Sponda Plc’s half year financial report 1 January– 30 June 2019

Sponda Plc                   Stock Exchange Release                       18 September 2019, at 8.30 a.m.

 

SPONDA PLC’S HALF YEAR FINANCIAL REPORT 1 JANUARY– 30 JUNE 2019:

1 JANUARY– 30 JUNE IN BRIEF (compared with 1 January–30 June 2018)

  • Total revenue decreased to EUR 123.4 (128.9) million.
  • Net operating income decreased to EUR 76.8 (82.6) million.
  • Operating profit decreased to EUR 67.3 (82.9) million. This includes a fair value change of EUR -17.5 (19.0) million, of which EUR -1.1 million is related to the depreciation of IFRS 16 right-of-use assets. More information on the impacts of the adoption of IFRS 16 leases standard is provided in the Accounting principles section of this half year financial report.
  • Earnings per share were EUR 0.11 (0.05). Increase in earnings per share was affected by the decrease of deferred tax liabilities which had EUR 18.8 million positive effect on the result.
  • The fair value of the investment properties amounted to EUR 3,634.9 (4,036.7) million, which includes an IFRS 16 effect of EUR 38.4 million.

KEY FIGURES

 

1-6/2019

1-6/2018

1-12/2018

Total revenue, M€

123.4

128.9

259.2

Net operating income, M€

76.8

82.6

182.8

Operating profit, M€

67.3

82.9

155.1

Earnings per share, €

0.11

0.05

0.10

Equity per share, €

3.46

3.08

3.67

Equity ratio, %

30.5

25.1

29.8

BUSINESS CONDITIONS

Economic growth in Finland in 2019 will be more moderate than in recent years. According to the Ministry of Finance’s forecast (published June 17, 2019), the Finnish GDP will grow by 1.6% in 2019. According to Statistics Finland, the unemployment rate was 6.5% at the end of July 2019.

GROUP RESULT IN 1 JANUARY– 30 JUNE 2019

Sponda Group’s result for 1 January– 30 June was EUR 37.3 (18.0) million and the result before taxes was EUR 19.3 (30.4) million. Operating profit was EUR 67.3 (82.9) million.

Net operating income decreased by approximately 7% and totalled EUR 76.8 (82.6) million. The decline in net operating income was primarily attributable to sold properties as well as properties vacated due to development projects. Administrative and marketing expenses together with other operating income and other operating expenses amounted to EUR -18.4 (-15.8) million. Administrative and marketing expenses accounted for EUR -18.6 (-14.4) million of this total. The increase in administrative and marketing expenses is primarily due to higher expenses related to personnel and external services.

During the period, the Group recognised profit on sales of EUR 26.4 (0.5) million from sales of investment and trading properties. The change in fair value of the investment properties was EUR -17.5 (19.0) million. Majority of the negative change in fair value is attributable to the Group’s property portfolio in Finland, and it was particularly due to the development gains recognised during the 2018 financial year on completed property development projects as well as a slight increase in modernisation investments. Furthermore, the adoption of IFRS 16 had an impact of EUR -1.1 million on the change in fair value of the investment properties in the period under review.

Financial income and expenses for the period totalled EUR -48.0 (-52.5) million. The decrease in financial expenses is explained by repayments of interest-bearing loans related to sold properties. Deferred tax liabilities decreased during the period under review, which had a positive effect of approximately EUR 18.8 million on the result. The decrease in deferred tax liabilities was primarily attributable to sold properties.

PROPERTY ASSETS 1 JANUARY–30 JUNE 2019

On 30 June 2019, Sponda had a total of 161 leasable properties, with an aggregate leasable area of approximately 1.2 million m². Of this total, approximately 57% is office premises, 25% shopping centres and 17% 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 cashflow-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 conditions.

At the end of June 2019, an external consultant (Catella Property Oy) audited the values of Sponda’s investment properties in Finland.  The properties in Russia were assessed by an external consultant (CB Richard Ellis and Jones Lang LaSalle LCC). The fair value of our investment properties was approximately EUR 3.6 billion at the end of June 2019.

