Drott 9-month report for 2001

9-month report for 2001 Strong nine-month earnings 2001 2000 Operations, 9 months - profit before tax MSEK 693 628 MSEK +10% - earnings per share SEK 5.25 SEK 4.46 +18% - cash flow per share SEK 9.24 SEK 7.70 +20% Operations and sales, 9 2001 2000 months - profit before tax MSEK 1,237 MSEK 915 +35% - profit after tax MSEK 981 MSEK 662 +48% - earnings per share SEK 10.32 SEK 6.52 +58% Continued growth Continued growth in rental revenues: In the like-for-like portfolio, rental revenues rose by 8% and the operating surplus increased by 9% on the corresponding period of last year. The annual cash flow from operations (the sum of the four past quarters) is now SEK 11.87 per share, compared with the year-earlier figure of SEK 9.32 per share - an increase of 27 percent. Full-year forecast Consolidated profit before tax expected to reach more than MSEK 1,400 Market situation Residential properties in Stockholm, Gothenburg and Malmö (22% of annual rents) - highly stable Commercial properties in Stockholm, Gothenburg and Malmö (63% of annual rents) - declining growth in market rents, in certain areas market rents are somewhat lower than a year ago. Kista (10% of annual rents) - short-term lack of demand MARKET COMMENTS The market Over the past 20 years Sweden's GDP has risen by an average of two percent annually. The forecast for 2001 is an increase of just over one percent, which is considerably weaker than in the past few years. Next year growth is expected to accelerate, but there is major uncertainty about both when during the year the turnaround will take place and the strength of the upswing. However, future growth is expected to be substantially higher in Stockholm than the rest of the country. Commercial properties Demand for office space in the central areas of innercity Stockholm has successively declined during 2001 and market rents - the rental rates paid by tenants for new leases - have dropped from the peak level just over a year ago. Both the vacancy rate and sub-letting have risen from a previous low level. In the rest of the Stockholm region, market rents have stabilized or fallen. Kista (see below) is expected to see an imbalance in supply/demand due to cutbacks in the telecom industry and the completion of new space. In the Öresund region and Gothenburg, office leases are being signed at largely the same level as a year ago. In the portfolio of commercial properties owned by the Drott Group in the third quarters of both 2000 and 2001, rental revenues increased by 9 percent (the operating surplus rose 14 percent). Despite the fact that market rents have stabilized, and even fallen in some areas, Drott' rental revenues have continued to rise thanks to renegotiation of leases, indexation and completion of real estate projects. Renegotiation of leases The commercial leases that are being renegotiated in 2001 were signed 3- 8 years ago when market rents were considerably lower than today - in certain parts of the Stockholm region market rents have doubled during the lease term. Normally, rent adjustments do not reach full effect until the year after renegotiation. Leases with contractual annual rents of MSEK 520, or an average of SEK 1,050 per square meter, are due to expire in 2002. Annual indexation Drott's commercial leases contain indexation clauses, which means that the contractual rents will be indexed to inflation. If the consumer price index for 2001 will rise by 2.5 percent, the Group's annual rents will increase - via indexation - by around MSEK 50 (with full effect in 2002). Completion of projects Drott will complete four real estate projects with annual rents of MSEK 118 during January-December 2001 and eight projects with annual rents of MSEK 158 during 2002. In the nine projects currently in progress, 84 percent of annual rents are contracted. Kista One tenth of the Group's rental revenues come from Kista, where Drott owns a total area of around 300,000 square meters (including projects in progress). The occupancy rate is over 90 percent, the average rent is SEK 1,450 per square meter and the leases have an average weighted duration of around 5 years. Drott's largest tenant in Kista is the Ericsson Group, with some 220,000 square meters (including projects in progress) 1) . A couple of major leases are due to expire next year, after which more than 40,000 square meters of space are expected to become available. This could lead to a temporary increase in the Drott Group's vacancy rate of just over one percentage point. Kista has en excellent geographic location close to Arlanda Airport and with subway and commuter train connections to the city. The area is home to around 700 companies with a high proportion of well educated personnel and an expanding technical institute with thousands of students. In the short term, however, cutbacks in the telecom industry and the completion of new space could affect both market rents and real estate prices in Kista. The results of the independent market appraisal at year- end could lead to a write-down in the book value on one or another building, thereby affecting the P&L for Drott this year, but the effect of a value adjustment in Kista on the Drott Group's adjusted equity is assessed to be marginal. Residential properties Attractively located rental properties - like long-term commercial leases - provide good financial security in the event of temporary slumps in the economy. One fourth of Drott's rental revenues are generated by residential properties. In the residential portfolio owned during the third quarters of both 2000 and 2001 (1,000,000 square meters), rental revenues rose 3 percent. Growth in Drott's residential rental revenues is expected to remain ahead of inflation. Of the Group's 15,500 residential apartments, nearly 14,000 are located in the three metropolitan areas (of which 2,400 in innercity Stockholm). Attractively located residentials in growth regions are in short supply, and are expected to show strong value growth. Furthermore, the secure cash flows in Drott's residential portfolio facilitate financing with favourable terms. Including rentals outside Kista, the Ericsson Group accounts for around 8 percent of the Drott Group's total rental revenues. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/26/20011026BIT01350/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/10/26/20011026BIT01350/bit0001.pdf The full report