YEAR-END REPORT. Fourth quarter fiscal year. Forecast for 2015

Transcription

1 Year-end report AB Sagax is a property company whose business concept is to invest in commercial properties, primarily in the warehouse and light industry segment.

2 YEAR-END REPORT fiscal year Rental revenue increased 19% to SEK 1,93 M (919 for ). Profit from property management increased 35% to SEK 73 M (521). Profit from property management per common share after dilution rose 37% year-on-year to SEK 3.73 (2.73). In total, property revaluation amounted to SEK 687 M (134). Fixed-income derivatives were revalued downward by SEK 485 M (upward: 265). Profit after tax for the year amounted to SEK747 M (777), corresponding to SEK 4.1 (4.4) per common share after dilution. Cash flow from operating activities before changes in working capital amounted to SEK 585 M (426), corresponding to SEK 2.99 (2.12) per common share after dilution. Net investment in property by Sagax during the year was SEK 1,863 M (1,169). Sagax acquired 46 properties and divested three properties during. The Board of Directors proposes that the dividend per common share be raised 45% to SEK.8 (.55). The Board also proposes a dividend of SEK 2. (2.) per preference share through a quarterly payment of SEK.5. Fourth quarter Rental revenue increased 18% to SEK 287 M (244 for the year-earlier period). Profit from property management increased 4% to SEK 185 M (132) during the quarter. In total, property revaluation amounted to SEK 392 M (34). Fixed-income derivatives were revalued downward by SEK 128 M (upward: 3). Profit after tax for the period amounted to SEK 393 M (176). Cash flow from operating activities before changes in working capital amounted to SEK 159 M (14) for the quarter. During the fourth quarter, Sagax net invested SEK 549 M (218) in properties. During the quarter, 28 properties were acquired, one of these was Sagax s first property acquisition in Paris. Forecast for 215 During 215, profit from property management, meaning profit before revaluations and tax, is expected to amount to SEK 81 M based on the current property portfolio and announced acquisitions and divestments Selected key performance indicators Profit from property management per common share, SEK Change compared with preceding year 37% 27% 4% 14% 23% 27% Earnings per common share, SEK Dividend per common share, SEK ( proposed) Dividend per preference share, SEK ( proposed) Properties market value, SEK M 13,428 1,825 9,396 8,961 7,535 6,422 Yield 7.6% 7.7% 7.8% 7.7% 8.1% 8.1% Lease term, years Cover: At the Bulten 5 property in Danderyd, Sagax is building a car showroom for Jaguar and Land Rover, as illustrated above. The property is scheduled for completion on December 1, 215 and represents an investment by Sagax of about SEK 56 M. The car showroom will enhance the area s position as one of Stockholm s strongest areas for sales of premium cars. The area, in which Sagax owns five other properties of the same type, has a strategic location along the E18 expressway, by the entrance to Djursholm. Year-end report

3 CEO S COMMENTS Sagax s earnings trend Primarily as a consequence of higher net operating income (up SEK 37 M) and increased profit from joint ventures (up SEK 24 M), profit from property management for the fourth quarter rose from SEK 132 M in to SEK 185 M in. The latter was attributable to a positive trend in Söderport as a consequence of the acquisition of properties from the Volvo Group. Profit from property management for was SEK 73 M, up 35% year-on-year and 69% higher than 212. The corresponding figures per common share were growth of 37% and 73% respectively. The forecast for 215, given in more detail below, is for profit from property management to increase a further 15% and by 18% per common share. Accordingly, Sagax is following a positive trend. Impact of the derivative on profit from property management In this context, it is worth noting that growth in profit from property management was not attributable to lower capital costs. At year-end, our average interest rate was 4.1%, which is essentially the same as in 29 (4.3%). The main reason for the limited change is that, historically, Sagax has used long fixed-interest periods. This means that the company has not benefited from the interest-rate decline of recent years as would otherwise have been the case. Our average swap interest rate (in other words, excluding the loan margin) was 3.1% at year-end, which can be compared with current market interest rates which are below 1.%. Accordingly, Sagax s average interest expenses have the prerequisites in place to be gradually reduced over the next few years. Financial risk Sagax s earnings growth is based on well-functioning management combined with successful investing activities. A key issue for the company and its owners is whether the success of investing activities is at the expense of gradually increased financial risk. During, the Group s interest-bearing net debt in relation to the market value of the properties (which expresses the company s ability to refinance at market terms and conditions) declined from 64% to 63%. The interest-coverage ratio (which expresses the company s ability to meet its financial undertakings) rose from a multiple of 2.4 to 2.6. Accordingly, Sagax s investing activities have not increased financial risk and have thus, in all probability, created value for the company s owners. On evaluation of the company s financial risks, owners should make two observations: Firstly, that in addition to the property portfolio, the Group has fixed assets in the form of investments in the joint ventures, Hemsö and Söderport, with a value of about SEK 8 M. Should these shareholdings be divested at their assessed market values, the ratio between interest-bearing net debt and the market value of the properties will decrease by 6 percentage points from 63% to 57%. In other words, Sagax has significant assets in addition to its property portfolio. Secondly, the reported interest-coverage ratio undervalues the actual payment capacity, due to the terms for the derivative portfolio described above (a simple measurement to exclude this effect is place EBITDA in relation to interest-bearing net debt). Total yield The total yield for Sagax, that is the sum of EBITDA and the value trend for properties in relation to the value of the property portfolio, measures the company s profitability excluding the effects of borrowings. For, the total yield was 11.%, of which 7.3 percentage points was cash flow. Over the past five years, the total yield has amounted to 1.1%, of which 7.8 percentage points was cash flow. Accordingly, the outcome for was in line with Sagax s historic performance. In my opinion these represent attractive levels in terms of the market generally both in respect of the absolute levels and the proportion of the yield generated by cash flow. Positive earnings trend expected in 215 Finally, profit from property management in 215 is forecast to amount to SEK 81 M based on the current property portfolio and announced acquisitions and divestments. Accordingly, we assess the company as being positioned well ahead of 215. Stockholm, February 12, 215 DAVID MINDUS Chief Executive Officer Year-end report 1

