Good morning, everyone, and welcome to Citicom's First Quarter twenty twenty one Result Audiocast. We have today published our results for the first quarter, and those can be found from our webpage under Investors section. My name is Laura Jaujianen. I'm the Vice President for Strategy and Investor Relations. And together here with me, as usual, we have our CEO, Mr.
Scott Paul and our CFO and Executive Vice President, Mr. Heros Sigmonen. Scott and Heros will give you a presentation of the first quarter results and the main events of the quarter. And you will have a chance to ask questions in the Q and A session after the presentation. Scott, please go ahead.
Thank you, and good morning, everyone. We're pleased to present CityCon's Q1 results. I'll start with a summary of Q1 results and the highlights of the year, then Eero will go through CityCom's financial overview and where we stand now at the beginning of the new financial year. I will end with a review of some of the main events of the quarter and our strategic focus areas. Citycom's outperformance relative to peers continued in Q1 with stable financial and operational results and growth quarter over quarter.
NRI for the period was €50,400,000 which is 3.8% behind pre COVID Q1 twenty twenty. While NRI is slightly lower compared to that pre pandemic quarter, it's informative that it grew from the previous quarter. Operating profit of EUR44.9 million also exceeded the previous quarter, but was, however, down 2.9% compared to last year. Rent collection for the quarter stands at 92%. We are expecting final collection figures to be higher as payments have lagged in some of the countries that had stricter regulations.
Valuations increased in Q1, supported by strong leasing activity with rental growth. I'd like to also mention, if you haven't seen it, I would highly recommend taking a peek at the Green Street paper, which talked about which talks about what's happening with valuations in the European markets. Think it's very well done. Successful divestment of our noncore assets with pricing, which validated the value and liquidity of Citicom's portfolio also occurred. Administrative expenses declined by 13% year over year as a result of our cost management.
All in all, Q1 'twenty one financial performance was in line with our expectations and tracks our full year guidance. Also, our operational performance continued to be strong. Leasing developed favorably, and the number of signed leases grew from 50,000 square meters last year to 64,000 square meters in the first quarter of this year. Furthermore, the average rent of both signed leases and the whole portfolio increased. Tenant sales were resilient.
Total sales declined by 4.7%. Footfall declined for the quarter, but in April has been significantly stronger than in 2020 when the pandemic hit last year. This stable performance reflects the strength of Citicom's strategy, which is based on having a large share of necessity tenants and locations and densely populated markets. The stability of The Nordics as an operating environment is another key factor underlying the stability of the results. As you will see later in the presentation, the outlook for the region continues to be positive.
On the financing side, we successfully issued a green bond of €350,000,000 with significant demand and an order book close to 5x oversubscribed. The pricing of the issue was highly attractive with a coupon of 1.625, which was the second best in the company's history. The transaction was part of our planned refinancing program. And I'd like to point out, Citicom's bond spreads significantly tightened in Q1 and have returned to a pre COVID level as a result of our strong operational performance. We also continued our capital recycling by divesting three lower tier noncore assets in the Stockholm area.
Portfolio was priced at €147,000,000 These transactions demonstrate the reduced risk profile of Citicom and reflect the investor appetite for Nordic real estate assets. As you can see from these statistics provided by the IMF, the operating environment in The Nordics continues to support our business. The Nordics are expected to clearly outperform the Eurozone in 'twenty one in the most important metrics describing the economic environment and forced forecasting consumer purchase behavior. The strength of the region is reflected also in the transaction market and yield development. Our strategy of having a large share of necessity in municipal tenants adds to the resilience of our portfolio and brings stability to business and cash flows.
Over 35% of our GRI comes from stable necessity tenants and a small portion, only 5% of leases are turnover based. We do not see this growing. I should also point out that 92% of our leases are tied to indexation, thus providing a hedge against inflation. The public sector is a growing part of our business. Currently, public sector and health account for 8% of our contracted GLA with strong credit behind these leases.
We will continue to increase this proportion of public services even further. As mentioned previously, tenant sales were relatively resilient. Total tenant sales were down 4.7% compared to the same period last year. Footfall dropped following government restrictions in some of the operating countries. Tenant sales again were less affected because of 22% higher average customer purchase during their visits.
The relatively strong sales figures reflect our tenant mix and the strong and stable demand for the goods and services provided in our centers. Leasing activity was clearly ahead of Q1 twenty twenty, which I would remind was a record year for us, and we saw rents increase on average per price per square meter. 64,000 square meters of leases were signed in Q1 compared to 57,000 square meters last year. The average rent of both signed leases and whole portfolio increased as a result of active leasing strategy, which is an important leading indicator for future results. Quarter over quarter growth was highlighted in several key metrics.
