YEAR-END REPORT fiscal year. Fourth quarter Forecast for 2014

Transcription

1 Year-end report AB Sagax is a property company whose business concept is to invest in commercial properties, primarily in the warehouse and light industry segment.

2 YEAR-END REPORT fiscal year Rental revenue increased 12% to SEK 919 M (824 for the yearearlier period). Profit from property management increased 25% to SEK 521 M (418). Profit from property management per common share rose 27% to SEK 2.73 (2.15). In total, property revaluation amounted to SEK 134 M (148). Fixed-income derivatives were revalued by a total of positive SEK 265 M (neg: 84). Profit after tax for the year amounted to SEK 777 M (372), corresponding to SEK 4.4 (1.84) per common share. Cash flow from operating activities before changes in working capital amounted to SEK 426 M (364), corresponding to SEK 2.12 (1.79) per common share. Net investment in property by Sagax during the period was SEK 1,169 M (394). The Board proposes a dividend of SEK.55 (.43) per common share and a dividend of SEK 2. (2.) per preference share through a quarterly distribution of SEK.5. Fourth quarter Rental revenue increased to SEK 244 M (21 for the year-earlier period). Profit from property management increased to SEK 132 M (91) for the quarter. In total, property revaluation amounted to SEK 34 M (23). Revaluation of fixed-income derivatives totaled a positive SEK 3 M (neg: 36). Profit after tax for the period amounted to SEK 176 M (66). Cash flow from operating activities before changes in working capital was SEK 14 M (83) in the quarter. Net investment in property by Sagax was SEK 218 M (7) in the fourth quarter. Five properties were acquired and two divested during the quarter. Forecast for 214 In 214, profit from property management, meaning profit before revaluations and tax, is expected to amount to SEK 6 M based on the current property portfolio and announced acquisitions and divestments Selected key performance indicators Profit from property management per common share. SEK Change on preceding year 27% 4% 14% 23% 27% 47% Earnings per common share. SEK Change on preceding year 139% 475% 89% pos. 96% neg. Dividend per common share. SEK ( proposed) Dividend per preference share. SEK ( proposed) Properties market value. SEK M 1,825 9,396 8,961 7,535 6,422 6,6 Yield 7.7% 7.8% 7.7% 8.1% 8.1% 7.6% Lease term. years Cover: In the first quarter of 214, the Martinkyläntie 9 property in Vantaa, Finland, which is on the outskirts of central Helsinki, was acquired. The property comprises 45, square meters of warehouse, industrial and office space. It has a total of 89, square meters of freehold land and is let to the listed media group Sanoma for a period of 15 years. Year-end report

3 CEO S COMMENTS Final quarter As a consequence of a higher net operating income (up SEK 3 M) and increased profit from property management from associated companies (up SEK 12 M), the profit from property management for the fourth quarter rose to SEK 132 M from SEK 91 M last year. The increase in net operating income was attributable to a larger property portfolio. Increased earnings from associated companies was mainly attributable to our investment in Hemsö in mid-, but also to the effect of a positive trend at Söderport. Earnings were slightly better than I expected, which was partly due to milder weather. Full-year Profit from property management for the full-year was SEK 521 M, up 25% year-on-year and 38% higher than 211. Profit from property management per common share has risen 27% since and 33% since 211. The debt ratio, which is an indicator of the company s long-term refinancing risk, has declined from 62% to 6% and the interestcoverage ratio, which describes the company s ability to meet payments, has risen from a multiple of 2.2 to 2.4. Accordingly, earnings were increased without raising financial risk. The property portfolio posted an increase in value of SEK 134 M corresponding to slightly more than 1% of the properties assessed value. In addition, the negative market value of Sagax s interest-rate swaps declined, primarily due to higher long-term interest rates. For this reason, the company has reversed a sum of SEK 265 M to profit and loss, which was previously expensed. Together, this means that profit after tax for amounted to SEK 777 M. Accordingly, I can state that we are now closing the book on a profitable year of improvements in. The company s financial position is healthy and Sagax is well placed ahead of the new fiscal year. capital is healthy even for longer durations (five years), demand for premises has strengthened and liquidity has increased in the investment market. Even the mild weather seems to be playing into the hands of property companies... What could go wrong? In the short term, probably not that much. In the medium term however, I wonder if the market could find itself out of balance and what the consequences would then be. The combination of low interest rates and good access to capital will probably positively impact property prices during the year. Stronger demand for premises could possibly add to investors willingness to pay slightly more than previously, since the business risk (letting risk) declines in parallel with the increase in potential value growth. If this assessment should prove correct, the value of Sagax s property portfolio will be positively impacted in parallel with it becoming more difficult to find attractive new investments (which I assess as more important in the longer term). However, the year started positively in terms of investments and, at the end of January, we were able to announce the acquisition of two warehouse and industrial properties in Helsinki for a total of SEK 6 M. The properties are partly let on long leases but some vacant premises exist for us to work with. I believe the properties are excellent investments and have full confidence in my colleagues in Finland. The properties have attractive locations and complement our existing portfolio well. A continued positive earnings trend expected in 214 Finally, profit from property management in 214 is forecast to amount to SEK 6 M based on the current property portfolio and announced acquisitions and divestments. The forecast corresponds to SEK 3.15 per common share, which is 15% higher than the outcome in. Accordingly, we assess the company as being well placed ahead of 214. Outlook For the new fiscal year, I see many indicators in property companies favor: interest rates continue to be low, interest margins at banks and in capital markets appear to be decreasing, availability of Stockholm, February 12, 214 DAVID MINDUS Chief Executive Officer Year-end report 1

