Preliminary report for 1998

PRELIMINARY REPORT FOR 1998 * Property management profit before depreciation was SEK 55 million (42), an improvement of SEK 13 million compared with 1997 * Profit after tax was SEK 27.3 million (52.7) and earnings per share were SEK 1.44 (2.78) * Proposed dividend increased to SEK 0.75 per share (0.50) * Net worth per share increased to SEK 115 per share (110) The higher profit is principally the result of a continued good rental level and thus higher rents, lower interest rates in combination with a change in financial policy and profits from property transactions during the year. In 1998, our property portfolio increased by 37,000 m2 and at year-end totalled 1,048,000 m2. Properties were acquired for SEK 151 million and sold for SEK 69 million. SEK 184 million was invested in construction and refurbishment. The estimated market value of our properties was SEK 7,268 million (6,346) as per 31-12-1998 which represents a surplus value of SEK 1,444 million (1,366). PRELIMINARY REPORT FOR 1998 Operations Wallenstam's property holdings are concentrated to Gothenburg, Stockholm, Malmö and Helsingborg. Residential premises account for 66% of the total floor space. In 1998, our property portfolio increased by 37,000 m2 and at year-end totalled 1,048,000 m2. The demand for both residential and commercial premises continued to be good in all the Company's regions with the result that the high rental level was maintained and, at year-end, was 98%. The strong demand in all four of the Company's regions reinforces our belief in a long-term positive trend in the rent level. During the year, the demand for properties in all Wallenstam's regions continued to be high. The continuing focus on major urban areas and a lower interest level drove up property prices still further. Property management During the year, rental income rose to SEK 715 million (700). Interest subsidies during the year amounted to SEK 14 million (29). The profit from property management, before depreciation on properties, increased to SEK 55 million (42) and to SEK 28 million (15) after depreciation on properties This increase is in line with the profit target of SEK 100 million set for the year 2000. The higher profit was mainly due a continued good rental level and thus higher rents, lower interest rates in combination with a change in financial policy. The property transactions carried out during the year also had a positive impact on the profit from property management Property business The total business volume (acquisitions and sales) dropped to SEK 220 million (688). During the year, Wallenstam completed fewer property transactions compared with previous years due to, among other things, property prices. The fact that the business volume varies from year to year is a natural part of this business. Sales During the year, Wallenstam sold properties for SEK 69 million (321). Two properties were sold in Gothenburg and one each in Helsingborg and Uddevalla. The profit on property sales was SEK 2 million (40). Property acquisitions During the year, Wallenstam purchased properties, with a total floor space of 40,000 m2, for a total of SEK 151 million (367). The largest acquisitions were made in Gothenburg where a total of four properties with a floor space of 39,000 m2 were purchased. Most of the floor space was commercial. Building and construction A total of SEK 184 million (96) was invested in new buildings and refurbishment. The majority of these investments were made in Gothenburg and Stockholm. Profit The profit before tax was SEK 29.2 million (54.5) and SEK 27.3 million (52.7) after tax. The lower profit is the result of a deliberate reduction in property sales. The profit per share from property management, before depreciation, increased according to plan to SEK 2.92 (2.21). The profit per share was SEK 1.44 (2.78). Estimated market value of properties As in previous years, Wallenstam carried out an internal valuation of its property portfolio as of 31 December, 1998. See the Appendix for the model used, which is the same as the one used in previous years, and the required rate of return. The required rates of return have not changed since the end of 1997 with the exception of commercial properties in Gothenburg. The total market value is estimated to have increased to approx. SEK 7,268 million (6,945) or SEK 384 per share (367). The book value of the property portfolio was SEK 5,824 million which means that the surplus value increased to SEK 1,444 million (1,366). Equity per share was SEK 38.86 (37.92) and the net asset value, without deductions for deferred tax, was SEK 115 per share (110). Financial position During the year, Wallenstam made changes to its financial policy. This means, among