4 BUSINESS CONCEPT, GOALS AND STRATEGIES Business concept AB Sagax is a property company whose business concept is to invest in commercial properties, primarily in the warehouse and light industry segment. Company goals The overriding goal is the long-term generation of the maximum risk-adjusted return to the company s owners. To reach this goal, Sagax has set the following business targets: Operations must generate a long-term sustainable return and strengthen cash flow. The company is to continue to grow through property acquisitions after taking into account the risk-adjusted return. Measured in real terms, the company is to create cash-flow growth from the existing property portfolio. Financial targets Return on equity, measured over a five-year period, should not fall below 15% per year. During the year, it was 18%. The average return over the past five years has been 18% per year. Profit from property management per common share should increase by a minimum of 15% per year. In, it increased to SEK 3.73 per common share, up 37% year-on-year. The average increase over the past five years has been 2% per year. The long-term target for the interest-coverage ratio is a minimum of 15%. The interest-coverage ratio was 26% for the year and the average over the past five years has been 24%. The long-term target for the debt ratio is less than 7%. The debt ratio amounted to 59% and the average over the past five years has been 65%. The following diagram illustrates the outcome for the past five years in relation to the financial targets. RETURN ON EQUITY PROFIT FROM PROPERTY MANAGEMENT PER COMMON SHARE % 5 SEK % Return on equity Return on equity, rolling 5 years Objective for return on equity over a five-year period is 15% Profit from property management per common share, rolling 12 months Annual growth rate, rolling 12 months Objective for annual growth rate is 15% INTEREST-COVERAGE RATIO DEBT RATIO % 3 % Interest coverage ratio Over the long term, must never be less than 15% Debt ratio Over the long term, must never exceed 7% 2 Year-end report

5 Strategies Investment strategy Sagax invests primarily in warehouse and industrial properties. As a result of a high continuous yield in combination with a low rate of new production and stable leasing rates, properties designed as warehouses and for light industries are attractive investment objects. Sagax invests in complementary acquisitions and investments in existing properties. Property acquisitions and investments in the existing portfolio are aimed at increasing cash flow and diversifying rental revenue to thereby reduce the company s operational and financial risks. The following diagram illustrates Sagax s rate of growth over a ten-year period in terms of the properties market value and lettable area since 25. Financing strategy The financing structure of Sagax is designed with a clear focus on operating cash flow and the interest-coverage ratio. This is expected to create excellent prerequisites for expansion and an attractive return on shareholders capital. The following diagram shows Sagax s profit from property management and cash flow from operating activities. As illustrated, cash flow corresponds closely to profit from property management. The deviation is due mainly to profit from joint ventures, which is not recognized as cash flow. Dividends received from joint ventures are recognized as cash flow from operating activities. Sagax adopts a conservative approach to the assumption of risk and thus endeavors to achieve well-balanced fixed interest and maturity structures to secure operating cash flow. The average fixed-interest period was 3. (3.7) years at the end of the quarter. The long fixed-interest period reduces interest-rate sensitivity but results in a higher average interest rate than a shorter fixed-interest period. The company also endeavors to have a low refinancing risk. The average maturity period at year-end was 3.2 (3.5) years. The company has three classes of shares: Class A common shares, Class B common shares, and preference shares. The preference shares attract investor categories that value a steady stream of MARKET VALUE AND AREA OF PROPERTIES dividends. The preference shares diversify Sagax s capital base and allow the company to increase the Group s capital without increasing the number of common shares. Class B shares have been issued to positively impact the liquidity and pricing of common shares while contributing to enhancing Sagax s financial flexibility. Management strategy Sagax pursues efficiency and a long-term approach in its management strategy. The management strategy includes actively pursuing long leases. This applies equally to new leases and to the management of existing leases. The company s policy is to abstain from attempting to maximize rent levels at all points of time in favor of reaching lease agreements of a longer duration with solvent tenants. This is regarded as being more advantageous since it reduces the risk of vacancies, while leading to reduced costs for letting premises and adapting premises to tenant needs. On December 31, the average remaining term under the company s leases was 8.2 years (8.). Strategy for tenants Sagax endeavors to attract well-reputed and creditworthy tenants. The company mainly enters into leases that exclude the cost of heating and hot water and that are thus only affected to a limited extent by changes in consumption or changed rates, pertaining to such utilities as heating, electricity, property tax, water and sewage. Strategy for the rental market Sagax invests primarily in regions experiencing stable population growth and that have diversified business activities. Sagax s greatest exposure to the rental market occurs in Stockholm and Helsinki, which are the markets regarded as offering the best potential for long-term growth in the Nordic region. The risk of a decline in the leasing rate and rent levels due to a weaker rental market is regarded as low in view of the stable demographic growth and the diversified business operations in these regions. Read more about this in the Sagax Annual Report for. PROFIT FROM PROPERTY MANAGEMENT AND CASH FLOW s square meters 1,6 1,4 1,2 1, SEK M 16, 14, 12, 1, 8, 6, 4, 2, SEK M Lettable area Market value Profit from property management, rolling annual value Cash flow from operating activities before change in working capital, rolling annual value Year-end report 3