4 BUSINESS CONCEPT, GOALS AND STRATEGIES Business concept AB Sagax is a property company whose business concept is to invest in commercial properties, primarily in the warehouse and light industry segment. Company goals The overriding goal is the long-term generation of the maximum risk-adjusted return to the company s owners. To reach this goal, Sagax has set the following operational targets: Operations must generate a long-term sustainable return and strengthen cash flow. The company s will continue to grow through property acquisitions after taking into account the risk-adjusted return. Measured in real terms, the company will create cash-flow growth from the existing property portfolio. Financial targets Return on equity, measured over a five-year period, must amount to not less than 15% per year. The average return over the past five years was 15% per year. Profit from property management per common share must increase by a minimum of 15% per year. The average increase over the past five years was 2% per year. The long-term target for the interest-coverage ratio is a minimum of 15%. The average interest-coverage ratio over the past five years was 23%. The long-term target for the debt ratio is less than 7%. The average debt ratio over the past five years was 67%. The following diagram illustrates the outcome for the last five years in relation to the financial targets. DEBT RATIO RETURN ON EQUITY % 8 % Debt ratio Over the long term, must never be more than Return on equity Return on equity, rolling 5 years Objective for return on equity over a five-year period INTEREST COVERAGE RATIO PROFIT FROM PROPERTY MANAGEMENT PER COMMON SHARE % 3 SEK % Interest coverage ratio Over the long term, must never be less than Profit from property management per common share, rolling 12 months Annual growth rate, rolling 12 months Objective for annual growth rate 2 Year-end report

