Citycon, the listed Nordic retail property specialist with a portfolio of 40 shopping centres across five countries worth €4.4 bn, is planning to create value from underutilised space at 22 of its locations.
If successful, the company could see its Gross Leasable Area (GLA) for retail space drop from 82% to 65% as the company becomes more of a mixed-use real estate owner.
CEO Scott Ball told PropertyEU that Citycon had started to brief investors and analysts on the strategy. It is also engaged with a number of municipalities and operating partners about potential developments.
Opportunities focus on developing office and residential space using air rights above its retail centres or space on land adjacent to them.
The company believes that if Citycon sold just the building rights alone to all 22 locations, it would be worth €200 mln without any investment outlay, a figure that is not currently reflected in the company’s books.
But Citycon is expected to pursue a mix of options including developing some projects itself or in JV with other companies, which could generate much more value.
Last year the company appointed a head of development and has been aggressively building an in-house development team.
Citycon’s boss said in some instances, municipalities – to whom it already leases premises - were actually asking Citycon to develop larger schemes than the company initially contemplated. It is quite far along in talks in several cities, he added.
Citycon owns 12 centres in Finland and Estonia, 17 in Norway, and 11 in Sweden and Denmark. It also leases and manages 7 centres in Norway on behalf of other owners.
Its assets are urban and located at transport hubs making it perfect for living and office space. Instead of competing with retail use, people living and working nearby should be accretive in terms of footfall and retail spend. The thesis is that if and urban transport hubs and indeed whole citiers are densifying, then why shouldn't Citycon densify its sites?
The company began to provide more detailed data points to analysts, investors, and bondholders in Q3 including during an Investors Day in November.
Not only would the company create additional value for its €4.4 bn grocery-led retail property portfolio and diversify its revenue stream, it might also favourably affect the way investors value the company.
Citycon has not suffered as much as many public property companies that focus on retail, not least because its centres were not shut down. The share price has fallen from around €10 before the pandemic to €8.
Like-for-like sales are down 4% year-on-year. Rent collection stands at 94%. Most of the value derives from necessity retail. Fashion accounts for 25%.
Throughout the year, the group has taken measures to bolster its balance sheet, tapping bonds, repaying some debt, and securing a new €500 mln revolving credit facility.
Citycon is 48.9% owned by Israel’s Gazit-Globe Ltd and 15% by CPP Investment Board.
Ilmarinen Mutual Pension Insurance Company owns 7%.
Other shareholders include The State Pension Fund, Elo Mutual Pension Insurance Company, OP-Henkivakuutus Ltd., and Pakkanen Mikko Pertti Juhani.
It is listed on the Nasdaq Helsinki stock exchange and remains a member for EPRA. Ball also sits on the board.
Ball joined as CEO in November 2018 having been president and COO of Starwood Retail Partners, which owned numerous retail assets in North America.
*For an in-depth look at how retail propety companies are faring, check out the forthcoming December 2020 issue of PropertyEU
