SATO Corporation's Interim Report 1 Jan–31 Mar 2019: SATO’s positive development continues

8 May 2019

SATO Corporation, Interim Report, 8th May 2019 at 9:00 am

Summary for 1 Jan–31 Mar 2019 (1 January–31 March 2018)

  • Net sales were EUR 73.1 (72.0) million.
  • Profit before taxes was EUR 46.6 (41.7) million.
  • Earnings per share were EUR 0.65 (0.58).
  • The change in the fair value of investment properties included in the result was EUR 22.7 (17.1) million.
  • Equity was EUR 1,585.2 (1,404.8) million, or EUR 28.00 (24.81) per share.
  • Investments in rental apartments were EUR 30.4 (18.3) million.
  • A total of 0 (15) rental apartments were acquired or completed.
  • The occupancy rate in Finland was 98.1 (97.3) per cent.
  • A total of 1,090 rental apartments are under construction.

**CEO Saku Sipola:

- The first quarter proved to be a strong start to the year. The positive development of customer satisfaction continued during the review period and is an indication of our success across a wide array of activities. This positive development has been impacted, for its part, by the systematic employment of the Customer First strategy on a number of fronts.

- Customer satisfaction also significantly impacted the economic occupancy rate, which continued to improve during the review period, amounting to 98.1 per cent (Q1/2018 97.3%). The external tenant turnover rose slightly to 27.6 per cent (Q1/2018 27.1%).

- During the review period we focussed on deepening the Customer First service model in our partners’ customer encounters. At the start of the review period, we announced our fourteenth Partner of the Year. This year the honour went to Unce Kiinteistöpalvelut Oy, which has been especially successful in ensuring that things run smoothly every day. As part of our process to ensure smoother services for customers, we focused also on developing the digital OmaSATO service launched in August of last year.

Operating environment

Finland’s economic growth will continue, but at a slowing rate. Growth is projected to fall to below two per cent in 2019. Inflation has been increasing owing to the rise in raw material prices, while base inflation remains muted. Europe’s weak economic development and the resulting loose monetary policy of the European Central Bank is maintaining short-term interest rates at an exceptionally low level. The confidence of consumers in their own finances has remained at a high level, and consumers’ assessment of employment development is optimistic, but their confidence in Finland’s economy has declined.

Demand for rental apartments has remained good, and urbanisation continues to be strong. In construction, the number of new construction permits has fallen dramatically but the number of completed apartments is still on the rise.

REVIEW PERIOD 1 January–31 March 2019 (1 January–31 March 2018)

Net sales and profit

Between January and March 2019, consolidated net sales were EUR 73.1 (72.0) million, showing a change of 1.5 per cent from the reference period. Growth is based on an improvement in the economic occupancy rate and rent development.

Operating profit was EUR 57.8 (52.6) million. The operating profit without the change in the fair value of investment properties was EUR 35.0 (35.6) million. The operating profit was lower than during the comparison period. This was due to a reduction in other operating income of EUR 1.7 million, which was affected, in particular, by the sale of SATO HotelliKoti Oy in the first quarter of 2018. The change in fair value was EUR 22.7 (17.1) million. The adoption of the IFRS 16 Leases standard improved the review period’s operating profit by EUR 0.7 million. The Group applies IFRS 16 using the modified retrospective application, without restatement of comparatives.

Financial income and expenses totalled EUR -11.2 (-10.9) million. The adoption of the IFRS 16 standard increased the review period’s financial expenses by EUR 0.8 million.        

Profit before taxes was EUR 46.6 (41.7) million. Cash flow from operations (free cash flow after taxes excluding the change in fair value) between January and March amounted to EUR 14.4 (13.2) million.

Financial position and financing

The consolidated balance sheet totalled EUR 4,030.0 (3,720.0) million at the end of March. Equity was EUR 1,585.2 (1,404.8) million. Equity per share was EUR 28.00 (24.81).

