Year en report

Diligentia AB Year-end report 1998 Operating results * Operating income for the period rose by 39 percent to SEK 592 million (pro forma¹ 427). * Income after net financial items amounted to SEK 240 million (pro forma 29). The earlier forecast had called for SEK 220 million. * Income after net financial items for the Swedish operations rose to SEK 258 million (excluding property sales), an increase of 120 percent. * The yield on the Swedish property portfolio was 7.2 percent, an increase of 11 percent compared with the previous year. New dividend policy * At least 75 percent of the company's net income will be distributed to the shareholders. Proposed dividend * The Board of Directors is recommending a cash dividend of SEK 2.50 (1.00) per share. Highlights during the year * Distribution of Asticus AB, which was listed on the Stockholm Stock Exchange's O-list * Acquisition of a 54,000 sq.m. office building in downtown Stockholm from Telia for SEK 1,250 million * Sale of holding in Capona AB to PriFast for SEK 325 million * Sale of properties in Portugal to Akeler for SEK 550 million * Acquisition of properties in Greater Stockholm and Greater Gothenburg from SPP for SEK 740 million * During the year properties were sold for a total of SEK 1,927 million (4,660) 1) The Diligentia Group has significantly changed its structure in large part through the demerger of Asticus AB (publ) and sale of its hotel properties to Capona AB, because of which comparisons with actual results from the corresponding period of 1997 are not meaningful. In order to provide meaningful comparisons, pro forma figures have been calculated for the 1997 period. These pro forma figures also take into account the depreciation on the Swedish property portfolio as of January 1, 1998. All figures in the year-end report for 1998 relate to the Diligentia Group excluding Asticus AB (publ), formerly Diligentia International AB. In future reports Diligentia intends to use actual results for comparisons with corresponding year-earlier periods. 2) Net operating income less administrative expenses divided by net financial income and expenses. Operating income Rental income for the period totalled SEK 1,273 million (pro forma 1,206), of which SEK 1,173 million (pro forma 1,120) related to Swedish properties and SEK 100 million (pro forma 86) to international properties. Expenses for operations, management, maintenance and tenancy modifications totalled SEK 549 million (pro forma 600), of which the Swedish properties accounted for SEK 502 million (pro forma 547) and the international properties for SEK 47 million (pro forma 53). The Group's administrative expenses amounted to SEK 99 million (pro forma 104). Figure 1 Income statement divided between Swedish and international properties and pro forma SEK million 1998 Pro 1998 Pro 1998 total Pro Sweden forma Int'l forma forma 1997 1997 1997 Sweden Int'l total Rental income 1,173 1,120 100 86 1,273 1 ,206 Net operating 671 573 53 33 724 606 income Depreciation -74 -75 -74 -75 Property sales 64 - -23 - 41 - Administration -95 -100 -4 -4 -99 -104 Operating 566 398 26 29 592 427 income Net financial income and expenses -244 -280 -108 -118 -352 -398 Income after net financial items 322 118 -82 -89 240 29 Minority shares -68 -20 -5 4 -73 -16 and tax Income 254 98 -87 -85 167 13 Income after net financial items amounted to SEK 240 million (pro forma 29). For the Swedish operations, income amounted to SEK 322 million (pro forma 118). Excluding the result from property sales in the Swedish operations in 1998, which amounted to SEK 64 million, income after net financial items rose by 120 percent to SEK 258 million. Net operating income in Sweden improved by SEK 98 million, an increase of 17 percent compared with the previous year. In addition, net financial income and expenses improved by 13 percent or SEK 36 million. The result of the international operations showed for 1998 a deficit of SEK - 87 million. As a result of the property sales during 1998, the deficit will decline, taking into account the existing structure, and will amount to approximately SEK 50 million on annual basis. Figure 2 Quarterly income statement after net financial items 1998 SEK million Quarter 1 Quarter 2* Quarter 3 Quarter 4 Total Rental income 310 309 319 335 1,273 Operations, maintenance, tax, rents -151 -159 -107 -132 -549 Net operating 158 150 212 204 724 income Depreciation -19 -17 -19 -19 -74 Result from 5 3 -5 38 41 property sales Administrative -38 -15 -20 -26 -99 expenses Net financial income and expenses -91 -93 -64 -105 -352 Income after net financial items 16 28 104 92 240 * After the transition from variable costing to a more functionally oriented accounting method with respect to administrative expenses During the fourth quarter rental income continued to rise. For the second half of the year, net operating income was clearly higher than the first half. Aside from seasonal variations, the reason for