6 EARNINGS, REVENUE AND EXPENSES The profit/loss and cash-flow items below refer to the January to December period. The comparative items refer to the year-earlier period. Amounts for the balance-sheet items and comparative figures refer to the position at the end of and, respectively. Earnings Profit from property management rose 35% to SEK 73 M (521), of which joint ventures accounted for SEK 178 M (79). The increase was attributable to property investments and improved profit from joint ventures. Profit from property management per common share after dilution rose 37% to SEK 3.73 (2.73). The properties were revalued by SEK 687 M (134), of which the revaluation of joint ventures accounted for SEK 246 M (2). Sagax s financial instruments were revalued downward by SEK 259 M (upward: 197), of which a downward revaluation of SEK 26 M (upward: 21) pertained to unrealized changes in the value of fixed-income derivatives and SEK 1 M (downward: 4) to realized changes in the value of fixed-income derivatives. Sagax s earnings were also impacted by a negative SEK 226 M (pos: 68) due to the revaluation of fixed-income derivatives in joint ventures. The main reason for the revaluation was that long-term market interest rates declined during the year. Profit after tax for the year was SEK 747 M (777). Revenues Rental revenue increased 19% to SEK 1,93 M (919). Revenue was positively affected by property acquisitions, revenue-increasing investments in the existing property portfolio and indexation of Finnish rental revenue. Other revenue of SEK 2 M (9) primarily comprised compensation from tenants who had been granted the right to prematurely vacate their premises during the year. PROFIT FROM PROPERTY MANAGEMENT ECONOMIC LEASING RATE SEK M/Quarter 21 SEK M/Year 7 % Profit from property management per quarter Rolling annual value Leasing rate Rolling annual value RENTAL REVENUE SEK M/Quarter 3 SEK M/Year 1,2 25 1, Rental revenue per quarter Rolling annual value 4 Year-end report

7 Change in the economic leasing rate The economic leasing rate was 94%, compared with 92% at yearend. During the year, the vacancy value rose SEK 22 M (34) due to tenants vacating premises and declined SEK 38 M (26) due to occupancies. Discounts provided on a fixed-term basis amounted to SEK 28 M (23) on an annual basis at the end of the year. The terms for the discounts are described in the table below. Stockholm accounts for a total of 58% (63) of the vacancy value. The closing vacancy value was SEK 74 M (8), a net change of SEK 6 M during. Adjusted for a vacancy value of SEK 5 M pertaining to property acquisitions, the vacancy value declined SEK 11 M during the year due to leasing activities, of which SEK 7 M was in Stockholm. Future vacancy changes Notice of termination had been served for leases with a rental value of SEK 18 M (21) at year-end, of which notice of renegotiation accounted for SEK 1 M (1) and notice of vacating the premises for SEK 17 M (2). Of the leases for which notice of vacating the premises had been received, vacancies corresponding to SEK 8 M will occur in 215 and SEK 9 M in 216 or later. The rate of vacating premises is described in the table below. New lettings that have not yet been occupied reduced the adjusted vacancy value by SEK 2 M (17). The adjusted closing vacancy value was SEK 9 M (84), up SEK 8 M during. VACANCY CHANGES Amounts in SEK M Opening vacancy for each year 8 66 Vacancies Occupancies Change in discounts provided 5 1 Vacancy value, acquired properties 5 5 Closing vacancy value 74 8 Terminated for renegotiation 1 1 Terminated lease, not vacated 17 2 New letting, not occupied 2 17 Adjusted closing vacancy value 9 84 TERMS FOR DISCOUNTS PROVIDED Year of maturity SEK M >219 1 Total 28 LEASES TERMINATED FOR VACANCY Year of vacancy No. of leases Rental value, SEK M Total VACANCIES ON JANUARY 1, 215 Area Rental value, SEK M Vacancy value, SEK M 1) Economic vacancy rate 1) Lettable area, sqm Vacant area, sqm Leasing rate by area vacancy rate Stockholm % 532, 33, 6% Helsinki % 28, 12, 4% Rest of Sweden % 493, 4, 8% Rest of Finland 144 % 241, Other % 88, Total 1, % 1,634, 85, 5% 1) The vacancy value and vacancy rate take into account vacancies as well as discounts provided to tenants. Year-end report 5

8 Property expenses Operating and maintenance costs rose to a total of SEK 94 M (77). The increase was due primarily to property acquisitions during the past 12 months. Property tax and site leaseholds amounted to SEK 44 M (38). Costs for property administration amounted to SEK 22 M (17). Central administration Costs for the Group s central administration amounted to SEK 47 M (42). The Parent Company, AB Sagax, is responsible for stock market issues, such as financial reporting and stock market information. The Parent Company is also responsible for credit market issues, such as borrowing and financial risk management. Services transferred between Group companies are charged on commercial terms and conditions and in accordance with market-based pricing. Intra-Group services comprise management services and internal interest charging. During the year, the Parent Company s fees for property and company management from Group companies amounted to SEK 31 M (24) and from joint ventures to SEK 13 M (9). Management fees from companies outside the Group amounted to SEK 1 M ( ) during the year. The Parent Company s income statement and balance sheet are shown on page 21. At the end of the year, the Group had 29 employees, of whom 12 were women. 2 employees work at the Parent Company and are stationed at the company s office in Stockholm, eight employees work in one of the Finnish subsidiaries and are stationed in Helsinki and one employee works in France and is stationed in Paris. The other subsidiaries have no employees. Such functions as property management and on-call operations are outsourced. Earnings from joint ventures Profit from joint ventures amounted to SEK 178 M (79) and pertained to Sagax s shares in the earnings of Söderport and Hemsö; refer also to joint ventures section on page 14. Profit from joint ventures, including changes in the value of properties and fixedincome derivatives, was SEK 198 M (149), of which profit from property management accounted for SEK 178 M (79) M, changes in the value of fixed-income derivatives for an expense of SEK 226 M (revenue: 68) and changes in the value of properties for SEK 246 M (2). Net financial items Sagax s financial expenses amounted to SEK 366 M (312). The company s average interest rate was 4.1% (4.4%) at December 31,. During the past 12 months, due to financing of property acquisitions, interest-bearing liabilities have increased to SEK 8,525 M (7,32), which also explains the increase in financial expenses. In recent years, Sagax s debt ratio has declined in parallel with a rise in the interest-coverage ratio; see diagram below. This means that financial expenses have declined in relation to Group revenues. For more information about financing at Sagax, see page 15. Sagax s financial income for the year amounted to SEK 4 M (1). Revaluations of properties At December 31,, the property portfolio comprised 184 (141) properties with a market value of SEK 13,439 M (1,825). The value trend for operations in Sweden was an increase of SEK 412 M (44) and foreign operations reported an increase of SEK 24 M (92). New lettings and renegotiations of leases increased the DEBT RATIO AND INTEREST-COVERAGE RATIO Interest-coverage ratio Debt ratio Interest-coverage ratio, % Debt ratio, % 6 Year-end report

