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FINANCING IN CITYCON: IG CREDIT RATINGS AND UNSECURED DEBT WITH LONG - - PowerPoint PPT Presentation

21.8.2017 FINANCING IN CITYCON: IG CREDIT RATINGS AND UNSECURED DEBT WITH LONG MATURITIES SEB IG BOND SEMINAR 24 AUGUST 2017 BEN HELSING, GROUP TREASURER LEADING OWNER, MANAGER AND DEVELOPER OF SHOPPING CENTRES IN THE NORDICS AND BALTICS


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SLIDE 1

FINANCING IN CITYCON:

IG CREDIT RATINGS AND UNSECURED DEBT WITH LONG MATURITIES

SEB IG BOND SEMINAR 24 AUGUST 2017 BEN HELSING, GROUP TREASURER

21.8.2017

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SLIDE 2

Number of shopping centres

LEADING OWNER, MANAGER AND DEVELOPER OF SHOPPING CENTRES IN THE NORDICS AND BALTICS

9 19 19

2 1

NORWAY SWEDEN FINLAND ESTONIA DENMARK

– 50 shopping centres1) – 13 managed/rented assets – GLA 1.2 million sq.m. – 200 million visitors p.a. – Market cap EUR 2 billion – Credit ratings: Baa1 & BBB

Key figures 30 June 2017 2 1) Including Kista Galleria 2

Finland 36 % Norway 29% Sweden1) 28% Estonia and Denmark 7%

PORTFOLIO VALUE

5

EUR billion

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SLIDE 3

145 100 80 970 340 205 140 95 300 260 210 155 150 340 140 125 95 90

TRUE PAN-NORDIC LEADER

3

FINLAND ESTONIA SWEDEN NORWAY

Retail GLA (thousand sq.m.) SPONDA ELO KEVA IDEAPARK

ATRIUM LJUNGBERG

UNIBAIL- RODAMCO OLAV THON STEEN &STROM STEEN & STROM SALTO SCALA ASTRI LINSTOW

#1

#3 #2 #2

OLAV THON

Source: Company reports, Pangea Property Partners analysis, as per April 2017 and Finnish Shopping Centres 2017. Includes only majority-owned shopping centres. Includes some assumptions on retail proportion out of total GLA, where retail data not available.

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SLIDE 4

PURE RETAIL PLAYER FOCUSING ON NECESSITY-BASED SHOPPING CENTRES IN GROWING URBAN AREAS

4

MANAGE

  • Inhouse retail expertise

throughout the shopping centre value chain

  • 290 retail experts in 5 countries
  • Pan-Nordic approach with a

cross-border leasing team

DEVELOP

  • Improved commercial attractiveness and

competitiveness

  • Development investments of

MEUR 150-200 p.a.

  • Conservative pipeline focused on

(re)developments and extensions, no greenfield sites

  • 50% pre-leasing hurdle
  • Development investments <5% of total

assets

OWN

  • Strong portfolio of everyday

shopping centres

  • Located in growing urban areas in

Nordic and Baltic cities

  • Long-term investor
  • Located where people live and work

and integrated with public transportation

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SLIDE 5

90% OF CITYCON’S SHOPPING CENTRES ARE LOCATED IN CAPITAL OR MAIN CITIES

5 Note: Figures are for 2016

1) GLA updated as per April 2017 2) Kista Galleria (100%)

101,000 9 195

GLA, sq.m. Visitors, million Sales, MEUR

92,500 19 204 33,100 6 111 40,500 10 158 49,300 3 121

KISTA GALLERIA,

STOCKHOLM 2)

ISO OMENA,

HELSINKI AREA 1)

LILJEHOLMSTORGET GALLERIA, STOCKHOLM KOSKIKESKUS,

TAMPERE

HERKULES,

SKIEN

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SLIDE 6

GROCERY

anchored

FOOD

& beverage Health & beauty Entertainment & enjoyment Linked to public transport Municipal services

FASHION

Enriching

URBAN

crosspoints

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SLIDE 7

STRONG GROCERY-ANCHORING ‒ OVER 100 GROCERY STORES 1)

7 As per 31 December 2016

1) Including Kista Galleria (50%)

24% 24% 18% 13% 9% 9% 2% 1% Home and leisure Fashion Groceries Services and offices Health and beauty Cafés and restaurants Specialty stores Department stores

Rental income

269

MEUR

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SLIDE 8

CITYCON’S TRANSFORMATION 2011-2016: IMPROVED PORTFOLIO QUALITY

–More balanced Nordic portfolio, reduced Finnish exposure –Successful divestment of 49 assets (MEUR 350) –Improved occupancy to >96% and tenant diversification, e.g. Kesko 17%=>6.5% –Acceleration of urban developments c. MEUR 50 => MEUR 150 p.a.

