SPONDA S 9-MONTH RESULT GOOD IN TIGHT MARKET CONDITIONS

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1 1-9SPONDA PLC INTERIM REPORT January September 2004 SPONDA S 9-MONTH RESULT GOOD IN TIGHT MARKET CONDITIONS Sponda s net sales decreased roughly one per cent on the same period last year to EUR 73.9 million owing to property sales and lower occupancy levels, but profits on property sales raised the result for the period by 30% to EUR 29.1 million. Highlights of result (comparable income statement is January September 2003) Sponda derives its revenue from rental income. Total revenue for the review period amounted to EUR 73.9 (74.7) million. The economic occupancy rate decreased 1.5% from the comparable period and stood at 86.9% at the end of September. Net operating income decreased to EUR 55.7 (57.0) million owing to the reduction in total revenue and to slightly higher property maintenance costs than last year. Other operating income, mainly profits from property sales, rose to EUR 13.8 (3.2) million. The operating profit increased more than 18% to EUR 54.5 (45.9) million. Net income for the period was EUR 29.1 (22.3) million. The office leasing market in the Helsinki metropolitan area continues to be challenging. Sponda s result of leasing operations in 2004 is not expected to reach the level of 2003 due to property sales and higher vacancy rates, but profits from property sales will compensate for the decrease in leasing revenues and an increase in financing expenses. The operating profit in 2004 is expected to be higher than in 2003 and the profit before taxes to remain at last year s level. The occupancy rate is forecast to remain at the current level or to improve slightly. KEY FIGURES Total revenue, EUR million Net operating income, EUR million Gross profit, EUR million Shareholders equity 30 Sept. 30 Sept. 31 Dec per share, EUR Earnings per share, EUR Equity ratio, % Gearing, % SPONDA S STRATEGY Sponda s strategy is to actively develop its properties and leasing activities in the Helsinki Metropolitan Area. Sponda shapes the working environments of its properties and client companies in order to provide its clients with the best possible conditions for success. Sponda develops complete property complexes and their management, making them attractive prospects for investors. Sponda s key competences are understanding its clients businesses and innovative investment skills. 1

2 Interim Report January September 2004 ECONOMIC OCCUPANCY RATE, % Property type * 30 Sept June 2004 Business area 30 Sept June 2004 Office Helsinki Business District Retail Helsinki Metropolitan Area Logistics Helsinki Metropolitan Area, Logistics Other Average Average * By predominant use of each property. BUSINESS CONDITIONS 1.25 billion. The increase in international inter- Economic prospects are positive, according to est is due to Finland s positive economic prospects current forecasts, and employment is expected and to greater liquidity in the real estate market. to increase. However, economic growth and bet- Strong demand has generated competition for Net operating income by property type 1 Jan. 30 Sept ter employment are not yet visible in growing demand for office premises. good investment sites and reduced yield expectations. 26% According to Catella Property Consultants Ltd, the occupancy rate of office premises in the Hel- LEASING ACTIVITIES Sponda divides its business operations into three 4% l r sinki metropolitan area has continued to weaken and the vacancy rate now stands at slightly more than 9%. Regional differences are large varying from rough 6% in Vantaa to over 11% in Espoo. The availability of retail space remains tight and categories by use of property: office, retail and logistics. Sponda signed 164 leasing contracts between January and September, 104 of which were new and 70% the occupancy rate has remained good, the vacan- 60 extensions of existing contracts. The aggregate cy rate standing at only 1.6%. Overall demand for leasable area of the new contracts was approxi- logistics premises in the Helsinki metropolitan mately 50,000 m 2 and of the extended contracts area has stayed largely unchanged throughout more than 80,000 m 2. The value of Sponda s en- the year and no major construction projects are tire leasing contract portfolio is EUR 417 million, ongoing. The vacancy rate for logistics premises the number of clients totals 588 and the number has remained at around 2%. According to real es- of leasing contracts is 998. Of the total number tate research institutions the fall in office rent lev- of contracts, 3.4% expire this year, 16.5% in 2005, o els in the Helsinki metropolitan area has halted. International investors have already accounted and 23.2% in or after The percentage is of total rental revenue. Office Retail Logistics for half of the total value of purchases of business premises this year, of approximately EUR Net operating income from Sponda s properties totalled EUR 55.7 million, comprising 70% from 2

