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Sponda to sell 12 logistics properties and its shares in real estate funds to a new logistics and industrial property investment company

Sponda Plc              
Stock exchange release
30 April 2014 at 8:45 am

Sponda to sell 12 logistics properties and its shares in real estate funds to a new logistics and industrial property investment company

Sponda Plc has signed a letter of intent for the sale of 12 logistics properties to a new logistics and industrial property investment company, Certeum Oy, for EUR 216.7 million. The total debt-free sale price of the properties is equal to their combined fair value calculated in the first quarter of 2014.

The transaction is part of a broader arrangement in which Sponda and Varma Mutual Pension Insurance Company, Sponda Fund I (SF I), Sponda Fund II (SF II) and Sponda Fund III (SF III) have agreed on establishing a new company specialising in investments in logistics and industrial properties, with the newly established company acquiring 12 logistics properties from Sponda, 22 logistics and industrial properties from Varma, as well as SF I, SF II and SF III, or all property companies owned by the three funds. The total value of the properties to be acquired is approximately EUR 920 million. As part of the broader arrangement, Sponda will become a minority shareholder in the new company with an estimated holding of 38% at most.

The fair value of the equity invested by Sponda in the funds stood at EUR 74.8 million at the end of March 2014. Sponda estimates that the sale price will exceed the fair value by approximately EUR 2.6 million.

Grounds for the sale

In September 2013, Sponda’s Board of Directors confirmed the company’s new strategy, the main goals of which are simplification of the business structure, more focused property ownership and profitable growth in office and shopping centre properties in Helsinki and Tampere. According to the strategy, Sponda is planning to divest its logistics properties and properties located in Russia. Sponda’s strategy also includes exiting the real estate funds business.

Properties sold and their effect on Sponda’s result

The logistics properties that are being sold are as follows:

PropertyAddressLeasable area (m²)
Malmin Kankirauta KkoyKankiraudantie 6, Helsinki6,603
Ruosilantie 14 KkoyRuosilantie 14, Helsinki11,307
Ruosilantie 16 KkoyRuosilantie 16, Helsinki23,144
Ruosilantie 18 KkoyRuosilantie 18, Helsinki5,960
Espoon Juvanpuisto KoyJuvan Teollisuuskatu 23,
Olarintörmä KoyOlarinluoma 14, Espoo5,368
Kuninkaankaari KoyHeidehofintie 2, Vantaa15,967
Kuninkaankruunu KoyHeidehofintie 4, Vantaa8,585
Vantaan Honkatalo KoyVanha Porvootie 229, Vantaa56,314
Vantaan Vanha Porvoontie 231 Koy Vanha Porvoontie 231, Vantaa 16,989
Tonttipaino KoyToinen savu 8, Vantaa5,974
Vantaan Kuussillantie 27 KoyKuussillantie 27, Vantaa4,164

The average economic occupancy rate of the properties is 80.2% at present. Their average net yield at present is 7.2%. After the transaction is concluded, the share of the newly established company’s result corresponding to Sponda’s holding will be recorded under the item “Share of result of associated
companies” in the income statement. The impact of the transaction will be cash flow -neutral in the long-term.

“The sale of these logistics properties is in line with our new strategy announced last autumn. The sale of real estate funds, or the property companies they own, is also in line with the new strategy. I am particularly satisfied that we were able to carry out the sale at the fair value calculated for the first quarter, or slightly above that amount.

Establishing a new property investment company Certeum in Finland is certain to increase interest in our property sector as a whole. We are pleased to be a founding member in the new company in partnership with other strong investors. Our goal is to have the new company operating at full speed in late 2014″, says Sponda’s President and CEO Kari Inkinen.

Certeum Oy

After the sale is concluded, the key shareholders of Certeum will be Varma Mutual Pension Insurance Company, Sponda Plc and the State Pension Fund. Further shareholders in the new company will include the unitholders of the real estate funds SF I, SF II and SF III, or the real estate funds themselves, depending on the final structure of the transaction. After the conclusion of the sale, Sponda’s holding in the new company is estimated at 38% at most, and Sponda has made a commitment to not sell its shares in Certeum before its Annual General Meeting in spring 2015. In line with its strategy, Sponda plans to reduce its ownership in the company in the future.

As part of the sale, Certeum has agreed to acquire properties for a total sum of approximately EUR 920 million. The company plans to finance the transaction partly by debt financing, and it has received the necessary conditional commitments from financing partners to fund the arrangement. The company’s loan-to-value (LTV) will be approximately 50%. The company estimates that the transaction will be concluded by the end of September 2014, once the standard conditions for acquisitions are satisfied.

Sponda’s prospects for 2014

As a result of the arrangement, Sponda is adjusting its prospects for 2014 with respect to the development of net operating income. The economic occupancy rate forecast remains unchanged.

Economic occupancy rate Sponda expects the economic occupancy rate of the Group’s properties at year-end 2014 to be at the same level as at the end of 2013. This estimate is based on the slow positive development of the Finnish economy as well as current information on expiring leases.

Net operating income According to the previously stated outlook, net operating income (excluding disposals) in 2014 was expected to be at the same level as in 2013. Upon the conclusion of the arrangement, Sponda expects net operating income for 2014 to amount to EUR 175-183 million (including the net operating income of the properties being sold for the period they are under Sponda’s ownership). The adjustment to the prospects is primarily based on the completion of the sale of 12 logistics properties and holdings in real estate funds at the end of September 2014.

Press conference and conference call

In conjunction with publishing its interim report and announcing this transaction, Sponda will arrange an analyst and press conference in Finnish on 30 April 2014 at 10:00 a.m. at Sponda, Korkeavuorenkatu 45, Helsinki, in the Vuosaari conference room. After the result has been published, the stock exchange release and the presentation materials from the press conference will be available on the company website at www.sponda.fi.

An international conference call for analysts and investors will be held in English on 30 April 2014 at 11:30 a.m. Participate in the call by calling the number +44 (0)20 7162 0077, code: 943263, and watch a webcast at http://qsb.webcast.fi/s/sponda/sponda_2014_0430_q1

A recording of the conference call and webcast can be accessed later on the company website at www.sponda.fi > investors > results centre.

Sponda Plc

For additional information, please contact:
Kari Inkinen, President and CEO, tel. +358 400 402 653
Pia Arrhenius, SVP, Corporate Planning and IR, tel. +358 40 527 4462
CFO Erik Hjelt, tel. +358 400 472 313