Preliminary Report on Operations During 1998

PRELIMINARY REPORT ON OPERATIONS DURING 1998 *Profit after tax: SEK 495 M (1997: 446) *Board of Directors proposes 11% reduction in the number of shares through cancellation of own shares *Cash flow per share will increase from SEK 4.80 to SEK 6.80 on an annual basis mainly due to acquisition of Näckebro and cancellation of shares *Board proposes a dividend of SEK 3.00 per share Contents 1 Significant events and decisions 2 Comments on the figures and proposals to the Annual General Meeting 3 Financial statements for 1998 4 Real estate portfolio 5 Ownership structure 6 Information about Drott Drott is a pure real estate company which focuses on the Swedish market. The Company's shares have been listed on the Stockholm Stock Exchange's O List since September 24, 1998. Drott has approximately 58,000 shareholders. The Company's mission is to generate a return on shareholders' equity through management of its own real estate and active use of the balance sheet (real estate transactions, dividends, redemption and the like). At year-end, Drott owned 496 properties with approximately 2.9 million square meters of rentable floor space, of which housing (about 17,500 apartments) accounted for about 1.2 million square meters. On December 31, 1998, the rent value of these properties was approximately SEK 2.6 billion, with the Stockholm area accounting for approximately 47%. Drott has about 300 employees. I. Significant events Public listing All of the shares in Drott AB were distributed to Skanska shareholders following a decision by Skanska's Annual General Meeting in 1998. Drott had virtually no debt and, according to independent valuations (February 1998), the Company's real estate portfolio was worth approximately SEK 10 billion. For each Skanska share held on September 21, 1998, the owner received one 1 Drott share free of charge. Drott shares were listed on the O-list of the Stockholm Stock Exchange on September 24, 1998. Acquisition of Näckebro Following a public offer issued on September 8, Drott acquired slightly more than 97% of the shares in Näckebro AB during the autumn of 1998 and initiated the compulsory redemption of the remaining shares outstanding. The investment, which totaled SEK 3,381 M, was financed through loans. Calculation of Näckebro's acquisition value 1 According to a recommendation from the Swedish National Tax Board, 23% of the average acquisition value of each Skanska share is attributable to Drott and 77% to Skanska. Based on the value of Drott's offer for the shares in Näckebro, Näckebro's properties were entered in the Drott Group's balance sheet on October 1, 1998 at a value of SEK 11,649 M, of which properties outside Sweden accounted for SEK 1,950 M. In addition, Näckebro's shareholders' equity was reduced through a write-down of SEK 293 M in the value of the Drott shares held by Näckebro; in addition, it was possible to post provisions of SEK 86 M for neglected maintenance and SEK 99 M for deficit values in the loan portfolio. Näckebro's real estate portfolio was valued by Drott in accordance with the valuation principles established by the Swedish Real Estate Index/IPD. Independent valuations arranged by Drott regarding approximately 10% of the properties confirmed the value in the acquisition calculation. Nonrecurring costs All of the costs connected to the merger of Drott and Näckebro (excluding the acquisition of shares) were charged against consolidated profit for the fourth quarter of 1998. The costs, which totaled, SEK 80 M, related to such measures as consulting services, the public offer, redundancy payments and organizational and system adaptations. Synergies It is estimated that the merger with Näckebro will improve Drott's earnings 2 capacity and annual cash flow by approximately SEK 30 M and SEK 150 M respectively as a result of synergistic benefits in the following areas: ¤ Management For Drott excluding Näckebro, the Stockholm region accounts for approximately 45% of the total real estate value, while the corresponding share for Drott's Swedish portfolio is about 75%. The portfolios in the Gothenburg and Öresund regions also complement each other well. This enables Drott to better satisfy its tenants requirements, while improving the efficiency of real estate management activities. ¤ Financing As a result of the acquisition of Näckebro, Drott took over interest-bearing liabilities of SEK 8.7 billion. Since Drott has a stronger financial position compared with Näckebro, it is possible to arrange a more varied borrowing structure, at a lower borrowing margin. 