Main risks and risk management actions
Weaker availability of financing, interest rate fluctuations, a decline in economic occupancy rates resulting from a slowdown in economic growth and a loss of rental income due to tenant insolvency remain the most significant risks for Sponda’s operations. With regard to Sponda’s Russian business operations, the exchange rate risk and differences between Russian and Finnish legislation and the way the authorities operate in the two countries are the main factors causing risks and uncertainty.
Sponda’s risk management was in line with its objectives in 2013 and no substantial risks materialised.
By implementing effective risk management measures, Sponda was successful in significantly reducing the probability of key risks materialising and mitigating their estimated effects.
Risk assessment for 2013 without risk management actions and after risk management actions
Fall in economic occupancy rate
Sponda’s property portfolio is mainly located in Helsinki’s city centre and the Ruoholahti district. The company spends approximately 1–1.5 per cent of the property portfolio value on modernisation investments each year. Sponda also has a strong focus on customer relationship management and sales.
Decline in tenants’ solvency
Sponda carries out regular checks to monitor tenants’ solvency and changes therein. Most tenants submit a security deposit corresponding to three to six months’ rent at the start of their tenancy. The company has a diverse tenant base representing a wide variety of sectors. Due to its broad tenant base, Sponda is not dependent on individual major clients.
Interest rate risk
Sponda mitigates its interest rate risk through fixed-interest loans and interest rate derivative contracts.
Exchange rate fluctuations
Sponda receives half of its Russian rental revenue in US dollars and half in roubles. Most of the rents paid in roubles are tied to the US dollar or euro exchange rate. The exchange rate risk arising from the use of the rouble is reduced by the fact that a significant portion of the company’s own expenses in Russia is also paid in roubles. Sponda hedges foreign currency denominated future net cash flows. The company’s investments in Russia are mainly funded in euros from the parent company balance sheet.
Special features of the Russian property market
Sponda is a local operator with offices in Moscow and St. Petersburg. Networking and good relationships with the authorities are important for business operations. The company’s portfolio in Russia consists of high-quality properties in prime locations. According to Sponda’s updated strategy, the company is planning to exit the Russian market within three to five years.