Sponda Plc's pretax profit increased by FIM 10.5 million, or 27.1 %, on the previous year. Sponda acquired a majority holding in the listed property investment company Castrum Oyj, in which it now holds 66 %. The Finnish state's holding in Sponda decreased to 49 %. The 8 500 m2 expansion and 5 000 m2 refurbishment at the Kauppakeskus Shopping Mall made planned progress. Half of the new premises are already leased and the net operating income of the expansion will rise to at least 11 %.
Business conditions
The Finnish economy will continue to grow during 2000, according to the Research Institute of the Finnish Economy (Etla), with GDP projected to increase to 5 % and unemployment to fall to 9.3 %. Inflation will rise to 2.3 % during the year. Euro interest rates are rising and the ECB's rate is currently 3.75 %.
Sponda's business arena, Helsinki Metropolitan Area, is one of the fastest growing in the EU. The vacancy rate in the Helsinki Metropolitan Area was 1.8 % at the end of 1999 (source: Catella Real Estate Consulting Ltd), and demand for commercial and office premises was vigorous. The lack of space has raised rental levels and the shortage of large office premises is particularly acute. The lack of commercial premises has set in motion several large shopping mall projects in the region and these are now under construction.
Sponda's holding in Castrum rises to 66 %
On 14 March 2000 Sponda announced its intention to raise its holding in Castrum Oyj from 17.0 % to 65.9 %. This transaction took place on 3 April 2000 following the approval of Sponda's annual general meeting. Sponda paid for the transaction through a privileged share issue to the sellers, offering 1 Sponda share in exchange for five Castrum shares. Castrum is the leading real estate investment company in the Nordic countries specializing in owning and leasing logistics properties.
The selling parties in this transaction were Tamro Oyj (19.1 %), Ilmarinen Mutual Pension Insurance Company (13.8 %), Nokia Corporation (6.8 %), PMA-Invest Oy (3.3 %), Merita Real Estate Ltd (2.6 %), Fennia Mutual Enterprise Insurance Company (0.4 %), OKOBANK Osuuspankkien Keskuspankki Oyj (1.5 %), Partita Oy (0.7 %) and the OKOBANK pension trust (0.7 %). These parties owned altogether roughly 49 % of the total number of Castrum shares.
The total transaction price totalled approximately EUR 29 million, calculated from the share price on the day preceding the announcement. The conversion ratio of the shares was based on the net worth of the companies. The market capitalization of Castrum's property portfolio is FIM 1 480 million and its equity ratio is 45.4 %. Castrum derives almost two-thirds of its net operating income in the Helsinki Metropolitan Area. Castrum's accounts have been consolidated with Sponda from 1 April 2000.
The transaction broadened Sponda's ownership structure. Its free float increased and the Finnish state's holding was reduced to 49.1 %. Sponda's capital structure remains solid after the transaction and provides a foundation for further development of the company. Sponda considers that logistics properties in prime locations with good transport connections in the Helsinki Metropolitan Area will rise in importance, particularly as the volume of e-commerce increases. The growth in its property portfolio also enables the company to achieve synergic benefits in property maintenance.
Property acquisitions and sales
On 17 January 2000 Sponda Plc bought the entire share capital of Real Estate Company Blåbackavägen 14, an office and warehouse site at Sinimäentie 14, from Aktia Savings Bank Plc. The building has a leasable area of 6 100 m2, a debt-free purchase price of FIM 37 million and net operating income of FIM 3.7 million/year at the time of purchase. The property is fully leased and is situated at the same location as Sinikalliontie 10, which is already owned by Sponda.
Sponda sold the entire share capital of the Dianakulma residential and office building at Yrjönkatu 16 to the Svenska folkskolans vänner association, recording a profit of approximately FIM 9 million on this sale.
Construction projects
Sponda had two construction projects in progress during the first quarter of the year: an expansion of the Itäkeskus Shopping Mall, and the renovation of TietoEnator Corporation's office building in the Tampella industrial area of Tampere. The Itäkeskus project will be completed in the autumn of 2001 and the TietoEnator building in June 2000.
Demand for space in Itäkeskus expansion
The Itäkeskus Shopping Mall is the largest shopping mall in Finland and the Nordic countries. Half of the new space (6 000 m2) provided by the expansion, due for completion in 2001, is already leased. The rent level in the new premises is good and the aim is to achieve a return of at least 11 % on the investment.
New Nordic and European chains
Many Nordic and European fashion houses as well as other businesses seeking to establish a foothold in Finland have leased space in the Itäkeskus Shopping Mall's expansion. Once such is Dressman, a chain specializing in men's clothing and accessories. Dressman's business concept is to sell modern, high-quality clothes at an attractive price, with a focus on adult men. Dressman design their own clothes and operate in Norway (95 stores) and Sweden (75 stores) as well as in Latvia, Poland and Iceland.
Stadium, which markets Swedish sportswear and accessories, is another chain using the Itäkeskus Shopping Mall as a platform for entering the Finnish market. With 54 outlets in Sweden, Stadium is the country's largest branded products chain and known for its first-rate service. This autumn Stadium will open its first store outside Sweden in Copenhagen, Denmark. Stadium's net sales in 1999 totalled 2.1 billion Swedish krona and it has 1 800 employees.
The Finnish Stockmann chain is now expanding its Itäkeskus Shopping Mall store for the fourth time as well as renewing the store's departments. Stockmann has also reserved separate space for a Marks & Spencer outlet. The British company Marks & Spencer will also open a store in Itäkeskus offering the chain's complete range of women's, men's and children's clothing. Established in 1884, Marks & Spencer is an international chain with 718 outlets in 34 countries and more than 75 000 employees.