the income gain was an improvement in operating efficiency and the market's continued positive development. The third quarter was impacted positively by nonrecurring effects in net financial income and expenses and falling short-term interest rates. In the fourth quarter net financial income and expenses declined slightly as a result primarily of net property acquisitions. Financing and liquidity Interest-bearing liabilities in the Group amounted to SEK 7,087 million (11,792). The Group's average borrowing rate was 5.3 percent on December 31, 1998 (6.2). The Swedish loan portfolio of SEK 5,471 million (4,327) had an average interest rate of 5.7 percent (6.3) and the international portfolio of SEK 1,616 million (7,465) had an average rate of 4.0 percent (6.2). The Group's liquid assets as of December 31, 1998 amounted to SEK 150 million (282). Unutilized loan facilities, including the consortium mortgage loan limit, amounted to slightly more than SEK 450 million as of December 31. As of December 31, 1998 shareholders' equity amounted to SEK 5,020 million (8,510). When it was distributed to the shareholders, Asticus AB received shareholders' equity of SEK 3,500 million from Diligentia. Property portfolio Of the property portfolio's total book value of SEK 11,714 million (18,427) as of December 31, 1998, SEK 10,549 million (8,992) related to Sweden and SEK 1,165 million (9,435) to international properties. The total number of properties in the Group was 310 (419), of which 289 (319) were in Sweden and 21 (100) abroad. The book value of the Group's international property assets rose by SEK 174 million as a result of a weaker Swedish krona during the year. The Swedish portfolio is depreciated by 1 percent a year based on the properties' assessed value, which corresponded to SEK 74 million in 1998. The Group's international properties are reported as current assets in the balance sheet, because of which there is no depreciation. No write-ups or write-downs were made in the international property portfolio during the year. Swedish property portfolio Rental income per square meter rose from SEK 649 to SEK 753 and expenses from SEK 301 to SEK 318 per square meter. As a result, net operating income per square meter rose by 25 percent (13) during the year. Income, expressed as the yield based on the property portfolio's book value at year-end 1998, improved from 6.5 percent to 7.2 percent for the Swedish management properties. Figure 3 Trends per square meter and yield 1995 1996 1997 1998 Revenue/sq.m. 569 629 649 753 Expenses/sq.m. 317 320 301 318 Net operating income/sq.m. 252 309 348 435 *) Yield, % 5.8 6.5 6.5 7.2 *) After the transition from variable costing to a more functionally oriented accounting method with respect to administrative expenses International portfolio Income for international operations, expressed as the yield based on the book value of management properties at year-end 1998, declined from 5.7 percent to 5.2 percent as a direct result of property sales. After the conclusion of the period the property in Japan was sold for a capital gain of SEK 71 million. The net gain on the sale after estimated Japanese tax amounts to SEK 4 million. After the sale in Japan the international portfolio has a book value of approximately SEK 900 million. Changes in the portfolio During the period Diligentia sold 109 properties (199) for a total sales value of SEK 1,927 million (4,660). In all, 49 properties (179) were sold in Sweden for a sales value of SEK 798 million (2,275) and 60 properties (20) internationally for SEK 1,129 million (2,385). Net operating income from the properties sold during the year amounted to approximately SEK 81 million. The property sales during the period generated a capital gain of SEK 11 million (133). During the autumn the company sold its promissory note from Capona and its 44- percent shareholding in the hotel property company to PriFast AB, generating a capital gain of SEK 30 million. In the middle of the year the company acquired the Jericho 34 property in central Stockholm from the Telia Group for SEK 1,250 million. The property comprises 54,000 square meters of commercial area. As existing leases expire, portions of the property will be modernised. At the end of the year Diligentia acquired properties in central Stockholm and Gothenburg from SPP for SEK 740 million. The transaction gave Diligentia a complement of strategically located, high-quality properties in its priority market sectors. The properties in Stockholm comprise 27,000 square meters of commercial area. The Gothenburg properties comprise both residential and commercial area totalling 31,000 square meters. At the same time SPP acquired all Diligentia's properties in Örebro for SEK 190 million. Capital expenditures Diligentia allocates capital expenditures for its property portfolio on a continuous basis. During the year capital expenditures totalled SEK 412 million (297). The Swedish portfolio accounted