SATO Corporation, Stock Exchange Release 11 February 2023 at 9:00 am
SATO Corporation’s Financial Statements Bulletin 2021
Highlights January–December 2021 (January–December 2020)
- The economic occupancy rate declined in Finland and was 94.9% (96.7).
- Net sales stood at EUR 298.3 million (303.4).
- Net rental income decreased and was EUR 210.6 million (220.3).
- Profit before taxes increased and was EUR 259.4 million (129.5).
- The change in the fair value of investment properties included in the result was EUR 129.1 million (-13.0).
- Housing investments amounted to EUR 167.1 million (120.6).
- Invested capital was EUR 4,520.8 million (4,537.2).
- Return on invested capital was 6.7% (4.1).
- Earnings per share were EUR 3.64 (1.80).
- The Board of Directors proposes to the Annual General Meeting that EUR 0.50 per share is paid in dividends (0.50).
Highlights October–December 2021 (October–December 2020)
- The economic occupancy rate in Finland was 95.4% (95.8).
- Net sales were EUR 75.1 million (75.0).
- Profit before taxes was EUR 47.7 million (26.7).
- The change in the fair value of investment properties included in the result was EUR 14.6 million (-6.0).
- Investments in rental apartments amounted to EUR 50.2 million (37.1).
- Earnings per share were EUR 0.65 (0.36).
Events after the review period
There are no significant events following the review period.
CEO’S REVIEW
The rental housing market is in an interesting phase: living in a rental apartment has become more common in recent years, and the supply of rental housing has increased through new production. The COVID-19 pandemic that began in early 2020 has increased consumer uncertainty, weakened employment in the service sector, increased remote studying and working and impacted the demand for rental housing. As competition between housing providers has become tighter and tenants have more to choose from, a successful customer experience is more important than ever.
In response to this challenge, we have adjusted the organisation and improved our service processes. We want to be closely involved in our customers’ daily lives in order to serve them in the best possible way. During the reporting year, we developed and streamlined our customer and maintenance processes and revamped our digital service environment. The changes made daily work more efficient for our customer service and rental activities, which means smoother service for our customers. In the reporting year, we further expanded the house expert operating model in the Helsinki metropolitan area, Tampere and Turku. SATO’s house experts are responsible for the technical building work on homes and buildings. At the end of 2023, more than 50 house experts worked at SATO.
After the early year, SATO’s economic occupancy rate took a slight upward turn as the pandemic restrictions eased. Demand returned to normal during summer in the Tampere and Turku regions and in the rest of Finland. However, increased housing supply, especially in the Helsinki metropolitan area, has kept competition tight among rental housing providers, which translated into high tenant turnover in SATO’s business during the reporting year, leading to a weaker economic occupancy rate and a slight fall in average rents.
In late 2023, we published our refined strategy, which puts customer experience, sustainability and sustainable housing, and SATO employees at the core. During the year under review, a group of SATO employees from different parts of the organisation participated in the strategy work. As part of the in-house cascading of the strategy, we embarked on a journey of change with the aim of refining what the strategy means for each SATO employee, reinforcing our shared culture and renewing our development approaches.
During the reporting year, we at SATO invested in improving the well-being of our personnel in a number of ways. Supporting the well-being of SATO employees also impacted the results of the personnel survey. I am particularly pleased to see that the results of the SATO Syke personnel survey conducted in autumn 2023 showed improvement in all areas compared to the previous year. According to the survey, SATO’s internal employer image is strong. SATO had a total of 313 employees at the end of the year. The increase in personnel largely resulted from the expansion of the house expert model.
During the reporting year, we continued our sustainability work, which is guided by SATO’s strategy and our sustainability programme for 2019–2022. The programme emphasises carbon-neutral cities and the well-being of residents and neighbourhoods. In our own sustainability goals, we have committed to the UN sustainable development goals (SDG).
When designing new buildings and renovations, we take into account energy efficiency and building solutions and materials that will last decades. We seek energy efficiency improvements in many ways in our properties. We look into the possibility to use a heating solution based on renewable energy, such as geothermal heating, at every new building and renovation site. At the end of the reporting year, SATO had seven properties that use geothermal heat as their heat source, and geothermal heating is under planning or construction for 22 properties. Our real estate electricity consists of zero-emission electricity that is 100% generated by wind power.