5 Strategies Management strategy Sagax pursues efficiency and a long-term approach in its management strategy. The management strategy includes actively pursuing long leases. This applies equally to new leases and to the management of existing leases. Company policy is to abstain from attempting to maximize rent levels in favor of reaching lease agreements of a longer duration with solvent tenants. The average lease term for the portfolio as a whole was 8. (8.4) at year-end. Investment strategy Sagax invests primarily in warehouse and industrial properties. Sagax invests in complementary acquisitions and investments in existing properties. Property acquisitions and investments in the existing portfolio are aimed at increasing cash flow and diversifying rental revenue to thereby reduce the company s operational and financial risks. The following diagram illustrates Sagax s rate of growth in terms of the properties market value and lettable area since 24. Funding strategy The funding structure of Sagax is designed with a clear focus on operating cash flow and the interest-coverage ratio. This is expected to create excellent prerequisites for expansion and an attractive return on shareholders capital. The following diagram shows Sagax s operating profit from property management and cash flow over time. As illustrated, cash flow corresponds closely to profit from property management. The deviation is attributable primarily to the reinvestment of cash flow from associated companies in the operations of associated companies. Sagax applies a conservative approach to risk. Accordingly, the company pursues long-term fixed interest and maturity structures to secure operating cash flow. The average fixed-interest period was 3.7 (5.2) at year-end, which is deemed satisfactory. The long fixedinterest period reduces interest sensitivity but means a higher average interest rate than a shorter fixed-interest period. Sagax pursues a low refinancing risk by contracting the refinancing of long-term interest-bearing liabilities in a timely fashion. The average maturity structure was 3.5 (4.3) at year-end, which is deemed satisfactory. Sagax has three classes of shares: Class A common shares, Class B common shares, and preference shares. The preference shares enable Sagax to attract investor categories that value a high, steady stream of dividends. The preference shares diversify Sagax s capital base and allow the company to increase the Group s capital without increasing the number of common shares. In, Class B shares in Sagax were issued for the first time through a bonus issue intended to positively impact the liquidity and price of common shares in parallel with contributing to enhance Sagax s financial flexibility. Dividend strategy Sagax s dividend strategy is to distribute about one third of the annual profit from property management in total dividend payments on common and preference shares. In addition, the Board can propose the distribution of non-recurring profits to shareholders. MARKET VALUE AND AREA OF PROPERTIES PROFIT FROM PROPERTY MANAGEMENT AND CASH FLOW s square meters 1,5 SEK M 12, SEK M 6 1,2 1, , 6, 4, , Lettable area Market value Profit from property management, rolling annual value Cash flow from operating activity before change in working capital, rolling annual value Year-end report 3

6 EARNINGS, REVENUE AND EXPENSES The profit/loss and cash-flow items below refer to the January to December period. The comparative items refer to the year-earlier period. Amounts for the balance-sheet items and comparative figures refer to the position at the end of and respectively. Earnings Profit from property management rose 25% to SEK 521 M (418), of which associated companies accounted for SEK 79 M (43). The increase was attributable to property investments and profit participation in associated companies. Profit from property management per common share after dilution rose 27% to SEK 2.73 (2.15). The properties were revalued by SEK 134 (148) M, of which the revaluation of associated companies accounted for SEK 2 M (13). Sagax s financial instruments were revalued by a total of SEK 197 M (neg: 7), of which a positive SEK 21 M (neg: 7) pertained to unrealized changes in the value of fixed-income derivatives and a negative SEK 4 M (-) to realized changes in the value of fixed-income derivatives. Sagax s earnings were also impacted by SEK 68 M (neg: 14) due to the revaluation of fixed-income derivatives in associated companies. The revaluations were performed due to the rise in long-term market interest rates over the year and because twelve months had passed with a corresponding decrease in the provision requirement. Profit after tax for the year was SEK 777 M (372). Revenues Rental revenue increased to SEK 919 M (824). Revenue was positively affected by property acquisitions, revenue-increasing investments in the existing property portfolio and indexation of rental revenue. Other revenue of SEK 9 M (2) primarily comprised compensation from tenants who had been granted the right to prematurely vacate their premises during the year. PROFIT FROM PROPERTY MANAGEMENT ECONOMIC LEASING RATE SEK M/Quarter SEK M/Year % Profit from property management per quarter Rolling annual value Leasing rate Rolling annual value RENTAL REVENUE SEK M/Quarter SEK M/Year 1, Rental revenue per quarter Rolling annual value 4 Year-end report

