Sponda Plc Interim report 4 November 2016 at 8:30 a.m.
Sponda Plc’s interim report January–September 2016: Strong result supported by the Forum acquisition
JANUARY–SEPTEMBER 2016 IN BRIEF (compared with 1 January – 30 September 2015)
- Total revenue increased to EUR 193.2 (173.3) million, primarily due to a property transaction completed in February 2016.
- Net operating income increased by more than 15% and totalled EUR 143.8 (124.4) million.
- Operating profit was EUR 132.8 (130.3) million. This includes a fair value change of EUR -7.0 (12.9) million.
- Cash flow from operations per share was EUR 0.31 (0.29).
- The fair value of the investment properties amounted to EUR 3,692.7 (3,161.4) million.
- Net assets (NAV) per share totalled EUR 5.05 (4.71).
- The economic occupancy rate was 89.3% (86.2%).
- The prospects were revised.
JULY–SEPTEMBER 2016 IN BRIEF (compared with 1 July – 30 September 2015)
- Total revenue was EUR 66.3 (56.7) million.
- Net operating income was EUR 51.5 (42.2) million.
- Operating profit was EUR 37.2 (38.3) million. This includes a fair value change of EUR -10.0 (0.5) million.
- Cash flow from operations per share was EUR 0.10 (0.10).
KEY FIGURES
| 7-9/2016 | 7-9/2015 | 1-9/2016 | 1-9/2015 | 1-12/2015 | |
| Total revenue, M€ | 66.3 | 56.7 | 193.2 | 173.3 | 230.5 |
| Net operating income, M€ | 51.5 | 42.2 | 143.8 | 124.4 | 165.7 |
| Operating profit, M€ | 37.2 | 38.3 | 132.8 | 130.3 | 178.1 |
| Earnings per share, € | 0.05 | 0.06 | 0.23 | 0.23 | 0.78 |
| Cash flow from operations per share, € | 0.10 | 0.10 | 0.31 | 0.29 | 0.36 |
| Equity per share, € | 5.05 | 4.71 | 5.26 | ||
| Equity ratio, % | 47.2 | 41.4 | 46.2 |
KEY FIGURES ACCORDING TO EPRA BEST PRACTICES RECOMMENDATIONS
| 7-9/2016 | 7-9/2015 | 1-9/2016 | 1-9/2015 | 1-12/2015 | |
| EPRA Earnings, M€ | 31.0 | 27.4 | 84.9 | 78.7 | 232.0 |
| EPRA Earnings per share, € | 0.09 | 0.10 | 0.26 | 0.28 | 0.82 |
| Company adjusted EPRA Earnings, M€ | 32.2 | 29.1 | 87.1 | 82.5 | 98.6 |
| Company adjusted EPRA Earnings per share, € | 0.09 | 0.10 | 0.27 | 0.29 | 0.35 |
| EPRA NAV/share, € | 5.38 | 5.58 | 5.60 | ||
| EPRA NNNAV/share, € | 4.97 | 4.57 | 5.15 | ||
| EPRA Net Initial Yield (NIY), % | 5.53 | 5.39 | 5.62 | ||
| EPRA “topped-up” NIY, % | 5.55 | 5.40 | 5.63 | ||
| EPRA Vacancy rate, % | 10.73 | 13.76 | 12.26 | ||
| EPRA Cost Ratio (including direct vacancy costs), % | 17.68 | ||||
| EPRA Cost Ratio (excluding direct vacancy costs), % | 12.90 |
PRESIDENT AND CEO KARI INKINEN
Sponda’s result for January–September 2016 was strong. The Group’s economic occupancy rate continued to increase and was higher compared to both the end of September 2015 and the end of June 2016. The economic occupancy rate rose particularly in office properties in Russia and Finland.
The development of like-for-like net rental income was positive across all segments. The Shopping Centres segment’s increase of 4.7% was particularly significant, highlighting the expertise of Sponda’s organisation and the importance of the location of shopping centres. Furthermore, after the end of the review period, the Forum shopping centre was awarded the title The Best Finnish Shopping Centre by the Nordic Council of Shopping Centres (NCSC).
The fair value of the Group’s investment properties declined by EUR 10 million in the third quarter of 2016. This decrease was mainly attributable to the Shopping Centres unit and specifically a tenant changes in Citycenter. No changes were made to yield requirements.
