Kungsleden 2005 1 2 Kungsleden 2005 xxxx Kungsleden 2005 3 Contents 4 This is Kungsleden 36 Annual Report Report of the Directors 5 2005 in summary Income Statement Balance Sheet 6 1999–2005 Change in Shareholders’ Equity Cash Flow Statement 8 Chief Executive’s statement Parent company, ÅRL Note disclosures 10 The share Proposed appropriation of profits 12 Business model 54 Audit Report 14 Organisational and human 55 Definitions resources Organisational resources 56 Employees Human resources 58 Assets: Properties 16 The property market 63 Divested properties, 2005 18 The property holding and earnings capacity 64 Acquired properties, 2005 The property holding Property values 71 Invitation to the Annual General Meeting Earnings capacity 71 Addresses 25 Financial overview The past year Five-year overview Forecast for 2006 30 Environmental report 31 Corporate governance report Board activities during 2005 Internal control and financial reporting procedures Terms for remuneration Management Board 4 Kungsleden 2005 xxxxThis is Kungsleden BRIEF HISTORY Why do you work for Kungsleden? I started in April 2001, and Kungsleden has been an enjoyable Historically, Kungsleden has featured a brisk tempo of and positive workplace since. It’s definitely the right type of change and a high rate of turnover in its property port- company for me, where things just keep moving. You have to folio. As part of the Retriva AB and the Securum AB like things happening, the rate of change is high. What do you think makes Kungsleden different from other groups, Kungsleden’s assignment was to liquidate sub- property companies? stantial property holdings, and in 1996 to 1997, the com- We differ from other property companies in most respects. pany consummated over 500 property divestments to We’ve got a lot of energy here at Kungsleden, and as a result, the tempo is high. Our business model means we don’t just external parties, involving over 800 properties with an manage properties, but also work on them actively, focusing aggregate value of approximately SEK 4,600 m. on returns. Our corporate culture enjoys benefits from the posi- tive features of our management and staff. In December 1997, former main owner, the govern- How would you describe ‘the Kungsleden spirit’? ment-owned Agilia Holding AB, span off Kungsleden It’s a warm, energetic atmosphere. We work very hard, and to to a group of institutional investors. The business con- cope you’ve got to enjoy it, and we do. cept was realigned to Kungsleden owning and manag- What deal do you think is Kungsleden’s best so far? When we acquired Föreningssparbanken’s holding in 1998, ing properties to generate high and stable long-term which marked the start of Kungsleden’s successful expansion. property yields. The vision of utilising and enhancing the The holding was large and diversified, with good prospects of adding value to its various parts. company’s skills in structuring heterogeneous holdings What is Kungsleden’s biggest asset, and why? was linked to this business concept. When ownership Our management, staff and working atmosphere. In other changed hands, the ambition to float Kungsleden was words, the biggest asset is our human capital. What do you expect from 2006? also established. That we’ll get even bigger and better. While it seems unlikely Kungsleden was named after Sweden’s famed 450 that as much will happen in 2006 as 2005, you’re never sur- km arctic hike, and is intended to allude, to the long prised by what happens, and that’s what is so much fun. What do you think Kungsleden could get better at? march of one of Sweden’s ancient kings, enjoying a I think we’re pretty good at most things. Possibly, we could broad perspective, with the benefit of overview and get even faster and more structured when we bring in new objectives clear in the distance. properties. Maléne Broman Property Manager, East Region Employed: 2001 Age: 34 Kungsleden 2005 5 2005 in summary • Profit before tax was SEK 2,116 (500) m and profit after tax was SEK 1,987 (877) m, equivalent to SEK 48.10 (21.70) per share. • Kungsleden’s rental revenues and operating net increased by 29 (4) and 28 (11) per cent respectively to SEK 1,845 (1,429) m and 1,304 (1,017) m. • During the year, 56 properties were divested for SEK 2,917 m generating profits of SEK 318 m and cash flow of SEK 403 m; 466 properties were acquired for SEK 13,351 m. • Profit for calculating dividends was SEK 1,001 m, or SEK 22 (14) per share. The Board is proposing dividends increasing by 56 per cent to SEK 11 (7) per share. • The Board intends to propose a 3:1 share split to the AGM. • Kungsleden is forecasting profit for calculating dividends of SEK 1,500 m for the financial year 2006. Acquisitions Disposals Property trading 466 properties 56 properties Disposals SEK 13,351 m SEK 2,917 m profitable 31 properties SEK 377 m loss-making 9 properties SEK –29 m 7.3% property 