2015-11-03 07:30:02 CET
2015-11-03 07:30:07 CET
REGULATED INFORMATION
Sponda - Interim report (Q1 and Q3)
Sponda Plc’s interim report January–September 2015
Sponda Plc Interim report 3 November 2015 at 8:30 a.m.
Sponda Plc's interim report January-September 2015
JANUARY-SEPTEMBER 2015 IN BRIEF (compared with 1 January - 30 September 2014)
-- Total revenue was EUR 173.3 (189.4) million. The decline was primarily due
to properties sold in 2014.
-- Net operating income was EUR 124.4 (135.6) million. The decline was due to
the aforementioned disposals.
-- Operating profit was EUR 130.3 (118.8) million. This includes a fair value
change of EUR 12.9 (-1.8) million.
-- Cash flow from operations per share was EUR 0.29 (0.28).
-- The fair value of the investment properties amounted to EUR 3,161.4
(3,122.3) million.
-- Net assets per share totalled EUR 4.71 (4.63).
-- The economic occupancy rate was 86.2% (86.5%).
-- The prospects were revised.
JULY-SEPTEMBER 2015 IN BRIEF (compared with 1 July - 30 September 2014)
-- Total revenue was EUR 56.7 (63.2) million.
-- Net operating income was EUR 42.2 (46.2) million.
-- Operating profit was EUR 38.3 (42.2) million. This includes a fair value
change of EUR 0.5 (0.1) million.
-- Cash flow from operations per share was EUR 0.10 (0.11).
KEY FIGURES
7-9/2015 7-9/2014 1-9/2015 1-9/201 1-12/201
4 4
Total revenue, M€ 56.7 63.2 173.3 189.4 246.7
Net operating income, M€ 42.2 46.2 124.4 135.6 176.0
Operating profit, M€ 38.3 42.2 130.3 118.8 151.7
Earnings per share, € 0.06 0.07 0.23 0.20 0.24
Cash flow from operations per 0.10 0.11 0.29 0.28 0.37
share, €
Equity per share, € 4.71 4.63 4.65
Equity ratio*, % 41.4 40.0 41.0
Interest cover ratio 3.4 3.3 3.3
*) The figure for 1-9/2014 has been adjusted as a result of
the adoption of the IFRIC 21 Levies interpretation.
KEY FIGURES ACCORDING TO EPRA BEST PRACTICES RECOMMENDATIONS
7-9/201 7-9/201 1-9/201 1-9/201 1-12/20
5 4 5 4 14
EPRA Earnings, M€ 27.4 26.7 78.7 78.4 101.6
EPRA Earnings per share, € 0.10 0.09 0.28 0.28 0.36
Company adjusted Earnings, M€ 29.1 28.6 82.5 82.2 108.7
Company adjusted Earnings per 0.10 0.10 0.29 0.29 0.38
share, €
EPRA NAV/share, € 5.58 5.39 5.45
EPRA NNNAV/share, € 4.57 4.50 4.49
EPRA Net Initial Yield (NIY), % 5.39 5.58 5.18
EPRA “topped-up” NIY, % 5.40 5.59 5.19
EPRA Vacancy rate, % 13.76 13.49 12.96
EPRA Cost Ratio (including direct 17.26
vacancy costs), %
EPRA Cost Ratio (excluding direct 11.96
vacancy costs), %
PRESIDENT AND CEO KARI INKINEN
Our rental operations continued to be stable in the third quarter. Both net
operating income and the occupancy rate were at a good level in spite of the
disposal of properties and the challenging market situation.
We currently have two property development projects in the construction phase.
The office building in Helsinki's Ilmala district will be completed at the end
of this year, while the Ratina shopping centre in Tampere will be completed in
summer 2018. The projects are on schedule and I believe that we will achieve
the target development margins set for them, which is 15% for both projects.
