Sponda Financial Results 2015 4 February 2016
1. Highlights for the Period Kari Inkinen 2. Forum Acquisition Pia Arrhenius 3. Business environment and Business Update Kari Inkinen 4. Financials Niklas Nylander 2
1. Highlights for the period
Sponda s Q4 2015 in brief The occupancy rate increased to 87.7% (31.12.2014: 87.0%). The decline in NOI is due to the realized property divestments. Like-for-like rents were positive except in Russia. Certeum shares and Vuosaari properties transactions were closed mid-december 2015. Office building in Ilmala was completed at the end of the year. 4
M.O.W. Fueled by Sponda Mothership of Work opened on 1 February 2016. M.O.W. is filling up fast - nearly half of the seats are already taken. Good mix of different types of companies and freelancers. Hits just the right spot with the flexible space and lease agreements. 5
Development and modernization investments For greenfield projects Sponda expects 15% development gain. Leasable area m² Estimated completion Total investment M Investment by the end of 2015 Pre-let % Estimated market rent Eur/m²/month Greenfield developments Ratina shopping centre, Tampere 53,000 Spring 2018 240.0 51.9 35 N/A Ilmala office property, Helsinki 18,500 End of 2015 57.0 57.0 100 22-24 Total 71,500 297.0 108.9 6
Sponda Q4 2015: Performance highlights 10-12/15 Change, % 10-12/14 1-12/15 Change, % 1-12/14 Total revenue, M 57.2 (0.2) 57.3 230.5 (6.6) 246.7 Net Operating Income, M 41.3 2.7 40.2 165.7 (5.9) 176.0 Operating profit, M 47.8 45.6 32.9 178.1 17.4 151.7 Cash flow from operations/share, 0.07 (22.2) 0.09 0.36 (2.7) 0.37 Earnings/share, 0.55 1275.0 0.04 0.78 225.0 0.24 NAV/share, 5.26 13.1 4.65 EPRA NAV/share, 5.60 2.8 5.45 Economic occupancy rate, % 87.7 0.8 87.0 Dividend/share, *) 0.19*) 0.19 *) Board proposal 7
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 2015, our occupancy rate was 87.7%. Implementing our strategy We will continue the non-core property divestments. In 2015 we sold properties for EUR 157.6 million and Certum s Shares for EUR 180 million. 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. Board proposal for fy 2015 is EUR 0.19. In March we announced a start of Ratina shopping centre. 8
Sponda s priorities in 2016 Occupancy rate development Our target is to increase the occupancy rate from 87.7% (31.12.2015) level. Implementing our strategy Stable cash flow from operations per share Focus in property development We will continue the non-core property divestments and the core property acquisitions. We aim to maintain our ability to pay stable dividend. Our target is to start at least one large development project in 2016 and to keep our property development gain of 15% on each project. 9
2. Forum Acquisition
Acquisition details Sponda signed an agreement to acquire six properties in the heart of Helsinki. Properties include five office properties and Forum Shopping Centre. Acquisition price is EUR 576 million. Net yield after the first year is approximately 4.9%. Closing is by 29th February 2016. 11
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Properties included in the acquisition Forum shopping centre has: 14 million visitors annually; 140 shops; Annual sales of EUR 200 million; 8,000 m² more shopping area after recent renovation. 13
Properties included in the acquisition Address Leasable area, m² Occupancy rate (m²), % Mannerheimintie 14 16,790 96.2 Mannerheimintie 16 and Yrjönkatu 23 11,016 98.2 Mannerheimintie 18 7,699 89.6 Mannerheimintie 20 22,066 100.0 Yrjönkatu 29 11,955 96.5 Yrjönkatu 31 ja Simonkatu 8 7,393 89.3 Total 76,918 96.3 14
Acquisition details Total turnover for the six properties was EUR 36.6 million in 2015. - In 2015, the shopping centre was partly under renovation and thus the turnover did not cover the full year. - Estimated turnover with the current occupancy rate for 2016 will be EUR 37.7 million. The acquisition is planned to be financed with: - Cash received from the asset disposals; - Short-term bridge loan; and - Possible rights issue. 15
3. Business Environment and Business Update
