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Hoivatilat Oyj: Half-Year Report January - June 2019: Strong EPRA Earnings – Guidance Specified

Strong EPRA Earnings – guidance specified

Half-year report January–June 2019 (unaudited)

Hoivatilat Plc Stock Exchange Release 22 August 2019 at 8 a.m.


EUR thousand 30/06/2019 30/06/2018 Change, % 31/12/2018
Total revenue 10,893 8,061 35.1% 17,182
Result for the period 12,298 15,957 -22.9% 37,003
EPRA Earnings 4,894 3,153 55.2% 7,663
Earnings per share, undiluted (EUR) 0.48 0.63 -23.8% 1.46
Earnings per share, diluted (EUR) 0.48 0.63 -23.8% 1.45
EPRA Earnings Per Share, EUR (EPRA EPS) 0.19 0.12 58.3% 0.30
Value of investment properties 426,433 301,579 41.4% 348,899
NAV per share, EUR 7.74 6.24 24.0% 7.32
Value of the lease portfolio (without index increases) 490,701 383,075 28.1% 426,953
Economic occupancy rate, % 100% 100% - 100%
Average maturity of the lease portfolio (years) 14.9 14.7 - 14.9

The impacts of IFRS 16, adopted on 1 January 2019, on the key figures for the review period are shown below in the Financial review section and the table section.

Significant events

·         The business in Sweden is progressing – projects worth EUR 16 million agreed.

·         EPRA Earnings increased by more than 50 per cent.

·         15 properties have been completed after the review period.

Financial guidance for 2019

Hoivatilat expects its total revenue to be around EUR 23 million in 2019. EPRA Earnings are expected to be at least 40 per cent of revenue (earlier guidance was approximately 40 per cent of revenue). The fair value of investment properties at the end of 2019 is estimated to be EUR 460–490 million. The guidance is based on the assumption that, in 2019, the company will not make significant purchases or sales of completed investment properties, and that the market yields used in the valuation of real estate will remain at their current level.

Jussi Karjula, CEO:

The first six months of 2019 were successful for Hoivatilat. The key indicators of value of investment properties, revenue and lease portfolio continued to grow as planned. At the same time operational efficiency was very good. The matters I want to particularly highlight for the review period are the strong progress of business in Sweden and the achievement of several significant municipal agreements and new customer relationships in Finland.

The start-ups of five projects in Sweden were agreed during the first half of the year. Three of them are day-care centres, while two are nursing homes for special groups. The total investment value of the properties is around EUR 16 million.

During the review period, the company’s lease portfolio increased to over EUR 490 million. The investment value of projects under construction and projects to be started was around EUR 174 million, higher than ever before in the history of the company. The company won several public bids in early 2019, such as a bid for a school project in Mikkeli and bids for the municipal day-care centres in Oulu, Vaasa and Rovaniemi. The Oulu project has a 25-year lease agreement. During the review period, the company concluded lease agreements with 11 new customers.

Result for the period was in line with expectations. The company’s own project development work, producing profitable growth, is its strategic cornerstone. We have maintained a good level of margin from project development work matching with our targets. The line ‘Result for the period’ shows a decrease of net return requirements from investment properties (-0.03 percentage points), smaller (by -0.16 percentage points) than in the comparison period and manifesting itself as a materially smaller change in fair values.  

In the spring, Hoivatilat joined the European Public Real Estate Association (EPRA). With the membership, the company is presenting for the first time in this half-year report key figures compliant with EPRA’s reporting recommendations as part of its published financial information.

The company’s business operations are growing rapidly, and the structure of financing plays a significant role in creating profitable growth. In April, we supplemented our debt financing tools by introducing a commercial paper programme. The programme diversifies the company’s financing base, as well as securing the Group’s normal investment and working capital financing.

Hoivatilat provides high-quality facilities for care and education. Its property portfolio consists of new facilities that meet current regulations and requirements. Its properties provide a functional setting for good care and education in the private, public and third sectors. The proportion of the ageing population is growing rapidly, and the population is concentrating in growth regions, where service facilities will continue to be in high demand.

Material events during the review period

During the review period, a total of 5 (7) new properties were completed, and the company also acquired 2 (1) completed properties.

The company regained holding of 23,134 of its own shares in accordance with the terms and conditions of the 2015 share incentive scheme. The shares were returned on 27 February 2019, and after that Hoivatilat Plc holds 23,134 treasury shares. (Stock exchange release 28/02/2019)

The first projects in Sweden started. The company signed three agreements on the implementation of day-care centres in to Eskilstuna, Ronneby and Norrtälje. The total investment value of the three day-care centres is around EUR 11 million. In addition, the company signed agreements on four projects for municipal tenants: a school in Mikkeli and day-care centres in Oulu, Rovaniemi and Vaasa. (Stock exchange release 26/03/2019)

Timo Wikberg was appointed business director and member of the management team of Hoivatilat. He will be responsible for managing and developing Hoivatilat’s sales and customer experience. Previously Wikberg has worked for Attendo in various business development and managerial positions, most recently as sales director. (Stock exchange release 04/04/2019)

