SPONDA PLC’S HALF YEAR FINANCIAL REPORT JANUARY-JUNE 2018
20.9.2018 klo 08:30
SPONDA PLC’S HALF YEAR FINANCIAL REPORT JANUARY-JUNE 2018:
JANUARY-JUNE IN BRIEF (compared with 1 January – 30 June 2017)
- Total revenue decreased to EUR 128.9 (133.0) million.
- Net operating income was EUR 82.6 (88.8*) million.
- Operating profit was EUR 82.9 (64.1*) million. This includes a fair value change of EUR 19.0 (-20.7) million.
- Earnings per share were EUR 0.07 (0.12*).
- The fair value of the investment properties amounted to EUR 4,036.7 (3,807.5) million.
|Total revenue, M€||128.9||133.0||263.7|
|Net operating income, M€||82.6||88.8*||193.7|
|Operating profit, M€||82.9||64.1*||173.5|
|Earnings per share, €||0.07||0.12*||0.65|
|Equity per share, €||3.62||5.10*||4.49|
|Equity ratio, %||29.3||46.4*||32.0|
*) Due to a revised accounting principle, group recognised the full year’s property taxes as expenses during the review period. The comparison figures have been adjusted.
Economic growth in Finland has exceeded forecasts and is expected to remain strong in 2018. According to the Ministry of Finance’s forecast, the Finnish GDP will grow by 2.9% in 2018. The improvement of the economy also has a positive impact on employment. According to Statistics Finland, the unemployment rate was 6.5% at the end of July 2018.
GROUP RESULT IN JANUARY-JUNE 2018
Sponda Group’s result for January-June was EUR 22.8 (41.9) million and the result before taxes was EUR 30.4 (39.8) million. Operating profit was EUR 82.9 (64.1) million.
Net operating income decreased by approximately 7% and totalled EUR 82.6 (88.8) million. The development of net operating income was negatively affected, in particular, by two office properties being vacated due to development projects. Administrative and marketing expenses and other operating income and expenses amounted to EUR -15.8 (-12.1) million. Administrative and marketing expenses accounted for EUR 14.4 (12.2) million of this total.
Pursuant to IFRIC 21, the Group recognises a liability in the balance sheet when the obligating event occurs. In accordance with the Finnish Financial Supervisory Authority’s instructions, the Group recognised the full year’s property taxes as expenses during the review period. In previous periods, the Group periodised property taxes in the profit and loss statement based on the passage of time. In the Group’s segment information, a six-month share of property taxes has been allocated to the Others segment because, in accordance with the businesses’ internal monitoring principles, property taxes are recognised on a monthly basis. The comparison figures have been adjusted to reflect the change in accounting principles.
During the period, the Group recognised profit on sales of EUR 0.5 (10.5) million from the sales of investment and trading properties. The change in fair value of the investment properties was positive at EUR 19.0 (-20.7) million. The positive change in fair value is fully attributable to the Group’s property portfolio in Finland and the increase was particularly attributable to the development margin recognised on completed property development projects.
Financial income and expenses for the period totalled EUR -52.5 (-24.3) million. The change in financial expenses is due to refinancing arrangements made during the year. Deferred tax assets decreased by approximately EUR 6.8 million during the period.
PROPERTY ASSETS 1 JANUARY-30 JUNE 2018
On 30 June 2018, Sponda had a total of 164 leasable properties, with an aggregate leasable area of approximately 1.2 million m². Of this total, approximately 57% is office premises, 25% shopping centres and 16% 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 2018, an external consultant audited the values of Sponda’s investment properties in Finland (Catella Property Oy) and in Russia (CB Richard Ellis). The fair value of the investment properties totalled approximately EUR 4.0 billion at the end of June 2018.
