Interim Report 1 January – 30 September 2008
Robust management profits, but weak transaction market causes downgraded forecast
• Net sales increased by 13 per cent to SEK 2,174 (1,931) m.
• Profit before tax was SEK 277 (1,551) m. Net profit was SEK 350 (1,162) m in the interim period, equivalent to SEK 2.60 (8.50) per share.
• As of 30 September 2008, the property holding comprises 608 (575) properties with a book value of SEK 28,513 (25,737) m.
• In the interim period, 46 (133) properties were acquired for SEK 3,057 (5,388) m; 15 (122) properties were also divested for SEK 867 (3,999) m, generating a profit of SEK 50 (148) m. These divestments affected profit for calculating dividends by SEK 110 (542) m.
• Profit for calculating dividends for the interim period was SEK 535 (1,049) m, equivalent to SEK 3.90 (7.70) per share.
• The new forecast for full-year profit for calculating dividends is SEK 700 (900) m, or SEK 5.10 (6.60) per share. The downgrade is due to a weak transaction market.
• After the end of the interim period, two properties were divested which will affect profit for calculating dividends by SEK 15 m.
• Operations in Germany have been restricted and are being integrated into the Public Properties division.
Third quarter (July-September)
• Net sales increased by 13 per cent to SEK 739 (655) m.
• The loss before tax was SEK –9 (322) m. Net profit was SEK 78 (301) m, equivalent to SEK 0.60 (2.20) per share.
“The dominant feature of the third quarter was the financial crisis, which unleashed substantial market turbulence and caused widespread uncertainty. The result is the pronounced impairment of credit market function, with a more cautious attitude and lower economic activity in general. Meanwhile, we have a continued stable rentals market and very healthy underlying earnings in Kungsleden’s property portfolio.
We have chosen to downgrade our forecast due to the continued challenging market climate and difficulties determining which deals that can be completed in the fourth quarter. We now expect profit for calculating dividends for the full year 2008 of SEK 700 m, against the previous forecast of SEK 900 m. The downgrade is due to a weak transaction market.
The new forecast is based exclusively on management profits through the year including transactions completed until the present.
Credit market turbulence has put company finance into focus. For Kungsleden, we have extended our average interest fixing period to 2.1 years. After the end of the quarter, we fixed the interest rate of SEK 5 bn of our short interest fixings at a rate of under 4 per cent, to apply for 2009. Those loans of SEK 1.9 bn that mature and are due for conversion in the remainder of 2008 and 2009 amount to less than 10 per cent of the total funding portfolio. We see good prospects for arranging this forthcoming re-financing, and if this does not prove to be the case, it lies within our un-utilised credits of SEK 2 bn.
We are continuing to enjoy very favourable underlying earnings, stable cash flows and healthy liquidity. Gross profit grew by 19 per cent year on year. We also have projects that are nearing completion and can contribute to higher earnings, as well as indexations that raise our property yield levels. Of course, we cannot rule out the possibility of vacancies increasing somewhat in the wake of a weaker business cycle, but we do not think the pressure on rent levels will increase notably, because generally, we already have low rent levels.
Factors affecting property values include rental levels, contract terms, property type and counterparties. Kungsleden has a property portfolio with long rental contracts, stable counterparties and low rent levels. Our public properties—retirement homes, schools and care properties—make up 59 per cent of our portfolio, including Germany. In commercial properties, we also have longer contract terms averaging 4-5 years. This provides security and support for property values. With long rental contracts and stable counterparties, the risk of terminations is limited. For Kungsleden’s part, the value decrease for the period is 0.5 per cent.
In retirement homes, at present we see more deal opportunities in Sweden than in Germany. Accordingly, we have decided to restrict and integrate the German operation into the Public Properties division, thus moving from four divisions to three. Simultaneously, we are cutting our costs by not completing selected projects and downsizing staffing in Germany. After the end of the period we also took measures to reduce staffing in module production. These measures will not affect our profits this year, and only marginally in 2009.
We are closely monitoring developments on the financial markets and have respect for their intrinsic forces, but with a solid base in public properties, long contracts and stable cash flows, we’re well-equipped even if credit market turmoil continues,” commented Kungsleden’s Chief Executive Thomas Erséus.
Kungsleden discloses the information in this press release according to the Swedish Securities Markets Act and/or the Swedish Financial Trading Act. The information was provided for public release on 22 October 2008 at 3:00 p.m.