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  • Sponda Plc’s INTERIM REPORT January-September 2012

Sponda Plc’s INTERIM REPORT January-September 2012

Sponda Plc                       
Interim Report 
2 November 2012 at 8:30 am



Sponda Plc's interim report January-September 2012


Result of operations and financial position 1 January - 30 September 2012
(compared with 1 January - 30 September 2011) 

  -- Total revenue was EUR 198.2 (183.3) million, an increase of over 8%
     compared to the reference period.
  -- Net operating income increased by approximately 10%, totalling EUR 144.8
     (131.8) million.
  -- Operating profit was EUR 140.9 (154.6) million. This includes a fair value
     change of EUR 11.7 (32.9) million.
  -- Cash flow from operations per share was EUR 0.28 (0.27). 
  -- The fair value of the investment properties amounted to EUR 3,213.9
     (3,128.8) million.
  -- Net assets per share totalled EUR 4.12 (3.93).
  -- The economic occupancy rate decreased to 88.0% (88.2%).
  -- The future prospects for the occupancy rate remain unchanged, but the
     prospects are adjusted with regard to the growth of net operating income.
  -- Net financing costs for the period totalled EUR -44.4 (-55.2) million.
     Financial income and expenses include EUR 4.1 (-7.7) million in unrealised
     change in the fair value of derivatives. Excluding the aforementioned
     change in fair value, financial income and expenses totalled EUR -48.5
     (-47.5) million.

Result of operations and financial position 1 July - 30 September 2012
(compared with 1 July - 30 September 2011) 

  -- Total revenue was EUR 66.0 (63.1) million.
  -- Net operating income was EUR 50.2 (47.3) million.
  -- Operating profit was EUR 48.0 (47.1) million. The operating profit includes
     a fair value change of EUR 2.9 (4.6) million.
  -- Cash flow from operations per share was EUR 0.10 (0.09).
  -- Financial income and expenses amounted to EUR -14.6 (-22.9) million.
     Financial income and expenses include EUR 1.5 million in unrealised change
     in the fair value of derivatives. Excluding the aforementioned change in
     fair value, financial income and expenses totalled EUR -16.2 million.

Key figures



                                 7-9/2012  7-9/2011  1-9/2012  1-9/201  1-12/201
                                                                     1         1
--------------------------------------------------------------------------------
Total revenue, M                    66.0      63.1     198.2    183.3     248.2
Net operating income, M             50.2      47.3     144.8    131.8     179.4
Operating profit, M                 48.0      47.1     140.9    154.6     209.6
Earnings per share,                 0.08      0.06      0.24     0.25      0.39
Cash flow from operations per        0.10      0.09      0.28     0.27      0.37
 share,                                                                        
Net assets per share,                                   4.12     3.93      4.06
Equity ratio, %                                            38       38        38
Interest cover ratio                                      2.7      2.8       2.7



Key figures according to EPRA Best Practices Recommendations



                                7-9/2012  7-9/2011  1-9/2012  1-9/2011  1-12/201
                                                                               1
--------------------------------------------------------------------------------
                                                                                
EPRA Earnings, M                   22.0      18.4      61.5      55.7      75.4
EPRA Earnings per share,           0.08      0.07      0.22      0.20      0.27
EPRA NAV/share,                                        4.88      4.68      4.84
EPRA Net Initial Yield (NIY),                           6.38      6.30      6.39
 %                                                                              
EPRA, "topped-up" NIY, %                                6.39      6.31      6.40



President and CEO Kari Inkinen

The challenges posed by the general economic conditions are currently reflected
on the Finnish property market. There have been signs during the autumn of a
decline in the demand for rental properties, especially outside Helsinki CBD
area. The economic occupancy rate for Sponda declined by 0.9 %-points from the
second quarter to 88.0%. This decrease was primarily due to a fall in the
occupancy rate of the Russia business unit's office premises and sales of
logistics properties carried out in July 2012. I am confident that the higher
vacancy rates are short-term in nature due to the attractive locations of our
office properties in Moscow. The occupancy rate and demand for business
premises in Helsinki CBD remain at a good level. The situation with regard to
areas outside the business district is stable. 

Sponda's active property development projects, Citycenter and the office
property in Ruoholahti, are proceeding according to plan. The final phase of
the Citycenter project, which is currently underway, will add retail premises
on the Keskuskatu side. 

We are still waiting to reach a satisfactory advance occupancy rate before
making the investment decision regarding the shopping centre in Ratina.
However, we are ramping up preparations in response to increased interest and
demand in order to be ready to begin construction in summer 2013. 


