Sponda Plc Financial Statements Bulletin 1 January-31 December 2016: Strong full-year result and positive development in the occupancy rate

3. Februar 2017

Sponda Plc                               Stock Exchange Release                       3 February 2017 at 8:30 a.m.

Sponda Plc Financial Statements Bulletin 1 January-31 December 2016: Strong full-year result and positive development in the occupancy rate

JANUARY-DECEMBER 2016 IN BRIEF (compared with 1 January - 31 December 2015)

• Total revenue increased to EUR 259.0 (230.5) million.
• Net operating income totalled EUR 190.9 (165.7) million.
• The Forum acquisition had a significant positive impact on the full-year result.
• Operating profit was EUR 206.7 (178.1) million. This includes a fair value change of EUR 26.7 (23.2) million.
• Cash flow from operations per share was EUR 0.40 (0.36).
• The fair value of the investment properties amounted to EUR 3,755.5 (3,101.7) million.
• Net assets (NAV) per share totalled EUR 5.16 (5.26).
• The economic occupancy rate was 89.6% (87.7%).
• The Board proposes to the Annual General Meeting that a dividend of EUR 0.08 per share be paid. The proposal takes into consideration the dividends already paid in August and December in 2016, a total of EUR 0.12 per share.
• The Board further proposes to the Annual General Meeting that the Annual General Meeting authorise the Board of Directors to decide, at its discretion, on the payment of dividend in no more than two tranches based on the annual accounts adopted for the financial year 2016. The maximum amount of dividend to be distributed based on the authorisation is EUR 0.12 per share.

OCTOBER-DECEMBER 2016 IN BRIEF (compared with 1 October - 31 December 2015)

• Total revenue was EUR 65.7 (57.2) million.
• Net operating income was EUR 47.2 (41.3) million.
• Operating profit was EUR 73.9 (47.8) million. This includes a fair value change of EUR 33.7 (10.3) million.
• Cash flow from operations per share was EUR 0.08 (0.07).

KEY FIGURES

	10-12/2016	10-12/2015	1-12/2016	1-12/2015
Total revenue, M€	65.7	57.2	259.0	230.5
Net operating income, M€	47.2	41.3	190.9	165.7
Operating profit, M€	73.9	47.8	206.7	178.1
Earnings per share, €	0.17	0.55	0.41	0.78
Cash flow from operations per share, €	0.08	0.07	0.40	0.36
Equity per share, €			5.16	5.26
Equity ratio, %			47.4	46.2

KEY FIGURES ACCORDING TO EPRA BEST PRACTICES RECOMMENDATIONS

	10-12/2016	10-12/2015	1-12/2016	1-12/2015
EPRA Earnings, M€	28.9	153.3	113.1	232.0
EPRA Earnings per share, €	0.09	0.54	0.35	0.82
Company adjusted EPRA Earnings, M€	27.5	16.1	113.7	98.6
Company adjusted EPRA Earnings per share, €	0.08	0.06	0.35	0.35
EPRA NAV/share, €			5.49	5.60
EPRA NNNAV/share, €			5.07	5.15
EPRA Net Initial Yield (NIY), %			5.29	5.62
EPRA "topped-up" NIY, %			5.31	5.63
EPRA Vacancy rate, %			10.38	12.26
EPRA Cost Ratio (including direct vacancy costs), %			16.36	17.68
EPRA Cost Ratio (excluding direct vacancy costs), %			12.40	12.90

PRESIDENT AND CEO KARI INKINEN

The year 2016 was excellent for Sponda in terms of both the result and growth. Sponda's revenue grew by more than 12 per cent year-on-year, while net operating income increased by approximately 15 per cent. The yield requirements were reviewed at the end of the year and the positive fair value change amounted to EUR 33.7 in the final quarter.

The strong result is also reflected in Sponda's Board of Directors' proposal to the Annual General Meeting to distribute a dividend of EUR 0.08 per share in addition to the EUR 0.12 per share already paid during the financial year 2016 based on the dividend payment authorisation given by the 2016 Annual General Meeting.

The construction and renovation work on the Ratina shopping centre in Tampere is progressing on schedule and according to plan. The pre-let rate for the new shopping centre section under construction in Ratina has already reached approximately 55 per cent and, based on the demand, I expect that our progress in pre-letting will also continue as planned. The Ratina complex includes two properties intended mainly for use as office and service premises that will be renovated. The pre-let rate for the whole complex now stands at approximately 45 per cent. Ratina will be fully completed in spring 2018.