The implementation of our strategy is progressing according to plan. In October
we signed an agreement concerning the sale of the Certeum shares held by
Sponda. Sponda's holding is 37.9% of Certeum's share capital. The consideration
to be received by Sponda is approximately EUR 190 million and the profit on the
sale will be approximately EUR 7 million. The sale is expected to be completed
by 16 December. The transaction market is currently very active in Finland, and
this will support our strategic disposal program in Finland.
DEFERRED TAX LIABILITIES
As a consequence of dissolving an unnecessary sub-group, originating from a
portfolio transaction in 2006, and from changes in the acquisition cost of
shares, the amount of deferred taxes is expected to change significantly. The
amount of deferred taxes is affected, among other things, by the fair value
development of properties and for this reason the exact amount of change in
deferred taxes for the financial statements 2015 cannot be predicted
accurately. The current estimate is that the reduction of deferred tax
liability in the financial statements for the year 2015 will be approximately
EUR 110-130 million.
BUSINESS CONDITIONS - FINLAND
According to preliminary data from Statistics Finland, Finnish GDP grew by 0.2%
in April-June compared to the first quarter. The year-on-year increase was
0.1%. The Finnish Ministry of Finance forecasts that the economic trend will
take a slightly more positive turn in the second half of the year, and predicts
that Finnish GDP will grow by 0.2% this year. The slow growth is based on net
exports and the growth of private consumption. In 2016, Finnish GDP is expected
to increase by 1.3%, particularly due to the positive development of
investments.
The transaction market remained active in the third quarter with a volume of
EUR 1.4 billion according to KTI Property Information. The transaction volume
for the year is already at EUR 4.07 billion, which means that last year's total
of EUR 4.34 billion will be exceeded. Foreign buyers account for slightly less
than one third of the transactions. Approximately 54% of the transactions were
made in the Helsinki metropolitan area.
The vacancy rate for office premises in the Helsinki metropolitan area has
increased due to the weak economic situation, increased efficiency in the use
of office space and new construction. According to Catella, the vacancy rate
for office premises was 13.4% midway through the year.
Approximately 59,000 m2 of new office space was completed in the Helsinki
metropolitan area by the end of August, with the same amount currently under
construction. Business premises construction is seeing strong growth with
projects such as the Redi and Tripla shopping centres.
BUSINESS CONDITIONS - RUSSIA
According to the Bank of Finland, Russian GDP will decline by approximately 4%
in 2015. Oil prices, which are expected to increase slightly in the coming
years after the steep decline seen in 2014, will continue to weigh down the
Russian economy next year. The prevailing uncertainty is reducing investments
and consumption is negatively affected by the rapidly increased prices.
Tensions in eastern Ukraine, sanctions and the unclear prospects concerning the
development of economic and trade restrictions are still causing uncertainty.
The transaction market saw a substantial increase in activity compared to the
previous quarter, with the volume growing by 42.5%. According to CBRE, the
volume in the third quarter was approximately USD 0.9 billion, and the total
volume for the year was approximately USD 2 billion at the end of September. In
spite of the increase in activity, the volume is approximately 30% lower than
in the previous year. Offices represented 54% of the volume, while
international buyers accounted for 27% of the transaction volume.
Preliminary information from CBRE indicates that the average vacancy rate for
office premises in Moscow continued to increase in the third quarter and was
estimated to be 17.6%. The vacancy rate for Class A office space was 26.8%,
while the vacancy rate for Class B office space was 13.6%.
Some 0.24 million m2 of new office space was completed in Moscow in the third
quarter. Several construction projects have been delayed and the total
construction volume for the year is now expected to be 0.8 million m2, which is
nearly half of the estimates made at the start of the year.
