MeritaNordbanken Group: Programme for the disposal of real estate holdings in Fin

Programme for the disposal of real estate holdings in Finland The Board of Directors of MeritaNordbanken has decided to take steps to dispose of the Group's real estate holdings in Finland earlier than previously envisaged. Aleksia Real Estate will be established with the intention of a listing in 1999; Hotel properties will be transferred in a swap to a 50%-owned real estate company, KLK, which will become the largest hotel property owner in Finland; Shopping malls will be transferred to a partly owned specialist real estate company; Disposal of other real estate holdings, excluding bank premises, will be accelerated, with most of the properties being offered for sale within the next three years. As a result of the accelerated divestment programme, write-downs totalling FIM 3.6 billion will be made on real estate holdings in the closing of the accounts for 1998. Capital gains on major equity disposals since October 1, 1998 amount to somewhat over FIM 0.8 billion. Group banking operations sustain a stable level of performance. At its meeting today, the Board of Directors of MeritaNordbanken decided to carry out an extensive programme for an accelerated disposal of the Group's real estate holdings in Finland. The decisions now taken are in line with the strategy adopted in 1997, aiming at focusing on and expanding the Group's banking business. The commercial real estate market in Finland has continued to gain momentum, with the rise in demand boosting rents and occupancy rates, thus creating a more propitious environment for property development. This provides favourable conditions for accelerating the disposal. Current earnings from the Group's real estate portfolio do not cover the respective funding costs. The resultant strain on consolidated results will be relieved as the progressive implementation of the divestment programme proceeds. Establishment of Aleksia Real Estate with a view to later disposal The holdings to be transferred from Merita Real Estate to newly established Aleksia Real Estate comprise approximately 170 prime properties with a total rentable floor space of some one million square metres, of which 75 per cent consists of office and business premises in the Helsinki region. Well over 80 per cent of the total value of Aleksia's real estate portfolio is situated in the Greater Helsinki area. The holdings in Helsinki comprise over 120 properties totalling almost 600,000 square metres of rentable space. The rest of the portfolio is concentrated in four other major cities, i.e. Tampere, Turku, Oulu and Jyväskylä. The assets to be transferred to Aleksia further include a number of construction and development projects in progress, scheduled for completion within the next few years. The largest of these are the Kämp Hotel and Metropol 2001 projects in central Helsinki and the Matinkylä business and shopping centre in the neighbouring city of Espoo. The book value of Aleksia's real estate assets, subsequent to write-downs of FIM 2.2 billion, will be FIM 7.7 billion, compared with an estimated market value of approximately FIM 8.4 billion. The equity capital to be allocated to Aleksia is FIM 2.7 billion, which, including the unrealized appreciation of FIM 0.7 billion, represents a capital ratio of 40 per cent. The initial yield on Aleksia's portfolio is estimated at 5.4 per cent. The company's capital structure will include debt financing in a total amount of FIM 5.0 billion, with FIM 1.6 billion consisting of project-specific non-interest-bearing loans. These will be amortized as and when the projects reach completion, and are expected to be fully repaid by the year 2002. The detailed arrangements for transferring Aleksia from MeritaNordbanken to new owners will be decided in 1999. These will involve the flotation of the company and possible distribution of its shares as a dividend to MeritaNordbanken shareholders. Hotel properties swapped with KLK Merita Real Estate has agreed to transfer 16 wholly owned hotel properties and two participations to the real estate company Kansalliset Liikekiinteistöt Oy (KLK) in exchange for 17 commercial properties, most of which will be transferred on to Aleksia. The value of this transaction is FIM 670 million. Write-downs on hotel and other properties in connection with the swap will have an impact of FIM 0.2 billion on the Group's result. KLK is being reorganized as a real estate company investing exclusively in hotel properties. Its owners are MeritaNordbanken with an interest of 50 per cent, the Sampo Group with approximately 35 per cent and the bankruptcy estates