On 11 April 2019, Hoivatilat signed an agreement on a domestic EUR 100 million commercial paper programme. Within the programme, the company may issue commercial papers of less than one-year maturity. This arrangement diversifies the company’s financing base, as well as securing the Group’s normal investment and working capital financing. (Stock exchange release 11/04/2019)

The change of name, decided in the Annual General Meeting of Suomen Hoivatilat Oyj on 26 March 2019, was registered with the Trade Register on 9 May 2019. The new name of the company is Hoivatilat Oyj, in English Hoivatilat Plc. (Stock exchange release 09/05/2019)

Operating environment

Urbanisation is increasing and the population is ageing in both Europe and Finland. The number of people aged over 75 will nearly double over the next two decades. At the end of June 2019, the number of people aged over 75 in Finland was 519,000, and this is predicted to increase to 925,000 by the end of 2040 (stat.fi). The trend is very similar in Sweden: the number of people aged over 75 will increase by 50 per cent by 2030.

The decisions of the new government on issues regarding health and social services are currently being awaited. The government programme has set the following guidelines for the matter:

The Government will start preparations for restructuring health and social services, taking into account the work done during previous electoral terms and making sure that the relevant constitutional requirements are met. The restructuring will be carried out in a controlled manner and in stages. The health and social services reform will transfer the responsibility for organising health and social services to self-governing regions (counties) that are larger than municipalities.

The portfolio of education, culture, social services and healthcare properties includes a large number of old buildings nearing the end of their life cycle, as well as properties with indoor air problems and a maintenance backlog that require renovation. 

The company estimates that the following trends will increase its opportunities for growth and operations:

  • Ageing population and the weakening dependency ratio.
  • Urbanisation and centralisation of the population.
  • Increased debt in the public sector.
  • Condition of properties in education and the social and health sectors.
  • Increasing use of service vouchers in early education and care services.

Economic operating environment

In the next few years, economic growth will be more moderate than in recent years. According to the forecast published on 17 June by the Ministry of Finance, the economy will grow by 1.6 per cent in 2019. The Ministry forecasts that in 2020, economic growth will decrease to 1.2 per cent and further to 1.1 per cent in 2021. In the medium term of 2022–2023, economic growth will slow down to less than one per cent.

In the construction sector, the housing production has been exceptionally plentiful during the last two years, as the construction of approximately 45,000 new apartments has been started per year. However, the number of building permits granted during the first half of the year has decreased, as predicted, by almost one-third from the corresponding period last year. Therefore, it was slightly surprising that there were more start-ups of new apartments than in the corresponding period last year.

The forecast expects the start-ups of new apartments to decrease this year to 38,000 and to continue its decrease next year and the year thereafter. Housing investments will nevertheless remain at a good level, and no collapse is expected in that respect. Repair construction investments are expected to grow by a reasonably steady pace of 1–2 per cent per year throughout the forecast period. The situation regarding building permits for hospitals and schools has developed favourably, and more start-ups can therefore be expected.

Interest rates are expected to remain low in the near future. According to the forecast of the Bank of Finland, short-term interest rates will remain negative for 2019–2021, and ten-year bond interest rates will remain below 1 per cent. The low interest rates also create good possibilities for households to consume and for companies to invest in Finland. Therefore, the economic operating environment in Finland still provides, as a whole, prerequisites for continued growth in spite of the uncertainty of global economy.


The Bank of Finland predicts that salaries and wages will increase by an average of 2.5 per cent during the forecast years. Inflation is forecast to be 1.3 per cent in 2019 and to increase to 1.6 per cent in in 2021. During the forecast period, pay increases will gradually increase the prices of services, thus contributing to the increase of inflation. (www.eurojatalous.fi)

Financial review

Financial development

The Group’s revenue was EUR 10.9 (8.1) million, representing an increase of 35.1 per cent year-on-year. The revenue consisted entirely of rental income. The increase in revenue was mostly due to considerable growth over the past 12 months in the number of properties that the company has leased. The income from measuring properties at fair value was EUR 9.3 (16.0) million in the review period. The change of fair values in the income statement includes EUR -0.3 (0.0) million of depreciation from leased plots which are recognized as right-of-use assets in accordance with IFRS 16 . The change in fair value of investment properties was smaller than in the comparison period, because the change in return requirements used for measuring the properties was smaller than in the comparison period. The net return of the portfolio decreased by 0.03 percentage points, having during the comparison period last year decreased considerably more, by 0.16 percentage points. The property development margin has remained good, in line with the company’s targets.

The net rental income for the review period was EUR 10.0 (7.0) million, representing an increase of 42.8 per cent. At the end of the review period, the company had 127 (98) completed properties generating rental cash flow. Their net return was 6.12 (6.30) per cent. The decrease in the net return rate was mostly due to a decrease in the required market rates of return used in measuring the value of investment properties.

