Streamlining, value creation and financial strength
Summing up 2019, we can note that it has been a very intensive year with very strong 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 continued to streamline the property portfolio to fewer locations in Sweden, at the same time as we have made further investments in our main locations, both in the domestic market and abroad. The pace of business has been high with the 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. During 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 totalled 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 AND GOOD DEVELOPMENT IN A COMPARABLE PORTFOLIO
All our prioritized markets have developed well during 2019, despite macrostatistics having indicated a slowdown in the economy. The year’s net moving-in was record high amounting 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 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.
STRONGER FINANCIAL POSITION
Klövern’s financial position has been further strengthened during the year, both by good development of earnings and strategic net divestment of properties. The adjusted equity ratio improved by 6.1 percentage points to 43.5 per cent, which is above the target of 40 per cent, while leverage1 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 rate is satisfactory, amounting to 2.6 during the year. In general, continued favourable loan terms are offered both in the bank market and the capital market. During 2019, Klövern issued a total of SEK 2,300 million in the bond market, of which SEK 1,600 million was within the framework of a green bond programme.
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. Amongst other things, we have divested the whole of our portfolio in Karlstad and all investment properties in Örebro. The Swedish property portfolio is now concentrated in 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. At the year-end, the international portfolio made up 12 per cent of the total property value and it is expected to continue to grow, in amongst other ways by further acquisitions but also apace with the completion of the projects in New York and Copenhagen. We can note that the two ongoing projects in New York, 1245 Broadway and 28&7, are developing completely according to plan and expect to start construction of the third project, 118 10th Avenue, during the second quarter of 2020. The total investment for the projects in Manhattan is expected to amount to just under SEK 3 billion with an assessed potential development profit of just over SEK 2 billion.
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 during 2019 has a key role in Klövern’s position as a long-term city developer. Project development, including development of building rights, contributed to increases in value of properties of SEK 681 million during 2019.
FOCUS ON SUSTAINABILITY
We are pleased to note that our long-term sustainability work is producing 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 (EPRA NAV1) has developed well and amounted at the year-end to SEK 21.17, corresponding to an increase of 17 per cent during 2019.
CONTINUED GOOD DEVELOPMENT
Overall, we have a very stable business which during 2019 showed high profitability and good underlying growth, at the same time as the financial position was further strengthened. I look forward to a continued good development during 2020.
Rutger Arnhult, VD Klövern