CityCon (HEL: CTY1S), which is a subsidiary of G-City (TASE: GCT) with business operations in Sweden, Finland, Norway, Estonia, and Denmark, reported strong earnings for the third quarter of 2022 despite several macroeconomic pressures that have dampened the outlook for the real estate industry in Europe. This strong financial performance is a testament to not only Citycon’s prudent management decisions but also the increasing strength of G-City’s portfolio of companies.
CityCon’s Outlook Continues to Improve
In Q3, like-for-like rental income reported by Citycon showed an improvement of 3.4% in comparison to the corresponding quarter of the previous year. Footfall, which is an important metric that measures the number of people entering a shopping mall/store in a given period of time, also increased by 4.3% YoY in Q3, which is an encouraging sign. Tenant sales increased by 0.1%, bringing total sales 7% higher than the pre-pandemic level. This is another key indicator that suggests Citycon has fully recovered from pandemic woes.
In Europe, Citycon is experiencing two favorable tailwinds as well. First, rents for both residential and commercial properties are rising in Europe, which is a positive sign for Citycon. According to data from Fitch, rising inflation will create a positive environment for many real estate companies operating in Europe, especially the companies that offer rental contracts indexed to the CPI. In Q3, Citycon’s realized rent per square meter increased by EUR 1 YoY to EUR 23.6 per square meter, which confirms the company is benefiting from the overall rise in rents in Europe. Second, European commercial properties are seeing a secular increase in fair value estimates today, which is a tailwind for Citycon. Even in the most recent quarter, Citycon reported positive fair value adjustments to its portfolio, a trend that is expected to continue in the coming quarters.
From a financial health perspective, Citycon has already taken measures to strengthen its balance sheet as the world approaches a recessionary environment. The company does not have any significant debt maturities until 2024, which leaves room for Citycon to fund capital expenditures with generated free cash flow. In any case, capital expenditures are expected to decline in 2023 as the company takes a measured approach to strike a balance between growth and stability. Citycon is also targeting periodic asset sales to make the most of rising property prices while creating a liquidity buffer. According to company filings, more than 95% of its outstanding debt has been assumed at a fixed rate, which paves the way for the company to keep the cost of debt manageable at a time when interest rates are rising.
G-City’s Approach is Yielding Results
Despite pressure from certain investors and the public to seek potential buyers for G-City, CEO Chaim Catzman continues to believe in the company’s potential to grow exponentially in the coming years. Prudent decisions taken in the recent past such as taking on fixed-rate debt that is not tied to inflation, expanding to Europe, and executing strategic acquisitions are yielding positive results for the company today. The company, under the leadership of the current CEO, is executing its vision of building a strong portfolio of retail-oriented, multi-use properties in fast-growing regions such as North America, Brazil, and Eastern Europe. The company has a well-diversified portfolio with its largest geographical segment, Central Europe, accounting for just 35% of its total portfolio while Brazil, Israel, and North America account for 12%, 20%, and 15% of its portfolio, respectively.
Conclusion
G-City’s global subsidiaries are racking up formidable financial results, and Citycon is the latest subsidiary of G-City to report encouraging numbers for the recently ended quarter. Europe continues to be a hotspot for commercial real estate, and G-City, through well-timed investments, is making the most of the opportunities in this market.