Property maintenance expenses totalled EUR -0.9 (-1.1) million. Property maintenance expenses decreased by 15.6 per cent year-on-year. The decrease of maintenance expenses is explained by the adoption of IFRS 16. The land lease expenses earlier included in the property maintenance expenses are from 1 January 2019 shown as part of the change in fair value and interest expenses. During the review period, the adoption of IFRS 16 affected the maintenance expenses by EUR 0.3 million.


Expenses arising from employment benefits were EUR -1.1 (-1.1) million, representing an increase of 3.8 per cent. The item includes the tax refund of EUR 0.2 million associated with the shares returned to the company in compliance with the terms and conditions of the share incentive scheme (23,124 shares, stock exchange release dated 28 February 2019). Without the impact of that tax return, the expenses arising from employment benefits would have been EUR -1.3 million. The average number of employees was 18 (17) during the review period. Administrative expenses were EUR -1.0 (-1.0) million, representing an increase of 7.2 per cent compared with the previous year. The increase was due to investments in future growth in Finland and Sweden and in project development in particular.

Operating profit was EUR 17.1 (21.0) million, with a decrease of -18.9 per cent. The decrease of operating profit was due to the fact that the return requirements of properties changed less than in the comparison period.

Net financial income and expenses were EUR -1.5 (-1.0) million. The adoption of IFRS 16 affected the financial expenses by EUR -0.2 (0.0) million. Taxes based on the taxable income for the review period were EUR -1.4 (-0.9) million, and deferred taxes mainly due to the changes in the fair values of properties amounted to EUR -1.9 (-3.1) million.

The net profit for the review period was EUR 12.3 (16.0) million, showing a decrease of -22.9 per cent from the previous year. Undiluted earnings per share were EUR 0.48 (0.63), and diluted earnings per share were EUR 0.48 (0.63).

EPRA Earnings for the review period were EUR 4.9 (3.2) million, an increase of 55.2 per cent. The EPRA Earnings were 44.9 (39.1) per cent of revenue. The EPRA Earnings for the review period are not comparable to the previous year because of the impact of the implementation of IFRS 16 standard (since 1.1.2019) and the tax refund included in the expenses of employee benefits.

Investments

The consolidated balance sheet total at the end of the review period was EUR 438.4 (308.5) million, showing an increase of 42.1 per cent from the comparison period. During the review period, investments with a total acquisition cost of EUR 41.2 (38.5) million were made in the properties.

Funding

The company’s interest-bearing liabilities stood at EUR 235.2 (143.7) million at the end of the review period. The net amount of interest-bearing liabilities increased by EUR 64.7 (33.6) million during the review period. Of the increase in interest-bearing liabilities, EUR 27.0 million was due to recording a lease agreement liability recorded in accordance with IFRS 16.

On 30 June 2019, the company’s sources of financing totalled EUR 122.9 million, consisting of cash assets (EUR 6.7 million), undrawn credit facilities (EUR 7.0 million), commercial papers issued under a commercial paper scheme (EUR 80 million) and investment loans drawn under loan agreements (EUR 29.2 million). In addition, the company has an option for EUR 20 million for additional funding from the EIB on the terms and conditions corresponding to an earlier agreement.

According to the company’s interest rate hedging policy, 30–50 per cent of the Group’s loan portfolio is hedged by interest rate swaps so that the average interest rate maturity is two years, plus or minus six months.  The hedging coverage ratio of the company’s loan portfolio was 40.4 (42.5) per cent on 30 June 2019, and the average interest rate maturity of its loan portfolio was 2.01 (1.60) years.

Properties and agreements

On 30/06/2019, the company had 127 (98) completed properties generating rental cash flow. In addition, properties under construction or in the start-up phase totalled 55 (49). During the review period, a total of 5 (7) new properties were completed, and the company also acquired 2 (1) completed properties.

Properties 30 June Completed In progress and not started* Total
H1/2019 H1/2018 H1/2019 H1/2018 H1/2019 H1/2018
Number of properties 127 98 55 49 182 147
Leasable area, thousand floor m² 110.7 86.2 63.4 49.7 174.1 135.8
Annual rents, EUR million 22.5 17.4 12.1 9.5 34.6 27.0
Investment (acquisition cost), EUR million 251.1 188.5 173.5 126.0 424.6 314.5
* = Properties in progress and not started also include properties for which binding leases or preliminary agreements have been signed, but construction has not yet begun.

On 30 June 2019, the company had a total of 182 (147) leases (including preliminary agreements), which were divided between 46 (35) customers, 7 (2) of them municipal customers. The value of the lease portfolio was EUR 490.7 (383.1) million, and the average maturity of the entire lease portfolio was 14.9 (14.7) years. The company’s three largest key customers accounted for approximately 46 (51) per cent of its lease portfolio on 30/06/2019. The largest customer’s share of the lease portfolio was 22 (25) per cent. The second-largest customer’s share was 15 (18) per cent, and that of the third-largest customer was 9 (8) per cent. Municipal customers represented 11 (6) per cent of the lease portfolio. In terms of euro, the most important tenants are Finland’s largest nursing and day-care sector companies.