Our profitable growth is largely based on our own real estate development and construction. In 2023, we initiated city planning projects and signed preliminary agreements and letters of intent subject to zoning conditions that will enable the construction of around a thousand new apartments in the coming years. We reinforced our housing portfolio with investments valued at EUR 167.1 million. A total of 235 rental apartments and 71 owner-occupied apartments were completed in 2023, all in the Helsinki metropolitan area.
I wish to thank all SATO employees for their committed and excellent work. I also wish to thank our partners and the residents of our SATOhomes for their good co-operation during the past year.
Report of the Board of Directors
Report of the Board of Directors 1 January–31 December 2023
Operating environment
SATO’s operating environment during the reporting year was affected by economic recovery and the acceleration of inflation towards the end of the year, the continuation of the COVID-19 pandemic, increased supply of rental housing especially in the Helsinki metropolitan area, and net migration into the surrounding municipalities.
Recovery from the recession of 2020 was rapid last year. The economic growth was attributable to higher demand as a result of easing COVID-19 restrictions. The strong growth also translated into positive development in employment. In December, the Bank of Finland’s economic growth projection for Finland was 3.5% for 2023 and 2.6% for 2023. Growth in 2023 will be slowed by supply bottlenecks, the development of the COVID-19 pandemic and the inflation that accelerated in late 2023. The greatest uncertainty for the 2023 outlook comes from a re-escalation of the pandemic: in late spring 2023, as the pandemic situation improved, restrictions were eased, only to be tightened again at the end of the year in response to the worsening of the disease situation. Consumer confidence declined during autumn simultaneously with the escalation of the pandemic.
Inflation accelerated especially in late 2023. Prices have risen due to the strong recovery in demand and the bottlenecks that have built up in supply chains at the same time. Energy prices in particular have shown a sharp rise. The higher cost level meant a sharp rise in the price of district heating especially in Helsinki, where the price increase for the entire reporting year as a weighted average in relation to consumption was 18% compared to the previous year. SATO’s goal is to reduce the total consumption of electricity and heat by 10.5% from the 2015 baseline by 2025. In 2023, the specific energy consumption of SATO’s buildings grew 0.7%, and total heating costs grew due to higher heating energy prices. To mitigate the rise in costs and reduce emissions, we look into the possibility to use a heating solution based on renewable energy, such as geothermal heating, at every new building and renovation site.
Housing construction has risen to a record-high level. Thanks to the low interest rate level, housing remains an appealing investment, and investing in rental housing continues to increase in popularity both in Finland and globally. The COVID-19 crisis that hit several other real estate sectors hard further reinforces the status of housing investment. Foreign housing investors that have landed on Finland’s shores in recent years continued to beef up their investment portfolios during the reporting year. The numbers of granted construction permits and housing starts have been increasing since summer 2020, and the growth continued during the reporting year. The increase in construction permits and housing starts will show in the number of completed buildings especially in 2023 and 2023. Roughly half of the new residential buildings will be located in the Helsinki metropolitan area.
According to the Consultancy for Regional Development MDI’s study, municipalities surrounding large cities, especially Helsinki, Tampere and Turku, experienced the highest positive net migration rates in January–June 2023. The pandemic has slightly shifted the focus of demand for rental apartments to larger apartments and areas with lower rent levels. Behind both of these developments is the increase in teleworking: people need more space when they also use their home for working. Urbanisation is continuing but has been slowed by the COVID-19 pandemic.
After the early year, SATO’s economic occupancy rate took a slight upward turn as the pandemic restrictions eased. Demand returned to normal during summer in the Tampere and Turku regions and in the rest of Finland. However, increased housing supply, especially in the Helsinki metropolitan area, has kept competition tight among rental housing providers, which translated into high tenant turnover in SATO’s business during the reporting year, leading to a weaker economic occupancy rate and a slight fall in average rents.
Despite the COVID-19 pandemic, there is demand for rental apartments, and the urbanisation trend continues. Dense urban living along good public transport connections is becoming increasingly popular in Finland. The Helsinki metropolitan area, Tampere and Turku continue to enjoy strong growth, while according to Statistics Finland’s population projection, Finland’s population will start declining in 2031. The Helsinki metropolitan area is expected to grow by over 200,000 new residents by 2040. Close to 80% of the area’s residents already live in one- to two-person homes, and the number of small households continues to rise. As a result of immigration, the proportion of foreigners living in the capital area is predicted to grow from the current 17% to 25% by 2030. The aging population typically moves closer to growth centres and the services they offer, and housing-related services are increasingly expected.
