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2012-11-02 07:30:00 CET 2012-11-02 07:30:06 CET REGULATED INFORMATION Sponda - Interim report (Q1 and Q3)Sponda Plc’s interim report January-September 2012Sponda Plc Interim Report 2 November 2012 at 8:30 am Sponda Plc's interim report January-September 2012 Result of operations and financial position 1 January - 30 September 2012 (compared with 1 January - 30 September 2011) -- Total revenue was EUR 198.2 (183.3) million, an increase of over 8% compared to the reference period. -- Net operating income increased by approximately 10%, totalling EUR 144.8 (131.8) million. -- Operating profit was EUR 140.9 (154.6) million. This includes a fair value change of EUR 11.7 (32.9) million. -- Cash flow from operations per share was EUR 0.28 (0.27). -- The fair value of the investment properties amounted to EUR 3,213.9 (3,128.8) million. -- Net assets per share totalled EUR 4.12 (3.93). -- The economic occupancy rate decreased to 88.0% (88.2%). -- The future prospects for the occupancy rate remain unchanged, but the prospects are adjusted with regard to the growth of net operating income. -- Net financing costs for the period totalled EUR -44.4 (-55.2) million. Financial income and expenses include EUR 4.1 (-7.7) million in unrealised change in the fair value of derivatives. Excluding the aforementioned change in fair value, financial income and expenses totalled EUR -48.5 (-47.5) million. Result of operations and financial position 1 July - 30 September 2012 (compared with 1 July - 30 September 2011) -- Total revenue was EUR 66.0 (63.1) million. -- Net operating income was EUR 50.2 (47.3) million. -- Operating profit was EUR 48.0 (47.1) million. The operating profit includes a fair value change of EUR 2.9 (4.6) million. -- Cash flow from operations per share was EUR 0.10 (0.09). -- Financial income and expenses amounted to EUR -14.6 (-22.9) million. Financial income and expenses include EUR 1.5 million in unrealised change in the fair value of derivatives. Excluding the aforementioned change in fair value, financial income and expenses totalled EUR -16.2 million. Key figures 7-9/2012 7-9/2011 1-9/2012 1-9/201 1-12/201 1 1 -------------------------------------------------------------------------------- Total revenue, M€ 66.0 63.1 198.2 183.3 248.2 Net operating income, M€ 50.2 47.3 144.8 131.8 179.4 Operating profit, M€ 48.0 47.1 140.9 154.6 209.6 Earnings per share, € 0.08 0.06 0.24 0.25 0.39 Cash flow from operations per 0.10 0.09 0.28 0.27 0.37 share, € Net assets per share, € 4.12 3.93 4.06 Equity ratio, % 38 38 38 Interest cover ratio 2.7 2.8 2.7 Key figures according to EPRA Best Practices Recommendations 7-9/2012 7-9/2011 1-9/2012 1-9/2011 1-12/201 1 -------------------------------------------------------------------------------- EPRA Earnings, M€ 22.0 18.4 61.5 55.7 75.4 EPRA Earnings per share, € 0.08 0.07 0.22 0.20 0.27 EPRA NAV/share, € 4.88 4.68 4.84 EPRA Net Initial Yield (NIY), 6.38 6.30 6.39 % EPRA, "topped-up" NIY, % 6.39 6.31 6.40 President and CEO Kari Inkinen The challenges posed by the general economic conditions are currently reflected on the Finnish property market. There have been signs during the autumn of a decline in the demand for rental properties, especially outside Helsinki CBD area. The economic occupancy rate for Sponda declined by 0.9 %-points from the second quarter to 88.0%. This decrease was primarily due to a fall in the occupancy rate of the Russia business unit's office premises and sales of logistics properties carried out in July 2012. I am confident that the higher vacancy rates are short-term in nature due to the attractive locations of our office properties in Moscow. The occupancy rate and demand for business premises in Helsinki CBD remain at a good level. The situation with regard to areas outside the business district is stable. Sponda's active property development projects, Citycenter and the office property in Ruoholahti, are proceeding according to plan. The final phase of the Citycenter project, which is currently underway, will add retail premises on the Keskuskatu side. We are still waiting to reach a satisfactory advance occupancy rate before making the investment decision regarding the shopping centre in Ratina. However, we are ramping up preparations in response to increased interest and demand in order to be ready to begin construction in summer 2013. Business conditions - Finland The eurozone and the Finnish economy continue to suffer from prolonged uncertainty. The Finnish Ministry of Finance forecasts Finnish GDP to grow by 1% this year and to maintain that same rate of growth in 2013. This year's economic growth is largely based on domestic demand. Next year's growth is expected to be boosted by exports. In spite of the difficult economic conditions, the