STOCKHOLM, Sweden, Aug. 22, 2002 (PRIMEZONE) -- Drott AB:
- Cash flow per share (operations) 6% lower than April-June 2001 - Continued slowdown in commercial rental market - Continued strong residential market - Unchanged full-year forecast
Market
The main driving force behind the strong rental market in Stockholm in 1999-2000 was the growing information technology industry. The dramatically revised growth expectations for this sector are also the main reason for declining rental trends in 2001-2002. Numerous companies in and around the information technology industry are still faced with too much and/or expensive space. Despite continued growth in the Swedish economy - according to the latest economic forecasts, the Swedish GNP will grow by approximately two percent this year and approximately three percent next year - market rents are not expected to rise until this surplus space has been absorbed. In certain market sectors, there is more likely a risk of further declines in market rents and occupancy rates before a rebound.
In the Stockholm region, fluctuations in economic growth are greater between individual years than in the rest of the country. Over an economic cycle, however, economic growth is significantly higher in the Stockholm region.
Residential rents in metropolitan regions have outpaced inflation in the last year and are increasing most in attractive residential areas thanks to increased rental differentiation.
With regard to the market for real estate investments, a substantial increase in foreign interest has been noted.
Drott
During the second quarter, profit before tax from ongoing property management operations ("operations") amounted to SEK 186 M. Cash flow per share amounted to SEK 2.94, which is six percent lower than the corresponding period of 2001. Last year's relatively large property sales - comprising slightly over a tenth of Drott's property portfolio (assets with high direct yields) - have reduced the quarter's cash flow by approximately 20 Oere, or six percent. In addition, lower occupancy rates in the commercial portfolio have had a negative effect.
The forecast for 2002 is unchanged since the previous interim report: Full-year profit from operations is estimated at approximately SEK 700 M before tax and cash flow is expected to exceed SEK 11.00 per share.
This does not include profit from property sales (thus far this year: SEK 175 M) and any nonrecurring items.
In order to achieve its long-term financial objectives, Drott is continuing to adapt its property portfolio through acquisitions, divestments and project development. Thus far this year, residential properties have been acquired for SEK 0.8 billion and two large property projects have been completed, among other things. In addition, Drott is now strengthening its relationship with commercial tenants by offering a number of ancillary services and through closer cooperation on alternative projects, lease structures, etc.
PROFIT AND CASH FLOW
Quarter II 2002 (April-June)
Figures in parentheses refer to second quarter of 2001 Rental revenues for the second quarter amounted to SEK 893 M (935). Changes in the portfolio have affected comparisons, primarily with regard to last year's net sales.
In the like-for-like portfolio - i.e. the portfolio that Drott held in both quarter II 2002 and quarter II 2001 - rental revenues rose by SEK 15 M, or two percent. Renegotiated commercial leases have affected rental revenues positively - renegotiated rents continue to be higher than current rents on expiring leases. On the other hand, a lower occupancy rate has affected rental revenues negatively. During the quarter, Drott allocated SEK 5 M for delinquent rental revenues owing to tenant insolvencies.
The occupancy rate was 91.2 percent on June 30, 2002, against 95.0 percent a year earlier. Of the 3.8-percent decrease in the occupancy rate in the last year, 1.5 percentage points is due to properties vacated for major renovations (see renovation projects on page6). In the last quarter, the occupancy rate has declined from 92.0 percent to 91.2 percent. In the residential portfolio, the occupancy rate rose marginally to 99.4 percent, while in the commercial portfolio it fell from 90.0 to 88.8 percent, primarily due to higher vacancies in Kista.
The operating surplus amounted to SEK 559 M (588) and the surplus ratio was 63 percent (63). In the like-for-like portfolio, the operating surplus declined by SEK 16 M, or three percent, mainly due to higher marketing and rental expenses, tenant modifications and scheduled maintenance.
Gains from property sales amounted to SEK 55 M (31) before tax. Interest expenses amounted to SEK 271 M (253). At the end of the period, the average interest rate on Drott's interest-bearing liabilities was 5.0 percent (5.0).
Profit before tax amounted to SEK 241 M (265). Profit from operations before tax declined by SEK 48 M to SEK 186 M (234), while gains from property sales rose by SEK 24 M to SEK 55 M (31).
Profit after tax amounted to SEK 191 M (190) after a tax charge of SEK 50 M (75). The low reported tax charge and the low current tax are attributable to Drott's tax loss carry-forwards.
By utilizing tax loss carry-forwards, profit from operations was charged with current tax of only SEK 3 M, or two percent.
Stockholm, August 22, 2002 Drott AB (publ) Mats Mared President and CEO
The report has not been reviewed by the company's auditors.
The full report including tables can be downloaded from the following link: http://reports.huginonline.com/871039/107217.pdf
Drott owns commercial and residential properties in regions and metropolitan areas with faster long-term growth than the rest of the country. Three-quarters of rental revenues are from the Stockholm region, and the rest from the Oeresund and Gothenburg regions. Appraised property values as of Dec. 31, 2001: SEK 39.3 billion. More than 50,000 shareholders. Market capitalization SEK 9 billion.