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Sponda Financial Results Year 2014 5 February 2015
Highlights for the period Kari Inkinen
Sponda’s Q4 2014
in brief
• Positive development of the
occupancy rate in the last
quarter.
• Cash flow was strong despite
the sales. - The Board’s proposal for dividend is
EUR 0.19/share.
• Property development projects
progressed as planned. - Projects will add to 2015 cash flow.
• Portfolio risk was reduced
through sales. - Upside from the location of the properties
and modernization investments.
3
3
Sponda’s Q4 2014
in brief
• Cash flow from operations of
Certeum was strong, EUR 4.5
million before the non-recurring
start-up costs. - The negative result came from fair
valuation of properties and financing
instruments.
• Properties in Russia are fully let
apart from Ducat II. - Share of the Russian portfolio is only 7%
of the total investment portfolio.
- Macro development in Russia impacted
both on valuation and rental levels.
4
4
Development and modernization investments For the two greenfield projects Sponda expects EUR 10 million development gain in total.
5
Leasable
area
m²
Estimated
completion
Total
investment M€
Pre-let %
Estimated
market rent Eur/m²/month
Greenfield developments
Ilmala office property, Helsinki 18,500
End of
2015 57.0 97 22-24
Lassila office property, Helsinki 4,600 June 2015 10.6 50 22-24
Modernization investments
Porkkalankatu, Helsinki 13,500 April 2015 6.7 87 23-25
Keskuskatu 1b, Helsinki 2,048
September
2015 6.4 62 34-36
Total 38,648 80.7
Sponda Q4 2014: Performance highlights
10-12/14 Change,
% 10-12/13 1-12/14 Change
%
1-12/13
Total revenue, M€ 57.3 (12.2) 65.3 246.7 (6.7) 264.3
Net Operating Income, M€ 40.4 (14.8) 47.4 176.0 (7.8) 190.9
Operating profit, M€ 32.9 (11.5) 29.5 151.7 (0.8) 153.0
Cash flow from
operations/share, €
0.09 (10.0) 0.10 0.37 (7.5) 0.40
Earnings/share, € 0.04 (73.3) 0.15 0.24 (29.4) 0.34
NAV/share, € 4.65 0.2 4.64
EPRA NAV/share, € 5.45 3.0 5.29
Economic occupancy rate, % 87.0 (1.0) 87.9
Dividend/share*) 0.19*) 5.6 0.18
6 *) Board proposal
2,73
3,88
3,12
3,60
3,42
3,62
0,12
0,15 0,16
0,17 0,18
0,19
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
0,40
0,45
0,50
2009 2010 2011 2012 2013 2014
Share price at the endof the year
Dividend per share
Dividend
7 *) Board proposal
*)
Risk allocation of Sponda’s portfolio
45%
21%
Espoo total 7.0%
Rest of HMA 14%
Vantaa total 0.5%
Total of the office and shopping centres properties portfolio, EUR 2.6 billion (excl. Russia, Property Development,
Logistics)
8
Oulu 3.0%
Tampere 9.5%
Sponda’s priorities in 2014
Occupancy rate
development
Our target was to keep occupancy rate at the end-of-2013 level. The end-of-2014 occupancy rate was 87.0% which is slightly below the end-of-2013 figure.
Implementing our new strategy
We have disposed non-core assets for EUR 237.2 million and our share of the real estate funds for EUR 77.2 million. One larger office property acquired in Tampere.
Stable cash flow from operations
per share
We aim to maintain our ability to pay stable dividend.
Increased focus in property
development
During 2014, we started four projects: Ilmala and Lassila offices and Ruoholahti and Keskuskatu renovations.
9
Environmental responsibility 2014
Target Result
Energy consumption declines in properties located in Finland (energy consumption
in total).
Total energy
consumption declined
by 1.8%.
Comparable water consumption decreases in properties in Finland. Water consumption
declined by 0.6%.
Recycling of waste stays at the level of 87% (as was in 2013) of all waste. Recycling level is now
96%.
Environmental partnership program expanded from last year to 22 (in 2013, Sponda
had 20 partners).
22 partners currently in
the program.
Environmental certificates obtained for possible new properties and for all major
maintenance investments.
Certificates obtained or
in the process.
10
Sponda’s priorities in 2015
Occupancy rate
development
Our target is to keep occupancy rate at the end-of-2014 level at minimum.
Implementing our strategy
We will continue the non-core property disposals.
Stable cash flow from
operations per share
We aim to maintain our ability to pay stable dividend.
Focus in property
development
During 2015, four large property development projects will be completed. Our target is to start at least one large development project in 2015.
