CityCon’s Outstanding 2022 Financials Reflect Well on G City’s Positioning in the European Market

CityCon (HEL: CTY1S), a subsidiary of G City (TASE: GCT), is a leading owner, manager, and developer of mixed-use centers mainly in the Nordics and Baltics. The company recently released its 2022 financial statements, and the results were impressive. Not only did the company achieve significant improvements in its net operating income, foot traffic, and tenant sales, but it also surpassed its forecasts for funds from operations (FFO). This success reflects well on its parent company, G City, and reinforces its positioning in the European market. G City, which is the parent company of CityCon, owns and manages properties across Europe and has a large footprint in the commercial property market.  

CityCon has reported an 11.9% increase in NOI from identical properties in Q4 compared to the previous year, with 6.6% growth for the entire year. This is a significant increase that can be attributed to the strong demand for the company’s centers, as evidenced by the positive leasing spreads of 2.0% and the 120-basis point increase in retail occupancy to 95.4%. The company’s FFO increased by 25.5% in the fourth quarter, amounting to about 24.8 million euros, and its FFO per share increased by approximately 30.1%, reaching approximately EUR 0.148 per share reflecting the company’s ability to generate cash flows from its operations. In 2022, FFO per share was €0.73, which was above the forecast, and the adjusted FFO was €0.548 per share, above the midpoint of the forecast range. CityCon’s financial success can be attributed to the quality and attractiveness of its grocery and municipal-anchored centers, which remained resilient during the pandemic, with tenant sales already 6.2% above 2019 levels.  

Tenant redemptions and the number of visitors to the same properties also increased in 2022 by 5.2% and 9.7%, respectively, compared to the previous year, while the average rent per square meter increased by about 1.1 euros to 23.7 euros per square meter. The increase in the rent per square meter was due to a positive leasing spread and an increase in the consumer price index, reflecting the company’s ability to increase the value of its properties going forward amid inflationary pressures.

CityCon’s success is also stemming from its recycling and redeployment of capital into high-quality, irreplaceable assets in growing urban areas, such as its newest asset, Lippulaiva. This asset, which opened in March 2022, has been a resounding success, with retail occupancy at 96%. The center is built on a brand-new metro station and was the world’s first retail center to be awarded the smart building’s gold certificate due to its carbon-neutral status and commitment to sustainability. In addition to the retail offerings, the first residential tower at Lippulaiva opened in late December, and the remaining three towers are set to open for business in the first quarter of 2023, creating additional demand for the property and diversified revenue streams for the company. 

CityCon’s occupancy rate in the property portfolio increased by approximately 1.1% in 2022, reaching approximately 94.5% as of December 31, 2022, compared to approximately 93.4% as of December 31, 2021. The company’s leverage as of December 31 was approximately 41.4%, which decreased during the quarter to 41.4% due to lower net debt following deleveraging with proceeds from asset sales. However, LTV increased over the year by 40.3% due to decreased property values partially caused by weakened NOK and SEK currencies. CityCon’s financial statements for 2022 also showed that the company has a strong liquidity position, with liquid balances of about €578 million. The company does not have any significant debt. 

The success of CityCon serves as a reflection of its parent company, G City, and it’s positioning in the European market. It demonstrates G City’s ability to identify high-quality assets in growing urban areas and invest in them, resulting in significant returns. CityCon’s centers have proven to be resilient during difficult economic conditions, and its strategy of investing in high-quality, sustainable assets has paid off. The company’s strong financial performance is a testament to its effective management and operational excellence, and the fact that the company has no significant debt highlights its financial strength and stability. This comes after a number of recent achievments by G City, not to mention a recent report by Barclays estimating that G City (TASE: GCT) has 80% upside potential (the largest of all its recommendations in the Israeli market), and further recommending giving it “overweight” investment exposure.