The Group’s equity ratio was 39.3 (37.8) per cent at the end of March. The adoption of the IFRS 16 had an impact of -0,5 per cent to the equity ratio. In December 2018, the Board of Directors updated the equity ratio target, raising it to 40 per cent from 35 per cent. EUR 20.1 million in new long-term financing was withdrawn and the solvency ratio was 49.2 (51.6) per cent at the end of March. The strengthening of the equity ratio and the solvency ratio is the result of a rise in the value of investments properties and a long period of good earnings performance. On 3 April 2019, SATO’s Annual General Meeting decided that EUR 0.50 per share be paid in dividends for the 2018 result.

The Group’s annualised return on equity was 9.4 (9.4) per cent. Return on investment was 6.5 (6.3) per cent.

Interest-bearing liabilities at the end of March totalled EUR 1,986.9 (1,919.5) million, of which loans subject to market terms accounted for EUR 1,659.3 (1,544.7) million. The average loan interest rate was 2.0 (2.1) per cent. Net financing costs totalled EUR -11.2 (-10.9) million, of which the impact of the adoption of the IFRS 16 standard was -0.8 million. The average maturity of loans was 4.0 (4.5) years.

The calculated impact of changes in the market value of interest hedging on equity was EUR -6.1 (2.6) million.

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.

Due to an improved economic occupancy rate, rental income rose by 1.5 per cent and were EUR 73.1 (72.0) million. The economic occupancy rate of apartments in Finland was 98.1 (97.3) per cent on average, and the external tenant turnover was 27.6 (27.1) per cent. The rise in the economic occupancy rate was, above all, the result of measures based on the Customer First strategy. External tenant turnover rose slightly compared to the corresponding period last year as a result of renovations started during the review period.

The average monthly rent of SATO’s rental apartments in Finland at the end of the review period was EUR 17.00 (16.68) per m2.

Net rental income from apartments stood at EUR 43.5 (42.1) million, and the net rental income rate was 4.6 (4.7) per cent.

Investment properties

On 31 March 2019, SATO owned a total of 25,879 (25,769) apartments. Altogether 0 rental apartments were acquired or completed. The total number of divested rental apartments and shared ownership apartments redeemed by the owner-occupants was 14. 

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 March, the fair value of investment properties in Finland and St. Petersburg came to a total of EUR 3,971.6 (3,669.4) million. The change in the value of investment properties, including the rental apartments acquired and divested during the review period, was EUR 96.5 (39.0) million. In addition to investments and divestments, the change in value was affected by the development of market prices  and change in the value of rouble.

Of the value of apartments, the Helsinki metropolitan area accounted for some 80 per cent, Tampere and Turku made up 14 per cent, Jyväskylä and Oulu 3 per cent and St. Petersburg covered 3 per cent at the end of March.

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 30.4 (18.3) million. Investments in the Helsinki metropolitan area represented 95 per cent and investments in new apartments represented 72 per cent of all investments in the review period. On 31 March 2019, binding purchase agreements in Finland totalled EUR 103.5 (133.9) million.

During the review period, 14 (6) rental apartments were divested in Finland. Their total value was EUR 2.6 (0.7) million.

The book value of plot reserves totalled EUR 36.8 (50.7) million at the end of March. The value of new plots acquired by the end of March totalled EUR 0.0 (0.0) million.

The permitted building volume for approximately 2,500 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 0 (15) rental apartments and 0 (0) apartments for sale were completed. On 31 March 2019, a total of 1,090 (1,062) rental apartments and 131 (32) owner-occupied apartments were under construction.

A total of EUR 14.1 (9.1) million was spent on repairing apartments and improving their quality.

At the end of March, SATO owned 534 (534) completed apartments and 0 (0) apartments under construction in St. Petersburg. The economic occupancy rate of rental apartments in St. Petersburg was 93.6 (92.2) 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.


At the end of March, the Group employed 219 (207) people, of whom 204 (195) had a permanent employment contract. The average number of personnel was 218 (209) between January and March.

Annual General Meeting on 3 April 2019

The Board of Directors of SATO Corporation was confirmed to consist of seven members. The Annual General Meeting elected Erik Selin as Chairman of the Board. Current members Marcus Hansson, Jukka Hienonen, Esa Lager, Tarja Pääkkönen, Johannus (Hans) Spikker and Timo Stenius will continue as Board members.

