The Board of Directors in Kefren Properties IX AB has today held a Board meeting at which the Group's annual report for the financial year 2010 was discussed. The report is enclosed.
Summary
The consolidated statement of comprehensive income shows a profit before tax of TSEK 143,223 (2009: negative TSEK 432,830) and the consolidated statement of financial position shows equity at 31 December 2010 of negative TSEK 262,791 (2009: negative TSEK 430,159). The positive development in 2010 compared to 2009 is mainly caused by gains on bond debt and no further writedowns on goodwill.
Revenue for the period amounts to TSEK 602,673 (2009: TSEK 656,195). The difference between 2010 and 2009 is primarily caused by higher vacancy in the portfolio.
Profit before value adjustments, write-down of goodwill and tax amounts to TSEK 203,364 (2009: TSEK 328,020).
The profit for the period is mainly due to positive value adjustments on bond debt and derivates of net TSEK 146,152 (2009: negative TSEK 231,572), which results from the negative development of the market rate on bond debt.
The development in 2010 is attributable to:
- Vacancy on rental income increased during 2010 and ended at 13.5% for the last quarter (13% for the same period 2009).
- Very high adminstration costs due to change of asset manager and cost for various investigations initiated by the senior lender.
- Leases amounting to 12 % of the portfolio's rental value were terminated during 2010 (14 % in 2009) while new lettings amounted to 11.5% of the portfolio's rental value.
- The re-letting situation has been the main focus throughout 2010 and most of the major contracts have been renegotiated into new and better conditions for the Company, with renewal options of five years. New leases have been signed even for the larger units and we see that this trend has continued during the second half of 2010. At the end of the year, the Company has a well-filled pipeline of requests of large and medium-sized objects (500 - 2000 sqm).
- Interest to bond holders has not been paid due to the loan-to-value breach.
The Board of Directors find the results acceptable since the decreased revenue compared to 2009 was already anticipated in the Annual Report for 2009.
The value of the investment properties as at 31 December 2010 amounts to MSEK 4,982, representing an increase of 3% compared to 31 December 2009. The value represents the value as of 31 December 2009 plus investments made during 2010. The valuation as at 31 December 2009 was influenced by the financial crisis and the uncertainty that arose from the market for investment properties with very few trasactions. At the end of 2010 the Swedish market for investment properties have picked up and are among the strongest in Europe at the moment which supports the value adding investments made during 2010.
The Board of Directors expects the vacancy rate to decrease in 2011. The Company will still encounter high project and maintenance costs which along with the lower rental income will result in a lower NOI compared to 2010. The low Swedish interest rates are expected to increase during 2011 affecting cash flow negatively. The three month´s STIBOR is currently well below the cap rate of 3.75%.
Since Q4 2009 the senior financing of the five year loan which was issued when purchasing the properties in the Kefren IX portfolio has been in Loan-to-Value breach and the Company had since then on an on-going basis received standstill letters. However, when the latest standstill letter matured on 25 February the Company did not receive a prolongation. The loan is not terminated but it will anyhow mature in November 2011. The Board of Directors has negotiated with senior lenders to extend the loan, however the lenders have as of today not agreed to this and the board of Directors does not expect that it will be possible to extend the financing in its current form.
This significant uncertainty about the financing of the Group’s properties has led the Board of Directors to change its view on the holding and valuation of properties for Swedish statutory reporting purposes, from a long-term to a short-term view. This has led to properties being tested for impairment in all group companies, resulting in properties in all companies having been written down to market value as of 31 December 2010. As of that date valuation of properties is the same for Swedish statutory reporting purposes applied by group companies, and for IFRS reporting purposes applied by the Group.
The write-downs have for Swedish statutory reporting purposes meant that net equity has been lost for several group companies. Thus the board of directors has initiated the preparation of Special balance sheets (Sw: kontrollbalansräkning) for all group companies. The Board of Directors should according to the Swedish Companies Act, chapter 25, restore a company´s share capital within 8 months after a shareholders’ meeting deciding that the company´s operations should continue. If share capital is not restored within this period, the company should be liquidated.
The Group´s financial statements have been prepared under the assumption that the financing of the Group’s properties will be arranged since negotiations with senior lenders are on-going, or that the negotiations will lead to a controlled sale of properties or group companies, or some other arrangement where the companies within the Group will be able to continue its operations. If the financing and the negotiations are not successful, there are uncertainty factors regarding the Group’s ability to continue its operations. The Board of Directors however regards the possibilities that the alternatives will be successful as likely, and the Group´s financial statements for the year ended 31 December 2010 have therefore been prepared based on the going concern principle.
The Board of Directors has decided not to give an estimate of the result for the coming financial year, since this will be highly dependent upon market values of the investment properties, bond debt and the hereto connected uncertainty.
The Board of Directors
Please address questions relating to Notice to Chairman Ole Vagner on telephone +45 40 25 41 13 or via e-mail ole@vagner.dk.
Further information about Kefren Properties IX AB is available on the company's website, www.kefren.se
Notice to OMX Nordic Exchange Copenhagen no. 85
Kefren Properties IX AB
c/o ISS Facility Services, Westmansgatan 23
