UpDate

Wallenstam UpDate, October, 1998 Wallenstam UpDate is a free news letter which focuses on describing and commenting on matters of interest at the listed property company Lennart Wallenstam Byggnads AB. UpDate does not have a fixed publishing schedule. Instead, it is published when considered necessary, although at least once every eight weeks except during the summer. We prioritise speed and content rather than an advanced layout. Consequently, UpDate is now distributed solely by fax or e-mail to those persons we believe are interested in following the company from an investment perspective: financial analysts, property analysts, investors and journalists. We would, however, be more than happy to reach other readers and if you are interested in being included on the distribution list, please contact Inger Lindqvist, phone +46-(0)31 200 000, fax +46 (0)31 100 200. The publisher of UpDate is Thomas Dahl, Director of Marketing and Information at Wallenstam. Any questions concerning the content should be addressed to him, phone +46 (0)31 200 000. Capital Market Day and inauguration of new Stockholm office On 16 September, Wallenstam arranged a capital market day with about 20 external guests. In addition to the presentation of the interim report (January-July), a presentation was given of Wallenstam's long-range assessments of the rental trend in the residential housing sector. Both Hans Wallenstam, the Managing Director, and Thomas Dahl, Director of Marketing and Information, emphasised that the potential for rental increases in the future is good following the Court of Appeal's decision that the physical location is an important factor when setting the rent (see separate heading below). Hans Wallenstam also reviewed developments in the company's four regions. In this context, he mentioned in particular a number of properties which had been acquired earlier during the year and the company's current plans as regards new projects. In conjunction with the capital market day, Wallenstam's new Stockholm office in Södermalmstorg was formally inaugurated. The property, which was built in the 17th century, has been carefully refurbished and restored to its earlier 19th century style in collaboration with conservator restorers from Stockholm and the Stockholm City Museum. The Governor of the Province of Västra Götaland, Göte Bernhardsson, inaugurated the building. Earlier, His Majesty the King of Sweden was shown round the property. Location factor creates potential in rent negotiations In an earlier issue of UpDate, reference was made to a decision handed down by the Court of Appeal involving a case in Helsingborg in which the Court noted that the location of an apartment should play a role when setting the rent. For Wallenstam, this means in practice that the company will include the so- called location argument in future negotiations with representatives of the tenants' association. - Our assessment is that the situation has changed to some extent as far as rent negotiations are concerned, says Thomas Dahl. It will be interesting to see what impact this will have in terms of new rental levels. - In Stockholm, which, incidentally, is one of the few cities in the country not to have differentiated rents, we are asking for rent increases of between 2 and 4 per cent. In addition to this, Wallenstam will ask for utility value calculations in particularly attractive areas. These will involve apartments with a total floor space of about 50,000 m2 out of the 296,000 m2 in our property portfolio in Greater Stockholm. - In Gothenburg, we are asking for a general rent increase of between 2 and 4 per cent. Here, too, we have "broken out" about 2 35 000 m in particularly attractive areas (Götaplatsen, the Avenue, etc.) to be subjected to new utility value negotiations in the light of the Court of Appeal's decision mentioned above. - In Helsingborg, the requested rent increases will be between 4 and 10 per cent, while the requested increases for apartments in attractive locations will be higher. - In Malmö, the requested rent increases will, generally speaking, be about 2%. - To summarise, this year's rent negotiations will be more exciting than in earlier years as well as including considerable potential for higher rental income for companies, such as Wallenstam, with a large proportion of residential properties in their portfolio. Large-scale renegotiations of commercial leases About 75% of the total number of leases covering Wallenstam's commercial premises in Gothenburg will be renegotiated in 1998 and 1999. - As a result of the rising demand for commercial premises in Gothenburg, rental levels are also rising. Renegotiations already completed and renegotiated office leases have resulted in increases of SEK 150-300/m2. An average increase of SEK 150 per m2 for office premises is theoretically equivalent to a profit increase of SEK 18 million on an annual basis for Wallenstam, says Thomas Dahl. Continuing loan conversions The conversion of our loan portfolio reported earlier continues. The loans which will be converted this year total SEK 240 million and carry an average interest rate of 9.45%. If the loans are converted at the current interest rate of about 5%, the profit increase will be in the region of SEK 10 million on an annual basis. Rising property prices create opportunities for new projects As a result of rising property prices, Wallenstam has not been particularly active in acquiring new properties in recent months. - Our policy is that the properties we acquire should enhance our profit or be possible to develop relatively quickly and rent out, says Hans Wallenstam. - One example of this in recent years is the so-called Turitz building in Gothenburg which we recently purchased from SPP. As a result of good contacts on the local market and our efficient organisation, we were able to sign leases relatively quickly for a third of the property's total floor space of about 26,000 m2. This property had previously been vacant for some time. - If we feel that either of these criteria cannot be satisfied, we are not interested in acquiring the property in question. On the contrary, today, we see better opportunities to sell refurbished properties than to purchase properties at, in our view, high prices. Playing an active role in the property market is an important part of our business concept, notes Hans Wallenstam. Parallel with acquisitions and sales, and as a result of rising property prices, several construction projects will be realised in the near future. These include a 25,000 m2 office building, currently at the planning stage, in the Gårda district in Gothenburg. Demolition of the old building on the site has begun and work on the new building is planned to begin when the changes in the local plan have been completed. We are also drawing up plans for a new residential building in the Linnéstaden district in Gothenburg. Work on the new building is expected to begin in 1999. Completed transactions Acquisitions Wallenstam has purchased the well-known Björngårdsvillan, a building located in the park Slottskogen in Gothenburg, from a non-profit organisation. Large leasing contracts In addition to a number of small leasing contracts (less than SEK 1 million), contracts signed include: Mölnlycke Health Care has leased 7,000 m2 in a recently acquired property on Gamlestadsvägen in Gothenburg. The lease, which is for ten years from January, 1999, is worth about SEK 5 million on an annual basis. This lease means that the proportion of vacant floor space in the property will decrease by more than 30%. The University of Gothenburg has signed a block leasing contract covering 10 apartments with a floor space of 412 m2. The rent is SEK 500,000 on an annual basis and the contract has a duration of 10 years. The average rent per square metre is SEK 1,213. The contract includes Wallenstam's index clause which stipulates a minimum rent increase of 2% per year. Myrorna, i.e. Salvation Army, has signed a lease for 1,300 m2 at Odensgatan 1. The rental value on an annual basis is more than SEK 1 million. IBS has leased a further 1,000 m2 at Mölndalsvägen 77. The rental value is about SEK 1.1 million on an annual basis. Miljöcomfort has leased 3,000 m2 in an unconverted project property, Mölndalsvägen 81. The rental value is SEK 1.8 million on an annual basis. Financial information from Wallenstam From the beginning of 1999, Wallenstam will publish quarterly interim reports. Information schedule: ¤ Report for 1998, 23 February ¤ Interim Report for the first quarter, 20 May. ¤ Annual General Meeting, 20 May.