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Property company Kungsleden presents the results of the third quarter for 2012. The full interim report can be downloaded at kungsleden.se/financialreports
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Welcome to Kungsleden
Third quarter 2012
Thomas Erséus, Chief Executive
Anders Kvist, Deputy Chief Executive
The quarter in brief
■ Net sales and gross profit decreased by 10% to to SEK 499 m and
SEK 347 m respectively in Q3 compared to 2011, due to a smaller
property portfolio
■ The profit/loss before tax was SEK -42 (247) m
■ The profit/loss after tax was SEK -13 (-173) m, or SEK -0.10 (-1.30)
per share. The deficit is sourced from unrealised value changes on
financial instruments
■ Strong equity ratio due to the sale of 41 properties for a value of
SEK 1,022 m
■ Profit for calculating dividends comparable to the previous year, and
was SEK 240 (239) m
| 2
Post-balance sheet events
■ Statement of opinion from the Swedish Tax Agency questioning
indirect sales of properties through Dutch subsidiaries.
Reassessment of income would create a liquidity effect of SEK
1,650 m and affect equity negatively by SEK 1,700 m
■ Kungsleden will be appealing against this decision and does not
assess that the definitive outcome will be negative, and accordingly,
has not provisioned for it
■ With this case, and with current information, Kungsleden is not
aware of any further cases that could imply new tax claims
■ Three properties were sold for a total of SEK 84 m. The sales price
exceeds book value by SEK 10 m and acquisition cost by SEK 17 m
| 3
Stable lettings market for commercial properties
■ Still-stable lettings market,
but affected by the surrounding world
■ Office rents back to pre-financial
crisis levels
■ Segmented office market, with
high demand in good locations
■ Low vacancies but variation between
sub-markets
Source: JLL, Newsec
| 4
Good progress of rents in Stockholm
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
5 000
2007 2008 2009 2010 2011 2012E 2013E 2014E
SEK/sqm
Office rents - Stockholm
Stockholm CBD Stockholm Central Stockholm Prime Suburb Rest of Greater Stockholm
Source: Newsec
Q3 2012
Good stability on other Swedish markets
800
1 000
1 200
1 400
1 600
1 800
2 000
2 200
2 400
2007 2008 2009 2010 2011 2012E 2013E 2014E
SEK/sqm
Office rents - Rest of Sweden
Göteborg Prime Göteborg Suburb Malmö Prime
Malmö Suburb Other Major Cities - Prime Rest of Sweden - Prime Source: Newsec
Q3 2012
Kungsleden’s lettings market remains stable
■ Increased activity on the lettings
market
■ New lettings of SEK 63 m*
■ Net lettings of SEK17 m**
■ Occupancy level 89.6 (88.3)%
* New lettings are annual rents for contracts signed in Jan-Sep 2012
** Net lettings are signed contracts less signed terminations
| 7
Progress of Kungsleden’s property portfolio
■ Value creation through management
and enhancement of properties
– Property portfolio
– Operating net
– Occupancy
– Contract term
– New lettings
– Property yield
| 8
Kungsleden’s commercial property portfolio
generating an average yield of 8.0%
Segment No. of properties
Area, 000
sq.m.
Book value, SEK m
Proportion of
commercial portfolio
Operating net, SEK m
Property yield
Average contract term
(year)
Industrial/warehouse 123 1 233 6,291 48% 532 8.5% 5.4
Office 82 562 4,262 32% 327 7.7% 3.5
Retail 57 269 2,116 16% 160 7.5% 4.7
Other commercial 19 76 581 4% 40 6.9% 5.9
Total 281 2,139 13,250 100% 1,059 8.0% 4.6
| 9
Operating net per sq.m. up by nearly 25% since 2007
200
300
400
500
600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2008 2009 2010 2011 2012
Driftnetto per kvm
| 10
Operating net per sq.m.
