SPONDA PLC INTERIM REPORT JANUARY - JUNE 2000

Business conditions

The Finnish economy will continue to grow vigorously according to the forecast of the Research Institute of the Finnish Economy (Etla). Private consumption is increasing by 3.5 % on average. Unemployment was 10.3 % at the end of June. The European Central Bank will tighten its financial policy and euro interest rates are rising. The ECB's rate at the beginning of August was 4.25 %.

Sponda is divided into four business areas: Helsinki Business District (HBD), Helsinki Metropolitan Area, Itäkeskus and, from 1 April 2000, the logistics properties of Sponda's subsidiary Castrum Oyj.

The strong demand for business premises in the Helsinki Metropolitan Area, and especially in the centre of Helsinki, continues to rise strongly, and the same applies to rental levels. The vacancy rate in the Helsinki Metropolitan Area was 1.6 % during spring 2000 (source: Catella Real Estate Consulting Ltd) with large business premises in particularly short supply. The lack of office and commercial space has given rise to several new building projects now under construction in Helsinki Metropolitan Area. The reasons underlying the burgeoning need for space are the net population increase in Helsinki Metropolitan Area, growth in private consumption and higher levels of employment.

Castrum consolidated from 1 April 2000

Castrum Oyj became a majority-owned (66 %) subsidiary of Sponda Plc and it has been consolidated in the Sponda Group's accounts since 1 April 2000. The market capitalization of Castrum's property portfolio is MFIM 1 465 and the equity ratio is 45.8 %. Altogether 70 % of Castrum's properties are located in the Helsinki Metropolitan Area.

Castrum's properties are logistical premises suitable for warehousing and light industry. The most important are the Tikkurila Enterprise Centre (28 500 m2), the Vapaala Enterprise Centre (12 400 m2), Honkatalo (29 000 m2), and the PEX project (18 000 m2), all in Vantaa, and the Konala Enterprise Centre in Helsinki (16 600 m2). Major tenants include Kesko, Nokia, Alko, Fritz Companies Finland, Metso, Lp-Logistiikkapalvelut, Lindell, Computer 2000 Finland, Kvaerner Pulping and Wilson Finland. Sponda's development plans include concentration on larger logistics units and divestment of its smaller properties. The logistics sector requires its own special expertise, an asset which Sponda has gained through the Castrum staff. The unification of the two companies' finance and accounting functions was started in May. Castrum staff will move to Sponda's head office in September.

Logistics properties in prime locations in Helsinki Metropolitan Area and along major transport arteries are increasing in importance, not least as the popularity of e-business grows. Logistics properties can be flexible adapted for different purposes as market conditions change.

Property acquisitions and sales

On 29 May 2000 Sponda Plc bought the outstanding minority holdings in Kaivokatu 8, part of the City Centre (Makkaratalo) complex, for FIM 75 million, giving Sponda 100 % ownership of the property. The sellers were Polar Kiinteistöt Oyj, Tasavalta Myymälät Oy and Osuusmeijerien Eläkekassa (Pension Fund of the Dairies Co-operative). Full ownership of the City Centre property places Sponda in a stronger position to pursue its development for the complex.

On May 25, 2000 Sponda also bought office buildings in Mäkkylä, Espoo, and in Lauttasaari, Helsinki; the former (3800 m2) for FIM 21 million and the latter (4700 m2) for FIM 19 million.

On 14 June Sponda bought an 11,000 m2 logistics property on Sähkötie in Vantaa from Tamro Oyj for FIM 63 million. The deal also includes a logistics property at Rieskalähteentie in Turku bought for FIM 10 million. The property has an area of 3,300 square metres and building rights of 4,500 square metres.

On 30 June 2000 Sponda sold the share capital of Kiinteistö Oy Koskipaju, a property on the former Tampella industrial site in Tampere city centre, to Tamrock Oy's Pension Foundation for FIM 48.5 million. The building has a total area of 4800 m2 and is leased entirely to TietoEnator.

Construction projects

The zoning plan for Sirius I, Sponda's office building project on the Robert Huber road close to Helsinki-Vantaa airport, was approved at the end of June. Building rights totalling 17 200 m2 were confirmed, including 11 000 m2 in new building rights.

Building permission was granted for the Pohjantie project in Tapiola on 29 June 2000. The new office building, which has not yet been started, will have a total leasable area of 5700 m2.

The zoning agreement for Komentajakatu 3 in Leppävaara was signed on 30 June 2000 and an 11 600 m2 office building will be erected on the site.

