Kungsleden presents Financial statement 2012

Welcome to Kungsleden’s Financial Statement

and strategy presentation

15 February 2013

Thomas Erséus, Chief Executive

Anders Kvist, Deputy Chief Executive

Today’s agenda

1. The lettings and property market

2. The fourth quarter, operations and figures

3. Results for the full year 2012

4. Financial position

5. An update on tax

6. Strategic review and new strategy

7. Value creation in property management

8. Growth and concentration

9. Financial targets

10.Summary

Contents| 2

Q4—a turning-point, strategically and financially

■ Kungsleden has been obstructed by an impending tax threat for some

time

■ The effects of a fixed interest rate have impelled a defensive attitude

■ The Hemsö transaction takes care of a worst-case scenario for tax, and

the company is well positioned with financial flexibility

■ This transaction is part of implementing Kungsleden’s new strategy

■ The management of wholly owned properties has been a strong value

creator for Kungsleden over time

■ After seven years as Chief Executive, this is a good time to leave

■ Cost savings program initiated

■ The Board is proposing a dividend of SEK 1.00 per share

■ Very good prospects for future value creation

Q4—a turning-point| 3

1. The lettings and property market

Lettings market remains stable

■ Employment continues to grow in major city regions

■ A segmented office market, with strong demand in good locations

■ Rent levels for commercial properties in major city regions outside CBDs are stable

■ Big spread in required yields in major city regions outside CBDs

■ Unchanged vacancy levels and variations between sub-markets

Source: Newsec

| 5 The lettings and property market

Continued good lettings for Kungsleden in the quarter

■ Some new lease contracts with

annual rent exceeding SEK 9

m:

– The Port of Gävle

– Västmanland County

Council

– Cap Gemini, Västerås

– RB Glas & Plast, Partille


Increased new lettings for 2012 and continued

stability ■ New lettings of SEK 80 m* for

the full year

■ Västerås is one of our

expansive markets. SEK 17 m

of new lettings

■ Net lettings of SEK 15 m** for

the full year

■ Full-year economic occupancy

level 89.3 (89.2)%

■ Remaining average contract

term of 4.9 years

* New lettings are annual rents for contracts signed in Jan-Dec 2012

** Net lettings are signed contracts less signed terminations


Transaction volume up from SEK 85 bn to 106 bn*


0

35

70

105

140

175

210

245

280

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Transaction volume per segment - Sweden

Transactions ≥ 100 MSEK

Off ice Residential

Retail Logistics, warehouses and industrial

Nursery homes Others (for example hotel, soil, health care and school)

Nr of transactions Source: Newsec

BSEK Nr of transactions

Strong closing quarter for transactions in Sweden

■ Transaction volumes in Q4 were SEK 42 bn—the highest volume

since Q3 2008

■ Total transaction volumes for December were SEK 30 bn

■ Highly capitalised institutions and pension funds behind most

transactions on the buy and sell sides

■ Office market represented 40% of total volumes in 2012

■ Kungsleden was the biggest single seller in 2012 with its sale of

50:50 joint owned Hemsö


2. The fourth quarter, operations and figures

Kungsleden’s portfolio optimisation in the quarter

| 11

■ 15 properties were sold for SEK 552 m

■ These sales were at a property yield of 6.6%

■ The sold properties were located in Greater Stockholm, central and

southern Sweden.

■ A portfolio of 9 properties, sold for SEK 380 m, was the single

largest property sale

■ All sales were made at around book value

■ 11 properties were purchased for approx. SEK 1,549 m from Hemsö

– Total rental value of SEK 163 m, 143,000 sq.m. leasable area

– Remaining contract term 8 years

■ Earnings capacity of the remaining portfolio: 8%

The fourth quarter, operations and figures

Better positioning after the sale of Hemsö

■ Kungsleden sold its holdings in Hemsö after 11 years’ positive

progress, which has created substantial shareholder value over time

■ Total purchase price of SEK 3,320 m

– Price of the shares was SEK 1,820 m

– Repayment of shareholder loan was SEK 1,500 m

■ After the share sale, loan repayment and purchase of 11 properties

– liquidity strengthened by SEK 1,750 m

– Increased borrowing capacity, utilised by arranging a new SEK 1

bn loan over three years

■ The sale is part of the implementation of Kungsleden’s new strategy,

on wholly owned properties, and will contribute to increased returns

by reallocating funds

| 12 The fourth quarter, operations and figures

The quarter in brief

■ Net sales and gross profit decreased by 10% and 8% to SEK 494 m

and SEK 309 m respectively compared to Q4 2011, due to a smaller

property portfolio

■ Profit before tax was SEK 677 (348) m

■ Profit after tax was SEK 923 (303) m, or SEK 6.80 (2.20) per share.

