Report on first three months of 1999

REPORT ON FIRST THREE MONTHS OF 1999 · Profit after tax for the period: SEK 214 M (Q1, 1998: 56) · Properties acquired for SEK 1.7 billion and sold for SEK 0.3 billion -capital gain of SEK 76 M after taxes. · Based on an identical portfolio, rental revenues and the operating surplus rose by 2.8% and 3.6%, respectively, during the first quarter of 1999 compared with the year-earlier period. · Full-year profit for 1999 is expected to exceed SEK 650 M after taxes. Contents I Significant events II Comments on the interim report III Income statements, balance sheets, statement of changes in financial position and key data IV The Drott share Drott is a pure real estate company which focuses on the Swedish market. 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). With the support of satisfied tenants, profitable properties and a strong position in local growth markets -mainly for offices and housing - Drott aims to secure a favorable operating surplus in real terms combined with growth in cash flow per share. At the end of March 1999, Drott owned 559 properties with approximately 3.1 million square meters of rentable floor space, of which housing (about 19,600 apartments) accounted for about 1.3 million square meters. On March 31, 1999, the rental revenues from these properties, including vacant space, was approximately SEK 2.8 billion, with the Stockholm area accounting for approximately 48%. Drott has about 300 employees. Drott has 58,000 shareholders and is the largest real estate company on the Stockholm Stock Exchange. I. Significant events · Acquisition from HSB In March 1999, Drott acquired 73 properties from HSB Sverige AB for SEK 1.7 billion, with 85% of the purchase price financed through long-term loans1. The acquisition will improve the Drott Group's earnings and cash flow by SEK 30 M and SEK 46 M, respectively, on an annual basis. Housing (2,400 apartments, including 1,000 in central Stockholm) accounts for 156,000 square meters of the total 243,000 square meters of floor space acquired from HSB. Although the acquisition is included in Drott's interim accounts at March 31, 1999, it had no impact on the income statement since the takeover date is May 3, 1999. · Sales of properties A total of 14 properties comprising 66,000 square meters of floor space were divested during the period for SEK 333 M, generating a capital gain of SEK 87 M before taxes (76 after taxes). · Strong Stockholm market The rental market in Stockholm remains strong and market rents continue to rise. However, the rent increases for current leases - based on the currently low rate of inflation - are very marginal. Although the total occupancy rate for Drott's properties has increased slightly during 1999, the percentage figure remains the same at 93%. · After the close of the report period Drott's Annual General Meeting on April 132, passed the following resolutions: - dividend of SEK 3.00 per share - reduction in the share capital through the cancellation of the 12,166,209 Drott shares owned by the Drott Group - issue of convertible debentures to all Drott employees in Sweden (maximum nominal value of SEK 47 M) - election of Peggy Bruzelius and Wille Laurén to the Drott Board. II. Comments on the interim report Income statement January-March 1999 The figures within parentheses below pertain to pro forma figures for the corresponding period of 19983. · Rental revenues and operating surplus The Group's rental revenues in the first quarter of 1999 amounted to SEK 607 M (617), resulting in an operating surplus of SEK 352 M (362). The decrease in rental revenues and the operating surplus was due to changes in the real estate portfolio. Based on an identical portfolio, rental revenues and the operating surplus rose by SEK 17 M (2.8%) and SEK 13 M (3.6%), respectively, despite the essentially unchanged occupancy ratio. A rising operating surplus is being shown for both the office holdings in Stockholm and Drott's housing portfolio. · Operating profit Operating profit increased by SEK 91 M to SEK 382 M (291). Capital gains amounted to SEK 87 M (0). The pro forma accounts for the first quarter of 1998 are affected by restructuring costs of SEK 25 M for the demerger from Skanska and earnings from other operating sectors, which contributed SEK 10 M. Central Corporate and Group expenses amounted to SEK 13 M. · Net financial items Interest expense decreased by SEK 41 M to SEK 149 M (190). The improvement was attributable to a reduced volume of loans and, primarily, to lower interest on loans. On March 31, 1999, interest-bearing liabilities carried an average interest rate of 4.9% and the average period of fixed interest was 2.8 years. Profit for the year-earlier period included SEK 48 M in nonrecurring interest