Citycon’s takeover earlier this year of Norwegian peer Sektor Gruppen has put the Finnish retail specialist firmly on the radar of investors targeting the Nordics, the company’s CEO Marcel Kokkeel told PropertyEU in an interview.
Citycon’s takeover earlier this year of Norwegian peer Sektor Gruppen has put the Finnish retail specialist firmly on the radar of investors targeting the Nordics, the company’s CEO Marcel Kokkeel told PropertyEU in an interview.
In early September, the Helsinki-listed company announced it had successfully completed a €300 mln eurobond issue to help finance its acquisition of the Oslo-based company. The 7-year guaranteed euro-denominated bond matures on 16 September 2022 and carries a fixed annual coupon of 2.375%.
The Eurobond is due to be admitted today (Wednesday) to the official list of the Irish Stock Exchange where it will trade on its regulated market. The bond has been rated BBB by Standard & Poor's and Baa2 by Moody's, in line with Citycon's corporate credit rating. The proceeds from the offering will mainly be used to finance Citycon’s acquisition of its Norwegian peer Sektor Gruppen or for general corporate purposes.
In May, Citycon announced it was acquiring Oslo-based Sektor Gruppen, a move which has propelled it to the largest retail real estate specialist in the Nordics and the third-largest in Europe excluding the UK. The new combine has assets under management of some €5 bn.
Citycon aims to convert the €300 mln raised from the latest Eurobond issue into Norwegian kroner so that its assets and liabilities are in the same currency, Kokkeel said. 'It will remain a Eurobond but by doing a cross-currency swap in Norwegian kroner, we create a natural hedge.'
Efficient bond market
Kokkeel added that Citycon's previous bonds are also listed on the Irish Stock Exchange because this is an efficient and liquid bond market.
Commenting on the placement, Kokkeel said the market reception was strong and that it was allocated to a broad base of European investors. ‘We had a great road show,’ he said. ‘Investors like the Nordics and they also like our low LTVs and sustainable cash flow. Everybody in the world of investors now knows Citycon.’
The transaction was oversubscribed and closed within a few hours. Following this Eurobond and the NOK bonds issued a few weeks ago, the majority of the bridge debt for the Sektor acquisition has now been refinanced.
The company’s latest refinancing operation follows a €300 mln bond issue in Norwegian kroner directly after the takeover was announced and a €600 mln equity placement. The company now needs to finance one last tranche of roughly €300 mln. About half of this figure will be covered through a secured financing and the remainder through divestments.
The disposal operation has already commenced, Kokkeel said. More divestments of non-core properties are in the pipeline, some of which are expected to be finalised in the remaining months of this year, he added.
Integration on track
Meanwhile the integration of the two companies is proceeding as planned, Kokkeel said. ‘The similarities are larger than the differences. The Sektor people are very professional and market-driven. In many ways, we are a 100% match in terms of geographic fit, our focus on urban centres, daily convenience centres and the actual size of our malls.’ The average size of the shopping centres in both portfolios is around 30-35,000 m2, he added. ‘The shopping centres are also a perfect match in terms of asset quality.’
The differences between the two companies are scant, Kokkeel said. ‘Sektor insources some things that we outsource like technical people and janitors in the shopping centres. We are now seeking to create a single approach.’
The company has recruited a temporary integration manager to supervise the consolidation process. ‘We don’t have separate country organisations with a country CEO and CFO. We manage our operations in clusters with everybody reporting directly to the COO.’
The acquisition has also transformed Citycon’s geographic base. In the past, the company’s home market Finland accounted for the bulk of the operations, but this figure has since been reduced to roughly a third. ‘We now have three big buckets: Norway, Sweden and Finland. Each of these markets accounts for about a third.’
Denmark remains underrepresented in the portfolio with a share of just 5% along with the Baltics. Denmark is difficult to penetrate, Kokkeel said. ‘Today we have just one shopping centre in operation in Copenhagen and another one which we bought from TK Development will open in early 2017. We are mainly looking at Greater Copenhagen for more and would love to grow there in the future but it’s not easy.’
Kokkeel said Citycon is not actively pursuing further acquisitions. ‘After you’ve eaten a big animal, you need to digest it. We first need to integrate, reform and show we can deliver before we take any next steps.’
Gazit Globe
Commenting on Gazit Globe’s role in the takeover, Kokkeel said the Israeli company had been ‘very supportive’. ‘Gazit fully believes in our Nordic strategy and has helped us in our transformation and growth. They have consistently supported us with all our equity raises even when that meant a dilution of their shareholding, for example when CPPIB (Canadian Pension Plan Investment Board) came on board.’
CPPIB’s stake in Citycon marked its first European investment at a corporate level, Kokkeel said. ‘That is another quality stamp for us. We are proud of this and the prestige it brings us. But CPPIB brings more than money, they also bring knowledge. CPPIB has access to the best properties in Europe and draws on a wide range of tenant strategies.’
CPPIB has two seats on Citycon’s supervisory board while Gazit Globe has three.