11
Major Trends at the End of 2014 Kari Inkinen
Finnish Market
• According to the Ministry of
Finance, the GDP growth for
2015 is estimated to be 0.9%. - In 2014, the GDP growth is estimated to
be 0.1% due to increase in exports.
• Property transaction volume
increased to EUR 4.2 billion.
International investors
accounted for 35% of all deals
executed in the market.
13 Sources: Catella, Mof F
5,3 %
1,0 %
-8,2 %
3,3 % 2,8 %
-1,5 % -1,2 %
0,1 %
0,9 % 1,3 %
-9,0 %
-7,0 %
-5,0 %
-3,0 %
-1,0 %
1,0 %
3,0 %
5,0 %
7,0 %
2007 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F
GDP - Finland (percentage change)
Office Sector – Finnish Market and
Sponda
Sponda Office
Segment
performance
Occupancy rate was
88.5%¹)
(Q4 2013 : 90.1%).
Like-for-like rents were
down by 3.0%. The
decline was mainly
due to increased
vacancy during the
period.
14 ¹) The reporting of office and retail space in 10 properties were divided into appropriate segments
at the beginning of 2014.
• HMA office market vacancy has
increased from 12.4% to 12.5%.
• Yields in the Helsinki CBD market
continued to compress.
• Office market is very much dependent
on location.
- HMA, CBD and Ruoholahti are still the
desired areas for tenants. Ilmala/Pasila
areas are trending positively.
• The trend in demand is for smaller
space and more flexible leases.
• City of Tampere has limited new
supply, demand for office space
continues to be strong.
Retail Sector – Market and Sponda
Sponda Shopping
Centres
performance
Occupancy rate
was 91.2%¹)
(Q4 2013: 89.0%).
Like-for-like rents were
up by 3.2%. The
improvement was mainly
due to higher occupancy
rate in the segment.
• Pop-up shops were the trend during
Christmas time.
• City centers are preferred locations
for the retailers.
• Rent levels are fairly stable but
especially the upper quartile rents
have come down approx. 20%.
• Consumer confidence in Finland is
still low.
¹) The reporting of office and retail space in 10 properties were divided into appropriate segments
at the beginning of 2014. 15
Logistics Sector – Market and Sponda
Sponda Logistics
Segment
performance
Occupancy rate
was 64.9%
(Q4 2013: 75.2%) ¹).
Like-for-like rents were
down by 11.3% due to
higher vacancy.
¹) Not a l-f-l number as Sponda sold logistics assets for EUR 216.7 million in September 2014.
• With some operators, Finnish
logistics space competes
internationally (for ex. Germany and
Holland).
• The macro development in Russia
has an effect on the logistics space
demand.
• Retail sector in Finland is not
creating similar demand for
warehouses like in the continental
Europe.
16
Russia – Market and Sponda
Russia
Occupancy was 90.4%
(Q4 2013: 96.0%).
Like-for-like rents were
down by 10.7% due to
higher vacancy in the
Ducat II –property and
increased maintenance
costs.
17
• The GDP growth in 2015 will be negative. - The World Bank estimate is -2.9%
• Transaction volume was USD 3.5 billion in 2014
(USD 7 billion in 2013).
• The top rents for prime offices have declined due
to weak demand.
- A-class offices 450-650 (from 750-650) USD/m²/yr.
- B-class offices 275-450 (from 450-400) USD/m²/yr.