income related to the period prior to the capital contribution from Skanska. Interest subsidies decreased to SEK 11 M (14), due to the divestment of properties, a planned decrease in Government subsidies and a lower interest rate for the computation of subsidies. · Tax The estimated tax charges for the quarter amounted to SEK 33 M (17). · Net profit for the period after tax Profit for the period amounted to SEK 214 M (564) after tax. Excluding capital gains, profit for the period amounted to SEK 138 M after tax. Balance sheet as of March 31, 1999 The figures within parentheses below pertain to December 31, 1998. · Properties At March 31, 1999, Drott owned 559 (500) properties, booked at SEK 19,730 M (18,310). Rentable space amounted to 3,075,000 (2,911,000) square meters. During the period, 73 properties were acquired for SEK 1.7 billion and 14 were sold for SEK 333 M, generating a capital gain of SEK 87 M5. All of the properties - a total of 243,000 square meters - were acquired from HSB. At the same time, two project properties in Stockholm (a total of 25,000 square meters) were sold to HSB for SEK 99 M. The takeover date for the HSB transactions is May 3, 1999. In addition, nine properties in Sweden were sold for a total of SEK 140 M: three in Ängelholm (a total of 13,000 square meters), one in Gothenburg (5,000 square meters), two in Växjö (a total of 4,000 square meters), one in Helsingborg (2,500 square meters) and two in Danderyd, Stockholm (a total of 500 square meters). Three properties in the UK (a total of 16,000 square meters) were sold for a total of SEK 94 M. Change in the balance sheet items "Properties" and "Properties under construction" Book value Properties Properties Total No. of SEK M under book proper- construction value ties December 31, 1998 17 923 387 18 310 500 Acquisitions 1 712 - 1 712 73 Reclassifications 387 -387 - - Capitalization (mainly 64 - 64 - project) Sales -241 - -241 -14 Depreciation -43 - -43 - Currency effects -72 - -72 - March 31, 1999 19 730 - 19 730 559 Real estate portfolio at March 31, 1999 Total real estate portfolio March 31, 1998 March 31, 1999 Number of properties 500 559 Book value, SEK M 18 310 19 730 Rentable space, sq. m. 2 910 571 3 074 883 Contract-based annual rent, SEK M 2 423 2 604 Rent-based occupancy ratio, % 93 93 Rents, including vacant space, SEK M 2 619 2 794 Distribution of rents by type of March 31, 1998 March 31, 1999 premises Rents, incl vacant space, SEK M 2 619 2 794 Office 46% 45% Retail 8% 8% Storage/Industrial 6% 6% Other 6% 5% Housing 34% 36% Total 100% 100% Distribution of rents by region March 31, 1998 March 31, 1999 Rents, incl vacant space, SEK M 2 619 2 794 Stockholm 47% 48% Gothenburg 14% 14% Öresund 16% 15% Rest of Sweden 15% 16% Outside Sweden 8% 7% Total 100% 100% · Current assets The Group's liquid funds, including short-term investments, amounted to SEK 159 M (126). Total current assets amounted to SEK 550 M (320). · Shareholders' equity Following the close of the report period, Drott's Annual General Meeting approved dividend payments totaling SEK 341.6 M6 for 1998 and a reduction in the share capital by SEK 24.3 M (the amount is to be transferred to legal reserves) through the cancellation of the Drott shares owned by the Drott Group. The reduction in share capital will be regarded as becoming effective when the district court grants its approval, which is expected to take four to five months. Since these shares are not assigned any value in the consolidated balance sheet, their cancellation has no effect on reported shareholders' equity. · Provisions Provisions total SEK 240 M (163). The increase was mainly attributable to the deferred tax that was added through the transaction with HSB. · Interest-bearing liabilities On March 31, 1999, the Drott Group's interest-bearing liabilities totaled SEK 11,760 M (11,776). Maturity structure of loans at March 31, 1999 Year SEK M Propor tion % 1999 5 267 45 2000 275 3 2001 403 3 2002 3 320 28 2003-2 495 21 Tota 11 100 l 760 Fixed-interest-rate structure at March 31, 1999 Year Swedis Averag Foreig Averag Total Propor-Averag h e n e tion e krona intere curren intere intere st cy st SEK M % st SEK M rate, rate, rate % SEK M % % 1999 1 124 4,2% 1 151 4,7% 2 275 19% 4,4% 2000 2 197 5,0% 742 7,6% 2 939 25% 5,6% 2001 1 237 5,0% - - 1 237 10% 5,0% 2002 1 604 5,0% - - 1 604 14% 5,0% 2003-3 705 4,6% - - 3 705 32% 4,6% Tota 9 867 4,8% 1 893 5,8% 11 760 100% 4,9% l · Interest-free liabilities Interest-free liabilities totaled SEK 2,481 M (1,112). This includes liabilities that arose through the acquisition from HSB. As of the takeover date of May 3, 1999, 85% of the acquisition will be financed through external loans with a ten-year term. The average interest rate for these loans is estimated to