9 market value of the properties by SEK 92 M (6), and vacancies and renegotiations reduced the value by SEK 36 M (24). During the year, the general change in market value for properties was SEK 38 M (1), of which an increase of SEK 345 M pertained to properties in Sweden. The change in market value in Sweden reflects the strong demand and high turnover characterizing the property market in, particularly in the fourth quarter. The market value of the property portfolio was revalued by a total amount of SEK 436 M (136), excluding currency effects. The change in the market value of the property portfolio is also described on page 13. UNREALIZED CHANGES IN VALUE: Amounts in SEK M New lettings/renegotiations 79 Vacancies/Renegotiations 12 General market value changes 345 Sub-total Sweden 412 New lettings/renegotiations 13 Vacancies/Renegotiations 24 General market value changes 35 Sub-total Foreign 24 Total unrealized changes in value 436 interest rates. The reserve for the deficit value of fixed-income derivatives at the end of was SEK 551 M (316); refer to the section on financing on page 15. The reserve for these deficit values will be gradually dissolved and reversed to profit and loss by the expiry date of the derivative contracts, regardless of the interest rate scenario. Accordingly, the revaluations do not impact Sagax s cash flow or debt ratio. Sagax s earnings were also impacted in by a deficit of SEK 226 M (surplus: 68) due to the revaluation of fixed-income derivatives in Sagax s joint ventures. In its consolidated financial statements, Sagax continuously recognizes the company s share of deficit values of the fixed-income derivatives of its joint ventures. Tax Sagax recognizes a current tax expense of SEK 11 M (5) for the foreign operations. The deferred tax expense for the year amounted to SEK 148 M (155). Sagax s share of its joint ventures tax expenses is recognized in Sagax s profit and loss. The deferred tax expense for joint ventures amounted to SEK 53 M (9). The Group s deferred tax assets and tax liabilities amounted to SEK 1 M (2) and SEK 434 M (336), respectively, at the end of the year. Deferred tax assets were recognized net against deferred tax liabilities for the respective countries in the balance sheet. Sagax is not involved in any tax disputes. The weighted yield requirement used in the valuations was 7.9% (8.). The weighted cost of capital for the present value calculation of cash flows and residual values amounted to 8.9% (9.4) and 9.8% (9.8), respectively. See also the section on analysis and general conditions on page 13. Revaluation of financial instruments Sagax s financial instruments at December 31, exclusively comprised fixed-income derivatives in the form of nominal interestrate swaps and interest-rate ceilings. All financial instruments are recognized at market value and changes in market value are recognized in profit and loss. Changes in value for the year amounted to a deficit of SEK 259 M (surplus: 197), of which a deficit of SEK 26 M (surplus: 21) pertained to unrealized changes in value and SEK 1 M (deficit: 4) to realized changes in value. Sagax recognizes negative unrealized changes in the value of fixed-income derivatives because market interest rates declined during the year, a consequence of, for example, both Sweden s Riksbank and the European Central bank reducing their key DEFERRED TAX ASSETS/TAX LIABILITIES BY COUNTRY Amounts in SEK M Dec 31, Sweden 236 Finland 182 Germany 16 Denmark 1 Net tax assets/tax liabilities 433 Cash flow Cash flow from operating activities before changes in working capital amounted to SEK 585 M (426). Changes in working capital had an impact of SEK 4 M (neg: 14) on cash flow. Investing activities had a negative impact of SEK 1,924 M (neg: 1,42) on cash flow, while cash flow from financing activities contributed SEK 1,236 M (756) to Sagax. In total, cash and cash equivalents declined SEK 61 M (decline: 252) during the year. See page 18 for the statement of cash flows. Year-end report 7