5.8% property Sales overhead SEK –30 m yield yield Profit SEK 318 m Realised value changes SEK 85 m Cash flow from trading SEK 403 m Earnings capacity 2004 2005 Operating net SEK 1,054 m SEK 1,845 m Property yield 7,8% 7.2% –Acquisitions and disposals 0.2% –Management of properties owned for the full year –0.2% –Value adjustment –0.6% More municipalities 91 148 Reduction of value per property SEK 36 m SEK 33 m Kungsleden has a dual operational focus: property trading and property management. The property yield of earnings capacity was 7.2 (7.8) per cent at year-end. Acquisitions and disposals in the year contributed to increasing the yield on the property portfolio by 0.2 percentage points. Property management generated a negative 0.2 percentage point effect. Positive value changes in the year reduced the portfolio’s property yield by 0.6 percentage points. 6 Kungsleden 2005 xxxxKungsleden 1999–2005 At its initial public offering (IPO) in 1999, Kungsleden owned SEK 5 bn-worth of proper- ties with an operating net of SEK 403 m. Six years later the property portfolio is five times larger—SEK 25.8 bn—and operating net has increased to SEK 1,304 m. Average annual profit growth was 46 per cent since 1999 and profit was SEK 1,987 m in 2005. This progress occurred in an era when the Swedish property market was transfor- ming. But Kungsleden maintained a consistent focus throughout—generating Share price and total return Total property values and value per property Total floor-space SEK % sustainable high and stable returns by continually enhancing its property portfolio.SEK bn SEK m 000 sq.m. 000 sq.m. 250 100 40 40 4,000 4,000 Kungsleden has maintained a high transaction rate, acquiring a total of 832 proper- 35 35 3,500 3,500 200 80 ties for SEK 27.6 bn and disposing of 666 for SEK 10.3 bn since the beginning of30 1999. 30 3,000 3,000 25 25 150 60 2,500 2,500 20 20 2,000 2,000 100 40 15 15 10 10 1,500 1,500 50 20 5 5 1,000 1,000 SHARE PRICE PERFORMANCE 99 00 01 02 03 04 05 99 00 01 02 03 04 05 Property value Value per property 0 0 99 00 01 02 03 04 05 Share price and total return Total property values and value per property Total floor-space SEK % Closing price SEK bn SEK m 000 sq.m. 000 sq.m. 250 100 Total return 40 40 4,000 4,000 Share price and total return 35Total property values and value per property 35 Total floor-space SEK % 3,500 3,500 SEK bn SEK m 000 sq.m. 000 sq.mProperty. categories, 1999 Property categories, 2005 200250 100 80 3040 3040 4,000 Total4,00 0book value SEK 5,229 m Total book value SEK 25,750 m Operating- and trading net 3,000 3,000 Retail 12 % Care 7 % 2535 2535 2,000 3,500 3,500 Other 13 % 150200 6080 2,500 2,500 Other11 % 2030 2030 Schools 4 % 3,000 3,000 2,000 2,000 Offices 58 % Offices 31 % 1525 1525 100 40 Kungsleden’s market capitalization was1,500 SEK 10.5 bn at year-end 2005, 150 60 2,500 2,500 compared1020 to SEK 1.1 bn at its IPO in April 1999. Accordingly,1020 market capi-1,500 1,500 talization increased by an annual average of 33 per cent in this period. In-2,000 2,000 10050 2040 155 155 1,000 1,000 cluding dividends, returns in the period1,000 averaged 42 per cent per annum. 99 00 01 02 03 04 05 1,500 99 00 01 02 03 04 05 1,500 10 Total dividends for 1999–2005 (the Board’s proposed dividend10 is as- Property value Value per property 500 200 99 00 01 02 03 04 05 sumed5 for 2005) amount to a total of SEK500 36.25 per share, which5 is higher1,00 0 1,000 than the99 share00 price at01 the IPO02 of SEK 33.00.03 The04 calculation05 of compara- 99 00 01 02 03 04 05 Closing price Property value Value per property 0 Total return 0 tive figures considers the 2:1 split conducted in 2005. 99 00 01 02 03 04 05 0 99 00 01 02 03 04 05 Industrial/warehouse 19 % Retirement homes 19 % Closing price Operating net Total return Property categories, 1999 Property categories, 2005 Industrial/warehouse 14 % Trading net Total book value SEK 5,229 m Total book value SEK 25,750 m Operating-PROFIT and PERFORMANCE trading net Retail 12 % Retail 12 % Care 7 % Other 13 % 2,000 PropertyOther11 categories, % 1999 Property categories, 2005 Total book value SEK 5,229 m Total book value SEK 25,750 m Operating- and trading net Property yield Schools 4 % Retail 12 % Offices 58 % Number of municipalitiesCare 7 %and majorOffices cities 31 % % Other 13 % 1,5002,000 10 Other11 % 200 Schools 4 % 200 Offices 58 % Offices 31 % 8 1,0001,500 150 150 6 1,000500 4 100 100 5000 99 00 01 02 03 04 05 2 Industrial/warehouse 19 % Retirement homes 19 % Operating net 50 Industrial/warehouse 14 % 50 Trading net 0 0 Retail 12 % 99 00 01 02 03 04 05 99 00 01 02 03 04 05 Industrial/warehouse 19 % Retirement homes 19 % Operating net Industrial/warehouse 14 % Trading net 0 0 Property yield Retail 12 % Number of municipalities and major cities 99 00 01 02 03 04 05 Kungsleden’s% operating net and trading net virtually doubled in The yield on the property portfolio, i.e.