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SATO Corporation's Half-Year Report 1 Jan–30 Jun 2020: SATO improves the availability of its customer service
SATO Corporation, Half-year financial report, 16th July 2020 at 9:00 am
Summary for 1 Jan–30 Jun 2020 (1 Jan–30 Jun 2019)
The economic occupancy rate in Finland was 97.2 (98.0) %.
Net sales were EUR 152.1 (146.5) million.
Net rental income amounted to € 106.6 (97.2) million.
Profit before taxes was EUR 76.3 (85.5) million.
The change in the fair value of investment properties included in the result was EUR 6.7 (39.2) million.
Housing investments amounted to € 59.8 (77.2) million.
Invested capital at the end of review period was € 4,335.0 (4,154.2) million.
Return on invested capital was 4.7 (6.7) per cent.
Equity was EUR 2,113.1 (1,582.8) million, or EUR 37,32 (27,96) per share.
Earnings per share were EUR 1.07 (1.20).
A total of 608 (0) rental apartments were acquired or completed.
A total of 410 rental apartments and 57 owner-occupied apartments are under construction.
Summary for 1 Apr–30 Jun 2020 (1 Apr–30 Jun 2019)
The economic occupancy rate in Finland was 96.9 (98.0) %.
Net sales were EUR 76.5 (73.4) million.
Net rental income amounted to € 59.6 (53.7) million.
Profit before taxes was EUR 41.8 (39.0) million.
The change in the fair value of investment properties included in the result was EUR 1.8 (16.5) million.
Housing investments amounted to € 32.5 (46.8) million.
Invested capital at the end of review period was € 4,335.0 (4,154.2) million.
Equity was EUR 2,113.1 (1,582.8) million, or EUR 37.32 (27.96) per share.
Earnings per share were EUR 0.59 (0.55).
A total of 397 (0) rental apartments were acquired or completed.
A total of 410 rental apartments and 57 owner-occupied apartments are under construction.
CEO Sharam Rahi:
- We reorganised SATO’s Rental Housing Business as of 1 June 2020 to reinforce our Customer First strategy. The change aims to ensure that our customers receive even better and more easily available customer service. As a key element of the change we launched during the review period the recruitment of 11 employees to fill the new role of Service Manager.
- The impacts of the coronavirus pandemic can be broadly seen in Finland’s economy. Despite the situation, SATO’s occupancy rate was only moderately lower and stood at 97.2 per cent (98.0%) during the review period.
- Our organisation has been able to operate efficiently and serve our customers well also while teleworking due to the coronavirus pandemic. We have continued to look after the safety of our customers, personnel and partners, and we have visited the homes of our customers’ only to take care of the most urgent maintenance measures.
- During the period under review, the number of apartments continued to grow through SATO’s new construction, and 608 new rental apartments were completed.
- SATO’s first FlexHome was completed in the Tali neighbourhood of Helsinki on 1 June. FlexHome is a new concept for part ownership that enables home ownership with a small initial capital outlay and a five-year part-ownership period.
- SATO’s financing structure improved further during the review period, when SATO Corporation issued a EUR 300 million senior unsecured bond offered to European investors under its EMTN programme.
- Finally, I would like to thank everyone at SATO for their amazing creativity and handling of the daily work during the tough period we have had.
Operating environment
The coronavirus pandemic which began to spread in early 2020 will have a significant effect on Finland’s economy. According to the forecast of the Bank of Finland, the contraction in the Finnish economy will be between 5 and 11 per cent this year. The negative impact of the pandemic is limited with support measures of the European Central Bank, European Union and the State of Finland. According to Statistics Finland, consumers’ pessimistic attitude towards Finland’s economy grew significantly when the restrictions came into effect.
Demand for rental apartments has remained good, and urbanisation continues to be strong.
REVIEW PERIOD 1 January–30 June 2020 (1 January–30 June 2019)
Net sales and profit
Between January and June 2020, consolidated net sales were EUR 152.1 (146.5) million.
