kungsleden presents the second quarter for 2012

Welcome to Kungsleden

Second quarter 2012

Thomas Erséus, Chief Executive

Start of the third quarter

■ The world around Kungsleden

– Economic and political uncertainty in Europe persisting

– Still-strained credit market

– Cautious and hesitant sentiment from banks

– Sweden is a stable economy in Europe, but the Swedish

economy is forecast to slow

■ Kungsleden

– All loans rearranged, but at higher margins

– Tax proceedings and tax rulings

– Continued positive progress of operations and good liquidity

– Lettings market working smoothly

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Owning and managing properties with satisfied customers

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High and stable returns for the long term with

risk diversification as a key ingredient

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A quality portfolio with good returns

7.9% yield

322 properties

SEK 15.7 bn

Industrial/ware

house

40%

Retail

13%

Modular buildings

10%

schools, pre-schools,

offices and

construction sites

Office

27%

Other

10%

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Increased gross profit for the second quarter

■ Net sales increased by 5% to SEK 561 (536) m

■ Gross profit increased by 3% to SEK 337 (328) m

■ Profit/loss before tax was SEK 72 (100) m and after tax SEK -671 (102) m.

The profit decrease is largely due to provisioning for potential tax costs and

lower earnings from property sales

■ Profit/loss for calculating dividends was SEK -177 (145) m, or SEK -1.30

(1.10) per share. Taxes payable amounts to SEK 258 m

■ Sold one property for SEK 5 (41) m with a profit of SEK 0 (20) m

■ Remaining refinancing requirement for 2012 arranged during April

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Post balance sheet events

■ The Swedish Tax Agency has claimed that the Administrative Court

should consider further transactions Kungsleden executed in 2006–

2007. If Kungsleden is unsuccessful in this matter, the liquidity effect

would be approximately SEK 500 m. As recently as 2011, the

Administrative Court of Appeal in Stockholm found that the Swedish

Tax Evasion Act was not applicable in a similar case. No further

provisioning has been made for these claims.

■ Kungsleden sold two former NRP properties in Poland for EUR 12.5

m, in line with book value and acquisition cost.

■ Kungsleden sold 39 public properties in Härnösand, northern

Sweden for SEK 912 m, with an SEK 39 m effect on profit after tax

and SEK 26 m on Q3 profit for calculating dividends. Equity ratio +2

percentage points.

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Increased net letting

■ New contracts with annual rental value of SEK 43 m

■ Economic occupancy levels of 89.3 (89.2)%

■ Average remaining lease term 4.8 years

■ Partnering with tenants to reduce environmental impact through

lower energy consumption

■ Increased customer loyalty

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The first half-year 2012 in figures

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Income Statement SEK m

2012

Jan/Jun

2011

Jan/Jun

Rental revenue 948 800

Sales revenues, modular buildings 169 144

Net sales 1,117 944

Property costs -292 -256

Production costs, modules -153 -132

Gross profit 672 556

Trading net 17 23

Sales and administration costs -131 -127

Profit/loss from participations in Hemsö 148 225

Net financial position -293 -274

Unrealised value changes, properties 2 72

Unrealised value changes, financial instruments 116 118

Profit/loss before tax 530 593

Tax -1,088 -84

Profit/loss after tax for the period -558 509

• Increase mainly

sourced from

properties

purchased over the

past year

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• 17% up thanks to

good order

bookings at the

Gråbo plant

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Net sales

increased by 18%

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• A 21% gain due to

new purchases in

2011

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Comparing sales

proceeds with

acquisition cost gives

the effect of sales on

profit for calculating

dividends, which is

SEK 14 m

• Value changes of

SEK -0.3 m and

deductions for

deferred tax of SEK

-3 m are additional to

the trading net of

SEK 17 m

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Increase mainly a

result of larger

property portfolio

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Corresponds to

50% of Hemsö’s

profit after tax. The

lower figure is

mainly due to lower

unrealised value

changes on

properties

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23





Unrealised value changes, financial instruments

116 118


Tax -1,088 -84


• Negative change

mainly explained

by higher loan

volume from larger

property portfolio

and higher interest

margins

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Positive impact in

the year due to

rising long yields

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Has been charged

with a provision of

SEK -985 m after

the risk of negative

outcomes in a

number of tax

proceedings has

increased

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2012

Jan/Jun

2011

Jan/Jun



Net sales 1,117 944




Trading net 17 23







Tax -1,088 -84


• Lower figure mainly

due to provisioning

for a tax case and

lower earnings

from Hemsö, which

reported significant

positive unrealised

value changes on

properties in the

previous year

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Income Statement, by segment

SEK m, Jan-Jun 2012

Wholly

owned

properties

Nordic

Modular Hemsö Other

Total

Kungsleden

Rental revenue 821 127 948


Net sales 821 296 1,117

Property costs -269 -23 -292


Gross profit 552 120 672

Trading net 17 17

Sales and administration costs -88 -32 -11 -131


Net financial position -263 -30 -293

Unrealised value changes, properties 32 -30 2

Unrealised value changes, financial instruments 88 10 17 115

Profit/loss before tax 338 38 165 -11 530

Tax -92 -10 -4 -982 -1,088

Profit/loss after tax for the period -246 28 161 -993 -558

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Profit for calculating dividends

