Kun g sleden AB Annual Re KungsledenKungsleden ÅrsredovisningAnnualÅrsredovisning Report 20032003 p ort 2003 Namnlöst-1 1 04-03-19, 14.34.28 Cyanblå (processfärg)Magentaröd (processfärg)Gul (processfärg) Svart (processfärg) 3 Kungsleden 4 2003 in summary 5 Questions about Kungsleden 6 A letter from the Chief Executive Record profi t in hard times – again 8 The share and shareholders 10 Organisational and human resources Organisational resources Human resources Senior executives Board of Directors and Auditors 14 Environmental audit 15 The property holding and earnings capacity The property holding Earnings capacity 19 Retirement Homes 20 Financial overview The past year Property values Funding Forecast 2004 Five-year overview 26 Financial reporting Report of the Directors Income Statement Balance Sheet Cash Flow Statement Supplementary disclosures Proposed appropriation of profi ts 35 Audit Report 36 Property Property 2003 Acquired properties 2003 Divested properties 2003 44 Definitions 45 Annual General Meeting 46 Addresses 1-19.indd 2 04-03-23, 08.12.25 Cyanblå (processfärg)Magentaröd (processfärg)Gul (processfärg) Svart (processfärg) Kungsleden Kungsleden is a Swedish property company that prioritises yield above property type or geographical location. At the end of 2003, Kungsleden’s property holdings comprised 423 properties with a book value of approximately SEK 12.3 bn. The holding is distributed over a total of 110 municipalities nationwide, although focused on the southern and central provinces of Götaland and Svealand. At year-end 2002, the property yield was 8.3 per cent. Kungsleden has been quoted on the Stockholm Stock Exchange O-list since 14 April 1999. Vision Kungsleden’s vision is that by means of skilled entrepreneur- ship and a high level of expertise, Kungsleden will become Sweden’s most profi table and successful property company. Business concept Kungsleden owns and manages properties, generating high and stable long-term returns. Strategy 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. Financial targets Our objectives are to achieve: • A minimum return on equity of 15 per cent; • A minimum property yield net of property administration in our portfolio of 8.5 per cent. Risk limits We limit risk by: • Sourcing a maximum of 30 per cent of rental revenue from industrial and warehouse properties; • Sourcing a maximum of 30 per cent of rental revenue from properties located in municipalities with populations of less than 25,000; • Maintaining a minimum long-term equity ratio of 25 per cent, with a minimum short-term level of 20 per cent. 3 Namnlöst-1 3 04-03-19, 14.34.54 Cyanblå (processfärg)Magentaröd (processfärg)Gul (processfärg) Svart (processfärg) 2003 in summary • Profi t before tax amounted to SEK 485 (452) m; profi t after tax was SEK 745 (322) m, or SEK 39.30 (17.00) per share. • Proposed dividends are SEK 13.00 (12.00) per share, an 8 (14) per cent increase. • Rental revenues and operating surplus grew by 7 (24) and 4 (28) per cent respectively to SEK 1,376 (1,291) m and SEK 850 (818) m respectively. • In the year, 77 (67) properties were disposed of generating revenues of SEK 1,334 (880) m, and 70 (42) acquired for a value of SEK 2,913 (1,289) m. • The forecast for the fi nancial year 2004 is for profi t before tax of SEK 500 m. Kungsleden has a dual focus: property trading and management. At year-end, its property yield was 8.3 (8.6) per cent net of property administration. Property disposals in the year contributed to increasing the property portfolio’s yield by 0.2 percentage points, while acquisitions exerted a negative 0.3 percentage point contribution. Property administration exerted a negative contribution of 0.2 percentage points, mainly due to fairly downbeat conditions early in the year and increased energy prices. In the short term, it has been impossible to compensate for cost increases by increasing rents. However, revenues pro- gressed well, without exhibiting negative tendencies. Acquisitions Disposals Property trading 70 properties 77 properties Disposals SEK 2,913 m SEK 1,334 m profi table 60 properties SEK 204 m loss-making 17 properties SEK –29 m 7.8% property 5.8% property sales administration SEK –24 m yield yield profi t= SEK +151 m Earnings capacity 2002 2003 Operating surplus SEK 871 m SEK 1,025 m Property yield 8.6% 8.3% –Acquisitions and disposals –0.1% –Management of properties owned for the full year –0.2% –Value adjustment – Fewer municipalities 123 110 Higher value per property SEK 23.6 m SEK 29.1 m 4 1-19.indd 4 04-03-23, 08.12.43 Cyanblå (processfärg)Magentaröd (processfärg)Gul (processfärg) Svart (processfärg) Questions about Kungsleden What, actually, makes Kungsleden whose