Operating profit was EUR 99.7 (119.4) million. The operating profit without the change in the fair value of investment properties was EUR 93.1 (80.2) million. The change in fair value in profit and loss was EUR 6.7 (39.2) million.
Financial income and expenses totalled EUR -23.4 (-33.9) million.
Profit before taxes was EUR 76.3 (85.8) million. Cash flow from operations (free cash flow after taxes excluding changes in fair value) between January and June amounted to EUR 59.1 (31.3) million.
Earnings per share was 1.07 (1.20) euros.
Financial position and financing
The consolidated balance sheet totalled EUR 4,915.6 (4,105.5) million at the end of June. Equity was EUR 2,113.1 (1,582.8) million. Equity per share was EUR 37,32 (27,96).
The Group's equity ratio was 43.0 (38.6) per cent at the end of June. EUR 358.6 million in new long-term financing was withdrawn and the solvency ratio was 43.8 (49.9) per cent at the end of June.
The Group’s annualised return on equity was 5.8 (8.6) per cent. Return on investment was 4.7 (6.7) per cent.
Interest-bearing liabilities at the end of June totalled EUR 2,221.9 (2,049.6) million, of which loans subject to market terms accounted for EUR 1,992.8 (1,755.0) million. The average loan interest rate was 2.0 (1.8) per cent. Net financing costs totalled EUR -23.4 (-33.9) million.
The calculated impact of changes in the market value of interest hedging on equity was EUR -3.1 (-11.2) million.
The proportion of loans without asset-based securities was 80.6 (74.5) per cent of all loans. At the end of June, the proportion of unencumbered assets was 83.9 (80.2) per cent of total assets.
Housing business
Our housing business includes rental activities, customer service, lifecycle management and maintenance. Effective rental activities and digital services provide home-seekers with quick access to a home, and the Group with a steadily increasing cash flow. High-quality maintenance operations ensure the comfort of residents and that the apartments stay in good condition and maintain their value. We serve our customers in daily housing issues through our customer-oriented service organisation.
Rental income was EUR 152.1 (146.5) million. The economic occupancy rate of apartments in Finland was 97.2 (98.0) per cent on average, and the external tenant turnover was 30.0 (28.2) per cent.
The average monthly rent of SATO’s rental apartments in Finland at the end of the review period was EUR 17.44 (17.03) per m2.
Net rental income from apartments stood at EUR 106.6 (97.2) million.
Investment properties
On 30 June 2020, SATO owned a total of 26,767 (25,848) apartments. During the review period, 608 (0) rental apartments were completed. The total number of divested rental apartments and part ownership apartments redeemed by the owner-occupants was 106.
Fair value
The development of the value of rental apartments is a key factor for SATO. Its housing stock is concentrated in areas and apartment sizes which are expected to be the focus, in the long term, of increasing rental apartment demand. The allocation of building repairs is based on life-cycle plans and repair need specifications.
At the end of June, the fair value of investment properties came to a total of EUR 4,706.5 (4,038.2) million. The change in the value of investment properties, including the rental apartments acquired and divested during the review period, was EUR 48.6 (163.1) million.
Of the value of apartments, the Helsinki metropolitan area accounted for some 85 per cent, Tampere and Turku made up 11 per cent, Jyväskylä and Oulu 2 per cent and St. Petersburg covered 2 per cent at the end of June.
Investments, divestments and property development
Investment activities are used to manage the housing portfolio and prepare the ground for growth. Since 2000, SATO has invested more than EUR 2.0 billion in non-subsidised rental apartments. SATO acquires and builds entire rental buildings and single rental apartments. Property development allows for new investments in rental apartments in Finland. The rental potential and value of rental apartments owned by SATO are developed through renovation activities.