Business conditions - Finland

The eurozone and the Finnish economy continue to suffer from prolonged
uncertainty. The Finnish Ministry of Finance forecasts Finnish GDP to grow by
1% this year and to maintain that same rate of growth in 2013. This year's
economic growth is largely based on domestic demand. Next year's growth is
expected to be boosted by exports. In spite of the difficult economic
conditions, the unemployment rate has remained stable. The Ministry of Finance
predicts that unemployment will fall to 7.6%. 

There have been three significant transactions in the transaction market so far
in the second half of the year. The buyer in these transactions was an
international investor, which indicates that the Finnish market is seen as an
attractive and safe investment. Investment demand is almost entirely focused on
prime properties with steady cash flow, but there are few such properties
available. The number of transactions has been low since the summer, with the
most recent property transactions having been made in the rental apartment
sector. According to a preliminary estimate by KTI Property Information, the
transaction volume from the beginning of the year to the end of September was
EUR 1.47 billion. The full year volume is expected to be approximately EUR 2
billion. This would represent a moderate increase in transaction volume
compared to the EUR 1.77 billion seen in 2011. 

Vacancy rates for office properties in the Helsinki metropolitan area have been
decreasing for two years. The rate of the decline has slowed this year, with
vacancy rates at 10.2% at the end of June according to Catella Property. Brisk
demand for rental property in Helsinki's central business district has seen
vacancy rates fall to 4.9% (Catella). Rent levels in these areas have
increased. Vacancy rates have begun to increase somewhat in Leppävaara, along
the Länsiväylä highway and in Ruoholahti. The increase in rent levels has
levelled off in all prime locations with the exception of the central business
district. Economic uncertainty and the increased supply of office properties
are expected to have a negative impact on vacancy rates. 

Business conditions - Russia

According to the Bank of Finland, Russian GDP growth will slow down to 3.7%
during the remainder of the year. The current forecast for Russian economic
growth in 2013 is also 3.7%. Private consumption remains strong, but growth is
slowing down. The uncertain export outlook for oil and gas is contributing to
slower export growth. 

At the end of September 2012, the transaction volume for the year stood at USD
5 billion. In spite of increased activity in the property market in the third
quarter, the total volume looks to fall short of the USD 8.3 billion seen last
year, with current estimates indicating that the volume for the full year will
be approximately USD 6.5 billion. (JLL) 

The average vacancy rate for office premises in Moscow has increased by
approximately one percentage point compared to the previous quarter. In the
third quarter, some 170,000 m² of new office space was added to the market,
which suggests that demand is strong despite the slight increase in the vacancy
rate. Rent levels are unchanged from the previous quarter and expected to
remain so for the rest of the year (CBRE). 

Approximately 400,000 m² in new office space has already been completed in
2012, and the total for the full year is expected to be approximately 700,000
m². Of the new office premises completed this year, only one fifth is located
in central Moscow. The majority, or 60%, lies outside ring road 3 (JLL).
Construction activity in central Moscow is declining and the focus of new
construction projects will increasingly be on business districts outside ring
road 3. 

The property market in St. Petersburg continues to see only moderate changes.
The average vacancy rate has remained unchanged at approximately 10% throughout
the year. The vacancy rate for Class A office space has declined slightly,
while the vacancy rate for Class B office space has increased somewhat. Changes
in rent levels are in line with the trends in vacancy rates, as Class A
properties have seen a slight increase and Class B properties a moderate
decline. Rent levels are expected to remain largely unchanged during the
remainder of the year. New construction activity is relatively high compared to
the size of the market. A total of some 200,000 m² of new office space will be
completed this year, with a similar increase projected for 2013. The total
amount of Class A and Class B office space is currently slightly over 2 million
m² (JLL). 

Operations and property assets 1 January - 30 September 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 into 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 144.8
(131.8) million in January-September 2012. Of this total, office and retail
premises accounted for 54%, shopping centres for 17%, logistics premises for
15%, Russia for 11% and the Real Estate Funds unit for 3%. 

On 30 September 2012, Sponda had a total of 189 properties, with an aggregate
leasable area of approximately 1.5 million m². Of this, some 53% is office and
retail premises, 11% shopping centres and 33% logistics premises. Some 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 September 2012, the fair value of Sponda's properties was
assessed internally for both Finland and Russia. The change in fair value of
the investment properties in January-September was EUR 6.0 (31.3) million and
in July-September alone EUR 1.4 (3.3) million. The positive change in the value
in Finland was mainly due to successful renting and changes in market rents. No
changes were made to the yield requirements for properties. The changes in fair
values are itemised in the table Valuation gains/losses on fair value
assessment. 