7%
Financials Erik Hjelt
19
M€ 10-12/2014 10-12/2013 1-12/2014 1-12/2013
Total revenue 57.3 65.3 246.7 264.3
Expenses (16.9) (18.0) (70.6) (73.4)
Net operating income 40.4 47.4 176.0 190.9
Profit on sale of inv. properties 0.0 0.6 0.6 0.8
Valuation gain / loss 1.6 (12.7) (0.2) (14.2)
Profit on sale of trading properties 0.1 0.0 2.0 0.0
SGA expenses (5.6) (6.0) (22.1) (23.2)
Share of profit from associated companies (3.5) 0.0 (3.5) 0.0
Other operating income/expenses (0.2) 0.2 (1.2) (1.4)
Operating profit 32.9 29.5 151.7 153.0
Financial income and expenses (11.7) (15.9) (55.9) (59.8)
Profit before taxes 21.3 13.6 95.7 93.2
Taxes from previous and current fin. years (0.1) (1.0) (1.8) (3.8)
Deferred taxes (7.9) (4.9) (20.4) (22.5)
Change of tax base of deferred taxes 0.0 36.3 0.0 36.3
Profit for the period 13.3 44.0 73.6 103.1
Profit & loss statement
20
M€ 10-12/2014 10-12/2013 1-12/2014 1-12/2013
Changes in yield requirements (Finland) 12.4 0.7 15.7 (5.0)
Changes in yield requirements (Russia) (10.0) 0.0 (10.0) 0.0
Profit/loss from property development projects 3.5 0.0 5.5 2.2
Modernization investments (14.3) (7.8) (42.0) (22.6)
Change in market rents and maintenance costs
(Finland)
13.8 5.9 40.3 22.1
Change in market rents and maintenance costs
(Russia)
(4.2) (6.2) (19.3) (7.1)
Change in exchange rates 0.2 (2.7) 5.9 (5.7)
Investment properties, total 1.5 (10.1) (3.9) (16.1)
Real estate funds 0.1 (5.2) (1.8) (8.8)
Realised gains/losses in re funds 0.0 2.6 5.5 10.7
Group, total 1.6 (12.7) (0.2) (14.2)
Valuation gains/losses
21
Balance sheet
M€ 31.12.2014 31.12.2013
ASSETS
Investment properties 3,142.1 3,253.3
Other non-current assets 250.9 158.1
Fixed assets & other non-current assets, total 3,393.0 3,411.4
Current assets, total 56.2 60.3
Assets, total 3,449.2 3,471.7
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ equity, total 1,411.5 1,409.3
Non-current liabilities, total 1,413.6 1,714.8
Current liabilities, total 624.1 347.6
Shareholders’ equity and liabilities, total 3,449.2 3,471.7
22
Financing
Q4/2014 Q3/2014 Q2/2014 Q1/2014 Q4/2013
Equity ratio, % 41 40 40 40 41
Average interest rate, % 2.9 2.8 3.0 3.1 3.2
Hedging, % 76 76 79 78 79
Average loan maturity, yrs 2.1 1.6 2.0 2.2 2.5
Average fixed interest rate period, yrs 2.3 2.2 2.4 2.4 2.3
Interest cover ratio 3.3x 3.3x 3.2x 3.1x 3.1x
Loan to Value, % 52 55 53 54 53
Covenants at:
Equity ratio, 28%
(long-term ER target: 40%
ICR 1.75x
Loan maturities 31 December 2014
• Interest-bearing debt EUR 1,731.2 million
• Unused financing limits EUR 460 million
0
100
200
300
400
500
600
2015 2016 2017 2018 2019
M€
Bank loans
Syndicated loan limits
Syndicated loans
Bonds
Commercial papers
23
Business Update Kari Inkinen
Like-for-like development in Q4 2014 Like-for-like net rental growth has been calculated from a portfolio that Sponda has held for 2 years excluding acquisitions, disposals
and property development.
25
Like-for-like net rental growth, %
Like-for-like net rental growth, M€
-3,4
0,7
-1,0 -0,9 0,5
0,3
0,0 -1,2
-2,9
1,0
-1,0
-2,2
-4,0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
Office Retail Logistics Russia
Change in turnover Change in maintenance Net change
-2,6 %
1,7 %
-6,2 %
-3,7 %
1,3 % 2,9 %
-0,2 %
-21,1 %
-3,0 %
3,2 %
-11,3 % -10,7 %
-25,0 %
-20,0 %
-15,0 %
-10,0 %
-5,0 %
0,0 %
5,0 %
Office Retail Logistics Russia
Change in turnover Change in maintenance Net change
Economic vacancy rate 2009 –2014
26 *) The reporting of office and retail space in 10 properties were divided into appropriate segments.
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
Q4/2009 Q4/2010 Q4/2011 Q4/12 Q4/13 Q4/14
Office 11.5 %*)
Shopping Centres 8.8 %
Logistics 35.1 %
Russia 9.6 %
Total property portfolio 13.0 %
HMA market office vacancy 12.5 %
Lease agreement composition Q4 2014
Lease maturity profile,
% of rental income
Average lease maturity
Note 1: Based on rental income
Tenant breakdown by sector¹
27
0,0 2,0 4,0 6,0 8,0
Total
Russia
Logistics
Shopping centres
Office
Q4 2014
Q4 2013
0
5
10
15
20
25
30
Lease agreements in Q4 2014
Pcs M² €/m²/month
(avg)*
New agreements that came into force
during the period
76
28 103
11.30
Agreements that ended during the period 82 11 829 25.00
Agreements that were extended during
the period
43 16 673 16.20
*) Agreements that came into force and ended do not necessarily correlate with same sector or space.
• All lease agreements in Finland are linked to CPI.
• Ten largest tenants account for 30 % of rental income.