Other major new entrants include the Swedish domestic appliance company OnOff AB, Sweden's third largest retail chain with 74 stores in Sweden and 3 in Estonia; a large McDonald's restaurant and pharmacy; and the Swedish home textiles chain Hemtext's first store in Finland.
The expansion comprises seven floors, two of which are reserved for retail premises and five for parking. This will provide a further 500 car slots, enabling shoppers to park in the mall's immediate vicinity. The centrepiece of the expansion is a piazza with cafeterias and restaurants along its sides and a stage in the centre for fashion shows, concerts and other events.
The expansion is estimated to generated about FIM 200 million in new business through some 30 new enterprises.
Sales by the stores in the Itäkeskus Shopping Mall in the 12 months spanning April 1999 to March 2000 totalled FIM 1 550 million, the same as in the previous period. Sales between January and March 2000 totalled FIM 350 million, up 2 % on the same period in 1999 (MFIM 244).
Personnel
The Sponda Group had 37 (30) personnel on average between 1 January and 31 March 2000, which included 29 (23) employed by the parent company Sponda Plc. Personnel numbered 37 (30) at the end of March, including 29 (23) in the parent company.
Group structure
Sponda Group comprises Itäkeskus Shopping Mall and Tamsoil Oy, which are wholly owned subsidiaries of the parent company Sponda Plc, and from 3 April 200 also Castrum Oyj, in which Sponda has a 66 % holding.
Leasing between January and March 2000
Net operating income from Sponda's properties totalled FIM 90.6 (64.3) million, of which 50.6 % was derived from Helsinki Central Business District (CBD), 17.7 % from Greater Helsinki, 28.4 % from the Itäkeskus Shopping Mall and 3.3 % from the rest of Finland. The economic occupancy rate at the close of the period was 96.2 % (96.1 %).
The economic occupancy rate of Sponda's properties in Helsinki CBD was 95.5 % and net operating income totalled FIM 45.8 million on 31 March 2000 (FIM 21.2 million on 31 March 1999). Helsinki CBD's net operating income between January and March 2000 was lower than in the previous two quarters owing to costs totalling about FIM 3 million arising from renovations and change of tenants. Moreover, additional rents totalling approx. FIM 2 million were received during the last quarter of 1999 as advance payment for tenant investments. Helsinki CBD's net operating income will rise during the rest of the year.
The economic occupancy rate of Sponda's properties in Greater Helsinki was 97.6 % and net operating income totalled FIM 16.1 (12.4) million. The same figures for the Itäkeskus Shopping Mall were 99.2 % and FIM 25.7 (24.6) million, and for the rest of Finland 82.2 % and FIM 3.0 (6.1) million.
Financing
Sponda concluded a EUR 100 million commercial paper programme with a consortium of banks in February, and a domestic EUR 250 million bond programme in April.
The balance sheet on 31 March 2000 totalled FIM 5 770 million (31 December 1999: FIM 5 803 million). Interest-bearing net debt amounted to FIM 2 990 (3 045) million. The equity ratio was 45.7 % (46.3 %). The average maturity of Sponda's credit lines was 3 years, the average interest rate was 4.6 % and the average interest period was 2 years. A 7-year EUR 100 million bond floated on 14 April, after the close of reporting period, raised the average loan maturity and interest period to 5 years, while average interest costs increased to 5 %.
Result
The operating profit was FIM 81.4 (52.3) million. The profit before appropriations, extraordinary items, provisions and taxes was FIM 49.2 (38.7) million. The profit after taxes and minority interest was FIM 41.7 (36.0) million. Earnings per share were FIM 0.57 (1-12/1999 FIM 2.41, 1-3/1999 FIM 0.49) and, excluding profits on property sales, FIM 0.44 (1-12/1999 FIM 2.22, 1-3/1999 FIM 0.46). The decrease in earnings per share from leasing activities was the result of higher financing expenses and taxes. Total revenue in the 1-3/2000 period was FIM 125.3 (89.1) million, an increase of 40.6 % on the same period last year. Profits on the sale of properties totalled FIM 10.0 (2.4) million.
Share performance
The price of the Sponda share did not develop as well as the HEX All Share Index between January and March 2000 and the closing price on 31 March 2000 was EUR 3.69 (FIM 21.93). Following the registration of the company's privileged share issue on 3 April 2000, Sponda's market capitalization was EUR 290 million (FIM 1.7 billion).
Composition of the Board of Directors
In accordance with the AGM's decision on 27 March 2000 the Board of Directors continues to comprise Heikki Bergholm, President and CEO, Lassila & Tikanoja; Kari Inkinen, President and CEO, Kapiteeli Oy; Harri Pynnä, Legal Counsellor, Fortum Oyj; Anssi Soila MSc (Econ); Pertti Voutilainen, President; Merita Bank Plc; and Jarmo Väisänen, Financial Counsellor, Ministry of Finance.
The Board elected Anssi Soila as its chairman and Jarmo Väisänen as the deputy chairman.
Auditors
The AGM appointed KPMG Wideri Oy Ab and Raija-Leena Hankonen APA as the company's auditors and Tiina Torniainen as the deputy auditor.
Prospects
The property leasing markets are expected to strengthen further and the result of leasing operations is forecast to be better than last year. The increasing use of long-term financing instruments will raise financing expenses. The profit before taxes and sales profits is expected to remain essentially unchanged from 1999. The result will be burdened by higher taxes than in previous years.
The consolidation of Castrum will improve Sponda's earnings per share.
Sponda Plc
Board of Directors
The full report including tables can be downloaded from the enclosed link.