8

Finland 37% Norway 28% Sweden1) 28% Estonia& Denmark 7%

5

EUR billion

Stronger property fundamentals

Finland 61% Sweden 28% Baltics 11%

2.5

EUR billion

19.7 22.8 2011 2016

AVERAGE RENT

32 84 2011 2016

AVERAGE VALUE OF PROPERTY

EUR/sq.m./mth MEUR

1) Including Kista Galleria 100%

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SLIDE 9

CLEAR FOCUS, EXCEPTIONAL PLATFORM, STRONG CAPITAL BASE

ROBUST BALANCE SHEET, MODERATE LTV AND ASSETS LARGELY UNENCUMBERED

– Committed to a LTV target of 40-45%

STABLE INVESTMENT GRADE RATINGS

– Moody’s: Baa1 (negative) – S&P: BBB (stable)

LEADING OPERATOR AND DEVELOPER OF NORDIC SHOPPING CENTRES

– Retail experts with €5bn portfolio of urban, grocery-anchored shopping centres close to transport links

and where people live and work

  • Strong pan-nordic asset portfolio brings stability and diversification
  • High credit rating in all operating countries

FOCUS ON AFFLUENT AND STABLE NORDIC COUNTRIES SUPPORTIVE SHAREHOLDERS AND ACCESS TO CAPITAL MARKETS

– Shareholder base of globally recognized real estate investors: Gazit-Globe (43.9%) and CPPIB (15.0%) – Demonstrated access to equity markets with approx. €1.3 billion in new equity raised since 2012 – Only (re)developments and extensions, no greenfield sites

EARNINGS GROWTH UNDERPINNED BY CONSERVATIVE DEVELOPMENT PIPELINE

– Consistently high occupancy levels around 96% with a 3.3 year average lease term and with top 5

tenants representing only 19.7% of rental income

– Track record of very low losses from tenant defaults – approximately €1-1.5m per annum

CONSISTENTLY HIGH OCCUPANCY LEVELS FROM DIVERSIFIED TENANT BASE BRINGS A STABLE CASH FLOW 2 3 4 5 6 1 7

9

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SLIDE 10

HIGHLIGHTS H1/2017

10

6.1% INCREASE IN EPRA EPS TO EUR 0.089

  • Overall net rental income growth and lower administrative expenses
  • Completed (re)development projects support earnings growth (e.g. Iso Omena and Myyrmanni)

POSITIVE LIKE-FOR-LIKE NET RENTAL INCOME

  • LFL NRI +1.6% including Kista Galleria (50%)
  • Strong performance in Sweden and Norway compensates for weaker Finland

FURTHER PORTFOLIO QUALITY UPGRADE

  • Divestment of six properties including building rights for MEUR 118 slightly above IFRS fair value

SUCCESSFUL SECOND PHASE OPENING IN ISO OMENA

  • Footfall +28% and turnover +24%

MORE POSITIVE OUTLOOK, GUIDANCE SPECIFIED

  • EPRA EPS EUR 0.165-0.175 (prev. 0.155-0.175)
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SLIDE 11

FINANCIAL HIGHLIGHTS

11

1) Change from previous year (Q1-Q4/2015)

MEUR Q1-Q4/2016 %1) H1/2017 %1) Net rental income 224.9 12.7 116.0 3.3 Direct operating profit 198.5 13.2 103.0 4.7 EPRA Earnings 151.1 15.5 79.2 6.1 EPRA EPS (basic) 0.170

  • 1.9

0.089 6.1 EPRA NAV per share 2.82 3.2 2.78

  • 0.6

Fair value change 25.92) 253.2

  • 8.4
  • Loan to Value (LTV), %

46.6

  • 47.3

4.1 Occupancy rate (economic), % 96.2 96.3

2) Excludes Kista Galleria fair value change + 11 MEUR (100%)

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SLIDE 12

Finland Norway Sweden Estonia & Denmark Total Kista Galleria Adjusted total*

LIKE-FOR-LIKE NET RENTAL INCOME GROWTH 1)

STRONG LIKE-FOR-LIKE NRI GROWTH IN SWEDEN AND NORWAY COMPENSATES FOR WEAKER FINLAND

–Strong shopping centres in the Helsinki area (Iso Omena, Myyrmanni, Lippulaiva) all out of the like-for-like portfolio due to (re)development projects –Like-for-like portfolio in Finland represents 37% of the total value

  • f the Finnish portfolio

12

1)Including Kista Galleria 50%. The adjusted total

including Kista Galleria 100% would be 1.7%. The width of each column refers to the weight

  • f the business unit in Citycon's portfolio.

