Welcome to Kungsleden s Financial Statement and strategy presentation

Transcription

1 Welcome to Kungsleden s Financial Statement and strategy presentation 15 February 2013 Thomas Erséus, Chief Executive Anders Kvist, Deputy Chief Executive

2 Today s agenda 1. The lettings and property market 2. The fourth quarter, operations and figures 3. Results for the full year Financial position 5. An update on tax 6. Strategic review and new strategy 7. Value creation in property management 8. Growth and concentration 9. Financial targets 10.Summary Contents 2

3 Q4 a turning-point, strategically and financially Kungsleden has been obstructed by an impending tax threat for some time The effects of a fixed interest rate have impelled a defensive attitude The Hemsö transaction takes care of a worst-case scenario for tax, and the company is well positioned with financial flexibility This transaction is part of implementing Kungsleden s new strategy The management of wholly owned properties has been a strong value creator for Kungsleden over time After seven years as Chief Executive, this is a good time to leave Cost savings program initiated The Board is proposing a dividend of SEK 1.00 per share Very good prospects for future value creation Q4 a turning-point 3

4 1. The lettings and property market

5 Lettings market remains stable Employment continues to grow in major city regions A segmented office market, with strong demand in good locations Rent levels for commercial properties in major city regions outside CBDs are stable Big spread in required yields in major city regions outside CBDs Unchanged vacancy levels and variations between sub-markets Source: Newsec The lettings and property market 5

6 Continued good lettings for Kungsleden in the quarter Some new lease contracts with annual rent exceeding SEK 9 m: The Port of Gävle Västmanland County Council Cap Gemini, Västerås RB Glas & Plast, Partille The lettings and property market 6

7 Increased new lettings for 2012 and continued stability New lettings of SEK 80 m* for the full year Västerås is one of our expansive markets. SEK 17 m of new lettings Net lettings of SEK 15 m** for the full year Full-year economic occupancy level 89.3 (89.2)% Remaining average contract term of 4.9 years * New lettings are annual rents for contracts signed in Jan-Dec 2012 ** Net lettings are signed contracts less signed terminations 7 The lettings and property market

8 Transaction volume up from SEK 85 bn to 106 bn* BSEK 160 Transaction volume per segment - Sweden Transactions 100 MSEK Nr of transactions Office Retail Nursery homes Nr of transactions Residential Logistics, warehouses and industrial Others (for example hotel, soil, health care and school) Source: Newsec 8 The lettings and property market

9 Strong closing quarter for transactions in Sweden Transaction volumes in Q4 were SEK 42 bn the highest volume since Q Total transaction volumes for December were SEK 30 bn Highly capitalised institutions and pension funds behind most transactions on the buy and sell sides Office market represented 40% of total volumes in 2012 Kungsleden was the biggest single seller in 2012 with its sale of 50:50 joint owned Hemsö 9 The lettings and property market

10 2. The fourth quarter, operations and figures

11 Kungsleden s portfolio optimisation in the quarter 15 properties were sold for SEK 552 m These sales were at a property yield of 6.6% The sold properties were located in Greater Stockholm, central and southern Sweden. A portfolio of 9 properties, sold for SEK 380 m, was the single largest property sale All sales were made at around book value 11 properties were purchased for approx. SEK 1,549 m from Hemsö Total rental value of SEK 163 m, 143,000 sq.m. leasable area Remaining contract term 8 years Earnings capacity of the remaining portfolio: 8% The fourth quarter, operations and figures 11

12 Better positioning after the sale of Hemsö Kungsleden sold its holdings in Hemsö after 11 years positive progress, which has created substantial shareholder value over time Total purchase price of SEK 3,320 m Price of the shares was SEK 1,820 m Repayment of shareholder loan was SEK 1,500 m After the share sale, loan repayment and purchase of 11 properties liquidity strengthened by SEK 1,750 m Increased borrowing capacity, utilised by arranging a new SEK 1 bn loan over three years The sale is part of the implementation of Kungsleden s new strategy, on wholly owned properties, and will contribute to increased returns by reallocating funds 12 The fourth quarter, operations and figures