2 For definitions, see page 14. ¤ Tax Prior to the acquisition of Näckebro, Drott paid full tax at 28%. As a result of the acquisition, Drott received tax loss carryforwards amounting to about SEK 1.1 billion, which reduces Drott's tax rate in the next five years to approximately 15%. ¤ Central and Corporate costs Savings resulting from the removal of costs for Näckebro's separate stock exchange listing, the merger of head offices and administrative systems, etc. Cancellation of shares and write-up of property values As a result of the acquisition of Näckebro, Drott became the owner of Drott shares corresponding to 10.7% of the share capital and 44.6% of the voting rights. Näckebro's acquisition cost for the shares amounted to SEK 1,079 M, while the same shares were assigned a value of SEK 786 M in Drott's calculation of Näckebro's acquisition value (corresponding to the market value on October 1, 1998). In the consolidated balance sheet at December 31, 1998, the Group's own holding of Drott shares has not been assigned any value and, accordingly, the Group's shareholders' equity has been reduced by SEK 786 M. The Board will propose that the Annual General Meeting decide to cancel these shares (see page 8, "Proposals to the Annual General Meeting"). The value of the Drott Group's properties at December 31, 1998 has been written up by a corresponding amount (SEK 786 M) - supported by the real estate valuation conducted in February 1998 prior to the spin-off of Drott - to a total of SEK 18,310 M. Organization The operating companies - Drott Kontor, Drott Bostad and Drott Riks, which focus on three different customer segments, namely office tenants in the Stockholm region, residential tenants in growth regions and tenants in commercial premises, mainly outside the Stockholm region - are responsible for the Drott Group's real estate portfolio. Organizationally, the Group's properties outside Sweden are located in a divestment organization that reports directly to the CEO. A new Corporate Staff organization for financial, accounting, legal affairs, IT and environment/quality has been formed and reports to the Deputy President. Group Management Mats Mared President and Chief Executive Officer Claes Linné Deputy President Per Berggren President, Drott Kontor Daniel Skoghäll President, Drott Bostad Robert ThorstensonPresident, Drott Riks Jan-Erik Höjvall Business Development Johan Nordenson Corporate Communications/Investor Relations The members of Group Management and an additional 20 senior executives have each acquired 5,000 to 45,000 (total of 605,000) synthetic options in Drott on normal market terms. The term to maturity is five years and the exercise price is SEK 76. 3 Including 15 employees at Drott's Head Office. Ongoing restructuring program Based on the real estate portfolio at December 31, 1998, the Stockholm region accounted for more than 50% of total real estate values, while the Öresund and Gothenburg regions jointly accounted for more than 25%. Prior to the Näckebro acquisition, a program had been initiated within Drott to concentrate holdings to fewer locations and market areas. The acquisition sharpened this focus. Restructuring measures are conducted on a continuous basis. Comments on Drott's income statement and balance sheet and proposals to the Annual General Meeting The comments below pertain to actual results for 1998 compared with pro forma results for 1997. Näckebro is consolidated as of October 1, 1998. Profit for 1998 includes Näckebro's income statement in full, less deductions for profit up to and including September 30, 1998. The conditions upon which the pro forma accounts are based are described in a separate section on page 9. Income statement 1998 The figures within parentheses below pertain to pro forma figures for 1997. Rental revenues and operating surplus The Group's rental revenues in 1998 amounted to SEK 2,439 M (2,455), while the operating surplus rose by SEK 9 M to SEK 1,438 M (1,429). The decrease in rental revenues was due to changes in the real estate portfolio, at the same