7 Change in the economic leasing rate The economic leasing rate was 92%, compared with 93% at yearend. During, the vacancy value rose SEK 34 M (26) due to tenants vacating premises and declined SEK 26 M (1) due to occupancies. Discounts provided on a fixed-term basis changed by SEK 1 M (neg: 5) at an annual rate and amounted to SEK 23 M (23) on an annual basis at year-end. The terms for the discounts are described in the table below. The closing vacancy value was SEK 8 M (66). Stockholm accounts for a total of 63% (64%) of the vacancy value. Future vacancy changes Notice of termination had been served for leases with a rental value of SEK 21 M (28) at year-end, of which notice of renegotiation accounted for SEK 1 M () and notice of vacating the premises for SEK 2 M (28). Of the leases for which notice of vacating the premises had been received, vacancies corresponding to SEK 11 M will occur in 214. The rate of vacating premises is stated in the table below. New lettings that have not yet been occupied reduced the adjusted vacancy value by SEK 17 M (5). VACANCY CHANGES Amount in SEK M Opening vacancy for each year Vacancies Occupancies 26 1 Change in discounts provided 1 5 Vacancy value, acquired properties 5 Vacancy value, sold properties 1 Currency effect 1 TERMS FOR DISCOUNTS PROVIDED Year of maturity SEK M >218 1 Total 23 Closing vacancy value 8 66 Terminated for renegotiation 1 Terminated lease, not vacated 2 28 New letting, not occupied 17 5 Adjusted closing vacancy value LEASES TERMINATED FOR VACANCY Year of vacancy No. of leases Rental value, SEK M Total 19 2 VACANCIES ON JANUARY 1, 214 Area Rental value, SEK M Vacancy value, SEK M 1) Economic vacancy rate 1) Lettable area, sqm Vacant area, sqm Vacancy rate by area Stockholm % 54, 54, 11% Rest of Sweden % 372, 24, 6% Helsinki % 185, 1, 5% Rest of Finland 11 27, Other % 68, Total 1,51 8 8% 1,336, 88, 7% 1) The vacancy value and vacancy rate take into account vacancies as well as discounts provided to tenants. Year-end report 5

8 Property expenses Operating and maintenance costs rose to a total of SEK 77 M (66). The increase was due to property acquisitions and higher costs for heating and snow clearance in the first half of. Property tax and site leaseholds amounted to SEK 38 M (33). Costs for property tax increased in due to raised tax assessment values. The vast majority of these costs was passed on to tenants and, accordingly, the impact on earnings was marginal. Costs for property administration amounted to SEK 17 M (18). Central administration Costs for the company s central administration amounted to SEK 42 M (38). Central administration costs corresponded to.4% (.4) of the properties market value. The Parent Company, AB Sagax, is responsible for stock market issues, such as financial reporting and stock market information. The Parent Company is also responsible for credit market issues, such as borrowing and financial risk management. Services transferred between Group companies are charged on commercial terms and conditions and in accordance with market-based pricing. Intra-Group services comprise management services and internal interest charging. In, the Parent Company s fees for property and company management from Group companies amounted to SEK 24 M (9) and from associated companies to SEK 9 M (8). The Parent Company s income statement and balance sheet are shown on page 21. At the end of the period, the Group had 29 employees, of whom 12 were women. 21 employees work at the Parent Company and are stationed at the company s office in Stockholm, and eight employees work in one of the Finnish subsidiaries and are stationed in Helsinki. The other subsidiaries have no employees. Such functions as property management and on-call operations are outsourced. Profit from associated companies Profit from associated company property management amounted to SEK 79 M (43) and pertained to Sagax s shares in the earnings of the associated companies Söderport and Hemsö. For more information, see Associated companies on page 14. Profit from associated companies including changes in the value of properties and fixed-income derivatives amounted to SEK 149 M (42), of which profit from property management accounted for SEK 79 M (43) M, changes in the value of fixed-income derivatives SEK 68 M (neg: 14) and changes in the value of properties SEK 2 M (13). Net financial items Sagax s financial expenses amounted to SEK 313 M (33). The company s average interest rate was 4.4% (4.6%) at December 31. In, due to refinancing of property acquisitions, interestbearing liabilities increased to SEK 7,32 M (6,3), which also explains the increase in financial expenses. However, over the past few years, Sagax s debt ratio has declined in parallel with a rise in the interest-coverage ratio; see following diagram. This means that financial expenses have declined relative to Group revenue. For more information about funding at Sagax, see page 15. Sagax s financial income amounted to SEK 1 M (7). The decline was mainly due to a non-recurring revenue received by Sagax in in the form of interest compensation of SEK 4 M. DEBT RATIO AND INTEREST-COVERAGE RATIO Interest-coverage ratio, % Debt ratio,% Interest-coverage ratio Debt ratio Year-end report

