Citycon Oyj

Good morning everyone and welcome to Citicon's third quarter results audio cast. My name is Anni Torkko and I'm working as the investor relations manager here at Citicon. Last night we published our third quarter 2024 interim report and in this audio cast we will present the financial and operational key highlights from the results. The third quarter interim report is available on our website in the investors section. Together with me here in the audio call are our interim CEO, Mr. Scott Ball, and CFO, Mr. Sakari Järvelä. Sakari will start the presentations by going through the key highlights from our financial results. Following that, Scott will present a summary of our operational highlights and go through the financial guidance for full year 2024. After the presentations by Sakari and Scott, there will be a separate Q&A session, and we will open the line for questions from the audience. With that, I pass on to Sakari. Please go ahead.

Thanks, Anni, and great to have you here with us. We start this time with our financial results and are happy to report another operationally and financially solid quarter. Our full net rental income growth was 13.7% in the third quarter and 11.2% year-to-date. Apart from strong operational performance driven by rent indexation, the result was affected by consolidation of Shista Galleria earlier in the year and a couple of larger development projects coming online and starting to produce income. These are namely the renovation of Myrmanni Center in Helsinki and the completion of Litpulaiva residential towers. On like-for-like basis, the net rental income grew 5.2% in the first three quarters of the year. As also discussed in detail in the Q1 and Q2 results presentations, we have been incurring one-time restructuring costs during the year. The total for the first three quarters was 7.2 million euros. In the third quarter, we also recognized a positive one-time contribution in our net financial expense coming from a beneficial hedging transaction which improves the earnings for the quarter. For EPRA earnings, we report 12.1 percent increase for the quarter and 7.8 year-to-date. However, it is important to note that many of the one-time items I mentioned above do affect the direct comparability to last year. On slide four, we show a more detailed breakdown of changes in the net rental income from last year to this year. Here you can see Shista contributing 4 million of net rental income in the third quarter and 8.2 million year-to-date. If we further look at the first three quarters, our like-for-like properties and redevelopment projects together added a total of 8.7 million euros of rental income compared to last year. This is essentially the organic growth coming from our existing asset base. Divestments had a minor negative impact, but this is expected to increase going forward as we keep executing our current divestment pipeline. Taking the effects together, the total increase in NRI before changes in FX was a total of 16.2 million euros year-to-date. Swedish and Norwegian groaners weakened somewhat during the third quarter and also during the year, resulting in a minor negative impact on NRI. Similarly, here on page five, we show the development of EBRA earnings. Over the first three quarters of the year, looking at the lower graph, we saw the 16.2 million positive NRI increase discussed in the previous page. Over the first three quarters, the total G&A costs were 3.1 million euros higher compared to last year. But notably, this includes the already mentioned 7.2 million reorganization and one-time items. So from run rate perspective, at the end of the quarter, we are running our G&A clearly lower compared to last year, working towards reaching our target, which is G&A run rate of 10% of NRI by the end of the year. In terms of net financial expenses, for the first three quarters, we reported 12.9 million increase compared to last year. This is partly due to higher interest rates on the refinance debt, but the majority of the increase is actually due to the consolidation of sister Galleria to our balance sheet. The effect comes from both including the refinance term loan from the JV and from no longer receiving interest income from the shareholder loans granted to the JV. Notably, for Q3, the increase in financial expenses was only €3.3 million, shown in the upper graph, as we benefited from a currency hedge put in place earlier in the year. The valuations of our investment properties benefited from the high cash flow growth as we recorded a further 14.7 million fair value gain in the third quarter. The valuation yields were stable, so the fair value increase follows from higher market rents as rent indexation continued. The total year-to-date change in fair values was 84 million euros, including the positive 46 million impact from Schister Galleria, booked in the first quarter. We did not undertake any major financing transactions during the third quarter of the year, so there are no larger changes in our maturity structure compared to Q2. Our weighted average maturity stood at 2.9 years at the quarter end, and our weighted average interest rate at 3.3%. We have a very strong liquidity position with 508 million total liquidity available, following from a slightly elevated cash position after receiving the sales proceeds from the Treconten divestment at the last day of the quarter. The share of secured loans from our total debt remains relatively low at 26%, so we still have further remaining capacity to access secured loan market if desired. And very importantly, we are retaining our BBB-investment grade rating from Standard & Poor's. As we have consistently communicated, keeping our investment grade rating is a key target for us, and Scott will talk more about what we are doing to safeguard the current rating. Our core credit metrics improved somewhat this quarter, with IFRS LTV standing at 47.5%, slightly down from the previous quarter. Net debt to EBITDA declined by almost one full turn from 11.2 to 10.4, as proceeds from the trade content sale reduced our net debt. The interest cover ratio declined slightly in the quarter, and the average interest rate remained practically flat from the second quarter. This completes my review of the third quarter financial result, so I will now hand over to Scott.

