x - Kungsleden

KUNGSLEDEN
FOURTH QUARTER AND FULL YEAR 2014 REPORT
17 February 2015
Biljana Pehrsson, CEO
Anders Kvist, Deputy CEO and CFO
It has been an eventful year for
Kungsleden and today we are
a completely different
company. With strong annual
results, we are ready to take
the next step in implementing
our growth strategy.”
2
AGENDA





Introduction
Fourth quarter and 2014 in summary
Financial performance and key figures
Business plan with growth targets
2015 outlook
3
INTRODUCTION
4
KUNGSLEDEN AT A GLANCE
Business concept
Long-term owner, active manager and developer of
commercial properties in growth regions in Sweden with a
view to deliver attractive total return
Mission
To offer customers attractive and functional premises at
competitive rates, making our customers satisfied and always
delivering that extra something
No of properties
305
Property value SEK
SEK 19.6 billion
Rental value
SEK 2.3 billion
GLA, sqm
2.8 million
No of employees
91
Company values
Being there – Simplifying – Innovative
5
FOURTH QUARTER AND 2014
IN SUMMARY
6
FOURTH QUARTER IN
SUMMARY

New office cluster in Kista Science City, one of Stockholm´s most
interesting and proven office markets, through major strategic acquisition
of approx. SEK 2 bn

Further optimised property portfolio
 Divested non-strategic properties for SEK 300 m (SEK 11 m profit), including last
property abroad
 Acquired office property in Hyllie, Malmö for SEK 165 m

Divested majority share of Nordic Modular Group to Inter IKEA
Investments at price corresponding to EV of SEK 1.3 bn

Focus on active property management reflected in improved operating
results:
 Net operating income grew by 7 per cent to SEK 338 m (316)
 Profits from property management grew by 19 per cent to SEK
154 m (129)
 Net leasing was SEK 3 m (12), corresponding to 50,000 sqm
7
2014 IN SUMMARY

A strong and eventful year marked by implementation of new strategy –
notably improved quality of property portfolio
 Transactions worth SEK 5.3 bn in total performed over the year. Strategic
acquisitions of SEK 2.7 bn and divestments of SEK 2.6 bn
 Acquisition highlights include the Kista portfolio and Mässhallen 1 in Hyllie,
Malmö’s primary development area.
 68 non-strategic properties divested at a profit of SEK 186 m

Continued focus on active asset and property management:
 Net operating income increase of 3.6 per cent in LFL portfolio
 Net operating income grew by 32 per cent to SEK 1,491 m (1 131)
 Net leasing was SEK 6 m (26)
8
2014 IN SUMMARY
Optimization targets for the property portfolio in 2014
Goal to divest properties amounting to SEK 1-1.5 bn at profit
and acquire strategic properties for SEK 1.5 bn
 Divestment of non-strategic properties from the "old" portfolio
(book value SEK 1.1 bn)
 Divestment of non-strategic properties from the "GE" portfolio
(book value SEK 0.9 bn)
 Concentration through the divestment of properties in minor locations
or locations with single properties
9
Outcome:
Total divestments of SEK 2.6 bn
and a capital gain of SEK 186 m
Total strategic acquisitions of
SEK 2.7 bn
2014 IN SUMMARY

Property portfolio worth SEK 19.6 bn at year-end
 Value increase of SEK 1 bn from year-end 2013 incl profit of SEK
186 m from divestments made
 Largest value increases in office properties in Stockholm and Västerås
 Value increase as a result of improved net operating income and cash flow,
investments made and reduced market yield in the strongest growth markets
 Average market yield applied 7.4 per cent (7.8)

Financial flexibility secured to continue growing the property portfolio
 SEK 1.6 bn rights issue successfully completed

Profit from property management improved by 66 per cent to SEK 730 m
(441)

Board of Director´s dividend proposal of SEK 1.50 per share (1.25)
10
FINANCIAL PERFORMANCE
AND KEY FIGURES
11
FOURTH QUARTER RESULTS
IN SUMMARY
Key figures, SEKm
Q4 -14
Q4 -13
2014
2013
Rental revenue
524
460
2,193
1,669
Net operating income
338
316
1,491
1,131
Profit from property management
154
129
730
441
Changes in value of properties
595
74
1,003
56
0
4
73
8
595
71
930
48
Earnings before tax
642
211
1,306
922
Net income incl. discontinued operations
371
179
-753
862
Earnings per share incl. discontinued operations
2.16
1.31
-5.18
6.31
-
-
1.50
1.25
Profit on property sales
Unrealised changes in value of properties
Proposed dividend
INCOME STATEMENT
1 JANARY – 31 DECEMBER 2014
13
STATEMENT OF FINANCIAL POSITION
Equity ratio: 40% (37%)
Loan/value ratio: 58% (59%)
14
EQUITY AND FINANCIAL POSITION
As per 31 December 2014, Kungsleden’s equity amounted to SEK 9,102 (8,453) m or SEK 50 (62) per share following the
rights issue, which increased the number of shares by 33 percent. This corresponds to an equity ratio of 40 (37) percent.
The equity ratio target is > 30 per cent.
15
CONTINUED IMPROVEMENT IN
FUNDING COSTS

Strong cash flow in Q4 allowed reduction in debt

The loan portfolio amounted to SEK 11,675 m at the end
of the quarter, compared with SEK 12,254 m at the
beginning of the quarter.

The average interest rate as per 31 December was 5.0
per cent, equal to the rate at the end of the second
quarter (5.8 per cent at the beginning of the year).

