2017-08-04 07:30:11 CEST
2017-08-04 07:30:11 CEST
REGULATED INFORMATION
Sponda - Half Year financial report
Sponda Plc's half year financial report January-June 2017: Sponda's year continues to be steady
Sponda Plc Stock Exchange Release 4
August 2017, 8:30
Sponda Plc's half year financial report January-June 2017:
Sponda's year continues to be steady
JANUARY-JUNE 2017 IN BRIEF (compared with 1 January - 30 June 2016)
* Total revenue increased to EUR 133.0 (126.9) million.
* Net operating income totalled EUR 96.5 (92.3) million.
* Operating profit was EUR 71.8 (95.6) million. This includes a fair value
change of EUR -20.7 (3.0) million.
* Cash flow from operations per share was EUR 0.19 (0.21).
* The fair value of the investment properties amounted to EUR 3,807.5
(3,713.2) million.
* Net assets (NAV) per share totalled EUR 5.13 (5.04).
* The economic occupancy rate was 89.1 (89.1)%.
APRIL-JUNE 2017 IN BRIEF (compared with 1 April - 30 June 2016)
* Total revenue was EUR 66.8 (67.6) million.
* Net operating income totalled EUR 50.2 (50.2) million.
* Operating profit was EUR 27.5 (48.8) million. This includes a fair value
change of EUR -21.7 (5.0) million.
* Cash flow from operations per share was EUR 0.11 (0.09).
KEY FIGURES
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4-6/2017 4-6/2016 1-6/2017 1-6/2016 1-12/2016
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Total revenue, M€ 66.8 67.6 133.0 126.9 259.0
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Net operating income, M€ 50.2 50.2 96.5 92.3 190.9
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Operating profit, M€ 27.5 48.8 71.8 95.6 206.7
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Earnings per share, € 0.05 0.09 0.14 0.18 0.41
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Cash flow from operations per
share, € 0.11 0.09 0.19 0.21 0.40
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Equity per share, € 5.13 5.04 5.16
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Equity ratio, % 46.6 46.3 47.4
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KEY FIGURES ACCORDING TO EPRA BEST PRACTICES RECOMMENDATIONS
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4-6/2017 4-6/2016 1-6/2017 1-6/2016 1-12/2016
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EPRA Earnings, M€ 31.2 33.1 58.1 53.9 113.1
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EPRA Earnings per share, € 0.09 0.10 0.17 0.17 0.35
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Company adjusted EPRA Earnings,
M€ 31.5 33.2 59.8 54.9 113.7
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Company adjusted EPRA Earnings
per share, € 0.09 0.10 0.18 0.17 0.35
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EPRA NAV/share, € 5.42 5.35 5.49
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EPRA NNNAV/share, € 5.08 4.96 5.07
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EPRA Net Initial Yield (NIY), % 5.63 5.55 5.29
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EPRA "topped-up" NIY, % 5.64 5.57 5.31
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EPRA Vacancy rate, % 10.93 10.94 10.38
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EPRA Cost Ratio (including
direct vacancy costs), % 16.36
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EPRA Cost Ratio (excluding
direct vacancy costs), % 12.40
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PRESIDENT AND CEO KARI INKINEN
The second quarter of 2017 was a historic one for Sponda. At the beginning of
June, Polar Bidco S.á r.l. (a corporation owned by funds advised by affiliates
of The Blackstone Group LP) announced a tender offer to purchase all shares in
Sponda. The offer price was EUR 5.19 per share, representing a premium of
approximately 20% on the share price at the time. Sponda's Board of Directors
unanimously recommended that the shareholders accept the tender offer and
decided, based on the authorisation previously granted to it, to distribute a
dividend of EUR 0.12 per share, which was deducted from the price offered for
each share.
On 18 July, Polar Bidco S.à r.l. announced the final result of the tender offer,
according to which they held 96.59% of all shares in Sponda. The offer period
was extended until today, 4 August 2017.
Sponda's operational activities continued in steady fashion. Net operating
income grew as planned and maintenance expenses increased mainly due to an
increase in property taxes. The economic occupancy rate remained unchanged at
89.1%.