NRI, operating profit and fair value changes all increased from Q4 of last year. I will now hand it over to Eero, who will give a more thorough review of our financial development.
Thank you, Scott. I will begin with Q1 financials. And like Scott said already, we had a good start to the year. And we need to keep in mind that comparing twenty one Q1 over the Q1 in 2020, we are comparing ourselves to the pre pandemic period, because actually the pandemic started in this region only during the latter March in 2020, I. E, most of Q1 twenty twenty was prior to pandemic.
On net rental income level, we were actually, I would say, only €2,000,000 below previous year's Q1 level. And on direct operating profit level, actually only €1,300,000 below. And direct operating profit was relatively was actually less behind due to the fact that we had a substantial saving in SG and A costs, I. E, our SG and A costs were approximately €800,000 below last year's level. And correspondingly, our EPRA EPS basic indeed up at €0.178 which is 9% below previous year's Q1 level.
Also, our net rent also, our net reinstatement value, which corresponds to the former NAV, improved. So that was also a very positive thing. Then continuing with exchange rates. And we had a positive quarter for the Scandi currencies, particularly Norwegian krone strengthened quite substantially. And as a result, our net rental income had an impact of €900,000 approximately due to the fact that Norwegian krone was stronger.
Also, we had a translation gain of approximately €36,000,000 due to the mainly due to the strong NOK. Then there are a couple of net rental income bridges. First of all, the regular Q1 compared to the previous Q1 in 2020. And here, you can see that we naturally had a slightly negative like for like compared to previous year, although I would have to say that probably this negative like for like is going to be the lowest in Europe compared to our peers. So we will most likely be better than all of the peers also in that respect.
And as mentioned, the foreign exchange had a positive impact of €900,000 and this other line includes certain other smaller items as well. Then the next bridge is the COVID bridge, and we have tried to be as specific as we can, and we have allocated the impacts of COVID to every single line item. And the total impact of COVID on our net rental income for the first quarter was 2,700,000 and this clearly shows that actually excluding the impact of COVID, Q1 twenty twenty one was better than previous year's Q1. Then turning over to the fair value changes. And as Scott mentioned, we had a positive quarter on fair value changes and did record 8,500,000 fair value gains, mostly coming from the positive leasing and slightly positive market rent development.
So happy to report a positive valuation change. Then the next is the EPRA net reinstatement value. And again, like mentioned, we had a positive development there and had to do partially on the positive valuations and also the translation gains. So we used to have €11.48 and that was improved increased to 11.58 Then the main financing metrics. We issued a bond very successfully during the quarter, and the proceeds were used towards debt towards refinancing and repaying other debt.
And as a result, all of our financing is now on an unsecured basis. We paid down our secured revolver, so zero outstandings under revolver. And also, we extended, as a result, the average maturity of the loan portfolio to four point five years. And key financing figures can be seen here. And loan to value improved and ended up at 46.5%.
We had probably also record liquidity following the bond issue and following other positive developments, and we had like €564,000,000 liquidity available, including the entire revolving credit facility of €500,000,000 which was totally undrawn. And we continue to have ample headroom under all of our covenants. Relating to the bond markets, we are now back to the pre COVID levels when it comes to our bond spreads. And the bond markets, in general, are performing very well in Europe, and that was demonstrated by the fact that we were able to raise the recent seven year bond financing at 1.625 fixed coupon, which is the next topic here. So we issued on actually on March 4, a €350,000,000 green bond, which was oversubscribed substantially oversubscribed actually and had one of the lowest new issue premiums in any European bond issue, actually a negative new issue premium.
And as mentioned, we used all of the proceeds to finance and refinance eligible green assets and projects, I. E, this was a green bond as most of our financings nowadays are. And we also tendered another bond maturing in 2022 and received €93,000,000 out of that. And our liquidity position is very good. And as mentioned, all of the €500,000,000 credit facility is unutilized and undrawn.
And together, we had like €564,000,000 of available liquidity. At that time, we had approximately €94,000,000 of commercial paper outstanding. And as you will be able to see, we had a little bit higher cash than normally, and some of that cash after the period has been further used to pay down commercial paper. So actually now the outstandings are even lower than this shows. And then finally, the outlook, and we have decided to keep the outlook unchanged, and we are well within the guidance.
