2011-11-03 07:30:00 CET
2011-11-03 07:30:09 CET
REGULATED INFORMATION
Sponda - Interim report (Q1 and Q3)
Sponda Plc's interim report January-September 2011
Sponda Plc Interim Report 3 November 2011 at 8:30 am
Sponda Plc's interim report January-September 2011
Sponda Plc's total revenue in January-September 2011 was EUR 183.3 million (30
September 2010: EUR 173.6 million). Net operating income after property
maintenance costs and direct costs for funds increased by over 4%, totalling
EUR 131.8 million (126.2) for the period. Sponda's operating profit was EUR
154.6 (133.2) million. The economic occupancy rate of Sponda's properties was
at the same level as the previous quarter, or at 88.2%.
Result of operations and financial position January-September 2011 (compared
with the same period in 2010)
-- Total revenue increased by approximately 6% from the reference period to
EUR 183.3 (173.6) million.
-- Net operating income increased by over 4%, totalling EUR 131.8 (126.2)
million.
-- Operating profit improved to EUR 154.6 (133.2) million. The operating
profit includes a fair value change of EUR 32.9 (11.1) million.
-- Cash flow from operations per share was EUR 0.27 (0.28).
-- The fair value of the investment properties amounted to EUR 3,128.8
(2,795.9) million.
-- Net assets per share totalled EUR 3.93 (3.63).
-- The economic occupancy rate was 88.2% (87.4%).
-- The prospects for the remainder of 2011 were changed slightly with regards
to vacancy rates.
-- Financial income and expenses amounted to EUR -55.2 (-45.1) million.
Financial expenses include EUR 5.7 million of unrealised change in the fair
value of cap options. Excluding the change in fair value of cap options,
financial income and expenses totalled EUR -49.5 million.
Result of operations and financial position July-September 2011 (compared with
the same period in 2010)
-- Total revenue was EUR 63.1 (57.7) million.
-- Net operating income was EUR 47.3 (42.8) million.
-- Operating profit improved to EUR 47.1 (40.2) million. The operating profit
includes a fair value change of EUR 4.6 (1.1) million.
-- Cash flow from operations per share was EUR 0.09 (0.09).
-- Financial income and expenses amounted to EUR -22.9 (-13.8) million.
Financial expenses include EUR 4.5 million of unrealised change in the fair
value of cap options. Excluding the change in fair value of cap options,
financial income and expenses totalled EUR -18.5 million.
Key figures
7-9/11 7-9/10 1-9/11 1-9/10 1-12/10
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Total revenue. M€ 63.1 57.7 183.3 173.6 232.1
Net operating income, M€ 47.3 42.8 131.8 126.2 168.7
Operating profit, M€ 47.1 40.2 154.6 133.2 216.2
Earnings per share, € 0.06 0.06 0.25 0.22 0.40
Cash flow from operations per share, € 0.09 0.09 0.27 0.28 0.37
Net assets per share, € 3.93 3.63 3.86
Equity ratio, % 38 38 39
Interest cover ratio 2.8 3.0 3.0
Key figures according to EPRA Best Practices Recommendations
7-9/11 7-9/10 1-9/11 1-9/10 1-12/10
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EPRA Earnings, M€ 18.4 18.0 55.7 52.5 74.0
EPRA Earnings per share, € 0.07 0.06 0.20 0.19 0.27
EPRA NAV/share, € 4.68 4.27 4.59
EPRA Net Initial Yield (NIY), % 6.30 N/A 6.37
EPRA. "topped-up" NIY, % 6.31 N/A 6.38
CEO Kari Inkinen
Sponda's total revenue and net operating income increased as expected in
comparison with the same period last year. This is due to both an increase in
the size of the property portfolio and, in particular, an increase in rent
rates for prime properties. The economic occupancy rate remained at the
previous quarter's level. We corrected our estimates for the remainder of the
year, and we expect the occupancy rate to stay at the current level for the
rest of the year.