13 The quarter in brief Net sales and gross profit decreased by 10% and 8% to SEK 494 m and SEK 309 m respectively compared to Q4 2011, due to a smaller property portfolio Profit before tax was SEK 677 (348) m Profit after tax was SEK 923 (303) m, or SEK 6.80 (2.20) per share. The profit increase is sourced from the sale of Hemsö Cash flow from operating activities was SEK 66 (136) m Profit for calculating dividends for the fourth quarter was SEK 1,732 (241) m, or SEK (1.70) per share The fourth quarter, operations and figures 13

14 Kungsleden has a new principal owner Welandson Gösta and companies 13.1 Länsförsäkringar fonder 3.2 Norges Bank Investment Management 2.9 Olle Florén and companies 2.5 Danske Invest fonder (Sweden) 2.0 BlackRock fonder (USA) 1.6 AP4 1.4 AP2 1.2 Swedbank Robur fonder 1.2 Avanza Pension Försäkring AB Source: SIS Ägarservice, 31 December 2012 The fourth quarter, operations and figures 14

15 3. Results for the full year 2012

16 Income Statement SEK m 2012 Jan-Dec 2011 Jan-Dec Δ, % Rental revenues 1,840 1,759 Sales revenues, modular buildings Net sales 2,110 2,047 3 Property costs Production costs, modules Gross profit 1,328 1,277 4 Sales and gross profit increased by 3 and 4% respectively due to a larger property portfolio and milder start to the winter Trading net Sales and administration costs Profit/loss from participations in Hemsö Net financial items Unrealised value changes, properties Unrealised value changes, financial instruments The large positive item is from the sale of Hemsö Profit before tax 1, Tax Net profit for the year Results for the full year

17 Substantial values realised through the sale of Hemsö SEK m Jan-Dec Jan-Dec Gross profit 1,328 1,277 Sales and administration costs Net financial items Profit from property management Realised items Trading net on sale Realised value changes, properties Deduction for deferred tax on sale Sale of Hemsö 1,507 - Realised value changes, financial instruments Realised items 1, Profit for calculating dividends from Hemsö Taxes payable Profit for calculating dividends 1, Results for the full year

18 Income Statement, wholly owned properties SEK m 2012 Jan-Dec 2011 Jan-Dec Δ, % Rental revenues 1,583 1,515 4 Property costs Gross profit 1,094 1,052 4 Trading net Sales and administration costs Net financial items Unrealised value changes, properties Unrealised value changes, financial instruments Profit before tax Tax Net profit for the year Results for the full year

19 Income Statement, Nordic Modular SEK m 2012 Jan-Dec 2011 Jan-Dec Δ, % Rental revenue, modules Sales revenue, modules Net sales Property costs Production costs, modules Gross profit Trading net 0 0 Sales and administration costs Net financial items Unrealised value changes, properties Unrealised value changes, financial instruments Profit before tax Tax Net profit for the year Results for the full year

20 Income Statement, Hemsö SEK m 2012 Jan-Dec 2011 Jan-Dec Δ, % Profit/loss from participations, Hemsö Net financial items 0 6 Unrealised value changes, financial instruments Profit before tax Tax 3 16 Net profit for the year Results for the full year

21 4. Financial position

22 Financial position pro forma after Hemsö transaction SEK m 31 Dec 31 Dec ASSETS According to Interim Report Pro forma after Hemsö transaction Properties 15,777 15,777 Other fixed assets Receivable from AP3 3,363 - Other current assets Cash and bank balances 721 3,549 Total assets 20,900 20,365 EQUITY AND LIABILITIES Equity 7,726 7,726 Interest-bearing liabilities 9,704 10,720 Derivatives 1,125 1,125 Other non interest-bearing liabilities 2, Total equity and liabilities 20,900 20,365 Financial position 22

23 Maturity structure, credits As of 31 December 2012 Utilised credits, SEK m Un-utilised credits, SEK m Total credits, SEK m ,459 1, , , ,978 1,978 Total 9,704 1,160 10,864 Average conversion term, years Financial position 23

