Interim Report January – March 2020

Strong start to 2020 – we are well prepared despite uncertainties associated with covid-19

• Revenue for the first quarter increased by 8 per cent to SEK 638 million (589).
• Profit from property management increased by 16 per cent to SEK 310 million (267). The increase is mainly due to higher rental revenue in like-for-like portfolio terms.
• New leasing was SEK 38 million (46), and net leasing was SEK 3 million (2).
• After investments of SEK 359 million and value changes, total property value was SEK 38,912 million, compared to SEK 38,310 million at the beginning of the year.
• Unrealised value changes on properties amounted to SEK 243 million (496), which corresponds to 0.6 per cent. The value increase is due equally to higher rental revenue and a 2 basis point reduction in the required yield.
• Current net asset value increased to SEK 92.58 per share (83.20).

Significant events during and after the period

• The Blästern project in Hagastaden was completed, with Convendum fully occupying its premises at the end of February.
• In February, B26 in Västerås, a new creative co-working arena opened, with accommodation for over 550 people in individual or shared office spaces.
• Kungsleden signed a new 12-year lease with the Swedish Performing Arts Agency on approximately 2,900 sq.m. in the property Stettin 6, Gärdet, Stockholm. The lease contract has an annual rental value of approximately SEK 12 million.
• Kungsleden decided to relocate its head office to The Rotterdam District in Värtahamnen, Stockholm, and create a new, innovative and inspirational showroom.
• Kungsleden’s Board of Directors decided to withdraw its previous dividend proposal to the Annual General Meeting (AGM). Kungsleden has a strong financial position, and ready access to liquid funds and unutilised credit facilities. But against the background of covid-19 and uncertain economic progress in its market and business environment, the Board of Directors will be deferring until it has a better overview of the consequences.
• Ylva Sarby-Westman becomes Kungsleden’s new CFO. Ylva will continue as the Group’s deputy CEO.

CEO’s statement

” Year 2020 started strongly. We increased our rental revenue by 8 per cent, and our operating net improved by 11 per cent in the first quarter compared to 2019. This was due to completed projects, new leasing and renegotiations. Our profit from property management increased by 16 per cent to SEK 310 million.

New leasing was SEK 38 million, and net leasing was SEK 3 million. In the first quarter, we successfully renegotiated existing lease contracts worth SEK 52 million in rental value, resulting in an average rent increase of 13 per cent.

In March, the covid-19 virus pandemic affected Sweden and the rest of Europe, with very serious consequences for the population and businesses, particularly in the hotel, restaurant and tourism sectors. First-quarter earnings were not noticeably affected by the virus pandemic, although we have been approached by tenants in hotels, restaurants and tourism that are concerned and under financial pressure. These businesses have lost between 50 and 70 per cent of revenue, losses that will persist as long as restrictions apply in the country.

We’re in good, close dialogues with those tenants worst affected to support them in various ways in this situation. This has resulted in us reaching agreements on monthly instead of quarterly rent payments, corresponding to SEK 32 million of quarterly rent for the second quarter. We’ve also granted rent discounts of SEK 21 million for the second quarter, against either extended lease contracts, or increased rent on the remaining lease term. Discounts granted are 3 per cent of reported second-quarter rent. We have allowed deferral on SEK 20 million of rent payments in the second quarter, against 12 to 24-monthly repayment schedule. Payment inflows for second-quarter rents have been good—and considering the settlements we’ve reached—consistent with previous quarters.

Kungsleden is financially stable, and as of 31 March, had an equity ratio of 43.9 per cent and loan-to-value (LTV) ratio of 45.6 per cent. We have no bond or bank loan maturities in 2020. We also have SEK 3 billion of cash and available facilities to be able to address all remaining maturities on the capital markets in 2021.

75 per cent of Kungsleden’s property portfolio is Offices, and 15 per cent Logistics, Warehouse and Industrial spaces. 4 per cent of our property value consists of Retail. In Retail, food makes up about a quarter of this share.

We have a well-diversified mix of good-quality customers, which represent a cross-section of Sweden’s business community. Our ten largest tenants represent nearly 25 per cent of total rental value. A quarter of our ten largest tenants are in the public sector. The average remaining lease term for our ten largest tenants is 5.5 years. Considering our whole portfolio, public sector tenants represent 15 per cent of rental value, and the average remaining lease term is 4.2 years.

If the closures across society continue beyond June, they will have severe adverse effects on businesses in sectors other than those now worst affected. In turn, this would impact the whole real estate sector negatively. However, many market commentators do think that closures of businesses and countries will start to lift in a few months, in June, depending on country and progress. We share this view. However, believing that everything will be back to normal by the autumn would be overly optimistic.

We think the recovery will be cautious and gradual. We’ll be starting at a lower level, with significantly higher unemployment and negative GDP growth, approaching 7 per cent according to some forecasters. We’re following market progress closely, focusing on the risks and their management. Meanwhile, we should also bear in mind that the most successful long-term investments are often made when uncertainty is greatest, which we also expect to happen this time.

I’d like to close this CEO’s statement by saying a big thank-you to all our customers and tenants, who are struggling on, and all my colleagues for your commitment and work in these difficult times!”

About Kungsleden. We are people that create places and experiences for people. By developing and managing attractive and sustainable places, we offer people better and more inspiring work experience. We are a long-term property owner focused on commercial properties in Sweden’s growth regions. As of 31 December 2019, we owned 209 properties with total value of SEK 38,310 m. Kungsleden (KLED) is listed on the Nasdaq Stockholm Large Cap. Read more at www.kungsleden.se