SPONDA PLC’S FULL YEAR RESULT JANUARY-DECEMBER 2017
Sponda Plc
Stock Exchange Release
February 2, 2018 at 8.30 am
SPONDA PLC’S FULL YEAR RESULT JANUARY-DECEMBER 2017:
YEAR 2017 IN BRIEF (COMPARED WITH YEAR 2016)
- Total revenue increased to EUR 263.7 (259.0) million.
- Net operating income totalled EUR 193.7 (190.9) million.
- Operating profit was EUR 173.5 (206.7) million. This includes a fair value change of EUR 4.9 (26.7) million.
- Earnings per share was EUR 0.65 (0.41).
- The fair value of the investment properties amounted to EUR 3,935.3 (3,755.5) million.
- The economic occupancy rate was 89.6 (89.6)%.
OCTOBER-DECEMBER 2017 IN BRIEF (COMPARED WITH 1 OCTOBER-31 DECEMBER 2016)
- Total revenue was EUR 66.6 (65.7) million.
- Net operating income totalled EUR 48.2 (47.2) million.
- Operating profit was EUR 67.2 (73.9) million. This includes a fair value change of EUR 24.4 (33.7) million.
- Earnings per share was EUR 0.46 (0.17).
KEY FIGURES
| 10-12/2017 | 10-12/2016 | 1-12/2017 | 1-12/2016 | |
| Total revenue, M€ | 66.6 | 65.7 | 263.7 | 259.0 |
| Net operating income, M€ | 48.2 | 47,2 | 193.7 | 190.9 |
| Operating profit, M€ | 67.2 | 73.9 | 173.5 | 206.7 |
| Earnings per share, € | 0.46 | 0.17 | 0.65 | 0.41 |
| Equity per share, € | 4.49 | 5.16 | ||
| Equity ratio, % | 32.0 | 47.4 |
BUSINESS CONDITIONS
Economic growth in Finland has been stronger than estimated and the growth is expected to continue in 2018. According to the Ministry of Finance’s forecast, the Finnish GDP will grow by 2.4% in 2018. The rapid improvement of the economy also has a positive impact on employment. According to Statistics Finland, the unemployment rate was 7.1% at the end of November 2017.
GROUP RESULT IN 2017
Sponda Group’s result for 2017 was EUR 224.5 (137.5) million, while the result before taxes was EUR 98.3 (155.5) million and operating profit was EUR 173.5 (206.7) million.
Net operating profit increased by 1.5% to EUR 193.7 (190.9) million. The year-on-year increase was due to the Forum property acquisition, the effect of which is included in the comparison figures starting from March 2016. Items that had a negative effect on the development of net operating income included property sales and the negative development of the net operating income of a like-for-like portfolio, totalling EUR -1.9 million. Marketing and administration expenses and other operating income and expenses totalled EUR 32.9 (23.1) million. Marketing and administration expenses totalled EUR 25.5 (22.8) million. The increase is mainly due to the termination of the company’s share-based incentive schemes. Other operating income and expenses include approximately EUR 7 million of external consultancy fees relating to the public tender offer for all shares in Sponda.
During the period, the Group recognised profit on sales of EUR 12.9 (15.4) million from the sales of investment and trading properties. The change in fair value of the investment properties was positive, EUR 4.9 (26.7) million, mainly due to the effect of positive yield changes in Finland. The Group’s result was weighed down by amortisation of goodwill amounting to EUR 5.2 (3.1) million. The item is related to the Ratina project and will be written off once the project is completed.
Financial income and expenses for the period totalled EUR -75.2 (-51.2) million. The net amount of financial income and expenses was negatively affected by the refinancing agreements made during the last quarter. The financial costs increased due to restructuring of Sponda’s financing. Deferred tax liabilities decreased by EUR 127.4 million during the year, mainly due to the said refinancing. The main difference to prior debt structure is the fact that the debt is now on the property level.
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 on the basis of the passage of time.
PROPERTY ASSETS 1 JANUARY-31 DECEMBER 2017
At the end of 2017, Sponda had a total of 164 leasable properties, with an aggregate leasable area of approximately 1.2 million m². Of this total, approximately 60% is office premises, 22% shopping centres and 17% 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 2017, the fair value of Sponda’s investment properties was assessed externally both in Finland (Catella Property Oy) and in Russia (CB Richard Ellis). The fair value of the investment properties totalled EUR 3.9 billion at the end of 2017.
