Sponda Plc’s INTERIM REPORT January-March 2012
4 May 2012 at 8:30 a.m.
Sponda Plc’s interim report January-March 2012
Sponda Plc’s total revenue increased by nearly 13% compared to the first quarter of 2011, reaching EUR 66.0 million (31 March 2011: EUR 58.6 million). Net operating income after property maintenance costs and direct costs for funds increased by 16% and totalled EUR 46.1 (39.6) million for the period. Sponda’s operating profit was EUR 43.6 (37.4) million. The economic occupancy rate increased by 0.2 percentage points from the end of the year to 88.4% (88.2%).
Result of operations and financial position 1 January 31 March 2012 (compared with 1 January 31 March 2011)
— Total revenue was EUR 66.0 (58.6) million.
— Net operating income was EUR 46.1 (39.6) million.
— Operating profit was EUR 43.6 (37.4) million. The operating profit includes a fair value change of EUR 2.8 (3.1) million.
— Cash flow from operations per share was EUR 0.09 (0.07).
— The fair value of the investment properties amounted to EUR 3,177.4 (2,916.0) million.
— Net assets per share totalled EUR 3.98 (3.82).
— The economic occupancy rate was 88.4% (88.2%).
— The future outlook remains unchanged with regard to net operating income, but estimates concerning the development of the economic occupancy rate are adjusted from the previous report.
Key figures according to EPRA Best Practices Recommendations
President and CEO Kari Inkinen
Development in the first quarter of 2012 was positive, particularly in terms of the occupancy rate of Sponda’s properties. I am especially pleased that the demand for logistics properties has picked up despite statistics indicating that Finnish exports have yet to begin increasing after the economic downturn. In response to our success in letting operations and the improved prospects in letting business, we have changed Sponda’s future outlook to reflect the more positive expectations regarding occupancy rates.
Both of Sponda’s active property development projects, Citycenter and the office property in Ruoholahti, are progressing according to plan. Sponda does not currently have other major development projects underway. Ratina shopping centre project is pending a decision. We still expect the project to begin before the end of the year.
Business conditions – Finland
The prevailing uncertainty is reflected in the considerable range of variation in forecasts of economic growth for 2012 (-1.5% and 1.9%) Finland’s GDP growth in 2011 was approximately 2.9% and the Ministry of Finance forecasts 0.8% growth for 2012. Economic growth in 2012 depends largely on private consumption. The export situation continues to be problematic, particularly as economic growth is slowing down in the key export markets of Sweden and Germany.
Property markets still remain cautious. Activity in property transactions was only moderate in the first quarter, at EUR 0.37 billion, but the volume still exceeds the corresponding figure of EUR 0.19 billion for 2011. In the small number of transactions carried out, the prices have been high. There is still demand for high quality properties. Banks’ willingness to lend has diminished and financing is available to increasingly fewer actors on the market. Nevertheless, the transaction market has every chance of picking up as there are quality properties on sale. The availability of financing is a key factor in the reinvigoration of the markets.
Demand for rental premises has not changed much in the early part of the year. Office properties in central locations, and smaller units in particular, are still in demand. Vacancy rates for office properties in the Helsinki metropolitan area declined in 2011. The supply of premises will increase as new properties are completed, which may push the vacancy rates for office properties up.
Business conditions Russia
The Bank of Finland estimates that the Russian GDP grew by 4.3% in 2011. The forecast for 2012 has been scaled back slightly to 3.7%. The reasons for this adjustment include an expected fall in private consumption and investments in 2012.
Economic growth has propelled property markets toward positive development, with a record-setting year in 2011. The total volume of property transactions was EUR 5-6 billion.
The decrease in the vacancy rate of office premises is expected to continue in Moscow in 2012, as the economy will grow and the construction of new properties will be slower than the rise in demand. There are considerable regional variations in vacancy rates. The vacancy rate for Class A office properties is estimated to be approximately 13%. There is a lack of office premises, particularly good Class A premises, which has resulted in rising rental levels.
The office properties being built at the moment will be completed in 2012-2013, after which there is no significant construction of new buildings planned in central Moscow. In the future, construction projects will mainly be carried out outside ring road 3. Developers have also experienced problems with the availability of financing, which adds to the problems in the construction of new properties.
In St. Petersburg, market changes have been moderate and no significant rises in rents have been observed yet. Rents are less likely to increase than in Moscow, as demand is lower and there is a relatively large volume of new properties being introduced to the market in the next few years.
Operations and property assets 1 January – 31 March 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 in 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 46.1 (39.6) million in January-March 2012. Of this total, office and retail premises accounted for 52%, shopping centres for 18%, logistics premises for 16%, Russia for 11% and the Real Estate Funds unit for 3%.
On 31 March 2012, Sponda had a total of 200 properties, with an aggregate leasable area of approximately 1.5 million m². Of this, some 51% is office and retail premises, 11% shopping centres and 35% logistics premises. 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 March 2012, the fair value of Sponda’s properties was assessed internally for both Finland and Russia. The change in the fair value of the investment properties was EUR 0.9 (1.7) million. The positive change in the value in Finland was mainly due to successful renting and changes in market rents.
The changes in Sponda’s investment property assets were as follows:
The economic occupancy rates by type of property and geographical area were as
Sponda expects the vacancy rates of its investment properties at year’s end 2012 to be largely unchanged from the end of 2011. The earlier estimate of vacancy rates increasing slightly in 2012 has been adjusted upwards in response to the success in letting operations and the improved prospects for the remainder of the year.
Comparable net operating income (excluding any sales of properties) in 2012 is expected to increase moderately compared to 2011. This expected increase is based on the purchases of properties and the completed property development projects in 2011.
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 shrinking of growth may affect the operations of Finnish companies and thereby increase vacancy rates of commercial 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.
4 May 2012
Board of Directors
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.
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