The change in the population structure and development in the prices of owner-occupied apartments create a stable foundation for demand for rental housing especially in the capital area and in Tampere and Turku. Outside of growth centres, the real prices of homes are declining, which makes acquiring an owner-occupied apartment in growth centres even more challenging for people coming from those areas.
Finland targets carbon neutrality by 2035. Mitigating emissions from the construction sector plays a significant role in achieving both national and international climate targets and in preparing for climate change. Construction and the use of buildings currently account for over a third of Finland’s greenhouse gas emissions. In addition to energy consumption during use, the sector has started taking note of the carbon footprint of buildings throughout their life cycle.
Strategy
During the year under review, we refined our strategy, with SATO employees from different parts of the organisation participating in the strategy work. Customer experience, sustainability and sustainable housing, and SATO employees now lie at the core of our strategy. We want to be closely involved in our customers’ daily lives in order to serve them in the best possible way. We build homes that stand the test of time and we take care of them in line with the life-cycle principles. We enable sustainable housing for our residents and encourage them to make sustainable choices in their daily lives. Our intent is for each SATO employee to be able to contribute ideas and participate in developing future housing solutions.
SATO is a housing investment company whose basic product is a rental apartment in an apartment building. We focus our investments on growth centres: the Helsinki metropolitan area, Tampere and Turku, because in these areas demand for apartments is the highest and the increase in value is expected to be stable over the longer term. Our operations are geared towards profitable growth.
We made sustainability one of the three cornerstones of our new strategy. Our sustainability work is guided by SATO’s strategy and our sustainability programme for 2019–2022, which emphasises carbon-neutral cities and the well-being of residents and neighbourhoods. In our own sustainability goals, we have committed to the UN sustainable development goals (SDG).
SATO has set maintaining its investment grade credit rating as a strategic goal. Our return on equity target is 8%. In addition, our strategic goal is to achieve a continuously improving Net Promoter Score (NPS) from our residents.
According to SATO’s dividend policy, a maximum of 40% of the cash flow from operations will be paid in annual dividends, depending on the market situation, investment level, the development of the equity ratio and the solvency ratio.
Net sales and profit
In 2023, consolidated net sales were EUR 298.3 million (303.4).
Operating profit was EUR 304.5 million (179.6). The operating profit without the change in the fair value of investment properties was EUR 175.4 million (192.6). The change in fair value was EUR 129.1 million (-13.0).
Net financing costs totalled EUR -45.1 million (- 50.0).
Profit before taxes was EUR 259.4 million (129.5). Cash earnings (free cash flow after taxes excluding changes in fair value) amounted to EUR 107.9 million (132.1).
Earnings per share were EUR 3.64 (1.80).
Financial position and financing
The consolidated balance sheet totalled EUR 5,091.4 million (5,104.7) at the end of December. Equity was EUR 2,351.3 million (2,155.7). Equity per share was EUR 41.53 (38.07).
The Group’s equity ratio was 46.2% (42.2) at the end of the year. EUR 101.2 million in new long-term financing was withdrawn and the solvency ratio was 42.5% (43.8) at the end of December.
The Group’s return on equity was 9.1% (4.8). Return on invested capital was 6.7% (4.1).
Interest-bearing liabilities at the end of December totalled EUR 2,169.5 million (2,381.5), of which loans subject to market terms accounted for EUR 1,994.5 million (2,170.2). The loan itemisation is in note 26 of the financial statements. At the end of the reporting year, the average loan interest rate was 1.7% (1.8). Net financing costs totalled EUR -45.1 million (-50.0). The average maturity of loans was 4.0 years (4.2).
The calculated impact of changes in the market value of interest hedging on equity was EUR 15.1 million (-1.9). During the reporting year, SATO increased the proportion of unsecured loans to 83.0% of all loans. At the end of the year, the proportion of unencumbered assets was 87.5% of the balance sheet.
Group structure
SATO Corporation is the parent company of SATO Group. At the end of the reporting year, the parent company had a total of 23 subsidiaries engaged in business operations (24). Mergers took place during the year in order to clarify the Group structure.