Two Sponda's property development projects will be completed at the end of
2011. The Zeppelin shopping centre expansion project in Oulu will be completed
on schedule in early November. The shopping centre is fully occupied. The
second project set to be completed on schedule by the end of this year is an
office and retail property in Tampere's central business district. The property
is nearly fully occupied. Both projects will meet Sponda's target profit margin
of 15% for property development projects.
Uncertainty in the global economy, particularly in the eurozone, is being
reflected in the Finnish economy and in businesses operating in Finland. Demand
for business properties has been fairly active, but companies tend to spend
more time deliberating on the decision to move. Location is increasingly
important in property decisions, which is reflected in both occupancy rates and
rental levels. While rent rates for office and retail properties in the central
business districts of Helsinki and Tampere have continued to rise, rental
levels have remained stagnant in secondary areas.
Sponda's strategy is to grow profitably in Finland and Russia. Growth and
profitability are sought through property purchases and property development.
The objective is, particularly under the prevailing conditions of economic
uncertainty, to finance this growth at least partly through property sales. The
company aims to sell office and logistics properties that are not in line with
its strategy.
Business conditions - Finland
Developments in the global economy have a delayed effect on property markets.
The continued uncertainty over Europe's economic problems has resulted in
businesses taking a waiting stance on the property market. This uncertainty has
thus far had limited effects on property markets. Nevertheless, we expect that
the positive trends in rental rates will level off during the fourth quarter.
Properties in seconday locations will face a weakened market position in the
coming years due to the development of new properties as well as relatively
high vacancy rates. The gap between better and weaker areas will grow as long
as the prevailing economic conditions continue.
The Finnish economy is still expected to grow, albeit slower than originally
forecast. Finnish GDP is estimated to grow by approximately 3% this year.
Inflation is estimated to be slightly above 3% in 2011. The relatively positive
conditions in the Finnish economy, compared to many other European countries,
will keep Finland attractive to investors. According to estimates by KTI
Kiinteistötieto Oy, the transaction volume in January-September 2011 was EUR
1.3 billion, compared to EUR 2.4 billion in 2010. The availability of financing
is becoming compromised due to the prevailing economic conditions and tighter
restrictions (Basel III) and terms of financing are also becoming tighter.
Business conditions - Russia
The Russian economy is estimated to grow by over 4% in 2011. Economic growth is
supported particularly by increases in the price of oil and other commodities.
Development in the property markets has been positive. Vacancy rates for office
properties in Moscow are expected to decline. There is a lack of office
premises, particularly good A class premises, which has also resulted in rising
rental levels. According to an estimate by Cushman & Wakefield, present lease
agreements for prime properties in Moscow are agreed at prices in excess of USD
1,000/m²/ month. The office properties being built at the moment will be
completed in 2012-2013, after which there is no significant construction of new
buildings in sight in the Moscow central area. The vacancy rate of office
premises is expected to be approximately 13%.
The yield requirements for properties in Moscow are declining, with the average
yield requirement for office properties being 8-10%. On the transaction
markets, international investors have concluded their first trades since the
start of the financial crisis.
In St. Petersburg, market changes have been more moderate, and rises in prices
and rent prices have not been observed yet.
Operations and property assets January - September 2011
Sponda owns, leases and develops business properties in the Helsinki
metropolitan area and the largest cities in Finland as well as in Russia.
Sponda's operations are organised in four business units: Investment
Properties, Property Development, Russia, and Real Estate Funds. The Investment
Properties unit is divided into three segments: Office and Retail Properties,
Shopping Centres and Logistics Properties. The other segments are Property
Development, Russia, and Real Estate Funds.
Net operating income from all of Sponda's property assets totalled EUR 131.8
(126.2) million in January-September. Office and retail premises accounted for
52% of this, shopping centres for 18%, logistics premises for 16%, Russia for
11% and the Real Estate Funds unit for 3%.
