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SATO Corporation's Half-Year Report 1 January–30 June 2021: Rental housing market remains challenging

SATO Corporation, Half-year financial report, 16th July 2021 at 9:00 a.m.

Summary for 1 Jan–30 Jun 202
1 (1 Jan–30 Jun 2020)

  • The economic occupancy rate in Finland was 94.6 (97.2) %.
  • Net sales were EUR 148.2 (152.1) million.
  • Net rental income amounted to EUR 100.0 (106.6) million.
  • Profit before taxes was EUR 171.2 (76.3) million.
  • The change in the fair value of investment properties included in the result was EUR 112.0 (6.7) million.
  • Housing investments amounted to EUR 59.6 (59.8) million.
  • Invested capital at the end of review period was EUR 4,430.3 (4,335.0) million.
  • Return on invested capital was 8.7 (4.7) per cent.
  • Equity was EUR 2,274.5 (2,113.1) million, or EUR 40.17 (37.32) per share.
  • Earnings per share were EUR 2.42 (1.07).
  • A total of 41 (608) rental apartments were acquired or completed.
  • A total of 1,035 rental apartments and 71 owner-occupied apartments as well as 52 Flexhomes are under construction.

Summary for 1 Apr–30 Jun 2021 (1 Apr–30 Jun 2020)

  • The economic occupancy rate in Finland was 94.4 (96.9) %.
  • Net sales were EUR 74.2 (76.5) million.
  • Net rental income amounted to EUR 55.1 (59.6) million.
  • Profit before taxes was EUR 115.1 (41.8) million.
  • The change in the fair value of investment properties included in the result was EUR 80.4 (1.8) million.
  • Housing investments amounted to EUR 42.7 (32.5) million.
  • Earnings per share were EUR 1.63 (0.59).
  • A total of 41 (397) rental apartments were acquired or completed.

CEO Antti Aarnio:

  • During the period under review, SATO’s occupancy rate fell to 94.6 (97.2) per cent. The weakened occupancy rate can be attributed largely to the general uncertainty caused by the coronavirus pandemic and the increased offering of rental housing.
  • In accordance with our Customer First development programme, we focused on adapting our organisation and our service processes to respond to our customers’ needs even better. SATO House Expert -model was also expanded to Turku and Tampere in addition to capital area. SATO’s own House Experts are a presence in the day-to-day lives of approximately 20,000 residents. During the end of the year 2019 SATO launched a maintenance model where its own building superintendents, SATO House Experts, took on some of the duties of SATO’s maintenance partners.
  • To ensure profitable growth, we are developing our plot reserves and building up new apartments in SATO’s main operational areas. In the end of the period under review, there was more than 1 000 apartments under construction.
  • During the review period, the construction of rental and part-ownership homes were begun on Hervantajärvi, Tampere.
  • I wish to thank SATO employees for their commendable work and for doing everything they could to ensure the comfort of our residents, also during this uncertain and challenging time.

Operating environment

According to the forecast of Ministry of Finance in May, the Finland's gross domestic product is expected to grow by 2.6% in 2021 and 2.5% in 2022. As the coronavirus pandemic situation will get better and vaccination coverage increases, economic growth will accelerate and normalize. On the other hand, the evolution of the coronavirus situation will continue to spawn major uncertainty in the economy.

Efforts are being made to limit the negative impact of the pandemic on Finland’s economy through support measures adopted by the European Central Bank, the European Union and the State of Finland.

In recent years, the rental housing markets in major cities have been characterised by sharp growth in supply. The growth largely stems from the brisk production of rental housing.

As a result of the coronavirus pandemic, previously short-term rental apartments were offered for longer rental periods, which boosted supply in some cities, even to a considerable degree. However, demand for rental apartments was partly negatively affected by upper secondary schools and universities switching to remote teaching.

Despite the coronavirus pandemic that erupted in 2020, there is demand for rental apartments, and the urbanisation trend continues to be strong.

REVIEW PERIOD 1 January–30 June 2021 (1 January–30 June 2020)

Net sales and profit

Between January and June 2021, consolidated net sales were EUR 148.2 (152.1) million.

Operating profit was EUR 194.0 (99.7) million. The operating profit without the change in the fair value of investment properties was EUR 82.0 (93.1) million. The change in fair value in profit and loss was EUR 112.0 (6.7) million.

Financial income and expenses totalled EUR -22.7 (-23.4) million.

Profit before taxes was EUR 171.2 (76.3) million. Cash flow from operations (free cash flow after taxes excluding changes in fair value) between January and June amounted to EUR 38.5 (59.1) million.

Earnings per share was 2.42 (1.07) euros.

Financial position and financing

The consolidated balance sheet totalled EUR 5,012.9 (4,915.5) million at the end of June. Equity was EUR 2,274.5 (2,113.1) million. Equity per share was EUR 40.17 (37.32).

The Group's equity ratio was 45.4 (43.0) per cent at the end of June. EUR 7.0 million in new long-term financing was withdrawn and the solvency ratio was 42.8 (43.8) per cent at the end of June.

The Group’s annualised return on equity was 12.4 (5.8) per cent. Return on investment was 8.7 (4.7) per cent.

Interest-bearing liabilities at the end of June totalled EUR 2,155.7 (2,221.9) million, of which loans subject to market terms accounted for EUR 1,952.9 (1,992.8) million. The average loan interest rate was 1.7 (2.0) per cent. Net financing costs totalled EUR -22.7 (-23.4) million.

The calculated impact of changes in the market value of interest hedging on equity was EUR 9.1 (-3.1) million.

The proportion of loans without asset-based securities was 85.1 (80.6) per cent of all loans. At the end of June, the proportion of unencumbered assets was 86.9 (83.9) 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 148.2 (152.1) million. The economic occupancy rate of apartments in Finland was 94.6 (97.2) per cent on average, and the external tenant turnover was 32.3 (30.0) per cent.

The average monthly rent of SATO’s rental apartments in Finland at the end of the review period was EUR 17.48 (17.44) per m2.

Net rental income from apartments stood at EUR 100.0 (106.6) million.

Investment properties

On 30 June 2021, SATO owned a total of 26,718 (26,767) apartments. During the review period, 41 (608) rental apartments were completed. The total number of divested rental apartments and part ownership apartments redeemed by the owner-occupants was 41.

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 4,916.4 (4,706.5) million. The change in the value of investment properties, including the rental apartments acquired and divested during the review period, was EUR 162.9 (48.6) 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 grou...

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