SATO Corporation’s majority shareholder is Balder Finska Otas AB, whose parent company is Fastighets AB Balder, which is quoted on the Stockholm Stock Exchange.
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.
As competition between housing providers has become tighter and tenants have a wider choice, a successful customer experience is more important than ever. In an attempt to respond to this challenge, we have adjusted the organisation and our service processes. We want to be closely involved in our customers’ daily lives in order to serve them in the best possible way. During the reporting year, we further expanded our house expert operating model, which aims to create a better customer experience and more efficient maintenance. We developed and streamlined our customer and maintenance processes and revamped our digital service environment. The changes made daily work more efficient for our customer service and rental activities, which means smoother service for our customers.
SATO had approximately 50,000 customers at the end of the reporting year. We measure our successes in customer encounters using the Net Promoter Score (NPS). During the reporting year, our customer satisfaction did not improve: one of the reasons for weakened customer satisfaction was that some of the planned repair projects had to be further postponed due to the COVID-19 pandemic and our opportunities to serve our customers were more limited during the pandemic. During the reporting year, the downward NPS trend came to a halt and turned positive during the second half of the year.
The economic occupancy rate declined compared to the previous year and in Finland averaged 94.9% (96.7). The external tenant turnover rate for rental apartments was 31.2% (32.6). Rental income decreased 1.7% and was EUR 298.3 million (303.4). The weakened occupancy rate can be attributed largely to the general uncertainty caused by the COVID-19 pandemic, the increased offering of rental housing in the capital area, and the tightened competition between housing providers.
The average monthly rent of SATO’s rental apartments in Finland at the end of the reporting year was EUR 17.46 per m2 (17.51).
Net rental income from apartments stood at EUR 210.6 million (220.3).
Investment properties
On 31 December 2023, SATO owned a total of 26,791 apartments (26,792). Altogether 235 rental apartments were acquired or completed. The total number of divested rental apartments and shared ownership apartments redeemed by the owner-occupants was 175.
Fair value
The development of the value of rental apartments is a key factor for SATO. The housing stock is focussed on areas and apartment sizes that are expected to grow in demand in the long term. The allocation of building repairs is based on life-cycle plans and repair need specifications.
The fair value of investment properties at the end of December totalled EUR 5,032.8 million (4,753.5). The change in the value of investment properties, including investments and divestments in the financial year, was EUR 279.3 million (95.7).
The external expert JLL Finland Oy (JLL) issues a semi-annual statement on the valuation methods applied by SATO, the appropriateness of sources of information used and the quality and credibility of the valuation for Finnish investment properties. JLL’s latest statement was issued on the valuation carried out on 31 December 2023. The criteria for the determination of the fair value are presented in the notes to the consolidated financial statements.
The change in value was also affected by investments and divestments, and by the change in market prices and the value of the rouble.
At the end of the year, the Helsinki metropolitan area’s commuting area accounted for some 84%, Tampere and Turku for approximately 11%, Jyväskylä and Oulu for 2% and St. Petersburg for roughly 3% 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. SATO’s investments in the 2000s in non-subsidised rental apartments total more than EUR 3 billion. 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 167.1 million (120.6). Investments in the Helsinki metropolitan area represented 88.5% of all investments in the reporting year. Investments in new apartments represented 49% of the investments. In addition, on 31 December 2023, binding purchase agreements in Finland totalled EUR 96.8 million (55.3).
During the reporting year, 26 rental apartments (68) were divested in Finland. Their total value was EUR 7.9 million (5.7).
The book value of plot reserves totalled EUR 43.4 million (59.0) at the end of December. The value of new plots acquired by the end of December totalled EUR 15.5 million (3.0).
The permitted building volume for about 1,800 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.
We collaborate with cities when areas are being developed and new housing is planned for them. During the reporting year, we continued the development of the Hakunila area in Vantaa, for example.
During the reporting year, plots in complementary planning areas developed by SATO were sold to construction companies and other partners, enabling the construction of approximately 500−550 owner-occupied apartments and roughly 20 state-subsidised rental apartments, thus promoting a diverse residential area and urban structure.
