SATO Corporation’s Half-Year Report 1 January to 30 June 2024:
Demand for rental homes is recovering
SATO Corporation, Half-Year Report 16 July 2024 at 9:00 am
Summary for 1 January to 30 June 2024 (1 January to 30
June 2023)
- The
economic occupancy rate was 95.1% (95.0).
- Net sales totalled EUR 150.5 million
(142.4).
- Net rental income was EUR 101.1 million
(93.4).
- Profit before taxes was EUR 50.9 million
(-101.2).
- The unrealised change in the fair value of investment
properties included in the result was EUR 6.8 million
(-122.0).
- Housing investments amounted to EUR 22.8 million
(92.7).
- Invested capital at the end of the review period was
EUR 4,531.2 million (4,554.9).
- Return on invested capital was 3.8%
(-3.0).
- Equity was EUR 2,564.7 million (2,400.9), or
EUR 30.21 per share (42.41).
- Earnings per share were EUR 0.53
(-1.51).
- A total of 92 rental apartments were completed (648).
Renovation of 56 rental homes (197) was completed.
- A total of 257 rental apartments are under construction
(679).
- Profit from operations before depreciation improved
year on year due to increased operational efficiency and savings
measures.
- The occupancy rate improved slightly as demand
increased.
Summary for 1 April to 30 June 2024 (1 April to 30 June
2023)
- The
economic occupancy rate was 95.3% (95.0).
- Net sales totalled EUR 75.8 million
(71.5).
- Net rental income was EUR 57.5 million
(52.5).
- Profit before taxes was EUR 31.4 million
(-69.1).
- The unrealised change in the fair value of investment
properties included in the result was EUR 5.1 million
(-75.1).
- Housing investments amounted to EUR 10.0 million
(46.5).
- Earnings per share were EUR 0.30
(-1.05).
- A total of 0 rental apartments were completed (513).
Renovation of 0 rental homes (125) was completed.
- A total of 257 rental apartments are under construction
(679).
President and CEO Antti Aarnio:
- We improved our profit from operations before depreciation by
increasing our operational efficiency and implementing savings
measures. Profit from operations before depreciation was also
affected positively by the higher occupancy rate.
- Demand for rental housing particularly in Helsinki is growing
slightly, which is why our occupancy rate has improved year on
year.
- Inflation is continuing to decline and was 1.9% in Finland in
April. In the eurozone, inflation rose to 2.6% in May (YoY) from
2.4% in April and was slightly higher than forecasts. In its June
meeting, the European Central Bank lowered the deposit facility
rate by 0.25 percentage points and is likely to continue rate
cuts this year.
- The renting of our latest rental apartments, the SATO homes to
be completed at Peijinkuja 6, Finnoo, Espoo, in the autumn, started
in May. The neighbouring building, Peijinkuja 10, will be completed
in December 2024 and is, for the time being, our last property
under construction.
- According to market research company Nepa, SATO is clearly the
most recognised brand in its segment, that is, rental housing.
According to the 2023 research summary, we were the first rental
housing provider that came to mind for more than one in five
respondents.
- Following the change negotiations completed in June, SATO’s
organisation has been adjusted to reflect the current operating
environment, with our fixed costs decreasing by about
one million euros. Most of the savings will be realised in
2025.
- I would like to thank SATO staff members for their openness,
expertise and persistence and for their contributions to the
continuous development of our residents’ comfort and housing.
Operating environment
During the period under review, the continued abundant supply of
rental housing and the economic uncertainty still remained key
factors affecting SATO’s operating environment. Uncertainty is
increased by the slow rate of economic growth, the increase in the
number of unemployed jobseekers, the high interest rate level, and
geopolitical risks.
Inflation continued its decline and was 1.9% in Finland and 2.4%
in the euro area in April. In May, the inflation in the eurozone
rose to 2.6%. The long decline enabled the European Central Bank to
decide on a key interest rate cut in June, and the markets expect
further rate cuts this year. Weak economic growth and the declining
employment rate are keeping consumer confidence at a low level.