And like Scott mentioned, our Q1 is tracking well the guidance, so we will revert back to the topic of guidance in Q2. But as mentioned, we the guidance remains unchanged. And back to you, Scott.
Thank you, Aero. As you can see, the finance team had a busy quarter and a very successful quarter. As many of you know, our strategy includes a stable core business partnered with attractive growth opportunities to have clear synergies with our business. We have assets in prime locations, which are located in the top two cities in each country with strong urbanization and direct connection to public transportation. The tenant mix is primarily necessity goods and services layered with a growing share of municipal tenants.
On top of the stable assets, the densification plans associated with our assets provide significant growth potential. This entails developing new residential, office and municipal service space adjacent to our existing assets. We also have strong social and community relationships, which makes us the preferred partner for municipalities to develop these areas around our assets. As a result of capitalizing on the growth potential, we envision that the future share of non necessity retail will be around 40% compared to the current level of 60%. We intend to shift the portfolio composition further towards mixed use through capitalizing on the densification potential around our existing assets.
As mentioned, this would be complemented with making selective disposals of noncore assets. In the future portfolio, at least 20% of the portfolio would be necessity based. Participating in densification will increase GLA and create synergies with retail assets. Furthermore, transformation of the portfolio brings diversification benefits that increase the stability of cash flow and reduce the risk profile even further. It is important to highlight that much of the value creation from densification starts in the zoning phase once sellable building rights are received and prior to potential CapEx outlays.
As previously mentioned, these building rights before any construction create an additional EUR200 million of value for CityCon. Our newest project, Leap Alive, which is expected to open April 22, is a prototype of an urban hub and a showcase of this strategy. The tenant mix of new Leap Alava is heavily necessity based, with 45% of the GLA reserved for grocery. It will also be a home of variety of public and private everyday services, such as a kindergarten, library, health care services and a gym. One year ahead of the opening, we have contracted or agreed on 76% of the GLA with an average rent of EUR 31 per square meter.
I should also mention that we have another 15% in active negotiations at this point. Therefore, we're at 91% once we complete those deals. In line with our strategy, there is significant residential component attached to the center. There will be, in total, five fifty apartments adjacent to the center, of which approximately two seventy five rental apartments will be owned by CityCon with an anticipated rent of approximately EUR 25 per square meter. Lipa Lava is located in an affluent area in the Helsinki Metropolitan Region.
The purchasing power of the 93,000 inhabitants is clearly above the metropolitan area and county country average. The catchment is expected to grow over 10% during the next ten years. Lipa Live is located in direct connection to public transportation with both metro and bus terminal. 14,000 commuters are expected to visit the center daily once the logistics part has been completed. In Q1, we continued our program capital recycling.
The outlook for the Nordic real estate transaction has improved, which will support execution of our strategy going forward. We closed on the divestment of three of our lower tier noncore assets in the Stockholm area for EUR 147,000,000 in March, as we had announced earlier. The yield net yield on the transaction was 5.7%. The outlook for the commercial real estate market has improved, and The Nordics are seen as an attractive region for investment. This has been reflected in commentary of several leading publications, and I would again encourage you to take a look at the Green Street piece as well as Bloomberg's latest piece on The Nordics.
This analysis supports the empirical insight that we have operating in the market. We've included a few quotes and could be more can be found within various industry publications. The activity level in the market has increased, which has been demonstrated as several reverse inquiries have come our way for specific assets. We anticipate taking further advantage of this improving transaction market in order to strengthen our balance sheet as well as accelerate the transformation of the resi retail ratio of our portfolio. In summary for 2021.
In terms of quarterly performance, financial and operational results were stable with quarter over quarter growth. Q1 was in line with our expectations and tracks our full year guidance. Leasing activity was strong, and both the number of leases signed and rental level increased year over year. This is a direct result of our active leasing management strategy and important indicator for future results. The transformation of our portfolio is accelerating.
We continue to progress our strategy of densification through diversification. Leap Alive, which is a prototype of this urban hub strategy, has progressed as planned. We continued our program capital recycling and closed on the divestment of three noncore assets with pricing that validates the value and liquidity of our assets and portfolio. The Nordic transaction market is positive. This is demonstrated by the increasing market activity and commentary from influential industry analysis providers as well as Citicom's own observations from the market.
With that, I'd like to thank you for your time and hand it back over to Laura.
Thank you, Scott and Era, for the presentation. We now have time for questions, and we welcome any questions you might have at this stage. Operator, please go ahead.