Valuation gains/losses on fair value assessment

M€

1-6/2019

1-6/2018

1-12/2018

Changes in yield requirements (Finland)

13.6

23.8

31.0

Development gains on property development projects

1.3

24.8

24.8

Modernisation investments

-19.8

-14.2

-42.3

Change in market rents and maintenance costs (Finland)

-11.9

-5.1

-2.7

Change in value (Russia)

0.4

-10.2

-14.6

Investment properties, total

-16.4

19.0

-3.8

Real estate funds

0.0

0.0

-4.6

IFRS 16 related fair value losses on investment property

-1.1

-

-

Group, total

-17.5

19.0

-8.4

 

Changes in Sponda’s investment property assets 1 January–30 June 2019*

M€

Total

Office
Properties

Shopping
Centres

Property
Development

Non-
Strategic Holdings

Operating income

122.7

69.2

45.3

0.4

7.7

Maintenance expenses

-39.5

-22.8

-12.5

-0.7

-3.4

Net operating income

83.2

46.4

32.8

-0.3

4.2

 

 

 

 

 

 

Investment properties on 1 January 2019

3,755.8

2,006.0

1,514.4

72.0

163.5

Investment properties held for sale on 1 January 2019

241.3

220.4

21.0

-

-

Investments

24.2

17.2

2.1

4.5

0.3

Sales

-347.1

-310.1

-28.8

-6.1

-2.0

Change in fair value

-16.4

-8.5

-8.6

1.2

-0.6

Reclassifications to non-current assets held for sale

-61.3

-61.3

-

-

-

IFRS 16 related fair value losses on investment property**

-1.1

-

-

-

-

Right-of-use assets classified as investment properties (IFRS 16)**

39.4

-

-

-

-

Investment properties on 30 June 2019

3,634.9

1,863.7

1,500.0

71.5

161.2

Change in fair value, %

-0.3

-0.4

-0.6

1.7

-0.3

 

 

 

 

 

 

*This table includes only investment properties. Trading and other properties as well as segment specific administrative costs are excluded.

**Not allocated to segments

RENTAL OPERATIONS

At the end of June 2019, Sponda had 1,707 tenants and a total of 2,965 lease agreements.

Most of Sponda’s lease agreements in Finland are subject to annual or biannual indexation.

The weighted average of unexpired lease terms was 3.0 (3.6) years 3.1 (3.9) years applicable to office properties and 3.3 (3.9) years to shopping centres.

The lease agreements expire as follows:

% of rental income

Total property portfolio

 

30.6.2019

30.6.2018

31.12.2018

Within 1 year

20.2

18.6

18.1

Within 2 years

15.3

12.5

12.0

Within 3 years

17.3

12.9

13.7

Within 4 years

9.7

13.2

12.5

Within 5 years

7.4

7.5

7.6

Within 6 years

6.4

4.4

5.1

After more than 6 years

11.0

19.4

18.5

Valid indefinitely

12.7

11.6

12.5

RESULTS BY SEGMENT

The reporting segments are as follows: Office Properties, Shopping Centres, Property Development, Non-Strategic Holdings and the Other segment. The Non-Strategic Holdings segment includes the remaining logistics properties, properties in Russia and the Property Investment Companies segment. The Other segment includes not property related expenses which are not allocated to any of the Group’s businesses. More details of the Other segment are presented in the table Income statement by segment.

Office Properties

The Office Properties segment covers leasing, purchase and sales of office premises in Finland.

Total revenue in the first half of 2019 amounted to EUR 69.9 (80.2) million and net operating income was EUR 46.6 (56.3) million.

 

1-6/2019

1-6/2018

1-12/2018

Total revenue, M€

69.9

80.2

157.0

Net operating income, M€*

46.6

56.3

111.1

Operating profit, M€*

54.1

44.8

97.8

Fair value of properties, M€

1,863.7

2,276.2

2,006.0

- excludes properties classified as held for sale, M€

61.3

-

220.4

Change in fair value from beginning of year, M€

-8.5

-5.0

-15.9

Leasable area, m²

736,500

800,000

800,000

*Based on segment reporting and therefore including property taxes for six months only

Shopping Centres

The Shopping Centres segment covers leasing, acquisition and sale of shopping centres and retail premises in Finland.

Total revenue in the first half of 2019 amounted to EUR 45.3 (40.8) million and net operating income was EUR 32.8 (30.9) million.

 

1-6/2019

1-6/2018

1-12/2018

Total revenue, M€

45.3

40.8

86.6

Net operating income, M€*

32.8

30.9

65.8

Operating profit, M€*

19.7

35.8

68.5

Fair value of properties, M€

1,500.0

1,528.4

1,514.4

- excludes properties classified as held for sale, M€

-

 

21.0

Change in fair value from beginning of year, M€

-8.6

9.8

12.6

Leasable area, m²

249,500

255,000

255,500

*Based on segment reporting and therefore including property taxes for six months only

Property Development

The Property Development segment covers development projects. Property development operations comprise new construction projects and the refurbishment of existing properties.