Of the lease portfolio, 60 (63) per cent consisted of rental income from properties located in the Greater Helsinki area/Uusimaa region and the Tampere, Lahti, Turku, Oulu, Kuopio and Jyväskylä regions. Of the lease portfolio, 23 (22) per cent consisted of properties in other municipalities with more than 30,000 residents, and 13 (15) per cent consisted of properties located in municipalities with fewer than 30,000 residents. The properties in Sweden made up 3 (0) per cent of the lease portfolio.

Area 30/06/2019 30/06/2018
Greater Helsinki area / Uusimaa region 19% 22%
Lahti region 7% 7%
Tampere region 6% 7%
Turku region 9% 10%
Oulu region 7% 5%
Kuopio region 7% 7%
Jyväskylä region 5% 5%
Other Finnish municipalities with more than 30,000 residents 23% 22%
Other locations in Finland 13% 15%
Sweden 3% 0%
Total 100% 100%


Shares and shareholders

On 30 June 2019, the company had 25,439,229 (25,439,229) shares. Of these, 23,134 were treasury shares. The closing price of the company’s shares on 30 June 2019 was EUR 9.96 (7.62) and the total market value of outstanding shares was EUR 253.1 (193.8) million. During the review period, the highest closing price was EUR 10.20 (8.45), with the lowest being EUR 7.71 (7.20). A total of 2.6 (2.1) million shares in Hoivatilat Plc were traded during the review period. On 30 June 2019, the company had a total of 9,022 (9,034) shareholders.

Assessment of operational risks and uncertainties

Hoivatilat assesses that its risks during the current financial year and in the near future are mainly related to the financial environment and the success of its property projects, as well as to its clients. In addition, the evaluation of properties entails a fluctuation risk related to fair values. In the financial environment, the main risk factors are the possible changes in the interest rate level and the availability of funding.

A more detailed description of the risks is included in the company’s annual report for 2018. In the view of the Board of Directors, no material changes have taken place with regard to the short-term risks presented in the annual report for 2018.

Board of Directors and company’s management

The members of the Board of Directors of Hoivatilat are Pertti Huuskonen (chairman), Satu Ahlman, Nathalie Clément, Paul Hartwall, Kari Nenonen and Reijo Tauriainen. Harri Aho and Timo Pekkarinen were Board Members until 26 March 2019.

The members of the Audit Committee are Reijo Tauriainen (chairman), Paul Hartwall and Kari Nenonen. The members of the Remuneration Committee are Pertti Huuskonen (chairman), Satu Ahlman and Paul Hartwall. The company’s auditor is KPMG Oy Ab, Authorised Public Accountants, with APA Antti Kääriäinen as the principal auditor.

The Group’s management team consists of CEO Jussi Karjula, deputy CEO Riku Patokoski, CFO Tommi Aarnio, property director Juhana Saarni HR and communications director Riikka Säkkinen and business director Timo Wikberg.

Decisions of the Annual General Meeting

The Annual General Meeting of Hoivatilat was held in Helsinki 26 March 2019. The Annual General Meeting confirmed the financial statements and discharged the members of the Board of Directors and the CEO from liability for the 2018 financial year. KPMG Oy Ab, Authorised Public Accountants, was selected as the company’s auditor, with APA Antti Kääriäinen as the principal auditor. A dividend of EUR 0.17 per share was paid on 4 April 2019 in accordance with the Annual General Meeting’s decision. In addition, the Annual General Meeting adopted the proposals of the Board, according to which the Board was authorised to decide on the acquisition of treasury shares and the issuance of new shares. The Annual General Meeting also approved an amendment to the Articles of Association with regard to the name of the company (Hoivatilat Oyj), as well as the Nomination Board’s proposal for the composition of the Board and Board members’ fees. Its decisions were announced on 26 March 2019. They are also available on the company’s website.

Events after the review period

After the end of the review period, a total of 15 properties have been completed, and these properties will generate rental cash flow from August 2019.



Financial targets for 2019–2021

Hoivatilat Plc has set the following financial targets for 2019–2021:

·         Average annual increase of 30 per cent in revenue.

·         Average operating result (EPRA Earnings) at 40 per cent of revenue.

·         Average equity ratio of at least 30 per cent. The equity ratio includes the effect of the IFRS 16 standard as of 1 January 2019.

According to Hoivatilat’s dividend distribution policy, the goal is to distribute at least 50 per cent of the operating profit as dividends every year.

Financial calendar for 2019

Hoivatilat will publish its report for January–September on 6 November 2019.