unemployment rate has remained stable. The Ministry of Finance predicts that unemployment will fall to 7.6%. There have been three significant transactions in the transaction market so far in the second half of the year. The buyer in these transactions was an international investor, which indicates that the Finnish market is seen as an attractive and safe investment. Investment demand is almost entirely focused on prime properties with steady cash flow, but there are few such properties available. The number of transactions has been low since the summer, with the most recent property transactions having been made in the rental apartment sector. According to a preliminary estimate by KTI Property Information, the transaction volume from the beginning of the year to the end of September was EUR 1.47 billion. The full year volume is expected to be approximately EUR 2 billion. This would represent a moderate increase in transaction volume compared to the EUR 1.77 billion seen in 2011. Vacancy rates for office properties in the Helsinki metropolitan area have been decreasing for two years. The rate of the decline has slowed this year, with vacancy rates at 10.2% at the end of June according to Catella Property. Brisk demand for rental property in Helsinki's central business district has seen vacancy rates fall to 4.9% (Catella). Rent levels in these areas have increased. Vacancy rates have begun to increase somewhat in Leppävaara, along the Länsiväylä highway and in Ruoholahti. The increase in rent levels has levelled off in all prime locations with the exception of the central business district. Economic uncertainty and the increased supply of office properties are expected to have a negative impact on vacancy rates. Business conditions - Russia According to the Bank of Finland, Russian GDP growth will slow down to 3.7% during the remainder of the year. The current forecast for Russian economic growth in 2013 is also 3.7%. Private consumption remains strong, but growth is slowing down. The uncertain export outlook for oil and gas is contributing to slower export growth. At the end of September 2012, the transaction volume for the year stood at USD 5 billion. In spite of increased activity in the property market in the third quarter, the total volume looks to fall short of the USD 8.3 billion seen last year, with current estimates indicating that the volume for the full year will be approximately USD 6.5 billion. (JLL) The average vacancy rate for office premises in Moscow has increased by approximately one percentage point compared to the previous quarter. In the third quarter, some 170,000 m² of new office space was added to the market, which suggests that demand is strong despite the slight increase in the vacancy rate. Rent levels are unchanged from the previous quarter and expected to remain so for the rest of the year (CBRE). Approximately 400,000 m² in new office space has already been completed in 2012, and the total for the full year is expected to be approximately 700,000 m². Of the new office premises completed this year, only one fifth is located in central Moscow. The majority, or 60%, lies outside ring road 3 (JLL). Construction activity in central Moscow is declining and the focus of new construction projects will increasingly be on business districts outside ring road 3. The property market in St. Petersburg continues to see only moderate changes. The average vacancy rate has remained unchanged at approximately 10% throughout the year. The vacancy rate for Class A office space has declined slightly, while the vacancy rate for Class B office space has increased somewhat. Changes in rent levels are in line with the trends in vacancy rates, as Class A properties have seen a slight increase and Class B properties a moderate decline. Rent levels are expected to remain largely unchanged during the remainder of the year. New construction activity is relatively high compared to the size of the market. A total of some 200,000 m² of new office space will be completed this year, with a similar increase projected for 2013. The total amount of Class A and Class B office space is currently slightly over 2 million m² (JLL). Operations and property assets 1 January - 30 September 2012 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 into 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 144.8 (131.8) million in January-September 2012. Of this total, office and retail premises accounted for 54%, shopping centres for 17%, logistics premises for 15%, Russia for 11% and the Real Estate Funds unit for 3%. On 30 September 2012, Sponda had a total of 189 properties, with an aggregate leasable area of approximately 1.5 million m². Of this, some 53% is office and retail premises, 11% shopping centres and 33% logistics premises. Some 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 