That same spring, we will also complete the office and retail complex we began developing in Vantaa's Tikkurila district in 2016. The pre-let rate increased from 57 per cent to 65 per cent and construction is progressing on schedule.

Sponda's economic occupancy rate at year's end was 89.6 per cent, an increase of approximately two percentage points from the end of 2015. The occupancy rate also increased compared to the previous quarter. The development of like-for-like net rental income was positive for both shopping centres and logistics properties (2.1 per cent and 13.1 per cent respectively). The corresponding development for office properties and Russia was negative (-0.2 per cent and -6.7 per cent).

BUSINESS CONDITIONS - FINLAND

The Finnish economy saw a positive turn in 2016, although growth was still slow. In its Economic Survey, the Ministry of Finance estimates that the Finnish economy grew by 1.6 per cent in 2016. Growth was largely driven by strong domestic demand as well as increased investment, particularly in construction. Export trends remained weak in 2016, with growth of only one per cent. The unemployment rate has declined and it stood at 7.9 per cent at year's end according to Statistics Finland.

According to KTI Property Information, the property transaction volume in the final quarter of 2016 was EUR 1.82 billion and the full-year volume was EUR 7.18 billion, which is approximately 30 per cent higher than in 2015 (EUR 5.5 billion) and also a historical high. International investors continued to play a significant role in trading, although their share of the total transaction volume declined by 14 percentage points to 32 per cent.

According to information from Catella Property, some 30,000 square metres of new office space was completed in the Helsinki metropolitan area in 2016, which represents a substantial decline from the previous year's figure of 86,000 square metres. The construction of new office premises in the Helsinki metropolitan area remains strong, with Catella predicting that some 111,000 square metres of new office space will be completed in 2017-2018.

According to Catella, the vacancy rate for office premises in the Helsinki metropolitan area rose to 13.9 (13.3) per cent in 2016. The vacancy rate for retail premises in the Helsinki metropolitan area increased to 5.3 (4.6) per cent in 2016. The vacancy rate for retail premises was 4.0 (4.2) per cent for Helsinki as a whole and 2.3 (1.5) per cent for the central business district.

GROUP RESULT FOR 2016

Sponda Group's result for the financial year was EUR 137.5 (227.2) million. The result before taxes was EUR 155.5 (129.2) million and operating profit was EUR 206.7 (178.1) million.

Net operating income for the period was EUR 190.9 (165.7) million, an increase of EUR 25.2 million. The increase in net operating income was primarily attributable to the Forum property acquisition, the effect of which is included in the consolidated figures starting from 1 March 2016, as well as completed property development projects. Net operating income was reduced by property divestments made in 2015 and 2016. Marketing and administration expenses and other operating income and expenses amounted to EUR 23.1 (21.5) million, up EUR 1.6 million from the previous year mainly due to the Forum acquisition. The net operating income for the final quarter of 2016 amounted to EUR 47.2 (41.3) million.

During the period, the Group recognised profit on sales of EUR 15.4 (3.5) million, primarily from the sale of land associated with a property development project. The Group's fair value change during the period was EUR 26.7 (23.2) million. The Group's result was weighed down by amortisation of goodwill amounting to EUR 3.1 (3.0) million. The result for the comparison period includes EUR 10.2 million attributable to the Group's share of the result of Certeum Oy, an associated company that was divested in September 2015. 

Financial income and expenses for the period totalled EUR -51.2 (-48.9) million. The increase in financial expenses was attributable to an increase in interest-bearing liabilities related to the Forum acquisition as well as financial expenses associated with the transaction.

In accordance with IFRIC 21, the company recognises a liability in the balance sheet when the obligating event occurs. The company periodises real estate taxes in the profit and loss statement based on the passage of time.

PROPERTY ASSETS 1 JANUARY - 31 DECEMBER 2016

At the end of 2016, Sponda had a total of 169 leasable properties, with an aggregate leasable area of approximately 1.2 million m². Of this total, approximately 69% is office premises, 17% shopping centres and 13% logistics premises. Approximately 1% of the leasable area is located in Russia.

The fair values of Sponda's investment properties are confirmed as a result of the company's own cash flow-based yield value calculations. The assessment method complies with International Valuation Standards (IVS). The data used in the calculations of fair value is audited at least twice a year by external experts to ensure that the parameters and values used in the calculations are based on market observations.