In the beginning of 2023, construction was begun on the ‘Wise Mobility City Block’ located in Helsinki’s Oulunkylä district on Maaherrantie. The block, located at the junction of the Raide-Jokeri tramline and the main railway, will see the construction of altogether around 500 rental, owner-occupied and part-ownership apartments over the next few years.
In June 2023, construction of a privately financed rental housing building and a part-ownership FlexHome building was begun in the Hervantajärvi area in Tampere. SATO will build a total of close to 200 rental and part-ownership apartments in the developing Hervantajärvi area, near the last stop of the first phase of the Tampere Tramway, which was completed in 2023. FlexHome is a short-term ownership concept that enables home ownership with a small initial capital outlay and a five-year part-ownership period.
In June 2023, the construction of a wooden apartment building was also begun on Lupajantie in Mellunmäki, Helsinki. The two-storey wooden apartment buildings will house 112 new privately financed rental homes, replacing the 80 apartments that were demolished on the plot.
In addition, construction of new rental housing began during the year under review in Vantaa (Raudikkokuja in Hakunila and Keimolanmäki) and in Espoo (Karakallio and Vermonniitty).
In Finland during the reporting year, 235 rental apartments (769) and 71 owner-occupied apartments (36) were completed. On 31 December 2023, a total of 1,152 apartments (385): 1,100 rental apartments (314), 0 owner-occupied apartments (71) and 52 FlexHomes (0) were under construction.
A total of EUR 93.6 million (73.7) was spent on repairing apartments and improving their quality.
At the end of December, SATO owned 525 apartments (533) in St. Petersburg. The economic occupancy rate of rental apartments in St. Petersburg was 97.7% (91.8) on average. For the time being, SATO will refrain from making new investment decisions in Russia. Russia’s share of the Group’s housing assets is limited to a maximum of 10%.
Sustainability
Our sustainability work is guided by SATO’s strategy and our sustainability programme for 2019–2022, which emphasises carbon-neutral cities and the well-being of residents and neighbourhoods.
In 2020 we committed to reporting on risks and opportunities related to climate change in accordance with the TCFD (Task Force on Climate-Related Financial Disclosure) framework. The TCFD is an organisation established by large companies whose mission is to encourage companies to report on the climate risks and opportunities that affect them. During the reporting year, we conducted an extensive assessment of the risks and opportunities arising from climate change for SATO’s entire supply chain. The risks are divided into four main categories in line with the TCFD framework: transition risks, acute and chronic physical risks and social risks. At the same time, we carried out a scenario analysis to look into how the two- and four-degree scenarios affect society and how SATO should prepare for these changes.
In the reporting year, we focussed on improving residents’ living comfort and reducing energy consumption with the help of artificial intelligence. We monitor and regulate the heating of some 20,000 SATOhomes through various IoT services. Our buildings’ heating systems are controlled by artificial intelligence, and residents can keep track of the temperature of their home via the OmaSATO online service.
Our goal is to reduce mixed waste and increase recycling and sorting. We did not fully succeed in this goal during the year under review, as providing residents with guidance in recycling and sorting in our buildings was only partially possible due to the pandemic.
In 2023, we introduced the new sets of sofas and recliners that were designed by our product development team and manufactured in Finland for our club rooms. The frames of the products are made from Finnish wood and they are upholstered in a recycled Finnish wool fabric. We closely monitor the quality of the products.
During the reporting year, we continued to develop an operating model related to housing health and safety. The operating model focusses particularly on a quick response rate, keeping customers informed, and the flow of information.
During the reporting year, we collaborated on a project with the non-profit organisations No Fixed Abode and the Rehabilitation Foundation to help participants in the project find two of life’s essentials – a home and a job. By the end of the reporting year, eight people who had participated in the project were living in a SATOhome.
We participated for the seventh time in the Global Real Estate Sustainability Benchmark (GRESB). SATO received three stars on a scale of one to five with a score of 74. We report on our sustainability annually in accordance with the Global Reporting Initiative’s (GRI) reporting guidelines, and the environmental sustainability figures presented in the report have been verified by an independent third party, i.e. KPMG Oy Ab.
In November 2023, SATO Corporation agreed on a committed loan of EUR 80 million with the European Investment Bank that was undrawn at the end of the reporting period. The funding will support renovations that will improve the energy efficiency of SATO’s current rental housing stock in the Helsinki metropolitan area, Turku and Tampere. The renovation projects aim to improve the energy efficiency of properties by at least 30%, while at the same time supporting the EU’s climate change mitigation targets.