The profit increase is sourced from the sale of Hemsö

■ Cash flow from operating activities was SEK 66 (136) m

■ Profit for calculating dividends for the fourth quarter was SEK 1,732

(241) m, or SEK 12.70 (1.70) per share


Kungsleden has a new principal owner

■ Welandson Gösta and companies 13.1

■ Länsförsäkringar fonder 3.2

■ Norges Bank Investment Management 2.9

■ Olle Florén and companies 2.5

■ Danske Invest fonder (Sweden) 2.0

■ BlackRock fonder (USA) 1.6

■ AP4 1.4

■ AP2 1.2

■ Swedbank Robur fonder 1.2

■ Avanza Pension Försäkring AB 1.0

30.1

Source: SIS Ägarservice, 31 December 2012


3. Results for the full year 2012

Income Statement SEK m

2012

Jan-Dec

2011

Jan-Dec Δ, %

Rental revenues 1,840 1,759

Sales revenues, modular buildings 270 288

Net sales 2,110 2,047 3

Property costs -533 -512

Production costs, modules -249 -258

Gross profit 1,328 1,277 4

Trading net 16 56

Sales and administration costs -257 -244

Profit/loss from participations in Hemsö 794 413 92

Net financial items -586 -559

Unrealised value changes, properties -60 241

Unrealised value changes, financial instruments -70 -491

Profit before tax 1,165 693 68

Tax -813 -55

Net profit for the year 352 638 -45

| 16

The large positive item

is from the sale of

Hemsö

Sales and gross profit

increased by 3 and 4%

respectively due to a

larger property portfolio

and milder start to the

winter

Results for the full year 2012

Substantial values realised through the sale of

Hemsö 2012 2011

SEK m Jan-Dec Jan-Dec

Gross profit 1,328 1,277



Profit from property management 485 474

Realised items

Trading net on sale 16 56

Realised value changes, properties 129 65

Deduction for deferred tax on sale -20 -7

Sale of Hemsö 1,507 -

Realised value changes, financial instruments -81 -66

Realised items 1,551 48

Profit for calculating dividends from Hemsö 223 207

Taxes payable -342 -26

Profit for calculating dividends 1,917 703

| 17 Results for the full year 2012

Income Statement, wholly owned properties

SEK m

2012

Jan-Dec

2011

Jan-Dec Δ, %

Rental revenues 1,583 1,515 4


Gross profit 1,094 1,052 4

Trading net 16 56



Unrealised value changes, properties 0 301

Unrealised value changes, financial

instruments -55 -380

Profit before tax 333 338 -1

Tax 182 -70

Net profit for the year 515 268 92


Income Statement, Nordic Modular

SEK m

2012

Jan-Dec

2011

Jan-Dec Δ, %

Rental revenue, modules 257 244

Sales revenue, modules 270 288

Net sales 527 532 -1


Production costs, modules -249 -258

Gross profit 234 225 4

Trading net 0 0



Unrealised value changes, properties -60 -60

Unrealised value changes, financial instruments -5 -42

Profit before tax 48 5 860

Tax -13 -1



Income Statement, Hemsö

SEK m

2012

Jan-Dec

2011

Jan-Dec Δ, %

Profit/loss from participations, Hemsö 794 413 92

Net financial items 0 6

Unrealised value changes, financial

instruments -10 -69

Profit before tax 784 350 124

Tax 3 16



4. Financial position

Financial position—pro forma after Hemsö

transaction

| 22 Financial position

2012 2011

SEK m 31 Dec 31 Dec

ASSETS According to Interim

Report Pro forma after

Hemsö transaction

Properties 15,777 15,777

Other fixed assets 666 666

Receivable from AP3 3,363 -

Other current assets 373 373

Cash and bank balances 721 3,549

Total assets 20,900 20,365

EQUITY AND LIABILITIES

Equity 7,726 7,726

Interest-bearing liabilities 9,704 10,720

Derivatives 1,125 1,125

Other non interest-bearing liabilities 2,345 794

Total equity and liabilities 20,900 20,365

Maturity structure, credits

As of 31 December 2012

Utilised

credits,

SEK m

Un-utilised

credits, SEK

m

Total credits,

SEK m

2013 667 260 927

2014 1,459 1,459

2015 5,600 900 6,500

2016 1,978 1,978

Total 9,704 1,160 10,864

Average conversion term, years 2.3 2.2


Maturity structure, fixed interest periods

As of 31 December 2012

Loans,

SEK m

Interest

deriv-

atives,

SEK m

Ave.