time as rents for a comparable portfolio continued to rise (particularly for the office portfolio in Stockholm). In the fourth quarter, the operating surplus was charged with SEK 22 M for extra costs, mainly resulting from maintenance costs in real estate management operations which were required to adapt Näckebro accounts for full-year 1998 to Drott's capitalization/costing principles. The yield declined to 7.6% (7.7). A write-up of property values reduced the yield by 0.4 percentage points. The rent-based occupancy ratio was unchanged, at 93% on December 31, 1998. Operating profit Operating profit - which increased by SEK 398 M to SEK 1,556 M (1,168) - was affected by two counteracting items affecting comparability; capital gains of SEK 487 M and restructuring costs totaling SEK 130 M. Central Corporate and Group expenses amounted to SEK 65 M. The costs include both Näckebro's and Drott's costs (since the Drott organization was in the process of being established during the first half of 1998, this resulted in a low annual cost for Drott excluding Näckebro). It is estimated that Central Corporate and Group expenses will amount to approximately SEK 50 M in a normal year. Drott's restructuring costs in connection with its separation from Skanska amounted to SEK 50 M, while restructuring costs connected to the Näckebro acquisition totaled SEK 80 M. The capital gains amounted to SEK 487 M. Of the total capital gains, gains in Näckebro prior to its acquisition by Drott accounted for SEK 248 M, which is eliminated under the "Acquired profit" item. Net financial items Interest expense amounted to SEK 584 M (583). The average interest rate decreased during 1998, while the average loan volume was higher. Interest expense in 1998 was also affected by a SEK 15 M reversal of the deficit value assigned to Näckebro's loan portfolio in the acquisition calculation. As a result of interest on the loans taken over in connection with formation of the Drott Group on January 14, 1998, SEK 97 M was charged against net financial items during the first half of the year. Interest subsidies decreased from SEK 110 M to SEK 55 M, due to the divestment of properties, a planned decrease in Government subsidies and a lower interest rate for the computation of subsidies. Acquired profit Näckebro's income statement for 1998 is included in full, less deductions of SEK 282 M for acquired profit up to and including September 30, 1998. The amount for acquired profit includes nonrecurring items of SEK 250 M. In addition to the acquired profit of SEK 282 M in Näckebro, SEK 2 M is included which arose in connection with company acquisitions in November 1998. Tax For Drott excluding Näckebro, tax costs are computed on the basis of full tax (28%). The tax charges for the proportion of profit accounted for by Näckebro were only marginal. Net profit for the year Net profit for the year amounted to SEK 495 M (446). Profit was affected by nonrecurring items, as described above, in a positive net amount of SEK 24 M (neg: 8). Balance sheet as of December 31, 1998 The figures within parentheses below pertain to pro forma accounts at December 31, 1997. Properties At December 31, 1998, Drott owned 496 properties, including seven half-owned properties which are reported in accordance with the proportional method and two properties under construction. The book value of the properties in the consolidated accounts was SEK 18,310 M (18,204), including properties under construction amounting to SEK 387 M (147). Rentable space amounted to 2,895,000 sq. m. Acquisitions and sales of property In addition to the acquisition of Näckebro, the largest change in the real estate portfolio resulted from the structural transactions conducted with Tornet and Fastighetspartner during the fourth quarter. These transactions resulted in a concentration of the real estate portfolio, through a withdrawal from eight locations, at the same time as Drott strengthened its presence in six locations. The transactions resulted in net sales of SEK 48 M. Completed properties from construction in progress during the year The 16,400 square meter Helgafjäll 4 property, in Kista, northern Stockholm, was completed during the year and is fully leased to Ericsson and Nokia. As of mid-August, Mälardalen College leases all 10,100 square meters of space in the