Oulu 22 August 2019

Hoivatilat Plc

Board of Directors


Further information:

Jussi Karjula, CEO, tel. +358 40 773 4054

Hoivatilat in brief:


Hoivatilat Plc specialises in producing, developing, owning and leasing out nursing homes, day care centres and service communities. Founded in 2008, the company has been working in cooperation with as many as 60 Finnish municipalities and has launched 200 property projects throughout Finland and in Sweden. www.hoivatilat.fi



EPRA key figures

1. EPRA Earnings and EPRA EPS, BASIC
         
EUR thousand   1-6/2019 1-6/2018 2018
Result for the period (IFRS) from the consolidated income statement   12,298 15,957 37,003
(i) Profit/loss from measuring investment properties at fair value   -9,254 -16,005 -35,627
(ii) Gains and losses on disposal of investment properties and other non-current assets   0 0 -1,049
(iv) Taxes based on the result for the financial year, generated by the gains and losses on disposals   0 0 210
(viii) Deferred tax for EPRA adjustments   1,851 3,201 7,125
EPRA Earnings   4,894 3,153 7,663
EPR Earnings per Share, EUR   0.19 0.12 0.30
         
2. EPRA NAV per share and EPRA NNNAV per share
         
EUR thousand   1-6/2019 1-6/2018 2018
Equity belonging to the parent company’s shareholders   169,121 140,913 161,937
(iv) Fair value of financial instruments   2,055 609 951
(v.a) Deferred tax   25,535 17,266 23,367
EPRA NAV   196,711 158,789 186,255
EPRA NAV per share, EUR   7.74 6.24 7.32
         
EUR thousand   1-6/2019 1-6/2018 2018
EPRA NAV   196,711 158,789 186,255
(i) Fair value of financial instruments   -2,055 -609 -951
(iii) Deferred tax   -25,535 -17,266 -23,367
EPRA NNAV   169,121 140,913 161,937
EPRA NNNAV per share, EUR   6.65 5.54 6.37
         
3. EPRA vacancy rate, %        
         
EUR thousand   1-6/2019 1-6/2018 2018
Annualised computational lease value for vacant premises A 0 0 0
Annualised computational lease value for the entire property portfolio B 22,331 16,453 21,467
EPRA vacancy rate, % A/B 0.0% 0.0% 0.0%





Tables

This half-year report has been prepared in accordance with IAS 34. The company has prepared the half-year report in line with the same accounting principles as its financial statements for 2018, with the exception of amendments to standards and interpretations of standards that have come into effect in 2019.


Hoivatilat Group

Income statement

EUR 1-6/2019 1-6/2018 1–12/2018
       
TOTAL REVENUE 10,893,078 8,061,470 17,182,305
       
Transfers of investment properties and changes in fair value 9,254,245 16,004,547 36,675,896
       
Other operating income 0 55,400 282,735
       
Expenses of employee benefits -1,094,760 -1,054,935 -2,450,190
Depreciation -72,473 -8,530 -33,795
Other operating expenses -1,911,322 -2,008,279 -3,176,505
       
OPERATING PROFIT (LOSS) 17,068,769 21,049,674 48,480,446
       
Financial income 1,615 289 867
Financial expenses -1,539,849 -1,021,940 -2,057,609
       
PROFIT BEFORE TAXES 15,530,535 20,028,023 46,423,703
       
Taxes for the review period and previous periods -3,232,968 -4,071,479 -9,420,361
       
PROFIT FOR THE PERIOD 12,297,567 15,956,544 37,003,342
       
       
Consolidated statement of comprehensive income IFRS      
       
EUR 1-6/2019 1-6/2018 1–12/2018
       
PROFIT FOR THE PERIOD 12,297,567 15,956,544 37,003,342
Other comprehensive income items      
Items that may be reclassified to profit or loss later:      
  Translation differences  3,930   -1,747
  Cash flow hedging -1,379,888 -564,901 -992,077
  Taxes associated with other comprehensive income items 275,978 112,980 198,415
Other comprehensive income items for the period after taxes -1,099,980 -451,921 -795,409
       
COMPREHENSIVE INCOME FOR THE PERIOD 11,197,587 15,504,623 36,207,933
       
Distribution of profit for the period      
  To shareholders of the parent company 12,297,567 15,956,544 37,003,342
  To shareholders with non-controlling interests 0 0 0
       
Distribution of comprehensive income for the period      
  To shareholders of the parent company 11,197,587 15,504,623 36,207,933
  To shareholders with non-controlling interests 0 0 0
       
Earnings per share calculated on the profit belonging to the parent company’s shareholders  
  Undiluted earnings per share 0.48 0.63 1.46
  Earnings per share adjusted by the dilution effect 0.48 0.63 1.45

Hoivatilat Group

Balance sheet


EUR 30/06/2019 30/06/2018 31/12/2018
       
ASSETS      
       
Non-current assets      
  Intangible assets 130,302 52,020 150,285
  Investment properties 426,433,437 301,579,223 348,899,080
  Machinery and equipment 184,409 36,862 36,216
  Deferred tax assets 788,982 453,705 363,778
Total non-current assets 427,537,130 302,121,810 349,449,360
       
Current assets      
  Trade receivables and other receivables 4,213,213 1,837,428 3,455,775
  Cash and cash equivalents 6,682,577 4,516,160 11,382,638
Total current assets 10,895,790 6,353,588 14,838,412
       