10 FORECAST AND CURRENT EARNINGS CAPACITY Forecast for 215 Profit from property management for 215, meaning profit before revaluations and tax, is expected to amount to SEK 81 M based on the current property portfolio and announced acquisitions and divestments. Current earnings capacity The table below shows Sagax s earnings capacity on a 12-month basis at January 1, 215. It is important to note that this capacity cannot be compared with a forecast for the forthcoming 12 months because it does not contain assessments about, for example, future vacancies, the interest rate scenario, currency effects, rent trends or changes in value. Nor does it take into account repayments, when agreed rent supplements come into effect or discounts provided cease to apply. Sagax reports its current earnings capacity in conjunction with interim reports and year-end reports. The rental value is based on contractual rental revenue on an annual basis, with supplements for estimated market rents for vacant premises. Property expenses are based on actual outcomes over the most recent 12-month period adjusted for the holding period. Costs for central administration are based on actual outcomes over the most recent 12-month period. Net financial items are calculated based on interest-bearing liabilities and assets on the balance sheet date. Expenses for interest-bearing liabilities are based on the Group s estimated average interest rate, with the addition of financing costs allocated over time. Tax is calculated at the standard tax rate of 22% and is deemed to almost exclusively comprise deferred tax. Sagax s share of profit in joint ventures is calculated in accordance with the same assumptions as for Sagax, taking into account the size of the participation. CURRENT EARNINGS CAPACITY CURRENT EARNINGS CAPACITY BEFORE TAX Amounts in SEK M Jan 1, 215 Jan 1, Rental value 1,267 1,51 Vacancy 74 8 Rental revenue 1, Property expenses Net operating income 1, Central administration Share of profit of joint ventures Net financial items Profit from property management Tax Profit after tax of which holders of preference shares of which, holders of common shares SEK M YIELD AND LENDING RATE DIFFERENCE BETWEEN YIELD AND LENDING RATE % 1 % Yield of Sagax s properties Sagax s average lending rate Ten-year swap rate Difference between yield of Sagax s properties and ten-year swap rate Difference between yield of Sagax s properties and Sagax s average interest rate 8 Year-end report

11 In 215, Sagax took possession of three properties in Helsinki, which were acquired at a total acquisition cost of SEK 265 M. The properties comprise car showrooms and workshop premises and encompass a total lettable area of 26, square meters and 66, square meters of land. The properties are fully leased to Bilia Oy, a wholly owned subsidiary of Volvo Cars. The above photo shows Puusepankatu 2 in Herttoniemi in Helsinki. The property comprises 7,86 square meters of lettable area and is located in a well-established retail area, strategically located along the 17 expressway in Helsinki. A number of other car dealers are represented in the area. Year-end report 9

12 PROPERTY PORTFOLIO At December 31,, the property portfolio comprised 184 (141) properties with a lettable area of 1,634, square meters (1,336,). The average remaining lease term was 8.2 years (8.). The focus of the portfolio is on the Stockholm region where 42% (46) of the market value and 4% (45) of the rental value is concentrated. At year-end, the total rental value and contractual annual rent amounted to SEK 1,267 M (1,51) and SEK 1,193 M (971), respectively. This corresponds to an economic leasing rate of 94% (92). Investments During the year, Sagax invested SEK 1,962 M (1,263), of which property acquisitions accounted for SEK 1,722 M (1,122). SEK 367 M of the investments pertained to Stockholm and SEK 789 M to Helsinki, meaning that 59% of the investments during the year were made in Sagax s two principal markets. In, Sagax acquired 46 properties with a total lettable area of 316,7 square meters; see table below. In the last quarter of the year, possession was taken of 28 properties, including one property in Paris at an acquisition cost of about EUR 6 M. The acquisition represents Sagax s first investment in Paris. A total of SEK 24 M (141) pertained to investments in the existing property portfolio. SEK 63 M of the investments during the year were made against rent supplements, SEK 115 M was invested in production of new buildings, SEK 25 M was invested in conjunction with new leases and SEK 37 M pertained to property maintenance. In 215, Sagax took possession of three properties in Helsinki with a total of 26, square meters of lettable area and one property in Stockholm with a lettable area of 3,6 square meters. Divestments During the year, Sagax vacated three properties for a total purchase consideration of SEK 99 M; see table below. The properties lettable area totaled 8,2 square meters and the divestments resulted in a realized change in value of SEK 5 M. PROPERTY SALES JANUARY-DECEMBER Property Municipality Segment Lettable area, sqm Bälgen 4 Varberg Rest of Sweden 2,4 Tuottotie 4 Pirkkala Rest of Finland 4,7 Mästaren 6 Södertälje Stockholm 1,1 Total 8,2 PROPERTY ACQUISITIONS JANUARY-DECEMBER Property Municipality Segment Lettable area, sqm Tuna Äng 3 Botkyrka Stockholm 7,2 Murmästare-Ämbetet 1 Stockholm Stockholm 11,2 Flyghallen 1 Stockholm Stockholm 3,1 Trosta 1:27 Sigtuna Stockholm 3,8 Cirkelsågen 1 Huddinge Stockholm 8,6 Arendal 1:1 Gothenburg Rest of Sweden 4,5 Snäppan 5 Åmål Rest of Sweden 4,2 Lommen 6, Anden 1 Mellerud Rest of Sweden 7,2 Nedervara 3:4 Vara Rest of Sweden 1,2 Geväret 1, Värjan 2 Falköping Rest of Sweden 6,1 Fiskmåsen 14 Tranås Rest of Sweden 9,3 Traktorn 4 and 5 Aneby Rest of Sweden 2, Sköldmön 9 Nässjö Rest of Sweden 6,3 Brädan 1 Eksjö Rest of Sweden 5,2 Sågen 5 Sävsjö Rest of Sweden 1,5 Listen 1 Vetlanda Rest of Sweden 5,8 Plankan 2 Höganäs Rest of Sweden 7,2 Kristianstad 3:35 Kristianstad Rest of Sweden 8,7 Mörten 17 Eslöv Rest of Sweden 7,6 Bredablick 4 Malmö Rest of Sweden 17,8 Trävaran 1 Trelleborg Rest of Sweden 12,3 Grepen 9, 12 and 14 Lidköping Rest of Sweden 7, Ristipellontie 17 Helsinki Helsinki 2,8 Tiilitie 9 Vantaa Helsinki 5,1 Martinkyläntie 9 Vantaa Helsinki 55,8 Koivuvaarankuja 2 Vantaa Helsinki 28,3 Sanomatie 3 Vantaa Helsinki 3,3 Virkatie 1 ( ) Vantaa Helsinki 2,99 Pakkasraitti 4 ( ) Tuusula Helsinki 2, Pakkasraitti 4 ( ) Tuusula Helsinki 1,3 Kiitoradantie 14 Vantaa Helsinki 4,6 Vanha Vaasantie 13 Ylöjärvi Rest of Finland 9, Teollisuustie 11 Ylöjärvi Rest of Finland 5,1 Korjaamonkatu 1 Pori Rest of Finland 2,6 Kisällinkatu 1 Kotka Rest of Finland 2,3 Jatkokatu 1 Lahti Rest of Finland 5, Avantintie 2 Lieto Rest of Finland 5,6 Nuutisarankatu 19 Tampere Rest of Finland 4, 46 Rue Constantin Pecqeur Taverny Other 13,5 9 bc Tranders, Skjernvej 6 Aalborg Other 2,9 1 ru, Trollesminde, Lokesvej 1 Hillerød Other 3,6 Total 316,7 1 Year-end report