Thank you, Sakari. Good morning, everyone. It's nice to be with you. As Sakari mentioned, operational performance accelerated in Q3, continuing the trend throughout the year, resulting in a 13.7 percent total NRI increase against Q3 2023, and an 11.2% year-to-date total NRI increase with comparable FX rates compared to the previous year. The strong operational result is due in part to an increase in average rent per square meter, which rose 4.1% to 24.7 euros per square meter versus 23.7 euros per square meter last year. These results also include the acquisition of 100% of Shista and the divestments of two assets during the year. Further, retail occupancy grew slightly to 95.1% versus 94.9% last year. Leasing activity in our properties remains strong with 109,000 square meters of new leases signed this year. New major tenants open during the year include two supermarkets, a 7,300 square meter Prisma Grocery in Mermani and a Silver Grocery in Roca Almari, a Gym Fitness in Roca Almari, and the first Nike concept store in the Helsinki suburban area at Iso Omana. On the back of our operational performance, we saw a 14.7 million fair value gain in Q3 and an 84 million fair value gain year-to-date. Our year-to-date EPRA EPS and adjusted EPRA EPS results were 47.6 cents and 38.6 cents, respectively, compared to the previous year. One-time items impacting these figures include the executed divestments at Concentrate and Tricontin, also the 48 million euro share issue, the delayed consolidation of Shista by one month, and the delay of Barkaby-Handover as we are about to divest of this residential property. In addition, we had 7.2 million euros of reorganization costs, including severance. Currencies also impacted the results, but were offset by 2.7 million euros of gain on our hedging of the NOC. Our commitment to the investment-grade credit rating and strengthening the balance sheet remain key priorities for Citicon as we make continued progress growing our funds from operations and deleveraging the company. Our divestment criteria includes selling retail assets that are not in the capital cities, as well as non-retail development and properties where we have maximized the assets value. During the third quarter, the company completed the second divestment of the year at Trikanten in Norway, resulting in year-to-date divestments of 145 million euros. Additionally, in October, Citicon announced that it has signed an agreement to divest of Barkaby in Sweden. Our remaining divestment pipeline contains 400 million euros under LOI or advanced negotiations. As a result, we are confident that we will exceed the previously announced divestment target of 380 million euros by year end and are on track to achieve the 950 million euros as of year end 2025. And as a reminder, divestment proceeds will be used to pay down debt and improve our overall debt metrics. Moving into Q4 2024, we will accelerate the operational actions that we committed to at the beginning of the year, which includes reducing expenses to offset the increase in finance cost. We have completed the consolidation of corporate functions to ESA OMNA and the outsourcing of our accounting. In addition, we are planning to decentralize day-to-day decision making to the country level in order to improve results and to provide full P&L accountability to the teams. We believe pushing decision making closer to our consumer will generate the results we believe our properties are capable of. While our operating performance is consistent with the best performers of our peer group, We believe we have the opportunity to further accelerate this performance. Specifically, our occupancy cost ratios, or OCRs, continue to remain stubbornly low at 9.4%, providing at least 200 basis points of headroom based upon a study that we commissioned from Savills. We believe the pre-mentioned moves will enable us to capture additional rents and make significant headway in increasing these OCRs. These actions will also reduce our corporate overhead and contribute to meeting our targeted run rate GNA of approximately 20 million euros moving into 2025. Lastly, capital expenses have been reduced from 96 million euros to approximately 40 million euros this year. This reduction in capital spending will continue into next year with planned spending to be approximately 20 million euros. As a result of these results and our conviction on the strength of the business, we are raising the bottom end of our guidance range for EPRA EPS and adjusted EPRA EPS. So as a result, our new ranges are EPRA EPS between 61 and 63 cents and adjusted EPRA EPS between 47 and 49 cents. Having spent the last month scrubbing these numbers with our team, I believe this is conservative, but provides room for potential variables over the remainder of the year, including the timing of divestments and possible fluctuations in currencies. In closing, CityCon owns true fortress-like assets that are irreplaceable. Our real estate is located within the largest capital cities and combined with bulletproof merchandising of necessity goods and municipal services. They continue to generate strong performance with room for outsized rent growth given how advanced our divestment pipeline is will allow us to substantially improve our debt metrics as we pay down debt with the proceeds from these sales. Moving forward, we will further solidify our balance sheet while generating more production out of our remaining assets, ultimately positioning us for sustainable growth. Thank you.