8.8%

  • 7.2%

4.9%

  • 0.1%

1.5% 2.4% 1.6%

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SLIDE 13

…BUT NOW ALSO FINLAND FINALLY IS RECOVERING

–Finnish economy shows strong recovery (GDP forecast 2017: 2.5-3%) –Blackstone transaction when buying Sponda triggers unlocked shareholder value

13

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SLIDE 14

KEY TARGET AREAS 2017 AND ONWARDS

14

FURTHER CAPITAL RECYCLING

  • Divestments of MEUR 400-500 within the coming three years, of which half within the

coming 1.5 years. Mainly smaller, non-urban shopping centres in Finland and Norway.

  • MEUR 150-200 p.a. developments within the existing portfolio with an average YoC of 150

bps over yield requirement

  • Selective acquisitions

LONG-TERM LFL NRI GROWTH OF 100 BPS ABOVE INFLATION

  • Following completion of divestment plan

LOAN TO VALUE TARGET 40-45%

  • Recycling of capital
  • Selective joint venture opportunities
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SLIDE 15

URBAN DEVELOPMENTS PROGRESSING – SECOND PHASE OF ISO OMENA SUCCESSFULLY OPENED

15

City Area before/ after, sq.m. Expected investment, MEUR Cumulative investment, MEUR Yield on cost1), % Pre-leasing, % Completion target 1 Mölndal Galleria Gothenburg

  • /24,000

60.0 (120.0) 34.9 ~6.5-7.0 70 Q3/2018 2 Lippulaiva Helsinki area 19,200/44,100 215.0 36.5 ~6.5 55 2021 3 Iso Omena Helsinki area 63,300/101,000 270.0 269.5 ~6.0 Total SC: 98 Completed: Q2/2017

1) Expected stabilised yield (3rd year after completion). Calculated on total development costs, also including financing and Citycon internal costs.

ONGOING/COMPLETED PROJECTS 1 2 3

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SLIDE 16

DEVELOPMENT PIPELINE – URBAN LOCATIONS IN CAPITAL CITIES

16

City Area before/ after, sq.m. Expected investment, MEUR Target initiation/ completion

COMMITTED

Down Town Porsgrunn 38,000/46,000 75 2017/2020

PLANNED (UNCOMMITTED)

Tumba Centrum Stockholm 23,400/32,000 50 2018/2020 Kista Galleria Stockholm 92,500/111,000 801) 2019/2021 Oasen Bergen 31,300/43,300 80 2019/2021 Liljeholmstorget Galleria Stockholm 40,500/63,000 120 2020/2022 Trekanten Oslo 23,900/45,000 110 2020/2022

–Development investments of MEUR 150-200 p.a. sourced through capital recycling

1) Citycon’s share MEUR 40 (50%)

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SLIDE 17

DOWN TOWN – SHOPPING CENTRE EXTENSION IN THE HEART OF THE CITY BY THE RIVERSIDE

17

–Strong existing shopping centre of 24,000 sq.m. with an integrated bus terminal –(Re)development and extension of 9,000 sq.m. retail with more shopping, restaurants and cafés –Additional residential to be built –Total development investment of 75 MEUR

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SLIDE 18

ACQUISITION IN BERGEN – CREATING AN URBAN FLAGSHIP OF OASEN

18

–Sale and leaseback with insurance company Tryg (10 yrs contract) –Potential for retail extension 31,300 => 43,300 sq.m. and improved circulation –20,000 sq.m. resi potential –Urban area with strong demographics –New light rail in front of the centre

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SLIDE 19

PLANS FOR TREKANTEN: TRANSFORMING NEIGHBOURHOOD CENTRE INTO A CITYCON FLAGSHIP IN NORWAY

BEFORE AFTER

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SLIDE 20

FINANCING IN CITYCON: IG CREDIT RATINGS AND UNSECURED DEBT WITH LONG MATURITIES

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SLIDE 21

MAIN FINANCING TARGETS

–Loan to Value 40-45%

47.3%

–Average maturity of loan portfolio > 5 yrs

5.0

–Debt portfolio's hedge ratio 70-90%

86%

–Strong investment-grade credit ratings

BBB/Baa1

–Financing mainly unsecured

95%

–Substantial liquidity buffer

MEUR 565

  • Conservative business model matched

by conservative financing targets

✓ ✓ ✓ ✓

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SLIDE 22

FINANCING MILESTONES 2012-2017

Equity issues to finance acquisitions, strengthen balance sheet, enable IG credit ratings and cheaper financing