The feasibility study for development of the City Centre complex was completed in May 2000 and development plans are in progress. Sponda's aim is to turn the property into a well designed commercial and shopping complex with a diversified range of services. Negotiations are under way with the City of Helsinki and the plan is to develop the area into a clearly laid out, well illuminated and safe shopping precinct, working together with the city and owners of neighbouring properties. The City Centre block is part of the City of Helsinki's plans to expand the area restricted to pedestrian access in the city centre.

Itäkeskus Shopping Mall expansion makes progress

Expansion of the Itäkeskus Shopping Mall, due for completion in 2001, is proceeding and the topping out ceremony will be held on 12 October 2000. More than half (7200 m2) of the total leasable area is now leased. Rent levels are high in the new section and the company aims to achieve an 11 % return on the new investment through rental income. The extension will house garment, leisure and consumer electronics retailers, supporting the product range and services offered by the largest mall in the Nordic countries.

Sales by the retail outlets in the Itäkeskus Shopping Mall between January and June 2000 totalled FIM 728 million, 3 % up on the same period last year (FIM 705 million). Sales have developed positively despite the temporary reduction in parking space caused by building of the extension.

The Itäkeskus Shopping Mall has initiated a study to evaluate the potential of e-commerce in its operation. Experience in the USA indicates that e-commerce will complement, rather than replace, strong shopping centres. E-commerce will most likely change buying habits and will become integral to the services provided by shopping malls in Finland as well. Shopping is a social activity for consumers. Development of e-commerce in shopping malls will ensure that maximum benefit is gained from both forms of shopping. E-commerce currently accounts for approximately 0.5 % of total retail sales in Finland.

Personnel

The Sponda Group had 37 (31) employees on average between January and June 2000, which included 29 (25) employed by the parent company Sponda Plc. Personnel numbered 37 (33) on 30 June, including 29 (26) in the parent company. Castrum Oyj had 14 employees between 1 April and 30 June 2000.

Group structure

Sponda Group comprises the parent company and its subsidiaries, mostly wholly owned, which, with the exception of Tamsoil Oy and Castrum Oyj, are mutual property companies. The principal subsidiaries are Kauppakeskus Itäkeskus Oy and Tamsoil Oy, and from 3 April 2000 also Castrum Oyj, in which Sponda has a 66 % holding.

Leasing between January and June 2000

Net operating income from Sponda's properties totalled FIM 217.1 (137.3) million, of which 44.1 % was derived from Helsinki Business District (HBD), 15.4 % from Helsinki Metropolitan Area, 23.3 % from the Itäkeskus Shopping Mall, 14.0 % from Castrum and 3.2 % from the rest of Finland. The economic occupancy rate of Sponda's entire property portfolio at the end of June was 96.9 % (95.6 %).

The economic occupancy rate of Sponda's properties in Helsinki Business District was 97.2 % and net operating income totalled FIM 95.6 million on 30 June 2000 (FIM 52.3 million on 30 June 1999). The economic occupancy rate of Sponda's properties in Helsinki Metropolitan Area was 97.1 % and net operating income totalled FIM 33.5 (25.2) million.

The same figures for the Itäkeskus Shopping Mall were 98.8 % and FIM 50.6 (50.0) million. The net operating income was adversely affected by the costs arising from the inconvenience of the shopping mall's extension, approx. FIM 2 million and the leasings costs of the extension site, FIM 1.6 million/year.

Castrum Oyj, whose real estate portfolio comprises mainly logistics properties, is included in the consolidated figures for the first time. Castrum's economic occupancy rate was 94.8 % at the close of the period and net operating income between 1 April and 30 June 2000 amounted to FIM 30.4 million.

The economic occupancy rate in Sponda's properties in the rest of Finland was 97.2 % and net operating income totalled FIM 7.0 (9.8) million.

40 % of Sponda's personnel subscribed for convertible bonds

Sponda Plc's Board of Directors approved the subscriptions to the convertible bonds offered to personnel on 26 April 2000. The bond totals FIM 3 780 000 and was fully subscribed. Subscriptions were placed by 21 employees, i.e. roughly 40 % of Sponda's personnel. Subscriptions by Sponda's subsidiary Tamsoil Oy totalled FIM 1 449 000. The convertible bond was offered to employees of Sponda Group, including the President and CEO, and to personnel of Sponda's subsidiary Castrum Oyj and the wholly owned subsidiary Tamsoil Oy, as part of the company's personnel incentive scheme. The loan was approved at the Annual General Meeting on 27 March 2000.

Financing

Sponda Plc floated a EUR 150 million fixed-rate serial bond on 14 April 2000 as part of its EUR 250 million bond programme. The first tranche totalled EUR 1000 million, giving a return of 6.21 % and price of 100.222 %. The bond, which is listed on the Helsinki Exchanges, carries a coupon of 6.25 % p.a. and matures on 14 July 2007.

