Kungsleden AB (publ) Interim Report January-September 2002

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Kungsleden's third quarter sustained profit gains · Profit before tax increased 14 per cent to SEK 364 (319) m, equivalent to profit before tax per share of SEK 19.2 (16.8). · Kungsleden's operating surplus rose 30 per cent to SEK 623 (479) m. · In the interim period, 51 properties were divested for SEK 490 m, generating a profit of SEK 61 (62) m; nine properties were acquired for SEK 345 m. · Kungsleden is retaining its forecast of profit before tax of SEK 450 m for the operational year 2002. Commenting, Kungsleden's Chief Executive Jens Engwall, said: "Kungsleden continues to demonstrate its strength in weak economic conditions - our profit before tax was up by 14 per cent year on year. Vacancy levels remain stable. Looking ahead, we expect our property yield to remain over 8.5 per cent, meaning that we reiterate our full-year forecast, which implies EPS of SEK 23.7. Moreover, we've noted accentuating buyer interest since the summer, implying that our property trading prospects have improved." For more information, please contact: Jens Engwall, Kungsleden's Chief Executive, tel: +46 (0)8 503 05204, mobile +46 (0)70 690 6550 Johan Risberg, Kungsleden's COO, tel: +46 (0)8 503 05206, mobile +46 (0)70 690 6565 Kungsleden's strategy is to assure sustainable high and stable returns proceeding from its existing holding, and through acquisitions and disposals. Kungsleden's property holding comprises 415 properties with a book value of approximately SEK 9.5 bn. The holding is located in a total of 122 municipalities, although concentrated on the Swedish provinces of Götaland and Svealand. Kungsleden has been quoted on the OM Stockholm Exchange O-list since 14 April 1999. Kungsleden AB (publ) Interim Report January-September 2002 · Profit before tax was SEK 364 (319) m, corresponding to earnings per share of SEK 19.2 (16.8). · Kungsleden's operating surplus grew by 30 per cent to SEK 623 (479) m. · In the period, 51 properties were divested for SEK 490 m, generating profits of SEK 61 (62) m; nine properties were acquired for SEK 345 m. Kungsleden's business concept, vision and strategy Kungsleden owns and manages properties, generating high and stable long- term returns. Kungsleden's vision is that by means of skilled entrepreneurship and a high level of expertise, Kungsleden will become Sweden's most profitable and successful property company. We intend to achieve our objectives by: · Enhancing our skilled and businesslike organisation; · Pursuing customer satisfaction through the active management and enhancement of our property holding; · Proceeding from our existing holding, and through acquisitions and disposals, assuring high long-term returns. Profit Kungsleden's business concept and strategy implies a focus on low operating risk. Our intention is that in principle, cash flows from property management should be high and stable regardless of general economic conditions. We mainly achieve low operational risk by diversifying into multiple types of property, geographical markets and tenants, as well as by spreading rental contract terms over time-thereby the influence of general and specific events is reduced. Kungsleden also reduces operating risk by avoiding property development projects, because they generally mean considerable cash flow uncertainty. Our experience has taught us that property trading can be successful in good or bad times. An analysis of our property holding's earnings capacity as of 30 September 2002 is provided below to illustrate the effects of Kungsleden's goal-oriented efforts. Our rental revenues amounted to SEK 695/sq.m. Our rental values were SEK 760/sq.m., and as a proportion of rental values, discounting, vacancies and rental losses were 1.5, 6.5 and 0.7 per cent respectively-healthy levels for Kungsleden, demonstrating that our efforts on the composition and management of our property holding are achieving results. Our property and property administration costs amounted to SEK 215 and 30/sq.m. respectively. In trend terms, property costs declined. In absolute terms, our property administration costs are in balance, although in per sq.m. terms, they also depend on the progress of the floor-space of our property holding. Consequently, our operating surplus amounted to SEK 450/sq.m., or SEK 818 m, equivalent to a property yield of just over 8.6 per cent. Overall, the situation of our property holding as of 30 September suggests that looking ahead, our property yield will remain above 8.5 per cent. Nevertheless, our holding is continuing to change as a consequence of trading and acquisitions. The efforts on our portfolio composition are pursued with the objective of increasing returns without raising risk levels. Kungsleden considers property yield in relation to the risk level of each property type on an ongoing basis, and at present, we consider that retirement homes offer the most attractive relationship, despite their property yield being below Kungsleden's average. Largely, property trading is dependent on interest in local property markets. The interim period featured relatively stable interest in virtually all local property markets. Kungsleden has been able to effect disposals, helping to lift our returns in relation to risk levels, with healthy profits. We have observed rising interest subsequent to the summer, and accordingly, anticipate enhanced prospects of property trading. The results of this interim period improved significantly year on year, with the primary explanation lying in our operating surplus, which was up 30 per cent to SEK 623 m. Otherwise, everything remains basically unchanged, apart from our financial costs, which rose 47 per cent to SEK 299 m. Our increased operating net is mainly due to volume effects, because our average property holding was greater in the interim period than during previous years. We estimate that management enhancements generated SEK 20 m of the SEK 144 m total. The main explanation for our increased interest costs lies in the same volume conditions as our operating surplus-a larger average property holding implies greater average borrowings. The freedom from interest payments amounted to SEK 21 (32) m, explaining SEK 11 m net. Remuneration for drawing down funding amounted to SEK 9 (7) m, exerting a SEK 2 m net influence. Average interest levels rose from 5.99 to 6.18 per cent, with an SEK 10 m impact. At the end of the interim period, our interest fixing period had risen from 2.6 to 3.1 years, which is one explanation for the higher interest level. In total, interest costs rose by SEK 91 m. Property holding and earnings capacity As of 30 September 2002, our property holding comprised 415 properties with floor-space of 1,821,000 sq.m. and a book value of SEK 9,497 m. These properties were located in 122 (132) municipalities. Of property book values, 60 (58) per cent was located in the major urban regions of Greater Stockholm, Greater Gothenburg and Öresund. During the period, Kungsleden acquired properties with a value of SEK 345 (1,937) m, while making SEK 93 (73) m of investments in existing properties. Properties with a book value of SEK 417 (731) m were divested. The performance of our retirement homes business area fully satisfied expectations at the point of acquisition, with snap-shot property yields as of 30 September at 8.5 per cent, and a book value of SEK 1,290 m. The table on page 5 entitled 'The earnings capacity of the property holding' illustrates the calculation of our snap-shot property yield, and is based on the following assumptions: · Properties disposed up to and including the balance sheet date are excluded; · Properties acquired by the balance sheet date at the latest are included as if they had been owned for 12 months. Our calculation principles imply that the actuals for constituent properties for the last 12 months form the foundation of earnings capacity coincident with each report. We utilise a combination of actual and acquisition calculations for properties owned for shorter periods. These principles imply that alterations to our portfolio composition and management efficiency feed through consistently and quickly, while our calculated earnings capacity is highly representative. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/10/23/20021023BIT00800/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/10/23/20021023BIT00800/wkr0002.pdf The full report