Citycon’s share price keeps hitting new lows, which makes me consider the possibility of buying back shares. With the valuation crawling deep below NAV, I wonder why the company isn’t buying back its own shares instead of acquiring new properties – they’d be getting shopping centers at a considerable discount. Share repurchases could, of course, at some point raise the main owner’s stake above 50%. Do you see any clear reason why Citycon buying back its own shares would be a bad option?
Despite the challenges and threats facing shopping centers, the current valuation makes my buy button itchy…
The main owner can no longer snap up cheap shares, as the purchases would benefit all shareholders (this is not a bad option, but it could be a reason why it’s not done :D). However, Aki Pyysing has been buying this recently, so without delving deeper, I would say it might be a stock worth considering.
Well, there could be a risk of value creation, meaning if the goal is to get as large a slice of the company as possible at a low price, it wouldn’t serve the main owner’s agenda at this point. I’ve sometimes wondered if they would be so nasty as to cut the dividend → stock price even lower → even cheaper way to put the same stuff in their own pocket. Of course, I hope the main owner wouldn’t act against the interests of the shareholders…
Based on its key figures, Citycon appears to be a better investment than what the interim report suggests. This year, funds from operations (EUR 56.8 million) are not enough to cover dividend payments (EUR -86.8 million), so the company has had to finance them with debt. The net gearing ratio is already over 100%, and the otherwise reasonable (average interest rate of 2.36%) debt servicing costs significantly deplete cash flows. The company has to rotate its properties and juggle its debts. Shareholder value creation may receive less attention, and property value development has indeed been negative. Based on these factors, I would consider the undervaluation justified. The share price decreases as assets are distributed out of the company, meaning there’s no free lunch here.
A reverse split is being planned. In practice, it probably doesn’t matter, but I somehow feel this is a positive thing (Unlike Neste’s stock split - I don’t understand why they don’t let those shares rise towards and over 100: I don’t think liquidity suffers that much).
The main owner hasn’t been buying for a loooong time now The price must have risen too high for his liking.
Citycon has signed an agreement to sell two shopping centres in Finland for approximately 77 million euros to the Nordic real estate investor NREP. Under the agreement, Citycon will sell the Arabia shopping centre in Helsinki and the Duo shopping centre in Tampere. The sale price is in line with the latest IFRS fair value of the properties. The transaction is expected to close during Q2/2019.
Citycon’s main owner seems to be close to the redemption limit, i.e., an ownership stake that would require a redemption offer for the remaining shares. I believe this is what’s holding it up.
This is what Petri Koskinen of Alma wrote in Kauppalehti in January:
“In a mandatory tender offer, the offer price must be at least what the prospective buyer has offered for the shares at its highest during the past six months. Katzman has bought Citycon shares on a declining course. In the summer, he paid a maximum of 1.86 euros for it, recently a good twenty cents less per share. If Katzman makes a mandatory redemption offer at 32 percent below the net asset value per share, it is possible that other owners will not agree to sell their shares at that price. This happened with Finnlines back in the day. However, Katzman would gain control of the company. Then he could start to reduce dividends and invest so much that there would not be much left for dividends.For investments, the main owner can, for example, direct a share issue to himself.. Roughly simplifying, this is how the skillful Neapolitan shipowner Emanuele Grimaldi acted when taking over the large domestic shipping company Finnlines.”
Gazit owns most of its real estate companies 100%. “Last December, Gazit bought Cityconia split-adjusted at a price of 9.0 euros, and in practice this forms a floor for the takeover bid level, should a takeover bid come by June 5, 2019.” ← Quoted from an extensive report. So this 9€ ‘guarantee price’ is no longer valid, but the current share price is 9.20€.
It is worth noting that Gazit has been selling/is selling most of its FCR shares. Could this now become some kind of ‘Merge’ between Northern Europe (Citycon) and Central & Eastern Europe (Atrium)? Europe - Gazit Europe
The question is, what kind of ‘reputational damage’ would Katzman suffer if it started redeeming Citycon by ‘destroying’ it for itself? After all, it would be destroying its own money. (At least temporarily)
Anyway, the dividend is chugging along into the account and real estate is being sold at fair value.