In December, SATO Corporation and OP Corporate Bank plc agreed on a bilateral loan of EUR 75 million without asset-backed securities and with an interest rate margin tied to the achievement of SATO’s main sustainability objectives.
The Corporate Governance Statement is published separately from the Report of the Board of Directors. SATO’s Corporate Governance Statement, Code of Conduct and sustainability programme are available at sato.fi.
Environmental impacts
We reduce the load on the environment by regularly taking care of and repairing homes and properties according to the life-cycle principle, and by building properties primarily in existing urban environments and near good public transport connections.
Legislation governing the energy efficiency of residential buildings requires an energy efficiency figure of 90 for new buildings. SATO is committed to building markedly more energy-efficient buildings: we target an energy efficiency figure of 82 or lower for new buildings. The average for our completed buildings during the year under review was 80 and the average for housing starts during 2023 was 76.1.
We are committed to the Energy Efficiency Agreement targets for the property sector, aiming for a reduction in the total consumption of electricity and heat of 10.5% from the 2015 baseline by 2025.
During the reporting year, we continued to invest in energy efficiency improvements in SATOhomes in connection with renovations. The renovation projects aim to improve the energy efficiency of properties by at least 30%. The total heating costs grew due to higher heating energy prices.
At the end of the reporting year, SATO had seven properties that use geothermal heat as their heat source, and geothermal heating is under planning or construction for 22 properties. During 2023, we replaced the heating systems of four properties with heating based on heat pumps.
During the year under review, specific energy consumption increased by 0.7%, specific electricity consumption decreased by 0.5% and specific water consumption decreased by 1.2% compared to 2020. Rated emissions from SATO’s apartments rose by 16.6% compared to 2020 and were 26 carbon dioxide equivalent kilograms per square metre (22.3). Emissions are calculated according to the absolute consumption of district heating. Electricity was generated from emission-free wind power.
The Group’s sustainability programme is available in its entirety at sato.fi.
Development activities
During the reporting year SATO’s development activities were focussed on developing the customer-care processes and digital service environment and improving the efficiency of maintenance processes. Our goal is to serve our customers in the best possible way, which is why we renewed our sales and customer service processes and operating models and introduced new digital tools. The changes made daily work more efficient for our customer service and rental activities, which also means smoother service for our customers. The renewed maintenance processes enable, among other things, the timely creation and processing of acquisition proposals, apartment inspections and defect reports, thus increasing efficiency and improving customer service.
We continued to apply the design principle adopted in 2019, according to which the walls between studios are non-load-bearing wall structures between apartments. The load-bearing concrete walls between apartments are also designed so that openings can be made into them, if needed. If the focus of demand shifts to larger apartments, the apartment distribution in the building can later be modified more easily by joining adjacent apartments to create larger homes.
A total of EUR 3.2 million (1.4) was spent on development, corresponding to approximately 1.1% of net sales.
Risk management
Risk management ensures 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.
A risk affecting the operating environment in the immediate future is the COVID-19 pandemic, whose duration and impact on the Finnish economy are difficult to estimate. A prolonged COVID-19 pandemic may have a major negative impact on economic growth, business activity and employment in Finland, not to mention work productivity. Such economic or business deterioration, as well as quarantines or other restrictive measures, may have an adverse impact on the financial result or operations of SATO’s properties, not to mention on financing costs or values. In an effort to minimise the negative business impacts of the pandemic, the company has focussed on maintaining a safe work environment, boosting sales and strict cost control.
The most significant risks in the renting of apartments are related to economic cycles and fluctuations in demand and supply. Market risk can increase the supply of rental housing to a point that it exceeds demand.This leads to rental housing vacancies and pressure to even out or lower the rent level especially for the old housing portfolio.
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 refined strategy, SATO focusses its investments on growth centres and on renovating and repairing its existing housing portfolio, thus ensuring the rental potential of its apartments and the development of their value.
Changes in official regulations and legislation, as well as the uncertainty stemming from them, may 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 treasury policy. Our financial risk management principles have been defined in the financial 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 long-term financing commitments. The company established a EUR 1.5 billion Euro Medium Term Note (EMTN) bond programme in 2019.
