Sponda - Interim report (Q1 and Q3)

Sponda Plc's interim report January-March 2011

Sponda Plc                       Interim Report 6 May 2011 at 8.30 am







Sponda Plc's interim report January-March 2011

Sponda Plc's total revenue in the first quarter of 2011 was EUR 58.6 million
(31 March 2010: EUR 57.6 million). Net operating income after property
maintenance costs and direct costs for funds declined to EUR 39.6 (40.4)
million. Higher than normal property maintenance costs due to the exceptionally
heavy snowfall in the winter contributed to the decrease in net operating
income. Sponda's operating profit was EUR 37.4 (36.3) million. 

Result of operations and financial position January-March 2011 (compared with
the same period in 2010) 

  -- Total revenue was EUR 58.6 (57.6) million.
  -- Net operating income was EUR 39.6 (40.4) million. Net operating income was
     affected by the high property maintenance costs in the first quarter.
  -- Operating profit was EUR 37.4 (36.3) million, which includes a fair value
     change of EUR 3.1 (-0.1) million.
  -- Cash flow from operations per share was EUR 0.07 (0.08).
  -- The fair value of investment properties amounted to EUR 2,916.0 (2,768.1)
     million.
  -- Net assets per share totalled EUR 3.82 (3.46).
  -- The economic occupancy rate was 88.2% (86.2%).
  -- The prospects for 2011 remain unchanged.


Key figures



                                        1-3/2011  1-3/2010  1-12/2010
Total revenue, M€                           58.6      57.6      232.1
Net operating income, M€                    39.6      40.4      168.7
Operating profit, M€                        37.4      36.3      216.2
Earnings per share, €                       0.06      0.04       0.40
Cash flow from operations per share, €      0.07      0.08       0.37
Net assets per share, €                     3.82      3.46       3.86
Equity ratio, %                               38        37         39
Interest margin                              3.0       2.9        3.0



Key figures according to EPRA Best Practices Recommendations



                                 1-3/2011  1-3/2010  1-12/2010
EPRA Earnings, M€                    17.2      15.6       74.0
EPRA Earnings per share, €           0.06      0.06       0.27
EPRA NAV/share, €                    4.56      4.10       4.59
EPRA Net Initial Yield (NIY), %      6.58       N/A       6.37
EPRA, "topped-up" NIY, %             6.59       N/A       6.38



CEO Kari Inkinen

”The economic occupancy rate of Sponda's properties continued to improve in the
first quarter of 2011. The occupancy rate for logistics properties increased by
two percentage points from the end of 2010. This positive development is
primarily linked to the properties in Vantaa's Hakkila district. The occupancy
rate for Russian properties rose to 98.3% (31 December 2010: 96.4%), which
means that the properties are practically fully occupied. 

After the period under review, Sponda signed an agreement to purchase the
Fennia Quarter located in Helsinki's Central Business District. The newly
acquired properties are an excellent strategic fit with Sponda's CBD portfolio.
The acquisition will have a positive impact on Sponda's net assets per share
and cash flow per share figures and further improve net operating income for
2011. 

Active property development is part of Sponda's strategy. In the first quarter
of the year, work was completed on the construction of a new production
facility and the renovation of office premises for Metso Automation in the
Hakkila district of Vantaa. The project was completed on schedule and the
company's target profit margin of 15% for property development projects was
exceeded. 

The Zeppelin shopping centre expansion project in Oulu and the renovation of
the Kauppa-Häme property in Tampere will both be completed in late 2011. The
second phase of the company's major development project in central Helsinki,
the City-Center complex, will be completed on schedule in late summer. In
August 2011, Sponda will begin work on the Kuntotalo office building in
Ruoholahti. The project is scheduled for completion in April 2013. 

We also expect to have the investment decision for the Ratina Shopping centre
in Tampere before the summer holidays. This will allow work to begin on the
project in late summer.” 

Business conditions - Finland

According to consensus forecasts, Finland's GDP will grow approximately 4% in
2011. This growth is supported by increased volume in the Finnish manufacturing
and construction sectors. 

