Strong earnings and establishment in Copenhagen and New York
2018 has been an incredible year for Klövern in many ways. We are once again reporting strong earnings. The pace of business has been very high. We have had further successful lettings and project development has continued to create substantial value. During the year, we have also established Klövern internationally by acquisitions in Copenhagen and New York.
STRONG EARNINGS DEVELOPMENT
Klövern is again reporting record earnings. Profit from property management improved by 6 per cent to SEK 1,344 million. After positive changes in value of properties amounting to SEK 2,309 million (of which SEK 382 million is a one-off related to the acquisition of Agora), profit before tax totalled SEK 3,688 million. After tax, this corresponds to earnings per share of SEK 3.54 and a return on equity of 21 per cent.
GOOD RENTAL MARKET
All of our geographic markets have continued to develop well. Net moving-in has been strong during 2018. With a continued positive trend during the fourth quarter, net moving-in for the year amounted to SEK 89 million. From a letting perspective we have, in Stockholm, been very successful in establishing Kista Gate as a new modern and attractive business park where among others Samsung is going to establish its new Swedish head office in 2019.
STREAMLINING AND INTERNATIONAL EXPANSION
The streamlining of the property portfolio continued duringthe year. Both geographically to fewer locations by selling all properties in Falun, Härnösand and Sollefteå and product-wise by divestment of a couple of large logistics properties in Gothenburg. At the same time, we have, through acquisitions and development projects, expanded in the office segment at major growth locations such as Gothenburg and Stockholm. At the end of the year, we acquired the listed real estate company Agora. This acquisition adds centrally located properties in Västerås, Malmö, Örebro and Kalmar to Klövern’s portfolio. Altogether, Klövern’s Swedish portfolio is mainly concentrated in 12 cities.
In parallel with streamlining in Sweden, we have expanded internationally during 2018. With a number of acquisitions and with our own organization in the city, we have relatively quickly succeeded in establishing Klövern as a local player of some importance in Copenhagen’s real estate market. Volume is of crucial importance for achieving efficient and successful property management. It is therefore positive that we have already reached SEK 4 billion in property value in Copenhagen, corresponding to 8 per cent of our total property portfolio. During the year, Klövern has also crossed the Atlantic through acquisitions of two well-located project properties in Manhattan, New York. During the coming 2–3 years, we are going to build two top-modern office properties with a total of around 25,000 sq.m. The total investment is expected to amount to over SEK 2 billion
with an estimated potential development profit of over SEK 1 billion. Klövern has a clear strategy of reducing the geographic risk of a 100 per cent focus on Sweden by investment abroad. We are open to additional acquisitions of office properties, in particular in Copenhagen and New York. I would not regard it as impossible for our proportion of foreign properties to be 25 per cent in five years’ time.
PROJECT DEVELOPMENT CREATES VALUE
Project development is an important part of Klövern’s business model. We are focusing consistently on identifying profitable projects based on our existing property portfolio. In terms of results, in the form of increased property values, the project operations (including development of building rights) contributed SEK 910 million in 2018. The development of a new combined office, hotel and fair facility in Gothenburg has been the largest project during 2018, with moving-in and completion during the first half of 2019. The strategy in Sweden in the coming year is to continue to strengthen Klövern’s market position mainly through our own project development.
For many years, Klövern has been a large and rapidly growing player in the much talked about business center segment or as it is called in its modern form: co-working. Klövern operates this activity under the brand name First Office. During the last few years, competition has increased through new companies and a product offering that is widened and refined. First Office currently has 62 business centers in 12 Swedish cities. Our aim for 2019 is to open an additional 8 units, including in Copenhagen.
Klövern’s financial strength is good. During 2018, we have worked actively on extending both the period of tied-up capital and the period of fixed interest. At the turn of the year, as much as 91 per cent of the credit volume was interest rate hedged or at a fixed rate at the same time as the average financing rate improved to 2.3 per cent. The interest coverage ratio is at a satisfactory level amounting during the year to 2.7. The winding up of negative positions in interest rate derivatives at the end of 2018 is assessed to have some positive effect on the interest coverage ratio going forward. The capital market continues to offer relatively good liquidity, although at a slightly higher price primarily due to the more restrictive attitude of the central banks. During the first quarter of 2019, we have issued SEK 1,400 million in an existing unsecured green bond programme. At the
same time, banks continue to prioritise large listed real estate companies, which is favourable for Klövern. At the turn of the year, the adjusted equity ratio was 37.4 per cent.
STRONG GROWTH IN VALUE
The net asset value per share (EPRA NAV) continues to develop well and amounted at the year-end to SEK 17.67, corresponding to an increase of 26 per cent in 2018.
CONTINUED GOOD DEVELOPMENT
Overall, we have a very stable business with high profitability as well as secure and favourable long-term financing. I look forward to a continued good development during 2019.
Rutger Arnhult, CEO Klövern