Finnish Market GDP growth in Finland is estimated to be 0.2% for 2015. In 2016, the GDP growth estimate is 1.2%. Property transaction volume was record-high at EUR 5.5 billion in 2015. - International investors accounted for 34% of the deals. - Only in 2007 transaction volume was higher. The office vacancy rates remained stable at the end of the year 2015. Sources: KTI, Mof F, Catella Property 17
Market Vacancy Rate in HMA, office properties 24.2 % 20.7 % 17.1 % 11.5 % 8.9 % Source: Catella Property 18
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 1.0% Rest of HMA 14% Oulu 3.0% Tampere 9.0% Espoo total 7.0% 22% 44% 19
Segment performance Office Shopping Centres Logistics Russia 2015 2014 2015 2014 2015 2014 2015 2014 Net Operating Income, M 109.7 103.0 35.7 35.2 9.1 18.9 12.8 15.8 Fair Value of Properties, M 1,994.8 1,853.5 733.6 726.0 92.9 205.1 150.7 224.4 Change in Fair Value of Properties, m 35.5 18.5 3.2 3.8 (7.4) (6.0) (33.9) (23.8) Economic Occupancy Rate, % 88.2 88.5 91.3 91.2 68.3 64.9 84.6 90.4 Divestments, M 17.9 20.6 - - 100.8 216.7 38.7 - Acquisitions, M 4.7 65.0 - - - - - - 20
30,0 % 25,0 % 20,0 % Like-for-like development in 2015 Like-for-like net rental growth has been calculated from a portfolio that Sponda has held for 2 years excluding acquisitions, divestments and property development. Like for Like net rental growth, % 27,9 % 26,6 % 15,0 % 10,0 % 5,0 % 0,0 % 3,0 % 3,3 % 1,8 % 1,2 % 11,8 % 1,7 % -5,0 % -10,0 % -15,0 % -2,0 % -3,7 % -4,3 % Office Shopping centres Logistics Russia -10,8 % Change in turnover Change in maintenance expenses Net change 5,0 4,0 4,0 3,0 Like for Like net rental growth, M 2,0 1,0 0,0-1,0-2,0 3,3 0,8 0,7 0,4 0,4 0,8 0,9-1,7-0,1-1,2-0,5 Office Shopping centres Logistics Russia Change in turnover Change in maintenance expenses Net change
Economic vacancy rate 2009 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 Q4/15 Office 11.8% Shopping Centres 8.7 % Logistics 31.7 % Russia 15.4 % Total property portfolio 12.2 % HMA market office vacancy 13.3 % 22
Lease agreements in Q4 2015 Pcs M² /m²/month (avg)* New agreements that came into force during the period 74 14 874 11.80 Agreements that ended during the period 88 26 878 13.40 Agreements that were extended during the period 46 14 074 22.80 *) 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 33% of rental income. 23
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 2015 Property development investments Maintenance investments/ Tenant improvements 58.5 47.5 14.0 22.0 65.2 50.5 28.4 22.6 42.0 37.8 Acquisitions 150.4 53.1 3.1 65.0 4.7 Divestments 14.1 61.8 33.1 237.2 157.6 24
4. Financials
Profit & loss statement M 10-12/2015 10-12/2014 1-12/2015 1-12/2014 Total revenue 57.2 57.3 230.5 246.7 Expenses (15.9) (16.9) (64.8) (70.6) Net operating income 41.3 40.4 165.7 176.0 Profit on sale of inv. properties (3.0) 0.0 (4.5) 0.6 Valuation gain / loss 10.3 1.6 23.2 (0.2) Depreciation of goodwill (0.4) 0.0 (3.0) 0.0 Profit/loss on sales of associated companies 5.2 0.0 5.2 0.0 Profit on sale of trading properties 0.2 0.1 2.8 2.0 SGA expenses (5.6) (5.6) (21.7) (22.1) Share of profit from associated companies 0.0 (3.5) 10.2 (3.5) Other operating income/expenses (0.1) (0.2) 0.2 (1.2) Operating profit 47.8 32.9 178.1 151.7 Financial income and expenses (12.1) (11.7) (48.9) (55.9) Profit before taxes 35.7 21.3 129.2 95.7 Taxes from previous and current fin. years (7.5) (0.1) (9.3) (1.8) Deferred taxes 129.9 (7.9) 107.3 (20.4) Profit for the period 158.0 13.3 227.2 73.6 26
Valuation gains/losses M 10-12/2015 10-12/2014 1-12/2015 1-12/2014 Changes in yield requirements (Finland) 7.0 12.4 39.2 15.7 Changes in yield requirements (Russia) 0.0 (10.0) (7.4) (10.0) Profit/loss from property development projects 15.7 3.5 25.4 5.5 Modernization investments (10.2) (14.3) (37.8) (42.0) Change in market rents and maintenance costs (Finland) 9.8 13.8 30.2 40.3 Change in market rents and maintenance costs (Russia) (12.5) (4.2) (26.8) (19.3) Change in exchange rates 0.5 0.2 0.3 5.9 Investment properties, total 10.3 1.5 23.2 (3.9) Real estate funds 0.0 0.1 0.0 (1.8) Realised gains/losses in re funds 0.0 0.0 0.0 5.5 Group, total 10.3 1.6 23.2 (0.2) 27
Financing Q4/2015 Q3/2015 Q2/2015 Q1/2015 Q4/2014 Equity ratio, % 46 41 41 40 41 Average interest rate, % 2.9 2.9 2.9 2.8 2.9 Hedging, % 90 86 86 76 76 Average loan maturity, yrs 2.2 2.3 2.5 1.9 2.1 Average fixed interest rate period, yrs 2.2 2.3 2.5 2.1 2.3 Interest cover ratio 3.5x 3.4x 3.4x 3.5x 3.3x Loan to Value, % 46 51 53 53 52 Covenants at: Equity ratio, 28% (long-term ER target: 40% ICR 1.75x 28