2012 2011

SEK m Jan-Jun Jan-Jun




Profit from property management 248 155

Realised items

Trading net on sale 17 23

Realised value changes, properties 0 5

Deduction for deferred tax on sale -3 0

Realised value changes, financial instruments -81 -31

Realised items -67 -3

Profit for calculating dividends from Hemsö 107 81

Taxes payable -343 -10

Profit for calculating dividends -55 223

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Kungsleden’s assets

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Assets, returns and funding

30 Jun 2012 Yield

Properties 14,215 8.0%

Nordic Modular 1,535 7.6%

Participations and long-term receivables from Hemsö

2,667 6.5-7.0%

Receivables, vendor notes 433 7.0%

Total earning assets 18,860 7.8%

Equity 6,800

Interest-bearing liabilities 10,767

Working capital (other items are a net liability) 1,293

Total funding 18,860

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Higher average interest, but also higher property

yield

Proportional method 31 December 2011

Equity method 31 Dec 2011

Equity method after refinancing as of 26 April

Equity method 30 June after cancellation of swaps

Average interest rate

4.8% 5.5% 6.7% 6.4%

Property yield

7.2% 7.9% 8.0% 7.9%

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Funding

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Funding secured

■ In total, Kungsleden re-arranged loans of SEK 7.4 billion in 2012

■ Loans of SEK 1,915 m mature in the next 12 months

■ Of these maturities, SEK 850 m relate to financing 39 public

properties sold to Hemsö

■ One-third of the remaining refinancing requirement for the next 12

months is in place

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Loan to value ratios at market levels

30 Jun 12 31 Dec 11 30 Jun 11

Loan to value ratio, properties 68% 68% 68%

All credit facilities in relation to earning assets (properties, participations and receivables from Hemsö and receivables from vendor notes)

57%

55%

55%

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Maturity structure, credit facilities

As of 30 Jun 2012

Utilised

credits,

SEK m

Un-utilised

credits,

SEK m

Total credits,

SEK m

2012 1,222 260 1,482

2013 694 - 694

2014 1,220 - 1,220

2015 5,610 900 6,510

2016 2,023 - 2,023

Total 10,769 1,160 11,929

Average conversion term, years 2.5 2.4

Equity ratio

30 Jun 12

35%

31 Dec 11

37%

30 Jun 11

35%

LTV ratio 68% 68% 68%

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Maturity structure, fixed-interest periods

As of 30 Jun 2012

Loans,

SEK m

Interest

derivativ

es,

SEK m

Ave.

interest,

derivatives,

%

Ave. interest,

loans and

derivatives, years

Average fixed

interest term,

years

2012 10,769 - -

2013 - -

2014 800 3.9

2015 2,400 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

Summa derivat 10,769 9,850 6.4 4.8

Marknadsvärdering av lån och

derivat 939

Summa 11,708

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Lower balance sheet total with new reporting

SEK m 2012 2011

ASSETS 30 Jun 31 Dec

Goodwill 201 201

Properties 14,838 14,788

Machinery and equipment 14 15

Participations in Hemsö 1,177 1,084

Long-term receivables from Hemsö 1,500 1,500

Deferred tax receivable 0 1,020

Other long-term receivables 251 443

Non-current assets 17,982 19,051

Inventories 21 17

Current receivables 438 240

Assets held for sale—properties 912 905

Assets held for sale—other assets 18 14

Cash and bank balances 298 684

Current assets 1,687 1,860

TOTAL ASSETS 19,668 20,911

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Lower balance sheet total with new reporting

SEK m 2012 2011

EQUITY AND LIABILITIES 30 Jun 31 Dec

Equity 6,800 7,719

Liabilities to credit institutions 8,267 8,154

Bond loans (unsecured) 1,599 1,599

Liabilities related to assets held for sale 901 901

Interest-bearing liabilities 10,768 1,654

Provisions 109 431

Deferred tax liability 82 -

Derivatives 944 1,156

Tax liability 276 83

Other non interest-bearing liabilities 660 807

Liabilities related to assets held for sale 29 60

Non interest-bearing liabilities 2,101 2,537

TOTAL EQUITY AND LIABILITIES 19,668 20,911

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Tax position

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The Swedish Tax Agency’s new view has retroactive

consequences

■ The current taxation climate is different, and the Swedish Tax

Agency has changed its view of transactions executed historically.

■ The application of legislation has become more stringent, and

predictability has deteriorated

■ Retroactive legislation is prohibited but has become a consequence

of tax court interpretations

■ Kungsleden’s view is that the company has fully complied with the

laws and practice in place when submitting each tax return

■ The company evaluates its position on a continuous basis and is in

dialogue with tax experts

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22 tax cases outstanding

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Kungsleden’s tax cases

■ BV transactions

■ Internal restructuring

■ External impairment losses

■ Losses on liquidations of limited partnerships

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BV transactions

■ In 2004 – 2006, Kungsleden sold properties through Dutch subsidiaries (as

was then common for property companies). Gains from such divestments

were not liable for tax in the Netherlands

■ The Swedish Tax Agency’s view is that proceeds from such divestment

should be reallocated and subject to taxation in Sweden. This view was

corroborated by the Administrative Court, which reported its ruling in 2010.

