Rental income and occupancy rate

Risk
There is a risk of vacating tenants in all property management. When tenants change, there may arise costs for adaptation of new tenant and vacancy periods.

Management
At year-end 2011, Klövern had a total of 4,949 lease contracts (4,476) with over 2,900 companies (2,800) in many different branches of business activity. The tenant turnover rate exceeded the desired maximum limit slightly at 7.9 per cent (6.3) compared with 7.0 per cent owing to a few large vacating tenancies that were known in advance. The turnover rate is measured as vacation in SEK during the year in relation to average lease contract value. The average lease term in Klövern’s stock was 2.8 years (2.8). Klövern makes a credit rating in connection with all new letting. On the basis of a credit rating, certain leases are complemented with guarantees, a deposit or a bank guarantee. All rents are paid in advance. Despite this, there is a risk of tenants suspending payments or otherwise not performing their obligations, which has a negative impact on Klövern’s result. Due to the frequent dialogue with tenants, Klövern has very low rent losses. These amounted to SEK 3.2 million (3.1) or 0.2 per cent (0.2), of Klövern’s total income during 2011.

Exposure
The largest tenant is Ericsson, which mainly leases large office areas in Kista. Ericsson has, inter alia, located its head office with the group executive management at Kista. The managements of Ericsson’s three business areas, Global Services, Multimedia and Networks, and parts of R&D activities are also located at Kista. In 2010, Ericsson signed a ten-year lease contract for 36,000 sq.m., of which the major part is for a new office building, which is being built in Kista. The building, which has a total lease contract value of SEK 66 million, is expected to be completed in the summer of 2012. Ericsson’s total contract value amounted at year-end 2011 to SEK 185 million, which corresponds to 13 per cent of Klövern’s total contract value. The second largest tenant is TeliaSonera with a contract value of SEK 29 million at year-end 2011. This activity consists mainly of offices, located in Karlstad, Linköping and Norrköping, among other places.