfolio. And this is due to the fact that the commuter levels remain still low, but the buying customer continues to come and spend. And then to the balance sheet side, which is a key focus area for us. During the second quarter, we continued our actions to improve our credit maturity profile and liquidity buffer. Among them, we did the exchange for the 2024 hybrid for a new hybrid and a cash amount. We did an early redemption for the remaining amount of the bond maturing in October 2024, a so-called make-all. And we also extended our revolving credit facility and term loan, as well as the Chista loan. And all of these build on the actions we already took in Q1 and are very important steps in improving our credit profile. And Sakari will comment on this more in detail shortly. Divestments are a key element for de-risking our balance sheet. We are committed to our announced divestment target, and following the completion of the Kong Center at divestment in May, the remaining target for this year is approximately 350 million euros. We have several active ongoing discussions, and currently we have three signed LOIs, of which two are in advanced negotiations and one in early stages. And we are working with and evaluating various different options, including direct asset sales, portfolio sales and different joint venture structures to achieve our divestment target. And with that, I hand over to Sakari.

Thank you, Henrika, and welcome also on my behalf. We're happy to report another operationally and financially solid quarter. As a headline number, our like-for-like net rental income grew 5.6% in the second quarter, or 5.9% in the first half of the year. The full reported NRI growth in turn was 11.6% and 9.9% for the second quarter and the first half respectively. The large difference between the reported and like-for-like arises mainly from the consolidation of Shista Galleria in February, which has now been in our ownership for the first full quarter. Shista contributed 3.2 million of net rental income in the second quarter and 4.3 million year to date. This impact, among some others, is adjusted for in the like-for-like NRI. Overall, there are three important items that affect comparability to last year, out of which Shista is one. The second item is a 2.4 million one-off compensation payment we received due to an early termination of a lease agreement. This is reported as other operating income below NRI, but positively affecting direct operating profit and EPRA earnings. Thirdly, and as already discussed in detail in the Q1 webcast, we have been incurring one-time restructuring costs from G&A cost-cutting actions, as well as from the ongoing outsourcing of the accounting functions. A total of 6.9 million euros of such costs were booked in the first half of the year, and we expect only very minor restructuring costs for the rest of the year. As said, all these three effects impact the comparability to last year, so I would refer to the like-for-like NRI growth as the best indicator of the underlying operational performance. On this slide, we show a more detailed breakdown of changes in the net rental income from last year to this year. Here we separate out the impact coming from Shista of 3.2 million, as stated in the second quarter, and 4.2 in the first half. If we further look at the first half, our like-for-like properties and redevelopment projects together added a total of 5.9 million euros of NRI compared to last year. This is essentially the organic growth coming from our existing asset base. On the FX side, Swedish and Norwegian krona strengthened slightly during the second quarter, resulting in a minor positive NRI impact. But the FX impact in total is still negative 0.5 million for the first half. Similarly, we show the development of EPRA earnings on page 11. Looking at the first half graph, we show 9.6 million positive NRI increase shown in the previous slide. The total administrative G&A costs were 3 million euros higher compared to last year, but notably this includes the 6.8 million reorganization and one-time items. So from run rate perspective, at the end of the quarter, we're running our G&A clearly lower compared to last year and are in schedule to reach our target, which is G&A run rate of 10% of NRI by the end of this year. In this bridge, you can also see the positive impact from the 2.4 million early termination compensation reported as other operating income. In terms of the financial expenses, we reported 9.6 million increase compared to last year. This is partly due to higher interest rates on the refinance debt, but actually approximately 5 million of this increase is due to the Shista consolidation. This is both from including the refinance term loan from the JV into our balance sheet and also from no longer receiving interest income from the shareholder loans granted to the JV. Finally, regarding Shista, we benefit from no longer incurring the accounting loss recorded from the Shista JV last year, improving our earnings by 2.5 million compared to last year. So to summarize these effects from Shista, it has affected our NRI positively by 4.2 million, financial expense negatively by around 5 million and the JV result positively by 2.5 million, leaving positive net effect of 1.7 million for the earnings in the first half year. The valuations, as Henrico mentioned, benefited from the high cash flow growth as we recorded a 23 million fair value gain in the second quarter. The valuation yields were largely stable with minor upward revision for a couple of selected assets, but these were offset by higher market rents as rent indexation continued. Together with the positive 46 million impact from consolidating Shista Galleria in the first quarter, the total change in the fair values was 69 million positive in the first half. Following this, EPRA NRV increased to 9.25 euros per share, up from 8.96 euros in the first quarter. The funding side of our business remained very busy as we continued to address our credit profile and refinance and extend our debt instruments. The most important transaction in the quarter was the very successful exchange offer executed on one of our two hybrid bonds, which would have come to the first call in November of this year. Through this transaction, we effectively refinance the hybrid bond by offering the existing holders the opportunity to exchange their bonds into a combination of a new hybrid bond and a 4.7% cash compensation amount. Our primary objective was to refinance as large portion of the nominal as possible. So we were very pleased with over 90% of investors accepting the offer. The new bonds carry a coupon of 7.875% and have the first call date in 2029. The equity credit from these hybrid bonds is key for our investment grade rating. So this transaction was a very important step in demonstrating our commitment to retain the current rating and also one of the reasons why we wanted to execute the exchange offering good time ahead of the first call date. As already discussed in the first quarter presentation, we completed extensions of over 850 million of loans at the beginning of the second quarter. and also completed a make-whole early redemption process for the remaining outstanding amount of the October 2024 Euro bond. These can be seen on slide 19, where you see the impact of the loan extensions The bulk of the maturities has now been pushed to year 2027 and beyond, and we have cleared all maturities until September 2025. We use CP1GET regularly, so that remains the short-term item. Our weighted average maturity stands at 3.2 years at quarter end and our weighted average interest rate at 3.3%. We have strong liquidity with 459 million total liquidity available. The share of secured loans from our total debt remains relatively low at 26%, so we still have some further remaining capacity to access secured mortgage market if required. Our core credit metrics improved somewhat this quarter with IFRS LTV standing at 47.6%. Generally, our leverage remains elevated, but we expect the core ratios to improve by year end following the successful execution of the divestments. We are adjusting our financial guidance for the full year 2024 in light of the operational performance and other events that have taken place in the first half of the year. There have been changes to our forecast coming from the divestment of Concentrate, realized restructuring costs, and changed share count following the equity issue in February. Based on this information, we're narrowing the guidance ranges to the following. Direct operating profit is expected to be between 185 to 195 million EPS between 62 and 68 cents and adjusted EPS between 46 and 52 cents. With that, I can complete our presentation and open up for questions. Operator, please go ahead.