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

Good morning, everyone, and welcome to Citycon's First 9 Months 2025 Results Audiocast. My name is Anni Torkko, and I work in the Investor Relations here at Citycon. Last night, we published our 9-month interim report. And in this audiocast, our CEO, Eshel Pesti, and our CFO, Eero Sihvonen, together with our incoming CFO, Hilik Attias, will present the results. Eshel will first go through our business and operational highlights. And after that, Eero, together with Hilik, will go through our financial results. Please, Eshel, go ahead.

Good morning, all of you. Thank you for coming to our quarterly report results. Our portfolio is including above 1 million square meter, 76% of that is retail, and then we have 187,000 square meters of office and storages and the rest is residential and hotels. We have 28 mixed necessity-based centers: 1 in Estonia, 9 here in Finland, 6 in Sweden, 10 in Norway and 2 in Denmark. We will go to the results now. We continue to deliver solid results, and it's clear that we are in the right direction of growth. Like-for-like NRI growth by 5.7%. The retail economic occupancy rate is 95.2%. The average rent per square meter is EUR 27.5 for the retail, and it's a growth of 2.7% in the last 9 months. The footfall grew by 1.5%. The like-for-like tenant sales grew by 1.4%. We gained in our valuation EUR 42.8 million in the last 9 months. The NRI margin is 94%. And here, we have the quarterly results. And you see that they are in the same direction. We have a growth of 6.8%. The retail economic occupancy is 95.2%. The average rent is EUR 27.5. The retail average rent grew by almost 4%. The footfall growing by almost 3%. The sales grew by 1.6%, and the valuation grew by 8.6%. NRI margin is 95%. Now, how the NRI divided the portfolio between the countries. So Norway contributes 3%; Sweden and Denmark, 4%; and Finland and Estonia, 8.4%. And our mix results is 5.7% growth. On the right side of the table, you can see the bar how the average rent per square meter growth in the last 12 months between the third quarter of '24 to the third quarter of '25, which is 2.7%, EUR 1. This is the detailed NRI bridge. I will pay your attention to the higher bar, which is the 9 months results. You can see that actually, we lost between the years EUR 15.2 million as a result of the asset that we sold last year. And we finished less than EUR 5 million, less than that number. And what is donating to the increase of the NRI is the like-for-like in the properties, which give us EUR 6.8 million and Kista that we purchased 50% is another EUR 1.5 million. And the redevelopment, especially in Rocca in Estonia, donate for us another EUR 1.3 million. And actually, this is the explanation for this bridge. Okay. Go ahead. From here, I want to actually give the floor to Eero, and I will use this opportunity to thank Eero on behalf of all the employees in Citycon and the Board member from the last 17 years. Eero print fingers, you can see all over the company. And I am privileged to work with him in the last, let's say, 1.5 months. And it's a secret asset that we have here in Citycon. And I will welcome Mr. Hilik Attias. He is qualified, he is experienced and the big advantage is he is young and motivated, and I'm sure that he will enter to Eero's shoes smoothly, and we will together take the company forward. So thank you, Eero, and the floor is yours.