Our property development projects progressed as planned and on schedule.
Ratina's topping out ceremony was held in May and the property will open in less
than a year. The pre-let rate currently stands at 53% for the project as a whole
and 64% for the shopping centre. The construction of our office and retail
complex in Vantaa's Tikkurila district is also progressing on schedule. The pre-
let rate is 65%.
MOW Stargate, the latest addition to our unique Mothership of Work (MOW)
concept, will open its doors in August. It will provide 300 inspiring
workstations in Ruoholahti for MOW members new and old. The staff and services
of MOW Stargate are ready for the grand opening.
BUSINESS CONDITIONS
Economic growth in Finland exceeded forecasts during the first half of the year
and it is expected to remain strong throughout the remainder of the year. The
GDP growth forecasts have been adjusted upwards and according to the Ministry of
Finance's forecast, the Finnish GDP will grow by 2.4% in 2017. Economic growth
has a firmer foundation now that the positive development of private consumption
and construction investments is complemented by stronger export and production
investment growth. The rapid improvement of the economy also has a positive
impact on employment. However, this impact has not yet been reflected in the
unemployment rate, which is thought to be due to people in disguised
unemployment becoming active jobseekers. According to Statistics Finland, the
unemployment rate was 10.7% at the end of May.
According to the Consumer Survey published by Statistics Finland, confidence
among consumers in their own economic situation and the Finnish economy remains
high. The consumer confidence indicator was at 23.9 in June, compared to 14.9 in
June 2016. Consumer prices have risen during the first half of the year but,
according to the Ministry of Finance, the increase in prices was slower than
usual. According to Statistics Finland, inflation was 0.7 per cent at the end of
June.
Financial indicators
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2016 2017* 2018* 2019*
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Finnish GDP change, % 1.9 2.4 1.6 1.5
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Unemployment rate, % 8.8 8.5 8.1 7.8
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Consumer price index, % 0.4 1.0 1.3 1.4
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*) Forecast
The description of the business conditions was compiled using the following
references: Ministry of Finance, Economic Survey, Summer 2017 (21 June 2017);
Statistics Finland (27 June 2017, 13 July 2017, 14 July 2017); KTI Transaction
information service: Property transactions in Finland 2017.
The transaction market (KTI)
It has continued to be a busy year in the Finnish property market. According to
KTI Property Information's transaction monitoring, the transaction volume for
the second quarter amounted to EUR 1.12 billion, which is below last year's
record level (Q2/2016: EUR 2.39 billion) but high compared to the previous
years. The cumulative volume for the first half of the year was EUR 2.22 billion
(H1/2016: EUR 3.63 billion). Acquisitions by foreign players accounted for 47%
of the volume.
Prime yields
According to Catella Property, the prime yields of office and retail properties
continued to decline during the first half of the year. At the end of June,
office properties had a prime yield of 4.3% (4.5%) and retail properties 4.5%
(4.7%). The prime yields of office properties in the Helsinki metropolitan area
ranged from 4.3% to 6.7% (4.5%-6.8%) and prime yields in Helsinki's central
business district ranged from 4.3% to 5.5%. The prime yield of office properties
in Tampere was 6.75% (6.75%).
Office property market
According to Catella, the vacancy rate for office premises in the Helsinki
metropolitan area increased slightly during the first half of the year and was
14.0% (13.9%) at the end of June. The vacancy rate was 12.5% (11.6%) for
Helsinki as a whole and 10.4% (14.0%) for the central business district. In
Espoo, the vacancy rate was 19.5% (22.0%) and in Vantaa it was 14.8% (14.8%).
The rental levels for offices in the Helsinki metropolitan area increased
slightly compared to the previous year. The average rental levels for office
premises ranged from EUR 162 to 318 (162-312) per square metre per year. The
average rent in Helsinki's central business district increased to EUR
318/m(2)/year.
The vacancy rate of the office premises market in Tampere rose to 14.8% (13.6%).