The means for managing the liquidity risk at SATO include cash assets, a bank account limit, committed credit facilities of EUR 350 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% 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 financial 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 on the Group’s website www.sato.fi.
Pending legal actions
SATO has no official procedures, legal actions or arbitration proceedings pending that would have a significant impact on the company’s financial standing or profitability, and SATO is not aware of any threat of such proceedings.
Shares
On 31 December 2023, the share capital of SATO Corporation was EUR 4,442,192.00 and there were 56,783,067 shares. The company has one series of shares. The shares are included in the book-entry system maintained by Euroclear Finland Oy.
SATO Corporation holds 166,000 treasury shares. This represents 0.3% of all shares and the votes they confer.
On 31 December 2023, the Board of Directors did not have authorisation to acquire or issue the company’s own shares.
On 31 December 2023, the Board members or the CEO of SATO Corporation did not hold any shares in the company.
Personnel
At the end of December, the Group employed 313 people (242), of whom 278 (226) had a permanent employment contract. The average number of personnel was 276 (229) during the reporting year. The Group’s salaries and remunerations in 2023 totalled EUR 18.8 million (15.3).
Shareholders’ Nomination Committee
The Shareholders’ Nomination Committee consists of representatives of SATO’s four largest shareholders registered in the book-entry system on 1 October. If a shareholder chooses not to exercise their nomination right, the right will pass on to the next largest shareholder. The State Pension Fund, the company’s fourth largest shareholder, did not exercise its nomination right, and the right was passed to Erkka Valkila, the fifth largest shareholder. The Committee consisted of representatives of the following shareholders: Balder Finska Otas AB (Erik Selin), Stichting Depositary APG Strategic Real Estate Pool (Hans Spikker), Elo Mutual Pension Insurance Company (Hanna Hiidenpalo) and Erkka Valkila.
Board of Directors, CEO and auditors
The Annual General Meeting held on 25 March 2023 confirmed that the Board of Directors consists of six members.
In 2023, the members of SATO’s Board of Directors were chairman Erik Selin and ordinary members Jukka Hienonen (until 25 March 2023), Esa Lager, Tarja Pääkkönen, Sharam Rahi (as of 25 March 2023), Johannus (Hans) Spikker and Timo Stenius.
The Board of Directors convened 11 times in 2023. The Board’s work is supported by the Nomination and Remuneration Committee.
In 2023, Antti Aarnio, M.Sc. (Tech.), was SATO’s interim CEO. SATO’s Board of Directors appointed Antti Aarnio as the permanent CEO as of 1 January 2023.
As the company’s auditor, the Annual General Meeting selected the audit firm Deloitte Oy, which appointed APA Aleksi Martamo as the auditor in charge. The auditor’s term in office is the financial year, and the auditor’s duties end at the closing of the next Annual General Meeting.
Members of the Management Group
During the 2023 reporting year, the members of SATO’s Management Group were Antti Aarnio, CEO and EVP, Housing Business, and Markku Honkasalo, CFO.
In addition, SATO’s Board of Directors appointed, as 1 January 2023, Elina Vaurasalo, EVP, Housing Business, Arto Aalto, EVP, Investments and Janne Ojalehto, CCO, as members of the Corporate Management Group.
Outlook
In the operating environment, SATO’s business operations are mainly affected by urbanisation, competition, interest rates, consumer confidence, the development of purchasing power, the rent and price development for apartments, housing policies and in addition COVID-19 pandemic that began year 2020.
According to the Bank of Finland’s projection, the Finnish economy will continue to grow in 2023. However, factors that will slow economic growth include supply bottlenecks, the development of the COVID-19 pandemic and the inflation that accelerated in late 2023. The greatest uncertainty for the 2023 outlook comes from the re-escalation of the pandemic in late 2023 and the resulting restrictions.
Efforts are being made to limit the negative impact of the pandemic on Finland’s economy through support measures adopted by the European Central Bank, the European Union and the State of Finland. Due to Europe’s economic development, interest rates are expected to remain low, which will have a positive impact on SATO’s financing costs. Going forward, the development of inflation may lead to changes in the interest rate level. Short-term interest rates remain low but long-term interest rates have slightly risen from their level in early 2023.
