results presentation q3 2015
TRANSCRIPT
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Sponda Financial Results Q3 2015 3 November 2015
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1. Highlights for the Period Kari Inkinen
2. Strategy Implementation Pia Arrhenius
3. Business environment and Business Update
Kari Inkinen
4. Financials Kari Inkinen
2
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1. Highlights for the period
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Spondas Q3 2015
in brief
Core portfolio performance is
strong. - Confirms the companys transformation
strategy.
The decline in NOI is due to the
realized property disposals.
Like-for-like rents are positive
except in Russia.
Occupancy rate at 86.2%
(Q3 2014: 86.5%). - Disposal of assets in Russia at the end of
June had a slightly negative impact on the
occupancy rate (40 bps).
4
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Spondas Q3 2015
in brief
Keskuskatu 1 renovation
completed at the end of
September.
Divestment of Certeums shares
agreed in October. - Transaction price EUR 190 million including
EUR 7 million profit.
- Transaction set to close by 16 December
2015.
- Income from Certeum will cease at the end
of September.
5
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Development and modernization investments For the two greenfield projects Sponda expects 15% development gain.
6
Leasable
area
m
Estimated
completion
Total
investment
M
Investment
by the end
of
September
2015
Pre-let
%
Estimated
market rent
Eur/m/month
Greenfield developments
Ratina shopping centre, Tampere 53,000 Summer 2018 240.0 44.7 30 N/A
Ilmala office property, Helsinki 18,500 End of 2015 57.0 40.3 100 22-24
Modernization investments
Keskuskatu 1b, Helsinki 2,048
September
2015 6.4 6.3 82 34-36
Total 73,548 303.4 91.3
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Sponda Q3 2015: Performance highlights
7-9/15 Change, %
7-9/14 1-9/15 Change, %
1-9/14 1-12/14
Total revenue, M 56.7 (10.3) 63.2 173.3 (8.5) 189.4 246.7
Net Operating Income, M 42.2 (8.7) 46.2 124.4 (8.3) 135.6 176.0
Operating profit, M 38.3 (9.2) 42.2 130.3 9.4 118.8 151.7
Cash flow from
operations/share,
0.10 (9.0) 0.11 0.29 3.6 0.28 0.37
Earnings/share, 0.06 (14.2) 0.07 0.23 15.0 0.20 0.24
NAV/share, 4.71 1.7 4.63 4.65
EPRA NAV/share, 5.58 3.5 5.39 5.45
Economic occupancy rate, % 86.2 (0.3) 86.5 87.0
7
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Risk allocation of Spondas portfolio
44%
22%
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%
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9
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Spondas 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 divestments.
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.
In March we announced a start of Ratina shopping centre.
10
Dividend paid for
fy 2014 was
EUR 0.19.
To-date we
have sold
properties for
EUR 57.8 m.
At the end of
Sep 2015, our
occupancy rate
was 86.2%.
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2. Strategy Implementation
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What we set out to do in 2013
12
Sell our Property Funds business
Sell our logistics property portfolio We have sold logistics properties for EUR 220 million to-date.
We sold the Funds business and the properties in the Fund to new logistics company Certeum. Our shares in Certeum will be sold by the end of 2015.
The main goals are to simplify the business structure, more focused property ownership and
profitable growth. The timeline for these goals was originally set to 3-5 years.
After two years this is where we are:
- 50% of the targeted sales has been completed.
- We have made total profit from the sales for EUR 10 million.
We have sold all but one small office property.
Sell our properties in Turku
Sell our properties in Russia We have sold properties for EUR 49 million.
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What we set out to do in 2013
13
We have acquired an office property in Tampere for EUR 63.7 million.
Property acquisitions
Property development business We have active development projects ongoing in Helsinki and Tampere for about EUR 300 million.
The capital received from the disposals will be invested in Spondas main markets in
Helsinki and Tampere.
Investments include both property development projects and office and shopping centre properties.
The investments we have made and will make are:
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3. Business Environment and
Business Update
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Finnish Market
Growth in Finland is still limited
with an estimated 0.2% GDP
growth for 2015. - However, MofF estimates a slightly
positive turn for the second half of the
year.
Property transaction volume
has remained record-high at
EUR 4.1 billion during the nine
months of the year. - International investors accounted for 30%
of the deals.