ASSETS TOTAL 438,432,920 308,475,399 364,287,772
       
       
EQUITY AND LIABILITIES      
       
Equity belonging to the parent company’s shareholders      
  Share capital 80,000 80,000 80,000
  Invested non-restricted equity reserve 69,722,015 69,722,015 69,722,015
  Fair value reserve -2,054,850 -609,198 -950,940
  Translation difference 2,183   -1,747
  Retained earnings/losses 89,074,550 55,763,898 56,084,397
  Profit/loss for the period 12,297,567 15,956,544 37,003,342
Equity belonging to the parent company’s shareholders, total 169,121,466 140,913,259 161,937,067
Non-current liabilities      
  Financial liabilities 203,626,462 135,191,704 158,809,420
  Deferred tax liabilities 25,649,953 17,534,287 23,618,863
Total for non-current liabilities 229,276,415 152,725,990 182,428,283
       
Current liabilities      
  Financial liabilities 31,536,561 8,497,952 11,640,147
  Trade payables and other liabilities 8,498,478 6,338,197 8,282,274
Total for current liabilities 40,035,039 14,836,150 19,922,422
       
Total for liabilities 269,311,454 167,562,140 202,350,705
       
EQUITY AND LIABILITIES TOTAL 438,432,920 308,475,399 364,287,772




Hoivatilat Group

Cash flow statement


EUR 1-6/2019 1-6/2018 1–12/2018
Cash flow from operations      
  Profit for the period 12,297,567 15,956,544 37,003,342
  Adjustments      
    Non-cash transactions and other adjustments -8,874,225 -16,417,596 -37,435,762
    Interest and other financial expenses 1,539,849 1,021,940 2,057,609
    Interest income -1,615 -289 -867
    Taxes 3,232,968 3,803,579 9,420,361
           
Changes in working capital      
  Change in trade receivables and other receivables -753,508 -1,102,662 -2,726,708
  Change in trade payables and other liabilities -942,000 -1,647,225 4,086,318
  Interest paid -1,482,044 -1,013,658 -2,062,160
  Interest received  1,615 289 867
  Taxes paid -141,614 -76,860 -1,611,666
Net cash flow from operations (A) 4,876,993 524,062 8,731,335
           
Cash flow from investment activities      
  Divestment of investment properties 0 0 10,911,237
  Acquired investment properties -1,634,836 -2,126,892 -2,126,892
  Investments in property, plant and equipment -41,869,110 -32,661,187 -77,193,637
  Investments in intangible assets 19,983 -44,091 -136,269
Net cash flow from investment activities (B) -43,483,962 -34,832,171 -68,545,562
           
Cash flow from financing activities      
  Payments from the share issue 0 1,504 1,504
  Loan withdrawals 44,162,873 36,590,895 73,413,983
  Loan repayments -5,935,229 -4,305,975 -8,756,467
  Dividends paid -4,320,736 -3,307,100 -3,307,100
Cash flow from financing activities (C) 33,906,908 28,979,324 61,351,920
           
Change in cash and cash equivalents (A + B + C) -4,700,061 -5,328,784 1,537,693
           
Cash and cash equivalents at the beginning of the period 11,382,638 9,844,945 9,844,945
Cash and cash equivalents at the end of the period 6,682,577 4,516,160 11,382,638















Hoivatilat Group

Calculation of changes in equity

    Equity belonging to the parent company’s shareholders
EUR Share capital Invested non-restricted equity reserve Fair value reserve Translation difference Retained earnings Equity, total
Equity on 31 Dec 2017 80,000 69,720,511 -157,278 0 59,492,577 129,135,811
Amendments to IFRS 2         454,085  
Equity on 1 Jan 2018  80,000 69,720,511   -157,278 0 59,946,662  129,589,896 
Comprehensive income            
Profit for the financial year         15,956,544 15,956,544
Other comprehensive income items*            
  Cash flow hedging     -451,921     -451,921
Total comprehensive income for the review period     -451,921 0 15,956,544 15,504,623
Transactions with shareholders            
Distribution of dividends         -3,307,100 -3,307,100
Share issue   1,504       1,504
Incentive scheme         -875,664 -875,664
Transactions with shareholders, total 0 1,504     -4,182,764 -4,181,260
Equity on 30 Jun 2018 80,000 69,722,015 -609,198 0 71,720,442 140,913,259
             
Equity on 1 Jan 2019 80,000 69,722,015 -950,940 -1,747 93,087,739 161,937,067
Comprehensive income            
Profit for the financial year       3,930 12,297,567 12,301,498 
Other comprehensive income items*            
  Cash flow hedging     -1,103,910     -1,103,910
Total comprehensive income for the review period     -1,103,910 3,930 12,297,567 11,197,587
Transactions with shareholders            
Distribution of dividends         -4,320,736 -4,320,736
Share issue           0
Incentive system         307,547 307,547
Transactions with shareholders, total 0 0     -4,013,189 -4,013,189
Equity on 30 Jun 2019 80,000 69,722,015 -2,054,850 2,183 101,372,117 169,121,466
* Items that may be reclassified to profit or loss later.        