be less than 4% with an average period of fixed interest of three years. Parent Company The Parent Company reported a loss of SEK 23 M (loss: 1) and had no sales revenues during the period. Outlook for 1999 As a result of the strong market conditions in the Stockholm area, the coordination gains arising in the new Group and the securing of long- term financing, after-tax profit for 1999 is expected to exceed SEK 650 M (including capital gains of SEK 76 M reported to date). Stockholm, April 29, 1999 Drott AB (publ) Mats Mared President and Chief Executive Officer This interim report is unaudited. III. Income statements, balance sheets, statement of changes in financial position and key data Consolidated income statement SEK M Actual Pro Actual Jan- forma Jan- March Jan- March 1999 March 1998 1998 Rental 607 617 2 439 revenues Other 5 10 18 revenues Operating expense, -184 -686 maintenanc e and costs of modifying properties for tenents -177 Ground -12 -12 -49 rent Property -32 -33 -134 tax Property -39 -35 -150 management Operating 352 363 1 438 surplus Depreciati -44 -45 -174 on Profit 308 318 1 264 from real estate operations Profit - 10 10 from other operating sectors Gross 308 328 1 274 profit Capital 87 - 487 gains Central -12 -65 Corporate and Group expenses -13 Restructur - -25 -130 ing costs Operating 382 291 1 566 profit Interest 11 14 55 subsidy Interest 3 6 16 income Interest -149 -190 -584 expense Nonrecurri - -48 -97 ng interest expense prior to capital contributi on Profit 247 73 956 after net financial items Aquired - - -284 profit Profit for the period before 247 73 672 taxes Taxes -33 -17 -177 Net profit for the period after 214 567 4957 taxes Consolidated Balance sheet SEK M Jan- Jan- Jan-Dec March March 1998 1999 1998 Pro forma Properties 19 730 18 088 17 923 Properties under construction - 266 387 Equipment 19 48 19 Other fixed assets 33 65 30 Fixed assets 19 782 18 467 18 359 Other current assets 391 225 194 Liquid funds 159 330 126 Current assets 550 555 320 TOTAL ASSETS 20 332 19 022 18 679 Shareholders' equity 5 851 5 275 5 628 Minority interest - 2 - Provisions 240 73 163 Interest-free liabilities 2 481 1 123 1 112 Interest-bearing liabilities 11 760 12 549 11 776 SHAREHOLDERS' EQUITY AND 20 332 19 022 18 679 LIABILITIES Statement of changes in financial position SEK M Jan- March 1999 CONTINUING OPERATIONS Operating profit 382 Adjustment of items not included in cash flow Depreciation 44 Capital gains -87 Operating profit after above 339 adjustments Interest subsidies 11 Interest income 3 Interest expense -149 Taxes paid -21 Cash flow before changes in working 183 capital and investments Change in working capital Decrease (-) in receivables -197 Increase (-) in liabilities -186 Cash flow from continuing operations -200 INVESTMENT OPERATIONS Net investments in fixed assets -1 371 Cash flow from investment operations -1 371 FINANCING OPERATIONS Change in interest-bearing liabilities -16 Change in other liabilities 1 620 (exlcluding current liabilities) Cash flow from financing operations 1 604 Change in liquid funds 33 Liquid funds on January 1 126 Liquid funds on March 31 159 Key data SEK M Actual Pro forma Actual Jan- Jan-March Jan-Dec March 1998 1998 1999 PROPERTY-RELATED DATA Rental revenues 607 617 2 439 Rentable space, 3 075 2 885 000 2 911 000 sq.m. 0009 Rent-based occupancy 93 93 93 ratio, % Operating surplus 352 363 1 438 Book value 19 7309 18 354 18 310 of properties8 Surplus ratio, % 58 59 59 FINANCIAL DATA Profit for the 214 56 495 period Shareholders' equity10 5 851 5 275 5 628 Return on equity, % 3,7 1,1 9,2 Total assets 20 332 19 022 18 679 Equity/assets ratio, 29 28 30 % Interest-bearing 11 760 12 549 11 776 liabilities Interest-coverage 2,7 1,3 3,511 ratio, times Debt/equity ratio, 2,0 2,4 2,1 times Cash flow 183 101 416 DATA PER SHARE Number of shares 101 688 113 854 113 854 968 75912 968 Earnings, SEK 2,10 0,49 4,35 Shareholders' 57,54 46,33 49,43 equity, SEK Cash flow, SEK 1,80 0,89 3,65 Definitions Property-related Rent-based occupancy Contracted rental revenues at March 31, ratio 1999 divided by total of contracted rental revenues plus value of vacant premises. Rent, including vacant Contracted rental revenues plus value properties of vacant premises. Contracted rent Basic annual leased-based rent, after indexing, adjusted for rent discounts and rent surcharges. Rentable space Total of contracted rental revenues plus value of vacant premises. Rentable space includes garage space within buildings. Vacant space Estimated rent for unleased housing plus market rent for unleased commercial premises after reasonable upgrading measures. Financial Return on equity Net profit for the period as a percentage of average shareholders' equity. Central Corporate and Costs that are not directly Group costs attributable to real estate management operations, such as costs for corporate management, Group Staff functions and maintaining a stock-exchange listing. Cash flow Net profit for the period after the reversal of depreciation, capital gains and deferred tax costs. Interest-coverage ratio Profit after net financial items plus 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 period divided by the number of shares. Surplus ratio Operating surplus as a percentage of rental revenues. 