Väpnaren 4 property in Eskilstuna, which was completed during 1998. Change in the balance sheet items "Properties" and "Properties under construction" In accordance with Drott's accounting principles, Helgafjäll 4 and Väpnaren 4 have been reclassified from "Properties under construction" to "Properties" in Drott's balance sheet, as of January 1, 1999. Current assets Liquid funds, including short-term investments, amounted to SEK 126 M (207). Total current assets amounted to SEK 320 M (656). Interest-bearing liabilities On December 31, 1998, the Drott Group's interest-bearing liabilities totaled SEK 11,776 M (12,595). The average interest rate for Drott's loans at December 31, 1998 was 5.4% and the average period of fixed interest was 2.0 years. If the remaining SEK 84 M provision for Näckebro's loan portfolio is taken into account, the average interest rate is 5.1%. As of February 16, 1999, most of the above provision had been reversed, whereby the average interest rate was 5.0% and the average period of fixed interest 2.7 years. Shareholders' equity In connection with the consolidation of Näckebro, Näckebro's holding of Drott shares was eliminated directly against shareholders' equity, which resulted in a reduction of SEK 786 M in equity. At the same time, the value of properties was written up by a corresponding amount against restricted shareholders' equity. Since the Company's own holding of shares in Drott is not assigned any value in the consolidated balance sheet at December 31, 1998, this means that shareholders' equity is reported as if the proposed cancellation of these shares had already been effected. Parent Company Prior to its demerger from Skanska, the Parent Company, Drott AB, acquired companies from Skanska for SEK 105 M. Drott AB was provided with equity amounting to approximately SEK 5 billion through a new issue of shares and a shareholder contribution. Following a public offer issued on September 8, Drott acquired nearly 99% of the shares in Näckebro AB during the autumn and initiated the compulsory redemption of the remaining shares outstanding. The total cost of the acquisition of Näckebro was SEK 3,381 M. The Company had no sales revenues during the year. The shares in Näckebro AB were written down by SEK 869 M, corresponding to the book value in Näckebro's accounts of Näckebro's holding of Drott shares at December 31, 1998. At the same time, the shares in Drott Kontor AB were written up by SEK 786 M against the write-up reserve. The Parent Company reported a loss of SEK 798 M (0) after tax. Proposals to the Annual General Meeting Dividend The Board of Directors proposes that an ordinary dividend of SEK 3.00 be paid per share for 1998. The proposed record date for receipt of dividends is April 16, 1999. Cancellation of shares As a result of the acquisition of Näckebro, Drott became the owner of Drott shares corresponding to 10.7% of the share capital and 44.6% of the voting rights. The Board proposes that the Annual General Meeting vote to cancel these shares by reducing the share capital by approximately SEK 24 M. If the Meeting approves this motion, the total number of Drott shares will be reduced by 12,166,209 to 101,688,759. Issue of convertible debentures The Board proposes that the Annual General Meeting vote in favor of an issue of convertible debentures to all employees in Sweden, in a nominal amount not exceeding SEK 47 M. At full subscription and full conversion, a maximum of 550,000 Series B shares will be issued. Drott's capital structure Even after the proposed cancellation of shares and dividend payments, Drott will be a financially strong company. The Board believes that there are currently opportunities for acquisitions on attractive terms, which will increase Drott's return on equity in both the short and the long term. After the 1999 fiscal year, the Board intends to determine whether the return to shareholders could be boosted through such measures as the redemption or repurchase of shares. The Board will take the following factors into account: An assessment of the total stability of the cash flows generated from properties The opportunities to acquire properties with a secure real operating surplus and to make investments that yield a long-term return that exceeds Drott's weighted average cost of capital Risks and opportunities in the