2016 HUFVUDSTADEN English NORDISKA KOMPANIET Östra Hamngatan, Gothenburg NORDISKA KOMPANIET Hamngatan, Stockholm BIBLIOTEKSTAN Birger Jarlsgatan, Stockholm HUFVUDSTADEN 2016 5 Contents This is Hufvudstaden .....................................................................................6 Year in brief ...................................................................................................7 Business concept, objectives and strategies ...................................................8 Statement by the President ..........................................................................10 Property market ...........................................................................................14 Shares and shareholders ..............................................................................24 Gothenburg, page 12 Sustainable enterprise ..................................................................................29 Customer relations ......................................................................................31 Sustainable properties .................................................................................31 Employees ...................................................................................................33 Property development .................................................................................38 Stockholm City East Business Area .............................................................40 Employees, page 37 Stockholm City West Business Area ............................................................44 Gothenburg Business Area ..........................................................................48 Formal financial statements: Administration Report, including Corporate Governance Report ........52 Income Statements with comments – Group ........................................62 Balance Sheets with comments – Group ...............................................64 Stockholm, page 43 Changes in equity – Group ...................................................................66 Cash flow statements with comments – Group .....................................68 Parent Company with comments ..........................................................70 Notes .....................................................................................................72 Proposed distribution of unappropriated earnings ................................88 Auditors' Report ....................................................................................89 2014 2015 2016 A CurrentCurr enetnt nassetet asset value value Board of Directors and Auditors .................................................................92 Operations, page 58 Senior Executives ........................................................................................94 Multi-year review – Group ..........................................................................97 Business areas in figures ..............................................................................98 Properties ...................................................................................................100 Definitions and glossary ............................................................................103 Annual Meeting and calendar ...................................................................105 Stockholm, page 96 Addresses ...................................................................................................106 This document is in all respects a translation of the original Swedish Annual Report. In the event of any differences between this translation and the Swedish original, the latter shall prevail. Cover: King, Kungsgatan, Stockholm 6 HUFVUDSTADEN 2016 This is Hufvudstaden Fair value, properties Hufvudstaden is a property company listed on the Nasdaq Stockholm Large Cap list. We have managed and developed Gothenburg properties for more than 100 years in Stockholm and more SEK 7,134 m 20 % than 60 years in Gothenburg. Our financial position is solid with a low loan-to-value ratio and good earning capacity. The holdings comprise 29 properties, mainly office and retail premises in the most central areas of the two foremost growth regions in Sweden – Stockholm and Gothenburg. At the end of 80 % Stockholm SEK 29,383 m 2016, the fair value of the properties totalled SEK 36.5 billion. Management of the Company's commercial holdings is split between three business areas. The Group also includes the wholly owned subsidiary AB Nordiska Kompaniet, which owns the NK brand and has department stores in Stockholm and Gothenburg. In recent years, we have intensified our investment in development projects, although still retaining Interest coverage ratio and net loan-to-value ratio Multiple % 10 25 We will continue to achieve our 9 financial objectives and in doing 8 20 7 so generate a good return over 6 15 5 time and with limited risk for the 4 10 shareholders. 3 2 5 1 our long-term approach to business and a consistently high 0 0 2007 2008 2009 2010 2011 2012 2013 20142015 2016 level of quality in the management process. We will continue to Interest coverage ratio Net loan-to-value ratio, properties achieve our financial objectives and in doing so generate a good return over time and with limited risk for the shareholders. Vision and aim Hufvudstaden's vision is to be consistently perceived as, and prove to be, the most interesting and vibrant property company Gross profit and net revenue in Sweden, and its aim is to have the most satisfied customers SEK m in the industry. To measure this, we take part in the annual 1,800 Fastighetsbarometern Customer Satisfaction Survey, in which we 1,600 have been ranked among the top three companies since the 1,400 Survey began in 1997. We focus on providing our customers 1,200 with a high level of service and this involves working closely with our tenants. All the properties are within walking distance 1,000 of our offices and we have our own staff who manage and 800 develop the properties. 600 400 Sustainable development The long-term approach adopted by Hufvudstaden is unique 200 and the sustainability work that is being conducted is an in- 0 2007 2008 2009 2010 2011 2012 2013 20142015 2016 tegral part of our operations, regardless of whether the focus is on financial development or on environmental and social Gross profit 1) Net revenue 1) 1) Property management issues. Good relations, a healthy working environment and strict observance of good business ethics are crucial to our long-term success. HUFVUDSTADEN 2016 7 Year in brief • Profit for the year before tax increased by SEK 835 Financial summary (SEK m) million and totalled SEK 5,284 million (4,449). The 2016 2015 Net revenue, property management 1,703 1,611 increase is due mainly to higher unrealized changes in the Gross profit, property management 1,226 1,144 value of the property holdings. Changes in value 4,206 3,438 Operating profit 5,425 4,572 • Gross profit increased by 8 per cent and totalled Profit for the year 4,120 3,470 Net profit from current operations 841 788 SEK 1,262 million (1,172). The increase can be Fair value, properties, SEK bn 36.5 31.7 attributed mainly to higher rental revenue. Rental vacancy level, % 3.9 4.5 Net loan-to-value ratio, properties, % 15.2 16.7 • The profit for the year after tax totalled SEK 4,120 Interest coverage ratio, multiple 8.6 9.1 million (3,470), equivalent to SEK 19.98 per share (16.82). • The Board proposes an increase in the dividend to SEK Dividend growth 3.30 per share (3.10). SEK 3.50 +6% • The fair value of the property holdings at the year- end was +7% 3.00 +5% +6% SEK 36.5 billion (31.7), resulting in a current net asset +6% 2.50 +7% value of SEK 138 per share (118). +10% +11% 2.00 +9% +9% • The rental vacancy level at the year-end was 3.9 per 1.50 cent (4.5). Excluding current development projects, the 1.00 rental vacancy level was 2.6 per cent (3.2). 0.50 0 2007 2008 2009 2010 2011 2012 2013 20142015 2016 1) Dividend per share 1) According to a proposal by the Board Vacancy level % 10 9 8 7 6 5 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 20142015 2016 Floor space vacancy level Rental vacancy level 8 HUFVUDSTADEN 2016 Business concept, objectives and strategies Hufvudstaden was founded in 1915 and Business concept Competence development. Systematic devel- rapidly became one of the leading prop- With properties in central Stockholm opment of the knowledge and compe- erty companies in Sweden. Today it is and central Gothenburg, Hufvudstaden tence of the personnel will be ensured one of the country's strongest brands in will offer successful companies high- with a focus on professional knowledge the property sector. The brand is well quality office and retail premises in and values. known and represents high quality, good attractive marketplaces. service and long-term thinking in the Business development. Active business de- management and development of the Strategies to achieve the objectives velopment and adaptation to advances in Company's commercial properties in Customer focus. Hufvudstaden will work digitalization in society will create added prime business locations in Stockholm in close collaboration with its customers value in the property holdings. and Gothenburg. and contribute continuously to improv- ing their business potential and com- Vision petitiveness. Hufvudstaden will be consistently per- ceived as, and prove to be, the most in- Quality. First-rate quality and environ- teresting and vibrant property company mental systems will ensure