September 2012, the fair value of Sponda's properties was assessed internally for both Finland and Russia. The change in fair value of the investment properties in January-September was EUR 6.0 (31.3) million and in July-September alone EUR 1.4 (3.3) million. The positive change in the value in Finland was mainly due to successful renting and changes in market rents. No changes were made to the yield requirements for properties. The changes in fair values are itemised in the table “Valuation gains/losses on fair value assessment”. The changes in Sponda's investment property assets were as follows: Investment Total Office Shopping Logist Property Russia properties, total, and centres ics developmen 1 January - 30 retail t September 2012 M€ Operating income 192.8 107.3 31.5 32.5 0.3 21.2 Maintenance costs -52.2 -28.9 -7.0 -10.2 -1.3 -4.8 -------------------------------------------------------------------------------- Net operating income 140.6 78.4 24.5 22.3 -1.0 16.4 Investment properties 3,165.7 1,644.0 586.1 449.0 262.0 224.6 at 1 January 2012 Capitalised interest 0.5 0.1 0.0 0.0 0.4 0.0 2012 Acquisitions 53.0 15.2 0.0 0.0 0.0 37.8 Investments 40.0 21.1 2.3 1.0 15.4 0.3 Transfers between 0.0 -1.5 0.0 0.0 1.5 0.0 segments Sales -51.3 -6.7 -0.6 -31.5 -12.4 0.0 Change in fair value, 6.0 12.0 -3.3 -4.8 -1.3 3.4 % -------------------------------------------------------------------------------- Investment properties 3,213.9 1,684.2 584.5 413.6 265.6 266.1 at 30 September 2012 Change in fair value, 0.2 0.7 -0.6 -1.1 -0.5 1.5 % Weighted average 6.9 6.4 6.0 8.0 9.8 yield requirement % Weighted average 6.6 yield requirement %, Finland 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 2012 2012 2012 2011 2011 Office and retail, % 89.3 89.2 88.7 88.4 88.6 Shopping centres, % 93.1 93.8 93.9 94.1 93.5 Logistics, % 76.7 78.0 78.1 78.1 78.3 Russia, % 93.5 99.0 98.7 98.7 98.8 Total property 88.0 88.9 88.4 88.2 88.2 portfolio, % Geographical area 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 2012 2012 2012 2011 2011 Helsinki Business 87.9 87.8 87.9 85.6 86.8 District, % Helsinki Metropolitan 85.5 86.2 85.6 86.2 86.0 Area, % Turku, Tampere, Oulu, 94.8 94.2 94.3 96.1 95.3 % Russia, % 93.5 99.0 98.7 98.7 98.8 Total property 88.0 88.9 88.4 88.2 88.2 portfolio, % Investments/divestments In January-September 2012, Sponda sold investment properties for a total of EUR 52.9 million and recorded a profit of EUR 1.7 million on the sales transactions. The balance sheet value of the properties sold was EUR 51.3 million. During the reporting period, Sponda purchased properties for a total of EUR 53.0 million. Out of this, EUR 0.3 million was purchased during the third quarter. Investments in property maintenance totalled EUR 17.0 million in January-September, with EUR 5.3 million of this in the third quarter. The company invested EUR 23.0 million in property development, EUR 10.5 million of this in July-September. Property development investments were primarilydirected to the modernisation of the Citycenter property in Helsinki's central business district and the development of an office property in Ruoholahti. Events after the end of the period In October, pursuant to Section 2(9) of the Finnish Securities Market Act, Solidium Oy announced that, as of 18 October 2012, its share of ownership of Sponda Plc fell below the 1/10 (10%) and 1/20 (5%) threshold levels and that its current share of ownership of Sponda Plc is 0%. In October, pursuant to Section 2(9) of the Finnish Securities Market Act, Oy PALSK AB announced that, as of 18 October 2012, its share of ownership of Sponda Plc rose above the 1/10 (10%) threshold and that its current share of ownership of Sponda Plc is 14.89%. Prospects Sponda expects the vacancy rates of its investment properties at year end 2012 to be largely unchanged from the end of 2011. The estimate is based on the changes in rental agreements and leases already signed. Net operating income in 2012 is expected to increase by 6-8% compared to 2011. This expected increase is based on increases in rent levels and the growth of the company's property assets. 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 European economic crisis and relate to a decline in economic occupancy rates and a fall in rental income resulting from the insolvency of tenants. The development of the Finnish economy will be particularly affected by the continuation of the public debt crisis in Europe. The slowing of growth may affect the operations of Finnish companies and thereby increase vacancy rates of office properties. 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. 2 November 2012 Sponda Plc Board of Directors 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 Media www.sponda.fi |
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