9 Revaluations of properties At December 31,, the property portfolio comprised 141 (134) properties with a market value of SEK 1,825 M (9,396). The value performance for operations in Sweden amounted to SEK 44 M (64) and for foreign operations to SEK 92 M (7). New lettings and renegotiations of leases increased the market value of the properties by SEK 6 M. The general change in market value was SEK 1 M (17). The market value of the property portfolio was revalued by a total amount of SEK 136 M (134), excluding currency effects. The change in the market value of the property portfolio is also described on page 13. UNREALIZED CHANGES IN VALUE Amount in SEK M New lettings/renegotiations 55 Vacancies/Renegotiations 17 General change in market value 6 Sub-total Sweden 44 New lettings/renegotiations 5 Vacancies/Renegotiations 7 General change in market value 94 Sub-total Foreign 92 Total unrealized changes in value 136 The weighted yield requirement used in the valuations was 8.% (8.). The weighted cost of capital for the present value calculation of cash flows and residual values amounted to 9.4% (9.2) and 9.8% (9.8), respectively. See also the section on analysis and general conditions on page 13. Revaluation of financial instruments Sagax s financial instruments at December 31, exclusively comprised fixed-income derivatives in the form of nominal interestrate swaps and interest-rate ceilings. All financial instruments are recognized at market value and changes in market value are recognized in profit and loss. Changes in value for amounted to SEK 197 M (neg: 7), of which a positive SEK 21 M (neg: 7) pertained to unrealized changes in the value of fixed-income derivatives and a negative SEK 4 M (-) to realized changes in value. Sagax recognizes positive unrealized changes in the value of fixed-income derivatives because market interest rates rose during the year. The reserve for the deficit value of fixed-income derivatives at the end of was SEK 316 M (52); refer to the section on funding on page 15. The reserve for these deficit values will be gradually dissolved and reversed to profit and loss by the expiry date of the derivative contracts, regardless of the interest rate scenario. Accordingly, the revaluations do not impact Sagax s cash flow or debt ratio. Sagax s earnings were also impacted by SEK 68 M (neg: 14) due to the revaluation of fixed-income derivatives in Sagax s associated companies. In its consolidated financial statements, Sagax continuously recognizes the company s share of deficit values for its associated companies fixed-income derivatives. Tax Sagax recognizes a current tax expense of SEK 5 M (refund: 6) for the operations in Germany and Finland. The deferred tax expense for the year amounted to SEK 155 M (116). From the 214 fiscal year, the tax rate in Finland will be lowered to 2% from 24.5%. This has resulted in remeasurement of the deferred tax liability by SEK 31 M, which lowered Sagax s tax expense for by a corresponding amount. Sagax s share of its associated companies tax expenses is recognized in Sagax s profit and loss. The deferred tax expense for associated companies amounted to SEK 9 M (9). Tax exempt gains from the sale of real property packaged as companies contributed to the low tax expense at associated companies. The Group s deferred tax assets and tax liabilities amounted to SEK 2 M (3) and SEK 336 M (187), respectively, at the end of the year. Deferred tax assets were recognized net against deferred tax liabilities for the respective countries in the balance sheet. Sagax is not involved in any tax disputes. DEFERRED TAX ASSETS/TAX LIABILITIES BY COUNTRY Amount in SEK M Dec 31, Sweden 183 Finland 139 Germany 14 Denmark 2 Net tax assets/tax liabilities 334 Cash flow Cash flow from operating activities before changes in working capital amounted to SEK 426 M (364). Changes in working capital had an adverse impact of SEK 14 M (pos: 25) on cash flow. Investing activities had an adverse impact of SEK 1,42 M (neg: 398) on cash flow, while cash flow from financing activities contributed SEK 756 M (46) to Sagax. In total, cash and cash equivalents declined SEK 252 M (increase: 36) during the period. See page 18 for the statement of cash flows. Year-end report 7