The rental levels were unchanged from the previous year at EUR
168-228/m(2)/year.
Retail property market
The vacancy rate for retail premises in the Helsinki metropolitan area decreased
to 4.2% (5.3%) during the first half of the year. The vacancy rate was 3.4%
(4.0%) for Helsinki as a whole and 1.8% (2.3%) for the central business
district. In Helsinki's central business district, the market rents for retail
premises increased during the first half of the year and ranged from EUR 540 to
1,740 (540-1,680)/m(2)/year.
In Tampere, the vacancy rate for retail premises was 5.3% (4.4%) at the turn of
the year, while the corresponding figure for Oulu was 5.9% (4.9%). Rental levels
per square metre per year varied from EUR 420 to 900 (420-900) in Tampere and
from EUR 420 to 960 (480-1,020) in Oulu.
New construction
According to Catella, there is more than 155,000 m(2) of new office space
currently under construction in the Helsinki metropolitan area; the largest
projects are located in Helsinki. The oversupply is reduced by old office
premises being converted into homes and hotels. According to Catella, old office
premises are being converted into homes at a rate of approximately 50,000 m(2)
per year. The Helsinki metropolitan area will also see a large amount of new
retail space completed in the next few years. The total floor area currently
under construction is 220,000 m(2), some of which will replace old retail space
that has been demolished.
GROUP RESULT IN JANUARY-JUNE 2017
Sponda Group's result for January-June was EUR 49.6 (58.5) million. The result
before taxes was EUR 47.5 (70.2) million and operating profit was EUR 71.8
(95.6).
Net operating income for the period was EUR 96.5 (92.3) million. The year-on-
year increase in net operating income was due to the Forum property acquisition,
the effect of which is included in the comparison figures starting from 1 March
2016. Items that had a negative effect on the development of net operating
income included property sales and the net operating income of a comparable
portfolio, totalling EUR -1.4 million. Marketing and administration expenses
exceeded the previous year's level at EUR 12.2 (11.4) million due to the public
tender offer for all shares in the company as well as other items. Other
operating income and expenses amounted to EUR 0.1 (0.5) million.
During the period, the Group recognised profit on sales of EUR 10.4 (12.6)
million from the sales of investment and trading properties. The change in fair
value of the investment properties during the period was negative at EUR -20.7
(3.0) million mainly due to the impact of an increase in property taxes on the
fair values of properties. The Group's result includes amortisation of goodwill
amounting to EUR 2.3 (1.3) million.
Financial income and expenses for the period totalled EUR -24.3 (-25.4) million.
The net amount of financial income and expenses was favourably affected by the
prices of the funding sources used as well as capitalised interest expenses, and
they were negatively affected by the amount of interest-bearing liabilities.
In accordance with IFRIC 21, the company recognises a liability in the balance
sheet when the obligating event occurs. The company periodises real estate taxes
in the profit and loss statement based on the passage of time.
PROPERTY ASSETS 1 JANUARY - 30 JUNE 2017
At the end of June 2017, Sponda had a total of 165 leasable properties, with an
aggregate leasable area of approximately 1.2 million m². Of this total,
approximately 70% is office premises, 17% shopping centres and 12% logistics
premises. Approximately 1% of the leasable area 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
experts to ensure that the parameters and values used in the calculations are
based on market observations.
At the end of June 2017, an external consultant audited the values of Sponda's
investment properties in Finland (Catella Property Oy) and Russia (CB Richard
Ellis). The fair value of the investment properties totalled EUR 3.8 billion at
the end of June 2017. The change in the fair value of the investment properties
in January-June was EUR -20.7 (3.0) million and in April-June alone EUR -21.7
(5.0) million. Yield requirements declined particularly for office and shopping
centre properties in central Helsinki. The negative change in fair value in
Finland was almost entirely attributable to an increase in property taxes. Yield
requirements in Russia were not changed and the negative development was due to
assumptions of decreasing rental levels.
