Sponda Plc's INTERIM REPORT January-March 2017: A steady

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Sponda Plc's INTERIM REPORT January-March 2017: A steady start to Sponda's year

Sponda Plc                                           Stock Exchange Release           5 May 2017, 8:30

Sponda Plc's INTERIM REPORT January-March 2017: A steady start to Sponda's year

JANUARY-MARCH 2017 IN BRIEF (compared with 1 January - 31 March 2016)

  • Total revenue increased to EUR 66.1 (59.3) million.
  • Net operating income totalled EUR 46.3 (42.1) million.
  • Operating profit was EUR 44.3 (46.7) million. This includes a fair value change of EUR 1.0 (-2.0) million.
  • Cash flow from operations per share was EUR 0.08 (0.12).
  • The fair value of the investment properties amounted to EUR 3,805.5 (3,702.5) million.
  • Net assets (NAV) per share totalled EUR 5.19 (4.95).
  • The economic occupancy rate was 89.1 (88.7)%.

KEY FIGURES

  1-3/2017 1-3/2016 1-12/2016
Total revenue, M€ 66.1 59.3 259.0
Net operating income, M€ 46.3 42.1 190.9
Operating profit, M€ 44.3 46.7 206.7
Earnings per share, € 0.09 0.09 0.41
Cash flow from operations per share, € 0.08 0.12 0.40
Equity per share, € 5.19 4.95 5.16
Equity ratio, % 47.4 45.7 47.4

KEY FIGURES ACCORDING TO EPRA BEST PRACTICES RECOMMENDATIONS

  1-3/2017 1-3/2016 1-12/2016
EPRA Earnings, M€ 26.9 23.3 113.1
EPRA Earnings per share, € 0.08 0.08 0.35
Company adjusted EPRA Earnings, M€ 28.3 21.7 113.7
Company adjusted EPRA Earnings per share, € 0.08 0.08 0.35
EPRA NAV/share, € 5.50 5.25 5.49
EPRA NNNAV/share, € 5.10 4.85 5.07
EPRA Net Initial Yield (NIY), % 5.38 5.52 5.29
EPRA "topped-up" NIY, % 5.39 5.55 5.31
EPRA Vacancy rate, % 10.89 11.35 10.38
EPRA Cost Ratio (including direct vacancy costs), %     16.36
EPRA Cost Ratio (excluding direct vacancy costs), %     12.40

PRESIDENT AND CEO KARI INKINEN

Sponda's first quarter of 2017 was in line with our expectations. Net operating income grew as anticipated and, as we mentioned when announcing our result for 2016, maintenance expenses increased mainly due to an increase in property taxes. The economic occupancy rate stood at 89.1%, compared to 89.6% at the end of 2016 and 88.7% at the end of March 2016. The decrease from the end of the year was primarily due to expired pop-up agreements in the Shopping Centres unit.

Our property development projects progress as planned and on schedule. Ratina's topping out ceremony will be held in mid-May, and the property will open in approximately one year. The pre-let rate currently stands at 47% for the project as a whole and 58% for the shopping centre. The construction of an office and retail complex in Vantaa's Tikkurila district, is also progressing on schedule. The pre-let rate is 65%.

Our unique Mothership of Work (MOW) concept will be expanded in August with the opening of the new MOW Stargate in Helsinki's Ruoholahti district. Our successful MOW concept has been well received by customers. We are thrilled to provide an inspiring work environment for 300 new members at MOW Stargate. The letting of MOW Stargate has got off to a good start and interest in the property is high.  BUSINESS CONDITIONS

The Finnish economy is expected to see continued moderate growth in 2017. According to the Ministry of Finance's forecast, the Finnish GDP will grow by 1.2% in 2017. Economic growth will continue to be underpinned by private consumption and investments.

The prospects of economic growth are also supported by the high level of the consumer confidence indicator in Statistics Finland's survey. The indicator was at 22.9 in March, compared to 10.4 in March 2016. Confidence among consumers in their own economic situation and the Finnish economy was high and their views of the development of unemployment were positive. According to Statistics Finland, inflation was 0.8 per cent at the end of March.

The year got off to a busy start in the Finnish property market. According to KTI Property Information's transaction monitoring, the transaction volume for the first quarter amounted to EUR 1.16 billion, which is below last year's record level (Q1/2016: EUR 2.21 billion) but high compared to the previous years. Acquisitions by foreign players accounted for 40% of the volume. Retail properties were the most actively traded property type in the first quarter (approximately 43% of the total volume). The total property transaction volume for 2016 was EUR 7.4 billion.