3 Interim Report January September 2004 Expiration of lease agreements, % 10.9 Toist Ind office premises, 4% from retail space, and 26% from logistics facilities. The economic occupancy rate of the entire property portfolio decreased 0.7% during the third quarter to 86.9% (30 June 2004: 87.6%). The economic occupancy rate at the end of September 2003 was 88.4%. CAPITAL EXPENDITURE On 30 September 2004 Sponda purchased three office properties from telecommunication services provider Elisa Corporation for EUR 25.5 million. The buildings at Korkeavuorenkatu 35 and 37 and at Kasarmikatu 36 in the Kaartinkaupunki district of central Helsinki have a total leasable area of approx. 11,000 m 2. Elisa continues to have a very long-term lease for the telecoms facilities in the buildings. This property complex, close to Sponda s Havis Business Center, supports Sponda s strategic aims in the Kaartinkaupunki district. Of the three properties, Kasarmikatu 36 and Korkeavuorenkatu 37 are fully leased. Korkeavuorenkatu 35 is unoccupied at present and requires renovating, estimated to cost EUR 2.5 million. These purchased properties will add roughly EUR 0.3 million to Sponda s result of leasing operations in Sponda sold real estate during the 1 9/2004 period for a total of EUR 36.6 million, recording a total profit of EUR 13 million. Investments in new purchases totalled EUR 27.6 million, and investments in building, maintenance and tenant improvements amounted to EUR 20.3 million. PROPERTY DEVELOPMENT Sponda s strategy is to develop its properties and the working environments they offer. Sponda focuses on large complexes, examples of which are the City-Center and the Havis Business Center in central Helsinki and the Honkatalo property in Vantaa. In the City-Center complex three office floors are currently being renovated and altogether 1,800 m 2 of office space was leased in the City- Center during the period. Negotiations with the City of Helsinki s planning office and the National Board of Antiquities on the building s façade are still in progress. Alterations to the Havis Business Center have progressed on schedule and the restaurant and conference centre on the corner of Unionkatu and Pohjoinen Makasiinikatu streets opened at the beginning of October. A total of 3,700 m 2 has been leased for the restaurant and conference centre. The Havis Business Center, com- CUSTOMERS BY BUSINESS SECTOR % of rental income Retail 28 Banks/Investment 18 Building/Logistics/Transport 12 Other services 9 Telecoms/Media/Publishing 8 Hotel and Catering 8 Industry/Manufacturing 6 Public sector 6 Healthcare/Training 5 Energy 1 Total 100 3