Hoivatilat Group

Key figures

  Group Group Group
EUR thousand 30/06/2019 30/06/2018 31/12/2018
Total revenue 10,893 8,061 17,182
Operating profit 17,069 21,050 48,480
Profit for the financial year 12,298 15,957 37,003
EPRA Earnings 4,894 3,153 7,663
Balance sheet total 438,433 308,475 364,288
EPRA NAV 196,711 158,789 186,255
EPRA NNAV 169,121 140,913 161,937
Equity ratio, % 38.6% 45.7% 44.5%
Loan-to-value (LTV), % 50.4% 46.1% 45.6%
Gearing ratio, % 135.1 % 98.8% 98.2%
Return on equity, % 14.9% 23.6% 25.4%
Earnings per share (undiluted), EUR 0.48 0.63 1.46
Earnings per share (diluted), EUR 0.48 0.63 1.45
Dividend per share, EUR - - 0.17
EPRA Earnings Per Share, EUR (EPRA EPS) 0.19 0.12 0.30
EPRA NAV per share, EUR 7.74 6.24 7.28
EPRA NNNAV per share, EUR 6.65 5.54 6.37
Net return (imputed), % 6.12% 6.30% 6.15%
Value of the lease portfolio* 490,701 383,075 426,953
Average maturity of the lease portfolio (years) 14.9 14.7 14.9
Economic occupancy rate, % 100% 100% 100%
EPRA vacancy rate 0% 0% 0%
Number of shares adjusted for share issues at the end of the period 25,416,095 25,439,229 25,439,229
Average number of shares adjusted for share issues during the period 25,423,636 25,389,383 25,414,511
Average number of shares adjusted for share issues during the period, diluted 25,566,827 25,415,592 25,491,042
Number of employees at the end of the period 21 19 19
Average number of personnel during the period 18 17 17
* Future rental cash flow from the company’s leases and preliminary agreements without index increases




Investment properties


The investment properties owned by the company are measured at fair value after their initial recognition. Properties with low completion rates are measured at acquisition cost. The fair value of properties has been determined by a third-party expert, Realia Management Oy, an authorised provider of valuation services. The statement issued by Realia Management on the estimated fair value of the investment properties on 30/06/2019 is available on the Hoivatilat website. At the end of the review period, the value of the investment properties stood at EUR 399.7 (301.6) million, of which completed properties represented EUR 347.3 (261.5) million, properties under construction represented EUR 49.9 (39.4) million, and properties measured at fair value due to their low level of completion represented EUR 2.5 (0.7) million. The value of building plots recognised as right-of-use assets in accordance with IFRS 16 was EUR 26.8 (0.0) million.

  1–6/2019 1-6/2018 1–12/2018
Fair value of investment properties at the beginning of the period 348,899,080 247,066,462 247,066,462
Investments in properties under construction and in the start-up phase 39,446,219 37,064,789 79,783,106
Other investment property investments 95,503 140,415 289,099
Increase due to acquired properties 1,634,836 1,303,010 1,379,446
Decrease due to divested properties 0 0 -15,245,660
Profits and losses from changes in fair value 9,585,609 16,004,547 35,626,628
Fair value of investment properties at the end of the period 399,661,248 294,824,831 348,899,080
       
  30/06/2019 30/06/2018 31/12/2018
Completed investment properties 347,290,000 261,490,000 329,000,000
Investment properties under construction 49,852,782 39,417,545 18,360,223
Investment properties in their start-up phase (measured at acquisition cost) 2,518,466 671,678 1,538,857
Total 399,661,248 301,579,223 348,899,080


On 30 June 2019, the company had a contractual obligation to complete the investment properties that are under construction or in the start-up phase. The fulfilment of these obligations requires that the Group invest an acquisition cost amount of around EUR 129 (94.5) million in the properties.




Contingent liabilities 30/06/2019 30/06/2018 31/12/2018
Property mortgages      
Loans from financial institutions 188,163,468 143,689,656 170,449,567
Mortgages provided 270,849,413 209,797,463 228,364,213
Mortgages total 270,849,413 209,797,463 228,364,213
       
Pledged property shares      
Pledged investment properties 279,905,864 174,118,190 244,584,100
Pledges total 279,905,864 174,118,190 244,584,100
       
Refund obligation related to value added tax on property investments      
VAT refund obligation 2,640,883 884,215 2,636,750
       
Interest rate swaps      
Nominal value 76,000,000 61,000,000 61,000,000
Fair value -2,568,562 -761,498 -1,188,674
       
Business transactions with external related party companies 1-6/2019 1-6/2018 1–12/2018
Construction contracts invoiced by Rakennusliike Lapti Oy 3,410,720 638,175 6,243,318
The Group’s trade payables to Rakennusliike Lapti Oy at the end of the period   0 948,842


* Timo Pekkarinen, member of the Board of Directors until 26 March 2019, is the Managing Director of Lapti Group, the parent company of Rakennusliike Lapti Oy. As of 26 March 2019, Rakennusliike Lapti Oy is no longer regarded as a related party of Hoivatilat Plc.

