Sponda Plc FINANCIAL STATEMENTS Bulletin 1 January – 31 December 2015
Financial Statements Bulletin
4 February 2016 at 8:30
Sponda Plc Financial Statements Bulletin 1 January – 31 December 2015
JANUARY-DECEMBER 2015 IN BRIEF (compared with 1 January – 31 December 2014)
— Total revenue was EUR 230.5 (246.7) million. The decline was mainly due to properties sold in 2014.
— Net operating income was EUR 165.7 (176.0) million.
— Operating profit was EUR 178.1 (151.7) million. This includes a fair value change of EUR 23.2 (-0.2) million.
— Cash flow from operations per share was EUR 0.36 (0.37).
— The fair value of the investment properties amounted to EUR 3,101.7 (3,142.1) million.
— Net assets per share totalled EUR 5.26 (4.65).
— The economic occupancy rate was 87.7% (87.0%).
— The Board proposes to the Annual General Meeting that a dividend of EUR 0.19 per share be paid.
— After the reporting period, Sponda announced the acquisition of six properties from the Helsinki CBD.
OCTOBER-DECEMBER 2015 IN BRIEF (compared with 1 October – 31 December 2014)
— Total revenue was EUR 57.2 (57.3) million.
— Net operating income was EUR 41.3 (40.4) million.
— Operating profit was EUR 47.8 (32.9) million. This includes a fair value change of EUR 10.3 (1.6) million.
— Cash flow from operations per share was EUR 0.07 (0.09).
KEY FIGURES ACCORDING TO EPRA BEST PRACTICES RECOMMENDATIONS
PRESIDENT AND CEO KARI INKINEN
The rental market in Finland was challenging in 2015, with the market occupancy rate of office premises, in particular, declining. Sponda’s core business in the Office Properties and Shopping Centres segments, however, remained stable and outperformed the market. The result and economic occupancy rate of the core business were significantly better than those of the other segments.
We made progress in strategic divestments and investments in line with our targets, which substantially lowered the risk profile of Sponda’s property portfolio. In Russia, we sold two properties in summer 2015 at their fair value, EUR 39 million, in spite of the market’s instability.
In Finland, we continued to implement our strategy by selling Sponda’s approximately 38% holding in Certeum Oy and our properties located in Vuosaari harbour, for a total of approximately EUR 290 million. Both transactions were completed in late 2015 and they represent a significant step in the implementation of our strategy. Also positive was the fact that the transactions were made either at fair value or at a profit.
Sponda’s property development projects progressed on schedule. We completed our office property project in Ilmala in late 2015. The tenant moved in in December 2015 and the property is fully leased. Sponda’s development margin on the project was significantly above its target level, which is 15% of the invested amount. Sponda currently has one active property development project underway, namely the Ratina shopping centre in Tampere. The project is progressing according to plan, as is the pre-letting of the property. The property will be completed in spring 2018.
Sponda will continue to implement its strategy in 2016 by selling properties and reinvesting the proceeds from the sales. Investments will be directed to property development projects and property acquisitions in Sponda’s key strategic areas in Helsinki and Tampere. After the reporting period Sponda announced that it has signed an agreement to acquire six properties from the Helsinki CBD. These properties fit perfectly to our strategy and to our property portfolio.
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 changed significantly. The reduction in deferred taxes, caused by dissolving the sub-group and recognised in the financial statements, for the year 2015 was approximately EUR 129 million. The change was discussed in the interim report published on 3 November 2015.
BUSINESS CONDITIONS – FINLAND
A forecast by the Finnish Ministry of Finance in December 2015 predicted that Finland’s GDP would grow by 0.2% in 2015. The most significant factor contributing to the growth of the domestic economy is the favourable development of private and public consumption. The GDP growth forecast for 2016 is 1.2%, attributable to consumption growth as well as private investments.