Valuation gains/losses on fair value assessment
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M€ 4-6/2017 4-6/2016 1-6/2017 1-6/2016 1-12/2016
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Changes in yield requirements
(Finland) 15.2 17.1 15.2 17.1 60.1
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Changes in yield requirements
(Russia) 0.0 -2.3 0.0 -4.1 -4.1
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Development gains on property
development projects 2.4 2.1 5.4 3.9 7.4
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Modernisation investments -9.5 -5.6 -18.5 -12.5 -31.0
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Change in market rents and
maintenance costs (Finland) -18.4 5.4 -9.6 13.7 12.6
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Change in market rents and
maintenance costs (Russia) -9.7 -9.6 -13.0 -10.7 -14.1
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Change in currency exchange
rates -1.7 -0.2 -0.3 -2.4 -2.1
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Investment properties, total -21.7 7.0 -20.7 5.0 28.7
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Real estate funds 0.0 -2.0 0.0 -2.0 -2.0
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Realised share of fund profits 0.0 0.0 0.0 0.0 0.0
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Group, total -21.7 5.0 -20.7 3.0 26.7
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RENTAL OPERATIONS
Sponda calculates the growth in net rental income for its properties during the
review period according to EPRA Best Practices Recommendations by using a like-
for-like net rental growth formula based on a comparable property portfolio
owned by the company for two years. For January-June, like-for-like net rental
growth was 0.4% (0.9%) for office properties and -5.6% (6.0%) for shopping
centres. Like-for-like net rental incomes were reduced by higher maintenance
expenses due to an increase in property taxes. All of Sponda's lease agreements
in Finland are tied to the cost of living index.
The economic occupancy rates by type of property and geographical area were as
follows:
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% 30.6.2017 31.3.2017 31.12.2016 30.9.2016 30.6.2016
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Office Properties 89.0 89.0 89.2 88.8 88.3
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Helsinki business
district 92.8 92.6 91.8 91.5 91.5
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Ruoholahti 82.6 82.7 85.0 85.0 84.6
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Rest of the metropolitan
area 87.3 87.2 87.5 86.1 85.3
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Tampere 91.9 93.3 93.4 95.9 97.1
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Rest of Finland 76.4 78.0 78.2 78.0 58.0
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Shopping Centres 93.5 92.6 93.5 93.2 94.2
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Helsinki business
district 93.1 91.9 92.4 92.4 94.2
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Other 94.1 93.8 95.4 94.5 94.2
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Non-Strategic Holdings 72.6 77.0 79.9 79.8 78.5
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Logistics properties 71.3 74.2 74.0 72.8 73.4
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Russia 73.9 79.5 84.8 85.3 81.9
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Total property portfolio 89.1 89.1 89.6 89.3 89.1
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DIVESTMENTS AND INVESTMENTS
Sponda is continuing to actively manage its property portfolio and sell non-
strategic properties. New investments and property development projects will be
centralised in office and shopping centre properties in identified growth areas.
Investment properties were sold for EUR 9.8 million during the first half of the
year. In addition, trading properties were sold for EUR 8.9 million.
Property development investments were mainly directed to the construction of the
Ratina shopping centre and an office and retail complex in Vantaa's Tikkurila
district.
Divestments
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M€ 1.4.- 1.4.- 1.1.- 1.1.- 1.1.-
30.6.2017 30.6.2016 30.6.2017 30.6.2016 31.12.2016
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Disposals of investment
properties
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Selling price 4.9 3.3 9.8 8.3 36.7
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Profit/loss on sale *) 0.9 -0.2 3.0 0.0 0.8
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Balance sheet value 4.0 3.5 6.8 8.3 35.9
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*) Includes sales costs
Investments
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M€ 1.4.- 1.4.- 1.1.- 1.1.- 1.1.-
30.6.2017 30.6.2016 30.6.2017 30.6.2016 31.12.2016
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Properties acquired - -1.9 - -589.5 -590.5
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Modernisation investments -9.5 -5.6 -18.5 -12.5 -31.0
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Property development
investments -24.1 -12.3 -45.7 -24.3 -60.9
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Investments, total -33.6 -19.7 -64.2 -626.2 -682.4
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SPONDA'S SHARE AND SHAREHOLDERS
Issued shares and share capital
At the end of June 2017, Sponda Plc's share capital amounted to EUR 111,030,185
and the number of issued shares was 339,690,554.
