Major Risks

1. Risks associated with changes in the investment properties' fair value

A number of factors contribute to the value of retail properties, such as national and local economic development, investment demand created by property investors, and interest rates. International investors have shown keen interest in the Finnish, Swedish and Baltic property markets, which has been reflected in the yield requirements and price levels of the most sought-after properties. At the moment, investment property value trends are subject to untypical instability due to the credit crisis spread from the United States. In 2008, this crisis together with the followed economic slowdown pushed property values down also in Finland, Sweden and the Baltic countries. While changes in investment properties' fair value have an effect on the company's profit for the financial year, they do not have an immediate impact on cash flow.

2. Risks associated with the property development projects

A key element in Citycon's growth strategy lies in the development of existing properties to meet customer needs more effectively. Currently, short-term risks relating to projects include success in leasing the premises in the properties under completion as well as the rise in construction costs. A key risk includes reduced demand for retail premises - whether due to a deteriorating economic outlook or other reasons - which would prevent the rental of new premises at planned rental rates, or which would result in a lower occupancy rate than anticipated. The construction industry in the company's operating region has seen a positive economic cycle, which has caused the costs of construction and construction materials to increase at a faster rate than general price levels. A sharp rise in construction costs could prevent Citycon from implementing all of its planned development projects or cause the profitability of initiated development projects to remain lower than expected.

3. Risks associated with a rise in the properties' operating expenses

To cover its properties' operating expenses, Citycon's lease agreements mainly stipulate either a total rent or specified rent components. The total rent model is applied to a certain part of the existing lease agreements whereby the rent amounts paid by the lessee are not affected by any increases or decreases in operating expenses. Consequently, a rise in operating expenses higher than inflation would diminish Citycon's profitability. The main operating expenses for properties include repair and maintenance fees, electricity, heating, security systems and security services.

4. Risks associated with the availability and cost of financing and general interest rates

Essential part of Citycon's business model is seeking growth, either through new property acquisitions or the expansion of its current shopping centres. Implementation of this growth-focused strategy requires obtaining both equity and debt financing. In 2008, turbulence in the financial markets increased and the banks' credit margins rose, narrowing the available financing alternatives. If this instability continues and the banks' own funding costs remain high, it is possible that the credit margins charged by banks will continue rising, and the banks are less willing to lend money to companies. Changes in market has also impacted the share prices of the companies and real estate companies are trading at a share price below per-share net asset value, thus reducing possibilities for raising equity financing.

5. Financial risks

Financial risks have also been defined to be business critical risks for Citycon. Financial risks result from financial instruments which the company mainly uses to raise financing for the business operations. Citycon also has interest rate and foreign exchange derivatives which are used to manage the interest rate and exchange rate risks arising from the operations and financing sources. The Board of Directors has approved an interest rate risk management policy which defines the risk management targets and indicators applicable for interest rate risk management. Citycon's identified, key financial risks include interest rate risk related to cash flow, liquidity risk, credit risk and exchange rate risk. More information on these risks is available on pages 35 and 36 of the company's Financial Statements 2007.

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