interest,

derivatives,

%

Ave. interest,

loans and

derivatives, years

Average fixed

interest term,

years

2013 9,704

2014 800 3.9

2015 1,400 4.2

2016 500 3.9

2017 500 4.1

2018 3,650 4.2

2019 800 3.5

2020 800 3.7

2021 400 3.8

2022 500 3.8

Total 9,704 9,350 6.8 6.8 5.1

Market valuation of loans and

derivatives 1,121

Total 10,825


5. An update on tax

An update on tax proceedings

■ As previously reported, in November 2012, the Swedish Tax Agency

reported its decision to tax Kungsleden for capital gains on transfers or

participations in partnerships for the tax year 2007

■ As previously reported, the estimated profit effect would be SEK 1,380

m and the estimated liquidity effect would be SEK 1,360 m

■ In December 2012, the Swedish Tax Agency decided to make a

secondary claim (tax evasion) on the same transaction if the Agency’s

primary claim was unsuccessful

■ Given a negative outcome in tax evasion proceedings, the estimated

profit and liquidity effect would be approx. SEK 500 m lower than the

above amounts

■ The tax evasion proceedings will be conducted in parallel with

consideration of the primary claim

| 26 An update on tax

Estimate of maximum tax effects

SEK m Effect on equity Liquidity effect

Provision, Q2 2009 325 0

Provision, Q2 2012 725 260

Deposited in anticipation of ruling - -100

Total provisioned tax cases 1,050 160

Un-provisioned tax cases 2,930 2,920

Deposited in anticipation of ruling - -160

Total 3,980* 2,920

An update on tax | 27

* Please refer to quarterly report for explanation for change on the third quarter

6. Strategic review and new strategy

Strategic review

■ Kungsleden has been working on a strategic review for some time

■ This review has been driven by fundamental changes on the

property market, and the desire to concentrate its business

■ The new strategy is designed to clarify how Kungsleden creates

lasting value for shareholders

■ Managing wholly owned properties has been a strong value creator

for Kungsleden over time

■ Kungsleden is now concentrating on this, taking a new direction,

focusing on wholly owned properties on growth markets in Sweden

■ Value creation is achieved by satisfying customers’ needs for

premises, managing and enhancing properties, and optimising the

company’s property portfolio

Strategic review and new strategy | 29

A strategy that puts value creation in focus


Kungsleden will create value by satisfying customers’ needs for premises,

managing and enhancing properties and optimising the company’s

property portfolio

Satisfying customers’ need for premises

■ Providing premises where customers can operate and develop

■ Creating strong customer relationships through responsiveness, being flexible and having short

decision-paths

Managing and enhancing properties

■ Actively manage and enhance properties to increase stable cash flows, and thus the value of the

property portfolio

■ Attract good tenants and endeavour to secure long lease contracts, high occupancy levels and a

balanced cost level

Optimise the property portfolio

■ With good market knowledge and strong relationships with participants on the market, identify and

exploit the opportunities for purchases and sales to increase risk-adjusted returns


A platform for creating value for shareholders, customers, employees and wider society is a

strong corporate culture where people enjoy their work, develop and deliver.

Focusing geographically and by segment

Annual growth (%), total pay

Kungsleden will own, manage and enhance

properties that generate high risk-adjusted returns in

the warehouse/industrial, office and retail segments

in Greater Stockholm, the lake Mälaren region,

south western Sweden, and growth locations in

northern Sweden

■ One key precondition for value creation is where in

Sweden the growth is located

■ By focusing on three property types, Kungsleden will

increase its knowledge of customer needs and market

conditions in these segments, which will bring stronger

customer relationships, improved management and

enhancement of properties, and thus increase the value

of the property portfolio


The current portfolio, wholly owned properties

Segment No. of properties

Area, 000

sq.m.

Book value, SEK m

Operating net, SEK m

Property yield, %

Occupancy level, %

Average contract term,

yr.

