Sponda Plc’s INTERIM REPORT JanuaryJune 2012
Sponda Plc
Interim report
3 August 2012 at 8.30 am
Sponda Plc's interim report January-June 2012
Result of operations and financial position 1 January - 30 June 2012 (compared
with 1 January - 30 June 2011)
-- Total revenue increased by 10% and stood at EUR 132.3 (120.2) million.
-- Net operating income increased by 12% from the reference period to EUR 94.6
(84.5) million.
-- Operating profit was EUR 92.9 (107.4) million.
This includes a fair value change of EUR 8.8 (28.3) million.
-- Cash flow from operations per share was EUR 0.18 (0.18).
-- The fair value of the investment properties amounted to EUR 3,233.9
(3,098.5) million.
-- Net assets per share totalled EUR 4.03 (3.92).
-- The economic occupancy rate rose to 88.9% (88.2%).
-- The future prospects remains unchanged.
-- Net financing costs for the period totalled EUR -29.8 (-32.4) million.
Financial income and expenses include EUR 2.5 (-1.0) million in unrealised
change in the fair value of derivatives.
Excluding the aforementioned change in fair value, financial income and
expenses totalled EUR -32.3 (-31.3) million.
Result of operations and financial position 1 April - 30 June 2012 (compared
with 1 April - 30 June 2011)
-- Total revenue was EUR 66.2 (61.6) million.
-- Net operating income was EUR 48.5 (44.9) million.
-- Operating profit was EUR 49.2 (70.0) million.
The operating profit includes a fair value change of EUR 6.0 (25.2)
million.
-- Cash flow from operations per share was EUR 0.10 (0.11).
-- Financial income and expenses amounted to EUR -15.7 (-19.8) million.
Financial income and expenses include EUR -0.2 million in unrealised change
in the fair value of derivatives.
Excluding the aforementioned change in fair value, financial income and
expenses totalled EUR -15.5 million.
Key figures
4-6/2012 4-6/2011 1-6/2012 1-6/201 1-12/201
1 1
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Total revenue, M 66.2 61.6 132.3 120.2 248.2
Net operating income, M 48.5 44.9 94.6 84.5 179.4
Operating profit, M 49.2 70.0 92.9 107.4 209.6
Earnings per share, 0.08 0.13 0.15 0.19 0.39
Cash flow from operations per 0.10 0.11 0.18 0.18 0.37
share,
Net assets per share, 4.03 3.92 4.06
Equity ratio, % 37 38 38
Interest cover ratio 2.6 2.9 2.7
Key figures according to EPRA Best Practices Recommendations
4-6/2012 4-6/2011 1-6/2012 1-6/2011 1-12/201
1
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EPRA Earnings, M 20.6 20.0 39.5 37.2 75.4
EPRA Earnings per share, 0.07 0.07 0.14 0.13 0.27
EPRA NAV/share, 4.82 4.66 4.84
EPRA Net Initial Yield (NIY), 6.49 6.32 6.39
%
EPRA topped-up NIY, % 6.50 6.32 6.40
President and CEO Kari Inkinen
Sponda's rental operations continue to develop strongly. The company's net
operating income increased by approximately 12% compared to the corresponding
period in 2011. This increase was due not only to the purchases of properties
but also to a rise in rent levels and successful rental operations. I am
especially pleased with the positive development of the economic occupancy rate
of Sponda's investment properties. Development has been good for office
premises in particular, considering the market conditions. At the end of June,
Sponda's economic occupancy rate was 88.9%.
The general economic conditions are also reflected on the property market, and
I estimate that the decrease in the vacancy rates in the Helsinki metropolitan
area has now evened out. Nevertheless, demand for office and retail premises in
downtown Helsinki continues to be good and rents also keep their level. The
location of properties is increasingly emphasised, and I believe that the good
location of Sponda's properties provides us with a competitive edge in
tightening market conditions.
The active property development projects, Citycenter and the office property in
Ruoholahti, are progressing on schedule. The final phase of the Citycenter
project is currently being carried out, with the retail premises being
constructed on the Keskuskatu side.
As for the Ratina shopping centre, we still expect a satisfactory advance
occupancy rate level before the investment decision is made.
Business conditions - Finland
Development in the eurozone economy continues to be unstable as the need for
support among banks increases. This uncertainty is also reflected in the
Finnish national economy, which is forecast to decline temporarily at the end
of this year. For subsequent years, slow growth is predicted. On the European
scale, the outlook for the Finnish economy is stable, as indicated by the
second AAA credit rating granted to Finland by Fitch at the end of June.
Cautiousness on property markets has prolonged sales processes. There are good
properties on the market, but concluding sales transactions takes a long time.
Property transactions during the first half of the year totalled approximately
EUR 0.95 billion. In the two previous years, volumes in the first half of the
year were of the same order, so the volume of transactions seems to be
remaining low in this year, too.
Vacancy rates and yield requirements for office premises at the prime locations
of Helsinki have been declining for well over a year. At the same time, rent
levels have developed positively. Nevertheless, due to new properties being
completed as well as the economic outlook, the vacancy rate is predicted to
take an upward turn in most areas. Concurrently, the rise in rents and the
decline of yield requirements will even out.
Demand for rental premises has remained even during the first half of the year
and is expected to stay at the same level for the rest of the year. Due to
modest economic development, no growth in demand is to be expected for this
year. According to KTI's estimate, rent levels for central locations will rise
approximately 4% during the year. In the coming years, the rental market of
Helsinki's central business district will be impacted by the new office cluster
in the Töölönlahti area. Due to tenant rotation caused by these new office
premises, new tenants will be needed for approximately 40,000 m2.