Valuation gains/losses on fair value assessment
| M€ | 10-12/2017 | 10-12/2016 | 1-12/2017 | 1-12/2016 |
| Changes in yield requirements (Finland) | 31.0 | 42.9 | 46.2 | 60.1 |
| Changes in yield requirements (Russia) | 0.0 | 0.0 | 0.0 | -4.1 |
| Development gains on property development projects | 3.4 | 2.0 | 13.9 | 7.4 |
| Modernisation investments | -10.1 | -11.2 | -37.8 | -31.0 |
| Change in market rents and maintenance costs (Finland) | 4.7 | 2.6 | 2.8 | 12.6 |
| Change in market rents and maintenance costs (Russia) | -3.1 | -2.9 | -15.8 | -14.1 |
| Change in currency exchange rates | 0.2 | 0.3 | -2.6 | -2.1 |
| Investment properties, total | 26.1 | 33.7 | 6,7 | 28.7 |
| Real estate funds | -1.7 | 0.0 | -1.7 | -2.0 |
| Realised share of fund profits | 0.0 | 0.0 | 0.0 | 0.0 |
| Group, total | 24.4 | 33.7 | 4.9 | 26.7 |
DIVESTMENTS AND INVESTMENTS
Divestments
| M€ | 1.10.- 31.12.2017 | 1.10.- 31.12.2016 | 1.1.- 31.12.2017 | 1.1.- 31.12.2016 |
| Disposals of investment properties | ||||
| Selling price | 8.2 | 9.1 | 19.0 | 36.7 |
| Profit/loss on sale *) | 0.6 | -0.1 | 4.0 | 0.8 |
| Balance sheet value | 7.6 | 9.2 | 15.0 | 35.9 |
*) Includes sales costs
Investments
| M€ | 1.10.- 31.12.2017 | 1.10.- 31.12.2016 | 1.1.- 31.12.2017 | 1.1.- 31.12.2016 |
| Properties acquired | 0.0 | -1.0 | -12.5 | -590.5 |
| Modernisation investments | -10.1 | -11.2 | -37.8 | -31.0 |
| Property development investments | -28.3 | -19.7 | -99.7 | -60.9 |
| Investment,. total | -38.4 | -31.9 | -150.1 | -682.4 |
FINANCING AND BALANCE SHEET KEY FIGURES
Sponda Group’s interest-bearing debt grew significantly during the last quarter of 2017 due to refinancing activities. Interest-bearing debt amounted to EUR 3.186 (1.863) million at the end of December 2017.The Group’s cash funds totalled EUR 729 (13) million, and net debt was EUR 2.457 (1.850) million. The debt portfolio comprised EUR 325 million in bonds, EUR 319 million in issued commercial papers, and EUR 2,542 million in loans from financial institutions. Sponda had EUR 47 million in unused credit limits. The level of loans from financial institutions grew significantly as Sponda had higher amount of mortgaged loans than before. In total, mortgaged loans amounted to EUR 2,579 million, or approximately 54% of the consolidated balance sheet.
The key balance sheet figures for the end year changed due to said refinancing, dividends paid and equity repayment. Sponda’s equity ratio on 31 December 2017 stood at 32.0% (47.4%). Loan to Value (LTV), based on net debt, was 61.8% (48.3%). The weighted average maturity of Sponda’s loans was 1.8 (2.6) years. The average interest rate was 3.4% (2.7%) including interest derivatives and periodized arrangement fees. Fixed-rate and interest-hedged loans accounted for 56% (67%) of the loan portfolio.
Sponda’s net financing costs for the period totalled EUR -75.2 (-51.2) million. Interest expenses of EUR 3.3 (1.2) million were capitalised. Net cash flow from operations in the period under review totalled EUR 61.8 (122.5) million. Net cash flow from investing activities was EUR -132.1 (-650.8) million and the net cash flow from financing activities was EUR 787.2 (318.8) million.
Balance sheet key figures
| 31.12.2017 | 30.9.2017 | 30.6.2017 | 31.3.2017 | 31.12.2016 | |
| Equity ratio, % | 32.0 | 46.8 | 46.6 | 47.4 | 47.4 |
| Average interest rate, % | 3.4 | 2.4 | 2.4 | 2.7 | 2.7 |
| Hedging, % | 56 | 57 | 64 | 72 | 67 |
| Average loan maturity, years | 1.8 | 2.0 | 2.2 | 2.4 | 2.6 |
| Loan to Value (LTV)*, % | 61.8 | 49.4 | 49.3 | 48.2 | 48.3 |
| Interest-bearing debt, EUR million | 3,186 | 1.944 | 1.939 | 1.875 | 1.863 |
| Cash reserves, EUR million | 729 | 10 | 33 | 15 | 13 |
| Credit limits for investment projects, EUR million | 47 | 0 | 0 | 0 | 0 |
| Unused credit limits. EUR million | 0 | 590 | 613 | 438 | 438 |
*) Based on net debt
SPONDA’S SHARE AND SHAREHOLDERS
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. In accordance with the agreement, Polar Bidco made a voluntary public tender offer, recommended by Sponda’s Board of Directors, to purchase all issued and outstanding shares in Sponda. Following the subsequent tender offer period, Polar Bidco S.à r.l. announced on 8 August 2017 that it has acquired 98.80% of all shares in Sponda. Polar Bidco S.à r.l. commenced redemption proceedings in respect of minority shares in Sponda by initiating arbitration proceedings in accordance with the Finnish Companies Act in order to obtain ownership of all the shares in Sponda. On 5 December 2017, Polar Bidco S.à r.l. announced, that it has obtained ownership of all the shares in Sponda and, simultaneously, Nasdaq Helsinki Ltd decided that Sponda will be delisted from the official list of Nasdaq Helsinki Ltd. The quoting of the shares in Sponda ceased on 5 December 2017.
RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE
Sponda estimates that the risks and uncertainty factors for 2018 are mainly related to the following areas:
Change in demand for space, caused by reasons such as technological development, may have a negative impact on the development of occupancy rate and net operating income.
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 2018.
PROSPECTS FOR 2018
Sponda estimates that the net operating income will slightly decline in 2018 compared to 2017. The decline is mainly due to large ongoing renovation projects that will temporarily affect rental income. The operating income, before fair valuation changes, is estimated to stay stable and be at the same level as reported in 2017. This estimate is based on two large property development projects being completed during the year. The estimates do not include the impact of possible divestments or acquisitions.
EVENTS AFTER THE PERIOD
Due to restructuring of Sponda’s financing each owner of a book value of a corporate bond had the right to present a demand for early repayment according to the terms of the bonds. Repayments of bonds amounting to EUR 4.5 million were made. The repayments concerned the EUR 175.0 million bond maturing in May 2020 and the repayments were made in January 2018 according to the terms.
BOARD PROPOSAL FOR DIVIDEND
The Board of Directors proposes a dividend or equity repayment paid to its only shareholder totaling EUR 320.5 million. The decision on the dividend will be made at the Annual General Meeting on or about the 2 February 2018.
2 February 2018
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 Coworking, 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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