Increased occupancy and stable rents
| 11
55
60
65
70
75
80
85
90
95
100
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800Economic occupancy, %
Rental revenues, SEK m
Rental revenues (left) Economic occupancy, % (right)
Average remaining contract term 4.6 years
5%
15%
29%
39%
72%
77% 79% 82% 83%
89% 92% 93%
99% 100%
10%
14%
10%
32%
5% 2%
3% 1%
6% 2% 2%
5% 1%
0
200
400
600
800
1 000
1 200
1 400
1 600
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 >2025
SEK m
| 12
Continued positive net lettings for Kungsleden
| 13
0
5
10
15
20
25
30
35
40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010 2011 2012
Net lettings (SEK m) Rolling 12 months (progress)
Summa
Property yields have increased with stable values
| 14
00
01
02
03
04
05
06
07
08
09
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
18 000
Property yield, % Book value, SEK m
Book value (left) Property yield, % (right)
The transaction market in Sweden
■ A year-on-year decrease of 48% in transaction volumes
■ High share of sales value from office properties
■ In quarter-on-quarter terms, transaction volumes on logistics
properties increased by 10% and decreased by 21% on retail
properties
Source: JLL
| 15
Kungsleden optimises property portfolio
| 16
■ No properties purchased in January-September 2012
■ 44 properties sold for SEK 1,115 m
■ Sales were at a property yield of 6.7%
■ 39 of the 44 properties were public
properties in Härnösand sold to
Hemsö for SEK 912 m. This sale
increased equity by SEK 39 m
and the equity ratio by 2%
■ Two industrial properties in southern Poland were sold for EUR 12.5 m
■ All sales conducted in line with book value
■ Positive trend, with continued positive good sales in fourth quarter
■ Earnings capacity of remaining portfolio is 8.0%
Income Statement
SEK m
2012
Jan-Sep
2011
Jan-
Sep Δ, %
Rental revenues 1,400 1,283
Sales revenues, modular buildings 216 214
Net sales 1,616 1,497 8
Property costs -400 -361
Production costs, modular buildings -197 -195
Gross profit 1,019 941 8
Trading net 17 34
Sales and administration costs -185 -184
Profit/loss from participations in Hemsö 135 295 -54
Net financial items -449 -427
Unrealised value changes, properties 2 87
Unrealised value changes, financial instruments -51 -401
Profit before tax 488 345 41
Tax -1,059 -10
Net profit after tax -571 335 n/a | 17
• Lower profit from
Hemsö due to lower
unrealised value
changes on
properties
• Net sales and gross
profit up by 8% due
to a larger property
portfolio
Income Statement, wholly owned properties
SEK m
2012
Jan-Sep
2011
Jan-Sep Δ %
Rental revenues 1,209 1,102 10
Property costs -368 -330
Gross profit 841 772 9
Trading net 17 25
Sales and administration costs -124 -128
Net financial items -396 -393
Unrealised value changes, properties 47 92
Unrealised value changes, financial
instruments -39 -314
Profit before tax 346 55 530
Tax -72 -10
Net profit 274 45 509
| 18
Income Statement Nordic Modular
SEK m
2012
Jan-Sep
2011
Jan-Sep Δ %
Rental revenues modules 191 181
Sales revenues, modular buildings 216 214
Net sales 407 395 3
Property costs modules -32 -31
Production costs, modular buildings -197 -195
Gross profit 178 169 5
Trading net 0 9
Sales and administration costs -45 -43
Net financial items -48 -43
Unrealised value changes, properties -45 -5
Unrealised value changes, financial
instruments -4 -34
Profit before tax 36 53 -33
Tax -9 -14
Net profit after tax 27 39 -30
| 19
Income Statement Hemsö
SEK m
2012
Jan-Sep
2011
Jan-Sep Δ %
Profit/loss from participations in Hemsö 135 295 -54
Net financial items -5 9
Unrealised value changes, financial
instruments -8 -53
Profit before tax 122 251 -51
Tax 3 11
Net profit after tax 125 262 -52
| 20
Profit from property management up by 17%
2012 2011
SEK m Jan-Sep Jan-Sep
Gross profit 1,019 941
Sales and administration costs -185 -184
Net financial items -449 -427
Profit from property management 385 330
Realised items
Trading net on sale 17 34
Realised value changes, properties 32 11
Deduction for deferred tax on sale -3 0
Realised value changes, financial instruments -81 -31
Realised items -35 -14
Profit for calculating dividends from Hemsö 180 143
Taxes payable -345 -25
Profit for calculating dividends 185 462
| 21
Earning assets
30 Sep 2012 Return, %
Properties 14,779 8.0
Participations in Hemsö 1,157 8.0
Long term-receivables, Hemsö 1,500 7.0
Vendor note receivables 241 7.0
Total earning assets 17,677 7.9
Ave. interest,
%
Equity 6,774
Interest-bearing liabilities 9,764 6.8
Working capital (other items are a net debt) 1,139 0.0
Total funding 17,677
| 22
Financial position in summary
SEK m 2012 2011
ASSETS 30 Sep 31 Dec
Goodwill 201 201
Properties 14,779 14,788
Machinery and equipment 14 15
Participations in Hemsö 1,157 1,084
Long-term receivables, Hemsö 1,500 1,500
Deferred tax asset - 1,020
Other long-term receivables 241 443
Fixed assets 17,892 19,051
Inventories 16 17
Short-term receivables 244 240
Assets held for sale—properties - 905
Assets held for sale—other assets - 14
Cash and bank balances 330 684
Current assets 590 1 860
TOTAL ASSETS 18,482 20,911
| 23
Financial position in summary
SEK m 2012 2011
EQUITY AND LIABILITIES 30 Sep 31 Dec
Equity 6,774 7,719
Liabilities to credit institutions 8,165 8,154
Bondloans (unsecured) 1,599 1,599
Liabilities related to assets held for sale - 901
Interest-bearing liabilities 9,764 10,654
Provisions 110 431
Deferred tax liability 53 1
Derivatives 1,100 1,156
Other non interest-bearing liabilities 681 890
Liabilities related to assets held for sale - 60
Non interest-bearing liabilities 1,944 2,538
TOTAL EQUITY AND LIABILITIES 18,482 20,911
| 24
Maturity structure, credits
As of 30 September 2012
Utilised
credits,
SEK m
Un-utilised
credits, SEK
m
Total credits,
SEK m
2012 227 260 487
2013 678 - 678
2014 1,241 - 1,241
2015 5,605 900 6,505
2016 2,013 - 2,013
Total 9,764 1,160 10,924
Average conversion term, years 2.5 2.4
| 25
Maturity structure, fixed interest periods
As of 30 september 2012
Loans,
SEK m
Interest
derivativ
es,
SEK m
Ave.