13 SUMMARY OF PROPERTY PORTFOLIO, JANUARY 1, 215 Segment No. of properties Lettable area, sqm Vacant area, sqm Market value SEK M SEK per sqm Rental value, SEK M Percentage of rental value Rental revenue Economic leasing rate SEK M Share Stockholm , 33, 5,691 1, % 91% % Helsinki 36 28, 12, 2,554 9, % 96% % Rest of Sweden , 4, 2,744 5, % 95% % Rest of Finland , 1,475 6, % 1% % Other 9 88, , 12 8% 93% 95 8% Total 184 1,634, 85, 13,428 8,2 1,267 1% 94% 1,193 1% YEAR OF MATURITY OF ANNUAL RENT GROUP S RENTAL VALUE SEK M 2 16 Other 8% Rest of Finland 11% Stockholm 4% PROPERTY INVESTMENTS JANUARY-DECEMBER Amounts in SEK M Property acquisitions Existing portfolio Total Stockholm Helsinki Rest of Sweden Rest of Finland Other Total 1, ,962 Rest of Sweden 19% Helsinki 22% LEASE TERMS Year of maturity No. of leases Contractual annual rent Area, sqm SEK M Share , 56 5% , 92 8% , 92 8% , 9 7% , 29 2% > ,15, 834 7% Total 527 1,549, 1,193 1% Year-end report 11

14 At the end of, Sagax acquired an industrial property in Paris for EUR 6 M. The property, 46 Rue Constantin Pecqeur in Taverny, which is located in an established industrial zone about 22 kilometers north of central Paris, comprises the company s first investment in the Paris market. The property is currently developed with 13,5 square meters of industrial and warehouse premises. The buildings were constructed in 1997 to The property is fully let on an 12-year lease that excludes the cost of heating and hot water with a bank guarantee of six-years rent as collateral. 12 Year-end report

15 MARKET VALUE OF PROPERTY PORTFOLIO Sagax prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Sagax has chosen to recognize its properties at fair value in accordance with the Fair Value Method. At December 31,, the market value of Sagax s 184 (141) properties totaled SEK 13,428 M (1,825). The strengthening of the EUR against the SEK during the year led to property values abroad increasing SEK 299 M (124). The total change in value during the year was SEK 436 M (136); refer also to the table unrealized changes in value on page 7. In accordance with IFRS, a deferred tax expense of SEK 41 M (35) taken into account in conjunction with acquisitions reduced the property values in the balance sheet. The recognized property value subsequently amounted to SEK 13,387 M (1,79). Valuation method and implementation The valuations were carried out in accordance with generally accepted international valuation methods. As of December 31,, all valuation objects were valued separately by authorized property appraisers from independent valuation agencies, with the exception of the Paris property taken possession of on December 23,, which was valued at the acquisition cost. The main method applied to the value assessment involved cash flow calculations, in which the present value of net operating income, investments and residual values were calculated. The calculation period was adjusted to the remaining term of existing leases and varies between five and 2 years. As a rule, the calculation period is ten years. All properties were inspected in the past threeyear period. These inspections include public areas and a selection of premises with specific emphasis on major tenants and vacant premises. The purpose of the inspections is to assess the properties overall standard, maintenance requirements, market position and the attractiveness of the premises. Analysis and general conditions The cost of capital for the present value calculation of cash flows ( %), the cost of capital for the present value calculation of residual values (7. 18.%) and the yield requirement for the residual value calculations ( %) are based on analyses of transactions carried out and on individual assessments of the risk level and market position of each property. The weighted cost of capital for the present value calculation of cash flows and residual values for the property portfolio amounted to 8.9% (9.4) and 9.8% (9.8), respectively. The weighted yield requirement amounted to 7.9% (8.) at December 31,, compared with an average yield requirement of 8.1% at September 3,. The yield requirement changed primarily due to the changed composition of the property portfolio and declining property-market yield requirements. By comparison, the yield reported by Sagax for the year was 7.6% (7.7). Weighted yield requirements are compared with the reported yield over time below. CHANGE IN CARRYING AMOUNT OF PROPERTIES YIELD COMPARED WITH YIELD REQUIREMENT SEK M Property portfolio, December 31, 1, Acquisition of properties 1, Investments in the current portfolio 24 Divestment of properties 94 3 Translation difference attributable to foreign property values 299 Change in value 436 Property portfolio, December 31, 13, Acquired, deferred tax 41 Carrying amount 13,387 No. % Reported yield Yield requirement used in valuations Yield on ten-year government bonds MARKET VALUE OF PROPERTIES Other 7% (SEK 964 M) Rest of Finland 11% (SEK 1,475 M) Stockholm 42% (SEK 5,691 M) Helsinki 19% (SEK 2,554 M) Year-end report Rest of Sweden 21% (SEK 2,744 M) 13