composition makes a difference to performance. In different from other property companies? simple terms, you could probably say that in our sector, We focus exclusively on risk-adjusted returns, or in other words, companies with NAV premiums possess organisational we constantly strive to enhance the risk/return relationship. resources that are perceived to create value, while those with This means we want to increase yields if this doesn’t increase a NAV discount, have resources considered to reduce risk, or reduce risk as long as returns do not suffer. Thus, our property values. prime considerations are what we expect to earn on prop- erties, and the risks we take, rather than the type of property Why isn’t Kungsleden quoted on the Stockholm we own, or its location. Stock Exchange Attract 40 list any more? The Stockholm Stock Exchange has stated a number of During the year, you were a net buyer of properties criteria that determine the shares to be included on the Attract —does size matter in your sector? 40, and one of these is rate of turnover, or how many shares No, there’s nothing to say that a big company is better than a changed hands on the Exchange. In this context, it’s worth small one, although there may be a minimum threshold for remembering that rate of turnover is measured as a maintaining effi cient organisational resources. Of course, there percentage of the number of shares. For Kungsleden’s part, is also a risk that if you get too big, bureaucracy increases at trading in terms of numbers of shares each day has been the expense of effi ciency. For our acquisitions, we think these stable, and with our rising share price, turnover in absolute deals have made us more effi cient, while also reducing risk. fi nancial terms has increased. The explanation for But as long as we can do good deals, we can invest the 50 Kungsleden’s exclusion from this list is that a number of other per cent of net profi t we don’t pay out as dividends. If we are shares increased their turnover more, ‘overtaking’ us. unable to do these deals—that means generate at least the 15 per cent we’ve declared as our return on equity target—we Will you be increasing dividends now may increase our dividend pay-out ratio. that your dividend yield has declined? Kungsleden’s dividend policy has never been linked to its But you acquired properties in Malmö and Helsingborg, shares’ dividend yield, or dividends divided by share price. in southern Sweden, with property yields of 8.0 per cent, The fact that this parameter has reduced has nothing to do when your objective is 8.5 per cent, how come? with declining dividends, either in absolute terms, or as a That’s true, our objective is to compose a portfolio with an share of EPS, but rather, is due to our share price increasing. average property yield of 8.5 per cent. In practice, though, this Our dividend policy dictates that dividends should be at least means we own properties that yield between 6 and 12 per 50 per cent of profi t after current tax, and that dividends cent. We’ve been looking for properties in this area for a long should be stable. time, because we perceive growth and bright prospects for property owners. We’re very pleased to be able to buy such Your profi ts haven’t been adversely affected by a weak attractive properties, at what we think are reasonable business cycle—will profi ts be hit when the rally comes? valuations. Because the package in question comprises many Kungsleden’s business concept is to own properties properties with broad diversity, the risk is low. If we consider generating high and stable property yields. And here, stability risk, liquidity—how easy it is to sell properties—is important. is the key concept. This means, Kungsleden’s variations This package includes properties that suit a broad array of should be modest in comparison with companies that, for buyers—anything from private individuals to multinational example, concentrate exclusively on major cities. We minimise institutions. In actual fact, we’ve never encountered such a our variations by maintaining broad risk diversifi cation across high interest as since we acquired these properties, and that’s our portfolio in terms of property types, geographical locations why we’re convinced that this acquisition will be able to and rental contract terms. Moreover, we ensure that no single generate plenty of good business opportunities in 2004. tenant generates an unacceptably high portion of our rents. In recent years, we’ve invested heavily in retirement home You have said before that having skilled and business- properties, which we perceive, enjoy low risk, because the driven organisational resources one of your key success factors.