In recent years, the rental housing markets in major cities have been characterised by sharp growth in supply. The growth largely stems from the brisk production of rental housing, driven by strong investor demand. The numbers of granted construction permits and housing starts have been increasing since summer 2020. The increase in construction permits and housing starts will be reflected in the number of completed buildings in 2023 and 2023. Roughly half of the new residential buildings will be located in the Helsinki metropolitan area. Supply has also increased as a result of offering previously short-term rental apartments for longer rental periods.
Despite the COVID-19 pandemic that erupted in 2020, there is demand for rental apartments, and the strong urbanisation trend that temporarily decelerated during the pandemic is believed to continue also in the coming years. The pandemic has slightly shifted the focus of demand for rental apartments to larger apartments and areas with lower rent levels. Demand for rental housing is primarily focused on major cities and their surrounding municipalities in the Helsinki metropolitan area and the Tampere and Turku regions. When all restrictions to contain the spread of the coronavirus are lifted, travel rates increase and students return to classrooms, the demand for rental housing is expected to start growing. The tight competitive situation in the Helsinki metropolitan area is expected to continue even after the pandemic, due to increased supply.
As tenants have a wider choice, a successful customer experience is more important than ever. SATO is investing strongly in increasing its customer presence and developing digital services.
In line with its majority shareholder’s operating model, SATO Corporation will not publish guidance on its 2023 earnings. The parent company of Balder Finska Otas AB is Fastighets AB Balder, which is quoted on the Stockholm Stock Exchange.
Proposal of the Board of Directors for the distribution of profit
On 31 December 2023, the parent company’s distributable funds amounted to EUR 411,221,065.90, of which profit for the period was EUR 69,378,448.57. The company had 56,617,067 outstanding shares entitling to dividends for year 2023.
According to our dividend policy, annual dividends are at most 40% cent of our cash flow from operations, depending on the market situation, investment level, the development of the equity ratio and the solvency ratio.
The Board of Directors proposes to the Annual General Meeting that EUR 0.50 per share is paid in dividends for the 2023 financial period (EUR 0.50 per share for 2020), EUR 28,308 533.50 in total, and that EUR 41,069,915,07 is transferred to retained earnings.
No material changes have taken place in the company’s financial position since the end of the financial year. The company’s liquidity is good, and in the Board of Directors’ view, the proposed distribution of profit will not compromise the company’s solvency.
Largest shareholders 31.12.2021
| Number of shares | % | |
| Balder Finska Otas Ab (Fastighets Ab Balder) | 31,754,245 | 55.9% |
| Stichting Depositary APG Strategic Real Estate Pool | 12,811,647 | 22.6% |
| Elo Mutual Pension Insurance Company | 7,233,081 | 12.7% |
| The State Pension Fund | 2,796,200 | 4.9% |
| Valkila Erkka | 385,000 | 0.7% |
| Hengityssairauksien tutkimussäätiö |
227,000 | 0.4% |
| SATO Corporation | 166,000 | 0.3% |
| Entelä Tuula | 159,000 | 0.3% |
| Heinonen Erkki | 156,684 | 0.3% |
| Tradeka Invest Ltd | 126,500 | 0.2% |
| Others (116 shareholders) | 967,710 | 1.7% |
On 31 December 2023, the Group had 126 shareholders entered in the book-entry register. The turnover of SATO Corporation’s shares was 0.25% during the reporting year.
More information at www.sato.fi.
Annual General Meeting 2023
The Annual General Meeting of SATO Corporation will be held on March 24, 2023.
Financial publications in 2023
Publication dates for interim reports and the half-year financial report:
Interim report January–March: 12 May 2023
Half-year financial report January–June: 15 July 2023
Interim report January–September: 28 October 2023
Further information
CEO Antti Aarnio, tel. +358 20 134 4200
CFO Markku Honkasalo, tel. +358 20 134 4226
www.sato.fi
SATO CORPORATION
Antti Aarnio
Chief Executive Officer
ATTACHMENTS
Annual Report 2023
Financial Statements presentation 2023
Financial Statements as an XHTML file
DISTRIBUTION:
NASDAQ Helsinki Ltd., Euronext Dublin, main media, www.sato.fi
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 2021, SATO owned nearly 27 000 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.
SATO Group’s net sales in 2021 were EUR 298.3 million, operating profit EUR 304.5 million and profit before taxes EUR 259.4 million. The value of SATO’s investment property is roughly EUR 5 billion.
Attachments