interest,
derivatives,
%
Ave. interest,
loans and
derivatives, years
Average fixed
interest term,
years
2012 9,764 - -
2013 - -
2014 800 3.9
2015 2,400 4.2
2016 500 3.9
2017 500 4.1
2018 3,650 4.2
2019 800 3.5
2020 800 3.7
2021 400 3.8
Total 9,764 9,850 6.8 5.0
Market valuation of loans and
derivatives 1,097
Total 10,861
| 26
Key figures
30 Sep 2012 30 Dec 2011 30 Sep 2011
Financial
Return on equity, % -10.5 8.5 6.1
Equity ratio, % 36.7 36.9 34.2
Loan to value ratio, properties, % 66.1 67.9 69.8
Loan to value ratio on all credits in
relation to earning assets (properties,
participations and receivables,
Hemsö and vendor note receivables),
% 55 55 57
Interest coverage ratio, multiple 2.0 2.3 2.2
Share
Equity per share, SEK 49.60 56.50 54.40
Profit after tax per share, SEK -4.20 4.70 2.50
| 27
Strategic review
■ For some time, Kungsleden has been working on a strategic review
■ The review is driven by fundamental changes in the property market
and the desire to concentrate its business
■ The new strategy is intended to clarify how Kungsleden creates
shareholder value
■ Strategy work involves a review of segments, geography and
financial targets, as well as dividend policy
■ The new strategy will be presented fully in the first quarter of 2013
| 28
Strategic review
■ Review not yet complete, but the following conclusions are
available:
– Management of wholly owned properties has been a strong value
creator for Kungsleden over time
– Kungsleden is moving towards concentrating its wholly owned
properties, focusing on growth regions in Sweden
– Against the above background, Hemsö and Nordic Modular—
profitable businesses in their own right—will be sold when market
conditions are right
| 29
Kungsleden’s tax position
■ In recent years, the Swedish Tax Agency and courts have altered
their view of how law and practice should be interpreted in several
tax segments
■ Kungsleden continuously assesses the risk of definitive negative
outcomes in the various proceedings, and after consultation with
independent tax experts, provisions for feared negative outcomes
■ Kungsleden’s opinion is that the company has fully complied with
the laws and practice in place when submitting each tax return
| 30
21 outstanding tax cases
| 31
Tax proceedings
■ Statement of opinion received from the Swedish Tax Agency
questioning the indirect sale of properties through Dutch subsidiaries. A
reassessment of income could generate a liquidity effect of SEK 1,650
m and affect equity negatively by SEK 1,700 m
■ Kungsleden will be appealing against this decision and does not assess
that the definitive outcome will be negative, and accordingly, has not
provisioned for it
■ With this case, and with current information, Kungsleden is not aware of
any further cases that could imply new tax claims
| 32
Estimate of maximum negative tax effects
■ If all proceedings are ruled against the company, the estimated
maximum effect on equity is SEK 3,080 m in addition to provisioning of
SEK 1,050 m already made
■ Estimated maximum outstanding negative liquidity effects including tax
surcharges and interest, SEK 3,200 m
■ Liquidity requirement arises over several years finance possible from
trading cash flows and the funds freed up from the concentration of
Kungsleden's strategy
■ The Board of Directors is proposing no share dividend for 2012 with the
aim of increasing Kungsleden's financial strength
| 33
Estimate of tax effects
SEK m Effect on equity Liquidity effect
Provision, Q2 2009 325 0
Provision, Q2 2012 725 260
Deposited in anticipation of ruling - -100
Total provisioned tax cases 1,050 160
Un-provisioned tax cases 3,080 3,200
Deposited in anticipation of ruling - -160
Total 4,130 3,200
| 34
Summary and outlook
■ Stable lettings market and stable property values
■ Valued-creating management and enhancement through:
– Good tenants with long contracts
– Stable rents and increased occupancy
– Increased net lettings
■ Stronger equity ratio through sales
■ Strong cash flow and good liquidity
■ Strategic review towards concentrating business
■ Estimated worst-case scenario and well prepared for potential tax
rulings
■ Estimate of SEK 300 m for the full year 2012 reiterated, but no dividend
proposed
| 35
Questions?