credit and interest-rate markets Drott's tax situation Credit institutions' demands for collateral margins Market capitalization and stock liquidity. Outlook at year-end 1998 Prior to the acquisition of Näckebro and the cancellation of shares, Drott's annual cash flow amounted to SEK 4.80 per share. The markets in which Drott is active are showing different trends. Rents for residential properties outside prime inner-city locations showed a weak trend in 1998, while office rents in inner-city Stockholm rose by 10-15%. Taking these trends and the transactions implemented during 1998 into account, the Group's annualized earnings capacity and cash flow now exceed SEK 520 M and SEK 690 M, respectively, while the interest-coverage multiple amounts to 2.0. On an annual basis and after the proposed cancellation of shares, cash flow will exceed SEK 6.80 per share. Stockholm, February 16, 1999 Drott AB (publ) Mats Mared President and Chief Executive Officer Basis for the pro forma accounts Pro forma income statement and balance sheet for 1997 Pro forma accounts have been prepared for 1997 in order that, to the greatest extent possible, accurate comparisons can be made between the actual results for 1998 and the pro forma results for 1997. Accordingly, the pro forma accounts for 1997 are based on the assumption that the acquisition of Näckebro became effective on October 1, 1997 (it actually became effective on October 1, 1998). In preparing the pro forma accounts for Drott including Näckebro, the pro forma income statement and balance sheet presented in Drott's Listing Particulars has been used for Drott's results for 1997. The Listing Particulars also show the assumptions underlying these accounts. However, the change in Central Corporate and Group costs noted below should be taken into account. As regards Näckebro, the income statement and balance sheet contained in the published Annual Report for 1997 have been used The pro forma accounts for the Drott including Näckebro are based on the following conditions and assumptions: That the acquisition became effective on October 1, 1997 and that the pro forma accounts were prepared in accordance with the purchase method. The pro forma accounts include Näckebro's income statement for full-year 1997, less a deduction for acquired profit, SEK 68 M. The acquisition value for Näckebro amounts to SEK 3,381 M. In accordance with the calculation of acquisition value, Näckebro's properties were assigned a consolidated value that exceeds the book value in Näckebro by SEK 151 M. A resulting adjustment of depreciation has been made at a rate of 1% annually. In addition to the adjustment of property book values, the difference between the acquisition value and shareholders' equity in Näckebro has been entered against other current liabilities. The acquisition of Näckebro is assumed to have been loan financed with a borrowing cost of 4.9%, corresponding to SEK 41 M on a quarterly basis (Oct- Dec). The tax effect of this interest charge has been taken into account at a rate of 28%. Central Corporate and Group costs amount to SEK 60 M Other revenue and cost synergies have not been taken into consideration in the pro forma accounts. With respect to Näckebro, it is worth noting that this company acquired Fabege in July 1997. In Näckebro's accounts for 1997, Fabege's income statement is included in full, less a deduction for acquired profit, SEK 22 M. Pro forma statement of changes in financial position for 1998 In accordance with the fact that the balance sheet at December 31, 1997 is a pro forma balance sheet, the statement of changes in financial position for 1998 is also reported pro forma. The following comments should be noted regarding the statement of changes in financial position: The items down to Näckebro."Cash flow before changes in working capital and investments" do not include any pro forma features, since they are based in full on operations in 1998. The changes in working capital, investment operations and financing operations are reported on the basis of the pro forma accounts at December 31, 1997, which means it is assumed that the Drott Group was formed and Näckebro acquired at the beginning of 1998. The dividend of SEK 31 M pertains to dividends paid by Näckebro prior to Drott's acquisition of Since Näckebro's holding of shares in Drott