– 10/2012: EUR 90 million rights issue – 3/2013: EUR 200 million rights issue – strengthen balance sheet to enable IG credit ratings and

finance Kista Galleria

– 6/2014: EUR 200 million directed share issue – CPPIB becomes a 15% shareholder – 7/2014: EUR 200 million rights issue – deleveraging leads to credit rating upgrades – 7/2015: EUR 600 million rights issue – to finance EUR 1,500 million acquisition of Sektor

Gruppen in Norway

– 5/2013: S&P and Moody’s investment grade credit ratings as one of first Nordic real estate

companies

– 7/2014: Both upgraded with one notch to BBB (S&P) and Baa2 (Moody’s) – 1/2016: Moody’s upgrade to Baa1 following Sektor acquisition

Investment-grade credit rating acquired

22 – 12/2014: All remaining bank debt refinanced with EUR 500 million committed unsecured

syndicated revolving credit facility. Five Nordic banks, maturity 5+2Y. Margin 90 bps.

All bank debt refinanced to decrease financing costs and improve available liquidity

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SLIDE 23

FINANCING MILESTONES 2012-2017

Bond issues to lengthen average loan maturities and be less dependent on bank financing

23

Issued amount Interest, p.a. Spread Tenor Issue date

Eurobond EUR 350m 1.25% 100 BP 10 8/9/2016 Eurobond EUR 300m 2.375% 175 BP 7 16/9/2015 NOK bond NOK 1,400m 3.9% 183 BP 10 1/9/2015 NOK bond NOK 1,250m Nibor + 155 BP 155 BP 5.5 1/9/2015 Eurobond EUR 350m 2.50% 143 BP 10 1/10/2014 Eurobond EUR 500m 3.75% 245 BP 7 24/6/2013 Bond EUR 150m 4.25% 290 BP 5 11/5/2012

– 7/2017: Established a EUR 1,500 million multicurrency EMTN program. 8 Dealer banks. Same

covenant package and main terms as in outstanding bonds. Enables quicker bond issues and private placements. NOK bonds listed in Oslo, Eurobonds or SEK bonds listed in Ireland.

EMTN program

– 2015 : Increased limit of Finnish commercial paper program to EUR 400m. 4 Dealer banks. – 1/2017: Activated existing Swedish commercial paper program and increased limit to SEK

2,000m. 4 Dealer banks.

– 6/2017: Established a NOK commercial paper program. 4 Dealer banks.

Commercial paper programs

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SLIDE 24

CONTINUED DECREASED AVERAGE INTEREST RATE

24

4.25 % 4.12 % 3.28 % 3.04 % 2.86 % 2.58% 2012 2013 2014 2015 2016 H1/2017

WEIGHTED AVERAGE INTEREST RATE

54.5% 49.3% 38.6% 45.7% 46.6% 47.3% 2012 2013 2014 2015 2016 H1/2017

LOAN TO VALUE (LTV)

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SLIDE 25

STEADILY IMPROVED ICR

25

2.1x 2.4x 3.1x 3.8x 3.8x 2012 2013 2014 2015 2016 Years

INTEREST COVER RATIO

3.2 4.1 5.9 5.5 5.6 2012 2013 2014 2015 2016 Years

AVERAGE LOAN MATURITY

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SLIDE 26

BALANCED MATURITY PROFILE WITH LONG AVERAGE LOAN MATURITY

26

DEBT MATURITIES

3 104 235 113 388 31 500 131 300 350 146 350 315 50 100 150 200 250 300 350 400 450 500 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Loans Floating to fixed swaps Undrawn loan facilities Bonds Commercial Paper

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SLIDE 27

86% OF DEBT FIXED RATE, VAST MAJORITY BONDS

27

DEBT BREAKDOWN BY TYPE DEBT BREAKDOWN BY CURRENCY

Bonds 81% CP 14% Bank term loan 5% Other 0%

2,199.1

EUR million

EUR 54% NOK 26% SEK 20%

2,199.1

EUR million

Part of EUR debt has been converted to SEK and NOK using cross-currency swaps

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SLIDE 28

FINANCING KEY FIGURES

28 1) Including cross-currency swaps and interest rate swaps

30 JUN 2017 30 JUN 2016 31 DEC 2016 Interest bearing debt, fair value MEUR 2,199.1 2,055.5 2,191.5 Available liquidity MEUR 564.8 384.6 560.4 Average loan maturity years 5.0 5.0 5.6 Interest rate hedging ratio % 85.6 84.6 93.1 Weighted average interest rate1) % 2.58 3.02 2.86 Loan to Value (LTV) % 47.3 45.4 46.6 Financial covenant: Equity ratio (> 32.5%) % 46.8 48.5 47.3 Financial covenant: Interest cover ratio (> 1.8) % 3.8 3.6 3.8

