An eventful second quarter
Klövern is also reporting strong earnings for the second quarter of 2019. High net moving-in continues to contribute to increased income and positive changes in value in the property portfolio. The company’s strategy of focusing on streamlining and concentration led to a large sale at the end of the quarter, when an agreement was entered into on divestment of a large part of the portfolio in Örebro, while another acquisition was made in New York.
CONTINUED STRONG EARNINGS DEVELOPMENT
Income increased to SEK 1,817 million during the first half of the year and to SEK 3,482 million during the past 12 months. Profit from property management improved to SEK 754 million with the operating margin amounting to 68 per cent. Positive changes in value of properties amounting to SEK 770 million contributed to a profit before tax of SEK 1,413 million. Net moving-in during the quarter amounted to SEK 51 million, which means that Klövern’s net moving-in was SEK 98 million during the first half of 2019, compared with SEK 89 million during the full year 2018. The two largest incoming tenants during the quarter were AP Pension to approximately 3,500 sq.m. and Banking Circle to around 2,200 kvm, both in the property Amerika Plads in Copenhagen.
STABLE PROPERTY PORTFOLIO
The property portfolio delivers in percentage terms increasingly strong earnings and it is especially gratifying that this is also the case in the comparable portfolio, i.e. the properties that we have owned for the whole of 2018 and 2019. For the first two quarters of the year, the development of the operating surplus in the comparable portfolio at over 5 per cent is well above the general price development and reflects the strong moving-in during the period.
NEW OPPORTUNITIES IN NEW YORK
During the second quarter, Klövern signed an agreement and took possession of a site leasehold in Manhattan at the address 118 10th Avenue for an initial amount of around USD 22.6 million, corresponding to SEK 215 million. The property is located in Chelsea, in an attractive location between 17th Street and 18th Street close to one of New York’s most popular sights – The High Line. The aim is to develop a high-quality 10-story office building of around 12,000 sq.m. together with the local property developer GDS Development. Adding an additional project property, close to the two project properties in Manhattan that Klövern acquired in 2018, further reinforces Klövern’s position.
REDEMPTION OF TOBIN PROPERTIES
Friday, 28 June was the last trading day on Nasdaq First North for Tobin Properties. During the second quarter, Klövern requested compulsory redemption of the remaining shares in the company. There are possibilities of synergies between Klövern and Tobin Properties, which Klövern can obtain full benefit from with Tobin Properties as a wholly-owned subsidiary. The second quarter of 2019 has been characterized by a cautious improvement in the market situation for Tobin Properties and housing developers in general.
FOCUS ON CONTINUED STREAMLINING
There was considerable transaction activity during the second quarter of the year, with the focus primarily on streamlining. In all, a total of 26 properties at a value of around SEK 1.9 billion
were divested or an agreement on divestment was concluded. Apart from one remaining project property and a large logistics property, these sales meant in principle that Klövern has wholly left the Örebro market where we have had a relatively limited presence for a long time. A more geographically streamlined portfolio leads to more efficient management at the same time as it makes visible the actual property values as Klövern sometimes succeeds in divesting properties at a higher value than the reported market value. The property divestments agreed on during the first six months of the year have on average taken place at levels 12 per cent above the reported market value. Consequently, this also has positive effects on the equity ratio which is strengthened at transfer of possession.
Klövern’s financial strength continues to be good. The adjusted equity ratio was 37.5 per cent at the end of the quarter. The quarter’s largest divestment of 21 properties at a value of around SEK 1.6 billion have not yet been handed over. The average period of tied-up capital was at the same time 4.2 years while the average fixed-interest period was 2.4 years and the share of credit volume that is hedged or at a fixed rate amounted to 84 per cent. The capital market continues to offer good liquidity. At the end of May, Klövern issued an unsecured bond for SEK 700 million with a tenor of four years, at an interest of STIBOR 3m + 4.25 per cent.
GOOD VALUE GROWTH
The net asset value per share (EPRA NAV) amounted to SEK 17.95, corresponding to an increase of 2 per cent since the turn of the year and 23 per cent during the past 12 months.
CONTINUED STABLE DEVELOPMENT
Overall, we are very pleased with the result for the first six months and look forward, after a well-earned holiday, to what the second half of the year has to offer.
Rutger Arnhult, CEO Klövern