At the end of 2016, an external consultant audited the values of Sponda's investment properties in Finland (Catella Property Oy) and Russia (CB Richard Ellis). The fair value of the investment properties totalled EUR 3.8 billion at the end of 2016. The change in the fair value of the investment properties in 2016 was EUR 28.7 (23.2) million for the full year and EUR 33.7 (10.3) million for October-December. The value of Sponda's properties in Finland developed favourably, primarily due to a decrease in yield requirements, especially with regard to shopping centre properties and office properties located in the central business district. The negative change in the fair value was mainly attributable to properties in Russia due to the Russian market situation and the resulting lower market rents. Maintenance costs have also risen in Russia, primarily due to an increase in property taxes.

Valuation gains/losses on fair value assessment

M€	10-12/2016	10-12/2015	1-12/2016	1-12/2015
Changes in yield requirements (Finland)	42.9	7.0	60.1	39.2
Changes in yield requirements (Russia)	0.0	0.0	-4.1	-7.4
Development gains on property development projects	2.0	15.7	7.4	25.4
Modernisation investments	-11.2	-10.2	-31.0	-37.8
Change in market rents and maintenance costs (Finland)	2.6	9.8	12.6	30.2
Change in market rents and maintenance costs (Russia)	-2.9	-12.5	-14.1	-26.8
Change in currency exchange rates	0.3	0.5	-2.1	0.3
Investment properties, total	33.7	10.3	28.7	23.2
Real estate funds	0.0	0.0	-2.0	0.0
Realised share of fund profits	0.0	0.0	0.0	0.0
Group, total	33.7	10.3	26.7	23.2

RENTAL OPERATIONS

Sponda calculates the growth in net rental income for its properties during the review period according to EPRA Best Practices Recommendations by using a like-for-like net rental growth formula based on a comparable property portfolio owned by the company for two years. For January-December, like-for-like net rental growth was -0.2% (3.3%) for office properties, 2.1% (1.3%) for shopping centres, 13.1% (27.8%) for logistics properties and -6.7% (-4.3%) for properties in Russia. All of Sponda's lease agreements in Finland are tied to the cost of living index.

The economic occupancy rates by type of property and geographical area were as follows:

Type of property	31.12.2016	30.9.2016	30.6.2016	31.3.2016	31.12.2015
Office properties, %	89.2	88.8	88.3	88.1	88.2
Shopping centres	93.5	93.2	94.2	93.8	91.3
Logistics properties, %	74.0	72.8	73.4	68.9	68.3
Russia, %	84.8	85.3	81.9	82.9	84.6
Total property portfolio, %	89.6	89.3	89.1	88.7	87.7

Geographical area	31.12.2016	30.9.2016	30.6.2016	31.3.2016	31.12.2015
Helsinki business district, %	92.1	91.9	92.6	92.4	90.1
Helsinki Metropolitan Area, %	87.3	86.5	86.1	85.3	85.7
Tampere, Oulu, % *)	90.6	91.0	89.9	89.4	90.8
Russia, %	84.8	85.3	81.9	82.9	84.6
Total property portfolio, %	89.6	89.3	89.1	88.7	87.7

*) The comparison figures include a property in Turku until 30 June 2016.

DIVESTMENTS AND INVESTMENTS

Sponda is continuing to actively manage its property portfolio and sell non-strategic properties. New investments and property development projects will be centralised in office and shopping centre properties in identified growth areas. Investment properties were sold for EUR 36.7 million during the review period, with EUR 9.1 million of this total divested in October-December.

Divestments

M€	1.10.-31.12.2016	1.10.-31.12.2015	1.1.-31.12.2016	1.1.-31.12.2015
Disposals of investment properties
Selling price	9.1	101.2	36.7	157.6
Profit/loss on sale (*	-0.1	-2.9	0.8	-4.3
Balance sheet value	9.2	104.1	35.9	161.9

*) Includes sales costs

In addition, trading properties were sold for EUR 28.8 million during the review period, with EUR 3.7 million of this total divested in October-December.