15 Sources: KTI, Mof F
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Market Vacancy Rate in HMA, office
properties
16 Source: Catella Property
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Segment performance
17
Office Shopping
Centres
Logistics Russia
1-9/15 1-9/14 1-9/15 1-9/14 1-9/15 1-9/14 1-9/15 1-9/14
Net Operating Income, M 81.9 76.6 26.8 26.4 6.8 17.1 10.1
12.1
Fair Value of Properties, M 1,891.6 1.834.7 732.3 721.3 199.0 207.7 162.7 238.4
Change in Fair Value of
Properties, m
30.2 6.2 1.1 0.9 (6.6) (2.6) (21.9) (9.9)
Economic Occupancy Rate, % 88.0 88.3 90.6 89.3 67.8 65.6 82.3 89.4
Divestments, M 17.7 14.8 - - - 216.7 38.7 -
Acquisitions, M - 65.0 - - - - - -
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Like-for-like development in Q3 2015 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.
18
Like-for-like net rental growth, M
Like-for-like net rental growth, %
3,4
0,6 0,9
-1,5
0,7
0,2 0,0 -0,9
2,7
0,5
0,9
-0,6
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
Office Retail Logistics Russia
Change in turnover Change in maintenance Net change
3,7 % 1,7 %
16,2 %
-6,9 %
-10,0 %
-5,0 %
0,0 %
5,0 %
10,0 %
15,0 %
20,0 %
Office Retail Logistics Russia
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Economic vacancy rate 2009 Q3 2015
19
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
Q4/2009 Q4/2010 Q4/2011 Q4/12 Q4/13 Q4/14 Q3/15
Office 12.0%
Shopping Centres 9.4 %
Logistics 32.2 %
Russia 17.7 %
Total property portfolio 13.8 %
HMA market office vacancy 13.4 %
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Lease agreements in Q3 2015
Pcs M /m/month
(avg)*
New agreements that came into force
during the period
37
11 161
17.20
Agreements that ended during the period 61 21 123 11.10
Agreements that were extended during
the period
34 13 496 17.10
*) 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 31 % of rental income.
20
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Investment portfolio development
M 2011 2012 2013 2014 Q3 2015
Property development
investments
58.5 47.5 14.0 22.0 39.8
Maintenance investments/
Tenant improvements
50.5 28.4 22.6 42.0 27.5
Acquisitions 150.4 53.1 3.1 65.0 0.0
Divestments 14.1 61.8 33.1 237.2 57.8
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.
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4. Financials
-
23
M 7-9/2015 7-9/2014 1-9/2015 1-9/2014 1-12/2014
Total revenue 56.7 63.2 173.3 189.4 246.7
Expenses (14.5) (17.1) (48.9) (53.7) (70.6)
Net operating income 42.2 46.2 124.4 135.6 176.0
Profit on sale of inv. properties 0.0 0.0 (1.5) 0.6 0.6
Valuation gain / loss 0.5 0.1 12.9 (1.8) (0.2)
Amortisation of goodwill (2.6) 0.0. (2.6) 0.0 0.0
Profit on sale of trading properties 0.0 1.8 2.6 1.9 2.0
SGA expenses (5.2) (5.5) (16.1) (16.5) (22.1)
Share of profit from associated companies 3.4 0.0 10.2 0.0 (3.5)
Other operating income/expenses 0.0 (0.5) 0.3 (1.1) (1.2)
Operating profit 38.3 42.2 130.3 118.8 151.7
Financial income and expenses (13.0) (14.4) (36.8) (44.3) (55.9)
Profit before taxes 25.3 27.8 93.4 74.5 95.7
Taxes from previous and current fin. years (0.3) (0.5) (1.7) (1.7) (1.8)
Deferred taxes (7.1) (5.4) (22.5) (12.5) (20.4)
Profit for the period 18.0 21.8 69.2 60.3 73.6
Profit & loss statement
-
24
M 7-9/2015 7-9/2014 1-9/2015 1-9/2014 1-12/2014
Changes in yield requirements (Finland) 0.0 0.0 32.2 3.3 15.7
Changes in yield requirements (Russia) 0.0 0.0 (7.4) 0.0 (10.0)
Profit/loss from property development projects 6.7 1.9 9.7 1.9 5.5
Modernization investments (6.8) (11.5) (27.5) (27.7) (42.0)
Change in market rents and maintenance costs
(Finland)
1.9 11.1 20.4 26.5 40.3
Change in market rents and maintenance costs
(Russia)
1.0 (8.2) (14.3) (15.1) (19.3)
Change in exchange rates (2.4) 4.1 (0.2) 5.7 5.9
Investment properties, total 0.5 (2.6) 12.9 (5.3) (3.9)
Real estate funds 0.0 0.7 0.0 (1.9) (1.8)
Realised gains/losses in re funds 0.0 2.0 0.0 5.5 5.5
Group, total 0.5 0.1 12.9 (1.8) (0.2)
Valuation gains/losses
-
25
Financing
Q3/2015 Q2/2015 Q1/2015 Q4/2014 Q3/2014
Equity ratio, % 41 41 40 41 40
Average interest rate, % 2.9 2.9 2.8 2.9 2.8
Hedging, % 86 86 76 76 76
Average loan maturity, yrs 2.3 2.5 1.9 2.1 1.6
Average fixed interest rate period, yrs 2.3 2.5 2.1 2.3 2.2
Interest cover ratio 3.4x 3.4x 3.5x 3.3x 3.3x
Loan to Value, % 51 53 53 52 55
Covenants at:
Equity ratio, 28%
(long-term ER target: 40%
ICR 1.75x
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0
100
200
300
400
500
600
2015 2016 2017 2018 2019 2020
M
Bank loans
Syndicated loans
Bonds
Commercial papers
Loan maturities, 30 September 2015
Interest-bearing debt EUR 1,724.7million
Unused financing limits EUR 510 million
26
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Syndicated credit limit
On 2 November, Sponda signed a syndicated credit
limit with three Nordic banks.