Thank you, Eshel, first of all, for your kind words. And I have been honored and privileged to serve the company in this position now for a year again. And I'm sure that the company is in great hands with Eshel, taking into account his very good track record and his operational capabilities and Hilik, who brings with him a long experience in listed retail real estate and his particular knowledge on everything that has to do with treasury and financing. And on my behalf, I would like also to thank the shareholders and advisers and bankers and analysts for this period. And I'm sure that our paths will still cross because I will continue on the Board of Citycon and also for the next few months also as an adviser to the company. But back to the agenda -- of the daily agenda. And net rental income, first of all, as Eshel mentioned, we ended up at EUR 2.5 million below at EUR 52.2 million on a quarterly basis, which was actually a good achievement taking into account that we disposed assets. And as Eshel mentioned, it was a solid quarter operationally, and our rents continued to grow. We had like-for-like rental growth for the quarter of 6.8%, also a very solid number. And for the first 9 months, our like-for-like net rental income growth was 5.7%. Our operating profit for the first 9 months was actually very close to previous year's level, very close to '24 level due to the fact that last year, in '24, we had clearly bigger restructuring costs. The EPRA EPS, we generated EUR 0.13 for the quarter, which was very close or actually the same as last year. And EPRA EPS, excluding hybrid bond costs for the quarter was EUR 0.17 compared to the EUR 0.18 last year. And for the first 9 months, those numbers were EUR 0.33 for the first 9 months and EPRA EPS and EPRA EPS excluding hybrid bond costs EUR 0.47. Solid numbers altogether. Then about the more detailed EPRA earnings bridge. First of all, for the first 9 months, you can see that the net rental income was EUR 5.1 million below, but that was more than compensated on SG&A, which was lower by EUR 5.7 million for the first 9 months. But as mentioned, this number includes the quite substantial restructuring costs last year and this year, in '25, we have obviously and actually had clearly less of those. Then hybrid bond interests for the 9 months are higher now because we refinanced and exchanged our first hybrid as part of our balance sheet derisking and refinancing, which we have been quite active in doing. And we ended up at EUR 59.9 million as a total 9 months EPRA earnings. For the quarterly, net rental income was EUR 2.7 million below. But again, we need to keep in mind that we disposed assets in '24, and we had a strong rental growth during the quarter due to the good like-for-like performance. And the financial income and expenses were actually on a quarterly level, very close to previous year's level. Financial income and expenses was actually EUR 500,000 lower than last year and hybrid bond interest also. And these numbers demonstrate that we have quite well already absorbed much of the impact of the refinancing of the old legacy low coupon bonds. Then the next topic is the property valuation, and Q3, as per usual was an internal valuation quarter. We did receive and we asked, as usual, the opinion from our regular advisers, appraisers, JLL for Finland and Sweden, CBRE for Norway, Estonia and Denmark. We have their confirmation that there were, in their opinion, no substantial changes in the cap rates during the quarter. So we just updated our rent roll and OpEx for the calculations and the valuation ended up at a positive EUR 8.6 million for the quarter. And naturally, as we did not touch the cap rates, the average yield requirement stayed at 6.2% on average. Then briefly about the very proactive debt management that we have maintained under the entire '25. So we have completed a total of more than EUR 750 million of debt repayments and tenders. And all of these have one thing in common. We have refinanced the short-term maturing debt and extended the debt maturity and thereby derisk the balance sheet, and this is a work that I'm sure that will continue with at least the same activity by Hilik and his team going forward. During Q3, the most important achievement was the fact that we successfully refinanced and extended our revolving credit facility. We also increased that by EUR 50 million to EUR 250 million that is now completely undrawn, so provides additional liquidity and buffer for the years to come. And the maturity, as mentioned, was extended and is now maturing in '29 with a potential of 1-year extension until 2030. And here, I would like to thank our relationship banks for their very good cooperation and trust in the company in extending this facility. But like I said, the work will continue and the work will continue with my great successor, Hilik, and his team, and I wish Hilik all the success in his work. And over to you, Hilik, now.

Okay. Thank you, Eero, and a special big thanks for you for setting solid foundations. And I'm Hilik Attias. I'm the incoming CFO, and I'm happy to be here. I'm going to walk you through these next slides. So as of Q3 2025, our weighted average maturity was 3.7, and the weighted average interest rate is 4.04%. And it's worth mentioning that we have also EUR 9.2 billion of unencumbered assets and a strong covenant headroom that give us financial flexibility in the future. You could see in the debt amortization schedule that it's well staggered, and we are in the preparation of the upcoming bond maturities of EUR 300 million in September 2026 and January 2027. Our total available liquidity was EUR 278.7 million, and this is before the closing of the secured RCF, which was increased by EUR 50 million. As of our key credit metrics, as of Q3 2025, our loan-to-value was 46.9%. Our net debt-to-EBITDA was 9.6%. Our interest coverage ratio, 2.4% and our weighted average interest rate, 4.04%, as mentioned. And of course, we are in compliance with all of our covenants. As for the 2025 outlook, as usual, towards the year-end, we are narrowing the outlook range. And you can see that our updated outlook is EUR 0.41 to EUR 0.46 for the EPRA earnings per share and EUR 0.6 to EUR 0.65 for the EPRA earnings per share, excluding hybrids. And with that, I'll hand it over to Eshel to walk us through our way forward. Eshel, please?

Thank you, Hilik. Thank you, Eero. I will focus on the fourth quarter, what is our goals? We will be busy with budgeting and our operational assumption for the 2026 budget will be around 2 main components. The first one is the like-for-like net rental income growth, including especially leasing exceeding the CPI -- G&A, sorry, and optimization and operational cost reduction. On the financing side, we will focus to continue to be further strengthening and the re-risking of the balance sheet. I want to thank you all again for your patience, and we will especially not take live questions today in this audio as we, me and Hilik, are fresh and not be able to answer your serious question in a serious matter. So we promise you to do that in our next meeting. I wish you all the best. Thank you very much, and have a nice weekend.