Sponda Plc Stock Exchange Release 12 March 2020, at 8:30 a.m.
SPONDA PLC'S FULL YEAR RESULT 1 JANUARY - 31 DECEMBER 2019
YEAR 2019 IN BRIEF (COMPARED WITH YEAR 2018)
- Total revenue decreased to EUR 244.5 (259.2) million. The reduction was predominantly due to divestments during the year.
- Net operating income decreased to EUR 169.1 (182.8) million.
- Operating profit was EUR 146.4 (155.1) million. This includes a fair value change of EUR -41.5 (-8.4) million and profit on sales of investment properties of EUR 53.1 (15.9) million. Adoption of IFRS 16 had a positive impact of EUR 0.5 million to operating profit.
- Earnings per share were EUR 0.22 (0.10). Earnings per share was increased mainly due to deferred taxes which had EUR 25 million positive impact on the result. The positive impact of deferred taxes was primarily attributable to divestments during the year.
- The fair value of the investment properties amounted to EUR 3,092.3 (3,755.8) million, which includes EUR 30.1 million impact of IFRS 16
1 JULY – 31 DECEMBER 2019 IN BRIEF (COMPARED WITH 1 JULY – 31 DECEMBER 2018)
- Total revenue decreased to EUR 121,0 (130.3) million
- Net operating income was EUR 92.4 (100.2) million
- Operating profit was EUR 79.1 (72.2) million. This includes a fair value change of EUR -24.0 (-27.4) million
- Earnings per share were EUR 0.11 (0.05).
Sponda has adopted the new IFRS 16 Leases -standard effective January 1, 2019. In adopting the standard, Sponda applied the modified retrospective approach along with the exemptions provided by the standard. Hence, the comparison figures were not adjusted. More information on the adoption of IFRS 16 is presented in General accounting principles and in note 9 of the consolidated financial statements.
KEY FIGURES
| 7-12/2019 | 7-12/2018 | 1-12/2019 | 1-12/2018 | |
| Total revenue, M€ | 121.0 | 130.3 | 244.5 | 259.2 |
| Net operating income, M€ | 92.4 | 100.2 | 169.1 | 182.8 |
| Operating profit, M€ | 79.1 | 72.2 | 146.4 | 155.1 |
| Earnings per share, € | 0.11 | 0.05 | 0.22 | 0.10 |
| Equity per share, € | 2.89 | 3.67 | ||
| Equity ratio, % | 26.6 | 29.8 |
BUSINESS CONDITIONS
Economic growth in Finland has remained moderate and is expected to continue as such in 2020. According to the Ministry of Finance’s forecast (published 30 January, 2020), the Finnish GDP will grow by 1% in 2020. The improvement of the economy also has a positive impact on employment. According to Statistics Finland, the unemployment rate was 6.7% at the end of 2019.
GROUP RESULT IN 1 JANUARY– 31 DECEMBER 2019
Sponda Group’s result for 2019 was EUR 74.9 (33.8) million, while the result before taxes was EUR 50.8 (47.1) million. Operating profit was EUR 146.4 (155.1) million.
Net operating profit decreased by approximately 7.5% to EUR 169.1 (182.8) 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 -37.1 (-32.4) million. Administrative and marketing expenses accounted for EUR -36.8 (-29.5) million of this total. The increase in administrative and marketing expenses is primarily due to higher expenses related to personnel and external services.
Christian Hohenthal was appointed as Sponda’s new President and Chief Executive Officer on 18 December 2019 and he subsequently took his post in 1 February 2020. Hohenthal succeeds Kai Aejmelaeus who left the company on 20 December 2019. Sponda’s Chief Legal Officer Ari Käkelä acted as an interim CEO from 20 December 2019 to 1 February 2020.
During the period under review, the Group recognised profit on sales of investment and trading properties amounting EUR 55.8 (16.4) million. The change in fair value of the investment properties and real estate funds amounted to EUR -41.5 (-8.4) million. Majority of the negative change in fair value was attributable to the Group’s property portfolio in Finland. More detailed information is presented in the table Valuation gains/losses on fair value assessment in the section Property assets 1 January – 31 December 2019.
Financial income and expenses for the period totalled EUR -95.6 (-107.9) 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 25.0 million on the result. The decrease in deferred tax liabilities was primarily attributable to divestments during the year.
PROPERTY ASSETS 1 JANUARY–31 DECEMBER 2019
At the end of 2019, Sponda had a total of 151 leasable properties, with an aggregate leasable area of approximately 1.1 million m² allocated between Finland (99%) and Russia. The Portfolio in Finland comprised approximately 56% office, 26% shopping centres and 17% logistics premises.
