Annual Report 2010 WorldReginfo - d8a864df-daa8-4233-af5b-768a5fe6ab63 Contents 1 The year in brief 2 Kungsleden—facilitating opportunities 4 Chief Executive’s statement 6 This is Kungsleden 7 Business concept, goals and strategy 8 Business model—this is how we think 10 Business model—this is how we operate 12 The market—brisk recovery after a historically severe downturn 14 Kungsleden’s market—choosing a strategic course 16 Nothing’s impossible for Kungsleden 17 In close dialogue with tenants and customers 18 An innovative solution to an expanding problem 19 Hemsö on its own feet 20 Kungsleden—the workplace 24 Property portfolio 25 Transactions 26 Portfolio 29 Valuation 31 Earnings capacity 35 Customers and rental revenues 37 Risks and opportunities 42 Financing and financial risks 45 Corporate social responsibility 49 Five-year summary 51 The share 55 Corporate Governance Report 55 Corporate governance 62 Operations 68 Consolidated Income Statement 68 Consolidated Statement of Comprehensive Income 69 Consolidated Statement of Financial Position 70 Consolidated Statement of Changes in Equity 70 Consolidated Statement of Cash Flows 71 Notes, group 87 Income Statement, parent company 87 Statement of Comprehensive Income, parent company 88 Balance Sheet, parent company 89 Change in Equity, parent company 89 Cash Flow Statement, parent company 90 Notes, parent company 93 Proposed appropriation of profits 93 Signatures 94 Audit Report 95 Employees 96 Definitions Property register Invitation to Annual General Meeting and addresses The formal Annual Report consists of pages 55–93. This Annual Report is a translation of the Swedish language original. WorldReginfo - d8a864df-daa8-4233-af5b-768a5fe6ab63 The year in brief • Net sales amounted to SEK 2,304 (2,602) m. Net sales decreased due to the part-sale of Hemsö to AP3 (the Swedish Third Pension Insurance Fund) in 2009. • Profit after tax increased to SEK 841 (250) m, equivalent to SEK 6.20 (1.80) per share, mainly due to unrealised value changes on properties and financial instruments. • As of 31 December 2010, the property portfolio comprised 592 (585) properties of which 297 were 50 per cent owned. Total book value was SEK 21,501 (21,861) m. • Kungsleden purchased 64 properties for SEK 2,356 m and sold 63 properties for SEK 2,929 m. • Letter of intent signed to acquire most of the properties of NR Nordic & Russia Properties Ltd. for SEK 3.6 billion. All the conditions for this transac- tion were satisfied in February 2011. • Kungsleden was recognised as one of Sweden’s best workplaces in the Great Place to Work survey. • Environmental work remained in focus, with the company securing its first EU Greenbuilding certification. • Kungsleden supported youth work through charity Fryshuset and educational programme Ung Privatekonomi (Young Personal Finance). • Profit for calculating dividends was SEK 530 (1,022) m, equivalent to SEK 3.90 (7.50) per share. • The Board of Directors is proposing a dividend of SEK 2.00 (3.75) per share. 1 WorldReginfo - d8a864df-daa8-4233-af5b-768a5fe6ab63 Facilitating opportunities Kungsleden is its people. Not the concrete, bricks or glass...obviously, our fixed assets have value, but it’s still our people that manage, regenerate and enhance that value. And everything is based on a close collab- oration with our customers, who ultimately, are the people that can evaluate what we do and how well we deliver on our promises. So what do we mean by Kungsleden—facilitating opportunities? For us, it means the way we stand out in the property sector. What our customers emphasise is all about our entrepreneurship. That we are present, innovative and easy to deal with. Nina de Besche 2 KUngsLeden annUAL repOrt 2010 WorldReginfo - d8a864df-daa8-4233-af5b-768a5fe6ab63 Our business concept lets us discover value in a property regardless of its location and type. With properties in some 130 Swedish municipalities and our offices nation- wide, we are present geographically and in our actions. This means that we are also alert to needs wherever our cust omers are. Being driven by a strong entrepreneurial spirit, with decisions being taken at the edges of our organisation, promotes fresh ideas and drive. Simply put, as the property company that facilitates opportunities, we see possibilities in properties, prem- ises and places that others do not. Madeleine Fallberg 3 WorldReginfo - d8a864df-daa8-4233-af5b-768a5fe6ab63 A quality portfolio with good growth prospects Kungsleden underwent major change in 2010, because we are a company that continuously puts our holdings to the test. This is natural, and a must when our external circumstances are changing. But even if our portfolio changed a lot, we’re still fundamentally the same company with the same business model. We don’t do deals just to make a profit; a long period, we have cause to review adaptable people, so leadership issues enhancing our portfolio and limiting risk our vacancy levels. In principle, our and