According to JLL's Key Market Indicators Q1/2017, the yield requirements for prime properties have declined in Helsinki. The yield requirement for prime office properties was 4.0% and for prime retail properties 4.25%. Helsinki is the only Nordic capital to have seen a decline in prime yields. Rents for prime properties in Helsinki have only increased for office properties, to EUR 372/m 2 /year. The rental level for prime retail properties in Helsinki stood at EUR 1,980/m 2 /year.

Financial indicators

  2016 2017* 2018* 2019*
Finnish GDP change, % 1.4 1.2 1.0 1.2
Unemployment rate, % 8.8 8.5 8.1 7.8
Consumer price index, % 0.4 1.2 1.3 1.4

*) Forecast The description of the business conditions was compiled using the following references: Ministry of Finance, Economic Survey, Spring 2017 (28 April 2017); Statistics Finland (27 March 2017, 13 April 2017); KTI Transaction information service: Property transactions in Finland 2017/Q1; JLL Key Market Indicators Q1/2017

GROUP RESULT IN JANUARY-MARCH 2017

Sponda Group's result for January-March was EUR 32.3 (26.7) million. The result before taxes was EUR 32.2 (33.7) million and operating profit was EUR 44.3 (46.7) million.

Net operating income for the period was EUR 46.3 (42.1) million. The increase in net operating income was due to the Forum property acquisition, the effect of which is included in the consolidated figures starting from 1 March 2016. The like-for-like net operating income remained unchanged. Net operating income was reduced by property divestments made last year and this year. Their combined effect on net operating income was EUR -0.6 million. Marketing and administration expenses remained at the previous year's level, at EUR 5.7 (5.7) million. Other operating income and expenses amounted to EUR -0.0 (0.3) million.

During the period, the Group recognised profit on sales of EUR 3.9 (12.7) million from the sales of investment and trading properties. The change in fair value of the investment properties was EUR 1.0 (-2.0) million. The Group's result was weighed down by amortisation of goodwill amounting to EUR 1.2 (0.6) million.

Financial income and expenses for the period totalled EUR -12.2 (-13.0) million. The financial expenses in the comparison period were negatively affected by non-recurring items related to the Forum acquisition as well as unrealised changes in the fair value of derivatives.

In accordance with IFRIC 21, the company recognises a liability in the balance sheet when the obligating event occurs. The company periodises real estate taxes in the profit and loss statement based on the passage of time.

PROPERTY ASSETS 1 JANUARY - 31 MARCH 201 7

At the end of March 2017, Sponda had a total of 166 leasable properties, with an aggregate leasable area of approximately 1.2 million m². Of this total, approximately 69% is office premises, 17% shopping centres and 12% logistics premises. Approximately 1% of the leasable area 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 least twice a year by external experts to ensure that the parameters and values used in the calculations are based on market observations.

At the end of March 2017, the fair value of Sponda's investment properties was assessed internally for both Finland and Russia. The fair value of the investment properties totalled EUR 3.8 billion at the end of March 2017. The change in the fair value of the investment properties in the first quarter was EUR 1.0 (-2.0) million. No changes were made to the yield requirements. The value of Sponda's properties in Finland developed favourably, primarily due to an increase in market rents, especially for properties in Helsinki's central business district. The property development margin also had a positive effect. The negative change in the fair value was mainly attributable to properties in Russia.

Valuation gains/losses on fair value assessment

M€ 1-3/2017 1-3/2016 1-12/2016
Changes in yield requirements (Finland) 0.0 0.0 60.1
Changes in yield requirements (Russia) 0.0 -1.8 -4.1
Development gains on property development projects 3.0 1.7 7.4
Modernisation investments -9.0 -6.9 -31.0
Change in market rents and maintenance costs (Finland) 8.8 8.3 12.6
Change in market rents and maintenance costs (Russia) -3.3 -1.1 -14.1
Change in currency exchange rates 1.4 -2.3 -2.1
Investment properties, total 1.0 -2.0 28.7
Real estate funds 0.0 0.0 -2.0
Realised share of fund profits 0.0 0.0 0.0
Group, total 1.0 -2.0 26.7

