ANNUAL REPORT 2011 The purchase from NRP is exceeding expectations, says Chief Executive Thomas Erséus. p.4 Active letting work— corporate fruit basket vendor Fruktbudet one of several new tenants. p.18 Nordic Modular has yielded over 20 per cent annually since its 2007 acquisition. p.21 CONTENTS Strategic risk diversification GET TO KNOW KUNGSLEDEN The year in brief 1 Certain property companies choose to concentrate their property holdings completely geographically. Kungsleden—facilitating opportunities 2 Others focus their property holdings on selected Chief Executive’s statement 4 property types. For Kungsleden, diversification is a Business concept, goals and strategy 6 way to achieve the company’s objective of Business model 8 maximising the property portfolio’s risk-adjusted The market 11 returns. Kungsleden—position on the market 14 Read more about Kungsleden’s risk diversifica- In dialogue with tenants and customers 17 tion on page 10. Hemsö 19 Nordic Modular 21 Kungsleden—the workplace 22 One of Sweden’s Best workplaces PROPERTY PORTFOLIO Kungsleden came 2nd of the medium-sized The property portfolio 26 companies and was best among property Holding 27 companies in the Great Place to Work survey 2012. Transactions 30 Over the past three years, Kungsleden has Valuation method 32 progressively moved up from fourth to second place. A good workplace and shared beliefs and values are Earnings capacity 34 key components when hiring new employees. Customers and rental revenues 38 Read more about what our employees think of RiSKS AND OPPORTUNITIES their workplace on page 22. Risks and opportunities 40 Financing and financial risks 45 Corporate social responsibility 48 Corporate social responsibility KUNGSLEDEN AS AN INVESTMENT For a few years now, Kungsleden has been in Kungsleden as an investment 52 partnership with youth work charity Fryshuset. It is important for Kungsleden’s people to contribute to The share 54 its activities and support young people, which Five-year summary 58 creates the prospects for the warm and creative society that everybody wants to, and can, be part of. REPORT OF THE DiRECTORS Read more about Kungsleden’s CSR on page 48. Corporate governance 61 Board of Directors 65 Management 66 Operations 68 TOTAL RETURNS SEK FiNANCIAL STATEMENTS Professional150 conduct Income Statement 76 Professional conduct120 is a prerequisite for doing Statement of Comprehensive Income 76 good business. Kungsleden’s ambition is that all P Statement of Financial Position 77 parties involved should feel they are the winners in Statement of Changes in Equity 78 a business transaction.90 Being businesslike is one GROU of Kungsleden’s strategic success factors. Statement of Cash Flows 78 60 Notes 79 Read more about why Kungsleden can be an attractive investment on page 52. Income Statement 96 30 ANY Statement of Comprehensive Income 96 mp O Balance Sheet 97 0 C Statement of Changes in Equity 98 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Statement of Cash Flows 98 Kungsleden (Including dividend) SIX Return Index Source: SIX Notes 99 PARENT Proposed appropriation of profits 103 Signatures 103 Audit Report 104 It is the people that make up Kungsleden, not the bricks, concrete or glass. That is why we’d rather OTHER INFORMATION publish pictures of our people than our properties. Employees 106 Owning and managing properties with satisfied customers is Kungsleden’s main mission. Definitions 107 Jonas Brade works as a Controller at Kungsleden, and his primary duty is to prepare the Property register Consolidated Accounts and work on the Annual Invitation to AGM, kungsleden.se and contacts Report. Working as a model on our cover is just a sideline. In this image, Jonas is at the centre of the action close to Stockholm Central Station, where Kungsleden’s new head office is located. You are The formal annual accounts are on pages 61–103 . very welcome to visit us at Vasagatan 7. The year in brief became 1 2 SEK3.6bn 21% After Hemsö’s independence, Our largest acquisition Increased operating profit one organisation became two Results in brief Significant events • Net sales increased by 25 per cent to SEK 2,882 (2,304) m • 60 (64) properties were purchased for SEK 4,798 (2,356) and gross profit increased by 21 per cent to SEK 1,877 m. Kungsleden also sold 20 (63) properties for SEK 1,224 (1,545) m mainly due to a larger property portfolio. (2,929) m generating a profit of SEK 56 (33) m. These sales affected profit for calculating dividends by SEK 114 (54) m. • Profit before tax amounted to SEK 828 (1,186) m. Profit after tax was SEK 638 (841) m, or SEK 4.70 (6.20) per • The largest transaction was the acquisition of 36 properties share. Largely, the profit decrease is due to negative from Nordic & Russia Properties (NRP) for SEK 3.6 billion. unrealised value changes on financial instruments. • Through active portfolio enhancement involving the • Cash flow from operations was SEK 666 (510) m. purchase of high-yielding properties and the sale of low-yielding properties, property yields, measured as • Profit for calculating dividends for 2011 was SEK 703 (530) earnings capacity, increased from 6.4 per cent to 7.2 per m, or SEK 5.20 (3.90) per share. This is SEK 53 m higher cent. than the estimate reported at year-end. • Purchases of well-let properties, Kungsleden’s own new • At year-end, the portfolio consisted of 636 (592) properties lettings and sales of development properties in Slagsta, with a book value of SEK 26,122 (21,501) m, including joint south of Stockholm, contributed to occupancy increasing to venture Hemsö’s holding of 312 properties. 