Nordic mall specialist Citycon is seeking to utilise space above and next to its shopping centres as part of an urban densification strategy.
Scott Ball, CEO of listed Nordic shopping specialist Citycon, says with a wry smile he never would have imagined ‘high fiving’ after reporting financial results such as like-for-like net rental income falling 4.7%.
But these are no ordinary times. Citycon, which owns 40 shopping centres across five countries, has suffered less than many of its European peers, and solid 1 January
to 30 September results are testament to that.
The former Starwood Capital retail expert left Chicago for Naples, Florida, and now resides in Stockholm, where he took the helm of Citycon in January 2019. But as he entered 2020, he could be forgiven for wanting to jump on a plane back to warmer Florida: he could not possibly have predicted the choppy seas he would have to navigate at the onset of Covid-19.
Nonetheless, running shopping centres anchored by necessity retail has turned out to be the stable ‘boring’ strategy that is suddenly seen as ‘sexy’, at least by analysts. And although the company certainly had to set about stabilising the balance sheet just in case, now all seems fine after a series of financing initiatives.
Underutilised space
So now that is secured, are there any sexier strategies to come? The answer is ‘yes’, to drive a strategy that is classic value creation, which is to utilise space above and next to shopping centres as part of an urban and transport node densification strategy.
Citycon has just begun briefing analysts and other real estate market participants about its plans to create value from leveraging 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 Ball told PropertyEU that Citycon is 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.
Building rights
The company believes that if Citycon sold just the building rights alone to all 22 locations, that would be worth €200 mln without any investment outlay, a figure that is currently not reflected in its books.
But Citycon is expected to pursue a mix of options including developing some projects itself or in partnership with other companies, which could generate much more value. Last year the company appointed a chief development officer, Erik Lennhammar, and it has been aggressively building an in-house development team for some time.
Citycon’s boss said in some instances, municipalities – to whom it already leases premises – were actually asking the company to develop larger schemes than it had initially contemplated. It is quite far along in talks in several cities, he added.
Citycon owns 12 shopping centres in Finland and Estonia, 17 in Norway, and 11 in Sweden and Denmark. It also leases and manages seven centres in Norway on behalf of other owners. Its assets are urban and located at transport hubs, making them 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 company, which is listed on the Nasdaq Helsinki stock exchange, began to provide more detailed data points to analysts, investors, and bondholders in Q3, including during an Investors Day in November. The rationale behind the mixed-use strategy is that it would not only create additional value for the company’s €4.4 bn grocery-led retail property portfolio and
diversify revenue stream, but 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. Rent collection stands at 94%. Fashion accounts for just 25% of the retail offering. Throughout the year, the group, which is 48.9% owned by Israel’s Gazit-Globe, has taken measures to bolster its balance sheet, tapping bonds, repaying debt, and securing a new €500 mln revolving credit facility.
