Six-month report 2000

SIX-MONTH REPORT 2000 CONTINUING REAL ESTATE MANAGEMENT OPERATIONS Strong growth in cash flow * 19% higher than in corresponding year-earlier period * Rolling cash flow has increased for seven consecutive quarters 10% rise in operating surplus from identical portfolio PURCHASES AND SALES Property acquisitions: SEK 14.2 billion * SEK 11.9 billion via Balder acquisition (Balder is consolidated as April 1, 2000) * SEK 2.0 billion from Ericsson (access to properties as of September 1, 2000) Property sales: SEK 2.4 billion EARNINGS AND FORECAST Pretax profit for the period: SEK 749 M (702) * Profit from real estate management: SEK 395 M (352) * Gains from sales SEK 354 M (350) Rising profits from real estate management and sharply improved cash flow forecast for full year 2000 * In addition, there will be gains from sales, which amounted to SEK 378 M up to August 21 Continued increase in real estate prices * The prices of the properties sold by Drott this year (up to August 21) exceed the independent valuations made at December 31, 1999 by 11% (Swedish properties) The Company's mission is to acquire, develop and manage commercial properties in growth regions and to realize the value accrued in ready-developed properties. Annual rental revenues (including vacant premises) total SEK 4 billion, with the Stockholm area accounting for more than 70%. Drott is quoted on the OM Stockholm Exchange's O List (Attract 40) and is one of the largest listed real estate companies in Europe. The Company has 48,000 shareholders. CONTENTS PAGE Comments (I-VI) 2 Accounts 10 Key data 12 The Drott share 14 - Comments - I. Considerable investments and increased focus on Stockholm Strong Stockholm market The consensus forecast for Sweden indicates continued GDP growth during the years immediately ahead, with the growth rate in Stockholm expected to be twice as high as the national average. During the past six years, 88,000 new jobs have been created in the region and the population has increased by 120,000, corresponding to a net population inflow of 20,000 per year. Growth is being fueled by successful commercial and industrial developments, particularly in such fast-growing sectors as telecommunications and IT, industries in which Stockholm has attained a leading international position. GDP growth results in increased demand for commercial premises and housing, and Drott's assessment is that growth in rental revenues and real estate values in the Stockholm region will be significantly higher than in other parts of the country. - Commercial premises Recently completed transactions in the real estate market indicate that the favorable price trend noted during recent years has continued into 2000. Rent levels have also continued to rise. The total vacancy rate for offices in the Stockholm region is now approximately 5% and demand is still outpacing the supply of new premises. During the three years immediately ahead, the addition of about 0.5 million square meters of new office space is expected, corresponding to approximately 5% of total office space in the region. - Housing Prices of tenant-owned apartments in central Stockholm have risen by more than 50% in the past two years. Very high demand for housing combined with limited new production indicates that the upward price trend will continue. As apartment prices rise, Drott has noted that its tenants are showing an 1 increased interest in acquiring the apartments in which they live . To date, up to August 21 this year, Drott has sold seven Stockholm properties to tenant-owner associations at prices that have been an average of 28% higher than the independent property appraisals made at December 31, 1999. Following central rent negotiations during the spring, housing rents in Stockholm were increased by 1.95% as of July 1, 2000, with an additional average rise of 2.2% to become effective on January 1, 2001. Major acquisitions in Stockholm During the first half of this year, Drott acquired two large portfolios mainly comprising commercial premises in Stockholm. - Fastighets AB Balder As of June 30, 2000, following a public offer submitted on February 9, Drott had acquired slightly more than 98% of the shares in Balder and had initiated compulsory redemption of the remaining shares outstanding. The investment, which totaled SEK 3,394 M, is being financed through loans. As of April 1, 2000, Balder is consolidated in Drott's accounts, whereby Balder's revenues and expenses are included as of the same date. Based on the value of Drott's offer for the Balder shares, Balder's properties are included in an amount of SEK 11,927 M in the Drott Group's balance sheet at April 1, 2000. This value is confirmed by both the independent valuation of SEK 12.7 billion presented by Drott at December 31, 1999 and by the review of Balder's real estate portfolio that Drott implemented in accordance with the principles of the Swedish Real Estate Index /IPD. The costs associated with the merger (excluding the acquisition of shares), which totaled SEK 66 M, have been taken into account in the purchase calculation and, accordingly, have no impact on earnings for the period. - Ericsson properties In June, Drott acquired 14 properties from Ericsson for SEK 2.0 billion, with takeover as of September 1, 2000. The acquisition strengthens Drott's position in the Stockholm region, particularly in Kista, where the Group attains an additional 54,000 square meters plus a 100,000 square meter development right. Eight industrial properties in other parts of Sweden account for one fourth of the acquisition. Following the transaction, Ericsson accounts for 11% of Drott's total rental revenues. Stockholm share increases Since Drott's IPO two years ago, the Group's annual rental revenues (incl. vacant space) have risen from SEK 1.3 billion to SEK 4.0 billion, with Stockholm accounting for the largest increase. 1 Drott owns 445,000 square meters of housing space in the Stockholm region, including 187,000 square meters in the city center (June 30, 2000). ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/08/21/20000821BIT00750/bit0001.doc The full report http://www.bit.se/bitonline/2000/08/21/20000821BIT00750/bit0002.pdf The full report