Industrial/warehouse 116 1,197 6,058 511 8.4 91.0 5.3

Office 88 672 5,579 424 7.6 90.2 4.3

Retail 56 266 2,071 158 7.6 94.0 4.6

Other commercial 18 76 560 37 6.7 91.4 6.2

Total 278 2,211 14,268 1,130 7.9 91.1 4.9

Property portfolio as of 31 December 2012


Focus on locations outside CBDs offers attractive

property yields


2

4

6

8

10

12

14

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

%

Source: Newsec

Yields - offices in prime locations

Office Stockholm CBDOffice Göteborg PrimeOffice Malmö Prime

Interval: 4.0 - 7.0%

2

4

6

8

10

12

14

2000

2001

2002

2003

2004

2005

200

6

2007

2008

2009

2010

2011

201

2E

%

Source: Newsec

Yields - offices in secondary locations

Office Rest of SwedenOffice Rest of Greater StockholmOffice Other Major Cities

Interval: 5.75 - 8.5%

Stable rents in locations outside CBDs

Strategic review and new strategy| 35

700

800

900

1 000

1 100

1 200

1 300

1 400

1 500

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

E

SEK/sqm

Source: Newsec

Market rent - offices in secondary locations

Other Major Cities

Rest of Greater Stockholm

Interval: 1 100-1 400 SEK/sqm

0

1 000

2 000

3 000

4 000

5 000

6 000

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

E

SEK/sqm

Source: Newsec

Market rent - offices in Stockholm CBD

Stockholm CBD

Interval: 3 500- 5 000 SEK/sqm

High property yields outside CBDs create a good

cushion

04

05

05

06

06

07

07

08

08

09

09

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

%

Stockholm CBD

Övriga Sverige

Source: Newsec


2

3

4

5

6

7

8

9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

%

Source: Newsec

Yields - offices in prime locations

Stockholm CBD Rest of Sweden

Combination of high total returns and low market

risk

2013 2014 2015 2016 2017

Property yield 7.65% 7.50% 7.35% 7.25% 7.20%

Rent growth 1.50% 2% 2.50% 2.50% 2.50%

Industrial & Warehouse established industrial estate, rest of Sweden

Total returns, 2014-2017: 11%

2013 2014 2015 2016 2017

Property yield 7% 6.75% 6.75% 6.50% 6.50%

Rent growth 1.50% 2% 2% 2.50% 2.50%

FMCG retail, rest of Sweden Total returns, 2014-2017: 10.3%

2013 2014 2015 2016 2017

Property yield 4.50% 4.50% 4.70% 4.90% 5%

Rent growth 2% 3% 5% 7% 5%

Total returns, 2014-2017: 6.7%

Office, Stockhom CBD

Source: Newsec Strategic review and new strategy| 37

Yield spread expected to reduce Attractive pricing currently in secondary segments


1,50

2,50

3,50

4,50

5,50

6,50

7,50

8,50

9,50

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Yield intervals 2002-2012

Min

Max

2012E

*2007-2012 Source: Newsec

7. Value creation in property management

How will Kungsleden create growing cash flows?

Management efficiency

Customer care and lettings

Develop operating net

Growing cash flows

Enhance

Value creation in property management| 40

Strong value creation over time—operating net/sq.m. up

25% since 2007

Value creation in property management| 41

200

300

400

500

600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010 2011 2012

Driftnetto per kvmOperating net per sq.m.

8. Growth and concentration

Growth and concentration

Annual growth (%), total pay

Kungsleden will own, manage and enhance

properties that generate high risk-adjusted returns in

the warehouse/industrial, office and retail segments

in Greater Stockholm, the lake Mälaren region,

south western Sweden, and growth locations in

northern Sweden

Growth and concentration | 43

Reinvestment after the Hemsö sale

Investment volume of approx. SEK 5-6 bn achievable through individual

and portfolio acquisitions in a time horizon of approx. 1-2 years

New strategy captures properties and sub-markets exhibiting sustainable

and fairly stable sales over time

There is still a good supply of properties that fit the new strategy

Kungsleden sees good investment opportunities on the market with

property yields of 7.0-8.5%

Growth and concentration 44

Some transactions completed on the market that fit

the new strategy

Office and warehouse portfolio of approx. 16,000 sq.m. in Märsta.

Transaction volume approx. SEK 120 m. Property yield approx. 7.75-8.0%

Office portfolio of approx. 45,000 sq.m. in Linköping, Norrköping, Västerås

and Växjö. Transaction volume approx. SEK 320 m. Property yield approx.

7.5-8.0%

Logistics property of approx. 50,000 sq.m. in western Sweden. Lease

contract approx. 7 years. Transaction volume approx. SEK 300 m. Property

yield approx. 7.25%

Logistics property of 10,000 sq.m. in Greater Stockholm. Transaction volume

approx. SEK 90 m. Lease contract 3-5 yr. Property yield approx. 7.5-7.75%

Two logistics properties totalling approx. 80,000 sq.m. in western Sweden.