Going forward, both the lower interest rate level and waning
inflation will improve consumers’ purchasing power and the
employment rate, and Finland is expected to see moderate economic
growth.
Newbuild construction of homes is still declining. According to
Statistics Finland, the volume of building permits for newbuilding
granted in January–March 2024 was 20% lower than a year earlier.
The prolonged decline in the building permits granted and building
projects started is reflected in the number of completed dwellings.
The newbuild construction volume of previous years, which exceeds
the long-term housing demand, is, however, maintaining an
oversupply of rental homes in the growth centres, albeit in
Helsinki a slight downturn in the number of vacant rental homes was
seen in April. The continued high level of housing supply has
maintained intense competition for good tenants.
The urbanisation trend continues, and dense urban housing is
becoming increasingly popular. There is demand for rental homes in
growth centres close to good public transport connections and
services. Among the major growth centres, the Helsinki Metropolitan
Area (HMA), Tampere and Turku continue to enjoy strong growth,
while Statistics Finland forecasts a downturn in the nationwide
population trend in 2031. The HMA is projected to grow by more than
200,000 new residents by 2040. Almost 80% of HMA residents already
live in households with one to two members, and the number of small
households continues to grow. The proportion of immigrants is
projected to increase in the HMA from the current 17% to 25% by
2030. The ageing population is moving to growth centres providing
access to services and expects more and more housing-related
services.
The demographic change coupled with the price development create
a stable foundation for rental housing demand, especially in the
HMA, Tampere and Turku. Migration to large growth centres has
continued, and the HMA’s migration gain in 2023 was the highest in
the 2000s: 23,500 persons. This is reflected in the demand for
rental homes in growth centres.
Urbanisation, the income development of wage and salary earners,
pent-up housing demand of households and lower interest rates
together with the decrease in new housing production will increase
housing demand towards the end of the year. The housing allowance
policy changes may, however, steer consumers towards looking for
more affordable housing. Some of those looking for a home to buy
may be considering a rental home as a housing option.
Rental housing providers are still competing for good tenants,
which results in rent increases remaining moderate. Going forward,
higher maintenance and finance costs will be reflected in higher
rent costs, while at the same time the supply of rental housing
decreases.
REVIEW PERIOD 1 JANUARY TO 30 JUNE 2024 (1 JANUARY TO 30
JUNE 2023)
Net sales and profit
In January–June 2024, SATO Corporation’s consolidated net sales
totalled EUR 150.5 million (142.4).
Operating profit was EUR 87.0 million (-68.6). Operating
profit without the change in the fair value of investment
properties was EUR 80.2 million (53.4). The unrealised change
in fair value through profit or loss was EUR 6.8 million
(-122.0).
Net financing expenses totalled EUR -36.1 million
(-32.6).
Profit before taxes was EUR 50.9 million (-101.2). Cash
flow from operations (free cash flow after taxes excluding changes
in fair value) in January–June amounted to EUR 34.3 million
(-9.6).
Earnings per share were EUR 0.53 (-1.51).
Financial position and financing
The consolidated balance sheet total at the end of June was
EUR 5,027.6 million (5,091.9). Equity totalled
EUR 2,564.7 million (2,400.9). Equity per share was
EUR 30.21 (42.41).
The Group’s equity ratio at the end of June was 51.0% (47.2).
EUR 325.0 million in new long-term financing was drawn and the
solvency ratio at the end of June was 38.9% (42.0).
The Group’s annualised return on equity was 3.3% (-7.0). Return
on invested capital was 3.8% (-3.0).
Interest-bearing liabilities at the end of June totalled
EUR 1,966.5 million (2,153.9), of which loans on market terms
amounted to EUR 1,856.8 million (2,019.8). The average loan
interest rate was 4.0% (3.2%). Net financing expenses totalled
EUR -36.1 million (-32.6).
The calculated impact of changes in the market value of interest
hedging on equity was EUR 2.0 million (-2.6).