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, 114 85 Stockholm, Sweden Street address: Nybrogatan 57A, Stockholm, Sweden Planned information Six-month report August 13, 1999 Nine-months report October 22, 1999 Report on 1999 operations February 16, 2000 Annual general Meeting 2000 April 13, 2000 Additional information: Mats Mared (President) Tel: +46 8 545 83 010 Telefax: +46 8 545 83 098 e-mail: mats.mared@drott.se Claes Linné (Deputy President) Tel: +46 8 545 83 012 Telefax: +46 8 545 83 098 e-mai: claes.linne@drott.se Johan Nordenson Tel: +46 8 545 83 019 (Corporate Communications/IR) Telefax: +46 8 545 83 099 e-mail: johan.nordenson@drott.se IV. The Drott share Since its initial quotation on the Stockholm Stock Exchange's O List on September 24, 1999, the price of Series B Drott shares has essentially tracked the sector index. The average turnover per trading day during the first 16 weeks of 1999 (through April 23) was SEK 13.4 M. [REMOVED GRAPHICS] Largest shareholders in Drott on March 31, 1999 after the approved cancellation Shareholder Series Series B Total Percenta Percen A shares number ge of tage shares of share of shares capital voting rights Föreningssparbanken's 0 15 468 15 468 15,2 % 14,3 % mutual funds 247 247 Fourth AP Fund 112 988 6 707 6 820 6,7 % 7,2 % 456 444 Nordbanken's mutual 0 4 648 4 648 4,6 % 4,3 % funds 340 340 Handelsbanken's mutual 0 3 571 3 571 3,5 % 3,3 % funds 400 400 SEB +Trygg mutual 0 3 333 3 333 3,3 % 3,1 % funds 670 670 Skandia 0 3 128 3 128 3,1 % 2,9 % 237 237 SPP 0 2 955 2 955 2,9 % 2,7 % 270 270 Trygg-Hansa Försäkring 0 2 730 2 730 2,7 % 2,5 % 600 600 AMF sjukförsäkring 0 2 301 2 301 2,3 % 2,1 % 140 140 Fifth AP Fund 0 1 578 1 578 1,5 % 1,5 % 500 500 SB Foundation 0 1 475 1 475 1,4 % 1,4 % 000 000 Kammarkollegiet's Fund 0 1 240 1 240 1,2 % 1,1 % Management 000 000 Foreign shareholders 33 150 12 065 12 098 11,9 % 11,4 % 249 399 Others (approx 58,000) 597 739 39 741 40 339 39,7 % 42,2 % 773 512 Total 743 877 100 944 101 688 100,0 % 100,0 882 759 % _______________________________ 1 See press release 2/99 (March 25, 1999). 2 See press releases 3/99 (March 25, 1999) and 4/99 (April 13, 1999). 3 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 is assumed to have been loan financed with a borrowing cost of 4.9%, corresponding to SEK 41 M on a quarterly 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 pro forma accounts of "half" of the interim report for the first six months of 1998 (published in the prospectus issued in connection with the IPO). With respect to Näckebro, the pro forma accounts are based on the official interim report on the first quarter of 1998. 4 Profit was affected by several nonrecurring items - see the footnote on page 6. 5 A specification of the properties acquired and sold during the period is presented on www.drott.se (it may also be ordered from Drott - call Pia Oscarius (Tel: +46-8-545 83 018). 6 Of which SEK 36.5 M accrued to the Drott Group in its capacity as owner of 12,166,209 Drott shares. 7 Profit for the 1998 period was affected by such items as costs connected to the demerger from Skanska and to the acquisition of Näckebro. Adjusted for extra-ordinary items, after-tax profit for January-March 1998 would improve by SEK 42 M to SEK 98 M, while full- year after-tax profit for 1998 would decline by SEK 24 M to SEK 471 M. 8 Including "Properties under construction". 9 Including the properties acquired from HSB during the period with the takeover date of May 3, 1999. 10 If the SEK 786 M write-up of property values effected in 1998 were to be charged with full tax, shareholder's equity would be reduced by SEK 220 M. 11 Items included in acquired profit have been taken into account. 12 Drott's Annual General Meeting on April 13, 1999 approved a reduction in the share capital through the cancellation of the 12,166,209 Drott shares owned by the Drott Group. The reduction in share capital will be regarded as becoming effective when the district court grants its approval, which is expected to take four to five months. Thereafter, the total number of Drott shares will be 101,688,759. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/09/20010808BIT00470/bit0001.doc http://www.waymaker.net/bitonline/2001/08/09/20010808BIT00470/bit0001.pdf