10 FORECAST AND CURRENT EARNINGS CAPACITY Forecast for 214 Profit from property management for 214, meaning profit before revaluations and tax, based on the current property portfolio and announced acquisitions and divestments is expected to amount to SEK 6 M. Current earnings capacity The table below shows Sagax s earnings capacity on a 12-month basis. It is important to note that this capacity cannot be compared with a forecast for the forthcoming 12 months because it does not contain assessments about, for example, future vacancies, the interest rate scenario, currency effects, trends in rents or changes in value. Nor does it take into account repayments, when agreed rent supplements come into effect or discounts provided cease to apply. Sagax reports its current earnings capacity in conjunction with interim reports and year-end reports. The rental value is based on contractual rental revenue on an annual basis, with supplements for estimated market rents for vacant premises. Property expenses are based on actual outcomes over the most recent 12-month period adjusted for the holding period. Costs for central administration are based on actual outcomes over the most recent 12-month period. Net financial items are calculated based on interest-bearing liabilities and assets on the balance sheet date. Expenses for interest-bearing liabilities are based on the Group s estimated average interest rate, with the addition of financing costs allocated over time. Tax is calculated at the standard tax rate of 22% and is deemed to almost exclusively comprise deferred tax. Sagax s share of profit in associated companies is calculated in accordance with the same assumptions as for Sagax, taking into account the size of the participation. CURRENT EARNINGS CAPACITY CURRENT EARNINGS CAPACITY BEFORE TAX Amount in SEK M Jan 1, 214 Jan 1, Rental value 1,51 91 Vacancy 8 66 Rental revenue Property expenses Net operating income Central administration Share of profit in associated companies Net financial items Profit from property management Tax Profit after tax of which holders of preference shares 1 1 of which holders of common shares SEK M YIELD AND LENDING RATE DIFFERENCE BETWEEN YIELD AND LENDING RATE % 1 % Yield of Sagax s properties Sagax s average lending rate Ten-year swap rate Difference between yield of Sagax s properties and ten-year swap rate Difference between yield of Sagax s properties and Sagax s average interest rate 8 Year-end report

11 Söderbymalm 7:49 in Haninge comprises 8,8 square meters of lettable area and is let to Luthman SMTTS AB, a music equipment wholesaler. In, Sagax invested SEK 17 M in rent supplements and extensions of lease agreements. Sagax constructed 1,7 square meters of lettable area adjacent to existing warehouse facilities. Year-end report 9

12 PROPERTY PORTFOLIO At December 31,, the property portfolio comprised 141 (134) properties with a lettable area of 1,336, square meters (1,159,). The average remaining lease term was 8. years (8.4). The focus of the portfolio is on the Stockholm region where 46% (47) of the market value and 45% (47) of the rental value is concentrated. The total rental value and annual contractual rent amounted to SEK 1,51 M (91) and SEK 971 M (835), respectively, at the end of the year. This corresponds to an economic leasing rate of 92% (93). In, Sagax acquired 14 properties with a total lettable area of 188,3 square meters; see table below. After year-end, Sagax also took possession of five properties with a total lettable area of 92, square meters. A total of SEK 141 M (26) pertained to investments in the existing property portfolio. SEK 83 M (213) of the investments for the year were made against rent supplements, SEK 25 M (32) was invested in conjunction with new leases and SEK 33 M (15) pertained to property maintenance. Investments During, Sagax invested SEK 1,263 M (462), of which property acquisitions accounted for SEK 1,122 M (23). SEK 51 M of the investments pertained to Stockholm and SEK 57 M to Helsinki, corresponding to 81% of the investments made during the year. Divestments During, Sagax vacated seven properties for a total purchase consideration of SEK 94 M; see table below. PROPERTY INVESTMENTS Amount in SEK M Property acquisitions Existing portfolio Total Stockholm Rest of Sweden Helsinki Rest of Finland Other Total 1, ,263 LEASE TERMS No. of Contractual annual rent Matures in leases Area, sqm SEK M Share % % % % % > % Totalt % PROPERTY ACQUISITIONS JANUARY-DECEMBER Property Municipality Segment Lettable area, sqm Jordbromalm 4:3 Haninge Stockholm 51,4 Blåsbälgen 1 Borlänge Rest of Sweden 18,1 Grävskopan 2 Borlänge Rest of Sweden 1,4 Karaportti 8 Esbo Helsinki 16,1 Hakamäenkuja 8 Vanda Helsinki 1,1 Hakamäenkuja 1 Vanda Helsinki 1,1 Sähkötie 8 Vanda Helsinki 6,9 Virkatie 7 Vanda Helsinki 11, Virkatie 8A Vanda Helsinki 1, Virkatie 8A Vanda Helsinki Virkatie 8B Vanda Helsinki 6, Palkkittie 3 Tusby Helsinki 13,8 Murrontie 3 Forssa Rest of Finland 31,1 Hiidenmäentie 2 Vichtis Rest of Finland 2,3 PROPERTY DIVESTMENTS JANUARY-DECEMBER Property Municipality Segment Lettable area, sqm Kalvholmen 1 Stockholm Stockholm 4,4 Brogårdshemmet 14 Vetlanda Rest of Sweden 5,6 Kättingen 1 Säffle Rest of Sweden 7 Gravören 9 Växjö Rest of Sweden 1, Brårud 1:117 Sunne Rest of Sweden 8 Lampan 1 Arvika Rest of Sweden 8 Poppeln 29 Mariestad Rest of Sweden 4 Total 13,7 Total 188,3 1 Year-end report