Valuation gains/losses on fair value assessment
|Changes in yield requirements (Finland)||23.8||15.2||46.2|
|Changes in yield requirements (Russia)||0.0||0.0||0.0|
|Development gains on property development projects||24.8||5.4||13.9|
|Change in market rents and maintenance costs (Finland)||-5.1||-9.6||2.8|
|Change in market rents and maintenance costs (Russia)||-6.0||-13.0||-15.8|
|Change in currency exchange rates||-4.2||-0.3||-2.6|
|Investment properties, total||19.0||-20.7||6.7|
|Real estate funds||0.0||0.0||-1.7|
|Realised share of fund profits||0.0||0.0||0.0|
Changes in Sponda’s investment property assets 1 January-30 June 2018
|Net operating income||90.4||56.1||31.0||-0.5||3.8|
|Investment properties on 1 January 2018||3,935.3||2,229.0||1,221.5||305.8||179.1|
|Investment properties held for sale on 1 January 2018||–||–||–||–||–|
|Capitalised interest 2018||1.9||–||–||1.9||–|
|Transfers between segments/asset items||–||40.8||295.0||-335.8||–|
|Change in fair value||19.0||-5.0||9.8||25.3||-11.1|
|Reclassifications to non-current assets held for sale||–||–||–||–||–|
|Investment properties on 30 June 2018||4,036.7||2,276.2||1,528.4||63.5||168.5|
|Change in fair value, %||0.5||-0.2||0.8||8.3||-6.2|
At the end of June 2018, Sponda had 1,913 clients and a total of 3,148 lease agreements.
All of Sponda’s lease agreements in Finland are tied to the cost of living index.
The average length of all lease agreements was 3.6 (3.9) years. The average length of lease agreements was 3.9 (3.9) years for office properties and 3.9 (4.3) years for shopping centres.
The lease agreements expire as follows:
|% of rental income||Total property portfolio|
|Within 1 year||18.6||18.8||17.0|
|Within 2 years||12.5||11.9||12.8|
|Within 3 years||12.9||11.3||10.3|
|Within 4 years||13.2||10.9||12.6|
|Within 5 years||7.5||12.2||11.3|
|Within 6 years||4.4||2.3||3.4|
|After more than 6 years||19.4||21.6||20.5|
RESULTS BY SEGMENT
The reporting segments are as follows: Office Properties, Shopping Centres, Property Development, Non-Strategic Holdings and the Other segment. The Non-Strategic Holdings segment includes the remaining logistics properties, properties in Russia and the Property Investment Companies segment. The Other segment includes expenses not allocated to any of the Group’s businesses.
The Office Properties segment is responsible for the leasing, purchase and sales of office premises in Finland.
Total revenue in the first half of 2018 amounted to EUR 80.2 (85.5) million and net operating income was EUR 56.3 (62.5) million.
|Total revenue, M€||80.2||85.5||170.1|
|Net operating income, M€*||56.3||62.5||125.6|
|Operating profit, M€*||44.8||46.0||109.5|
|Fair value of properties, M€||2,276.2||2,195.6||2,229.0|
|-excludes properties classified as held for sale, M€||–||8.1||–|
|Change in fair value from beginning of year, M€||-5.0||-11.9||-6.4|
|Leasable area, m²||800,000||801,500||800,500|
*Based on segment reporting and therefore including property taxes for six months only
The Shopping Centres segment is responsible for the leasing, acquisition and sale of shopping centres and retail premises in Finland. Total revenue in the first half of 2018 amounted to EUR 40.8 (37.9) million and net operating income was EUR 30.9 (29.2) million.
|Total revenue, M€||40.8||37.9||76.2|
|Net operating income, M€*||30.9||29.2||59.6|
|Operating profit, M€*||35.8||26.1||71.8|
|Fair value of properties, M€||1,528.4||1,198.1||1,221.5|
|Change in fair value from beginning of year, M€||9.8||0.1||19.1|
|Leasable area, m²||255,000||201,500||201,500|
*Based on segment reporting and therefore including property taxes for six months only
The Property Development segment is responsible for the marketing and implementation of new property development projects. Property development operations comprise new construction projects and the refurbishment of existing properties.