According to KTI Property Information, the property transaction volume for the final quarter of 2015 was EUR 1.33 billion, and the full-year volume was EUR 5.46 billion. This means that the transaction volume in 2015 was the second-highest ever in Finland. The annual transaction volume of property transactions was higher only in 2007. International investment demand remained strong in 2015, with international investors accounting for 34% of the transaction volume.
The construction of new office properties has picked up slightly compared to 2014, but remains at a fairly low level. According to Catella, some 86,000 m2 of new office space was completed in the office premises market in the Helsinki metropolitan area by the end of 2015, which is more than 50% higher than in 2014.
The vacancy rate of office premises in the Helsinki metropolitan area declined slightly in the second half of the year in spite of the weak economic climate. According to Catella, the average vacancy rate stood at 13.3% at the end of the year.
OPERATIONS AND PROPERTY ASSETS 1 JANUARY – 31 DECEMBER 2015
At the end of 2015, an external consultant assessed the values of Sponda’s investment properties in Finland (Catella Property Oy) and in Russia (CB Richard Ellis). The change in fair value of the investment properties in 2015 was EUR 23.2 (-3.9) million for the full year and EUR 10.3 (1.5) million for October-December. The value of Sponda’s properties in Finland developed favourably primarily due to a decrease in yield requirements, especially with regard to central business district properties. Another factor contributing to the increase in fair value was the development margin of property development after the Ilmala office project was completed. The negative change in the fair value of properties in Russia was attributable to changes in market rents.
Valuation gains/losses on fair value assessment
Sponda defined the fair values of its investment properties at the end of 2015 in accordance with the company’s established accounting principles. At the end of 2015, Catella Property Oy assessed the fair values of Sponda’s investment properties in Finland and CB Richard Ellis in Russia. 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.
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 3.3% (-3.0%) for office premises, 1.3% (3.2%) for shopping centres, 27.8% (-11.3%) for logistics premises and -4.3% (-10.7%) for properties in Russia. 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:
DIVESTMENTS AND INVESTMENTS
*) Includes transaction costs
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 2016.
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 2016
Sponda provides prospects for 2016 with regard to the development of the company’s net operating income and adjusted EPRA Earnings. The prospects do not include the effect of the acquisition of six properties on Sponda’s result.
Net operating income
Sponda estimates that the net operating income for 2016 will amount to EUR 152-168 million. The estimate is based on the company’s view of property acquisitions and divestments to be completed and the development of rental operations during the year.
Adjusted EPRA Earnings
Sponda estimates that company adjusted EPRA Earnings in 2016 will amount to EUR 82-98 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
In its meeting held on 25 January 2016, the Shareholders’ Nomination Board of Sponda Plc has decided to give proposal to the Annual General Meeting to be held on 21 March 2016 for the number of members of the Board of Directors, for the members of the Board and the remuneration of the Board. The proposals of the Nomination Board can be found from the Stock Exchange Release dated 25.1.2016.
In February 2016, Sponda signed a purchase agreement for acquiring Ab Mercator Oy that holds six properties in the centre of Helsinki and Ab Forum Capita Oy, that manages those properties from Forum Fastighets Kb and Föreningen Konstsamfundet r.f. The properties are located in the Forum block in Helsinki CBD. Total, debt-free purchase price is approximately EUR 576 million. Estimated net operating income after the first year is approximately 4.9%. Purchase price is subject to customary balance sheet and other adjustments. Closing of the transaction is by 29th February 2016.
Sponda will finance the transaction with cash and with approximately EUR 300 million bridge loan. Sponda is planning to organize a rights issue in order to maintain current capital structure and equity ratio level. More details on the transaction can be found from the Stock Exchange Release dated 4.2.2016.
ANNUAL GENERAL MEETING AND DIVIDEND
The Board of Directors of Sponda Plc is convening the Annual General Meeting on 21 March 2016 and proposes to the Annual General Meeting that a dividend of EUR 0.19 per share be paid.
4 February 2016
Board of Directors
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 3318 or +358 40 754 5961.
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