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 valuers to ensure that the parameters and values used in the calculations are based on market observations.
At the end of 2019, an external valuer (Catella Property Oy) audited valuations of Sponda’s investment properties in Finland. The properties in Russia were valued by an external valuer (CB Richard Ellis). The fair value of Sponda investment properties, excluding properties classified as held for sale, was approximately EUR 3.1 billion at the end of 2019.
Valuation gains/losses on fair value assessment
| M€ | 7-12/2019 | 7-12/2018 | 1-12/2019 | 1-12/2018 |
| Changes in yield requirements (Finland) | 57.2 | 7.2 | 71.1 | 31.0 |
| Development gains on property development projects | 0.9 | - | 2.2 | 24.8 |
| Modernisation investments | -32.9 | -28.1 | -52.7 | -42.3 |
| Change in market rents and maintenance costs (Finland) | -49.3 | 2.4 | -61.2 | -2.7 |
| Change in value (Russia) | 3.0 | -4.4 | 3.4 | -14.6 |
| Investment properties, total | -20.8 | -22.8 | -37.3 | -3.8 |
| Real estate funds | 1.2 | -4.6 | 1.2 | -4.6 |
| Rent free adjustments | -3.5 | - | -3.5 | - |
| IFRS 16 related fair value losses on investment property | -0.8 | - | -1.9 | - |
| Group, total | -23.9 | -27.4 | -41.5 | -8.4 |
Changes in Sponda’s investment property assets 1 January–31 December 2019*
| M€ | Total | Office Properties | Shopping Centres | Property Development | Non- Strategic Holdings |
| Operating income | 242.8 | 135.5 | 90.8 | 0.9 | 15.7 |
| Maintenance expenses | -75.4 | -43.4 | -23.6 | -1.7 | -6.7 |
| Net operating income | 167.4 | 92.0 | 67.2 | -0.8 | 9.0 |
| 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 | 220.3 | 21.0 | - | - |
| Investments | 67.8 | 39.9 | 9.9 | 17.5 | 0.5 |
| Sales | -549.6 | -428.8 | -110.6 | -8.0 | -2.2 |
| Change in fair value | -37.3 | -20.2 | -23.6 | 5.0 | 1.5 |
| Reclassifications to non-current assets held for sale | -412.3 | -288.3 | -124.0 | - | - |
| Rent free adjustments | -3.5 | -2.0 | -1.5 | -0.1 | -0.1 |
| IFRS 16 related fair value losses on investment property** | -1.9 | ||||
| Right-of-use assets classified as investment properties (IFRS 16)** | 32.0 | ||||
| Investment properties on 31 December 2019 | 3,092.3 | 1,527.0 | 1,285.6 | 86.4 | 163.2 |
| Change in fair value, % | -1.0 | -1.0 | -1.6 | 7.0 | 0.9 |
*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 December 2019, Sponda had 1,675 tenants and a total of 2,881 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 3.3 (3.7). 3.1 (4.0) years was attributable to office properties and 4.0 (3.5) years to shopping centres.
The lease agreements expire as follows:
| % of rental income | ||
| 31.12.2019 | 31.12.2018 | |
| Within 1 year | 15.9 | 18.1 |
| Within 2 years | 13.8 | 12.0 |
| Within 3 years | 19.2 | 13.7 |
| Within 4 years | 10.7 | 12.5 |
| Within 5 years | 9.4 | 7.6 |
| Within 6 years | 4.5 | 5.1 |
| After more than 6 years | 11.9 | 18.5 |
| Valid indefinitely | 14.5 | 12.5 |
RESULTS BY SEGMENT
The reporting segments are as follows: Office Properties, Shopping Centres, Property Development, Non-Strategic Holdings and Other. The Non-Strategic Holdings include the logistics properties and properties in Russia. The Other includes expenses not allocated to any of the Group’s businesses.
Office Properties
The Office Properties segment covers leasing, purchase and sales of office and office related premises in Finland. Total revenue in 2019 amounted to EUR 136.9 (157.0) million and net operating income was EUR 92.7 (111.1) million. The decrease in revenue and net operating income is predominantly due to divestments during the year.
| 7-12/2019 | 7-12/2018 | 1-12/2019 | 1-12/2018 | |
| Total revenue, M€ | 67.0 | 76.8 | 136.9 | 157.0 |
| Net operating income, M€* | 46.0 | 54.8 | 92.7 | 111.1 |
| Operating profit, M€* | 24.1 | 53.0 | 78.2 | 97.8 |
| Fair value of properties, M€ | 1,527.0 | 2,006.0 | ||
| - excludes properties classified as held for sale, M€ | 288.3 | 220.4 | ||
| Change in fair value from beginning of year, M€ | -20.2 | -15.9 | ||
| Leasable area, m² | 700,000 | 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 2019 amounted to EUR 90.8 (86.6) million and net operating income was EUR 67.1 (65.8) million.