24 Maturity structure, fixed interest periods As of 31 December 2012 Loans, SEK m ,704 Interest derivatives, SEK m Ave. interest, derivatives, % , , Ave. interest, loans and derivatives, years Average fixed interest term, years Total 9,704 9, Market valuation of loans and derivatives 1,121 Total 10,825 Financial position 24

25 5. An update on tax

26 An update on tax proceedings As previously reported, in November 2012, the Swedish Tax Agency reported its decision to tax Kungsleden for capital gains on transfers or participations in partnerships for the tax year 2007 As previously reported, the estimated profit effect would be SEK 1,380 m and the estimated liquidity effect would be SEK 1,360 m In December 2012, the Swedish Tax Agency decided to make a secondary claim (tax evasion) on the same transaction if the Agency s primary claim was unsuccessful Given a negative outcome in tax evasion proceedings, the estimated profit and liquidity effect would be approx. SEK 500 m lower than the above amounts The tax evasion proceedings will be conducted in parallel with consideration of the primary claim An update on tax 26

27 Estimate of maximum tax effects SEK m Effect on equity Liquidity effect Provision, Q Provision, Q Deposited in anticipation of ruling Total provisioned tax cases 1, Un-provisioned tax cases 2,930 2,920 Deposited in anticipation of ruling Total 3,980* 2,920 * Please refer to quarterly report for explanation for change on the third quarter An update on tax 27

28 6. Strategic review and new strategy

29 Strategic review Kungsleden has been working on a strategic review for some time This review has been driven by fundamental changes on the property market, and the desire to concentrate its business The new strategy is designed to clarify how Kungsleden creates lasting value for shareholders Managing wholly owned properties has been a strong value creator for Kungsleden over time Kungsleden is now concentrating on this, taking a new direction, focusing on wholly owned properties on growth markets in Sweden Value creation is achieved by satisfying customers needs for premises, managing and enhancing properties, and optimising the company s property portfolio Strategic review and new strategy 29

30 A strategy that puts value creation in focus Strategic review and new strategy 30

31 Kungsleden will create value by satisfying customers needs for premises, managing and enhancing properties and optimising the company s property portfolio Satisfying customers need for premises Providing premises where customers can operate and develop Creating strong customer relationships through responsiveness, being flexible and having short decision-paths Managing and enhancing properties Actively manage and enhance properties to increase stable cash flows, and thus the value of the property portfolio Attract good tenants and endeavour to secure long lease contracts, high occupancy levels and a balanced cost level Optimise the property portfolio With good market knowledge and strong relationships with participants on the market, identify and exploit the opportunities for purchases and sales to increase risk-adjusted returns A platform for creating value for shareholders, customers, employees and wider society is a strong corporate culture where people enjoy their work, develop and deliver. Strategic review and new strategy 31

32 Focusing geographically and by segment One key precondition for value creation is where in Sweden the growth is located By focusing on three property types, Kungsleden will increase its knowledge of customer needs and market conditions in these segments, which will bring stronger customer relationships, improved management and enhancement of properties, and thus increase the value of the property portfolio Annual growth (%), total pay Kungsleden will own, manage and enhance properties that generate high risk-adjusted returns in the warehouse/industrial, office and retail segments in Greater Stockholm, the lake Mälaren region, south western Sweden, and growth locations in northern Sweden Strategic review and new strategy 32

33 The current portfolio, wholly owned properties Segment No. of properties Area, 000 sq.m. Book value, SEK m Operating net, SEK m Property yield, % Occupancy level, % Average contract term, yr. Industrial/warehouse 116 1,197 6, Office , Retail , Other commercial Total 278 2,211 14,268 1, Property portfolio as of 31 December 2012 Strategic review and new strategy 33

34 Focus on locations outside CBDs offers attractive property yields Yields - offices in prime locations Yields - offices in secondary locations % % Interval: % 4 Interval: % E Office Stockholm CBD Office Göteborg Prime Office Malmö Prime Source: Newsec Office Rest of Sweden Office Rest of Greater Stockholm Office Other Major Cities Source: Newsec Strategic review and new strategy 34