The construction of the Ratina shopping centre in Tampere is moving ahead on schedule, and pre-letting has progressed to the point where the pre-let rate for the property now stands at approximately 40%. The property will be completed in spring 2018.
BUSINESS CONDITIONS – FINLAND
According to the latest preliminary data from Statistics Finland, Finland’s GDP in the second quarter was unchanged from the first quarter. The year-on-year increase was 0.4%.
According to the Ministry of Finance’s forecast, Finland’s GDP will grow by 1.1% this year. The growth is largely based on the favourable development of private consumption and investments. Economic growth will remain slow in the coming years. The forecast for GDP growth in 2017 is 0.9%.
The property transaction market continued to be active in the third quarter. According to KTI Property Information, the transaction volume was EUR 1.59 billion. The volume for the first three quarters of the year was EUR 5.32 billion. International buyers accounted for approximately 25% of the total. According to KTI’s estimate, the transaction volume for the full year 2016 will substantially exceed the previous year’s level of EUR 5.51 billion.
According to a market review published by Catella in September, the vacancy rate of office properties in the Helsinki metropolitan area has risen to the record-high level of 13.5% this year. With some 100,000 m 2 of new office space already under construction, there is upward pressure on the vacancy rate. Vacancy rates in Helsinki’s central business district and Ruoholahti decreased slightly in the first half of the year. At the end of June, the vacancy rate was 12.4% in the central business district and 11.2% in Ruoholahti.
Activity is high in the construction of retail space. The amount of new space under construction in the Helsinki metropolitan area was approximately 150,000 m² at the end of June. Construction is also likely to begin on the Tripla project in Pasila and the Kivistö shopping centre before the end of the year.
PROPERTY ASSETS 1 JANUARY – 30 SEPTEMBER 2016
At the end of September 2016, the fair value of Sponda's investment properties was assessed internally for both Finland and Russia. The change in the fair value of the investment properties in January–September 2016 was EUR -7.0 (12.9) million and in July–September EUR -10.0 (0.5) million. The value of Sponda’s properties in Finland developed negatively mainly due to tenant changes in the Citycenter shopping centre. No changes were made to the yield requirements for properties.
Valuation gains/losses on fair value assessment
| M€ | 7-9/16 | 7-9/15 | 1-9/16 | 1-9/15 | 1-12/15 |
| Changes in yield requirements (Finland) | 0.0 | 0.0 | 17.1 | 32.2 | 39.2 |
| Changes in yield requirements (Russia) | 0.0 | 0.0 | -4.1 | -7.4 | -7.4 |
| Development gains on property development projects | 1.5 | 6.7 | 5.4 | 9.7 | 25.4 |
| Modernisation investments | -7.4 | -6.8 | -19.9 | -27.5 | -37.8 |
| Change in market rents and maintenance costs (Finland) | -3.6 | 1.9 | 10.0 | 20.4 | 30.2 |
| Change in market rents and maintenance costs (Russia) | -0.4 | 1.0 | -11.1 | -14.3 | -26.8 |
| Change in currency exchange rates | -0.1 | -2.4 | -2.5 | -0.2 | 0.3 |
| Investment properties, total | -10.0 | 0.5 | -5.0 | 12.9 | 23.2 |
| Real estate funds | 0.0 | 0.0 | -2.0 | 0.0 | 0.0 |
| Realised share of fund profits | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Group, total | -10.0 | 0.5 | -7.0 | 12.9 | 23.2 |
RENTAL OPERATIONS
Sponda calculates the growth in net rental income for its properties during the review period according to EPRA Best Practices Recommendations by using a like-for-like net rental growth formula based on a comparable property portfolio owned by the company for two years. For January-September, like-for-like net rental growth was 0.6% (3.7%) for office properties, 4.7% (1.7%) for shopping centres, 12.0% (16.2%) for logistics properties and 0.1% (-6.9%) for properties in Russia. All of Sponda’s lease agreements in Finland are tied to the cost of living index.
