Financial Statement 2008: Adapting to the market and diversifying risk safeguards stable cash flows
• Net sales increased by 11 per cent to SEK 2,897 (2,612) m and gross profit increased by 15 per cent to SEK 1,967 m (1,705).
• Kungsleden posted a loss before tax of SEK –1,185 (2,621) m of which value changes were SEK –1,803 m (1,372). The net loss was SEK –962 (2,400) m in the year, equivalent to SEK –7.00 (17.60) per share.
• As of 31 December 2008, the property holding comprised 603 (575) properties with a book value of SEK 28,576 (25,737) m.
• In 2008, 54 (213) properties were acquired for SEK 3,408 (9,625) m; 28 (222) properties were also divested for SEK 1,313 (9,475) m, generating a profit of SEK 12 (580) m. These divestments affected profit for calculating dividends by SEK 268 (1,465) m.
• Profit for calculating dividends for 2008 was SEK 840 (2,019) m, equivalent to SEK 6.20 (14.80) per share.
• The Board of Directors is proposing a dividend of SEK 1.50 (8.00) per share.
• Kungsleden entered an agreement with Sweden’s Third AP (Pension Insurance) Fund regarding the sale of 50 per cent of the ownership of 282 public properties, corresponding to a value of SEK 15.4 bn. This transaction is consistent with book value, and expected to affect profit for calculating dividends by SEK 800 m for 2009. It is scheduled for completion in the first quarter of 2009.
Fourth quarter (October–December)
• Net sales increased by 6 per cent to SEK 722 (681) m.
• The loss before tax was SEK –1,462 (1,070) m. The net loss was SEK –1,311 (1,237) m, equivalent to SEK –9.60 (9.10) per share.
“Major turbulence characterised the financial markets last year, particularly in the latter half-year. The number of property transactions reduced, while the rental market was largely unaffected. For Kungsleden’s part, ongoing management progressed well, with net sales rising by 11 per cent and gross profit growing by 15 per cent. The year’s indexations, combined with continued low vacancies and stable cash flows, mean we perceive a fundamental security for management profits in 2009.
Value changes were SEK –1,803 m of which SEK –213 m in the property portfolio. Our internal valuation process is based on the cash flow each property generates. Rent levels, a property’s location and condition, and its potential for alternative usage, are also factored into our calculations. All property divestments last year were at levels above or around book value, which corroborates our valuations. The external valuations also support book value.
The value change of SEK –1,590 m on financial instruments is due to parts of our loan portfolio being hedged in the quarter. Late in the quarter, market interest rates dropped sharply, so negative value arose in our credit portfolio.
Adapting to the market and diversifying risk
We integrated our German operation into the Public Properties division in the year. The combination of turbulence on the financial markets and a perception of better opportunities in Sweden contributed to the closure of our Munich office, and Kungsleden exiting some projects. Our modular operations posted record profits, despite a sharp demand slowdown for work units in the second half-year. Measures have been taken to adapt production capacity. However, modular lettings to municipalities are still making positive progress.
In the year we acquired a total value of public properties of SEK 2.2 bn, from counterparties including the City of Västerås (west of Stockholm) and GE Real Estate. Progress in our public portfolio remains stable with development projects coming on stream in 2009–2010, and thus starting to contribute to our operating net. In the commercial portfolio, we continue to reflect our public portfolio, with long-term contracts and stable counterparties. Our average rental contract is now at six years in the commercial portfolio and seven years in the public portfolio. We have also been addressing customer care and customer satisfaction proactively.
Of sales and administration costs of SEK 375 m, Germany and Nordic Modular represent SEK 120 m. The high transaction volume in late 2007 and transactions in late 2008 also contributed to the cost increase. If transaction volumes contract in 2009, this would also contribute to administration costs reducing.
Late in the year, we signed an agreement to divest 50 per cent of the ownership of Public Properties to the Third AP Fund. This transaction creates a positive liquidity effect of SEK 2.3 bn for Kungsleden, and will increase profit for calculating dividends in 2009 by SEK 800 m. Our collaboration with the Third AP Fund strengthens our balance sheet and frees capacity for continued business development. The transaction is conditional on retained funding and approval from the competition authorities. Because this transaction has not been definitively completed, we intend to issue a forecast for year-2009 profit for calculating dividends at a later date. We still anticipate this transaction being completed in the first quarter.”
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 19 February 2009 at 1:45 p.m.
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