other things that 50% of the portfolio of loans should be tied to short- term interest rates and 50% to long-term interest rates. The long-term loans should be evenly distributed over a 10-year period. At year-end, the Group's loans totalled to SEK 5,129 million with long-term loans comprising SEK 3,407 million or 66% of this amount. SEK 555 million in long-term loans fall due in 1999 which means that the rate of interest on SEK 2,277 million, or 44% of the portfolio of loans, will be adjusted during the year. The average loan interest dropped during the year and was 6.66% (7.52) on 31-12-1998. The loans have no currency exposure. On 31 December, 1998, available liquid funds, including unutilised bank draft facilities, amounted to SEK 85 million (107). The equity ratio at year-end was 12.1% (12.1) and the adjusted equity ratio, including surplus values in properties, was 29.0% (28.5%). The Wallenstam share On 31-12-1998, there were approx. 4,600 shareholders and the market value of the shares was SEK 840 million. At year-end, the share price was SEK 44.40, having fluctuated during the year between a low of SEK 37 and a high of SEK 60. During the year, Odin fonder increased its holding to 1,442,000 shares which is equivalent to 7.6% of the capital. Proposed dividend In line with Wallenstam's dividend policy, the Board of Directors proposes that the dividend for the year be increased to SEK 0.75 per share (0.50). Parent company In 1998, rental income amounted to SEK 12.8 million (12.6). The profit before tax was SEK 41.3 million (24.4). Important events after 31 December, 1998 Wallenstam has signed an agreement to sell all its property holdings in Malmö. These holdings total approx. 84,000 m2. The selling price is more than equivalent to Wallenstam's valuation of the properties as of 31-12-1998 and represents a significant capital gain for the company. The purchaser will take over after a due diligence has been completed in April . After the sale, Wallenstam's operations will be even more geographically concentrated to Stockholm, Gothenburg and Helsingborg. The future In the years immediately ahead, there will be a potential for more differentiated rent levels for residential housing. In 1999, however, rent increases will probably be limited. Rent negotiations resulting in rent increases of 2-3.5% have recently been concluded in Malmö and Nacka. Rents for commercial premises are expected to increase more rapidly in the years immediately ahead as leases expire and are renegotiated. With the current interest rate level, we do not anticipate any major increases in operating costs. This, together with the continuing low interest rates expected, indicates that the objective of a SEK 100 million profit from property management, before depreciation, in the year 2000 can be reached. Financial reports The Annual General Meeting will be held at 5.00 p.m. on Thursday, 20 May, 1999, in Wallenstamsalen, Stadsmuseet, Norra Hamngatan 12 in Gothenburg. The Annual Report will be published and sent to the shareholders in mid-April. The Interim Report for the first quarter is expected to be published on 20 May. The Interim Report for the second quarter is expected to be published on 24 August. The Interim Report for the third quarter is expected to be published on 17 November. In addition, information on property transactions carried out by the Company will be given via press releases. Also published is "Update", a newsletter containing information about Wallenstam. Information on Wallenstam can also be found on our homepage, www.wallenstam.se. Gothenburg, 23 February, 1999 Lennart Wallenstam Byggnads AB (publ) Board of Directors For further information, please contact Thomas Dahl, Director of Marketing and Information, or Lennart Ekelund, Chief Financial Officer on tel. no. +46-31 200 000. MD'S COMMENTS ON THE PRELIMINARY REPORT "The past year has has reinforced my view that the property market in our regions continues to be strong with rising prices. Interest rates fell during the year and further reductions are anticipated. I note that the growth in industry and commerce in Gothenburg continues to be strong and this has resulted in a greater demand for our offices premises. Taken as a whole, this reinforces our profit trend. Our profit from property management, before depreciation, has risen 30% compared with 1997. This is in line with the company's objective of a profit from property management of SEK 100 million in the year 2000." Hans Wallenstam Managing Director ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/24/19990224BIT00090/bit0001.doc http://www.bit.se/bitonline/1999/02/24/19990224BIT00090/bit0002.pdf http://www.bit.se/bitonline/1999/02/24/19990224BIT00090/bit0003.xls Tables