for SEK 326 million (194), primarily the new college in Malmö and Södra Lövgärdet residential area in Gothenburg, and the international portfolio for SEK 86 million (103), primarily the Quinta da Fonte development project, a business park outside Lisbon, Portugal. Year 2000 At the beginning of the year the Group appointed an internal working group to identify potential problem areas related to the millennium shift. Work continued throughout the year with the help of external consultants. The focus has been on property management and administration. Against the backdrop of this review and with the information currently available, no significant problem areas have been identified. Value of the property portfolio As in previous years, Diligentia has had its properties independently appraised at the end of the year. For the Swedish property portfolio, which is strongly concentrated in Greater Stockholm, Greater Gothenburg and the Öresund region (97 percent), the estimated market value at year-end exceeded its book value by no less than SEK 602 million. Using the mean in the range of appraisals, the surplus value is SEK 1,350 million, which corresponds to an appreciation in value of 7.7 percent during the year. Figure 4 Sweden Int'l Total Sum of the properties' 11,899 1,165 13,064 book value and surplus values Dec. 31, 1998 The properties' surplus 1,350 - 1,350 value expressed as the mean in the range of appraisals Dec. 31, 1998 Sum of write-ups and - 0 0 write-downs Dec. 31, 1998 The properties' book value 10,549 1,165 11,714 Dec. 31, 1998 Increased focus on cash flow In connection with its market listing in the autumn of 1996, Diligentia established financial objectives. The company's equity/assets ratio was given a high priority and a 40-percent objective was set. This was met at year-end 1997. Since 1996 the Group's balance sheet and market interest rates have changed significantly. With our current financial position it is therefore possible to work with a lower equity/assets ratio than before. At the same time, it is important that the Group has a stable, positive cash flow from operating activities. Within these parameters, Diligentia will continue to engage in active real estate management and development. New dividend policy The Board of Directors and the company's management feel confident, given the conditions that now exist, that the total return on the property portfolio will remain good. Net operating income will increase as a result of expected satisfactory growth in rental income, which will lead to an appreciation in the value of the property portfolio. The Board of Directors wants to convey its belief in the future through a new dividend policy. According to the new policy, at least 75 percent of the company's net income will be distributed to shareholders. The previous goal was to distribute 50 percent of net income if the equity/assets ratio was at least 40 percent. Dividend proposal In accordance with the new dividend policy, the Board of Directors has decided to recommend to the Annual General Meeting a cash dividend of SEK 2.50 (1.00) per share. Parent Company Diligentia AB is the Group's Parent Company, in which the Group's shareholders' equity is concentrated. Borrowing in the Group is done in large part through the Parent Company. The Parent Company carries on customary Group-wide activities, the expenses for which amounted to SEK 55 million (63) during the period. As of December 31 there were 11 employees (12) in the Parent Company. Annual General Meeting The Annual General Meeting will be held at 4:00 p.m. on Tuesday, April 13, 1999 at the Göta Lejon Theatre, Götgatan 55, Stockholm. Financial reports Interim report January-March April 29 Interim report January-June August 18 Interim report January-September November 4 Diligentia is one of Sweden's largest real estate companies. The book value of the Group's Swedish property portfolio amounted to approximately SEK 10.5 billion on December 31, 1998. The book value of the international properties amounted to approximately SEK 1.2 billion. Diligentia's overall strategy is to concentrate its operations on select market sectors in Greater Stockholm, Greater Gothenburg and the Öresund region. Diligentia is listed on the A-list of the Stockholm Stock Exchange. Stockholm, February 19, 1999 Mats Cederholm Managing Director and Chief Executive Officer For further information, please contact: Mats Cederholm, telephone: +46-8-5875 8110, +46-70-426 8110 e-mail: mats.cederholm@diligentia.se Göran O. Westerberg, Head of Group Communications and Investor Relations telephone: +46-8-5875 8120, +46-70-426 8120 e-mail: goran.westerberg@diligentia.se Internet address: www.diligentia.se e-mail: diligentia@diligentia.se ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/19/19990219BIT00280/bit0001.doc http://www.bit.se/bitonline/1999/02/19/19990219BIT00280/bit0002.pdf http://www.bit.se/bitonline/1999/02/19/19990219BIT00280/bit0003.xls Tabbel