is not assigned a value and it is proposed that these shares be canceled, Näckebro's acquisition cost for the shares, an amount of SEK 1,079 M, is not included as an investment but as a change in the financing structure. Net sales of fixed assets amount to SEK 1,126 M pro forma, of which Näckebro's sale of Southside in London is the largest individual item. III. Financial statements for 1998 Consolidated income statement SEK M 1998 1997 Jan-DecJan-Dec pro forma Rental 2 439 2 455 revenues Other 18 17 revenues Operating expense, maintenance and cost -686 -721 of modifying properties for tenants Ground rent -49 -47 Property tax -134 -133 Property management -150 -142 Operating 1 438 1 429 surplus Depreciation -174 -181 Profit from real estate operations 1 264 1 248 Profit from other operating sectors 10 31 Gross profit 1 274 1 279 Capital gains 487 -7 Central Corporate and Group expenses -65 -60 Restructuring costs -130 -44 Operating 1 566 1 168 profit Interest 55 110 subsidy Interest 16 40 income Interest -584 -583 expense Nonrecurring interest expense prior -97 0 to capital Profit after net financial items 956 735 Acquired -284 -90 profit Profit before taxes 672 645 Taxes -177 -199 Net profit after taxes 495 446 ADJUSTMENT FOR NONRECURRING ITEMS Capital gains/other operating -497 -24 sectors Nonrecurring costs related to 50 separation from Skanska Nonrecurring interest expense, 80 44 4 coordination with Näckebro Nonrecurring interest expense prior 97 to capital contribution Adjustment of central Corporate and -14 Group costs Less: Nonrecurring items included in 250 -9 acquired profit in Näckebro Adjustment of 10 -3 taxes Total adjusted items -24 8 Adjusted 471 454 profit 4 The nonrecurring costs for pro forma 1997 pertain to the coordination costs that Näckebro incurred as a result of the acquisition of Fabege. Consolidated balance sheet SEK Mr Dec. Dec. 31, 31,1998 1997 pro forma Properties 17 923 18 057 Properties under construction 387 147 Machinery and equipment 19 44 Other fixed assets 30 50 Fixed assets 18 359 18 298 Other current assets 194 449 Liquid funds 126 207 Current assets 320 656 TOTAL ASSETS 18 679 18 954 Shareholders' equity 5 628 5 134 Minority interest 1 Non interest-bearing 1 275 1 224 liabilities Interest-bearing liabilities 11 776 12 595 SHAREHOLDERS' EQUITY AND 18 679 18 954 LIABILITIES Key data 12 months Dec.31, 1998 1998 1997 ActualPro forma Earnings SEK M 5 capacity etc PROPERTY-RELATED DATA Rental revenues 2 423 2 439 2 455 Rentable space, sq.m. 2 895 0002 971 000 Rent-based occupancy 93 93 ratio, % Operating surplus 1 438 1 429 Book value of 18 310 18 204 6 properties Yield on properties, % 7,6 7,7 Surplus ratio, % 59,0 58,2 FINANCIAL DATA Net profit for the year 520 495 446 7 Shareholders' equity 5 628 5 134 Return on equity, % 9,2 8,7 Total assets 18 679 18 954 Equity/assets ratio, % 30,1 27,1 Interest-bearing 11 776 12 595 liabilities 8 9 Interest-coverage 2,0 3,5 4,3 ratio, times Debt/equity ratio, 2,1 2,5 times Cash flow 690 416 574 SHAREDATA Number of shares 101 688 759 113 854 113 854 968 968 10 Earnings per share, SEK 5,10 4,35 3,92 11 Shareholders' equity 49,43 45,09 per share, SEK 12 Cash flow per share, 6,80 3,65 5,04 SEK 5 For definitions, see page 14. 6 Including "Properties under construction" 7 If the SEK 786 M write-up of property values - in connection with the cancellation of Näckebro's shares in Drott - were to be charged with full tax, shareholders' equity would be reduced by SEK 220 M. 8 Items included in acquired profit have been taken into account. 9 Items included in acquired profit have been taken into account. 10 If it is assumed that 12,166,209 shares (own holdings) were canceled on the same date that Drott consolidated Näckebro (October 1, 1998), this key figure would be SEK 4,47. 11 If it is assumed that 12,166,209 shares (own holdings) were canceled on the same date that Drott consolidated Näckebro (October 1, 1998), this key figure would be SEK 55,35. 