The proportion of loans without asset-based securities was 67.9%
(87.9) of all loans. At the end of June, unencumbered assets
accounted for 72.3% (89.8) 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 150.5 million (142.4). On average,
the economic occupancy rate of apartments was 95.1% (95.0) and the
external tenant turnover 28.3% (26.1).
At the end of the reporting period, the average monthly rent of
SATO rental homes was EUR 18.30 per m2 (18.05).
Net rental income from apartments totalled
EUR 101.1 million (93.4).
Investment properties
At 30 June 2024, SATO owned a total of 25,578 homes (25,143).
The reporting period saw the completion of 92 (648) rental homes.
The number of divested rental apartments was 1 (525).
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 4,929.4 million (4,956.0). The change in the
value of investment properties, including investments and
divestments during the reporting period, was EUR 43.7 million
(-88.2).
The value of properties funded with ARAVA loans or
interest-subsidised loans would be EUR 245 million higher
when valuated with the income value method.
At the end of June, the commuting zone of the Helsinki
Metropolitan Area accounted for around 86.6% and Tampere and Turku
together made up around 13.4% of the value of apartments.
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 3 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 apartments totalled EUR 22.8 million
(92.7). The Helsinki Metropolitan Area represented 91.0% of all
investments during the period under review. New apartments
accounted for 44.8% of the total. At 30 June 2024, there were
binding purchase agreements to a total of EUR 7.1 million
(57.7).
During the reporting period, 1 rental homes (3) were divested in
Finland. Their total value amounted to
EUR 0.3 million (0.5).
The book value of the plot reserve owned at the end of June
totalled EUR 58.4 million (48.2). The value of new plots
acquired by the end of June totalled EUR 18.4 million
(0.0).
Permitted building volume for around 1,300 homes is being
developed for 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.
A total of 92 rental homes (648) were completed for SATO. A
total of 257 rental homes (679) were under construction at 30 June
2024.
A total of EUR 9.5 (14.9) was spent on repairing apartments
and improving their quality.
Personnel
At the end of June, the Group had 337 employees (358), of which
285 (294) had a permanent employment contract. The average number
of personnel in January–June was 323 (332).
REVIEW PERIOD 1 APRIL TO 30 JUNE 2024 (1 APRIL TO 30
JUNE 2023)
Net sales and profit
In April–June 2024, SATO Corporation’s consolidated net sales
totalled EUR 75.8 million (71.5).
Operating profit was EUR 52.2 million (-51.5). Operating
profit without the change in the fair value of investment
properties was EUR 47.1 million (23.6). The unrealised change
in fair value through profit or loss was EUR 5.1 million
(-75.1).
Net financing expenses totalled EUR -20.8 million
(-17.6).
Profit before taxes was EUR 31.4 million (-69.1). Cash flow
from operations (free cash flow after taxes excluding changes in
fair value) in April–June amounted to EUR 8.8 million
(-11.3).
Earnings per share were EUR 0.30 (-1.05).
Housing business
Rental income was EUR 75.8 million (71.5). On average, the
economic occupancy rate of apartments was 95.3% (95.0) and the
external tenant turnover 27.7% (26.4).
At the end of the reporting period, the average monthly rent of
SATO rental homes was EUR 18.30 per m2 (18.05).
Net rental income from apartments totalled
EUR 57.5 million (52.5).
Investment properties
At 30 June 2024, SATO owned a total of 25,578 homes (25,143).
The reporting period saw the completion of 0 (513) rental homes.
The number of divested rental apartments was 1 (522).
Fair value
At the end of June, the fair value of investment properties came
to a total of EUR 4,929.4 million (4,956.0). The change in the
value of investment properties, including investments and
divestments during the reporting period, was EUR 14.8 million
(-88.9).
The value of properties funded with ARAVA loans or
interest-subsidised loans would be EUR 245 million higher
when valuated with the income value method.