Thank Our first question comes from Nico Vergara from ABN. Please go ahead. Yes. Good morning, everyone. Thank you for the presentation.
I had a few questions that I'd like to go through. One is on I appreciated the fact that the waivers were very limited in Q1. I think you disclosed that it was €100,000 However, you said the rent collections are 92% for Q1. Now what sort of arrangements have you done in terms of the remaining rent collections for the circa 8%? Are these due to be collected in Q2 onwards?
Or if you can elaborate on that, maybe we can kick off with that. Think yes.
Thanks for the question. I think it's fair to say that the drag on rent collections has really come from Estonia where there have been more severe government lockdown measures taken. As a result, we have been working closely with tenants, trying to give them more time to see a rebound in their sales and therefore, have the capacity to pay us our rent. So I think this is one of being patient. At 92%, that's still obviously an unbelievably strong collection number.
Would venture to say it's going to be best in class. And I would remind you that that's an unadjusted number. We have always kind of reported the pure number, if you will. But I think it's really concentrated in that market. I would say that in the other markets, we've seen rent collections kind of stay stable with where they were last year.
Okay. No, I thought it might have been Estonia because of the lockdown, but I just wanted to hear it as well. So anyway, so this is something that is due to come and subject to closure. Second question, can you give any indication at this stage yet on the range of total CapEx that you might have for the Lipli right now that you are planning to develop the four residential towers on top of it yourself in house? Just to get a bit Yes. A
take some
Again, I would remind that the scope of this project has changed significantly over time. As we reported, I think we have spent EUR263 million to date, and we anticipate total cost of the project to be roughly EUR $322,000,000. And that scope change includes the resi, as you just mentioned. And again, it's just remind the this is a pretty complicated project. You're building a metro station, subterranean, with couple levels of retail.
We had an old shopping center that we knocked down and relocated, and now we have to relocate these tenants back. So there's a there's been a lot of moving parts, which is why we've been, I would say, careful about disclosing what we anticipate the cost is. But now that we're kind of a year out, I think we're comfortable providing this estimate.
Okay. So if in terms of the residential part, if I have estimated roughly $50,000,000 for that, is that reasonable?
I don't have the breakdown in front of me, but it doesn't sound unreasonable. But I don't have it in front of me, so.
Two more questions. Please bear with me.
Yes.
So one is on the economic occupancy rate. It's nice to see the Norway picked up a bit. Also good to see that the leasing activity improved year on year basis. Harvold, can you give me a bit of a color what is, let's say, the main drag that you see in terms of the slightly weakened economic occupancy that you have in the Q1 figures? Is it just that you have some tenants leaving out?
I mean, just if you can provide some color on that.
Yes. I think it's I think if you look historically, not just at CityCom, but retail generally, Q1 tends you tend to see a slight drop occupancy in Q1 over Q4. And it's not surprising necessarily when you think about the business cycle where Q4 is where majority of your sales come. So and then Q1 is a little bit of a drop. I would say if you dig into the details of it a little bit more, our experience right now is that we are seeing actually relatively robust interest and activity in categories, including food and beverage, which we frankly were not surprised at.
We thought it would snap back as restrictions kind of became less severe, if you will. But I would say the one category that is the drag, if you will, would be fashion and apparel. And again, I think that's consistent with what we've seen and what we've kind of anticipated. I think we said last quarter that there were two categories impacted in 2020, food and beverage and apparel, and that we thought the food and beverage impact was temporary and the apparel might have some more structural issues in that segment of the business. And we're kind of seeing that play out so far in the first quarter.
But again, I think occupancy is it's down slightly, but it's if you look at since the pandemic quarter pre pandemic quarter, we've stayed kind of relatively we haven't really moved up and down a lot. It's been relatively flat. But we are really encouraged by the increased amount of activity we're seeing and the fact that we're seeing growth in rents. So that, us, we always look at that as a forward leading indicator, and we're pretty excited about that.
Okay. And the last question I wanted to touch upon is the leasing spread because you used to be providing this for renewals and reletting. So I mean, I can calculate the average you have from the old rent levels and the new ones, but that doesn't really look too promising. So is there any indication that you can give what was the leasing spread during Q1? Yes.
Think if I calculate it from the averages, it's minus 10.9% or so.