13 SUMMARY OF PROPERTY PORTFOLIO, JANUARY 1, 214 Segment No. of properties Lettable area, sqm Vacant area, sqm Market value SEK M SEK per sqm Rental value, SEK % of rental value Rental revenue Economic leasing rate SEK M Share Stockholm 57 54, 54, 4,969 9, % 89% % Rest of Sweden , 24, 2,338 6, % 93% 2 2% Helsinki , 1, 1,576 8, % 96% % Rest of Finland 13 27, 1,165 5,6 11 1% 1% 11 11% Other 6 68, ,4 82 8% 92% 76 8% Total 141 1,336, 88, 1,825 8,1 1,51 1% 92% 971 1% YEAR OF MATURITY OF ANNUAL RENT GROUP S RENTAL VALUE SEK M Other 8 % Rest of Finland 1 % Stockholm 45 % Helsinki 16 % Rest of Sweden 21 % Year-end report 11

14 Tuna Äng 3 in Botkyrka was acquired in January 214. The property comprises 7,2 square meters of lettable area and is let to Havilog, a logistics company with 5,5 employees in Europe. 12 Year-end report

15 MARKET VALUE OF PROPERTY PORTFOLIO Sagax prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Sagax has chosen to recognize its properties at fair value in accordance with the Fair Value Method. At December 31,, the total market value of Sagax s 141 (134) properties was SEK 1,825 M (9,396). The strengthening of the EUR against the SEK during led to property values abroad increasing SEK 124 M (decline: 93). The total change in value during the period was SEK 136 M (134); refer also to the table Unrealized changes in value on page 7. In accordance with IFRS, a deferred tax expense of SEK 35 M taken into account in conjunction with acquisitions reduced the property values in the balance sheet. The recognized property value subsequently amounted to SEK 1,79 M (9,361). Valuation method and implementation The valuations were carried out in accordance with generally accepted international valuation methods. As of December 31,, all valuation objects were valued separately by authorized property appraisers from independent valuation agencies. The main method applied to the value assessment involved cash flow calculations, in which the present value of net operating income, investments and residual values were calculated. The calculation period was adjusted to the remaining term of existing leases and varies between five and 2 years. As a rule, the calculation period is ten years. All properties have been inspected over the past three-year period. These inspections include public areas and a selection of premises with specific emphasis on major tenants and vacant premises. The purpose of the inspections is to assess the properties overall standard, maintenance requirements, market position and the attractiveness of the premises. Analysis and general conditions The cost of capital for the present value calculation of cash flows ( %), the cost of capital for the present value calculation of residual values ( %) and the yield requirement for the residual value calculations ( %) are based on analyses of transactions carried out and on individual assessments of the risk level and market position of each property. The weighted cost of capital for the present value calculation of cash flows and residual values for the property portfolio amounted to 9.4% (9.2) and 9.8% (9.8), respectively. The weighted yield requirement amounted to 8.% (8.) at December 31,, compared with an average yield requirement of 8.% at September 3,. By comparison, the yield reported by Sagax in was 7.7% (7.8%). Weighted yield requirements are compared with the reported yield over time below. CHANGE IN CARRYING AMOUNT OF PROPERTIES SEK M Number Property portfolio, December 31, 9, Acquisition of properties 1, Investments in existing portfolio 141 Divestment of properties 94 7 Translation difference attributable to foreign property values 124 Change in value 136 Property portfolio, December 31, 1, YIELD COMPARED WITH YIELD REQUIREMENT % Acquired deferred tax Carrying amount 1,79 Reported yield Yield requirement used in valautions Yield on 1-year government bonds MARKET VALUE OF PROPERTIES Other 7 % (SEK 777 M) Stockholm 46 % (SEK M) Rest of Finland 11 % (SEK M) Helsinki 15 % (SEK M) Rest of Sweden 21 % (SEK M) Year-end report 13