The balance sheet value of Sponda’s property development portfolio stood at EUR 63.5 million at the end of June 2018. Of this total, EUR 48.5 million was in undeveloped land sites and the remaining EUR 15.0 million was tied up in property development projects in progress. The value of unused building rights is presented in the assets of the segment concerned for investment properties that have a building, and as part of the Property Development segment for building rights for unbuilt land.
The Property Development unit invested a total of EUR 66.3 million during the first half of the year. The investments were primarily directed to the construction of the Ratina shopping centre and the office and retail complex in Tikkurila, which were both completed during the reporting period. The total investment in the Ratina shopping centre was approximately EUR 250 million and the total investment in the project in Tikkurila was EUR 31.6 million.
The Non-Strategic Holdings segment includes the remaining logistics properties and properties in Russia.
The fair value of the investment properties in the Non-Strategic Holdings segment stood at EUR 168.5 million at the end of June. Of this total, logistics properties accounted for EUR 80.8 million and properties in Russia for EUR 87.7 million.
Sponda’s holding in Russia Invest, which invests in property development projects in Russia, is 27%. Russia Invest owns a 55% share in the Okhta Mall shopping centre project, which is Phase I of the Septem City project located in St Petersburg. Sponda’s investment amounted to approximately EUR 20.7 million at the end of June 2018.
FINANCING AND BALANCE SHEET KEY FIGURES
Sponda Group’s interest-bearing debt grew significantly year-on-year due to refinancing activities. Interest-bearing debt amounted to EUR 2,893 (1,939) million at the end of June 2018. The Group’s cash funds totalled EUR 69 (33) million and net debt was EUR 2,824 (1,906) million. The debt portfolio comprised EUR 320.5 million in bonds and EUR 2,571 million in loans from financial institutions. At the end of June, Sponda had EUR 26.9 million in credit limits for investment projects. The level of loans from financial institutions grew significantly as Sponda had a higher amount of mortgaged loans than before. Total mortgaged loans amounted to EUR 2,599 million, or approximately 61% of the consolidated balance sheet, at the end of June.
The key balance sheet figures changed significantly due to said refinancing, dividends paid and equity repayment. Sponda’s equity ratio at the end of June stood at 29.3% (46.4%). Loan to Value (LTV), based on net debt, was 69.3% (49.3%). The weighted average maturity of Sponda’s loans was 1.5 (2.2) years. The average interest rate was 3.7% (2.4%) including interest derivatives and periodised arrangement fees. Fixed-rate and interest-hedged loans accounted for 60% (64%) of the loan portfolio.
Sponda’s net financing costs for the period totalled EUR -52.5 (-24.3) million. Interest expenses of EUR 1.9 (1.2) million were capitalised. Net cash flow from operations in the period under review totalled EUR 34.1 (68.6) million. Net cash flow from investing activities was EUR -70.0 (-56.0) million and the net cash flow from financing activities was EUR -623.7 (7.8) million.
Balance sheet key figures
|Equity ratio, %||29.3||46.4||32.0|
|Loan to Value (LTV)*, %||69.3||49.3||61.8|
|Interest-bearing debt, EUR million||2,893||1,939||3,186|
|Cash reserves, EUR million||69||33||729|
|Credit limits for investment projects, EUR million||27||0||47|
*) Based on net debt
Sponda Plc is part of Polar TopCo S.à r.l. Group, based in Luxembourg.
Sponda Group comprises the parent company Sponda Plc and its wholly- or partly-owned Finnish limited liability companies and property companies. The Group also includes the foreign subsidiaries owned by Sponda Russia Ltd.
Kai Aejmelaeus was appointed as Sponda’s new President and Chief Executive Officer on 12 February 2018 and he subsequently took up his post in April. Aejmelaeus succeeds Kari Inkinen, who moved into a new role as Senior Advisor and board member of Sponda.
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
There were no significant events after the review period.
20 September 2018
Board of Directors
For further information, please contact:
Kai Aejmelaeus, President and CEO, tel. +358 20 431 3340
Joonas Mäkipeska, CFO, tel. +358 20 431 3480
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