4 Interim Report January September 2004 prising the properties at Unioninkatu 18, 20, 22 ja 24 and Fabianinkatu 23, has a total leasable area of 38,300 m 2. FINANCING Sponda signed a EUR 300 million syndicated credit facility during the period. The facility consists of one 5-year EUR 100 million credit instalment and one 7-year EUR 100 million credit instalment, and a 5-year EUR 100 million credit limit. The facility was used to refinance a EUR 195 million syndicated credit facility that matures in Sponda Group will adopt IFRS reporting principles from the beginning of The largest change in Sponda Plc s financial reporting will relate to the valuation of investment properties under IAS 40. Sponda Plc has decided to adopt the market value method of valuing the properties in its balance sheet. Henceforth, the change in market value is entered in the income statement. The other changes to Sponda s accounting principles will relate to the recognition of deferred tax assets and liabilities, the valuation of financial instruments, and employment benefits. Financial income and expenses amounted to EUR 19.7 ( 17.4) million. Interest-bearing debt totalled EUR million (31 Dec. 2003: EUR million) and the equity ratio was 45.2% (31 Dec. 2003: 45.4%). The average maturity of Sponda s loans rose to 3.5 years, the average interest-bearing period was 2.8 years and the average interest rate was 4.5%. Shareholders equity per share is EUR 6.39 (31 December 2003: 6.33). PERSONNEL The Sponda Group had 51 (53) employees on average between 1 January and 30 September 2004, which included 46 (52) in the parent company. At the close of the period personnel totalled 51 (53), which included 46 (52) in the parent company. GROUP STRUCTURE AND ACCOUNTING PRINCIPLES Sponda Group comprises the parent company, Sponda Plc, and its wholly owned subsidiaries, all of which are mutual property companies. CORPORATE GOVERNANCE Sponda s corporate governance is based on Finnish legislation, the company s articles of association and the recommendation of the Helsinki Exchanges, the Central Chamber of Commerce and the Confederation of Industry and Employers concerning the corporate governance of public listed companies. Sponda applies the Guidelines for Insiders prepared by the Helsinki Exchanges. The members of the Board of Directors are Kaj- Gustaf Bergh, Maija-Liisa Friman, Jarmo Laiho, Harri Pynnä, Anssi Soila and Jarmo Väisänen. The chairman is Anssi Soila and the deputy chairman is Jarmo Väisänen. The company s president and chief executive is Kari Kolu. Sponda Plc s auditors are Sixten Nyman APA and the firm of authorized public accountants KPMG Wideri Oy Ab. The deputy auditor is Fredrik Westerholm APA. THE SPONDA SHARE The price of the Sponda share was in line with the HEX property investment index between 4

5 Interim Report January September 2004 July and September. The average price between January and September was EUR 6.68, the lowest price being EUR 6.00, the highest price EUR 7.30 and the closing price on 30 September 2004 EUR The market capitalization of the company s share capital at the close of the period was EUR 536 million. A total of 275,000 new shares were subscribed for on 16 June 2004 following conversion of B series bonds under Sponda Plc s 2000 Convertible Bond. The corresponding increase in the share capital, EUR 275,000, was recorded in the Trade Register on 13 July Following this increase Sponda s share capital amounts to EUR 78,724,275 divided into 78,724,275 shares. The Annual General Meeting on 7 April 2004 authorized the Board of Directors for one year from the meeting to purchase at most 3,500,000 of the company s own shares. This authorization was not exercised during the reporting period. TAXATION Tax changes introduced in Finland during 2004 mean for Sponda the double taxation of the dividends it has paid. The amount of income tax payable by Sponda depends on the amount of depreciation made in the taxation of its properties. Earlier, Sponda had only deducted depreciation according to the plan in its tax declaration. In 2004 Sponda intends to enter both planned depreciation and the maximum depreciation permitted under the Business Taxation Act. The additional depreciation will amount to approximately EUR 20 million, and will reduce the tax payable by Sponda, the tax rate remaining at an estimated 6% in The company will record a deferred tax liability on this additional depreciation in the consolidated balance sheet. PROSPECTS TO THE END OF 2004 Conditions for office leasing in the Helsinki metropolitan area are forecast to remain challenging. Sponda s result of leasing operations in 2004 is expected to be lower than in 2003 due to the company s property sales and to the growing vacancy rate, but the profits recorded on the property sales will compensate for the decrease in leasing volume and growth in financial expenses. The operating profit is expected to exceed last year s level and the pretax profit to remain at the level in Occupancy rates are expected to remain at their current levels or to improve slightly. 28 October 2004 Sponda Plc Board of Directors The terms Sponda, the Group, or the company refer to the entire Sponda Group. The term Sponda Plc refers to the Group s parent company. The figures in this interim report are unaudited. 5

6 Interim Report January September 2004 Area for lease by property type AREA FOR LEASE 30 SEPTEMBER 2004 BY PROPERTY TYPE Area, m 2 % Logistics 48.2% Office 49.1% Office Retail Logistics Total By predominant use of each property. Retail 2.7% Area for lease by business area AREA FOR LEASE 30 SEPTEMBER 2004 BY BUSINESS AREA Area, m 2 % 28.5% 20.7% 29.1% 21.7% b m l o Helsinki Business District Helsinki Metropolitan Area Helsinki Metropolitan Area, Logistics Other Total By actual leasable area. Figures include sites under development. Helsinki Business District Helsinki Metropolitan Area Logistics properties in the Helsinki Metropolitan Area Other 6