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-March, like-for-like net rental growth was -0.7% (0.7%) for office properties and -4.1% (2.7%) for shopping centres. Like-for-like net rental incomes were reduced by higher maintenance expenses due to an increase in property taxes. 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:

% 31.3.2017 31.12.2016 30.9.2016 30.6.2016 31.3.2016
Office Properties 89.0 89.2 88.8 88.3 88.1
  Helsinki business district 92.6 91.8 91.5 91.5 91.4
  Ruoholahti 82.7 85.0 85.0 84.6 84.5
  Rest of the metropolitan area 87.2 87.5 86.1 85.3 84.8
  Tampere 93.3 93.4 95.9 97.1 97.1
  Rest of Finland 78.0 78.2 78.0 58.0 57.4
Shopping Centres 92.6 93.5 93.2 94.2 93.8
  Helsinki business district 91.9 92.4 92.4 94.2 93.7
  Other 93.8 95.4 94.5 94.2 93.9
Non-Strategic Holdings 77.0 79.9 79.8 78.5 77.4
  Logistics properties 74.2 74.0 72.8 73.4 68.9
  Russia 79.5 84.8 85.3 81.9 82.9
Total property portfolio 89.1 89.6 89.3 89.1 88.7

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 4.9 million during the first quarter. Office properties were sold for EUR 0.8 million and logistics properties under the Non-Strategic Holdings segment were sold for EUR 4.1 million. In addition, trading properties were sold for EUR 1.8 million.

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.

Divestments

M€ 1.1.- 31.3.2017 1.1.- 31.3.2016 1.1.- 31.12.2016
Disposals of investment properties      
Selling price 4.9 5.0 36.7
Profit/loss on sale *) 2.1 0.2 0.8
Balance sheet value 2.8 4.8 35.9

*) Includes sales costs

Investments

M€ 1.1.- 31.3.2017 1.1.- 31.3.2016 1.1.- 31.12.2016
Properties acquired - -587.5 -590.5
Modernisation investments -9.0 -6.9 -31.0
Property development investments -21.6 -12.1 -60.9
Investments, total -30.6 -606.5 -682.4

RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE

Sponda estimates that the risks and uncertainty factors for 2017 are mainly related to the following areas: The slow positive development of the Finnish economy may cause a decline in the economic occupancy rate and tenant insolvency . Also change in demand for space , caused by for example technological development, may have a negative impact on the development of occupancy rate and net operating income.

The requirements for banks to strengthen their solvency may lead to weakening availability of bank financing . Uncertainty about the development of the world's economy and interest rates may limit the availability of other debt financing.

In Russia, the risks are mainly related to the development of the Russian economy and its impact on the sale of Sponda's properties in Russia in 2017.

PROSPECTS FOR 2017

Sponda provides prospects for 2017 with regard to the development of the company's net operating income and adjusted EPRA Earnings.

Net operating income

Sponda estimates that the net operating income for 2017 will amount to EUR 182-192 million. This estimate is based on property sales in 2016 and estimated sales in 2017. The development of net operating income will also be affected by the increase in property taxes in 2017 as well as one large property being vacated for renovation.

Adjusted EPRA Earnings Sponda estimates that company adjusted EPRA Earnings in 2017 will amount to EUR 106-116 million. This estimate is based on property sales in 2016 and estimated sales in 2017. The development of net operating income will also be affected by the increase in property taxes in 2017 as well as one large property being vacated for renovation.

5 May 2017 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

Conference call and audiocasting

An international conference call and webcast for analysts and investors will be held on Friday, 5 May 2017 at 10:00 am Eastern European time. To join the conference call, please call

UK: +44 (0)330 336 9105 SWE: +46 (0)8 5033 6574 Confirmation Code: 7717168

To join the webcast, please go to https://sponda.videosync.fi/2017-05-05-q1

A replay of the conference call and webcast will be available later at www.sponda.fi >Investors > Results centre.

Distribution: NASDAQ OMX Helsinki Media www.sponda.fi

Sponda Plc is a property investment company specializing in commercial properties in the largest cities in Finland. Sponda's business concept is to own, lease and develop retail and office properties and shopping centres into environments that promote the business success of its clients. The fair value of Sponda's investment properties is approximately EUR 3.8 billion and the leasable area is around 1.2 million m².

Attachments:

http://www.globenewswire.com/NewsRoom/Attachm...cf315b9325

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