attitudes are central. So taking part are two important underlying reasons significant vacancies are confined to six in A Great Place to Work is a way to for many of last year’s transactions. The properties, which is fewer than we had highlight these issues and is notable portfolio in Germany was sold for SEK expected at the beginning of the year. evidence that we’re heading in the right 1.3 billion. to Hemso, where Kungsleden Transaction market liquidity direction. has a 50 per cent ownership. With its increased, as did the supply of good Similarly, environmental issues focus on public properties, it is natural properties. We witnessed normalisation should stem from Kungsleden’s busi- that Hemsö takes over this retirement of the credit market, even if the pricing ness. Our environmental work is about homes holding. We built this portfolio in difference between short and long-term taking social responsibility, but also 2006–2007, when Kungsleden didn’t credits remains slightly wider than pre- cutting energy consumption, and with it, see such attractive growth prospects in financial crisis. We had positive experi- costs. If we can create effective environ- Sweden. ences from issuing two bond loans of a mental solutions, this is good for our- In our existing properties, as usual, total of SEK 1 billion with five-year matur- selves and our customers. we focused on ensuring our tenants ities. We will keep looking at alternatives We secured our first EU Greenbuild- stayed with us, through means including to extend our funding base, with the ing labelling accreditation last year. investing in tenant adaptations. Follow- bond market being one of several alter- Working towards this accreditation is ing this course is helping to strengthen natives. We see good prospects to keep important because it creates clear goals our brand and generate better returns. refinancing on reasonable terms. and is a benchmark for ongoing work, Many of our transactions in 2010 Even if sizeable imbalances remain for example, on how to cut energy costs were designed to limit the downside of in the global economy, most commenta- on a property. our portfolio, which means fewer posi- tors agree that the positive factors hold Our work on supporting youth activi- tive realised value changes than normal. sway. Confidence in Swedish industry is ties continued with charity Fryshuset We chose to delay divestments because positive, notable not least in the return and the Ung Privatekonomi (Young there was reason to expect that prop- of inflation, which is positive for the Personal Finance) education pro- erty prices would gradually rise again. In property sector and resulting in rising gramme. In the latter case, this enabled combination with increased costs relat- rents. The fact that inflation is rising is young people to participate when we ing to a severe winter, this resulted in us fundamentally due to a strengthening presented our financial statement in downgrading out estimated profit for Swedish economy, which is positive for February. I think this is a great way to calculating dividends from SEK 600 m the letting and transaction markets. get closer to young people and create to SEK 500 m. At year-end, the trend was towards greater understanding of the conditions required returns continuing to contract facing business. To summarise, CSR HEMSÖ—A StrONG BUSINESS PartNER somewhat. Even if this is the case, the issues are becoming more significant as Work on preparing Hemsö for stand alone required returns on the type of proper- part of our work on generating returns. status has gone really well and is ties Kungsleden has in its portfolio do almost complete. By de-merging not tend to rise or fall as much as Stock- A SharPER FOCUS Kungsleden and Hemsö, a lot of skilled holm’s central business district, for Property prices have stabilised, and people have stepped up to greater example. actually started rising. By divesting our responsibility. Even if Hemsö is 50 per portfolio in Germany and utilising cent owned with AP3 (the Swedish Third A GREat PLacE TO WORK different types of funding, Kungsleden Pension Insurance Fund), it is still an I’m proud that Kungsleden was has increased its financial flexibility. important holding for us. We intend to recognised as one of Sweden’s best The Swedish economy continued to keep working actively together to workplaces in the Great Place to Work grow robustly around year-end, and identify and create new business survey. Kungsleden secured fourth spot private consumption is expected to rise. opportunities at the interface between among medium-sized companies, and Decreasing property risks are creating Kungsleden and Hemsö. was first of the property companies. more opportunities. We took this oppor- When we work on strengthening our tunity to complete a number of transac- NORMALISatION ON OUR MarKETS organisation, we should start from our tions late in the year, including the The lettings market improved, and with business.