Klövern AB: Klövern AB (publ): Interim Report January – June 2017


»» Income increased by 6 per cent to SEK 1,518 million (1,430).

»» Operating surplus increased by 9 per cent to SEK 1,032 million (943).

»» Profit from property management increased by 11 per cent to SEK 665 million (597).

»» Profit before tax increased by 18 per cent to SEK 1,718 million (1,462) and net profit increased by 25 per cent to SEK 1,439 million (1,149), corresponding to SEK 1.39 (1.07) per ordinary share.

»» Change in value of properties totalled SEK 1,025 million (1,089).

»» After taking possession of 17 properties for SEK 971 million, transfer of possession of 48 properties for SEK 1,531 million and investments of SEK 551 million, the value of the property portfolio amounted to SEK 40,248 million.

»» The interest coverage ratio improved to 3.1, the adjusted equity ratio increased to 37.8 per cent and leverage decreased to 58 per cent.

Statement by the CEO

Strong earnings, further acquisitions and continued divestment of properties at smaller locations

Klövern is reporting strong and stable six-month earnings. Profit before tax of SEK 1,718 million corresponds to an increase of 18 per cent. We have continued to work on focusing the propertyportfolio on the strongest growth regions in Sweden. During the six-month period, we have carriedout transactions involving 65 properties and during the past 12 months, we have sold 60 properties,at the same time as we have built or acquired over 50 properties.

At the beginning of 2017, we have continued to be very active in the transaction market. Of Klövern’s total property value, 98 per cent is today located at our 12 selected growth locations. At these locations, the average population growth has overall been over 15 per cent in the past 10 years. So far during the year, we have acquired additional properties in Gothenburg and made add-on acquisitions in Stockholm, Norrköping and Nyköping. Stockholm now accounts for 45 per cent of the total portfolio followed by Gothenburg, which accounts for 9 per cent,Linköping with 7.5 per cent and Uppsala with 6.5 per cent. In all, we have acquired 17 properties and sold 48 properties during the six-month period. As a result of our divestments, we have now completely left Borås, Karlskrona, Hässleholm, Ängelholm, Eskilstuna, Kristinehamn and Ystad. We have also sold some properties in Lund, Örebro and Norrköping to further concentrate the portfolios at the respective location. Around the end of the period, Klövern also entered into agreements to acquire an additional two modern office properties for SEK 360 million in central Malmö and a well-located office property in Uppsala for SEK 285 million which will be taken possession of in October.

The Swedish economy continues to be strong. Conditions are favourable in the real estate sector in the larger growth locations. Modern offices are in great demand at the same time as office premises of less good standard which have been vacated are often converted into housing. Rental levels are rising, which in turn drives up property values. In particular, rental levels and property prices are developing strongly in the Stockholm region, especially in central Stockholm. We are now seeing an increasingly clear trend as regards searches for premises outside the most central parts of Stockholm, due to the increasingly high rental levels. This will benefit companies with properties in surrounding areas of the city, such as Klövern with a portfolio of office properties in Söderstaden (Globen), Solna, Kista and Täby.

The credit market also continues to be strong. Credit institutions are very willing to finance real estate companies and interest rates are low. During the second quarter, we have also taken the opportunity to extend and hedge the interest rate of an additional number of loans. Our interest coverage ratio is strong at 3.2 during the second quarter with an average interest rate of 2.6 per cent while the average period of fixed-interest was 2.5 years and the period of tied-up capital 3.2 years.

We are reporting a positive net moving-in of SEK 27 million for the six-month period. At the same time, we are seeing new records for rental levels in many markets. Our profit from property management for the six-month period amounted to SEK 665 million, corresponding to an increase of 11 per cent. A fundamentally stable operating surplus was supported by positive net moving-in, a strong development of rents, acquisitions and low interest rates. During the second quarter, the operating margin was 70 per cent, which also contributed to a very good level of 68 per cent for the six-month period.

Our ambition of expanding through our own project developments is now really starting to have an impact. In Klövern Living, we are working with a large number of projects where the first project starts are planned to take place around the upcoming year-end. We have planning applications in process for over 5,000 apartments. My assessment is that Klövern will start production of at least 200-300 apartments in 2017/2018 and at least 300-500 apartments in 2019/2020. The residential projects which will start construction first are in Nyköping, Stockholm, Karlstad and Västerås.

Our project development volume is relatively stable. Some projects are starting up and some are in their final phase but over time we have an even flow of projects which currently corresponds to an annual project volume of around SEK 1.5 billion. The most extensive office projects are S7 in Västerås, Gamlestaden in Gothenburg and Skeppet in Karlstad. Letting work at these properties is making very good progress and we anticipate that these new builds will be fully let on completion. During the second quarter, Klövern started, among other projects, a large hotel and fairs facility in Gothenburg and a large project in Norrköping. Klövern’s ten largest projects consist of a total investment of over SEK 1.8 billion and around 100,000 square metres.

Project development, including development of building rights, contributed during the six-month period with an increase in value of SEK 231 million which I consider should rather be regarded as part of our operating profit. In all, we have invested SEK 551 million in development projects compared with SEK 1.6 billion for the previous full year. I consider that it is reasonable for Klövern to achieve a project volume of SEK 2 billion for 2018 taking into consideration that we will then also have started production of some residential projects in Klövern Living.

Klövern’s financial strength improved further during the sixmonth period and we come closer every quarter to our target that the adjusted equity ratio shall in the long term be 40 per cent. On 30 June, the adjusted equity ratio amounted to 37.8 per cent, compared with 36.7 per cent at year-end. During the same period of time leverage has decreased from 60 per cent to 58 per cent. The net asset value per share (EPRA NAV) amounted to SEK 12.65, corresponding to an increase of 8 per cent since the year-end.

Overall, we are satisfied with Klövern’s development and with what we have succeeded in achieving so far in 2017. We look forward confidently to a continued healthy development during the rest of the year and hope in particular that we shall succeed in obtaining some major lettings in Kista.

Rutger Arnhult, CEO Klövern

For additional information:
Rutger Arnhult, CEO, +46 (0)70-458 24 70, rutger.arnhult@klovern.se
Lars Norrby, IR, +46 (0)76-777 38 00, lars.norrby@klovern.se

Klövern is a real estate company committed to working closely with customers to offer them efficient premises in growth regions. Klövern is listed on Nasdaq Stockholm. For further information, see kelly.corem.se.

Klövern AB (publ), Bredgränd 4, 111 30 Stockholm. Phone: +46 (0)10-482 70 00. E-mail: info@klovern.se.

The information in the interim report is such that Klövern AB (publ) is obliged to publish under the EU Market Abuse Regulation and the Securities Market Act. The information was made available for publication, through the abovementioned contact persons, at 07:30 CEST on 12 July 2017.

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