At the end of June, the commuting zone of the Helsinki
Metropolitan Area accounted for around 86.6% and Tampere and Turku
together made up around 13.4% of the value of apartments.
Investments, divestments and property
development
Investments in apartments totalled EUR 10.0 million
(46.5). The Helsinki Metropolitan Area represented 83.8% of all
investments during the period under review. New apartments
accounted for 40.0% of the total. At 30 June 2024, there were
binding purchase agreements to a total of EUR 7.1 million
(57.7).
During the reporting period, 1 rental homes (0) were divested in
Finland. Their total value amounted to EUR 0.3 million
(0.0).
The book value of the plot reserve owned at the end of June
totalled EUR 58.4 million (48.2). The value of new plots
acquired by the end of June totalled EUR 18.4 million
(0.0).
Permitted building volume for around 1,300 homes is being
developed for 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.
A total of 0 rental homes (513) were completed for SATO. A total
of 257 rental homes (679) were under construction at 30 June
2024.
A total of EUR 4.6 (8.0) was spent on repairing apartments
and improving their quality.
Personnel
At the end of June, the Group had 337 employees (358), of which
285 (294) had a permanent employment contract. The average number
of personnel in April–June was 328 (340).
Events after the review period
There have been no material events after the review period.
Short-term 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.
SATO’s most significant risks relate to prolonged inflation and
the resulting rise in interest rate level. The war in Ukraine has
resulted in a surge in the prices of energy, food, materials and
commodities and an elevated interest rate level. Higher living
costs may have a negative effect on the purchasing power of
consumers as well as on their capacity to perform their
obligations. If the strong growth in the cost of financing and
maintenance costs continues and the market situation does not
provide an opportunity to transfer the higher costs into rents in
full, this may have a negative impact on the fair value of
investment assets and the company’s ability to perform its
obligations or to finance its investments. This means new
investments and major renovations may have to be postponed.
The highest risks in apartment rental are to do with cyclical
movements and changes in supply and demand. The market risk may
push the supply of rental homes higher than their demand. This
would result in idle rental housing stock and pressure for rents to
level off or fall, especially as regards old housing stock.
A decline in the housing market may have a negative effect on
the market value of SATO’s housing stock. In line with its
strategy, SATO has been focusing in its investments on growth
centres and on renovating and repairing existing housing stock and,
consequently, ensuring the rentability and value development of the
apartments.
Changes in regulation by the authorities and in legislation and
related uncertainty may have a significant impact on the
reliability of the investment environment and, consequently, on
SATO’s business. SATO monitors and anticipates these changes and
calls attention to what it considers to be negative impacts of
regulation.
The management of financial risks is steered by the Group’s
treasury policy. Our risk management principles have been defined
in the treasury policy adopted 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 long-term financing
commitments. The company has in place a EUR 2.0 billion
Euro Medium Term Notes (EMTN) Programme, under which SATO has
issued bonds in the total amount of EUR 350 million.
The means for managing liquidity risk at SATO include cash
assets, a bank account limit, EUR 600 million in committed
credit facilities and a EUR 400 million 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 represent an interest rate risk which we
manage by balancing the share of fixed- and floating-rate loans
either by fixed-rate debt arrangements or interest rate
derivatives. In accordance with our treasury policy, our aim is for
fixed-rate loans, including interest rate derivatives, to account
for more than 60% of our debt portfolio. At the end of the review
period, the fixed rate portion of the loan portfolio after hedging
was 52.7% (62.9) excluding short-term loans.
For a broader description of risks and risk management, see the
Group’s website and Annual Report for 2023 at www.sato.fi/en.
Outlook
In the operating environment, SATO’s business activities are
mainly affected by consumer confidence, development of purchasing
power, rent and price development for apartments, competitive
situation and interest rate level.
Weak economic growth and the declining employment rate are
keeping consumer confidence at a low level. Going forward, both the
lower interest rate level and waning inflation will improve
consumers’ purchasing power and the employment rate, and Finland is
expected to see moderate economic growth.