New and amended standards and other changes in accounting principles applied during the period

IFRS 16 – Leases replaced IAS 17 from the beginning of financial period of 2019. Above all, the standard instructed reporting organisations regarding the method of treating leases in the lessee’s financial statements, changed the definition of leasing and determined the principles for recording the leases in the balance sheet both as a right-of-use asset and as a lease liability. The application of the standard did not cause any changes for Hoivatilat regarding the accounting treatment of leases where the Group acts as a lessor. Right-of-use assets from leases subject to the standard have been recognised as part of ‘Investment properties’ and ‘Machinery and equipment’. The right-of-use assets recognised as part of investment properties consist Hoivatilat Group’s building plot lease agreements. In turn, the right-of-use assets recognised as part of ‘Machinery and equipment’ were mainly recognised for lease agreements included in administrative expenses, such as office leases and leased vehicles. The Group’s lease liability has been valued by discounting the lease payment liabilities of the leases subject to the scope of the IFRS 16 standard to their present value using the company’s management’s view of the interest rate of incremental borrowing rate starting time of the lease. The lease expenses for land area leases are disclosed as part of the fair value changes of investment properties (comparable to straight-line depreciation) and as interest expenses determined by the incremental borrowing rate of each lease liability. For the right-of-use assets shown under ‘Machinery and equipment’, the impact on income is disclosed both in financial expenses and depreciation cost. With regard to the implementation of IFRS 16 Leases standard, Hoivatilat has applied a simplified approach and has therefore not adjusted the comparative information from corresponding reporting period. In addition, Hoivatilat has applied the recognition exemptions permitted by the standard and , hence has not applied the standard to leases having a period of less than one year or leases of minor value. These include, e.g. leases of certain pieces of office equipment.


Impact of the implementation of IFRS 16 on reporting

The standard had the following impacts on the Group’s reporting for the review period:

Income statement 1–6/2019
Changes in the fair value of investment properties -331,364
Depreciation -39,134
Other operating expenses 347,901
Operating profit 22,597
Financial expenses -196,400
Profit before taxes -218,997
Deferred taxes 43,799
Result for the period -175,198
EPRA Earnings 89,893


Balance sheet Investment properties Machinery and equipment Total right-of-use assets Lease liabilities
1.1.2019 26,191,178 129,124 26,320,303 26,320,303
30.6.2019 26,772,189 138,378 26,910,567 26,910,567


Changes to calculation of key figures

When calculating Loan-to-value (LTV), both the right-of-use assets classified as investment properties, as well as lease liabilities related to these right-of-use assets, have not been taken into account. Thus, IFRS 16 ha no impact on LTV calculations as compared to earlier periods. The updated formula is as follows:


Loan-to-value (LTV), % = Financial liabilities - lease liabilities (IFRS 16)  - cash and cash equivalents *100
Fair value of investment properties – right-of-use assets classified as investment properties (IFRS 16)














Calculation formulas for key figures (other than EPRA key figures)


Calculation formulas for key figures (IFRS)        
           
Earnings per share (EPS), undiluted, EUR = Profit for the period belonging to the parent company’s shareholders    
Weighted average of the number of shares in the review period  
           
Earnings per share (EPS), diluted, EUR = Profit for the period belonging to the parent company’s shareholders    
Weighted average of the number of shares in the review period, adjusted for the dilution effect  
           
Dividend per share, EUR = Dividend paid for the financial year      
Number of shares entitled to dividend    
           
Calculation formulas for key figures (alternative key figures)      
           
Equity ratio, % = Equity     × 100  
Balance sheet total − advances received    
           
Net gearing, % = Interest-bearing liabilities − cash in hand and at banks   × 100  
Equity      
           
Return on equity, % = Profit/loss for the financial year   × 100  
Average equity during the period    
           
           
Economic occupancy rate, % = Gross rents for the review period / number of months × 100  
Potential gross rents / number of months  
           
           
  Annualised rental income for the month of the financial statements − the forecast 12-month expenses of the properties in question    
Net return (imputed), % = × 100  
Value of the investment properties generating rental cash flow for the month of the financial statements  
           
Loan-to-value (LTV), % = Financial liabilities – lease liabilities (IFRS 16) - cash and cash equivalents   × 100  
Fair value of investment properties – right-of-use assets classified as investment properties (IFRS 16)    



 

 

Reconciliation calculations for certain key figures
   
       
Net return (imputed), %      
EUR thousand 30/06/2019 30/06/2018 31/12/2018
Annualised rental income for the month of the financial statements 22,499 16,640 21,467
Predicted expenses for 12 months for properties generating rental income -1,252 -922 -1,237
Net rental income 21,247 15,719 20,230
       
Value of the investment properties generating rental cash flow for the month of the financial statements 347,290 249,480 329,000
       
Net return (imputed), % 6.12% 6.30% 6.15%


HOIVATILAT PLC
Oulu Lentokatu 2, 90460 OULUNSALO Espoo Bertel Jungin Aukio 3, 02600 ESPOO
asiakaspalvelu@hoivatilat.fi • www.hoivatilat.fi • Service number: +358 207 349 100

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