7 Sponda s Total Property Portfolio 1 January 30 September 2004, MEUR o r l OFFICE PROPERTIES RETAIL PROPERTIES LOGISTICS Rental revenue Operating expenses Net operating income Total Book value of properties 31 Dec Development projects in progress Investments Divestments Depreciation Book value 30 September Annualized net operating income /book value at 30 September % 6.2 % 9.9 % 9.9 % New acquisitions (Properties acquired on 30 September 2004 are not included) Construction Maintenance Tenant improvements Investments Maintenance (capitalized) Maintenance (expensed) Total Tenant improvements (capitalized) Tenant improvements (expensed) Total

8 Group Income Statement KONSERNI SPONDA OYJ 1 Jan. 30 Sept Jan. 30 Sept Jan. 31 Dec M M M Total revenue Expenses from leasing operations Gross profit Sales and marketing expenses Administrative expenses Other operating expenses Other operating income Operating profit Share of associated companies results 0.1 Financial income and expenses Profit before taxes Income taxes Net income for the period

9 Group Balance Sheet KONSERNI SPONDA OYJ 30 Sept Sept Dec M M M ASSETS Non-current assets Intangible assets Tangible assets Land and water Buildings Machinery and equipment Other tangible assets Advance payments and work in progress Investments Holdings in associated companies Other investments Non-current assets, total Current assets Trade receivables Cash and bank deposits Current assets, total Assets, total SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity Long-term liabilities Deferred tax liability 4.3 Short-term liabilities Liabilities, total Shareholders equity and liabilities, total Interest bearing debts COLLATERAL AND COMMITMENTS GIVEN BY THE GROUP Loans from financial institutions Assets pledged Mortgages pledged as collateral, total Rental liabilities Assets pledged Interest derivatives Interest rate swap contracts, notional value Interest rate swap contracts, market value Interest rate cap contracts, notional value Interest rate cap contracts, market value

10 Consolidated Cash Flow Statement KONSERNI SPONDA OYJ 1 Jan. 30 Sept Jan. 30 Sept Jan. 31 Dec M M M Cash flow from operating activities Operating profit Adjustments to operating profit Change in net working capital Interest received and other financial income Interest paid and other financial expenses Dividends received Income taxes paid Net cash from operating activities Cash flow from investing activities Group companies acquired 56.5 Investments in other investments 0.1 Investments in tangible and intangible assets Group companies sold Associated companies sold Proceeds from sale of other investments Proceeds from sale of tangible and intangible assets Loans granted Net cash from investing activities Cash flow from financing activities Increase in share capital related to convertible bonds Buybacks of own shares Long-term loans raised Long-term loans repayment of principal Short-term loans raised/repayment of principal Dividends paid Cash flow from financing activities Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period CHANGES IN FIXED ASSETS AND LOANS Changes in fixed assets Book value at beginning of period Increases Group companies acquired 56.3 Group companies divested Decreases and transfers Depreciation Book value at end of period Changes in loans Long-term loans Short-term loans At beginning of period Loans taken Repayment of loans At the end of period

11 Shares and Shareholders 20 PRINCIPAL SHAREHOLDERS AT 30 SEPTEMBER 2004 Number of shares % of shares and votes 1 Ministry of Finance The State Pension Fund Nokia Pension Fund Suomen Ekonomiliitto Finland Ekonomförbund Pension Trust of the Finnish Broadcasting Company Etera Mutual Pension Insurance Company Support Fund for the Commercial and Technical Sciences Livränteanstalten Hereditas Icecapital European Property Pension Fennia, Mutual Insurance Company Odin Finland Foundation for Economic Education Medicinska Understödsföreningen Liv och Hälsa Confederation of Finnish Industry and Employers Evli-Select Investment Fund Veikko Laine Oy Ehrnrooth Casimir Placeringsfonden Aktia Capital Pohjola Finland Value Investment Fund Oy Hermitage Ab Total Other Total NOMINEE REGISTERED (foreign shareholders) Altogether shareholders Market capitalization, MEUR Monthly trading, MEUR Average monthly price, EUR 10/03 11/03 12/03 01/04 02/04 03/04 04/04 05/04 06/04 10/03 11/03 12/03 01/04 02/04 03/04 04/04 05/04 06/04 10/03 11/03 12/03 01/04 02/04 03/04 04/04 05/04 06/04 11