Newbuild construction of homes is still declining. According to
Statistics Finland, the volume of building permits for newbuilding
granted in January–March 2024 was 20% lower than a year earlier.
The prolonged decline in the building permits granted and building
projects started is reflected in the number of completed dwellings.
The newbuild construction volume of previous years, which exceeds
the long-term housing demand, is, however, maintaining an
oversupply of rental homes in the growth centres, albeit in
Helsinki a slight downturn in the number of vacant rental homes was
seen in April. The continued high level of housing supply has
maintained intense competition for good tenants.
The urbanisation trend continues, and dense urban housing is
becoming increasingly popular. There is demand for rental homes in
growth centres close to good public transport connections and
services.
The demographic change coupled with the price development create
a stable foundation for rental housing demand, especially in the
HMA, Tampere and Turku. Migration to large growth centres has
continued, and the HMA’s migration gain in 2023 was the highest in
the 2000s: 23,500 persons. This is reflected in the demand for
rental homes in growth centres.
Urbanisation, the income development of wage and salary earners,
pent-up housing demand of households and lower interest rates
together with the decrease in new housing production will increase
housing demand towards the end of the year. The housing allowance
policy changes may, however, steer consumers towards looking for
more affordable housing. Some of those looking for a home to buy
may be considering a rental home as a housing option.
Rental housing providers are, however, still competing for good
tenants, which results in rent revisions remaining moderate. Going
forward, higher maintenance and finance costs will be reflected in
higher rent costs, while at the same time the supply of rental
housing decreases.
In line with the decision made in October 2022, SATO will still
refrain from launching any newbuild construction projects.
In line with its majority shareholder’s operating model, SATO
Corporation will not publish guidance on its 2024 earnings. The
parent company of Balder Finska Otas AB is Fastighets AB Balder,
which is quoted on the Stockholm Stock Exchange.
SATO Corporation’s shareholders on 30 June
2024
Largest shareholders and their holdings
|
Balder Finska Otas AB (Fastighets AB Balder) |
48,483,564 |
57.0% |
|
Stichting Depositary APG Strategic Real Estate Pool |
19,217,470 |
22.6% |
|
Elo Mutual Pension Insurance Company |
10,849,621 |
12.8% |
|
State Pension Fund of Finland |
4,194,300 |
4.9% |
|
Valkila Erkka |
385,000 |
0.5% |
|
Tradeka Invest Ltd |
189,750 |
0.2% |
|
Research Foundation of the Pulmonary Diseases |
180,000 |
0.2% |
|
SATO Corporation |
166,000 |
0.2% |
|
Komulainen Pekka |
159,825 |
0.2% |
|
Entelä Tuula |
151,500 |
0.2% |
|
Others (119 shareholders) |
1,085,414 |
1.3% |
At 28 June 2024, SATO had 85,062,444 shares and 129 shareholders
registered in the book-entry system. The share turnover rate was
0.0% for the period from 1 January to 30 June 2024.
For more information, please contact:
Antti Aarnio, President and CEO, phone: +358 201 34 4200
Markku Honkasalo, CFO, phone: +358 201 34 4226
www.sato.fi/en
ENCLOSURES
Half-Year Report 1 January to 30 June 2024
Half-Year Report presentation 1 January to 30 June 2024
DISTRIBUTION
Euronext Dublin, main media, www.sato.fi/en
SATO Corporation is an expert in sustainable rental housing
and one of Finland’s largest rental housing providers. SATO owns
around 25,000 rental homes in the Helsinki Metropolitan Area,
Tampere and Turku.
SATO aims to provide an excellent customer experience and a
comprehensive range of urban rental housing alternatives with good
access to public transport and services. We promote sustainable
development and work in open interaction with our
stakeholders.
SATO invests profitably, sustainably and with a long-term
view. We increase the value of our assets through investments,
divestments and repairs.
- Half-year report 1 January - 30 June 2024
- Half-year report presentation 1 January - 30 June 2024