28
Investment portfolio development
M€ 2010 2011 2012 2013 2014
Property development
investments
30.5 58.5 47.5 14.0 22.0
Maintenance investments/
Tenant improvements
29.9 50.5 28.4 22.6 42.0
Acquisitions 0.8 150.4 53.1 3.1 65.0
Disposals 57.0 14.1 61.8 33.1 237.2
• We are creating value by property development and active portfolio
management.
• Our aim is to sell non-core assets classified as such either by
location or development potential.
29
Prospects and financial targets
Net operating income
Sponda estimates that the net operating income for 2015 will amount to EUR
158–168 million. The estimate is based on the company’s view of property sales to
be completed and the development of rental operations during the year.
EPRA Earnings
Sponda estimates that company adjusted EPRA Earnings in 2015 will amount to
EUR 95–105 million. This outlook is based on the development of net operating
income and the company’s estimate of the development of financial expenses.
Financial targets
Long-term equity ratio target is 40 %.
Dividend policy is to pay approx. 50 % of the operational cash earnings per share, taking into account of the economic situation and company’s development needs.
30
Pia Arrhenius
Senior Vice President, Corporate
Planning and IR
Tel: +358-20-431 3454
Strategy
Main goals of Sponda’s strategy are to simplify the business as a
whole, to have more focused property portfolio, and to grow profitably.
• To achieve the strategic goals, Sponda is:
- Selling the logistics portfolio;
- Selling the Russian portfolio;
- Selling the properties in Turku; and
- Investing in prime properties in
Helsinki and Tampere.
32
Largest Shareholders 31 December 2014
Major shareholders No. of shares Holding %
1. Oy PALSK Ab 42,163,745 14.89
2. Varma Mutual Pension Insurance Company 29,083,070 10.27
3. HC Fastigheter Holding Oy Ab 28,484,310 10.06
4. The State Pension Fund 2,550,000 0.90
5. Folketrygdfondet 2,050,733 0.72
6. Odin Eiendom 901,243 0.32
7. Investment Fund Visio Allocator 800,000 0.28
8. Norvestia Plc 728,517 0.26
9. Odin Eiendom I 590,495 0.21
10. Livränteanstalten Hereditas 540,000 0.19
Nominee-registered shareholders 51.3% of the total
33
Overview of the current reporting segments
Shopping Centres
Logistics
Property
Development
Russia
Office
Real Estate Funds
% of portfolio4
1 853.5 M€
726.0 M€
205.1 M€
133.1 M€
224.4 M€
18.6 M€
(Investments)
6.3%
5.7%
8.3%
n/m
10.2%
Fair value1 Yield requirement2
7%
4%
23%
7%
59%
Notes: 1) Fair value of investment properties as at 31 December 2014.
2) Average valuation yield requirement as at 31 December 2014.
3) Net initial yield of the segment as at 31 December 2014.
4) Share of total fair value of properties as 31 December 2014 .
5.4%
4.7%
4.1%
n/m
6.0%
Net initial yield3
34
Vacancy 10.5%
Rental level avg 144-180/m²/yr
Yield avg 7.25-8.25%
Vacancy 9.4%
Rental levels 168-216€/m²/yr
Yield avg 6.75-8%
Vacancy 8.6%
Rental levels 156-192/m²/yr
Yield avg 7.25-8.25% Vacancy avg 12.5%
Rental levels 180-378/m²/yr
Yield 5.3-10%
Vacancy avg 16%
Rental levels $450-750/m²/yr
Yield 9-11%
Office market statistics and Sponda’s
holdings Source: Catella Property, Sponda
3%
<1%
10%
80%
<1% 6% 35
NAV/share and EPRA NAV/share
36
3,09
2,48
3,56
3,88 4,01 4,01
2,82
3,12 3,09 2,95
3,19
3,60 3,68 3,62
3,82
3,42 3,45
3,90
3,58
4,08
3,46 3,55
3,63
3,86 3,82 3,92 3,93
4,06 4,17
4,03
4,12 4,45 4,38 4,43
4,50 4,64
4,49 4,56
4,63 4,65
4,10 4,19
4,27
4,59 4,56 4,66 4,68
4,83 4,77 4,82 4,88 4,84
5,07 5,12 5,22
5,29 5,18
5,31 5,39 5,45
2
2,5
3
3,5
4
4,5
5
5,5
6
Closing price
NAV
EPRANAV
EPRA NAV calculation 5.45 €/share
*) Deferred tax relating to fair valuation of property and interest rate derivatives 37
1200
1250
1300
1350
1400
1450
1500
1550
1600
Equityattributable to
equity holders ofparent company
Other equityreserve
Fair value offinancial
instruments
Goodwill relatingto deferred tax
liability onproperties
Deferred taxfrom investment
properties*)
Deferred taxfrom shares in
associatedcompanies*)
Capitalizedborrowing cost
Total
