Transformation complete – Kungsleden is well-equipped for the future
THE REPORT IN BRIEF
The first half-year in brief
- Total revenues amounted to SEK 1,182 (1,222) million and the operating net to SEK 753 (785) million.
- Profit from property management was SEK 466 (486) million.
- Unrealised changes in value in the property portfolio amounted to SEK 648 (912) million.
- Net profit (loss) for the period increased to SEK 924 (769) million, which is equal to SEK 4.54 (4.13) per share.
- New leasing amounted to SEK 91 (104) million and net leasing to SEK 45 (40) million.
Important events during and after the second quarter
- 18 properties were divested for a total of SEK 882 million and the objective to divest non-strategic properties of SEK 2 billion 2016–2017 has been achieved
- Five properties with residential potential were divested to an estimated profit of approximately SEK 200 million, of which just over SEK 70 million was reported as an unrealised value change during the second quarter.
- Two development projects – in Umeå and Östersund – went into the implementation stage thanks to successful new leasing.
- An agreement has been signed with Malmö municipality on land allocation in Hyllie with building rights for a total of 8,400 sq.m of office space.
- The financial target for the LTV (loan-to-value) ratio was adjusted and should now have a target value of 50 per cent.
CEO Biljana Pehrsson comments
During the second quarter, Kungsleden reached several of the objectives that were drawn up earlier to create an attractive property portfolio. We have finalized the divestment program of non-strategic properties for SEK 2 billion and thereby concentrated 80 per cent of the holdings in four priority growth markets. The market continues to be strong and we can report good leasing results and strong profit despite a smaller property portfolio. We are now entering the next phase.
The divestment program and geographic concentration finalized
The divestment activities was high during the second quarter and the goal to divest non-strategic properties for SEK 2 billion during the period 2016–2017 was reached ahead of schedule. The divestments have been made at a total price in line with the properties’ book values. It is primarily industrial and retail properties in smaller cities that have been divested, and in the process we have ceased operations in 26 municipalities.
The strategy to develop and divest properties with potential for residential construction has been implemented according to plan and with positive results. During the quarter, we have divested five properties with future residential building rights. During the last 12 months we have divested about 180,000 sq.m of potential identified for residential building rights at prices between SEK 2,500 and 10,000 per sq.m gross area. The divestments are forecasted to generate a total profit of approximately SEK 430 million of which SEK 42 million was realised in 2016 and just over SEK 70 million was reported as an unrealised value change during the second quarter this year. The remaining profit will appear when the zoning plans are close to completion.
Kungsleden’s property portfolio is now concentrated on our four priority growth markets in Stockholm, Gothenburg, Malmö and Västerås (80 per cent) as well as an additional 19 municipalities, largely cities with stable rental market such as Norrköping, Linköping, Växjö, Östersund, Helsingborg and Lund.
The geographic transformation of the portfolio is, as a result of this, completed and we are entering a new phase with focus on growing the operating net by doing value creating investments in existing holdings as well as selective supplementary acquisitions.
Strong leasing and positive renegotiations
The fundamentals of the market continue to be good with high demand for premises, especially offices in Stockholm, but also in our other prioritised markets. This is reflected in our leasing results for the first half of the year with 111 signed lease agreements, corresponding to leasing of SEK 91 million in rental value and net leasing amounting to SEK 45 million.
Thanks to three newly-signed lease agreements, we can initiate two profitable new construction projects in the Östersund cluster and in Umeå. Both of these properties are 100 per cent leased. We now have seven development projects in the construction stage with an estimated rental value of in total SEK 126 million per year and an investment volume of SEK 1,145 million up until 2021.
The renegotiation of leases is also developing well. During the first half of the year we have renegotiated 42 agreements and increased the rental value in these from SEK 72 to SEK 77 million. The average increase of 7 per cent contributes to that rental revenue, per square metre on a 12 month rolling basis, now amounts to SEK 1,090 compared to SEK 1,073 at the end of the first quarter.
Lower financial risk
Kungsleden is aiming for a lower financial risk than in the past and during the quarter we communicated a new objective for the LTV (loan-to-value) ratio of 50 per cent. At the end of the interim period the LTV (loan-to-value) ratio amounted to 51 per cent against 56 per cent at the beginning of the year. For the repayment of the loan on divested properties which were vacated after the interim period, the LTV (loan-to-value) ratio is just below 50 per cent.
The proposed restrictions to the deduction of interest costs affect Kungsleden marginally with current interest rate levels. If the limitations in the interest rate deduction possibilities are introduced, Kungsleden’s profit would decrease by approximately 3 per cent, as measured by EPRA EPS.
Positive half-year result and outlook
Our profit from property management for the first half of the year 2017 of SEK 466 million is only somewhat lower than the outcome for the corresponding period of 2016 (486), despite the fact that we have far fewer properties and less leasable area – 2,307 k sq.m. compared with 2,617 sq.m. The costs are lower and rental revenue has only fallen marginally.
We continue to deliver in line with what we have set out to do. Leasing has continued to develop strongly following the first half year – in July we signed a lease agreement for 5,400 sq.m. in the Rotterdam 1 property in the Gärdet Frihamnen, cluster at an annual rent of SEK 3,000/sq.m.
The rental market is developing well and we think the trend will continue during the rest of the year. Things are going well for Sweden and the demand for offices is high. Kungsleden is well-positioned to take advantage of these opportunities.
This information is information that Kungsleden is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact persons set out above, on 12 July 2017, 7 am CET.
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Kungsleden is a long-term property-owner that provides attractive, functional premises that enrich people’s working days. We create value by owning, managing and developing offices and other commercial properties in Stockholm and Sweden’s other growth regions. A large portion of our properties belong to attractively located clusters where we also engage in the development of the whole area. Kungsleden’s goal is to deliver an attractive total return on our properties and for our shareholders. Kungsleden is listed on NASDAQ Nordic Large Cap.