Kungsleden increases profit from property management with 32 per cent and raises dividend

Year-End Report 2015
THE REPORT IN BRIEF

Fourth quarter (October – December)

  · Rental revenue increased by 26 percent to SEK 659 (524) million and net
operating income rose to SEK 441 (338) million.

  · Profits from property management improved by 105 percent and were SEK 316
(154) million, which corresponds to SEK 1.73 (0.90) per share.

  · Unrealised changes in value were SEK 114 (595) million.

Full year (January – December)

  · Rental revenue increased by 6 percent to SEK 2,314 (2,193) million and net
operating income rose to SEK 1,545 (1,491) million.

  · Profits from property management improved by 32 percent and were SEK 966
(730) million, which corresponds to SEK 5.31 (5.02) per share.

  · Unrealised changes in value were SEK 970 (930) million.

Comments on events during and after the quarter

  · Rental revenue for the quarter increased by 26 per cent to SEK 659 million,
primarily due to properties acquired and taken over, along with revenue from
early redemption of leases. Operating net was SEK 441 million, which is a 30 per
cent improvement compared to the same quarter last year (SEK 338 million).
Operating net for the full year improved to SEK 1,545 (1,491) million.

  · Financial expenses continued to fall during the quarter. On a full-year
basis net financial items improved to SEK –473 (–660) million. By restructuring
the interest rate swap portfolio, refinancing and new loans that were acquired,
it was possible to lower our average interest rate from 5 to 2.7 per cent. At
the same time, average maturity on loans was lengthened to 3.6 years, compared
to 2.6 years at the beginning of the year.

  · Profits from property management for the quarter increased by 105 percent to
SEK 316 (154) million and for the full year profits from property management
totaled SEK 966 (730) million.
  · The new cluster, Gärdet/Frihamnen, which is 89,000 sq. m. of office and
hotel space in the growing area of Norra Djurgårdsstaden, was acquired and taken
over during the quarter. This increased the value of property holdings in
Stockholm to SEK 11.6 billion, which corresponds to 42 per cent of Kungsleden’s
entire property portfolio.

  · In December, the Administrative Court of Appeal handed down an adverse
ruling on Kungsleden’s last remaining tax case, pertaining to a transaction that
occurred in 2007. Kungsleden made a provision and payment of SEK 1.3 billion
related to that ruling.

  · The Board proposes a dividend of SEK 2.00 (1.50) per share.

Comments from Biljana Pehrsson, CEO

The restructuring of Kungsleden’s property portfolio accelerated in 2015. At the
end of the last quarter, we completed the acquisition and take over of a new,
important cluster, Gärdet/Frihamnen, which is 89,000 sq. m of office and hotel
space in downtown Stockholm. For full-year 2015, we acquired strategic
properties for SEK 5.8 million and divested non-strategic properties for just
over SEK 700 million. Having done that, we managed to achieve our 2017 goals on
the size, earnings and structure of the property portfolio, ahead of schedule.

The value of the portfolio is now SEK 27.5 billion, with an earnings capacity,
expressed as operating net, of SEK 1.7 billion. The structure has also
significantly improved: 59 per cent of the property value exists in the
metropolitan regions of Stockholm, Gothenburg and Malmö. We have reduced our
geographic distribution from 91 to 69 municipalities and 64 per cent of the
portfolio is comprised of offices, with nearly 60 per cent located in one of our
eleven clusters. During the quarter, we implemented our strategic goal of
exiting module operations when we sold the remaining portion of Nordic Modular
Group to Inter IKEA Investments.

The earnings capacity, expressed as profits from property management, has also
improved due to our endeavours thanks to, in part reducing the burden of old,
costly interest rate swaps and restructuring the interest rate swap portfolio
and in part by renegotiating the loan portfolio. We have managed to reduce our
average borrowing costs (average interest rate) from 5 to 2.7 per cent during
the year, while simultaneously lengthening the average maturity on loans to 3.6
years, compared to 2.6 years at the beginning of the year.

Higher quality with new organisation

At the start of the fourth quarter, we launched a new organisation, with the aim
of achieving a higher level of quality and efficiency in our pursuits to be a
long-term and active manager and landlord. We fortified the management
organisation by expanding the scope of responsibility for regional managers and
by hiring marketing area and leasing managers. The aim is to ramp up our
processing and communicating efforts with both old and new tenants so that we
sign more leases and establish more long-term relations with customers.

New leasing has gone very well throughout 2015, resulting in a rental value of
SEK 133 million, which is 22 per cent higher than last year. In Kista alone, we
managed to lease 9,000 sq. m. of space over a period of just eight months.
Nevertheless, cancellation of leases has also been high. Regardless, we had net
leasing for the fourth quarter of SEK 10 million. For the full year, net leasing
was SEK 7.5 million and with completed renegotiations, we were able to achieve a
rent increase of 12 per cent, on average.

In December, the Administrative Court of Appeal handed down an adverse ruling on
Kungsleden’s last remaining tax case. This required us to make a provision and
payment in the fourth quarter of just over SEK 1.3 billion in tax related to
that case. Since 2013,

Kungsleden’s profit, equity and liquidity have been negatively impacted by
almost SEK 3 billion, in total, for additional tax on transactions that were
made during the period 2004–2007. Now, at last, all of these tax cases have been
concluded.

We now aim towards 2020

Now we can start the next chapter of Kungsleden’s journey, with a larger,
structurally-improved property portfolio, a strong financial position and an
optimised organisation. This has motivated us to formulate a new, long-term
business plan containing clear, operational goals for the coming years –
Kungsleden 2020.

Our vision is to create attractive premises that enrich people’s working days.
The rental market is strong and above all, there is a healthy demand for office
facilities. The locations of our clusters are attractive, with good
accessibility. We have a comprehensive offering at our clusters and are
proactive in creating attractive premises. Our aim is to offer variety in terms
of size, standard and price, which provides our tenants with a high level of
flexibility. Given the high rate of change experienced by today’s companies,
flexibility is very important. Our clusters help establish us locally more
firmly and make our property management efforts more rational. We want to
implement a “shopping centre approach” at our clusters. This involves creating
an attractive indoor environment at each location, but just as important are
profiling, mix of companies, service offering in the area and an attractive
outdoor environment. The goal is to achieve a higher occupancy rate, along with
rental and value growth via satisfied customers.

By 2020, we aim to be one of Sweden’s largest and most profitable listed
property companies. The strategy focuses on continued portfolio optimisation and
expansion with quality in Sweden’s most important growth markets - Stockholm,
Gothenburg, Öresund and Västerås. At the same time, will concentrate on
establishing larger, more efficient units by setting up more and larger
clusters.

I’m looking forward to further excellent collaboration with both colleagues and
customers. Now, we aim towards 2020.
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 17 February 2016 at 7:00 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.