12 Sponda s Business Areas OFFICE, RETAIL AND LOGISTICS PROPERTIES Sponda divides its operations into three business areas by type of property: offices, retail premises, and logistics facilities. These are handled, similarly, through three regions: Helsinki Business District (HBD), Helsinki Metropolitan Area (HMA), which encompasses the outskirts of Helsinki as well as the cities of Espoo and Vantaa, and HMALogistics. The economic occupancy rate of Sponda s property portfolio at the end of September was 86.9% (30 June 2004: 87.6 %), a decrease of 0.7% on the situation at the end of June. The availability of office space in older buildings in the Helsinki metropolitan area has further increased and the highest vacancy rate continues to be in Espoo. The situation with respect to retail and logistics premises is stable. OFFICE AND RETAIL SPACE Offices represented 70.0% and retail premises 4.0% of Sponda s net operating income. For offices, the occupancy rate was 84.7% and for retail space 93.7% (30 June 2004: 86.2% and 93.0%). Sponda s investments in building, maintenance and tenant improvements to its office premises totalled EUR 17.6 million and to its retail premises EUR 0.5 million during the first nine months of The amount of leasable space in offices (382,438 m 2 ) has remained unchanged. Nor has the amount of leasable retail space (21,173 m 2 ) changed compared to the figures at the end of New and renewed leasing contracts signed between July and September covered approximately 18,400 m 2. Of this total, 35% were in HBD, 32% in Espoo and 33% in Helsinki-Vantaa. Gross profit from leasing operations 30 September 2004, MEUR o r l OFFICE PROPERTIES RETAIL PROPERTIES LOGISTICS Revenue 52.0 Revenue 3.3 Revenue 18.6 Operating expences 12.9 Operating expences 1.2 Operating expences 4.1 Net rental income 39.1 Net rental income 2.1 Net rental income 14.5 Depreciation and writedowns 7.4 Depreciation and writedowns 0.5 Depreciation and writedowns 3.2 Gross profit 31.7 Gross profit 1.6 Gross profit

13 Sponda s Business Areas Sponda s most important development sites are its large property complexes City-Center, Havis Business Center and Upseerin Avec. Helsinki Business District In the Erottajankatu 7 property the Finnish Design Forum opened a retail store at street level and leased first-floor offices currently being renovated from space previously used as a restaurant. The renovation is due for completion at the end of October. The total area covered by the lease is roughly 1,300 m 2. On the tunnel level of the City-Center construction work on the 1st underground pedestrian arcade is now complete and the renovated premises have been occupied by a food retail store, a cafeteria and a bookshop. New entrepreneurs on the tunnel level include a clothing store for young people and a jeweller s. A shoe shop opened a new outlet in the new arcade. A law practice, a government office and a healthcare centre have leased altogether 1,800 m 2 of office space on the renovated office levels of the City-Center. The leasing period begins in January 2005 once the renovation is complete. Rezoning of the City-Center s service tunnel has been considered by the city planning office and the plan is on display for public inspection. The service tunnel will be connected to the city s service street, planning of which has now been started. Repair work on the façade facing onto Aleksanterinkatu street, started in the spring, was finished at the end of July. The restaurant and conference centre in the Havis Business Center was completed at the end of September and the new Bank centre (3,700 m 2 ) was opened to the public on 1 October The previous bank foyer has been converted into a banqueting hall for about 1,000 guests and during the daytime functions as a lunch restaurant. The retail premises at Unioninkatu 18 are leased and a lingerie shop was opened on the corner of Unioninkatu and Pohjoinen Makasiinikatu streets. At Unioninkatu 24 a hairdresser s has opened for business and a new leasing agreement has been signed for the property s office premises. Sponda s three office properties at Korkeavuorenkatu 35 and 37 and at Kasarmikatu 36 are a natural fit with the Havis Business Center on the other side of Kasarmitori square. The Kasarmiparkki Oy parking facility, due for completion in a year s time, will further increase the attraction of the area and enhance its level of service. Espoo Two new leasing contracts were signed at Upseerin Avec covering approximately 600 m 2. The renovation, completed last autumn, included renewal of the foyer and the addition of conference facilities. The property also has a new canteen and modern fitness centre serving all the building s tenants. 13

