Strong earnings combined with international expansion
Once again Klövern is reporting strong earnings. All geographic markets are strong. The extensive streamlining of the Swedish portfolio has now been completed, opening up potential for new transactions. At the same time, an international expansion has been initiated through acquisitions in Copenhagen and New York.
Overall, both the first nine months of the year and the third quarter have been good. The pace of business has been high. We have completed our streamlining in Sweden and become established on two interesting new markets abroad. Furthermore, at the beginning of October we made a well-founded bid for the real-estate company Agora, which will reinforce Klövern’s position at a number of locations with properties with exciting development potential for our locally based administration and project organizations.
STRONG GROWTH IN EARNINGS
Income increased by 9 per cent to SEK 813 million in the third quarter of the year. At the same time, profit from property management rose by 9 per cent to SEK 367 million. The operating margin was 71 per cent, compared with 66 per cent for the past 12 months. The economic occupancy rate rose to 90 per cent, an improvement from 89 per cent at the beginning of the year. Net moving-in amounted to SEK 18 million during the quarter and SEK 67 million during the nine-month period, which is really strong. The quality and stability of our earnings are continuing to improve as an increased proportion of our income derives from modern premises in strong, stable rental markets. This is evident from, amongst other things, rising average rental income. The positive changes in value of properties amounted to SEK 271 million during the third quarter, mainly driven by investments made in connection with new letting, rising market rents, lower yield requirements and development of the building rights portfolio. Profit before tax was again strong and totalled SEK 644 million for the quarter.
GOOD RENTAL MARKET
All of our geographic markets have continued to develop well. We experience the rental market in Stockholm and Uppsala as being particularly strong. It is gratifying that Kista continues to have a positive development. Letting has continued at a high pace. The latest in a series of major lettings was a contract with Samsung for establishment of their new Swedish head office at the property Kista Gate in Kista Science City. In Kista Gate, during 2017 and 2018, rental contracts have also been signed with among others Baxter Medical, Climeon, Celgene and Novartis.
STREAMLINING AND INTERNATIONAL EXPANSION
During the year, we have continued to streamline and focus the property portfolio in Sweden. During 2016–2018, Klövern has divested over 80 properties and left some ten smaller cities completely. The most recent of a series of divestments was the property portfolios in Härnösand, Sollefteå and Falun which were handed over on 31 August. Klövern now operates at 14 locations. As much as 95 per cent of the total portfolio is located in larger cities, i.e. with over 100,000 inhabitants. Metropolitan regions, i.e. with over a million inhabitants – in Klövern’s case Stockholm/Uppsala, Gothenburg, Copenhagen/Malmö and New York – make up almost 70 per cent of the property portfolio. In 2018, we have decisively become established in Copenhagen. During the third quarter, Klövern took possession of an additional four properties in the Danish capital for a total of just over SEK 1 billion. At the end of the quarter, the value of our property portfolio in Copenhagen totalled SEK 3.7 billion making it Klövern’s third largest city in terms of value. During the year, Klövern has also taken a couple of steps into the US market by acquisition of two project properties in Manhattan in New York. We aim to develop a total of around 20,000 sq.m. of high-quality offices.
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. The rolling annual project volume is expected to be in the range of SEK 1.5–1.8 billion. In terms of results, in the form of increased property values, the 375 projects in the project organization (including development of building rights) contributed SEK 78 million in the third quarter and SEK 374 million in the past 12 months. On the housing side, Klövern Living has continued to proceed carefully by focusing on driving forward local plans and developing the future project portfolio while planned production starts have been postponed. Despite this, Klövern also has an indirect ongoing project development in the housing segment through its ownership in Tobin Properties. FINANCIAL STRENGTH Klövern’s financial strength continues to be good. During the year, we have worked actively on extending both the period of tied-up capital and the period of fixed interest which amounted on 30 September to 4.2 years and 2.8 years respectively. As much as 86 per cent of the credit volume is at fixed interest and the average financing rate is 2.5 per cent. The interest coverage ratio is at a satisfactory level amounting during the third quarter to 2.8. On 30 September, the adjusted equity ratio amounted to 37.0 per cent, entailing some strengthening during the third quarter. GOOD GROWTH IN VALUE The net asset value per share (EPRA NAV) continues to develop well and amounted on 30 September to SEK 15.31, corresponding to an increase of 9 per cent since the turn of the year and 17 per cent during the past 12 months.
CONTINUED STABLE DEVELOPMENT
Overall, we have a very stable business with high profitability as well as secure and favourable long-term financing. I look forward confidently to a continued stable development during the rest of the year.
Rutger Arnhult, CEO Klövern