Improved profit and large transaction in Stockholm

THE REPORT IN SUMMARY


The third quarter (July – September)

  · Profits from property management improved by 26 per cent and were SEK 274
(217) million, which corresponds to SEK 1.51 (1.81) per share.

  · The rental revenue increased by 3.2 per cent to SEK 570 (551) million and
operating net fell to SEK 409 (404) million.

  · Kungsleden’s expansion continued by way of strategic acquisitions that
totaled SEK 750 million during the third quarter. The property portfolio’s value
was SEK 24,346 million at the end of the quarter.

  · Unrealised changes in value of SEK 202 million which corresponds to 0.8 per
cent of the property value.

The interim period (January – September)

  · Profits from property management improved by 13 per cent and were SEK 651
(575) million, which corresponds to SEK 3.57 (4.81) per share.

  · The rental revenue decreased by 0.8 per cent to SEK 1,655 (1,669) million
and operating net fell to SEK 1,104 (1,152) million.

  · During the first nine months Kungsleden acquired properties totaling SEK 2.8
billion and divested non-strategic properties for SEK 0.6 billion.

  · Unrealised changes in value of SEK 856 million which corresponds to 3.5 per
cent of the property value.

Comments on events during and after the quarter

  · Operating net for the third quarter was SEK 409 million, which is an
improvement on both last quarter, SEK 362 million and the same quarter last
year, SEK 404 million. On a 12-month rolling basis, operating net improved to
SEK 1,443 (1,437) million.

  · Net financial items continued to improve, thanks to a lower average loan
volume, refinancing with lower borrowing costs and from exercising old interest
rate swaps at a high coupon rate. Kungsleden’s average interest rate went from
3.2 to 3.0 per cent.

  · Profits from property management increased 26 per cent to SEK 274 (217)
million.

  · During the third quarter, the value of properties increased by SEK 315
million, of which SEK 202 million was unrealised change in value resulting from
lower yield requirements and SEK 113 million was value-enhancing improvements to
existing property. The average yield requirement for Kungsleden’s portfolio fell
from 6.9 to 6.7 per cent because of newly acquired properties lower initial
yield and reduced yield.

  · We made our largest acquisition thus far in Stockholm for SEK 3 billion
after the end of the quarter. This creates a new inner city cluster that is
88,500 sq. m. of office and hotel space in Gärdet-Frihamnen, which is a section
of Stockholm Royal Seaport. Kungsleden will take possession of the property on 1
December, at which point the value of our total property holdings will be SEK 27
billion.

Comments from CEO Biljana Pehrsson

Progress in operations

During the first nine months of the year, we optimised and expanded our property
portfolio. We’ve fortified out existing cluster areas and have moved forward on
the prioritised property development projects. We have also implemented a new,
flatter organisation for the entire company and reinforced our management team
with the addition of new market area managers, property managers and rental
providers. New leasing is going well and several major new leases have been
signed, such as the latest, with Regus, at our Kista One property. Operating net
and profits from property management have also improved.

Additionally, we moved our main office to our own building at Warfvinges väg in
Västra Kungsholmen, Stockholm. The move to these new, modern facilities has
improved our work environment. In fact, the space has been nominated for an
award as Sweden’s most attractive office building (Sveriges Snyggaste Kontor).
Even more important, though, is that the design of the new premises reflects our
identity as a long-term property owner and landlord. The big event of the year,
however, occurred after the end of the interim period.

A stronger position in Stockholm with addition of new, 89,000 sq. m. cluster

A key feature of Kungsleden’s strategy is to increase property holdings in
Swedish cities and regions where there is growth potential and local demand.
We’ve focused particularly on strengthening our position in Stockholm. The
reason is obvious: the level of economic growth in Stockholm is one of the
highest in Europe and Stockholm is the leading capital city in Europe when it
comes to innovation. The positive effects on local demand are clear: the vacancy
rate for offices in Stockholm is 9 per cent and for the city centre, it is down
to 5 per cent.

For this reason, we’ve had the expressed goal of supplementing our clusters in
Kista and Danderyd with a cluster inside the City boundaries. And now, after a
lot of hard work in the market, we’ve succeeded in making one of our largest
acquisitions ever – a property portfolio consisting of 96,000 sq. m. leasable
space worth SEK 3 billion. The acquisition provides us with a new inner city
cluster that has 88,500 sq. m. of office and hotel space in expansive Gärdet
-Frihamnen, which is a section of Stockholm Royal Seaport.

The Gärdet-Frihamnen holding is a perfect example of what Kungsleden strives to
achieve with its clusters: a collection of properties with good accessibility in
an area where the underlying demand is strong. This is one of the main urban
development areas of Stockholm, where 12,000 new residences and 35,000 new
offices are being produced within an entirely new infrastructure, i.e. Norra
Länken and Spårväg City (major road tunnel project and tram line).

At present, rents for the acquired properties are below the market rents in the
area. For this reason, we believe that we should focus our efforts on improving
and developing the properties in order to take advantage of their full leasing
potential and create value over time. Following the acquisition, Stockholm’s
share of Kungsleden’s total property portfolio increased to just over 40 per
cent. Three years ago, it was barely 9 per cent.

Focus on active management and development of the portfolio to SEK 27 billion

Having made the major acquisition of Gärdet-Frihamnen, Kungsleden has completed
the first phase of its strategic plan. Our stated goal since the rights issue a
year ago has been to build up a property portfolio worth SEK 25 billion by 2017.
Now, a year ahead of schedule, we have achieved a property value of SEK 27
billion with 76 per cent of the holdings located in our four major city areas.
The company’s earnings capacity has accordingly increased substantially. We have
the size that’s needed, and the right kind of properties in areas that are
currently in demand, and will remain so in the future.

Now it’s time to roll up our sleeves and get down to work. Our focus will now be
on streamlining the portfolio and organisation, along with actively managing and
developing our properties. It will also be on execution, which shows up in the
bottom line. This will require that we focus on our customers and enrich the
working day of our current and future tenants by providing attractive premises
and always delivering that something extra. It’s the only way to create lasting
value in the property business.

We know what we want and we know where we’re going. Our exciting journey
continues.
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 20 October 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.