Report on First Nine Months of 1999

REPORT ON FIRST NINE MONTHS OF 1999 Profit up - Pretax profit for the period amounted to SEK 1,056 M (first nine months of 1998: 565), including capital gains of SEK 466 M (260). - Earnings per share amounted to SEK 8.73 (4.19). - Cash flow from continuing real estate management operations during January-September 1999 amounted to SEK 6.60 (4.37) per share. - Based on an identical portfolio, rental revenues were 4% higher than in the year-earlier period. - The occupancy rate rose by 0.7 percentage points during the third quarter to slightly more than 94%. Substantial business volume - Sales amounted to SEK 1.8 billion, with slightly more than one third outside Sweden. - Acquisitions totaled SEK 2.2 billion and new projects in progress, mainly in Stockholm, approximately SEK 1.1 billion. Increased forecast - Full-year pretax profit for 1999 is expected to exceed SEK 1,200 M (including capital gains of SEK 466 M). Contents - Business comments - Comments on the interim report - Income statements, balance sheets and cash flow analysis - Key data and definitions - The Drott share Drott AB (publ) is a pure real estate company that focuses on the Swedish market. The Company's mission is to generate a return on the capital invested by shareholders through management of its own real estate and through real estate transactions. Based on satisfied tenants, profitable properties and a strong position in growth markets - mainly for offices and housing - Drott aims to secure a rising operating surplus in real terms combined with growth in cash flow per share. On September 30, 1999, Drott owned 539 properties with 2 approximately 2.9 million m of rentable space, of which housing (about 18,200 2 apartments) accounted for about 1.2 million m . Annual rental revenues, including vacant space, amounts to approximately SEK 2.7 billion, with the Stockholm area accounting for half. Drott has slightly more than 300 employees. The Company has 55,000 shareholders and is the largest real estate company on the Stockholm Stock Exchange. Business comments Real estate portfolio The fact that slightly more than half of Drott's properties are located in Stockholm, where economic growth remains strong, is making a gradual impression on Drott's income statement. At the end of the period, Drott also had projects in progress in an amount of approximately SEK 1.1 billion, of which SEK 0.6 billion had been worked up. These projects will generate additional rents of some SEK 113 M annually, of which leases signed to date account for SEK 80 M. During the first nine months of 1999, Drott's rental revenues were 4% higher than in the year-earlier period, based on an identical portfolio. The increase was mainly attributable to the renegotiation of leases on commercial premises, as well as an increased occupancy rate, from 93% at the end of 1998 to slightly more than 94%. A higher occupancy rate was also noted in the housing portfolio and a lower relocation rate. This trend is partly a consequence of strong economic conditions. However, it is also the result of the Group's own efforts to generate continuously higher value for its housing tenants. For example, Drott was the first real estate company in Malmö to install broadband services in its approximately 2,000 apartments in the city. Ahead of the new millennium, all of Drott's administrative systems and property-related computer systems have been audited. The Y2K action program was completed earlier this year. Drott has decided to commission an independent valuation of its entire real estate portfolio, as at December 31, 1999. The results will be published on February 16, 2000. @ Purchases and sales Drott acquired properties for SEK 2.2 billion during the first nine months of the year, thus strengthening the portfolio, mainly with housing and commercial premises in Stockholm. After the close of the report period, additional residential properties were purchased in Stockholm, as were building rights, 2 based on which Drott plans to commence production of approximately 8,000 m of office space close to the northern access route to Stockholm. Drott is continuing to phase out its non-priority properties, a process that is generating considerable capital gains. For example, 13 of Drott's 17 properties outside Sweden have been sold and final negotiations are under way regarding the final UK property. The Group expects to have divested the properties in Amsterdam and Düsseldorf before midyear 2000. In addition, the Group has sold all of its hotel properties and concentrated its remaining operations by withdrawing from seven Swedish locations. During the current year, Drott's rental tenants have been showing an increased interest in forming tenant owner associations. Negotiations regarding the acquisition of properties are under way and it is not improbable that Drott will conclude agreements with a number of such associations in the Stockholm region before year-end. @ Yield As a result of the favorable market conditions, rapid restructuring of the portfolio and efficient real estate management, the yield on continuing management operations has increased sharply. To this should be added value growth of the property portfolio due to a real increase in the operating surplus. Comments on the income statement January-September 1999 The figures within parentheses below pertain to pro forma results for the first nine months of 1998 1) Rental revenues and operating surplus The Group's rental revenues amounted to SEK 1,865 M (1,832). The factors underlying the change are acquisitions, divestments and the completion of properties, as well as changes in the identical portfolio (renegotiated leases and new leases). Based on an identical portfolio, the increase was SEK 55 M, or 4%. The occupancy rate is slightly more than 94% (93). The operating surplus rose to SEK 1,179 M (1,124). Operating profit 1) The pro forma accounts for 1998 are based on the assumption that the acquisition of Näckebro became effective on January 1, 1998. The acquisition of Näckebro shares is assumed to have been loan financed with a borrowing cost of 4.9%, corresponding to SEK 124 M on a nine-month basis. The tax effect of this interest charge has been taken into account at a rate of 28%. The figures for Drott excluding Näckebro are based on the interim report for the first nine months of 1998. With respect to Näckebro, the pro forma accounts are based on the company's interim report on the first nine months of 1998 (see appendix to Drott's interim report on the first nine months of 1998). At September 30, 1998, Näckebro owned Drott shares. This holding of Drott shares has not been assigned any value in the pro forma balance sheet and, accordingly, the Group's shareholders' equity has been reduced by SEK 786 M. In the pro forma balance sheet, the write-up of the value of Drott's properties by a corresponding amount (SEK 786 M) on December 31, 1998 is assumed to have become effective on September 30, 1998.'' ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/25/19991025BIT00770/bit0001.doc http://www.bit.se/bitonline/1999/10/25/19991025BIT00770/bit0002.pdf