Sponda's property portfolio has a book value of approximately FIM 6 954.9 million.

The balance sheet on 30 June 2000 totalled FIM 7 261.4 million (31 March 2000: FIM 5 770.0 million). Interest-bearing net debt amounted to FIM 4 014.8 (31 March 2000: 3 013.7) million. The equity ratio was 42.6 % (31 March 2000: 45.7 %). Shareholders' equity per share was FIM 34.94 (31 March 2000: 34.83). The average maturity of Sponda's credit lines was 4.3 years, the average interest rate was 5.42 % and the average interest period was 3.0 years.

Result

The operating profit for the January-June period was FIM 184.3 (111.2) million. The profit before appropriations, extraordinary items, provisions and taxes was FIM 102.3 (80.8) million. The profit after taxes and minority interest was FIM 83.8 (75.1) million. Earnings per share were FIM 1.15 (1-12/1999 FIM 2.41, 1-6/1999 FIM 1.05) and, excluding profits on property sales, FIM 0.95 (1-12/1999 FIM 2.22, 1-6/1999 FIM 1.03). The decrease in earnings from leasing activities was the result of higher financing expenses and taxes. Sponda Group's taxes are allocated according to estimated taxes for the full year and dividend payment in previous years. Total revenue in the 1-6/2000 period was FIM 294.5 (185.7) million, an increase of 58.6 % on the same period last year. Profits on the sale of properties totalled FIM 14.5 (1.5) million.

Share performance

The price of the Sponda share developed between April and June 2000 more favourably than in the previous quarter and the closing price on 30 June 2000 was EUR 3.95 (FIM 23.49). Sponda's market capitalization was EUR 311 million (FIM 1.8 billion).

Decisions by Sponda Plc's Annual General Meeting on 27 March 2000

The Annual General Meeting of Sponda Plc confirmed the consolidated and parent company's income statements and balance sheet for 1999 and discharged the company's officers from liability for the financial year. The AGM approved the Board of Directors' proposal of a dividend payment of FIM 1.00 per share on the financial year 1999.

The AGM decided to annul the 1 391 265 Sponda Plc shares acquired in public trading before 9 March 2000 and to reduce the share capital by an amount equal to the aggregate nominal value of the annulled shares, i.e. by FIM 6 956 325.

The AGM also decided to raise the share capital through a rights issue totalling at least FIM 5 and at most FIM 37 654 060 by issuing at least one and at most 7 530 808 new shares with a nominal value of FIM 5 per share. The new shares carry full dividend rights for the financial year 2000.

Purchase and surrender of Company shares

Sponda Plc's Board of Directors decided on 3 May 2000, as authorized by the AGM on 27 March 2000, to purchase and surrender at most 1 400 000 of the Company's own shares using the Company's distributable funds provided that after the purchase the aggregate nominal value of the shares owned by the Company and its subsidiary companies, or the voting rights carried by these shares, does not exceed five percent of the Company's total share capital or the voting rights carried by all the shares. The shares may be purchased otherwise than in proportion to shareholders' existing holdings in public trading on the Helsinki Exchanges.

Altogether 329 000 shares totalling EUR 1 278 215 (FIM 7 599 923) had been purchased by 30 June 2000. The average share price was EUR 3.89 (FIM 23.10), the highest price was EUR 4.00 and the lowest was EUR 3.68.

The aggregate nominal values of the shares were EUR 276 669 (FIM 1 645 000) and they represented 0.42 % of the total number of shares and votes.

Composition of the Board of Directors

In accordance with the AGM's decision on 27 March 2000 the Board of Directors comprises: Anssi Soila, chairman; Jarmo Väisänen, deputy chairman; Heikki Bergholm, Kari Inkinen, Harri Pynnä, and Pertti Voutilainen.

Auditors

Sponda Plc's auditors are KPMG Wideri Oy Ab and Raija-Leena Hankonen APA the deputy auditor is Tiina Torniainen APA.

Prospects

The property leasing markets have strengthened further and the result of leasing operations is forecast to be better than last year. The increasing use of long-term financing instruments has raised financing expenses. The profit before taxes and sales profits is expected to remain essentially unchanged from 1999. The result will be burdened by higher taxes than in previous years.


21 August 2000


Sponda Plc
Board of Directors


The terms Sponda, the Group, or the company refer to the entire Sponda Group. The term 'Sponda Plc' refers to the Group's parent company.

The figures in this interim report are unaudited.


The full report including tables can be downloaded from the enclosed link.