Investments in rental apartments stood at EUR 59.8(77.2) million. Investments in the Helsinki metropolitan area represented 89 per cent of all investments in the review period. Investments in new apartments represented 54 per cent of the investments. On 30 June 2020, binding purchase agreements in Finland totalled EUR 58.5 (79.6) million.
During the review period, 61 (21) rental apartments were divested in Finland. Their total value was EUR 3.9 (4.0) million.
The book value of plot reserves totalled EUR 59.3 (37.7) million at the end of June. The value of new plots acquired by the end of June totalled EUR 1.8 (0,0) million.
The permitted building volume for approximately 2,400 apartments is being developed for the plots in the company’s housing portfolio. This allows SATO to utilise existing infrastructure, create a denser urban structure and thus bring more customers closer to services and public transport connections.
In Finland, a total of 608 (0) rental apartments and 99 (0) owner-occupied apartments were completed. On 30 June 2020, a total of 410(1,090) rental apartments and 57 (131) owner-occupied apartments were under construction.
A total of EUR 33,8 (31,6) million was spent on repairing apartments and improving their quality.
At the end of June, SATO owned 533 (534) apartments in St. Petersburg. The economic occupancy rate of rental apartments in St. Petersburg was 89.7 (92.8) per cent on average. For the time being, SATO will refrain from making new investment decisions in Russia. The share of investments in Russia is limited to a maximum of 10 per cent of the Group’s housing assets.
Personnel
At the end of June, the Group employed 224 (221) people, of whom 205 (202) had a permanent employment contract. The average number of personnel was 223 (219) between January and June.
Period 1 April–30 June 2020 (1 April–30 June 2019)
Net sales and profit
Between April and June 2020, consolidated net sales were EUR 76.5 (73.4) million.
Operating profit was EUR 54.2 (61.6) million. The operating profit without the change in the fair value of investment properties was EUR 52.4 (45.1) million. The change in fair value in profit and loss was EUR 1.8 (16.5) million.
Financial income and expenses totalled EUR -12.4 (-22.6) million.
Profit before taxes was EUR 41.8 (39.0) million. Cash flow from operations (free cash flow after taxes excluding changes in fair value) between April and June amounted to EUR 29.8 (11.3) million.
Earnings per share was 0.59 (0.55) euros.
Housing business
Rental income was EUR 76.5 (73.4) million. The economic occupancy rate of apartments in Finland was 96.9 (98.0) per cent on average, and the external tenant turnover was 31.8 (28.0) per cent.
The average monthly rent of SATO’s rental apartments in Finland at the end of the review period was EUR 17.44 (17.03) per m2.
Net rental income from apartments stood at EUR 59.6 (53.7) million.
Investment properties
On 30 June 2020, SATO owned a total of 26,767 (25,848) apartments. During the review period, 397 (0) rental apartments were completed. The total number of divested rental apartments and part ownership apartments redeemed by the owner-occupants was 50.
At the end of June, the fair value of investment properties came to a total of EUR 4,706.5 (4,038.2) million. The change in the value of investment properties, including the rental apartments acquired and divested during the review period, was EUR 17.4 (66.7) million.
Of the value of apartments, the Helsinki metropolitan area accounted for some 85 per cent, Tampere and Turku made up 11 per cent, Jyväskylä and Oulu 2 per cent and St. Petersburg covered 2 per cent at the end of June.
Investments, divestments and property development
Investments in rental apartments stood at EUR 32.5 (46.8) million. Investments in the Helsinki metropolitan area represented 85 per cent of all investments in the review period. Investments in new apartments represented 41 per cent of the investments. On 30 June 2020, binding purchase agreements in Finland totalled EUR 58.8 (79.6) million.
During the review period, 5 (7) rental apartments were divested in Finland. Their total value was EUR 1.5 (1.3) million.
The book value of plot reserves totalled EUR 59.3 (37.7) million at the end of June. The value of new plots acquired by the end of June totalled EUR 1.8 (0.0) million.