The property markets in Finland are showing positive signs in both property
transactions and rental operations. According to estimates by KTI
Kiinteistötieto Oy, the transaction volume in the first quarter of the year was
approximately EUR 0.2 billion. While this total figure is similar to the
previous year, it is clear that activity on the market has increased in terms
of both the number of properties and the volume of buyers. 

Rental levels for commercial properties in Helsinki are on the rise, with rents
for office and retail space in the Central Business District, in particular,
already showing an increase on 2010. Moderate growth is expected to continue
throughout 2011. The vacancy rates for office properties began to decline in
2010 and this trend is expected to continue in 2011. The vacancy rates of
retail properties are expected to remain low. Vacancy rates for logistics
properties are also expected to decline during the year. 

Business conditions - Russia

Forecasts suggest that the annual growth in the Russian economy will be
slightly above 4% in 2011. Growth in Russia is driven by the increase in oil
prices, falling unemployment and improved consumer confidence. 

Property values have begun to increase slowly in Moscow. Jones Lang LaSalle
estimates the vacancy rate of office properties in Moscow to be approximately
14%. There has been a moderate rise in rental levels, which is expected to
continue in 2011. 

In St Petersburg, the vacancy rate for office properties is 15-17% depending on
location and quality. While rental levels on the whole have remained stable,
the expectation is that they will increase moderately in the Central Business
District. 

Operations and property assets January - March 2011

Sponda owns, leases and develops business properties in the Helsinki
metropolitan area and the largest cities in Finland, and in Russia. Sponda's
operations are organized 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 39.6
(40.4) million during the period. Office and retail premises accounted for 51%
of this, shopping centres for 20%, logistics premises for 15%, Russia for 11%
and the Real Estate Funds unit for 3%. 

On 31 March 2011, Sponda had a total of 194 properties, with an aggregate
leasable area of approximately 1.5 million m². Of this, some 50% is office and
retail premises, 10% shopping centres and 37% logistics premises. Approximately
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 least twice a year by external
valuers to ensure that the parameters and values used in calculations are based
on market observations. 

At the end of the first quarter of 2011, the values of Sponda's investment
properties were assessed internally within the company. The change in the fair
value of the investment properties in January-March 2011 was EUR 3.1 (-0.1)
million. The positive change in the fair value was primarily the result of
changes in yield requirements in Finland due to longer lease agreements, while
currency exchange rates had a negative impact on the fair values. The changes
in fair values are itemised in the table ”Valuation gains/losses on fair value
assessment. 

Other significant events in the reporting period

Sponda sold its 45.1% share in Ovenia Oy, a provider of property management
services, to funds managed by Vaaka Partners Ltd and to Ovenia's current
management. The parties agreed not to disclose the transaction price. Sponda
records a profit of approximately EUR 7.8 million on the sale, which will be
allocated to the second quarter of 2011. 

Sponda was one of the founding shareholders of Ovenia and contributed strongly
to the company's development. As Ovenia grew and expanded its customer base,
the current shareholders deemed it appropriate for Ovenia's further development
to divest their shares. 

Prospects

Sponda expects the vacancy rates of its investment properties to continue
falling in 2011. This assessment is based on the 2011 growth forecasts for the
Finnish economy and increased demand for properties in prime locations. 

Net operating income in 2011 is expected to be higher than that of 2010. This
is based on the predicted fall in vacancy rates and the completion of property
development projects during the year. 

Events after the end of the period

Sponda Plc signed an agreement on 4 April 2011 with Svenska Handelsbanken for
an unsecured EUR 50 million credit limit for five years. The margin and
conditions for the credit limit are the same as in the credit facility that
Sponda signed on 1 November 2010. The key covenants of the loan are linked to
the equity ratio and interest cover ratio. The loan is being used in its
entirety to repay existing debts. 