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SLIDE 29

THE FIRST NORDIC LISTED REAL ESTATE COMPANY WITH INVESTMENT GRADE CREDIT RATINGS

–BBB rating with stable outlook affirmed on 2 June 2016

“Citycon's strong business risk profile reflects our view of the company's €4.7 billion portfolio of resilient retail property assets, diversified across the Nordic region”

Ratings confirm successful execution of strategy and stable business model

Baa1 BBB

–Baa1 rating was affirmed on 26 July 2017, but outlook was changed to negative due to leverage higher than target

“Citycon’s Baa1 long term issuer rating primarily reflects (i) its focus on urban, necessity-driven retail properties in strong and growing metropolitan locations in highly rated countries, (ii) the geographic diversification of its property portfolio across Finland, Norway and Sweden, (iii) its good market positions and franchise value in the Nordics’ shopping center market and (iv) a fully unencumbered asset base and good access to capital.”

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SLIDE 30

STRONG SUPPORTIVE SHAREHOLDERS AND DEMONSTRATED ACCESS TO EQUITY FINANCING

30

75 99 91 200 197 604 36 35 134 63 100 206 100 200 300 400 500 600 700 Aug-05 Oct-05 Apr-06 Feb-07 Oct-07 Sep-10 Jul-11 Sep-12 Mar-13 Jun-14 Jul-14 Jul-15 Capital Raised €M Rights Issue Directed Share Issue

–Citycon has raised more than €1.8bn of equity since 2005 in a series of rights issues and directed share issues to finance growth, strengthen balance sheet and enable investment grade credit ratings –7/2015: 604m€ rights issue to finance the acquisition of Sektor Gruppen in Norway –113% oversubscription of which 99.52% was covered by primary subscription rights –Two largest owners Gazit-Globe Ltd. and CPP Investment Board Europe gave subscription undertaking for the issue but this was not utilized due to oversubscription –Gazit-Globe has participated in all rights issue transactions

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SLIDE 31

THANK YOU.

citycon.com

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SLIDE 32

DISCLAIMER

32 This document and the information contained herein is strictly confidential and is being provided to you solely for your information. This document may not be retained by you and neither this document nor the information contained herein may be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. These materials do not constitute an offer or solicitation of an offer to buy securities anywhere in the world. No securities of Citycon Oyj (the “Company”) have been or will be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Certain ordinary shares of the Company have been offered to “qualified institutional buyers” (as such term is defined in Rule 144A (“Rule 144A”)) under the Securities Act, in transactions not involving a public offering within the meaning of the Securities Act. Accordingly, such shares are “restricted securities” within the meaning of Rule 144 and may not be resold or transferred in the United States, absent an exemption from SEC registration or an effective registration statement. There will be no public offering of the securities in the United States. Subject to certain exceptions, neither this document nor any part or copy of it may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States, or to any “U.S. Person” as that term is defined in Regulation S under the Securities Act. Neither this document nor any part or copy of it may be taken or transmitted into Australia, Canada or Japan, or distributed directly or indirectly in Canada or distributed or redistributed in Japan or to any resident thereof. Any failure to comply with this restriction may constitute a violation of U.S., Australian, Canadian or Japanese securities laws, as applicable. The distribution of this document in other jurisdictions may also be restricted by law, and persons into whose possession this document comes should inform themselves about, and

  • bserve, any such restrictions.

This document is not intended for potential investors and does not constitute or form part of any offer to sell or issue, or invitation to purchase or subscribe for, or any solicitation of any offer to purchase or subscribe for, any securities of the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision. No representation or warranty, express or implied, is made or given by or on behalf of the Citycon Oyj (the “Company”), or any of their respective members, directors, officers or employees or any other person as to, and no reliance should be placed upon, the accuracy, completeness or fairness of the information or opinions contained in this document or any other information discussed orally. None of the Company or any of their respective members, directors, officers or employees or any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. This presentation includes forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “may,” “plan,” “estimate,” “will,” “should,” “could,” “aim,” “target,” “might,” or, in each case, their negative, or similar expressions identify certain of these forward-looking statements. Others can be identified from the context in which the statements are made. By their nature forward-looking statements are subject to numerous assumptions, risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution presentation participants not to place undue reliance on the statements The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice. Such information and opinions have not been independently verified. By attending the presentation you agree to be bound by the foregoing limitations.