The permitted building volume for approximately 2,400 apartments is being developed for the plots in the company’s housing portfolio. This allows SATO to utilise existing infrastructure, create a denser urban structure and thus bring more customers closer to services and public transport connections.
In Finland, a total of 397 (0) rental apartments and 99 (0) owner-occupied apartments were completed. On 30 June 2020, a total of 410 (1,090) rental apartments and 57 (131) owner-occupied apartments were under construction.
A total of EUR 17.9 (17.5) million was spent on repairing apartments and improving their quality.
At the end of June, SATO owned 533 (534) apartments in St. Petersburg. The economic occupancy rate of rental apartments in St. Petersburg was 88.2 (92.0) per cent on average. For the time being, SATO will refrain from making new investment decisions in Russia. The share of investments in Russia is limited to a maximum of 10 per cent of the Group’s housing assets.
Personnel
At the end of June, the Group employed 224 (221) people, of whom 205 (209) had a permanent employment contract. The average number of personnel was 222 (220) between April and June.
Annual General Meeting on 23 June 2020
The number of members of the Board of Directors was confirmed to be six persons.
The Annual General Meeting elected Erik Selin to serve as Chairman of the Board. Members Jukka Hienonen, Esa Lager, Tarja Pääkkönen, Johannus (Hans) Spikker and Timo Stenius were re-elected as members of the Board of Directors.
Deloitte Oy, the firm of authorized public accountants, was elected as the auditor. Deloitte Oy has notified that APA Eero Lumme will serve as the auditor with principal responsibility.
The Annual General Meeting resolved that no dividends will be paid by SATO Corporation for the financial period ending 31 December 2019.
Organisation of the Board of Directors
At its organizational meeting also held on 23 June 2020, the Board elected from among its number Jukka Hienonen to serve as Deputy Chairman.
Erik Selin was appointed by the Board to chair the Nomination and Remuneration Committee and Jukka Hienonen and Tarja Pääkkönen to serve as Committee members.
Events after the review period
There are no significant events following the review period.
Future risks and uncertainties
Risk management is used to ensure that risks impacting the company’s business are identified, managed and monitored. The main risks of SATO’s business are risks related to the business environment and financial risks.
The most significant risk in the immediate future is the coronavirus pandemic, whose duration and impact on the Finnish economy are difficult to estimate. A prolonged COVID-19 pandemic may have a major negative impact on economic growth, and on business activity, employment and work productivity in Finland. Such economic or business deterioration, as well as quarantines or other restrictive measures, may have an adverse impact on the financial result or operations of SATO, not to mention on financing costs or values of SATO´s investment properties. To minimise the negative business impacts of the coronavirus pandemic, the company has postponed the start of some new projects and launched a cost-saving programme to secure future stability, in addition to reinforcing its sales and marketing measures.
All in all, the most significant risks in the renting of apartments are related to economic cycles and fluctuations in demand. A clear weakening in the housing market could have a negative impact on the market value of SATO’s housing portfolio. In accordance with its strategy, SATO focusses its investments on growth centres, thus ensuring the rental potential of its apartments and the development of their value.
Changes in official regulations and legislation and uncertainty stemming from them can have a significant impact on the reliability of the investment environment and thus on SATO’s business. SATO monitors and anticipates these changes and also calls attention to what it considers to be negative impacts of regulation.
The management of financial risks is steered by the Group’s financial policy. Our risk management principles have been defined in the treasury policy approved by SATO’s Board of Directors. Our most significant financial risks relate to liquidity, refinancing and interest rates. We manage our liquidity and refinancing risks by diversifying the financing sources and maturity of our loan portfolio, and by holding sufficient liquidity reserves in the form of committed credit facilities and other financing commitments.
The means for managing the liquidity risk at SATO include cash assets, a bank account limit, committed credit facilities, and a commercial paper programme. We increase the amount of reserves as the funding requirements grow. Our objective is to keep the liquidity requirements of the next 12 months covered by committed agreements.