Limit is for EUR 80 million and maturity is for 5 years.
Replaces a maturing EUR 150 million credit limit.
27
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Prospects and financial targets
Net operating income
Sponda estimates that the net operating income for 2015 will amount to EUR
160166 (previously 158-168) million. The estimate is based on the companys 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 97103 (previously 95-105) million. This outlook is based on the development
of net operating income and the companys 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 companys development needs.
28
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Strategy
Main goals of Spondas 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; and
- Investing in prime properties in
Helsinki and Tampere.
30
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Largest Shareholders 30 September 2015
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 3,200,000 1.17
5. Tiiviste-Group Oy 1,000,000 0.35
6. OP-Finland Value Fund 980,237 0.35
7. Norvestia plc 718,196 0.25
8. Danske Bank AS Helsinki Branch 689,419 0.24
9. I.A. von Julins STB 570,000 0.20
10. Odin Eiendom 569,182 0.20
Nominee-registered shareholders 50.0% of the total
31
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Overview of the current reporting segments
Shopping Centres
Logistics
Property
Development
Russia
Office
Property
Investment
Companies
% of portfolio4
1 891.6 M
732.3 M
199.0 M
175.8 M
162.7 M
21.4 M
(Equity invested)
6.2%
5.7%
8.3%
n/m
10.4%
Fair value1 Valuation yield2
7%
5%
23%
5%
60%
Notes: 1) Fair value of investment properties as at 30 September 2015.
2) Average valuation yield requirement as at 30 September 2015.
3) Net initial yield of the segment as at 30 September 2015.
4) Share of total fair value of properties as 30 September 2015.
5.8%
4.8%
4.4%
n/m
4.81%
Net initial yield3
32
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Vacancy 11.2%
Rental level avg 144-180/m/yr
Yield avg 7.50-8.50%
Vacancy 11.0%
Rental levels 168-216/m/yr
Yield avg 6.75-8%
Vacancy avg 13.0%
Rental levels 190-378/m/yr
Yield 4.8-8.0%
Vacancy avg 17%
Rental levels $275-650/m/yr
Yield 10-15%
Office market statistics and Spondas
holdings Source: Catella Property, Sponda
3%
8%
85%
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Lease agreement composition Q3 2015
Lease maturity profile,
% of rental income
Average lease maturity
Note 1: Based on rental income
Tenant breakdown by sector
34
0
5
10
15
20
25
0,0 2,0 4,0 6,0
Total
Russia
Logistics
Shopping centres
Office
Q3 2015
Q3 2014
-
35
Balance sheet
M 30.9.2015 30.9.2014 31.12.2014
ASSETS
Investment properties 3,161.4 3,122.3 3,142.1
Other non-current assets 78.7 255.9 250.9
Fixed assets & other non-current assets, total 3240.1 3,378.2 3,393.0
Current assets, total 35.7 149.4 56.2
Non-current assets held for sale 185.1 0.0 0.0
Assets, total 3,461.0 3,527.6 3,449.2
SHAREHOLDERS EQUITY AND LIABILITIES
Shareholders equity, total 1,430.4 1,406.2 1,411.5
Non-current liabilities, total 1,645.6 1,536.5 1,413.6
Current liabilities, total 385.0 584.8 624.1
Shareholders equity and liabilities, total 3,461.0 3,527.6 3,449.2
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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
3,99
3,49 3,46 3,55
3,63
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 4,50
4,71
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
5,30
5,58
2
2,5
3
3,5
4
4,5
5
5,5
6
Closing price
NAV
EPRANAV
-
EPRA NAV calculation 5.58 /share
*) Deferred tax relating to fair valuation of property and interest rate derivatives 37
1428,6
1579
94
39,8 12
199,1 17,4 0,1
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