■ Kungsleden appealed against the Administrative Court’s ruling at the

Administrative Court of Appeal. The Administrative Court of Appeal issued a

stay on proceedings in anticipation of a decision from the Supreme

Administrative Court in a case whose circumstances were comparable with

Kungsleden’s, known as the Cyprus case.

■ The Supreme Administrative Court ruled on the Cyprus case in May 2012,

and found that the Swedish Tax Evasion Act was applicable to the

procedure.

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BV transactions, cont.

■ If the Administrative Court of Appeal would rule that the conclusions of the

Cyprus case were directly applicable to Kungsleden’s proceedings, this

would imply a liquidity effect of SEK 140 m and profit effect of SEK 335 m,

which the company provisioned in the second quarter of 2012.

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Internal restructuring

■ In May and July 2012, the Administrative Court ruled on three cases

relating to impairment losses resulting from internal restructuring

transactions conducted in 2004 and 2006 respectively.

■ The Administrative Court found that the Swedish Tax Evasion Act

was applicable to these transactions.

■ If these proceedings are definitively ruled against Kungsleden, the

majority of the increased assessed income could be offset against

loss carry-forwards. Taxes payable amount to SEK 18 m.

■ In 2009, Kungsleden provisioned SEK 325 m for one of these

proceedings. In addition to this provision, the company judges that

the effect on equity would amount to SEK 48 m if the definitive

outcome was against Kungsleden. Accordingly, a further provision of

SEK 48 m was made in the second quarter of 2012.

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External impairment losses

■ In 2005-2008, Kungsleden companies acquired several property

companies. These properties were sold to another group company

and a need for impairment occurred in the Kungsleden company.

This impairment loss was also claimed as a tax deduction.

■ In 2012, the Swedish Tax Agency claimed that courts should

consider whether five of these transactions could be contested using

the Swedish Tax Evasion Act.

■ If the Swedish Tax Agency’s claim prevails, this would result in

additional taxes payable of SEK 1,390 m.

■ The procedure was conducted in accordance with applicable

practice from the Supreme Administrative Court and applicable

practice from the Administrative Court of Appeal. Against this

background, the company judges that the final outcome will be

positive, and accordingly, there has been no provisioning for this

case.

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External impairment losses, ruled in June 2012

■ In June 2012, Kungsleden received rulings from the Administrative

Court of Appeal regarding deductions for external impairment

losses, fiscal year 2008.

■ The Administrative Court of Appeal found that the effect of new

legislation, that came into force in April 2008, was that even

transactions carried out before April could be affected. The

deduction for impairment losses was thus denied.

■ Kungsleden intends to appeal against this ruling at the Supreme

Administrative Court.

■ If the final outcome is negative, Kungsleden estimates taxes payable

at SEK 100 m. In the second quarter 2012, Kungsleden provisioned

SEK 342 m for these proceedings.

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Loss on liquidation of limited partnership

■ In April 2012, the Administrative Court of Appeal issued its verdict on

two cases relating to the fiscal year 2004. In these cases, the Court

found that losses on the liquidation of limited partnerships were not

actual from a group perspective and thus not tax deductible.

■ Kungsleden has lodged an appeal against these rulings at the

Supreme Administrative Court.

■ If the final outcome is against Kungsleden, the liquidity effect

amounts to SEK 80 m. A provision of SEK 260 m was made in the

first quarter of 2012.

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Kungsleden’s tax position

■ Kungsleden has taken up a total of SEK 1,310 m as a tax cost, of

which SEK 985 m in 2012

■ A total of 22 tax proceedings are ongoing, of which Kungsleden has

not provisioned for 7

■ Given negative outcomes in all these proceedings, the estimated:

– effect on equity would be approx. SEK 1,380 m (in addition to the

SEK 1,310 m provisioned)

– liquidity effect would be approx. SEK 1,890 m

■ The final outcome may be higher or lower

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Total yield until mid-August 2012

10 largest shareholders represent 26% of votes & capital

■ Nordea fonder 6.0

■ Länsförsäkringar fonder 3.8

■ Norwegian Government 2.6

■ Olle Florén and companies 2.5

■ Danske Invest fonder 2.2

■ Pensioenfonds PGGM (NL) 2.1

■ SHB fonder 1.8

■ Swedbank Robur Fonder 1.7

■ AP4 1.7

■ AP2 1.4

25.8

Source: SIS Ägarservice, 30 Jun 2012

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Kungsleden—the here and now

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A high-yielding portfolio with low risk

■ Uncertainty regarding tax position

■ Strong and stable cash flows

■ Long lease contracts with strong customers

■ Portfolio composition provides geographical diversification

■ Multiple property segments diversify risk

■ Loan to value ratio at market levels

■ Strong customer relations and high employee commitment

■ High equity ratio

■ Strong liquidity

■ Financing secured

■ Focus on value creation

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Questions

kungsleden presents the second quarter for 2012

Business