Floating rate loans form an interest rate risk which we manage by balancing the share of fixed and floating rate loans either by issuing fixed rate loans or by interest rate hedges. At the end of the review period the share of fixed rate loans of debt portfolio was 73.7 per cent.
There are risks related to the business environment in our St. Petersburg operations, including currency risk. The consolidation of foreign currency-denominated assets in the consolidated financial statements also involves a translation risk. Possibilities of hedging the translation risk are evaluated in accordance with our treasury policy. For the time being, SATO will refrain from making new investments in Russia.
A more detailed description of risks and risk management is available in the Group’s annual report for 2019 and on the website www.sato.fi.
Outlook
In the operating environment, SATO’s business activities are mainly affected by consumer confidence, the development of purchasing power, rent and price development for apartments, general competitive situation and interest rates.
The coronavirus pandemic which began to spread in early 2020 will have a significant effect on Finland’s economy. According to the forecast of the Bank of Finland, the national economy will contract between 5 and 11 per cent this year. The negative impact of the pandemic is limited with support measures of the European Central Bank, European Union and the State of Finland. According to Statistics Finland, consumers’ pessimistic attitude towards Finland’s economy grew significantly when the restrictions came into effect.
Due to Europe’s weak economic development, interest rates are expected to remain low for a longer time, which will have a positive impact on SATO’s financing costs.
Still, urbanisation provides good long-term conditions for sustained investments in SATO’s main operating areas in Finland. The share of net migration in population increase is expected to be the highest in SATO’s operating areas. Some 80 per cent of SATO’s housing stock is located in the Helsinki metropolitan area, where price development is expected to be more positive than in the rest of Finland.
The number of construction permits applied for has fallen dramatically, due to which the historically high rate of housing construction is expected to decrease in the coming years.
SATO Corporation's shareholders on 30 June 2020
Largest shareholders and their holdings
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| |
• Balder Finska Otas AB (Fastighets AB Balder) | 31,001,003 | 54.6% |
• Stichting Depositary APG Strategic Real Estate Pool | 12,811,647 | 22.6% |
• Elo Mutual Pension Insurance Company | 7,233,081 | 12.7% |
• The State Pension Fund | 2,796,200 | 4.9% |
• The Finnish Construction Trade Union | 619,300 | 1.1% |
• Valkila Erkka | 390,000 | 0.7% |
• Hengityssairauksien tutkimussäätiö | 227,000 | 0.4% |
• Entelä Tuula | 179,000 | 0.3% |
• SATO Corporation | 160,000 | 0.3% |
• Heinonen Erkki | 156 684 | 0.3% |
• Others (112 shareholders) | 1,217,349 | 2.1% |
On 30 June 2020, SATO had 56,783,067 shares and 122 shareholders registered in the book-entry system. The share turnover rate was 0.65 per cent for the period 1 January–30 June 2020.
Further information
CEO Sharam Rahi, tel. +358 201 34 4001
CFO Markku Honkasalo, tel. +358 201 34 4226
www.sato.fi
ATTACHMENTS
Half-Year Report 1 January – 30 June 2020
Half-Year Report presentation 1 January – 30 June 2020
DISTRIBUTION
NASDAQ Helsinki Ltd., main media, www.sato.fi
SATO is one of Finland's leading rental housing providers. SATO aims to offer a comprehensive choice of rental housing and an excellent customer experience. At year-end 2019, SATO owned over 26 000 apartments in Finland's largest growth centres and in St Petersburg.
We promote sustainable development and initiative through our operations and work in open interaction with our stakeholders to generate added value. We operate profitably and with a long-term view. We increase the value of our housing stock through investments, divestments and repairs.
SATO Group's net sales in 2019 were EUR 296 million, operating profit EUR 726 million and profit before taxes EUR 671 million. The value of SATO's investment assets is roughly EUR 4,7 billion.
Attachments