Sponda purchased the Fennia Quarter located in the Helsinki Central Business
District from Suomi Mutual Life Assurance Company, with the purchase consisting
of all the shares in six real estate companies and a portion of the shares in a
company managing the Kaisaniemi metro hall. The Fennia Quarter has a total of
approximately 25,500 m2 of office space and approximately 14,200 m2 of retail
premises. On the date of closing the sale, the vacancy rate of this entity was
approximately 9.7%. The net initial yield of the object is approximately 5.7%. 

Sponda paid a total of EUR 122,000,000 to Suomi Mutual for the entity as the
debt-free purchase price, of which EUR 100,000,000 less the net debt of the
target has been paid in cash on signing the purchase agreement. In addition to
the cash payment, Sponda's Board of Directors decided to pay a part of the
purchase price through an issue of 5,500,000 new shares in Sponda directed to
Suomi Mutual based on the share issue authorisation given by Sponda's Annual
General Meeting of Shareholders on 16 March 2011. 

Grounds for the purchase

One of Sponda's key strengths is its property portfolio that is concentrated in
the best locations in the Helsinki Metropolitan Area. The purchase of the
Fennia Quarter supports Sponda's strategy and strengthens the property
portfolio of Sponda's Investment Properties business unit. The major tenants in
the entity are Finland's Slot Machine Association, Finnkino and the City of
Helsinki. The concluded purchase will have a positive impact on Sponda's net
assets per share and cash flow per share already in 2011. The company has
estimated that Finland's property market will see a positive turn during the
ongoing year and the anticipated rise in rents in the central Helsinki area in
particular will have a positive impact on the profitability of the Fennia
Quarter in the future. 

The title to the Fennia Quarter passed to Sponda in connection with signing the
sale and purchase agreement and the entity will increase Sponda's rental income
from the beginning of May 2011. The purchase was concluded on normal market
terms. 

Directed issue

In addition to the cash payment, Sponda's Board of Directors decided to issue
5,500,000 new shares in Sponda to Suomi Mutual through a directed issue based
on the share issue authorisation given by Sponda's Annual General Meeting of
Shareholders on 16 March 2011. The share issue will be carried out against a
contribution in kind. Suomi Mutual subscribed for all the shares at a
subscription price of four euros (EUR 4.00) per share. This is the closing
price of the share as at 29 March 2011 and exceeds the equity per share
adjusted by dividends as at 31 December 2010 as well as the average price of
Sponda's shares adjusted by dividends in February 2011. Thus, the total value
of the share consideration was EUR 22,000,000. Sponda's Board of Directors
believes that the subscription price per share determined in connection with
the purchase is justified as part of the totality of the purchase of the Fennia
Quarter. 

On the aforementioned grounds, Sponda's Board of Directors finds that there is
a weighty financial reason for carrying out the share issue in deviation from
the shareholders' pre-emptive rights in connection with the purchase of the
Fennia Quarter. 

The shares issued to Suomi Mutual will entitle their holder to shareholder's
rights after the shares have been registered in the Finnish Trade Register and
in Sponda's shareholders' register, on or about 5 May 2011. Sponda will file an
application to NASDAQ OMX Helsinki Ltd for the admission of the new shares to
public trading. The shares will be incorporated in the book-entry system and
will become subject to public trading on the official list of NASDAQ OMX
Helsinki Ltd on or about 6 May 2011. On 20 April 2011, the Finnish Financial
Supervisory Authority granted to Sponda an exemption from the duty to publish a
prospectus related to the listing of new shares. 

The new shares to be issued to Suomi Mutual will represent approximately 1.94
per cent of all Sponda's shares after the directed issue has been registered.
After the registration, Sponda will have a total of 283,075,462 shares. The
subscription price of the new shares will be credited to the invested
unrestricted equity reserve and Sponda's share capital will remain unchanged at
EUR 111,030,185. 



6 May 2011
Sponda Plc
Board of Directors





Further 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
Media
www.sponda.fi

Bifogade filer:

1-3 2011 Osavuosikatsaus ENG.pdf