Citycon buys Norwegian shopping centre owner Sektor Gruppen

Helsinki-listed Citycon has acquired Sektor Gruppen, Norway’s second-largest shopping centre owner and manager, in a move that will make it the largest listed shopping centre specialist in the Nordics and the third-largest listed mall operator in continental Europe.

The €1.5 bn acquisition - by far the largest property deal in the Nordics so far this year and the largest property transaction in Norway ever – will give Citycon exposure to the strong Norwegian market and other parts of the Nordic region, the company said in a press release. The takeover will lift Citycon’s gross asset value (GAV) by nearly 50%, from €3.4 bn to € 4.9 bn, it said.

In a reaction, Citycon’s CEO Marcel Kokkeel said he was ‘very excited’ about the acquisition, which, he noted, completes Citycon’s Nordic presence. ‘The transaction is a defining step forward in our goal to be the household name for Nordic and Baltic shopping centres. Sektor represents a perfect strategic fit for us, being recognised as a quality organisation with an impressive track record, good assets and experienced management,’ he added.

Following the deal, Citycon will own 55 shopping centres in the Nordic countries and Estonia and increase its total annual footfall from 150 million to over 200 million and total gross leasable area (GLA) from 1.0 million m2 to 1.4 million m2. Previously the company had 35 centres in the Nordics but no presence at all in Norway.

Strategic fit
Sektor Gruppen is ‘an excellent strategic fit’ with a portfolio of quality urban grocery-anchored shopping centres in locations with strong demographics, Kokkeel said. ‘This deal gives us immediate critical mass in the country which is one of the fastest growing and wealthiest economies in Europe.’

Oslo-based Sektor Gruppen is owned by three Norwegian entities: Joh Handel Eiendom 1, Varner Invest and K&S Holding. Commenting on the takeover, the company’s CEO Eirik Thrygg said he was 'happy' to gain an owner with strong retail real estate experience and a long-term vision and investment horizon. ‘Integrating Citycon’s wide experience, financial strength and strong management with ours will provide the optimum conditions for further growth and development, while creating scale advantages and synergies.’

In total, Sektor’s portfolio comprises 34 shopping centres, of which 20 are fully or majority-owned, four are minority-owned, two rented and eight managed. The bulk – or 95% - of the centres are located in Norway’s three main economic hubs: the Oslo, Bergen and Stavanger regions.

Rights issue
The acquisition price of €1.47 bn reflects a net initial property yield of approximately 5.2% and the transaction is expected to be accretive to earnings per share as of 2016, Kokkeel said. He added that synergies stemming from the acquisition should add another 20 basis points to the net initial yield by 1 January 2016, bringing the total to 5.4%.

Citycon aims to finance the acquisition through a rights issue of approximately €600 mln to the company’s existing shareholders. Citycon’s two largest shareholders, Gazit-Globe and Canada Pension Plan Investment Board (CPPIB), are supportive of the transaction and have committed to pro-rata undertakings in the rights issue.

The acquisition will lead to a ‘material increase’ in the number of shares and the larger asset base will improve Citycon’s market visibility and financing options, Kokkeel said. ‘Our target is to maintain a strong financial profile with leverage of 40-45% Loan to Value (LTV), a conservative level in the Nordic perspective,’ he added.

On 31 March 2015, Israeli- and US-based Gazit-Globe held 42.8% of the total shares in the company. Other major shareholders include Canada's CPPIB which held a 15% stake in Citycon as of 30 April 2015, and Finland’s Ilmarinen Mutual Pension Insurance Company, which held a 7% stake on the same date.

SEB, JP Morgan and Pangea Property Partners are advising Citycon.

On the Helsinki stock exchange, Citycon shares shed 1.81% on the news on Monday.