35 E E Stable rents in locations outside CBDs SEK/sqm Market rent - offices in secondary locations SEK/sqm Market rent - offices in Stockholm CBD Interval: SEK/sqm Interval: SEK/sqm Other Major Cities Rest of Greater Stockholm Source: Newsec Stockholm CBD Source: Newsec Strategic review and new strategy 35

36 High property yields outside CBDs create a good cushion % % Yields - offices in prime locations Stockholm CBD Övriga Sverige Stockholm CBD Rest of Sweden Source: Newsec Source: Newsec Strategic review and new strategy 36

37 Combination of high total returns and low market risk Industrial & Warehouse established industrial estate, rest of Sweden Total returns, : 11% Property yield 7.65% 7.50% 7.35% 7.25% 7.20% Rent growth 1.50% 2% 2.50% 2.50% 2.50% FMCG retail, rest of Sweden Total returns, : 10.3% Property yield 7% 6.75% 6.75% 6.50% 6.50% Rent growth 1.50% 2% 2% 2.50% 2.50% Office, Stockhom CBD Total returns, : 6.7% Property yield 4.50% 4.50% 4.70% 4.90% 5% Rent growth 2% 3% 5% 7% 5% Source: Newsec Strategic review and new strategy 37

38 Logistics Rest of Sweden - Category B * Office Rest of Sweden Office Rest of Greater Stockholm * Retail Rest of Sweden * Office Other Major Cities Retail Rest of Greater Stockholm * Office Stockholm Prime Suburb Residential Rest of Sweden * Logistics Rest of Sweden - Category A * Logistics Stockholm - Category B * Logistics Malmö - Category A * Logistics Stockholm - Category A Logistics Göteborg - Category A * Retail Malmö Prime Retail Other Major Cities * Office Malmö Prime Office Stockholm Central Retail Stockholm Prime Suburb * Office Göteborg Prime Retail Stockholm Central * Residential Other Major Cities Retail Göteborg Prime Residential Rest of Greater Stockholm Office Stockholm CBD Retail Stockholm CBD Residential Stockholm Prime Suburb Residential Malmö Prime Residential Göteborg Prime Residential Stockholm Prime Yield spread expected to reduce Attractive pricing currently in secondary segments 9,50 8,50 7,50 6,50 5,50 4,50 3,50 2,50 1,50 Yield intervals Min Max 2012E * Source: Newsec Strategic review and new strategy 38

39 7. Value creation in property management

40 How will Kungsleden create growing cash flows? Growing cash flows Enhance Develop operating net Customer care and lettings Management efficiency Value creation in property management 40

41 Strong value creation over time operating net/sq.m. up 25% since Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Driftnetto Operating per net kvm per sq.m. Value creation in property management 41

42 8. Growth and concentration

43 Growth and concentration Kungsleden will own, manage and enhance properties that generate high risk-adjusted returns in the warehouse/industrial, office and retail segments in Greater Stockholm, the lake Mälaren region, south western Sweden, and growth locations in northern Sweden Annual growth (%), total pay Growth and concentration 43

44 Reinvestment after the Hemsö sale Investment volume of approx. SEK 5-6 bn achievable through individual and portfolio acquisitions in a time horizon of approx. 1-2 years New strategy captures properties and sub-markets exhibiting sustainable and fairly stable sales over time There is still a good supply of properties that fit the new strategy Kungsleden sees good investment opportunities on the market with property yields of % Growth and concentration 44

45 Some transactions completed on the market that fit the new strategy Office and warehouse portfolio of approx. 16,000 sq.m. in Märsta. Transaction volume approx. SEK 120 m. Property yield approx % Office portfolio of approx. 45,000 sq.m. in Linköping, Norrköping, Västerås and Växjö. Transaction volume approx. SEK 320 m. Property yield approx % Logistics property of approx. 50,000 sq.m. in western Sweden. Lease contract approx. 7 years. Transaction volume approx. SEK 300 m. Property yield approx. 7.25% Logistics property of 10,000 sq.m. in Greater Stockholm. Transaction volume approx. SEK 90 m. Lease contract 3-5 yr. Property yield approx % Two logistics properties totalling approx. 80,000 sq.m. in western Sweden. Sale and leaseback with lease contracts of 15 yr. Transaction volume approx. SEK 400 m. Property yield approx. 8.75% Growth and concentration 45