The changes in Sponda's investment property assets were as follows:


Investment               Total     Office   Shopping  Logist    Property  Russia
 properties, total,                   and    centres     ics  developmen        
1 January - 30                     retail                              t        
 September 2012                                                                 
M                                                                              
Operating income         192.8      107.3       31.5    32.5         0.3    21.2
Maintenance costs        -52.2      -28.9       -7.0   -10.2        -1.3    -4.8
--------------------------------------------------------------------------------
Net operating income     140.6       78.4       24.5    22.3        -1.0    16.4
                                                                                
Investment properties  3,165.7    1,644.0      586.1   449.0       262.0   224.6
 at 1 January 2012                                                              
Capitalised interest       0.5        0.1        0.0     0.0         0.4     0.0
 2012                                                                           
Acquisitions              53.0       15.2        0.0     0.0         0.0    37.8
Investments               40.0       21.1        2.3     1.0        15.4     0.3
Transfers between          0.0       -1.5        0.0     0.0         1.5     0.0
 segments                                                                       
Sales                    -51.3       -6.7       -0.6   -31.5       -12.4     0.0
Change in fair value,      6.0       12.0       -3.3    -4.8        -1.3     3.4
 %                                                                              
--------------------------------------------------------------------------------
Investment properties  3,213.9    1,684.2      584.5   413.6       265.6   266.1
 at 30 September 2012                                                           
                                                                                
Change in fair value,      0.2        0.7       -0.6    -1.1        -0.5     1.5
 %                                                                              
                                                                                
                                                                                
Weighted average           6.9        6.4        6.0     8.0                 9.8
 yield requirement %                                                            
Weighted average           6.6                                                  
 yield requirement %,                                                           
 Finland                                                                        



Rental operations

The economic occupancy rates by type of property and geographical area were as
follows: 



Type of property            30 Sep      30 Jun      31 Mar     31 Dec     30 Sep
                              2012        2012        2012       2011       2011
Office and retail, %          89.3        89.2        88.7       88.4       88.6
Shopping centres, %           93.1        93.8        93.9       94.1       93.5
Logistics, %                  76.7        78.0        78.1       78.1       78.3
Russia, %                     93.5        99.0        98.7       98.7       98.8
Total property                88.0        88.9        88.4       88.2       88.2
 portfolio, %                                                                   
                                                                                
                                                                                
Geographical area           30 Sep      30 Jun      31 Mar     31 Dec     30 Sep
                              2012        2012        2012       2011       2011
Helsinki Business             87.9        87.8        87.9       85.6       86.8
 District, %                                                                    
Helsinki Metropolitan         85.5        86.2        85.6       86.2       86.0
 Area, %                                                                        
Turku, Tampere, Oulu,         94.8        94.2        94.3       96.1       95.3
 %                                                                              
Russia, %                     93.5        99.0        98.7       98.7       98.8
Total property                88.0        88.9        88.4       88.2       88.2
 portfolio, %                                                                   



Investments/divestments

In January-September 2012, Sponda sold investment properties for a total of EUR
52.9 million and recorded a profit of EUR 1.7 million on the sales
transactions. The balance sheet value of the properties sold was EUR 51.3
million. During the reporting period, Sponda purchased properties for a total
of EUR 53.0 million. Out of this, EUR 0.3 million was purchased during the
third quarter. 

Investments in property maintenance totalled EUR 17.0 million in
January-September, with EUR 5.3 million of this in the third quarter. The
company invested EUR 23.0 million in property development, EUR 10.5 million of
this in July-September. Property development investments were primarily
directed to the modernisation of the Citycenter property in Helsinki's central
business district and the development of an office property in Ruoholahti. 

Events after the end of the period

In October, pursuant to Section 2(9) of the Finnish Securities Market Act,
Solidium Oy announced that, as of 18 October 2012, its share of ownership of
Sponda Plc fell below the 1/10 (10%) and 1/20 (5%) threshold levels and that
its current share of ownership of Sponda Plc is 0%. 

In October, pursuant to Section 2(9) of the Finnish Securities Market Act, Oy
PALSK AB announced that, as of 18 October 2012, its share of ownership of
Sponda Plc rose above the 1/10 (10%) threshold and that its current share of
ownership of Sponda Plc is 14.89%. 

Prospects

Sponda expects the vacancy rates of its investment properties at year end 2012
to be largely unchanged from the end of 2011. The estimate is based on the
changes in rental agreements and leases already signed. 

Net operating income in 2012 is expected to increase by 6-8% compared to 2011.
This expected increase is based on increases in rent levels and the growth of
the company's property assets. 

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 slowing of growth may
affect the operations of Finnish companies and thereby increase vacancy rates
of office 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. 



2 November 2012
Sponda Plc
Board of Directors



Additional information:
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. 


Distribution:
NASDAQ OMX Helsinki
Media
www.sponda.fi

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