Preface
After a disastrous year in the financial markets in 2008, 2009 was the year of the aftermath. Amid widespread corporate restructuring, Corio maintained a firm course and showed great resilience throughout the year. A major focus for us, as with all companies, was our balance sheet and the need to secure our longer term funding at sustainable rates. Even for highly respected companies like Corio this was a challenge as the availability of funding in the market shrank to near zero and any financing that could be obtained came at a high price. Funding growth and securing redemption schemes took up a good deal of management time. We were nevertheless able to keep an eye open for promising acquisitions and struck twice in 2009, in mid-year buying a prime property in central Madrid and later in the year making the decision to aim to enter the German market.
In the real estate sector at large, yields continued to rise during the year, pushing values down further. As a result a number of companies in our sector had to issue rights offerings to save their balance sheet and avoid breaching their covenants. Against this background, Corio intensified its acquisition search activities, analysing many options in our home markets. A good number of distressed sellers were expected to come to the market, but in fact this did not happen on a large scale. Our big triumph of the year was the acquisition of the Príncipe Pío shopping centre against a net initial yield of 7.9%. This acquisition is a good example of taking advantage of the depressed situation. In December, we announced plans to purchase part of the portfolio of Multi Corporation, consisting of shopping centres and developments mainly in Germany. This deal will potentially open up a new home market for Corio and give us a foothold in Europe’s largest economy. At the same time we aim to form an alliance with Multi to jointly develop projects.
Meanwhile in the shopping centres of Europe, consumers changed their behaviour profoundly in response to the economic downturn, spending less as unemployment rose across Europe, saving more as they did not know how long the crisis would last or how deep it would be. Rising savings ratios and a shift towards discount products were two visible symptoms of this increased consumer caution, and durable consumer goods like furniture and electronics were hit the worst.
The property sector traditionally lags the real economy. Tenants can normally absorb the first period of declining turnover without it affecting their ability to pay the rent. In 2009, however, throughout the European market, declining turnover translated more rapidly into lower rental income as vacancy increased in all markets. The trend was particularly pronounced in the B locations.
Corio showed resilience in the face of the crisis thanks to advance preparation and the quality of its portfolio. In 2008 the company had already made good progress in weather-proofing its exposure to the financial markets. We reduced the committed pipeline and ensured it was fully covered by available financing. This was continued in 2009 with actions to further strengthen the balance sheet.
On the operational income side the company achieved continued sustainable growth thanks to the quality of the portfolio and its heavy weighting towards A locations, which have shown greater immunity to the impact of the economic crisis.
Our management approach, whereby we stay close to the business we manage, also helps ensure we are able to act quickly and flexibly and better anticipate developments in our markets. As a result, especially in our larger markets in the Netherlands, France and Italy, the Corio centres achieved relatively strong like-for-like growth and reletting/renewal results when compared to the market. Even Spain and Turkey, where the crisis was more severe, turned in a relatively strong performance compared to the market, and managed to show high occupancy rates.
The vast majority of our centres are classified as ‘city centre’ or ‘district centres’, meaning that they are in the middle of their catchment area and thus enjoy a high loyalty rate. Some of our centres are also ‘transit orientated’ – located near public transport hubs, thus ensuring that footfall remains strong. This supports directly Corio’s main objective to create favourite meeting places and is the essence of our business: ensuring that people who visit our centres linger longer and come back again for more. Close attention was paid this year to the operations in order to keep occupancy rates high. Additional resources were spent on adapting centres to consumer needs and communicating with tenants, with a view to maintaining reletting/renewals at a good level and achieving positive like- for-like growth. The additional effort paid off with a like-for-like growth rate of 1.7% and occupancy rate of 96.3% in the retail part of the portfolio.
Building the development activity in house progressed less than anticipated given the market circumstances. In 2008 it was already clear that the development pipeline should be reviewed with caution. In 2008 the time was not right to expand and this was the consensus view in 2009 too. The only developments that were started in-house related to extensions of existing properties, the timing of which the company was able to control fully.
Among the most noteworthy achievements of 2009 were our successful financing activities. Apart from renewing and obtaining debt facilities, Corio raised € 258 million equity through an Accelerated Book Build (ABB). This step was crucial in safeguarding the future financial stability of the company for the coming years and in preparing us for opportunities.
Our strategy, meanwhile, remains on course. Our aim to become a pure play retail property company, investing in and operating dominant shopping centres with in-house management, still stands. The objective of Corio to in-source development activities is an important element of this. Looking at the market and where it stands, however, we decided to take things more cautiously in 2009 and wait until markets are more settled. We are applying the same caution to our goal to have up to a maximum of 20% of our capital invested in emerging markets.
In the second half of 2009, when the financial markets started recovering, it became clear that values were slowly turning around. First in the UK and later also in France, we finally saw upward movement again, if only in the A-class properties segment. Soon after we decided to enter negotiations regarding the purchase of A-class assets from Multi Corporation in Germany. If the negotiations are successful, we aim to create a new home market with immediate critical mass. At year end 2009 we were in exclusive ongoing negotiations with the company but without any assurance that an agreement would be reached.
In short, 2009 was a year of challenges and difficult decisions balanced by some opportunities, which we took with a view to securing sustainable future growth. Thanks to a combination of a strong starting position, expertise and team spirit we emerged from the year in many ways stronger than before. For that reason I would like to thank all Corio people for their effort and contribution and look forward to another year with all of you. Another year in which we will strive again to create favourite meeting places, where people like to meet, spend time and shop.
Gerard Groener
CEO Corio N.V.
Source: Annual Report 2009, Chapter Overview & Strategy, page 2 (PDF, 13.679 kB)
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