OPERATIONS AND PROPERTY ASSETS 1 JANUARY - 30 SEPTEMBER 2015
At the end of September 2015, the fair value of Sponda's investment properties
was assessed internally for both Finland and Russia. The change in fair value
of the investment properties in January-September was EUR 12.9 (-1.8) million
and in July-September alone EUR 0.5 (0.1) million. The value of Sponda's
properties in Finland developed favourably, particularly for properties in
Helsinki's central business district, primarily due to an increase in market
rents. Positive value changes were also booked for property development
projects. The negative change in the fair value of properties in Russia was
attributable to exchange rate fluctuations. The changes in fair values are
itemised in the table “Valuation gains/losses on fair value assessment”.
Valuation gains/losses on fair value assessment
M€
7-9/15 7-9/14 1-9/15 1-9/14 1-12/1
4
Changes in yield requirements (Finland) 0.0 0.0 32.2 3.3 15.7
Changes in yield requirements (Russia) 0.0 0.0 -7.4 0.0 -10.0
Development gains on property 6.7 1.9 9.7 1.9 5.5
development projects
Modernisation investments -6.8 -11.5 -27.5 -27.7 -42.0
Change in market rents and maintenance 1.9 11.1 20.4 26.5 40.3
costs (Finland)
Change in market rents and maintenance 1.0 -8.2 -14.3 -15.1 -19.3
costs (Russia)
Change in currency exchange rates -2.4 4.1 -0.2 5.7 5.9
Investment properties, total 0.5 -2.6 12.9 -5.3 -3.9
Real estate funds 0.0 0.7 0.0 -1.9 -1.8
Realised share of real estate fund 0.0 2.0 0.0 5.5 5.5
profits
Group, total 0.5 0.1 12.9 -1.8 -0.2
Goodwill recognised in connection with the Kapiteeli acquisition will be
amortised against the property development margin of the Ratina project. The
amortisation is shown in the income statement under “Amortisation of goodwill”.
Goodwill, EUR 12 million in total, will be amortised in its entirety during the
project.
Sponda has determined the fair values of its investment properties in
accordance with the company's established accounting principles. A higher than
usual level of uncertainty is related to the valuation due to the economic
situation in Russia, sanctions and strong fluctuations in the rate of the
rouble. Especially the lack of comparable sales, changes to lease agreements
agreed upon with tenants and the rouble becoming increasingly common as the
contract currency have increased uncertainty.
RENTAL OPERATIONS
Sponda calculates the growth in net rental yield for its properties 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. Like-for-like net rental growth was 3.7% (3.8%) for office
premises, 1.7% (7.0%) for shopping centres, 16.2% (-16.7%) for logistics
premises and -6.9% (-14.2%) for properties in Russia. The like-for-like figure
for Russia is adjusted for changes in exchange rates to better reflect the true
change. 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:
Type of property 30.9.2015 30.6.2015 31.3.2015 31.12.2014 30.9.2014
Office properties, % 88.0 88.1 87.9 88.5 88.3
Shopping centres, % 90.6 89.8 90.3 91.2 89.3
Logistics, % 67.8 68.6 68.5 64.9 65.6
Russia, % 82.3 84.5 90.1 90.4 89.4
Total property 86.2 86.3 86.8 87.0 86.5
portfolio, %
Geographical area 30.9.2015 30.6.2015 31.3.2015 31.12.2014 30.9.2014
Helsinki business 89.3 88.3 88.2 89.3 88.3
district, %
Helsinki Metropolitan 83.5 83.7 83.6 83.1 83.2
Area, %
Turku, Tampere, Oulu, % 91.1 92.3 92.9 93.2 92.2
Russia, % 82.3 84.5 90.1 90.4 89.4
Total property 86.2 86.3 86.8 87.0 86.5
portfolio, %
The decline in the occupancy rate in Russia was influenced by the sale of two
fully occupied properties at the end of June 2015.
