SEK 243 million value increase in the property portfolio

Interim report January - March 2015
THE REPORT IN SUMMARY

The first quarter (January – March)

  · The rental revenue fell by 7 per cent to SEK 525 (567) million and operating
net fell to SEK 333 (366) million during the first quarter.

  · Profits from property management improved by 4 per cent and were SEK 175
(168) million, which corresponds to SEK 0.96 (1.43) per share.

  · Unrealised changes in value of SEK 243 million primarily due to lower yield
require­ments and improved operating net in strong growth markets.

Comments on events during and after the quarter

  · During and immediately after the quarter we expanded three of our clusters –
Kista Science City, Västerås City and Högsbo – through property acquisitions for
SEK 1.3 billion. We also continued or optimisation efforts and sold non
-strategic properties for SEK 552 million. Accordingly, we will be exiting 19
municipalities during the month of May.

  · We reached an agreement with our largest tenant, ABB, to replace the large
Master lease agreement with 17 new, competitively priced leases. The new
agreements pro­vide both Kungsleden and ABB with more security and flexibility.

  · Kungsleden’s property portfolio reported a positive change in value of SEK
243 million during the quarter. The value increase primarily results from lower
yield re­quirements. Since year-end, the average yield requirement fell from 7.4
to 7.3 per cent. If we include the newly accessed Kista properties, the average
yield require­ment as of 31 March is 7.2 per cent.

  · Operating net fell by 9 per cent to SEK 333 (366) million, resulting from a
smaller property portfolio compared to the same period last year. Profits from
property man­agement increased by 4 per cent to SEK 175 (168) million. This was
due to an im­provement in net financial items resulting from fewer loans and
lower interest rates.

Comments from CEO Biljana Pehrsson

During the first quarter, we continued implementing Kungsleden’s new strategy
with great vigour. Optimisation efforts progressed and the management
organisation was strengthened with the addition of new employees and working
methods. We grew three of our clusters during and directly after the quarter
through property purchases for SEK 1.3 billion. At Kista Science City we
expanded our customer offering by acquiring Hor­nafjord 1, a modern office
building in a class between Kista One (a top-location prop­erty) and
Kungsleden’s traditional Kista properties, which target a more cost conscious
customer group. Kungsleden’s property cluster, Västerås City, grew with the
acquisition of Skrapan, a fully leased prestigious property at a prime location.
In Högsbo, near Gothenburg, five properties were acquired for SEK 293 million.

Low vacancy rate with concentrated holdings

One benefit of Kungsleden’s strategy is the ability to achieve very low vacancy
rates at our clusters thanks to a high market presence. This is particularly
evident at Danderyd and Västerås, where we’ve been implementing our cluster
strategy for the longest period of time. For this reason, we believe that there
is great potential for some of our new ac­quisitions in Högsbo, where the
current vacancy rate is more than 30 per cent. They also fit very nicely into
our Högsbo cluster, where the average vacancy rate is 6 per cent.

Simultaneous to increasing our presence in our largest markets, Kungsleden sold
non-strategic properties during the quarter for SEK 552 million. With these
sales, we are ap­proaching our goal for 2017, i.e. to own and manage properties
in no more than 70 mu­nicipalities. We are already down to 71 municipalities.

Now, we are continuing our efforts to expand the property portfolio via
acquisitions and by investing in renovation and extensions at existing
properties. With an equity ratio of just over 40 per cent and good access to
financing, we have excellent conditions for con­tinued growth. To further boost
our ability to grow, Kungsleden’s Board will approach the AGM and request a
mandate to issue preference shares. A rights issue of preference shares could be
necessary if Kungsleden needs financing for a major acquisition and if
preference shares are deemed the most attractive financing alternative.

Tighter customer relations and higher flexibility

We also reached an important milestone during the quarter. After two years of
negotia­tions, we reached an agreement with our largest customer and tenant,
ABB, to replace the large Master lease agreement with 17 new, competitively
priced leases comprising all of Kungsleden’s properties leased to ABB in
Västerås. The restructuring increases flexi­bility and the average contract
duration has been lengthened from 3 to 7.6 years. The initial rental revenue for
the new leases will be somewhat lower after this restructuring. However, this is
more than equally compensated by the clarified, more flexible contract
structure. Both Kungsleden and external appraisers agree that on the whole, this
has in­creased the property value. The new lease agreements are also evidence of
a deeper, stronger customer relationship with ABB and we look forward to long
-term collaboration with this important tenant.

Successful optimisation

Operating net for the first quarter was SEK 333 million, which corresponds to a
decrease of 9 per cent compared to the same period last year. This is explained
by a smaller prop­erty portfolio subsequent to sales during 2014 for SEK 2.6
billion. Profits from property management simultaneously increased by 4 per cent
since last year to SEK 175 million. This was due to a significant improvement in
net financial items resulting from fewer loans and lower interest rates.

In total, Kungsleden reports an unrealised change in value for the property
portfolio of SEK 243 million for the first quarter. The positive value changes
result from, primarily, lower yield requirements and secondarily, improved
operating net at Kungleden’s prop­erties located in the most attractive rental
markets. The yield requirement used for valua­tion is a minimum of 5.25 per cent
and a maximum of 13 per cent. Since year-end, the average yield requirement fell
from 7.4 to 7.3 per cent. If we include the newly accessed Kista properties, the
average yield requirement as of 31 March is 7.2 per cent.

The new Kungsleden is a long-term owner with active management and property
devel­opment. We now have a larger, and above all more concentrated and higher
quality prop­erty portfolio. More than 70 per cent of our properties are located
in the four most im­portant strategic growth markets – Stockholm, Gothenburg,
Malmö and Västerås – and of the total portfolio, approximately half belong to
clusters. Property clusters provide customers with greater freedom of choice and
more efficient management. All of this helps create more value. Our focus is on
creating satisfied customers, employees and shareholders.
For more information, please contact:

Biljana Pehrsson, Chief Executive of Kungsleden | 46 (0)8 503 052 04 |
biljana.pehrsson@kungsleden.se
Anders Kvist, Deputy CEO and CFO of Kungsleden | 46 (0)8 503 052 11 |
anders.kvist@kungsleden.se

www.kungsleden.se
Detta pressmeddelande finns tillgängligt på svenska på
www.kungsleden.se/pressmeddelanden

Kungsleden AB (publ) discloses the information in this press release according
to the Swedish Securities Markets Act and/or the Swedish Financial Trading Act.
The information was provided for public release on 23 April 2015 at 07:00 a.m.

Kungsleden’s business concept is to own, manage and improve commercial
properties in growth regions in Sweden and to deliver attractive total returns.
Kungsleden’s strategies to create value are based on meeting the premises
requirements of customers by managing, improving and developing properties and
planning consents and by optimising the company’s property portfolio. Kungsleden
has been quoted on NASDAQ Stockholm since 1999.