91.6 (90.3) per cent. TOTAL RETURNS • The Board of Directors is proposing a dividend of SEK 2.60 • The initial investment in Nordic Modular made in 2007 was SEK (2.00) per share. fully repaid in the fourth quarter. 150 • At the beginning of the year, 50:50 joint venture Hemsö 120 became an independent company with its own manage- ment, organisation and offices. 90 • Kungsleden secured third place of medium-sized organisa- 60 tions in Sweden in the Great Place to Work survey 2011. 30 PROFIT FOR CALCULATING DIVIDENDS 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 SEK m 2011 2010 Kungsleden (Including dividend) SIX Return Index Source: SIX Gross profit 1,877 1,545 Sales and administration costs –319 –260 Net financial position –868 –749 Profit from property management 690 536 Realised items Trade net on sale 56 33 Realised value changes, properties 66 21 Deduction for deferred tax on sale –8 – Realised value changes, financial instruments –66 –8 Realised items 48 46 Taxes payable –35 –52 Profit for calculating dividends 703 530 1 Kungsleden—facilitating opportunities Kungsleden is a property company that always welcome new business opportunities— regardless of the type of property or its geographic location. Our main mission is to own and manage properties with satisfied customers. Our focus is high and stable returns for the long term, with risk diversification as a key ingredient. HOW WE DIFFERENTIATE Facilitating opportunities describes the way we want to stand out in the property Kungsleden’s total portfolio: 636 properties. Just over SEK 26 billion. sector. What our customers emphasise is all about our entrepreneurship. That we are present, innovative and easy to Wholly owned Hemsö Nordic Modular deal with. properties With 636 properties in 143 Swedish Municipalities, as well as offices nation- Industrial, ware- Retirement homes, Modules for schools, wide, Kungsleden is present geographi- house, retail, office care, schools, pre- preschools, offices cally and in its actions. Kungsleden has schools and judicial and portable units system been one of the main sponsors of youth 50 % of Hemsö charity Fryshuset since 2010. Contribut- SEK 14,143 m. = SEK 10,429 m. SEK 1,550 m. ing to an operation that supports young people is another way for us to show our presence in wider society. Facilitating opportunities also means we are at the leading edge and try to see OUR PROPERTIES erty values. Most properties are indus- things from new perspectives. This might Our property portfolio consists of trial/warehouse properties, offices or be anything from being innovative in our commercial properties, public proper- retail properties. The property portfolio way of doing business, finding solutions ties and modular buildings. At year-end is continuously enhanced through to tenant needs, or researching letting 2011, our 636 properties had total investments, ongoing management and opportunities via social media. leasable area of 3,328,000 sq.m., and through purchases and sales. Kungsleden having a strong entrepre- rental revenues of SEK 2,737 m. The majority of the public holding is neurial spirit with decision making dele- Property values were SEK 26,122 m. within Hemsö Fastighets AB, which is an gated throughout the organisation pro- The property portfolio is well diversified independent company, 50:50 owned by motes commitment and drive. It often nationwide, but concentrated on the Kungsleden and AP3 (The Swedish Third simplifies our partnership with our three major city regions of Stockholm, Pension Insurance Fund). This includes tenants and enables good solutions to Gothenburg and Öresund, and Västerås, properties for retirement homes, care be implemented quickly. west of Stockholm. and schools, i.e. publicly funded activi- At year-end 2011, commercial prop- ties. At year-end 2011, public properties erties represented 49 per cent of prop- made up 45 per cent of property values Let Thomas Erséus tell you how Kungsleden facilitates opportunities in his own words. Go to kungsleden.se/omoss. (In Swedish only) 2 KUNGSLEDEN ANNUAL REPORT 2011 In late fall 2011 we launched an brand campaign called “Jakten på O” in wich we illustrate how we simplify and improve things for our customers and their operations.