Strong leasing results and value of property portfolio still rising

INTERIM REPORT JANUARY–SEPTEMBER 2016
THE REPORT IN BRIEF

Third quarter (Jul – Sep)

  ·  New leasing increased to SEK 45 (29) million and net leasing increased to
SEK 9 (–4) million.
  ·  Rental revenue increased 7 per cent to SEK 603 (562) million and operating
net increased 5 per cent to SEK 428 (409) million.
  ·  Profit from property management increased by 2 per cent to SEK 269 (264)
million, not including profit from participation in associates during 2015.
  ·  The positive change in value of the property portfolio was SEK 273 (202)
million, which is attributable to a higher operating net and lower yield
requirements.
  ·  Profit for the period increased to SEK 400 (322) million, which corresponds
to SEK 2.20 (1.77) per share.
  ·  Equity continued to increase and amounted to SEK 55.71 per share, as
compared to SEK 51.28 at the beginning of the year. EPRA NAV amounted to SEK
65.50 per share, as compared to 56.76 at the beginning of the year.
  ·  LTV fell even further, to 57.9 per cent. At the start of the year, LTV was
61.9 per cent.

Comments on events during and after the third quarter

  ·  Eight non-strategic properties, worth SEK 186 million, were divested. This
increases the concentration of holdings even further and once the properties
have been vacated, Kungsleden will be present in 59 municipalities.
  ·  There was early redemption of a bond loan and Kungsleden has, for the first
time, issued commercial paper for SEK 1,080 million with average interest rate
of 0.37 per cent.
  ·  Redevelopment of Tegnér shopping mall in Växjö entered the implementation
stage, and it is expected to open early in 2018. The redevelopment of Tegnér
will attract new and attractive tenants within retail, restaurant and service.
The investment amounts to SEK 150 million. Rental revenue in the property is
expected to increase by at least SEK 10 million after the investment has been
made.

Comments from Biljana Pehrsson, CEO

I am very pleased to report that Kungsleden’s performance remains strong. New
leasing increased with 55 percent compared to the same period last year and was
SEK 45 (29) million. We divested eight non-strategic properties and we exited
yet another municipality during the quarter. We are now present in 59
municipalities — as compared to 140 when we changed our strategy just over three
years ago — and 78 percent of the prop­erty value is now concentrated to
Stockholm, Gothenburg, Malmö and Västerås.

Rental revenue and operating net continued to increase in the third quarter.
This is attributable to the fact that we now have a higher percentage of office
properties in Stockholm compared to last year. The value of property holdings
rose by SEK 273 million in the third quarter, which is equally attributable to
improved operating net as to lower yield requirements. Most of the increase in
value has occured in our office properties in clusters in Stockholm and
Västerås. The market yield used in the portfolio range from 4.40 per cent
(lowest) to 12.0 per cent (highest). The average yield valuation is 6.2 per
cent.

Profit from property management for the interim period was SEK 755 million,
which is an improvement of 21 per cent compared to the corresponding period in
2015 if profit from participa­tion in associates in 2015 is excluded.

GOOD LEASING RESULTS AND STRENGTHENING OF PROPERTY MANAGEMENT ORGANISATION
The rental market continues to be strong in our priority growth markets
Stockholm, Gothenburg, Malmö and Västerås, with a healthy rate of increase in
new leasing. During the quarter, we signed more than 50 lease agreements with
both new customers and prior customers who have returned to us. There was a high
level of new leasing in general, totalling SEK 45 million, where SEK 25 million
is attributable to properties in our clusters and SEK 20 million is attributable
to our other properties. For the interim period, new leasing was SEK 149
million, which is an improvement of 60 per cent compared to last year. Net
leasing in the third quarter amounted to SEK 9 (–4) million. For the interim
period, net leasing was SEK 49 (–2) million.

Lease agreements valued at SEK 9 million were renegotiated during the quarter,
resulting in an increase in rent level by 18 per cent on average. For the
interim period, lease agreements with rental value of SEK 53 million were
renegotiated, resulting in an average rental increase of 8.2 per cent.

In line with our continued efforts to focus on both customers and operations, we
opened two new offices during the quarter – a cluster office in Danderyd and a
local office in Norrköping. We have a new asset and property management market
area, Norrköping/Linköping with a property portfolio of 164,000 sq. m. After
year-end, it will become part of the Mälardalen management region. At present,
the properties are spread across several regions.

NEW RESIDENTIAL STRATEGY
We have a new strategy on how to derive maximum benefits from our existing and
future residential building rights totalling 450,000 sq. m. In summary, we will
actively develop the value of our building rights by working with the local
authorities on zoning issues, with the aim of creating attractive residential
projects and then selling the building rights as the zoning work progresses.

TEGNÉR ENTERS IMPLEMENTATION STAGE
During the quarter, renovation of the centrally located Tegnér shopping mall in
Växjö entered the implementation stage. An agreement with a key tenant for 3,000
sq. m. of space was signed during the quarter, which means that the outlook is
very positive as regards the future success of this property. The investment is
estimated as SEK 150 million and once the redevelopment has been completed,
rental revenue at the property is expected to increase by at least SEK 10
million. Including Tegnér shopping mall, we now have four projects in the
implementation stage. The total investment volume is SEK 826 million, with a
good return.

HIGH LEVEL OF INTEREST AND COMMITMENT
During recent months, we’ve been met by a high level of interest from the
property market, capital market and other important stakeholders. This is
certainly encouraging and important, but even more exciting is the level of
enthusiasm and commitment within the company. During the quarter, we conducted
an employee survey and the results were quite satisfying. The response rate was
100 per cent and the results for both job satisfaction and the Employee
Satisfaction Index exceeded our very high expectations and goals.

At Business Arena Stockholm in September, a team from Kungsleden hosted visitors
at our popular lounge. We presented some of our vacant premises using the latest
Virtual Reality technology. It’s a new way of showing and marketing our premises
and just one of the many examples of what we are doing to be on the cutting edge
and provide the highest possible level of service to our existing and potential
customers.

MANY WANT TO BE WHERE WE ARE
Our strategy is based on the increasing level urbanization and healthy growth in
metropolitan areas, which are mega trends that are generating a high demand for
office space. This provides us with an excellent foundation for our operations.
However, to achieve our goal of becoming Sweden’s most profitable property
company, we are working very diligently to maximise the full potential of our
properties and clusters, streamline our organisation and further increase the
concentration of our holdings.

Stockholm, 19 October 2016
Biljana Pehrsson, CEO

For more information, please contact:
Biljana Pehrsson, CEO, Kungsleden | +46 8 503 052 04 |
biljana.pehrsson@kungsleden.se

Anders Kvist, Deputy CEO and CFO, Kungsleden | +46 8 503 052 11 |
anders.kvist@kungsleden.se

This press release is available in English at www.kungsleden.se/press

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The information was provided for public release on 19/10, 2016 07.00 a.m

Kungsleden owns, manages, and develops offices and other commercial properties
in Stockholm and Sweden’s other growth regions. We create value by offering
attractive and functional premises in the right locations at the right price. A
significant part of our properties are gathered in clusters that enrich people´s
working day. Kungsleden’s goal is to deliver attractive total return on our
properties and to our shareholders.