| 7-12/2019 | 7-12/2018 | 1-12/2019 | 1-12/2018 | |
| Total revenue, M€ | 45.5 | 45.8 | 90.8 | 86.6 |
| Net operating income, M€* | 34.3 | 34.9 | 67.1 | 65.8 |
| Operating profit, M€* | 41.5 | 32.7 | 61.2 | 68.5 |
| Fair value of properties, M€ | 1,285.6 | 1,514.4 | ||
| - excludes properties classified as held for sale, M€ | 124.0 | 21.0 | ||
| Change in fair value from beginning of year, M€ | -23.6 | 12.6 | ||
| Leasable area, m² | 245,000 | 255,500 |
Property Development
Property Development operations comprise new construction projects and refurbishment of existing properties.
The balance sheet value of Sponda’s development properties portfolio stood at EUR 86.4 million at the end of 2019 allocated to undeveloped land sites (EUR 44.3 million) and ongoing development projects (EUR 42.1 million). The value of the non-utilised building rights is reflected within this segment.
During 2019 a total of EUR 19.3 million was invested primarily in the construction of the Ratina office building (EUR 16.6 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 163.2 million at the end of 2019. Of this total, logistics properties accounted for EUR 76.5 million and properties in Russia for EUR 86.7 million.
Sponda has indirect investment of 14.9% in the Oktha Mall center project. As at 31 December 2019 the fair value of the investment amounted to approximately EUR 18.3 million.
FINANCING AND BALANCE SHEET KEY FIGURES
The Group’s Interest-bearing debt decreased from the comparison period due to debt repayments. Interest-bearing debt amounted to EUR 2,514.1 (2,705.9) million at the end of December 2019. The Group’s cash funds totalled EUR 104.6 (106.7) million from which unrestricted cash totalled EUR 27.3 million. The Group’s net debt was EUR 2,409.5 (2,599.2) million, comprising bonds and loans from financial institutions, including capex facilities amounting to EUR 69.2 (47.0) million. As of the balance sheet date the total mortgaged loans amounted to EUR 2,311.4 million approximately 62.3% of the total assets.
Sponda’s equity ratio on 31 December 2019 stood at 26.6 (29.8) %. Loan to Value (LTV), based on net debt, was 68.0 (64.4) %. The weighted average maturity of Sponda’s loans was 1.6 (1.8) years. The average interest rate was 3.7 (3.6) % including interest derivatives and unamortised arrangement fees. Fixed-rate and interest-hedged loans accounted for 96.3 % of the loan portfolio and 65 (56) % of the consolidated balance sheet.
Sponda’s net financing costs for the period totalled EUR -95.6 (-107.9) million. No interest expenses were capitalised in 2019. Net cash flow from operations in the period under review totalled EUR 39.6 (67.3) million. Net cash flow from investing activities was EUR 536.1 (-51.7) million and the net cash flow from financing activities was EUR -578.5 (-637.2) million.
Balance sheet key figures
| 31.12.2019 | 30.6.2019 | 31.12.2018 | 30.6.2018 | ||
| Equity ratio, % | 26.6 | 30.5 | 29.8 | 25.1 | |
| Loan to Value (LTV)*, % | 68.0 | 63.8 | 64.4 | 69.3 | |
| Interest-bearing debt, EUR million** | 2,514.1 | 2,488.6 | 2,705.9 | 2,892.7 | |
| Cash reserves, EUR million | 104.6 | 105.5 | 106.7 | 69.1 | |
| Credit limits for investment projects, EUR million | 69.2 | 47.0 | 47.0 | 27.0 |
*) Based on net debt
**) December 2019 figure includes EUR 336.8 (189.7) million of interest-bearing liabilities associated with non-current assets held for sale.
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 acted as Sponda’s President and Chief Executive Officer from April 2018 to December 2019. In December 2019 Christian Hohenthal was appointed as Sponda’s new President and Chief Executive Officer and he subsequently took up his post in February. Sponda’s Chief Legal Officer Ari Käkelä acted as an interim CEO.
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 2020 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 2020
Sponda has decided not to give prospects for the financial year 2020.
POST BALANCE SHEET EVENTS
In January and February, Sponda sold properties with a total balance sheet value of EUR 412.4 million.
THE BOARD’S DIVIDEND PROPOSAL
The Board of Directors proposes to the general meeting that no dividend shall be paid for the financial year 2019.
12 March 2020
Sponda Plc
Board of Directors
For further information, please contact:
Christian Hohenthal, 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.
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