The balance sheet value of Sponda’s property development portfolio stood at EUR 71.5 million at the end of June 2019. Of this total, EUR 46.8 million was in undeveloped land sites and the remaining EUR 24.7 million was tied up in ongoing property development projects. The value of non-utilised building rights is presented in the assets of the segment concerned for investment properties that have a building, and as part of the Property Development segment for building rights for undeveloped land.

The Property Development unit invested a total of EUR 6.1 million during the first half of the year. The investments were primarily for the construction of the Ratina office building. The total investment of the Ratina office building during the period under review was approximately EUR 5.9 million.

Non-Strategic Holdings

The Non-Strategic Holdings segment includes the remaining logistics properties and properties in Russia.

The fair value of the investment properties in the Non-Strategic Holdings segment stood at EUR 161.2 million at the end of June. Of this total, logistics properties accounted for EUR 77.6 million and properties in Russia for EUR 83.7 million.

Sponda’s holding in Russia Invest, which invests in property development projects in Russia, is 27%. Russia Invest owns a 55% share in the Okhta Mall shopping centre project, which is Phase I of the Septem City project located in St Petersburg. As at 30 June 2019 the fair value of the investment amounted to approximately EUR 16.2 million.

FINANCING AND BALANCE SHEET KEY FIGURES

Sponda Group’s interest-bearing debt decreased significantly year-on-year due to the repayment of loans. At the end of June 2019, interest-bearing debt amounted to EUR 2,488.6 (2,892.7) million, including unamortised loan arrangement fees. The Group’s cash funds totalled EUR 105.5 (69.1) million from which unrestricted cash totalled EUR 32.7 million. The Group’s net debt was EUR 2,383.1 (2,823.6) million, comprising bonds and loans from financial institutions, including withdrawals on credit limits for investment purposes amounting to EUR 47.0 million.  As of the balance sheet date the total mortgaged loans amounted to EUR 2,286.0 million approximately 59% of the total assets.

Sponda’s equity ratio at the end of June stood at 30.5% (25.1%). Loan to Value (LTV), based on net debt, was 63.8% (69.3%). The weighted average maturity of Sponda’s loans was 1.4 (1.5) years. The average interest rate was 3.8% (3.7%) including interest derivatives and unamortised arrangement fees. Fixed-rate and interest-hedged loans accounted for 84.6% (86.6%) of the loan portfolio and 53.7% (60.1%) of the total assets.

Sponda’s net financing costs for the period totalled EUR -48.0 (-52.5) million. No interest expenses were capitalised in 2019. Net cash flow from operations in the period under review totalled EUR 27.7 (34.1) million. Net cash flow from investing activities was EUR 343.7 (-70.0) million and net cash flow from financing activities was EUR -373.2 (-623.7) million.

Balance sheet key figures

 

 

30.6.2019

30.6.2018

31.12.2018

Equity ratio, %

 

30.5

25.1

29.8

Loan to Value (LTV)*, %

 

63.8

69.3

64.4

Interest-bearing debt, EUR million

 

2,489

2,893

2,706

Cash reserves, EUR million

 

106

69

107

Credit limits for investment projects, EUR million

 

47

27

47

*) Based on net debt

SPONDA GROUP

Sponda Plc is part of the Luxembourg-based Polar TopCo S.à r.l. group.

Sponda Group comprises the parent company Sponda Plc and its wholly or partly-owned subsidiaries.

SPONDA’S MANAGEMENT

Kai Aejmelaeus has been Sponda’s President and Chief Executive Officer since April 2018.

Sponda made changes to the composition of its Executive Board in early 2019. In addition to the President and CEO, the Executive Board consists of Martti Savenius (Chief Operating Officer), Anna Blasik (Chief Financial Officer), Timo Pantsari (Chief Information Officer) and Ari Käkelä (Chief Legal Officer).

RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE

Sponda estimates that the risks and uncertainty factors for 2019 are mainly related to the following areas:

Change in demand for space, caused by reasons such as technological development, may have a negative impact on the development of the occupancy rate and net operating income.

In Russia, the risks are mainly related to the development in the Russian economy.

PROSPECTS FOR 2019

Sponda has decided not to give prospects for the financial year 2019.

POST BALANCE SHEET EVENTS

In July, Sponda sold properties with a total balance sheet value of EUR 61.5 million generating gains of EUR 4.4 million.

In August, Sponda EUR 189 million of third-party financing was raised.

In August, Sponda Oyj distributed EUR 155 million to its shareholder.

 

18 September 2019
Sponda Plc
Board of Directors

 

For further information, please contact:

Kai Aejmelaeus, President and CEO, tel. +358 20 431 31
Anna Blasik, CFO, tel. +358 20 431 31


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. www.sponda.fi/en.

 

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients. The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Sponda Oyj via Globenewswire