Trading in Sponda's shares
The Sponda share is quoted on NASDAQ Helsinki Ltd. The weighted average price of
the share in the second quarter was EUR 4.83. The highest quotation was EUR
5.25 and the lowest EUR 3.89. Turnover during the period totalled some 50
million shares, or approximately EUR 242 million. The closing price of the share
on 30 June 2017 was EUR 5.07 and the market capitalisation of the company's
share capital was EUR 1,499 million.
Board authorisations
The Annual General Meeting on 20 March 2017 authorised the Board of Directors to
purchase the company's own shares. The authorisation is valid until the next
Annual General Meeting. The authorisation was not exercised during the review
period.
The Annual General Meeting also authorised the Board of Directors to decide on a
share issue and on the issuance of special rights conferring entitlement to the
shares referred to in Chapter 10, Section 1 of the Finnish Companies Act in
accordance with the proposal of the Board of Directors. The authorisation is
valid until the next Annual General Meeting. The authorisation was not exercised
during the review period.
The Annual General Meeting authorised the Board of Directors to decide, at its
discretion, on the payment of dividend in no more than two tranches based on the
annual accounts adopted for the financial year 2016. The maximum amount of
dividend to be distributed based on the authorisation is EUR 0.12 per share. The
authorisation is valid until the next Annual General Meeting. The authorisation
was exercised in full during the review period.
Treasury shares
Sponda did not own any treasury shares during the review period.
Polar Bidco S.à r.l. tender offer for all shares in Sponda
On 5 June 2017, Polar Bidco S.à r.l., a corporation owned by funds advised by
affiliates of The Blackstone Group L.P., and Sponda Plc signed a combination
agreement. According to the agreement, Polar Bidco made a voluntary public
tender offer to purchase all issued and outstanding shares in Sponda. The Board
of Directors of Sponda unanimously recommended the shareholders to accept the
tender offer. In the tender offer, Sponda shareholders will be offered a cash
consideration of EUR 5.19 for each share in Sponda representing an aggregate
equity purchase price of approximately EUR 1,763 million for Sponda shares. More
detailed information on the tender offer is available on Sponda's website at
http://sijoittajat.sponda.fi/fi-FI/tender-offer.
Dividend
On 5 June 2017, the Board of Directors of Sponda Plc decided, based on the
authorisation granted to it by the Annual General Meeting held on 20 March
2017, on the payment of a dividend amounting to the maximum amount in accordance
with the authorisation. A dividend of EUR 0.12 per share was paid to
shareholders entered in the company's shareholder register maintained by
Euroclear Finland Ltd on the dividend record date, 7 June 2017. The dividend
payment date was 14 June 2017.
In accordance with the terms and conditions of the tender offer for all the
issued and outstanding shares in Sponda as announced by Polar Bidco S.à r.l.,
the payment of dividend reduced the offer price payable for each share.
Shareholders
On 30 June 2017, Sponda had altogether 8,866 shareholders (31 March
2017: 11,022) and its ownership structure by sector was as follows:
------------------------------------------------------------------------
Number of shares Holding, %
------------------------------------------------------------------------
Public entities, total 33,632,677 9.90
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Financial and insurance institutions, total 38,651,986 11.38
------------------------------------------------------------------------
Households 19,656,349 5.79
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Private corporations, total 98,276,466 28.93
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Non-profit organisations, total 8,507,969 2.51
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Foreign owners, total 1,585,294 0.47
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Nominee-registered 139,379,813 41.03
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Total 339,690,554 100.00
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Sponda's 10 largest shareholders are:
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Shareholder Number of shares % of shares
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1 Mercator Invest Ab 95,344,608 28.07
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2 HC Fastigheter Holding Oy Ab 34,181,172 10.06
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3 Varma Mutual Pension Insurance Company 29,083,070 8.56
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4 Åbo Akademi University Foundation 4,957,430 1.46
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5 The State Pension Fund 3,950,000 1.16
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6 OP-Finland Value Fund 1,698,952 0.50
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7 OP-Finland Small Cap Fund 1,518,678 0.45
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8 Skagen M2 Fund 758,937 0.22
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9 Jane and Aatos Erkko Foundation 689,000 0.20
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10 Norvestia Plc 688,196 0.20
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Total 172,870,043 50.89
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Flagging notices
The following flagging notices were issued during and after the review period:
* Stock Exchange Release 7 June 2017: The holding of Polar Bidco S.à r.l. in
Sponda Plc's shares is 7.50% (25,465,390 shares).