Sale and leaseback with lease contracts of 15 yr. Transaction volume

approx. SEK 400 m. Property yield approx. 8.75%

Growth and concentration |45

Kungsleden is concentrating its property portfolio


2012 2015

The non-strategic property share of portfolio

value will fall from 10% to 5% or less over

three years

Strategic properties

Non-strategic properties

Sale of Nordic Modular—a matter of time

As part of Kungsleden’s focus on wholly owned properties, Nordic Modular

will be sold when there is an opportunity, and on reasonable terms

Kungsleden has owned Nordic Modular Group since January 2007

Return on equity has been very positive over time, and averaged over 20%

per yr.

The capital transfers from Nordic Modular received to date exceed the

capital Kungsleden has invested

Nordic Modular has a strong cash flow and is a positive contributor to

Kungsleden’s earnings

There is no hurry to sell Nordic Modular, with the plan being to sell in a few

years, given positive conditions


9. Financial targets

Financial targets and limits for 2013-2015

■ The overall target is to maximise cash flow growth within the

financial limits set to secure a strong balance sheet for the short and

long term:

– Liquidity contingency (see below)

– Loan to value ratio (our prudent estimate is 60% on new credit

facilities)

– Equity ratio (should be over 30%)

The most important restriction in the short term is our liquidity

contingency. Kungsleden will maintain cash and available credit

facilities corresponding to the worst-case outcome of tax

proceedings until their outcome is clear. The total is SEK 2.9 bn,

which will cost an estimated 1% per year.

Financial targets| 49

Investing cash flows

■ Reinvesting the funds freed up by the sale of Hemsö, and investing

the free cash flows generated by operations, is the financial base of

Kungsleden’s value creation. Scope to invest is limited by the

liquidity contingency that should be maintained and the share

dividend (redemption, buy-backs) the Board considers appropriate

■ Alternative usages for cash flows:

– Purchasing new properties within our strategy

– Enhancing (converting, extending and developing)

– Reinvesting in the current property portfolio

Financial targets | 50

Review of costs to save 10%

■ General review of central administrative costs

■ Identify opportunities for shared services centrally

■ Take management organisation from five regions to four

■ Charge properties with relevant costs for property operations in the

accounts, to produce clearer profit centres and achieve better

comparisons with other property companies

■ Target of reducing costs by a total of 10%

Cost saving| 51

Managing by objectives

■ Kungsleden will be managed towards:

– The final target for the whole group’s profit from property

management for 2015

– Phase targets for 2013 and 2014

■ The phase targets and final target will be expressed at

– segment level (Properties and Nordic Modular with individual

administrative costs allocated)

– net financial position at group level

– central costs

■ Profit for calculating dividends will no longer be a target


Kungsleden’s required return

■ Over the long term, Kungsleden should generate a return on equity

exceeding the required return applied by the stock market on the

company’s share

■ The 15% return on equity target used to date would be difficult to

attain in current market conditions

■ In the short to medium term, in current circumstances, the stock

market’s required return on Kungsleden is expected to be not less

than 10-12%

■ Accordingly, Kungsleden’s investments and usage of shareholders’

funds overall must always at least satisfy this required return in

advance and post-costings


New dividend policy from 2013 onwards

■ The dividend policy will be differentiated considering the need for

liquidity contingency resulting from tax proceedings:

– In the medium term, dividend payments of up to 50% of profit

from property management will be permitted, which also reflects

the practice of listed property companies

– As long as the outcome of tax proceedings remains unclear

(probably until year-end 2015), a lower share of profit from

property management will be paid out

Financial targets | 54

10. Summary

Good prospects for future value creation

■ Strict control of central administrative costs will generate operational

leverage as the asset base grows

■ Investment strategy focusing on high-yielding property segments

with very moderate risks

■ Cash flow back to pre-Hemsö levels within 18 – 24 months, even

with higher liquidity reserves. Profit from property management

restored within three years

■ As tax risks decline, liquidity reserves will be freed up for

reinvestment in new properties. Average interest rates to improve

with new property purchases

■ Strong and growing underlying earnings capacity based on strong

cash flow from property management, visible in the bottom line

when tax proceedings are concluded and interest hedging costs

have tapered off

Summary| 56

Questions

Kungsleden presents Financial statement 2012

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