Sponda Financial Results Q3 2015 3 November 2015
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
1. Highlights for the period
Sponda s Q3 2015 in brief Core portfolio performance is strong. - Confirms the company s 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
Sponda s Q3 2015 in brief Keskuskatu 1 renovation completed at the end of September. Divestment of Certeum s 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
Development and modernization investments For the two greenfield projects Sponda expects 15% development gain. Leasable area m² Estimated completion Total investment M Investment by the end of September 2015 Pre-let % Estimated market rent Eur/m²/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 6
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
Risk allocation of Sponda s portfolio Total of the office and shopping centres properties portfolio, EUR 2.6 billion (excl. Russia, Property Development, Logistics) Vantaa total 0.5% Rest of HMA 14% Oulu 3.0% Tampere 9.5% Espoo total 7.0% 22% 44% 8
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Sponda s priorities in 2015 Occupancy rate development Our target is to keep occupancy rate at the end-of-2014 level at minimum. At the end of Sep 2015, our occupancy rate was 86.2%. Implementing our strategy We will continue the non-core property divestments. To-date we have sold properties for EUR 57.8 m. Stable cash flow from operations per share Focus in property development We aim to maintain our ability to pay stable dividend. During 2015, four large property development projects will be completed. Our target is to start at least one large development project in 2015. Dividend paid for fy 2014 was EUR 0.19. In March we announced a start of Ratina shopping centre. 10
2. Strategy Implementation
What we set out to do in 2013 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. Sell our Property Funds business Sell our logistics property portfolio 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. We have sold logistics properties for EUR 220 million to-date. Sell our properties in Russia We have sold properties for EUR 49 million. Sell our properties in Turku We have sold all but one small office property. 12
What we set out to do in 2013 The capital received from the disposals will be invested in Sponda s 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: Property development business We have active development projects ongoing in Helsinki and Tampere for about EUR 300 million. Property acquisitions We have acquired an office property in Tampere for EUR 63.7 million. 13
3. Business Environment and Business Update
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. Sources: KTI, Mof F 15
Market Vacancy Rate in HMA, office properties Source: Catella Property 16
Segment performance 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 - - - - - - 17
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. Like-for-like net rental growth, % 20,0 % 15,0 % 16,2 % 10,0 % 5,0 % 0,0 % 3,7 % 1,7 % -6,9 % -5,0 % -10,0 % Office Retail Logistics Russia 4,0 3,4 Like-for-like net rental growth, M 3,0 2,7 2,0 1,0 0,0 0,7 0,9 0,9 0,6 0,5 0,2 0,0-1,5-0,9-0,6-1,0-2,0 Office Retail Logistics Russia Change in turnover Change in maintenance Net change 18
Economic vacancy rate 2009 Q3 2015 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 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 % 19
Lease agreements in Q3 2015 Pcs M² /m²/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
Investment portfolio development 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. M 2011 2012 2013 2014 Q3 2015 Property development investments Maintenance investments/ Tenant improvements 58.5 47.5 14.0 22.0 39.8 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 21
4. Financials
Profit & loss statement 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 23
Valuation gains/losses 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) Change in market rents and maintenance costs (Russia) 1.9 11.1 20.4 26.5 40.3 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) 24
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 25
M Loan maturities, 30 September 2015 Interest-bearing debt EUR 1,724.7million Unused financing limits EUR 510 million 600 500 400 300 200 Bank loans Syndicated loans Bonds Commercial papers 100 0 2015 2016 2017 2018 2019 2020 26
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
Prospects and financial targets Net operating income Sponda estimates that the net operating income for 2015 will amount to EUR 160 166 (previously 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 97 103 (previously 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. 28
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; and - Investing in prime properties in Helsinki and Tampere. 30
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
Overview of the current reporting segments Fair value 1 Valuation yield 2 Net initial yield 3 % of portfolio 4 60% Office 1 891.6 M 6.2% 5.8% Shopping Centres 732.3 M 5.7% 4.8% 23% Logistics 199.0 M 8.3% 4.4% 7% Property Development 175.8 M n/m n/m 5% Russia 162.7 M 10.4% 4.81% 5% Property Investment Companies 21.4 M (Equity invested) 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. 32
Office market statistics and Sponda s holdings Source: Catella Property, Sponda Vacancy 11.2% Rental level avg 144-180/m²/yr Yield avg 7.50-8.50% 3% Vacancy 11.0% Rental levels 168-216 /m²/yr Yield avg 6.75-8% 8% 85% Vacancy avg 17% Rental levels $275-650/m²/yr Yield 10-15% Vacancy avg 13.0% Rental levels 190-378/m²/yr Yield 4.8-8.0% <1% 4% 33
Lease agreement composition Q3 2015 Lease maturity profile, % of rental income 25 20 15 Tenant breakdown by sector¹ 10 5 0 Average lease maturity Office Shopping centres Logistics Russia Q3 2015 Q3 2014 Note 1: Based on rental income Total 0,0 2,0 4,0 6,0 34
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 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 35
NAV/share and EPRA NAV/share 6 5,5 5 4,5 4 3,5 5,58 5,07 5,12 5,22 5,29 5,18 5,31 5,39 5,30 4,83 4,77 4,82 4,88 4,84 4,64 4,50 4,45 4,38 4,43 4,49 4,56 4,63 4,71 4,59 4,56 4,66 4,68 4,50 4,27 4,12 4,19 4,17 4,10 4,01 4,01 4,06 4,03 3,99 3,88 3,92 3,93 3,90 3,82 3,82 3,60 3,63 3,68 3,56 3,62 3,55 3,58 3,46 3,42 3,45 3,49 Closing price NAV EPRANAV 3 3,09 3,19 3,12 3,09 2,95 2,82 2,5 2,48 2 36
EPRA NAV calculation 5.58 /share 1600 199,1 17,4 0,1 1579 1550 1500 1450 1428,6 94 1400 39,8 12 1350 1300 1250 1200 Equity attributable to equity holders of parent company Other equity reserve Fair value of financial instruments Goodwill relating to deferred tax liability on properties Deferred tax from investment properties*) Deferred tax from shares in associated companies*) Capitalized borrowing cost Total *) Deferred tax relating to fair valuation of property and interest rate derivatives 37