14 Sponda s Business Areas A new 1000 m 2 leasing contract for office space was signed in Länsi-Keskus and a similar agreement, covering 750 m 2 of office space, was signed at the Sinimäentie site. Helsinki-Vantaa A 3,300 m 2 lease at Itäkatu 11 was renewed. A 2,700 m 2 lease was renewed in the Mäkkylä office building and a 1,100 m 2 lease in the Gohnt building at Sentnerinkuja 3 was renewed. A new tenant, healthcare company, moved in to 700 m 2 of office space at Ratapihantie 11. LOGISTICS PROPERTIES Logistics properties accounted for 26% of Sponda s net operating income. The occupancy rate of Sponda s logistics properties has risen to 91.9% (30 June 2004: 90.5%). The volume of leasable space in Sponda s logistics premises (383,454 m 2 ) is the same as at the end of June. Sponda s investments in building, maintenance and tenant improvements to its logistics premises totalled EUR 2.2 million during the first nine months of The occupancy rate of logistics premises has remained good, in addition to which demand for facilities of different volumes has become considerably more lively that at the beginning of August. Volumes in demand vary from warehouses with a few hundred square metres to logistics centres covering several thousand square metres. At Santaradantie 8 in Vantaa, a 2,800 m 2 lease was renewed with a company making children s vehicle safety seats, and at Matinpurontie 3 a 2,600 m 2 lease was renewed with a fabric wholesaler. 14

15 Information for Shareholders FINANCIAL BULLETINS DURING 2005 Financial Statements Bulletin Friday 4 February 2005 The Annual General Meeting Wednesday 23 March 2005 Interim Report for January March Thursday 12 May 2005 Interim Report for January June Thursday 11 August 2005 Interim Report for January September Wednesday 9 November 2005 The annual report, interim reports and financial bulletins are published in Finnish and English. CHANGES OF NAME AND ADDRESS Shareholders are kindly requested to notify their bank or the FCSD, whichever holds the shareholder s book-entry securities account, of any changes of address. The following banking groups and stockbrokers have announced that they conduct investment analyses of Sponda s business operations. The list may be incomplete. Sponda takes no responsibility for the assessments contained in these analyses. To receive these bulletins and press releases please contact: Sponda Plc, Corporate Communications, P.O. Box 940, FIN Helsinki, Finland, tel , fax , laila.keto-lassas@sponda.fi. Domestic Phone D. Carnegie AB Finland Conventum Securities Ltd Evli Securities FIM Securities HSH Nordbank Mandatum Bank Ltd Nordea Securities Foreign ABG Sundal Collier (Sweden) Alfred Berg (Sweden) Merrill Lynch (Great Britain) ADDRESSES SPONDA OYJ P.O. Box 940 FIN Helsinki Address: Fabianinkatu 23 FIN Helsinki Telephone +358 (0) Telefax +358 (0) firstname.lastname@sponda.fi INVESTOR RELATIONS Sari Aitokallio Chief Financial Officer Telephone +358 (0) Telefax +358 (0) sari.aitokallio@sponda.fi Pia Arrhenius Communications Assistant Telephone +258 (09) Telefax +358 (0) pia.arrhenius@sponda.fi Laila Keto-Lassas Communications Manager Telephone +358 (0) Telefax +358 (0) laila.keto-lassas@sponda.fi 15