12 If it is assumed that 12,166,209 shares (own holdings) were canceled on the same date that Drott consolidated Näckebro (October 1, 1998) this key figure would be SEK 3,75. Statement of changes in financial position SEK M 1998 pro forma CONTINUING OPERATIONS Operating profit 1 566 Adjustment of items not included in cash flow Depreciation 176 Capital gains -487 Cash flow in eliminated acquired profit -125 Operating profit after above adjustments 1 130 Interest subsidies 55 Interest income 16 Interest expense -681 Taxed paid -104 Cash flow before changes in working capital 416 and investments Change in working capital Decrease (+) in receivables 255 Increase (+) in liabilities 51 Cash flow from continuing operations 722 INVESTMENT OPERATIONS Net sales of fixed assets 1 126 Cash flow from investment operations 1 126 FINANCING OPERATIONS Change in short-term and long-term lending -819 Dividends in Näckebro -31 Näckebro's acquisition cost for Drott shares -1 079 Cash flow from financing operations -1 929 Change in liquid funds -81 Liquid funds on January 1 207 Liquid funds on December 31 126 DEFINITIONS Property-related Yield on properties Adjusted operating surplus in relation to adjusted book value. Rent-based occupancy Contracted rental revenues in relation to ratio rental value. Properties Register properties. Rental value Contracted rental revenues plus value of vacant premises. Adjusted book value Closing book value of properties adjusted for land, properties under construction and acquisitions at the end of the report period. Adjusted operating Reported operating surplus adjusted for surplus purchased or sold properties, currency effects, land, etc. Contracted rent Basic annual leased-based rent, after indexing, adjusted for rent discounts and rent surcharges. Rentable space Total of leased and vacant space. Rentable space includes garage areas within a building. Vacant space Estimated market rent for unleased premises after reasonable upgrading measures. Financial Return on equity Net profit for the year as a percentage of average shareholders' equity. Central Corporate Costs that are not directly attributable to and real estate management operations, such as Group costs costs for corporate management, Group Staff functions and maintaining a stock-exchange listing. Earnings capacity Profit after tax on an annual basis based on currently known conditions. Cash flow Net profit for the year after the reversal of depreciation, capital gains and deferred tax costs. Cash flow an annual Earnings capacity after the reversal of basis depreciation, capital gains and deferred tax costs. Interest-coverage Profit after net financial items plus ratio interest expense in relation to interest expense. Debt/equity ratio Interest-bearing liabilities in relation to shareholders' equity. Equity/assets ratio Shareholders' equity plus minority interest as a percentage of total assets. Earnings per share Net profit for the year divided by the number of shares. Surplus ratio Operating surplus as a percentage of rental revenues. IV. Real estate portfolio 13 All figures pertain to conditions at December 31, 1998 . Drott's properties SwedenOutside Total Sweden Rentable space sq. m. 2 706189 000 2 895 000 000 Number of properties 479 17 496 Number of apartments, approx. 17 500 0 17 500 Number of leases for commercial 3 000 700 3 700 14 premises , approx. Rental value, SEK M 2 383 211 2 594 Occupancy rate, % 94 89 93 Book value, SEK M 16 365 1 945 18 310 Distribution of floor Rentable Rental space space value sq.m.Shar Shar e SEK M e Office 941 000 33% 1 186 46% Retail 186 000 6% 204 8% Storage/Industrial 284 000 10% 172 6% Hotel 40 000 1% 51 2% Other 20 000 1% 16 1% Garage, parking, 226 000 8% 74 3% signs, etc. Housing 1 198 000 41% 891 34% Total 2 895 000100% 2 594100% Distribution of floor Rentable Rental space by region space value sq.m.Shar Shar e SEK M e Stockholm 1 106 000 38% 1 222 47% Gothenburg 491 000 17% 350 14% Öresund 581 000 20% 419 16% Rest of Sweden 528 000 18% 392 15% Outside Sweden 189 000 7% 211 8% Total 2 895 000100% 2 594100% Lease expiration SEK M Share 1999 355 14% 2000 242 10% 2001 340 14% 2002 163 7% 2003- 390 16% Garage, parking, 68 3% etc. Housing 865 36% Total 2 423 100% 13 Including seven 50%-owned properties, which are reported in accordance with the proportional method, and two properties under construction. 