Business conditions - Russia
According to the Bank of Finland, Russian GDP grew by 4.3% in 2011. The
forecasts for 2012 and 2013 remain unchanged at 3.7%. Private consumption is a
key factor for growth in the coming years.
Property markets have remained lively, even though not at the record-setting
pace of 2011. During the first half of the year, the volume of transactions was
approximately USD 2.4 billion, while during the corresponding period last year
it was approximately USD 3.6 billion (JLL).
The downward trend in the vacancy rate of office premises in Moscow is expected
to continue for the rest of the year as the construction of new properties will
be slower than the growing economy and demand. During the first half of the
year, the vacancy rate has been decreasing in all market segments. At the
moment, the vacancy rate for properties located in the centre of Moscow is 9%
(CBRE) and the average vacancy rate is approximately 12%. Rent levels are
estimated to rise with the decrease of the vacancy rate.
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 three. Despite the fact that new properties will be built
further away from the city centre, the central area will hold its position on
the rental market.
In St. Petersburg, market changes have been moderate. Since early this year,
the vacancy rate has decreased in Class B premises and remained unchanged in
Class A premises. Correspondingly, the rent levels have increased in Class B
premises and remained unchanged in Class A premises. 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 shortly as properties
for which construction began in 2009 and 2010 will be completed.
Operations and property assets 1 January - 30 June 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 94.6
(84.5) million during the first half of 2012. Of this total, office and retail
premises accounted for 53%, shopping centres for 17%, logistics premises for
16%, Russia for 11% and the Real Estate Funds unit for 3%.
On 30 June 2012, Sponda had a total of 202 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 June 2012, an external consultant assessed the fair value of
Sponda's investment properties for both Finland and Russia. The change in fair
value of the investment properties in January-June was EUR 4.7 (27.9) million
and in April-June alone EUR 3.7 (26.2) million. The positive change in the
value in Finland was mainly due to successful renting and changes in market
rents. The positive change in the value in Russia was almost entirely due to
changes in currency exchange rates. The fair value of investment properties is
assessed in Finland by Catella Property Oy and in Russia by CB Richard Ellis.
The statements of the property assessments are available on Sponda's website.
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 June retail t
2012
M
Operating income 129.1 71.7 21.1 22.4 0.3 13.6
Maintenance costs -36.9 -20.3 -5.1 -7.4 -0.9 -3.2
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Net operating income 92.2 51.3 16.1 15.0 -0.7 10.4
Investment properties 3,165.7 1,644.0 586.1 449.0 262.0 224.6
at 1 January 2012
Capitalised interest 0.3 0.1 0.0 0.0 0.2 0.0
2012
Acquisitions 52.8 15.3 0.0 0.0 0.0 37.5
Investments 24.3 14.1 1.1 0.7 8.2 0.2
Transfers between 0.0 -1.5 0.0 0.0 1.5 0.0
segments
Sales -13.9 -1.1 -0.6 0.0 -12.1 0.0
Change in fair value, 4.7 10.7 -3.0 -5.3 -1.3 3.5
%
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Investment properties 3,233.9 1,681.6 583.6 444.3 258.7 265.8
at 30 June 2012
Change in fair value, 0.1 0.7 -0.5 -1.2 -0.5 1.6
%
Weighted average 6.9 6.4 5.9 8.1 9.8
yield requirement %
Weighted average 6.7
yield requirement %,
Finland
Rental operations
The economic occupancy rates by type of property and geographical area were as
follows:
Type of property 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun
2012 2012 2011 2011 2011
Office and retail, % 89.2 88.7 88.4 88.6 88.5
Shopping centres, % 93.8 93.9 94.1 93.5 94.3
Logistics, % 78.0 78.1 78.1 78.3 78.3
Russia, % 99.0 98.7 98.7 98.8 98.3
Total property 88.9 88.4 88.2 88.2 88.2
portfolio, %
Geographical area 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun
2012 2012 2011 2011 2011
Helsinki Business 87.8 87.9 85.6 86.8 86.7
District, %
Helsinki Metropolitan 86.2 85.6 86.2 86.0 86.0
Area, %
Turku, Tampere, Oulu, 94.2 94.3 96.1 95.3 95.7
%
Russia, % 99.0 98.7 98.7 98.8 98.3
Total property 88.9 88.4 88.2 88.2 88.2
portfolio, %
Events after the end of the period
In July 2012, Sponda set up a new real estate fund, Sponda Fund III, which
invests primarily in logistics and industrial properties in Finland's growth
centres. The target size of the fund is EUR 170 million. The fund's initial
investment portfolio of approximately EUR 90 million consists of properties
sold to the fund by its shareholders. Sponda sold logistics properties worth
EUR 32.5 million to the fund. The transaction does not have a direct effect on
Sponda's result.
Sponda's holding in the fund is approximately 38%. The other investors in the
fund are Varma Mutual Pension Insurance Company and Etera Mutual Pension
Insurance Company. The new fund is aimed at domestic institutional investors.
Sponda is responsible for the management of the fund as well as the properties
it owns.
Prospects
Sponda expects the vacancy rates of its investment properties at year's 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.
The comparable net operating income (excluding any sales of properties) of 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.
3 August 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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