Citycon Oyj (TY2B.F) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Citycon's Half Yearly 2025 Results Audiocast. My name is Anni Torkko, and I work as the Investor Relations Manager here at Citycon. Last night, we published our half yearly report. And in this audiocast, our CEO, Oleg Zaslavsky; and CFO, Eero Sihvonen, will present the results. We will start by Oleg going through our business and operational highlights. After that, Eero will go through our financial results. After the presentations, we will be opening the line for questions from the audience. Please, Oleg.

Thank you, Anni. Good morning, and thank you all for joining today's call. We just closed the first half of 2025 with solid momentum and continue to deliver stable operational results. In the period, we achieved 5.2% of NRI growth -- like-for-like NRI growth, while maintaining high retail occupancy at the level of 95%. We also saw modest improvement but stable improvement in like-for-like tenant sales and footfall, which underlines the continued resilience of our necessity-based retail centers. As you can see, our NRI growth came from all our segments and end markets with Finland and Estonia leading the way with impressive 7.6%. Our average rent per square meter grew 3% to EUR 25.8 per square meter. During the quarter, we performed external valuations of approximately 92% of our portfolio, covering all assets in Finland, Sweden and Norway. The result was EUR 34.3 million net fair value gain, primarily driven by improved cash flow in our key assets. We see in this fair value gain a beginning of the stabilization and our asset values and hope for the beginning of the rebound in asset values in the future. During the first half of the year, we also continued to manage our debt. In 6 months, we repaid effectively over EUR 750 million of debt, including loans and debt. We will continue further to repay our debt and strengthen our balance sheet. As a result of new green bond issued in April 2025, EUR 400 million bond, our financial cost increased during the period. But despite the increase in financial cost, we would like to reaffirm our guidance for full year 2025 at the level of between EUR 0.41 to EUR 0.50 for EPRA earnings per share and between EUR 0.60 to EUR 0.69 for EPRA earnings per share, excluding hybrid bond interest. Thank you. And with this, I would like to transfer the stage to Eero to guide you through the details of our financial performance.