14 Excluding leases for garage and parking space. V. Ownership structure December 31, 1998 Shareholder No. of No. of Total no.Percenta Percen Series A Series B of shares ge of tage shares shares share of capital voting rights Förenings- 0 15 372 047 15 372 047 13,5 % 7,9 % sparbanken's mutual funds Drott 8 358 653 3 807 556 12 166 209 10,7 % 44,6 % Fourth AP 112 988 6 707 456 6 820 444 6,0 % 4,0 % Fund Nordbanken's 0 4 636 340 4 636 340 4,1 % 2,4 % mutual funds SEB +Trygg 0 3 654 405 3 654 405 3,2 % 1.9 % mutual funds Handelsbanken's 0 3 469 820 3 469 820 3,0 % 1,8 % mutual funds Skandia 0 3 128 237 3 128 237 2,7 % 1,6 % SPP 0 2 955 270 2 955 270 2,6 % 1,5 % Trygg-Hansa 0 2 730 600 2 730 600 2,4 % 1,4 % Försäkring Fifth AP 0 1 578 500 1 578 500 1,4 % 0,8 % Fund AMF Sjuk- 0 1 568 500 1 568 500 1,4 % 0,8 % försäkring SB Foundation 0 1 475 000 1 475 000 1,3 % 0,8 % Kammar- 0 1 240 000 1 240 000 1,1 % 0,6 % kollegiet's Fund Management Foreign 33 150 12 044 249 12 077 399 10,6 % 6,3 % shareholders Others 597 739 40 384 458 40 982 197 36,0 % 23,6 % (approx 58,000) Total 9 102 530 104 752 438 113 854 968 100,0 % 100,0 % Average turnover per trading day during the past 13 months (January 13 to February 12): SEK 12.2 M (Series B shares) and SEK 0.1 M (Series A shares). Proposal to the Annual General Meeting Drott's Board of Directors proposes that the Annual General Meeting vote to cancel the Drott shares owned by Drott (8,358,653 Series A shares and 3,807,556 Series B shares). Accordingly, the total number of Series A Drott shares will be reduced to 743,877 (corresponding to 0,7% of the share capital 15 and 6.9% of the voting rights). . December 31, 1998, after the proposed cancellation of shares Shareholder No. of No. of TotalPercenta Percen Series A Series B no. of ge of tage shares shares shares share of capital voting 15 Drott's Articles of Association contain a so-called conversion clause for Series A shares: "Holders of Series A shares are entitled, through a written request to be company's Board of Directors, to demand that Series A shares be converted into Series B shares. In such cases, the shareholder must state the number of shares to be converted. The Board of Directors must, without delay, register the conversion and the conversion becomes effective as soon as registration occurs." rights Förenings- 0 15 372 047 15 372 047 15,1 % 14,2 % sparbanken's mutual funds Fourth AP 112 988 6 707 456 6 820 444 6,7% 7,2 % Fund Nordbanken's 0 4 636 340 4 636 340 4,5 % 4,3 % mutual funds SEB +Trygg 0 3 654 405 3 654 405 3,6 % 3,4 % mutual funds Handelsbanken's 0 3 469 820 3 469 820 3,4% 3,2 % mutual funds Skandia 0 3 128 237 3 128 237 3,1 % 2,9 % SPP 0 2 955 270 2 955 270 2,9 % 2,7 % Trygg-Hansa 0 2 730 600 2 730 600 2,7 % 2,5 % Försäkring Fifth AP 0 1 578 500 1 578 500 1,6 % 1,5 % Fund AMF Sjuk- 0 1 568 500 1 568 500 1,5 % 1,4 % försäkring SB Foundation 0 1 475 000 1 475 000 1,5 % 1,4 % Kammar- 0 1 240 000 1 240 000 1,2 % 1,1 % kollegiet's Fund Management Foreign 33 150 12 044 249 12 077 399 11,9 % 11,4 % shareholders Others 597 739 40 384 458 40 982 197 40,3 % 42,8 % (approx 58,000) Total 743 877 100 944 882 101 688 759 100,0 % 100,0 % VI. Information from Drott Drott AB (publ) Corporate reg. no. 556050-2113 Tel: +46 8 545 83 000 Telefax: +46 8 545 83 096 Web site: www.drott.se Postal address: Box 5530, SE 114 85 Stockholm, Sweden Street address: Nybrogatan 57A, Stockholm, Sweden Planned information 1998 Annual Report Late March 1999 Annual General Meeting April 13, 1999 Three-month report April 29, 1999 Six-month report August 13, 1999 Nine-month report October 22, 1999 Additional information Mats Mared (President) Tel: +46 8 545 83 010 Telefax: +46 8 545 89 098 e-mail: mats.mared@drott.se Claes Linné (Deputy President) Tel: +46 8 545 83 012 Telefax: +46 8 545 89 098 e-mail: claes.linne@drott.se Johan Nordenson (Vice President, Corporate Communications/IR) Tel: +46 8 545 83 019 Telefax: +46 8 545 89 099 e-mail: johan.nordenson@drott.se Annual Report for 1998 Drott's Annual Report for 1998 will be kept available at Drott's Head Office as of the latter part of March and will be distributed to those Drott shareholders who have indicated that they wish to receive regular financial information from Drott. Following the Annual General Meeting, a summarized presentation of the Company will be distributed to all directly registered shareholders. Annual General Meeting 1999 Tuesday, April 13, 1999 at 4 p.m. at Industrihuset (Industrisalen), Storgatan 19, Stockholm. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/18/19990218BIT00210/bit0001.doc http://www.bit.se/bitonline/1999/02/18/19990218BIT00210/bit0002.pdf