Excluding swaps, the average interest rate has come
down from 3.7 per cent to 2.7 per cent during 2014.

Interest coverage ratio improved to 2.2 times (1.9)
16
NORDIC MODULAR DIVESTMENT
COMPLETED

Process conducted to exit Nordic Modular due to lack of synergies with
Kungsleden´s core property business

November 2014: 65 per cent of Nordic Modular sold to Inter IKEA
investments at a price corresponding to an Enterprise Value of SEK 1.3 bn

Transaction closed in January 2015 with net funds release of 700 MSEK
creating a property purchasing capacity of SEK 1.8 bn

Kungsleden retains 35 per cent ownership stake in Nordic Modular

New board of directors. Mats Wäppling (chairman), Henrik Jonsson,
Anders Kvist and Lars Holmgren
17
BUSINESS PLAN WITH
GROWTH TARGETS
18
KUNGSLEDEN´S STRATEGY AND LONG
TERM TARGETS
To be Sweden’s most profitable and successful real estate company

Concentration to regions with good economic growth and local
demand





Focus on the customers’ needs
Attractive locations in local markets with good accessibility
Concentration to less than 70 municipalities in the medium term
Efficient management of clusters in each property segment
Three focus segments of commercial space
 Offices
 Industrial and warehouses
 Retail

Quality and size
 Modern and effective premises
 Stable earnings
 Aim to grow the property portfolio to around SEK 30 billion over
time and to significantly increase the profits from property management
19
THE KISTA ACQUISITION

Four office properties acquired for just over SEK 2 billion
 Färöarna 3 (Kista One)
 Borgarfjord 3 and 5
 Reykavik 2

Total leasable space of acquisition portfolio:
73,000 sqm

Total leasable space in Kista after acquisition: 100,000 sqm

Strategic location in between Arlanda Airport and Stockholm city, with
direct access to E4 and E18

All properties are redeveloped and fully modernized



2 properties are LEED Gold certified
2 properties are Green Building certified
Closing in March 2015
20
A MORE FOCUSED PROPERTY
PORTFOLIO
21
CLUSTERS – A KEY PART OF
OUR STRATEGY
Effective from both a customer and management perspective
 Concentration to regions with good economic growth and local demand
 Tenants with changing needs can be offered new efficient alternatives
 More efficient management and lower operating costs
 Local presence and knowledge provides lower vacancies in the long term
 Clustered activities in order to increase the attractiveness of the area: marketing,
strategic investments for better service and supply, etc
 Close dialogue with the municipality and other community stakeholders
 Kungsleden’s clusters at present are:









Danderyd Kontor (99,000 sqm)
Kista Science City (100,000 sqm)
Västerås C – Mimer Porten (128,000 sqm)
Högsbo/Sisjön lokaler (87,000 sqm)
Västerås – Finslätten (253,000 sqm)
Östersund C (77,000 sqm)
Eskilstuna C (82,000 sqm)
Hyllie (21 000 sqm)
Norra Hamnen (9 000 sqm)
22
Kista
EARNINGS CAPACITY PER
SEGMENT
23
KUNGSLEDEN’S LARGEST
TENANTS
The company’s 10 largest tenants account for 32.1% of its rental
income

Average contract length of 3.9 years
1.
2.
3.
4.
5.
ABB
Bring Frigoscandia
Överskottsbolaget
Försvarsmakten
ICA
6. General Electric (GE)
7. V-TAB
8. BYGGmax
9. Westinghouse Electric
10. Försäkringskassan
24
2015 OUTLOOK
25
2015 OUTLOOK AND TARGETS

Favorable market conditions





Strong transactional market and good liquidity
Positive rental market
Opportunities to enhance the earnings capacity of the existing portfolio
Opportunity to acquire good properties with a yield of around 6-7 percent and with
a low marginal cost of funding (large yield spread)
Continued implementation of Kungsleden's new strategy






Active management
Build project portfolio
Refinement and optimization of the current property portfolio
Acquire strategic properties with high expected total return
Build effective clusters
Favorable acquisition opportunities presently that fit well with Kungsleden's long
term strategy
 The rights issue enables us to reach at least half-way towards the long term
growth target of a property portfolio amounting to SEK 30 billion. The total
investment volume in the coming years is estimated at SEK 4-5 billion post the
SEK 2 billion Kista acquisition.
26
ACQUISITION OPPORTUNITIES

Kungsleden's strategy is to acquire properties in identified micro locations,
primarily in Stockholm, Gothenburg and Malmö/Lund as well as selected
regional centers through:
 single property acquisitions
 acquisitions of property portfolios
 investments in development projects

18 micro locations with growth potential in terms of rental levels and yields

Strategic acquisition opportunities of approximately SEK 3-4 billion in
pipe-line
27
PIPE-LINE DEVELOPMENTS

Approximately 20 development projects within the existing portfolio

Target investment volume of SEK 0.7-1 billion within 2 – 3 years and an
expected total return rate of at least 9 per cent have been identified

Kungsleden’s project development operations are focused on improving
the Company’s existing property portfolio and on new construction
28
2015 OUTLOOK AND TARGETS

Balanced financial growth





Return on equity target of 10-12 per cent
Equity/assets ratio of at least 30 per cent
Continued control of central administrative costs
Dividend policy of 50 per cent on profits from property management after
tax cases
Profit target
 To achieve a profit before tax of SEK 1-1.2 billion by 2017
29
QUESTIONS WELCOME!
30