Yes. Thank you, Oleg, and good morning, everybody. I will start with highlights of the quarter and the year so far. So we had a net rental income of EUR 53.3 million for the quarter, which was EUR 1.4 million below previous year's second quarter. And we had EPRA earnings of EUR 17.5 million compared to EUR 25.3 million 1 year ago, i.e., EUR 7.8 million less. And I will now explain the main points and main differences between the 2 years and 2 quarters. And turning over to detailed net rental income bridge for the quarter. As mentioned, our quarterly -- on a quarterly basis, we had EUR 1.4 million less net rental income, but actually, that was a good achievement, taking into the account that we had disposals of EUR 5.3 million, and that was largely compensated by a good performance in our existing like-for-like properties. We had, on a quarterly basis, 6.8% like-for-like improvement of our net rental income. And also, if we look at the first 6 months in the -- on the bottom of this page, where we had disposals impacting negatively by EUR 10.5 million. We had a positive input from the like-for-like properties of EUR 4.2 million, i.e., approximately 5.2% like-for-like for the first 6 months. And as a result, our net rental income came down only EUR 2.3 million despite the disposals. If we then have a look at the EPRA earnings and nowadays, of course, the EPRA earnings are after hybrid costs. The impact is bigger due to the fact that we refinanced our -- part of our hybrid stack. The first hybrid bond was refinanced in the beginning of '24, and the impact of that on a quarterly basis is approximately EUR 2 million. And we had quite substantial savings in SG&A. And the impact of other financing apart from hybrid was EUR 1.2 million negative on a quarterly basis and EUR 2.8 million on like a 6-monthly basis. So these numbers are quite modest taking into the account that we have achieved a very substantial derisking of the balance sheet, which I will come back in a while. And we have refinanced a lot of legacy bonds, which were at a quite low historical levels. So taking all of this on board, it was a good quarter and good first 6 months. Then turning over to property valuation and the EPRA per share. One of the highlights of the quarter and in my opinion, one of the most important highlights was the fact that we conducted essentially a full external valuation. And I say essentially because not exactly everything was externally appraised, but approximately 92% of our properties were externally appraised by our regular appraisers. JLL appraised all of our Finnish and Swedish assets and CBRE appraised all of our Norwegian assets. And we have reason to be, as management, positive about the valuation cycle. And currently, at least, we believe that the trough in valuation also here in the Nordics was reached about the end of last year. And our valuation result is full external valuation resulted in a gain of EUR 33.5 million. Some components of the positive valuation were cap rate reduction of approximately 10 basis points in Norway -- essentially in all Norwegian properties. And we also feel that appraisers view on the growth prospects in -- particularly in the Swedish centers has improved. And also, of course, we have managed ourselves as a company to keep the cash flows at a strong level and improve the valuation also via that. Our net -- our EPRA NRV also improved compared to previous quarter, so pretty much driven by the positive valuation. So that was an additional highlight. Then turning over to the debt management. Proactive debt management as the derisking and improving the balance sheet has been the top -- one of the top priorities of the management, and we have been extremely active in improving the balance sheet. We issued very successfully the EUR 450 million new green bond in April, which was like 6x oversubscribed. We proactively repaid shortest maturing bonds, i.e., this September '26 bond was tendered back in April immediately. Then the other theme apart from repaying shortest maturing bonds has been to prepay secured debt and thereby also improving our unsecured to secured mix. I will come back to that in a while. And we prepaid EUR 186 million of a secured loan maturing in '29 and EUR 100 million of secured bank loan maturing in April 2027. And then in June, conducted a further EUR 100 million tender of January '27 bond, all serving the same purpose, i.e., derisking the balance sheet and improving the balance sheet. And this all can be seen here in graphical form. So we have quite modest near-term maturing debt remaining like this EUR 150 million maturing in '26 and EUR 142 million maturing in '27. And in general, our debt structure looks very well laddered now. And additionally, we have a very small pool of secured debt, i.e., approximately 5%, and this gives us a very good additional financing opportunities, should the bond market for whatever reason not work particularly well for the period of time. So we have a very large unencumbered asset pool right now. The key credit metrics can be seen here. Actually, the loan-to-value improved. Interest cover ratio slightly improved despite the fact that the weighted average interest rate did increase, and that is naturally due to the fact that we have been repaying older cheaper bonds and at the same time, improved the balance sheet and derisk the balance sheet. This is all from me. Back to you, Anni. Thank you.

Thank you, Oleg and Eero for the presentations. In our audiocast invitation, we presented the opportunity to share questions in advance to our Investor Relations e-mail address. Next, I will present the questions to Oleg and Eero. And after these questions, we will open the line for the audience. We received questions around the share buyback and hybrid bond repurchases. First question, will Citycon continue the share buyback program? And the second question, will Citycon consider repurchasing hybrid bonds? Please, Oleg and Eero.

Maybe let me start with the share buyback and then Eero will answer on hybrid bonds. We completed our share buyback program recently with quite a low amount of shares being bought. We do believe that our share price is lower, and we continue to evaluate with our Board additional programs from time to time. No decision has been made as of today, but we will continue to discuss it with this Board, and we'll continue to evaluate it. Option is not off the table. What and if and when, as I said, we will continue the discussion and the moment we will reach any decision, of course, we will inform on terms of condition of the new share buyback, if this will be decided.

Yes. And we will naturally -- we have been very active in balance sheet management. And like I said, this has been a top priority by management. And of course, we don't comment what exact transactions or activities we will conduct in the future, but I think it's fair to assume that management will continue to have the balance sheet management and debt management as a top priority.

Perfect. Thank you for your answers. And next, we will open the line for questions from the audience.

[Operator Instructions] The next question comes from Ventsi Iliev from Kempen.

First one on the guidance. Of course, you do have a very wide guidance. If we look at your EPRA EPS of the first half, it's a bit below the lower end. So my question is, are you still confident that you can reach the top end by the end of the year? And second one on the like-for-like, especially Finland and Estonia is quite strong, as you said. Can you share a bit more on the moving parts there?

If I take the guidance first and Oleg takes the second part. So yes, thank you for the question. Of course, naturally, the company thinks that we will be within the guidance. And if we would not be within the guidance, we would have changed it or made some other activities. And I think that you are correct in alluding to that based on the first 6 monthly results, we are not very close to the top end. And I -- but we are within the guidance. That is my main message.