On 30 September 2011, Sponda had a total of 202 properties, with an aggregate
leasable area of approximately 1.5 million m². Of this, some 52% is office and
retail premises, 10% shopping centres and 35% logistics premises. 3% of the
leasable area of the properties is located in Russia.
The fair values of Sponda's investment properties are confirmed as a result of
the company's own cash flow-based yield value calculations. The assessment
method complies with International Valuation Standards (IVS). The data used in
the calculations of fair value is audited, at a minimum, twice annually by
external experts to ensure that the parameters and values used in calculations
are based on market observations.
At the end of the third quarter of 2011, the fair value of Sponda's properties
was assessed internally for both Finland and Russia. The change in fair value
of the properties in January-September 2011 was EUR 31.3 (8.2) million and in
July-September alone EUR 3.3 (-0.3) million. The positive change in the value
was mainly due to changes in market rent prices and development gains on
property development projects. The changes in fair values are itemised in the
table “Valuation gains/losses on fair value assessment”.
Rental operations
The economic occupancy rates by type of property and geographical area were as
follows:
Type of property 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep
2011 2011 2011 2010 2010
Office and retail, % 88.6 88.5 87.7 87.7 87.7
Shopping centres 93.5 94.3 97.4 98.1 98.2
Logistics, % 78.3 78.3 77.8 75.8 74.8
Russia % 98.8 98.3 98.3 96.4 93.3
Total property 88.2 88.2 88.2 88.0 87.4
portfolio, %
Geographical area 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 2011 2011 2011 2010 2010
Helsinki Business 86.8 86.7 88.0 89.8 89.4
District, %
Helsinki Metropolitan 86.0 86.0 85.3 84.3 84.3
Area, %
Turku, Tampere, Oulu 95.3 95.7 95.7 96.8 96.0
Russia 98.8 98.3 98.3 96.4 93.3
Total property 88.2 88.2 88.2 88.0 87.4
portfolio, %
The occupancy rate of the Shopping Centres unit declined from the second
quarter by approximately 0.8 percentage points. This was, as in the previous
quarter, because the office tenant in Citycenter moved to another Sponda's
office property. Sponda's properties are categorised according to their main
use, and hence the entire Citycenter belongs to shopping centres.
Prospects
Sponda expects the vacancy rates of its investment properties to continue
remain at the current levels until the end of 2011. This adjustment to previous
expectations is due to weaker economic conditions in Finland and
internationally.
Net operating income in 2011 is expected to increase by over 4% in comparison
with 2010. This expected increase is based on a predicted fall in vacancy
rates, the completion of property development projects during the year and
property acquisitions.
Risks and uncertainty factors in the near future
Sponda believes that the key risks and uncertainty factors in the current
financial period arise from the possibility of the economy growing at a slower
rate than expected and relate to a decline in economic occupancy rates and a
fall in rental income resulting from the insolvency of tenants.
The Finnish economy is still showing positive development, but uncertainty in
the global economy may have a negative impact on the Finnish economy, the
operation of companies and therefore the vacancy rates of business premises.
For Sponda's property development projects, the key risks are related to the
degree of success in leasing premises and the potential increase in
construction costs. Higher than expected vacancy rates in newly completed
business premises would have an impact on the Group's total vacancy rate and,
as a result, have a negative effect on the Group's net operating income.
The differences between Russian and Finnish legislation and the way the
authorities operate in the two countries may cause additional risks for Sponda.
The operations in Russia increase Sponda's foreign exchange risk. Changes in
exchange rates may cause exchange rate losses that have a negative impact on
the company's financial result.
3 November 2011
Sponda Plc
Board
Additional Information:
Kari Inkinen, President and CEO, tel. +358 20-431 3311 or +358 400-402 653,
CFO Erik Hjelt, tel. +358 20-431 3318 or +358 400-472 313 and
Pia Arrhenius, SVP, Corporate Communications and IR, tel. +358 20-431 3454 or
+358 40-527 4462.
Distribution:
NASDAQ OMX Helsinki
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