M Loan maturities, 31 December 2015 Interest-bearing debt EUR 1,660.9 million Unused financing limits EUR 440 million 700 600 500 400 300 200 Bank loans Syndicated loans Bonds Commercial papers 100 0 2016 2017 2018 2019 2020
Prospects and financial targets* Net operating income Sponda estimates that the net operating income for 2016 will amount to EUR 152 168 million. The estimate is based on the company s view of property acquisitions and divestments to be completed and the development of rental operations during the year. EPRA Earnings Sponda estimates that company adjusted EPRA Earnings in 2016 will amount to EUR 82 98 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. *) The prospects do not include the effect of the acquisition of six properties on Sponda s result 30
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. 32
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. 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 were sold at the end of 2015. We have sold logistics properties for EUR 320 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. 33
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 240 million. Property acquisitions We have acquired an office property in Tampere for EUR 63.7 million. Property acquisitions After the reporting period we announced acquisition of six properties in Helsinki CBD for EUR 576 million. 34
Largest Shareholders 31 January 2016 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 3,300,000 1.17 5. OP-Finland Value Fund 1,453,221 0.51 6. Odin Eiendom 1,089,390 0.38 7. Tiiviste-Group OY 1,000,000 0.35 8. Danske Invest Finnish Equity Fund 803,574 0.28 9. SR Arvo Finland Value 768,864 0.27 10. Norvestia plc 718,196 0.25 Nominee-registered shareholders 48.22% of the total 35
Overview of the current reporting segments Fair value 1 Valuation yield 2 Net initial yield 3 % of portfolio 4 64% Office 1 994.8 M 6.2% 5.9% Shopping Centres 733.6 M 5.7% 4.7% 24% Logistics 92.9 M 9.1% 7.4% 3% Property Development 129.7 M n/m n/m 4% Russia 150.7 M 10.3% 5.8% 5% Property Investment Companies 21.4 M (Equity invested) Notes: 1) Fair value of investment properties as at 31 December 2015. 2) Average valuation yield requirement as at 31 December 2015. 3) Net initial yield of the segment as at 31 December 2015. 4) Share of total fair value of properties as 31 December 2015. 36
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 18% Rental levels $275-650/m²/yr Yield 10-15% Vacancy avg 13.3% Rental levels 190-378/m²/yr Yield 4.8-8.0% <1% 4% 37
Lease agreement composition Q4 2015 25 Lease maturity profile, % of rental income 20 15 Tenant breakdown by sector¹ 10 5 0 Average lease maturity Office Shopping centres Logistics Russia Q4 2015 Q4 2014 Note 1: Based on rental income Total 0,0 2,0 4,0 6,0 38
Balance sheet M 31.12.2015 31.12.2014 ASSETS Investment properties 3,101.7 3,142.1 Other non-current assets 61.4 250.9 Fixed assets & other non-current assets, total 3,163.1 3,393.0 Current assets, total 267.7 56.2 Non-current assets held for sale 10.2 0.0 Assets, total 3,441.0 3,449.2 SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity, total 1,585.0 1,411.5 Non-current liabilities, total 1,192.0 1,413.6 Current liabilities, total 664.0 624.1 Shareholders equity and liabilities, total 3,441.0 3,449.2 39
NAV/share and EPRA NAV/share 6 5,5 5 4,5 4,56 4,66 4,68 5,07 5,12 5,22 5,29 5,31 5,39 5,30 5,18 4,83 4,77 4,82 4,88 4,84 4,50 4,64 4,56 4,63 4,45 4,38 4,43 4,49 4,50 5,47 5,58 5,60 4,65 4,71 5,26 4 3,5 3 4,17 4,01 4,01 4,06 3,82 3,92 3,93 3,12 3,09 2,82 4,03 4,12 2,95 3,19 3,60 3,68 3,62 3,82 3,42 3,45 3,90 3,58 3,99 3,31 3,49 3,92 Closing price NAV EPRANAV 2,5 2 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q413Q114Q214Q314Q115Q215 Q3 Q4 2015 2015 40
EPRA NAV calculation 5.60 /share 1650 1600 1583,2 1489,2 1515,4 1586,5 1586,6 1550 1489,2 1515,4 1500 1450 1400 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 Capitalized from investment borrowing cost properties*) Total *) Deferred tax relating to fair valuation of property and interest rate derivatives 41