Yes. I think that the leasing what was called a leasing spread was reported a variety of different ways by different companies because there is no kind of EPRA standard for how that should be reported. And frankly, if you look at leasing spreads kind of space to get an accurate leasing spread, you really need to look at the same space. It's you can't get it from looking at the old rents versus the new rents because there are different spaces involved in those. So what I would suggest is a better measure is to look at what the average rent was last quarter for the portfolio and then look at what the average rent was for the portfolio this quarter.
And I think that gives you a better indication of where rents are headed.
Okay. So if I have now minus 10.9% then for Q1, that doesn't look too promising. So
do you expect No, no, I think I don't I disagree with your number. I don't think your number is accurate.
Yes. Would so this is Eero. Just to add that the way how we look into things is that it's more like flat, and we actually had a mildly positive rental result or leasing results. So those this minus 10% is not correct.
Okay. I was just taking from the Q1 when you have average rents of leases started and average rents of leases ended.
Yes. But that's not the same that's my point. That's not the same space. You're looking at you're comparing apples and oranges, basically. I think a better reflection would be for you to take a look at what average rent is for the portfolio last year and what the average rent is for the portfolio this quarter.
Okay. But you're saying that this the figure that I gave is more in line with the old ones that you used to be reporting, like I said, the previous way?
No. Again, it's you're comparing apples and oranges because you have a different set of spaces, a different set of real estate in the expiring leases versus a different set of real estate for the new leases. So it's not a really it's not an accurate comparison.
Okay. Fair enough. The only point I was saying is I'm not comparing these figures with your peers per se, but I'm looking at the trend that you have in these figures as a company. And that's why it would be nice to see the old metrics show. But fair enough, that's
But again, I just want to repeat. I think the best measure for you to really understand what's happening with the company is to look at what the average rent is across the entire portfolio in the last quarter and then what's the average rent across the entire portfolio this quarter. That's going to give you the best indication of where what's happening with the business.
Yes, fair enough. I would also argue that I can talk to the local brokers and the guys who are doing the leasing in the market to see where the market rents are moving and then have a view on if I think going forward when you have lease renegotiations, you're going to have to reset them to a lower level. And that's the counterargument I could also make.
You can say that, but that's not accurate. I don't want to get into an argument with you, but what you're saying is just absolutely not accurate.
Our next question comes from Rob Verdi from Green Street Advisors.
Good morning, guys. A couple of questions, please. Scott, thank you very much for just giving some clarity on the leasing activity. I think that's really important. One of the ways that I try and look at it is the new leases versus passing rent.
Have you got that color for us?
I don't have it here, Rob, but we can find that for you. We'll come back to you with that. Brilliant.
Thank you. Secondly, just on some of the capital recycling and the CapEx requirements for all the diversification you're doing and just where your LTV stands at the moment. Just wondering a bigger picture how you're thinking about your capital allocation, where the CapEx is going to come from and where do you think your LTV needs to go?
Yes. I think I'll let Eero talk about the LTV question. But as it relates to the capital question and the capital allocation question, as mentioned in the presentation, we have received a number of reverse inquiries of late. And I think we're feeling pretty confident about our ability to transact on assets that are noncore. So I would say that we're clearly seeing market activity pick up.
Our own transaction, I think, is a little bit of evidence of that and would anticipate that there'll be more of that, quite frankly. And so I think that we have inflows of capital that we anticipate coming forward that will help to offset the potential capital expense. The other thing I would remind is on the densification strategy, a big part of this is the opportunity to joint venture and to contribute building rights as our equity, if you will, and then have someone else bring capital to the table. And we actually are in the middle of some very interesting strategic conversations with folks around that. And so I'm feeling very, very optimistic about our ability to execute in this and do some really interesting things that I think will make the market stand up and take notice.
But Eero, I'll let you talk about LTV maybe.
Yes. So the management is still committed to our own range of 40% to 45%, and that remains the target. And now actually, to value management is easier than it has been due to the fact that we have received these inquiries and that the disposal markets seem to work clearly better in The Nordics, and there is a lot of interest to buy centers, which are currently non core to us. So I would say that actually the situation has clearly improved in that respect.
Yes. And I think you've we saw a slight improvement in our LTV this quarter, and we're still committed to that and feel like we're in a pretty good place there. By the way, that was a very good piece. I really thought it was very thoughtful. And it should be required reading for appraisers out there.
You.
You. There appears to be no driver registered questions. So I will now hand over back to the speakers.
Okay. So thank you for attending the call today, and thank you also for the questions. So if you have any more, please do contact us, either myself or Eero, and we're happy to give you more answers. So thank you for the call, and have a nice day.