The economic occupancy rates by type of property and geographical area were as follows:
| Type of property | 30.9.2016 | 30.6.2016 | 31.3.2016 | 31.12.2015 | 30.9.2015 |
| Office properties, % | 88.8 | 88.3 | 88.1 | 88.2 | 88.0 |
| Shopping centres* | 93.2 | 94.2 | 93.8 | 91.3 | 90.6 |
| Logistics properties, % | 72.8 | 73.4 | 68.9 | 68.3 | 67.8 |
| Russia, % | 85.3 | 81.9 | 82.9 | 84.6 | 82.3 |
| Total property portfolio, % | 89.3 | 89.1 | 88.7 | 87.7 | 86.2 |
| *) The economic occupancy rate of shopping centres on 30 September 2016 was reduced by the bankruptcy of Anttila, which had an effect of 1.5 percentage points in the third quarter. | |||||
| Geographical area | 30.9.2016 | 30.6.2016 | 31.3.2016 | 31.12.2015 | 30.9.2015 |
| Helsinki business district, % | 91.9 | 92.6 | 92.4 | 90.1 | 89.3 |
| Helsinki Metropolitan Area, % | 86.5 | 86.1 | 85.3 | 85.7 | 83.5 |
| Tampere, Oulu, %* | 91.0 | 89.9 | 89.4 | 90.8 | 91.1 |
| Russia, % | 85.3 | 81.9 | 82.9 | 84.6 | 82.3 |
| Total property portfolio, % | 89.3 | 89.1 | 88.7 | 87.7 | 86.2 |
| *) The comparison figures also include properties in Turku | |||||
DIVESTMENTS AND INVESTMENTS
Sponda is continuing to actively manage its property portfolio and sell non-strategic properties. New investments and property development projects will be centralised in office and shopping centre properties in identified growth areas. Investment properties were sold for EUR 27.6 million during the review period, with EUR 19.3 million of this total divested in July–September.
Divestments
| M€ | 1.7.-30.9.2016 | 1.7.-30.9.2015 | 1.1.-30.9.2016 | 1.1.-30.9.2015 | 1.1.–31.12. 2015 |
| Disposals of investment properties | |||||
| Selling price | 19.3 | - | 27.6 | 56.4 | 157.6 |
| Profit/loss on sale, incl. costs | 0.9 | - | 0.9 | -1.4 | -4.3 |
| Balance sheet value | 18.4 | - | 26.7 | 57.8 | 161.9 |
In addition, trading properties were sold for EUR 26.0 million during the review period, with EUR 0.8 million of this total divested in July–September.
Investments
| M€ | 1.7.-30.9.2016 | 1.7.-30.9.2015 | 1.1.-30.9.2016 | 1.1.-30.9.2015 | 1.1.-31.12.2015 |
| Properties acquired | - | - | -589.5 | - | -4.7 |
| Modernisation investments | -7.4 | -6.8 | -19.9 | -27.5 | -37.8 |
| Property development investments | -16.8 | -14.2 | -41.1 | -39.8 | -65.2 |
| Investments, total | -24.2 | -21.0 | -650.5 | -67.3 | -107.7 |
Property development investments were mainly directed to the construction of the Ratina shopping centre and an office and retail complex in Vantaa’s Tikkurila district.
RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE
Sponda estimates that the risks and uncertainty factors in the current financial year are related to the development of the Finnish and Russian economies.
In Russia, these risks are related to the depreciation of the Russian rouble, which may cause tenant insolvency and a decrease in property values. The operations in Russia present a foreign exchange risk to Sponda. Changes in exchange rates may cause exchange rate losses that have a negative impact on the company’s financial result. The uncertain situation in the Russian market may slow down the sale of Sponda’s properties in Russia in 2016.
The slow positive development of the Finnish economy may cause a decline in net operating income and tenant insolvency.
For Sponda’s property development projects, the key risk is related to the degree of success in leasing premises.
PROSPECTS FOR 2016
Sponda provides prospects for 2016 with regard to the development of the company’s net operating income and adjusted EPRA Earnings. Sponda is revising its prospects for 2016.
Net operating income
Sponda estimates that the net operating income for 2016 will amount to EUR 189-194 million (previously EUR 182-192 million). The change is primarily due to the timing of property sales in 2016.
Adjusted EPRA Earnings
Sponda estimates that company adjusted EPRA Earnings in 2016 will amount to EUR 111-116 million (previously EUR 102-114 million). The change is primarily due to the timing of property sales in 2016.
4 November 2016 Sponda Plc Board of Directors
Additional information: Kari Inkinen, President and CEO, tel. +358 20 431 3311 or +358 400 402 653, Pia Arrhenius, SVP, Corporate Planning and IR, tel. +358 20 431 3454 or +358 40 527 4462, Niklas Nylander, CFO, tel. +358 20 431 3480 or +358 40 754 5961.
Distribution: NASDAQ OMX Helsinki Media www.sponda.fi