Investments

M€	1.10.- 31.12.2016	1.10.- 31.12.2015	1.1.- 31.12.2016	1.1.- 31.12.2015
Properties acquired	-1.0	-4.7	-590.5	-4.7
Modernisation investments	-11.2	-10.2	-31.0	-37.8
Property development investments	-19.7	-25.5	-60.9	-65.2
Investments, total	-31.9	-40.4	-682.4	-107.7

Property development investments were mainly directed to the construction of the Ratina shopping centre and an office and retail complex in Vantaa's Tikkurila district.

RISKS AND UNCERTAINTY FACTORS IN THE NEAR FUTURE

Sponda estimates that the risks and uncertainty factors for 2017 are mainly related to the following areas:

The slow positive development of the Finnish economy may cause a decline in the economic occupancy rate and tenant insolvency . Also change in demand for space , caused by for example technological development, may have a negative impact on the development of occupancy rate and net operating income.

Strengthening of the banks' solvency may lead to weakening availability of bank financing . Uncertainty of the development of the world's economy and interest rates may limit the availability of other debt financing.

In Russia, the risks are mainly related to the development of the Russian economy and its impact on the sale of Sponda's properties in Russia in 2017.

EVENTS AFTER THE PERIOD

In its meeting held on 25 January 2017, the Shareholders' Nomination Board of Sponda Plc decided to submit a proposal to the Annual General Meeting to be held on 20 March 2017 regarding the number of members of the Board of Directors, the members to be elected to the Board and the remuneration of the Board. The proposals of the Nomination Board can be found in the stock exchange release dated 25 January 2017.

PROSPECTS FOR 2017

Sponda provides prospects for 2017 with regard to the development of the company's net operating income and adjusted EPRA Earnings.

Net operating income

Sponda estimates that the net operating income for 2017 will amount to EUR 182-192 million. This estimate is based on property sales in 2016 and estimated sales in 2017. The development of net operating income will also be affected by the increase in property taxes in 2017 as well as one large property being vacated for renovation.

Adjusted EPRA Earnings

Sponda estimates that company adjusted EPRA Earnings in 2017 will amount to EUR 106-116 million. This estimate is based on property sales in 2016 and estimated sales in 2017. The development of net operating income will also be affected by the increase in property taxes in 2017 as well as one large property being vacated for renovation.

 

ANNUAL GENERAL MEETING AND DIVIDEND

The Board of Directors of Sponda Plc is convening the Annual General Meeting on 20 March 2017. The Board's dividend proposal takes into consideration the dividend payment authorisation granted by the 2016 Annual General Meeting, based on which dividends totalling EUR 0.12 per share have already been paid in 2016. The Board proposes to the 2017 Annual General Meeting that a dividend of EUR 0.08 per share be paid.

The Board further proposes to the Annual General Meeting that the Annual General Meeting authorise the Board of Directors to decide, at its discretion, on the payment of dividend in no more than two tranches based on the annual accounts adopted for the financial year 2016. The maximum amount of dividend to be distributed based on the authorisation is EUR 0.12 per share.

3 February 2017
Sponda Plc
Board of Directors

Additional information:
Kari Inkinen, President and CEO, tel. +358 20 431 3311 or +358 400 402 653,
Pia Arrhenius, SVP, Corporate Planning and IR, tel. +358 20 431 3454 or +358 40 527 4462,
Niklas Nylander, CFO, tel. +358 20 431 3480 or +358 40 754 5961.

Analyst and Press Conference
A meeting for analysts and press will be held in Finnish on Friday, 3 February 2017 at 9:30 am EET at Sponda's headquarter, Korkeavuorenkatu 45, Helsinki.

Conference call and audiocasting
An international conference call and webcast for analysts and investors will be held on Friday, 3 February 2017 at 11:00 Eastern European time. To join the conference call, please call
UK: +44 (0)330 336 9105
SWE: +46 (0)8 5033 6574

Confirmation Code: 6635177. To join the webcast, please go to https://sponda.videosync.fi/2017-02-03-q4/

A replay of the conference call and webcast will be available later at www.sponda.fi >Investors > Results centre.

Annual Review and Financial Statements
Sponda Plc's Annual Review and Financial Statements for 2016 will be published on the company's website in week 8.

Distribution:
Nasdaq Helsinki
Main media
www.sponda.fi

Sponda Plc is a property investment company specialising in commercial properties in the largest cities in Finland. Sponda's business concept is to own, lease and develop retail and office properties and shopping centres into environments that promote the business success of its clients. The fair value of Sponda's investment properties is approximately EUR 3.8 billion and the leasable area is around 1.2 million m ² .

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