16 JOINT VENTURES Sagax s joint ventures Söderport Holding AB and Hemsö Intressenter AB contributed a total of SEK 178 M (79) to profit from property management during the year. Sagax s share of changes in the value of properties amounted to SEK 246 M (2) and the share of changes in the value of fixed-income derivatives was a negative SEK 226 M (pos: 68) during the year. Sagax s carrying amount for the share of equity in joint ventures amounted to SEK 796 M (669) at December 31,. The remaining properties are located in southern and central Sweden and comprise service workshops for trucks and buses. During the year, Söderport also acquired five properties in Åkersberga. In, Söderport sold four site leaseholds for Packrummet 9 12 in Årsta, Stockholm, to Ikano Bostad, which intends to construct housing on the sites. In, Söderport also divested a total of 11 car-inspection properties in Skåne and Gothenburg, and a property in Stockholm. Söderport Holding AB Sagax owns 5% of Söderport Holding AB, with the remaining shares owned by Hemfosa Fastigheter AB. Commissioned by Söderport, Sagax accounts for the property management and financial administration of the Söderport Group. Hemfosa performs property management activities in Gothenburg. A total of 5% of Söderport s lettable property area and 8% of the company s vacant area is located in Stockholm at December 31. Söderport s economic vacancies amounted to SEK 38 M (5) at year-end, corresponding to a vacancy rate of 7%. This may be compared with the opening vacancy rate of 15% for the year. Of the economic vacancies, SEK 12 M (13) comprised fixed-term rent discounts provided for new lettings. These discounts corresponded to 31% (27) of the economic vacancies, equivalent to 2.1 percentage points of the vacancy rate. In, Sagax s joint venture Söderport acquired and took possession of 12 properties for a combined purchase consideration of SEK 1.8 billion from companies in the Volvo group. Most of the properties are located in Torslanda, about 15 minutes from central Gothenburg and adjacent to the Port of Gothenburg. These properties comprise premises for warehouses, light industry and offices. Hemsö Intressenter AB Via Hemsö Intressenter AB, Sagax indirectly owns 15% of Hemsö Fastighets AB, with the remaining share owned by the Third Swedish National Pension Fund. Hemsö Fastighets AB conducts operations in Sweden, Germany and Finland. The operations comprise ownership, management and development of public properties, and are conducted in Sweden, Germany and Finland. The company s property portfolio encompasses 313 properties with a total property value of SEK 25 billion at December 31,. The properties, which are located in the three Swedish metropolitan regions of Stockholm, Gothenburg and Malmö, accounted for 47% of the properties market value. The foreign property portfolio accounted for 13% of the properties market value. Of Hemsö s properties, 14 are residences for the elderly, 81 school premises, 83 health care premises and 9 properties for the justice and legal sector. A total of 62% of Hemsö s rental value derives from municipalities, county councils or the state. Slightly less than 1,9 leases with an average duration of 7.2 years combined with financially stable tenants and a low vacancy rate result in stable rental revenue. More information on Hemsö Fastighets AB is available on the company s website, hemso.se. SAGAX S JOINT VENTURES Söderport Hemsö Dec 31 Dec 31 Dec 31 Dec 31 Sagax s participating interest, % Rental revenue, SEK M ,54 1,875 Profit from property management, SEK M 1) Profit for the year, SEK M Sagax s share of profit from property management, SEK M No. of properties Rental value, SEK M ,3 1,984 Properties market value, SEK M 5,28 2,949 24,668 22,637 Lettable area, sqm 614, 366, 1,524, 1,622, Lease term, years Economic vacancy rate, % Interest-bearing liabilities, SEK M 3,21 2,1 16,57 14,699 Loan maturity, years Fixed-interest period, years Market value for fixed-income derivatives, SEK M ) Hemsö s profit from property management was restated to correspond to Sagax s definition. 14 Year-end report

