Annual Report 2019 – Streamlining and value creation
Looking back at 2019, we can conclude that the year has been very strong in terms of earnings. We are particularly proud of the high net moving-in, the development in a comparable portfolio and the fine return on equity. We have, in accordance with our strategy, continued to streamline and focus our property portfolio and simultaneously expanded internationally. The pace of business has been high with a focus on profitability, sustainability, structural streamlining and financial strengthening with the aim of creating an even stronger Klövern for the future.
STRONG EARNINGS DEVELOPMENT
Klövern is again reporting strong earnings. In 2019, profit from property management improved by 9 per cent to SEK 1,462 million. After positive changes in value of properties amounting to SEK 2,125 million, profit before tax amounted to SEK 3,433 million. After tax, this corresponds to earnings per share of SEK 3.24 and a return on equity of 16 per cent.
RECORD HIGH NET MOVING-IN
Net moving-in for the year was record high and amounted to SEK 130 million, which is far above the target of at least 1 per cent of the rental value. The development in a comparable portfolio, i.e. properties that have been owned throughout 2018 and 2019, is very satisfying with an increase of income of 6 per cent and of operating surplus of 5 per cent.
RELATIVELY FAVOURABLE MARKET CONDITIONS
In spite of that macro statistics already in 2019 indicated a slowdown in the economy and the coronavirus now during the start of 2020 increases the risk of a downturn, market conditions in the real estate industry continue to be relatively favourable. All of our prioritized markets developed well in 2019. This is the case not just in the Swedish market, but also in Copenhagen and New York. Some tenants are transitioning to more flexible ways of working and reduce the areas of the premises they rent, but overall the net effect is positive which is reflected in Klövern’s good income development.
STREAMLINING AND INTERNATIONAL EXPANSION
During the year, we continued to follow our strategy of streamlining the property portfolio, both geographically and in terms of products. We have now essentially finished streamlining the portfolio, which has been in progress for several years. In 2019, divestments included all of Klövern’s portfolio in Karlstad and all investment properties in Örebro. The Swedish property portfolio is now concentrated to 10 cities. 96 per cent of the total property portfolio is located in what we refer to as larger cities with over 100,000 inhabitants, and 74 per cent in metropolitan regions with more than a million inhabitants. The portfolio has to an even greater extent been focused on modern offices through divestment of warehouse and logistics premises including seven properties sold to Blackstone, and acquisitions of and investments in modern office properties.
The international portfolio, to date concentrated in New York and Copenhagen, comprised at year-end to 12 per cent of total property value. It is expected to continue to grow in importance, in pace with the completion of projects and further acquisitions.
We can note that the two ongoing projects in Manhattan, 1245 Broadway and 28&7, are developing according to plan and are in a planning phase ahead of construction start of the third project, 118 10th Avenue. The total investment in the three projects is calculated to amount to just under SEK 3 billion, with an assessed potential development profit of just over SEK 2 billion. In mid-February 2020, we announced yet another acquisition in New York in a very attractive location in Manhattan. For a total of around SEK 1.8 billion, Klövern has succeeded in acquiring all units of a co-op owning a 14-story residential building at the corner of Park Avenue and East 55th Street.
VALUE CREATING PROJECT DEVELOPMENT
Project development is an important part of our business model and the new business area Project development Sweden, which was created in 2019, has a central role in Klövern’s position as a long-term urban developer. In total, project development, including development of building rights, contributed to increases in value of properties of SEK 681 million in 2019.
STRONGER FINANCIAL POSITION
Klövern’s financial position was strengthened additionally in 2019, through good earnings development as well as the strategic net divestment of properties. The adjusted equity ratio improved by around 6 percentage points to 43.5 per cent, which is above the target of 40 per cent, while leverage declined to 50 per cent. At year-end, as much as 93 per cent of the credit volume was hedged or at a fixed rate and the average financing rate was 2.3 per cent. The interest coverage ratio is satisfactory, amounting to 2.6 during the year.
FOCUS ON SUSTAINABILITY
In 2019, we have intensified the efforts to reduce Klövern’s climate impact, which is reflected in the ambitious targets which have been set for renewable energy, internally produced electricity and energy efficiency. We are, at the same time, pleased to note that our long-term sustainability efforts have garnered attention as well as generated results. In one of the Nordic region’s largest brand surveys with the focus on sustainability, Sustainable Brand Index B2B, Klövern has been designated as Sweden’s third most sustainable real estate company, and number two among the listed real estate companies.
GOOD VALUE GROWTH
The net asset value per share (NAV) has continued to develop well and amounted at the year-end to SEK 21.17, corresponding to an increase of 17 per cent during 2019.
Overall, we have a stable business which during 2019 showed high profitability and good underlying growth, at the same time as the financial position was further strengthened. The coronavirus creates uncertainty regarding the economic development in 2020 but with a very diversified customer base in a wide range of industries, in combination with low interest rates, we are well positioned for the rest of the year.
Stockholm, 17 March 2020