Audit firm Deloitte Oy were selected as the company’s auditor.

The Annual General Meeting decided that SATO Corporation will distribute EUR 0.50 per share in dividends for the financial period ending on 31 December 2018. The date of record for dividend distribution is 5 April 2019 and the dividends were paid on 12 April 2019.

Organisation of the Board of Directors

At its organisation meeting on 3 April 2019, the company's Board of Directors elected Jukka Hienonen as the Deputy Chairman of the Board of Directors from among its members.

The Board of Directors elected Erik Selin as Chairman of the Nomination and Remuneration Committee, and Jukka Hienonen and Tarja Pääkkönen as its members.

The Board of Directors elected Marcus Hansson as Chairman of the Audit Committee, and Esa Lager, Johannus (Hans) Spikker and Timo Stenius as its members.

Events after the review period

In April, a winner was selected in the architectural design competition for the Myyrmäki MyyrYork Downtown area. SATO is one of the land owners in the area and the design competition was realised together with three partners and the City of Vantaa. Our objective is to develop 62,000 floor square metres of homes and 14,000 floor square metres of commercial space in an area where the current buildings, such as the Isomyyri shopping centre, will be demolished. Myyrmäki is a major regional centre where SATO wishes to increase its supply of rental apartments and develop new rental homes that are located optimally in terms of traffic and services. Development of the area will continue as plan alterations, based on the winning entry “Muree Myrtsi”. Construction is estimated to begin in 2021.

In May, SATO Corporation and OP Corporate Bank plc signed a loan agreement without asset-backed securities worth EUR 150 million. The agreement follows on from loans previously agreed with, for example, Nordea Bank abp, OP, Aktia, Swedbank and the European Investment Bank (EIB).

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 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 of EUR 400 million, and a commercial paper programme of EUR 400 million. 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. According to our treasury policy, our objective is to keep the ratio of fixed rate loans at over 60 per cent of debt portfolio after interest hedging.

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 2018 and on the website


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 competition and interest rates.

The Finnish economy is expected to continue its solid growth path, but growth is expected to slow down. Due to Europe’s weak economic development interest rates are expected to remain low in 2019, which will have a positive impact on SATO’s financing costs.

Continuous urbanisation provides good long-term conditions for sustained investments in SATO’s main operating areas in Finland. Net migration is expected to be the highest form of population increase 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.

According to estimates by Pellervo Economic Research (PTT), prices and rents will continue to rise, demand for owner-occupied apartments will grow, and a pick-up in housing sales will somewhat alleviate the pressure on the rental market.

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.

According to the Bank of Finland’s forecast, global economic growth will slow down. Loose financing conditions will support the positive development of the eurozone, even though this growth outlook is overshadowed by the uncertainties related to the Brexit negotiations, other political events that may slow down economic growth, and concerns related to the state of the banking sector in certain countries in the eurozone and to the public finances outlook.

Serious threats, such as an increase in protectionism and geopolitical tensions, are casting a shadow on the global economic outlook. The risk of weaker financial performance will also increase due to possible global corrections in asset prices and the deceleration of the reform rate in both China and the eurozone, while the volume of debt remains large (Source: Bank of Finland).

**SATO Corporation’s shareholders on 25 April 2019         **

On 25 April 2019, SATO had 56,783,067 shares and 116 shareholders registered in the book-entry system. The share turnover rate was 0.02 per cent for the period 1 January – 25 April 2019.

For more information:

CEO Saku Sipola, tel. +358 201 34 4001
CFO Markku Honkasalo, tel. +358 201 34 4226 


Interim Report 1 Jan–31 Mar 2019
Interim Report presentation 1 Jan–31 Mar 2019

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 2018 SATO owned around 25,900 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.

The SATO Group's net sales in 2018 were EUR 290 million, operating profit EUR 273 million and profit before taxes EUR 231 million. The value of SATO's investment properties was roughly EUR 3.9 billion.