17 FINANCING Equity The Group s equity amounted to SEK 4,544 M (3,723) at December 31,. During the year, the new issue of 5,5, preference shares raised an additional SEK 186 M of equity. Interest-bearing liabilities Sagax s interest-bearing liabilities at the end of the year amounted to SEK 8,525 M (7,32). Of these interest-bearing liabilities, an amount corresponding to SEK 3,366 M (2,145) was recognized in EUR. Interest-bearing liabilities rose SEK 227 M (71) due to exchange-rate fluctuations during the year. Sagax s interest-bearing net debt amounted to SEK 8,45 M (6,897), corresponding to 63% (64) of the market value of the properties. Interest-bearing gross debt to banks corresponded to 5% (56) of the market value of the properties at December 31,. The remaining gross debt corresponded to 14% (1) of the properties market value and comprised listed bond loans of SEK 1,821 M (1,1), of which SEK 4 M and EUR 6 M were issued during the year. In accordance with IAS 39, allocated borrowing costs of SEK 53 M (48) reduced interest-bearing liabilities in the balance sheet. Interest-bearing liabilities of SEK 8,472 M (6,862) were recognized in the balance sheet. The average remaining fixed-interest period and loan maturity was 3. years (3.7) and 3.2 years (3.5), respectively, at the end of the year. The average interest rate on the company s interestbearing liabilities was 4.1% (4.4), including the effect of derivative instruments, at year-end. To limit interest-rate risk and increase the predictability of the company s profit from property management, interest-rate ceilings and interest-rate swaps are utilized with a total nominal value of SEK 5,228 M (5,8), of which SEK 4,43 (4,443) pertain to interest-rate swaps with an average interest rate of 3.1% (3.3), see following table. Accordingly, the company s profit from property management will be affected by changes in general interest rates by only a slight extent in the foreseeable future; refer to the sensitivity analysis on page 25. Due to lower market interest rates during the year, the reserve for the negative market value of fixed-income derivatives rose by SEK 235 M (decline: 24). The total market value of Sagax s fixedincome derivatives was a deficit value of SEK 551 M (deficit: 316) on the balance sheet date. The reserve of SEK 551 M will be gradually dissolved and recognized in profit and loss by the expiry date of the derivative contracts, regardless of the interest rate scenario. All other things being equal, the time factor alone entails that reserves for the deficit value of fixed-income derivatives in Sagax will be dissolved in a total amount of SEK 115 M over the next year. Over a five-year period, based on the time factor alone and assuming unchanged market interest rates, a total of SEK 488 M would be recognized as revenue in the consolidated financial statements. Working capital and liquidity Sagax s working capital, excluding current interest-bearing liabilities, amounted to a negative SEK 183 M (neg: 58) at December 31,. At the same time, Sagax s available access to funds was SEK 53 M (772), of which SEK 67 M (128) in the form of bank deposits and SEK 463 M (644) in the form of unutilized committed lines of credit. No additional collateral needs to be pledged to utilize these lines of credit. FIXED-INTEREST PERIOD AND LOAN MATURITY DECEMBER 31, Fixed-interest period Loan maturity Interest-rate swaps Year of maturity SEK M Interest rate Share SEK M Share SEK M Interest rate 215 2,61 2.7% 3% 14 1% % % 1% 127 1% % 217 1, % 14% 1,619 19% 5 4.8% 218 2,292 3.% 27% 4,623 54% 1, % % 1% 2,16 24% 1.5% >219 2, % 27% 2, % Total/average 8, % 1% 8,525 1% 4,43 3.1% DERIVATIVE CONTRACTS, DECEMBER 31, Amounts in SEK M Nominal amount Share Market value Dec 31, Market value Dec 31, Change for the year Nominal interest-rate swaps 4,43 84% Interest-rate ceilings % Total 5,228 1% Year-end report 15

18 STATEMENT OF COMPREHENSIVE INCOME Amounts in SEK M Oct-Dec Oct-Dec Rental revenue 1, Other revenue Operating expenses Maintenance costs Site leaseholds Property tax Property administration Net operating income Central administration Profit from joint ventures of which, profit from property management of which, change in the value of properties of which, change in the value of financial instruments Financial income Financial expenses Profit including changes in value in joint ventures of which, Profit from property management Changes in value: Properties, realized 5 4 Properties, unrealized Financial instruments, realized Financial instruments, unrealized Participations in joint ventures, realized 16 Profit before tax Deferred tax Current tax Profit for the year Other comprehensive income items that may be reversed to profit and loss: Translation differences for foreign operations Share of other comprehensive income for joint ventures 8 4 Translation differences pertaining to hedge accounting in foreign operations 4 2 Comprehensive income for the year Earnings per common share, SEK 1) Earnings per common share after dilution, SEK 1) Average number of common shares, millions 1) Average number of common shares after dilution, millions 1) ) Comparative figures have been adjusted for the bonus issue of Class B shares in, by multiplying the number of shares by 11. The conditions of the bonus issue were ten Class B shares for each Class A share. 16 Year-end report

19 CONDENSED STATEMENT OF FINANCIAL POSITION Amounts in SEK M Dec 31 Dec 31 Investment properties 13,387 1,79 Participations in joint ventures Deferred tax assets 1 2 Other fixed assets 9 9 Total fixed assets 14,193 11,47 Cash and bank balances Other current assets Total current assets Total assets 14,381 11,683 Equity 4,544 3,723 Long-term interest-bearing liabilities 8,332 6,822 Deferred tax liabilities Financial instruments Other long-term liabilities 9 3 Total long-term liabilities 9,326 7,478 Current interest-bearing liabilities Other current liabilities Total current liabilities Total equity and liabilities 14,381 11,683 Year-end report 17

20 STATEMENT OF CASH FLOWS Amounts in SEK M Oct-Dec Oct-Dec Profit before tax Change in value of financial instruments Change in value of properties Profit/loss from ownership of associated companies Dividend from joint ventures Tax paid Other items not included in cash flow Cash flow from operating activities before changes in working capital Cash flow from changes in current receivables Cash flow from changes in current liabilities Cash flow from operating activities Acquisition of properties 1,713 1, Divestment of properties Investments in existing properties Acquisition of shares Divestment of participations in joint ventures 4 Capital contribution to joint ventures Lending to joint ventures 425 Repayment from joint ventures 425 Decrease in other fixed assets 1 1 Increase in other fixed assets 1 2 Cash flow from investing activities 1,924 1, Issue of shares Dividend paid to shareholders Buyback of treasury shares Redemption of Incentive Plan 8 Borrowings 2,397 1, Repayment of loans 1, Redemption of financial derivatives Decrease in other long-term liabilities 2 13 Increase in other long-term liabilities 6 1 Cash flow from financing activities 1, Cash flow for the year Exchange-rate differences in cash and cash equivalents 2 1 Change in cash and cash equivalents Cash and cash equivalents, January Cash and cash equivalents, December Year-end report