46 Kungsleden is concentrating its property portfolio The non-strategic property share of portfolio value will fall from 10% to 5% or less over three years Strategic properties Non-strategic properties Growth and concentration 46

47 Sale of Nordic Modular a matter of time As part of Kungsleden s focus on wholly owned properties, Nordic Modular will be sold when there is an opportunity, and on reasonable terms Kungsleden has owned Nordic Modular Group since January 2007 Return on equity has been very positive over time, and averaged over 20% per yr. The capital transfers from Nordic Modular received to date exceed the capital Kungsleden has invested Nordic Modular has a strong cash flow and is a positive contributor to Kungsleden s earnings There is no hurry to sell Nordic Modular, with the plan being to sell in a few years, given positive conditions Growth and concentration 47

48 9. Financial targets

49 Financial targets and limits for The overall target is to maximise cash flow growth within the financial limits set to secure a strong balance sheet for the short and long term: Liquidity contingency (see below) Loan to value ratio (our prudent estimate is 60% on new credit facilities) Equity ratio (should be over 30%) The most important restriction in the short term is our liquidity contingency. Kungsleden will maintain cash and available credit facilities corresponding to the worst-case outcome of tax proceedings until their outcome is clear. The total is SEK 2.9 bn, which will cost an estimated 1% per year. Financial targets 49

50 Investing cash flows Reinvesting the funds freed up by the sale of Hemsö, and investing the free cash flows generated by operations, is the financial base of Kungsleden s value creation. Scope to invest is limited by the liquidity contingency that should be maintained and the share dividend (redemption, buy-backs) the Board considers appropriate Alternative usages for cash flows: Purchasing new properties within our strategy Enhancing (converting, extending and developing) Reinvesting in the current property portfolio Financial targets 50

51 Review of costs to save 10% General review of central administrative costs Identify opportunities for shared services centrally Take management organisation from five regions to four Charge properties with relevant costs for property operations in the accounts, to produce clearer profit centres and achieve better comparisons with other property companies Target of reducing costs by a total of 10% Cost saving 51

52 Managing by objectives Kungsleden will be managed towards: The final target for the whole group s profit from property management for 2015 Phase targets for 2013 and 2014 The phase targets and final target will be expressed at segment level (Properties and Nordic Modular with individual administrative costs allocated) net financial position at group level central costs Profit for calculating dividends will no longer be a target Financial targets 52

53 Kungsleden s required return Over the long term, Kungsleden should generate a return on equity exceeding the required return applied by the stock market on the company s share The 15% return on equity target used to date would be difficult to attain in current market conditions In the short to medium term, in current circumstances, the stock market s required return on Kungsleden is expected to be not less than 10-12% Accordingly, Kungsleden s investments and usage of shareholders funds overall must always at least satisfy this required return in advance and post-costings Financial targets 53

54 New dividend policy from 2013 onwards The dividend policy will be differentiated considering the need for liquidity contingency resulting from tax proceedings: In the medium term, dividend payments of up to 50% of profit from property management will be permitted, which also reflects the practice of listed property companies As long as the outcome of tax proceedings remains unclear (probably until year-end 2015), a lower share of profit from property management will be paid out Financial targets 54

55 10. Summary

56 Good prospects for future value creation Strict control of central administrative costs will generate operational leverage as the asset base grows Investment strategy focusing on high-yielding property segments with very moderate risks Cash flow back to pre-hemsö levels within months, even with higher liquidity reserves. Profit from property management restored within three years As tax risks decline, liquidity reserves will be freed up for reinvestment in new properties. Average interest rates to improve with new property purchases Strong and growing underlying earnings capacity based on strong cash flow from property management, visible in the bottom line when tax proceedings are concluded and interest hedging costs have tapered off Summary 56

57 Questions