Kungsleden’s operations made continued positive progress in the second quarter, with a rising operating net in like-for-like terms.
All divisions performed well, and we had a property yield of 7.1 per cent with limited value changes in the holding. There is still no significant improvement on the credit market, and we still think it is hard to secure funding on reasonable terms.
Competition on the Swedish credit market has reduced since many foreign players have left the market. This has resulted in tighter access to credit and rising prices, especially on maturities of 3-5 years. Hopefully, current healthy profitability will tempt new players into the credit market with increased competition, and eventually, better pricing. The current situation is a contributor to a continued tough transaction market, with far fewer and smaller transactions, and cool interest among foreign property players.
Public properties sustained their positive progress in Sweden and Germany. Commercial property lettings were positive, with an increased operating surplus margin. Vacancy levels in our commercial holding, measured in terms of earnings capacity, reduced from 7.6 to 7.2 per cent in the second quarter. Despite us downscaling production capacity in Nordic Modular, profit performance was positive. There are some signs that the market for modular production may have bottomed out in the quarter. the underlying market is continuing to make fairly positive progress, although it may well be some time yet before the economic recovery becomes more enduring.
Although the economic conditions look like improving, Kungsleden is active in a late-cyclical sector, and there is a risk that we still have not seen the peak in the number of business insolvencies. In current market conditions, Kungsleden is focusing on its existing portfolio. For example, we are working actively on tenant adaptations to retain and attract new tenants. No news has emerged regarding the Swedish Supreme Administrative Court’s tax rulings, which we previously reported in several press releases. Kungsleden – which wasn’t actually party to any of these rulings – still thinks that tax for the year may increase by SEK 325 m as a result of them. The regulatory structure is complex, and calculations will be reassessed quarterly. The definitive outcome may be higher or lower than our current judgment. Kungsleden completed its transaction with AP3 in the quarter, involving this Fund acquiring 50 per cent of the shares of the company that owns and manages the majority of the public properties in Sweden. This means that from 4 May, we will be reporting half of the company that owns and manages Kungsleden’s Public properties in Sweden according to the proportional method. Kungsleden’s book value calculated per square metre is low compared to replacement cost, we have generally low rent levels, good geographical diversity in our holding and positive net lettings. Both our operating net and vacancy levels made positive progress in the quarter, and with lower administrative costs, overall, the conditions for stable profit performance should be in place, despite continued risk on the tenant side. The Board of Directors’ estimate of profit for calculating dividends is unchanged at SEK 975 m-
Thomas Erséus
Chief Executive Officer