In real estate investment, reputation, credibility, and ability to cooperate are extremely important. Gazit has operations in over 20 countries and is a global, significant player. Gazit also has several investments in various real estate investment companies, similar to Citycon. I don’t believe the company would risk its reputation and business by somehow “destroying” Citycon. The disadvantages caused by this would outweigh the benefits. Furthermore, Gazit has been a shareholder in Citycon since 2004 and has, until now, developed the company with a long-term perspective. It would have been possible for them to take actions detrimental to other shareholders much earlier, and they haven’t done so to date. I don’t believe they would change course now.
In a way, that would be a fun reputation – if you bought a slice of some company in the future, people would hear about it and run in horror to sell, shoving the rest of the shares into your lap for cheap. It would be like a pirate ship just appearing on the horizon, and already the sailors, captain and all, would be leaping out of their ship into the water, leaving it free for the taking.
The real estate investment company’s first half went stably, with net rental income growing from the previous year.
Citycon, known as an owner of shopping centers, reported continued growth in the second quarter.
Net rental income in April-June was 56.1 million euros, while the corresponding figure a year ago was 54.3 million euros.
Reported EPRA (European Public Real Estate Association) operational profit grew from 36.4 million euros in the comparison period to 38.7 million euros. The growth was mainly due to higher net rental income, lower financing costs, and the implementation of the IFRS 16 accounting principle.
And according to KL, the guidance has been slightly revised upwards:
Guidance Clarified
Citycon will update the company’s outlook in connection with its half-year report and now expects an operating result (EPRA) of EUR 0.785–0.850 per share, an operating profit of EUR 189–200 million, and an operating result (EPRA) of EUR 140–151 million.
Previously, the company expected an operating result (EPRA) of EUR 0.775–0.875 per share, an operating profit of EUR 188–206 million, and an operating result (EPRA) of EUR 138–156 million.
Gazit is buying the rest of Atrium for €3.75 (approx. 18% premium to yesterday’s closing price), before which it will distribute an additional dividend of €0.6, after which the purchase price of the share will change to €3.15.
@Jesse_Kinnunen, did the Canadian company’s money go there now? Does Gazit still have enough money to buy Citycon?
Would it distribute that €0.6 dividend precisely for this reason, to get a little more cash before the purchase?
Gazit receives approximately 818 MEUR gross from the sale of FCR. After accounting for the dividend paid, the acquisition of Atrium will cost approximately 475 MEUR gross (assuming the offer goes through). In addition, Gazit is selling 150 MEUR of Atrium shares, meaning the total arrangement will cost roughly 325 MEUR + transaction costs. Recently, Gazit has also been buying its own shares, paying dividends, and making real estate acquisitions, but there is still money left from the FCR deal.
In the press release, Gazit states that after the Atrium arrangement, its estimated indebtedness (net debt/total assets) will be 48.2% (target below 50%) and that the company will have approximately 970 MEUR of available liquidity (of which about 255 MEUR is cash). In addition, Gazit has approximately 3.8 billion euros worth of unencumbered properties. In terms of its balance sheet, Gazit would certainly be able to buy the rest of Citycon itself (approximately 855 MEUR at Citycon’s latest market price).
Gazit has recently made major strategic moves and is now aggressively implementing its strategy to increase the proportion of direct real estate investments. With the Atrium takeover bid, I consider it likely that Gazit will still make a takeover bid for Citycon. In the short term, however, I do not consider such an offer very likely, as the company’s management is currently dealing with Gazit’s NYSE delisting and the Atrium takeover bid. The implementation of these and the integration of Atrium will require significant resources and time from Gazit’s management and will likely require significant financing arrangements, among other things.
By the way, the valuation level of the Atrium takeover bid was not exceptionally high, at approximately 0.74x the latest Q1’19 EPRA NAV. The same valuation level for Citycon based on Q2’19 figures would imply a takeover bid of approximately 9.50 euros.
I personally haven’t noticed any flagging notifications / announcements regarding Gazit’s purchases.
Why would Gazit have transferred its shares from the “Holding Registers” to that “other” list?
Unfortunately, I cannot answer this offhand. No stock exchange releases or news have been issued about this. I just inquired about the matter from Citycon’s IR, but the Head of IR is currently on vacation, and I did not receive a response. According to the Financial Supervisory Authority (Finanssivalvonta), managers’ transactions should be disclosed without delay, at the latest within 3 working days of the transaction, via a stock exchange release. So, theoretically, a stock exchange release could still be coming. Or, it could just be some technical change.
The price must have risen too high for his liking.