Now coming back to the second question, NOI improvement in Finland and Estonia. It resulted from a couple of measures. First of all, there is an indexation. But if you compare it to other territories, indexation was pretty similar in all our segments. Difference in Finland and Estonia, we will be able to increase our rent and to reach positive leasing spreads for some of the tenants and new tenants. And in addition, and this is probably the difference between other territories, we see better result from our cost saving measures. All those factors resulted in the significant growth of 7.6% in NOI in the region.

Okay. Maybe just a follow-up on that. If I look at the table you printed on Page 5, we have income growth of EUR 4.2 million on a net basis, only EUR 0.9 million on a gross basis. So this reads as if it's really more an NOI margin improvement. So as you said, cost savings. Are there perhaps also some one-offs...

Significant part of this, yes -- please continue.

Sorry. So are there perhaps any one-offs in there? Because also, if you look at your NOI, it's EUR 95 million. I think that's probably a record for Citycon. So is this a normal NOI margin I should expect going forward?

For this region, yes, we believe that cost saving measures we implied are sustainable. We don't see any significant one-off there. This being said, part of our cost is, of course, energy cost, which might fluctuate significantly. Putting energy aside, energy cost and energy consumption, we don't see any significant one-offs there.

Maybe I can just add that the operational teams have been very active in tendering, and we have reached certain cost savings by tendering. But also, of course, the price of electricity and heating and others have been favoring us recently.

The next question comes from Michael Chakardjian from BNP Paribas.

I noticed that you moved EUR 67.4 million of assets from the available for sale basically back into noncurrent and you only have 13.7 million in available for sale. Is this an indication that you're moving away from wanting to sell assets? That would be my first question.

No. First of all, we are not moving away from our intention to sell assets. We continue our effort. If we talk about the specific deal, the deal was close to signing, but the potential buyer walked away from the deal at the last moment. Therefore, we removed it from the list. We still have intention to sell. However, IFRS requirements for asset held for sale are quite strict. And since the potential buyer walked away, we removed it from the held-for-sale assets. It's still on a sale asset and our -- on a sale asset list, and our intention is still to sell this and -- as other assets.

Perfect. Very clear. Can I confirm how much shares have you bought back in the entirety of the share buyback program?

Can you help me with this number...

It was a EUR 45.6 million program.

It was around 700,000 shares.

Yes, 694,000 exactly, if I remember, if my memory is correct...

694,000 shares? Okay. And then can I ask then -- I've seen your press releases from November and I think from like a few months ago about your main shareholder pledging a significant number of its shares. I think it's around 60% of its shares and 30% of all of Citycon shares as collateral elsewhere. Can you give us any indication on why he's doing that? Are these margin loans? And how are those -- basically, I really want to know is like will -- what's the risk of him wanting to then being forced to sell that significant amount of shares and also given the fact that he is the Chairman of your company?

I understand the question, I understand the concern. However, it's, let me put it this way, matters and business of our main shareholder. We don't possess in this information, and we don't actually share information about the business of our main shareholders, is not shared with us, and it's a separately managed company. So if there are any questions to matters related to the main shareholder, I suggest to address it to the main shareholders with an investment relation. And also, I would like to remind you, it's also a public company, so filings and information is available.

Okay. I understand it's sensitive. My last question is, I mean, now that you -- at the issuer level, you have been junked. Do you consider it as an option on the table that you could extend the hybrid because you wouldn't be losing equity credit if you did and it would -- it could be -- it could help with the ICR?

Yes. Just to remind that still as like an instrument level, we are -- our bonds are trading at -- senior bonds are trading at BBB-. And it's -- sorry, it was a little bit like a surprise to us that there is this opportunity, which you referred to, i.e., non-calling, could it be possible with 5 years more equity credit. But it is too early to comment whether that would be the avenue that we would be choosing. But we will, in due course, analyze all options, including non-call and a refinance, i.e., exchange. Those are...

Okay. Makes sense. So just to summarize, extending is an option, but not something which you need to think about further into the future?

Right.

Okay, clear.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you, everyone, for attending the audiocast, and have a good day.

Thank you.