* Stock Exchange Release 8 June 2017: The holding of Polar Bidco S.à r.l. in
Sponda Plc's shares is 11.77% (39,978,703 shares).
* Stock Exchange Release 6 July 2017: The holding of Polar Bidco S.à r.l. in
Sponda Plc's shares is 15.18% (51,570,566 shares).
* Stock Exchange Release 20 July 2017: The holding of Mercator Invest Ab in
Sponda Plc's shares is 0% (0 shares).
* Stock Exchange Release 20 July 2017: The holding of Polar Bidco S.à r.l. in
Sponda Plc's shares is 96.78% (328,748,635 shares).
* Stock Exchange Release 21 July 2017: The holding of Hartwall Capital Oy Ab
in Sponda Plc's shares is 0% (0 shares).
* Stock Exchange Release 21 July 2017: The holding of Varma Mutual Pension
Insurance Company in Sponda Plc's shares is 0% (0 shares).
RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE
Sponda estimates that the risks and uncertainty factors for 2017 are mainly
related to the following areas:
The slower than expected positive development of the Finnish economy may cause a
decline in the occupancy rate and tenant insolvency. Also change in demand for
space, caused by for example technological development, may have a negative
impact on the development of occupancy rate and net operating income.
Statutory requirements related to the strengthening of banks' solvency may lead
to weakening availability of bank financing. Uncertainty about the development
of the world economy and interest rates may affect the pricing of other debt
financing.
In Russia, the risks are mainly related to the development of the Russian
economy and its impact on the sale of Sponda's properties in Russia in 2017.
PROSPECTS FOR 2017
Sponda provides prospects for 2017 with regard to the development of the
company's net operating income and adjusted EPRA Earnings.
Net operating income
Sponda estimates that the net operating income for 2017 will amount to EUR
182-192 million. This estimate is based on property sales in 2016 and estimated
sales in 2017. The development of net operating income will also be affected by
the increase in property taxes in 2017 as well as one large property being
vacated for renovation.
Adjusted EPRA Earnings
Sponda estimates that company adjusted EPRA Earnings in 2017 will amount to EUR
106-116 million. This estimate is based on property sales in 2016 and estimated
sales in 2017. The development of net operating income will also be affected by
the increase in property taxes in 2017 as well as one large property being
vacated for renovation.
EVENTS AFTER THE PERIOD
On 17 July, Polar Bidco S.à r.l. announced the preliminary result of its tender
offer to purchase all shares in Sponda Plc. The full release is available on the
company website.
On 18 July, Polar Bidco S.à r.l. announced the final result of its tender offer
to purchase all shares in Sponda Plc. The full release is available on the
company website.
On 19 July, Polar Bidco S.à r.l. announced that it has supplemented the tender
offer document dated 12 June 2017 regarding the tender offer. The full release
is available on the company website.
4 August 2017
Sponda Plc
Board of Directors
Additional information:
Kari Inkinen, President and CEO, tel. +358 20 431 3311 or +358 400 402 653,
Pia Arrhenius, SVP, Corporate Planning and IR, tel. +358 20 431 3454 or
+358 40 527 4462
Niklas Nylander, CFO, tel. +358 20 431 3480 or +358 40 754 5961
Distribution:
NASDAQ OMX Helsinki
Media
www.sponda.fi
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