DIVESTMENTS AND INVESTMENTS
Divestments M€
1.7.- 1.7.- 1.1.- 1.1.- 1.1.-
30.9.2015 30.9.2014 30.9.2015 30.9.2014 31.12.201
4
Properties sold
Selling price 0.0 225.1 56.4 232.1 237.2
Profit/loss on sale* 0.0 0.0 -1.4 0.6 0.6
Balance sheet value 0.0 225.1 57.8 231.5 236.6
*) Includes transaction
costs
Investments M€
1.7.- 1.7.- 1.1.- 1.1.- 1.1.-
30.9.2015 30.9.2014 30.9.2015 30.9.201 31.12.201
4 4
Properties acquired 0.0 -65.0 0.0 -65.0 -65.0
Maintenance investments -6.8 -11.5 -27.5 -27.7 -42.0
Property development -14.2 -4.4 -39.8 -13.0 -22.0
investments
Property development investments were mainly directed to the construction of
office buildings in Ilmala and Lassila in Helsinki, as well as the construction
of the Ratina shopping centre in Tampere.
RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE
Sponda estimates that the risks and uncertainty factors in the current
financial year are primarily related to the development of the Finnish and
Russian economies.
In Russia, these risks are related to the decline of tenants' solvency and a
decrease in the economic occupancy rate. The depreciation of the Russian rouble
may cause tenant insolvency and a decrease in property values. The operations
in Russia present a foreign exchange risk to Sponda. Changes in exchange rates
may cause exchange rate losses that have a negative impact on the company's
financial result. The uncertain situation in the Russian market may slow down
the sale of Sponda's properties in Russia in 2015.
The weak development of the Finnish economy may cause a decline in net
operating income and tenant insolvency.
For Sponda's property development projects, the key risk is related to the
degree of success in leasing premises.
PROSPECTS FOR 2015
Sponda provides prospects for 2015 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 2015 will amount to EUR
160-166 (previously 158-168) million. The estimate is based on the company's
view of property sales to be completed and the development of rental operations
during the year.
Adjusted EPRA Earnings
Sponda estimates that company adjusted EPRA Earnings in 2015 will amount to EUR
97-103 (previously 95-105) million. This outlook is based on the development of
net operating income and the company's estimate of the development of financial
expenses.
EVENTS AFTER THE PERIOD
On 14 October 2015, Sponda announced that it has signed a sale and purchase
agreement concerning the sale of all of its shares in Certeum Ltd to Tungsten
Investment S.à r.l., a company affiliated to Blackstone Real Estate Partners
Europe IV. The consideration to be received by Sponda is approximately EUR 190
million and the profit on the sale will be approximately EUR 7 million. The
purchase price is subject to customary adjustments. The sale is expected to be
completed by 16 December 2015 and the completion is conditional upon approval
being obtained from the competition authorities.
As an integral part of Sponda's strategy, Sponda co-founded Certeum in 2014
together with Varma Mutual Pension Insurance Company, the State Pension Fund,
Sponda Fund I, Sponda Fund II and Sponda Fund III. Certeum specialises in
logistics and industrial properties. Sponda announced its plan to reduce its
ownership in Certeum when the company was first founded, and the agreed
transaction is in line with Sponda's previous announcement and strategy.
Sponda signed a EUR 80 million syndicated credit limit agreement with three
banks on 2 November 2015. The syndicated credit limit has a maturity of 5
years. The terms of the agreement correspond to the terms of Sponda's other
loans. The key covenants of the loan are linked to the equity ratio and
interest cover ratio. The credit arrangement is unsecured. The primary
creditors arranging the syndicated credit limit were Pohjola Bank Plc, Nordea
Bank Finland Plc and Danske Bank. Pohjola Bank was the coordinator for the
arrangement and will also act as the agent for the syndicated credit limit.
3.11.2015
Sponda Plc
Board of Directors
Additional information:
Kari Inkinen, President and CEO, tel. +358 20 431 3311 or +358 400 402 653 and
Pia Arrhenius, SVP, Corporate Planning and IR, tel. +358 20 431 3454 or +358 40
527 4462.
Distribution:
NASDAQ OMX Helsinki
Media
www.sponda.fi
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