of Pension-Kansa and Kansa International with approximately 15 per cent. Subsequent to the swap, KLK will own a total of 23 hotel properties with over 4,000 rooms and an aggregate book value of FIM 1.2 billion. KLK's holdings include, for example, the three largest hotels near the Helsinki- Vantaa Airport (Cumulus Airport, Ramada Airport and Holiday Inn). KLK plans to further expand its portfolio and broaden its ownership base. The intention is to introduce the company to the Helsinki stock exchange as soon as the prerequisites for listing exist. Shopping centres to be transferred to a new partly owned company In cooperation with other partners, Merita Real Estate is taking steps to form a real estate company specializing in the ownership and management of shopping centres, and initially comprising properties with a total value of approximately FIM 2.0 billion. For this purpose, Merita Real Estate intends to contribute shopping mall properties with a combined market value in the order of FIM 0.8 billion, of which approximately half will be transferred against a consideration in cash and the remainder against shares in the new company. MeritaNordbanken's ownership stake in the new company at the initial stage is expected to be slightly under 40 per cent. The company may later be publicly listed. Write-downs to be made by Merita Real Estate on the properties designated for transfer to the new company total somewhat under FIM 0.2 billion. Remaining real estate holdings in Finland Other non-banking premises, comprising more than 1,800 items, consist principally of properties taken over for the protection of claims. Three quarters of these consist of offices, warehouses, residential premises and foreign properties and one quarter of building sites and development projects. After write-downs of FIM 1.0 billion, the combined book value of these properties is FIM 4.5 billion. Excluding undeveloped land and development projects, their average yield is 4.8 per cent. The intention is to sell off the majority of this portfolio within the next three years. The book value of the Group's banking premises is FIM 2.9 billion. The effective yield on these is approximately 4.3 per cent, and they will remain in the Group's possession. Total write-downs on real estate FIM 3.6 billion In total, write-downs to be booked on the Group's real estate holdings under the accelerated disposal programme amount to FIM 3.6 billion. They are based on external market appraisals carried out by Huoneistomarkkinointi and Peltola & Pulkkanen during the autumn of 1998. Realized gains Since October 1, 1998, MeritaNordbanken has disposed of certain major equity holdings, posting combined capital gains of over FIM 0.8 billion. These have included, for example, holdings in Nokia and Tieto Corporation. The Group has also sold parts of other ownership interests, such as that in HEX. Unrealized gains The actuarial surplus resulting from unrealized appreciation in the equity portfolios of the Group's pension fund and pension foundations appears to permit a refund of approximately FIM 0.8 billion. Such refund by the pension fund in Finland is subject to the approval of the regulatory authorities. The refund will have no impact on the Group's operating profit while exerting a positive influence on the net profit for the year. Banking operations continue to develop favourably The results of the Group's combined banking operations have continued to develop favourably since the publication of the latest interim report, which covered the period January-September 1998 and showed an operating profit of FIM 6.2 billion. The integration of Group operations continues according to plan. The merger- related synergy benefits announced in the autumn of 1997 are expected to materialize as envisaged. Dividend for 1998 The Board of Directors will present its proposal for the dividend to be paid for 1998 in connection with the publication of the year-end results on February 23, 1999. Equity capital According to current estimates, the Tier 1 ratio of the MeritaNordbanken Group at the end of 1998 will exceed 6.5 per cent. December 16, 1998 MeritaNordbanken Plc Board of Directors Further information: Hans Dalborg, President and Group CEO, tel. (+358 9) 165 42203 Sven-Åke Johansson, EVP, Real Estate, tel. (+358 9) 165 42233 Arne Liljedahl, EVP, Accounting and Control, tel. (+358 9) 165 42311 Björn Westberg, Investor Relations, tel. (+358 9) 165 43082 Timo Nikinmaa, Corporate Communications, tel. (+358 9) 165 42471 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/12/16/19981216BIT00180/bit0001.doc http://www.bit.se/bitonline/1998/12/16/19981216BIT00180/bit0002.pdf