16 ASSOCIATED COMPANIES Sagax s associated companies Söderport Holding AB and Hemsö Intressenter AB contributed a total of SEK 79 M (43) M to profit from property management during the year. Sagax s share of changes in the value of properties amounted to SEK 2 M (13) and the share of changes in the value of fixed-income derivatives was SEK 68 M (neg: 14) during the year. Sagax s carrying amount for the share of equity in associated companies amounted to SEK 669 M (262) at December 31,. During, Sagax divested shares in the former associated company Segeltorp Holding AB, resulting in a realized change in value of SEK 16 M. Söderport Holding AB Sagax owns 5% of Söderport Holding AB, with the remaining shares owned by Hemfosa Fastigheter AB. On behalf of Söderport, AB Sagax provides property management and financial management services to the Söderport Group. Söderport contributed SEK 46 M (4) to Sagax s profit from property management during. A total of 92% of Söderport s lettable property area and 1% of the company s vacant area is located in Stockholm. Söderport s economic vacancies amounted to SEK 5 M (56) at the end of the year, corresponding to a vacancy rate of 15%. Of the economic vacancies, SEK 13 M (12) comprised fixed-term rent discounts provided for new lettings. These discounts corresponded to 27% (21%) of the economic vacancies, corresponding to 4 percentage points of the vacancy rate. In, Söderport sold and vacated 121 properties from the portfolio of 142 properties acquired from Bilprovningen in. The sold properties corresponded to an underlying market value totaling SEK 433 M. In January 214, Söderport also vacated an additional 11 properties from this portfolio with a total underlying market value of SEK 56 M. Hemsö Intressenter AB Via Hemsö Intressenter AB, Sagax indirectly owns 15% of Hemsö Fastighets AB, with the remaining share owned by the Third Swedish National Pension Fund. Sagax took possession of the shares in Hemsö Intressenter in mid-. Hemsö contributed SEK 32 M ( ) to Sagax s profit from property management during. Hemsö Fastighets AB operates in 9 municipalities in Sweden, 15 cities in Germany and, since, even in Turku, Finland. Operations comprise owning, managing and developing community service properties. The company s property portfolio encompasses 348 properties with a total property value of slightly more than SEK 22,637 million at December 31,. The properties located in the three Swedish metropolitan regions of Stockholm, Gothenburg and Malmö accounted for 4% of the properties market value. The foreign property portfolio accounted for 8% of the properties market value. Hemsö Fastighets AB posted revenue of SEK 1.9 billion in and reported a profit from property management of SEK 674 M and profit after tax for of SEK 528 M. More information about Hemsö Fastighets AB is available on the company website: SAGAX S ASSOCIATED COMPANIES Söderport Hemsö Dec 31 Dec 31 Dec 31 Dec 31 Sagax s participating interest,% Rental revenue, SEK M ET Profit from property management, SEK M ET Profit for the year, SEK M ET Sagax s share of profit from property management, SEK M ET No. of properties ET Rental value, SEK M ET Properties market value, SEK M 2,949 3,276 22,637 ET Lettable area, sqm 366, 463, 1,622, ET Lease term, years ET Economic vacancy rate,% ET Interest-bearing liabilities, SEK M 2,1 2,34 14,699 ET Loan maturity, years ET Fixed-interest period, years ET Market value for fixed-income derivatives, SEK M ET 14 Year-end report

17 FUNDING Equity The Group s equity amounted to SEK 3,723 M (2,794) at December 31,. In, the net increase in Sagax s equity was SEK 929 M, of which SEK 832 M was generated by operations and SEK 284 from the new issue of Class B shares to the Third Swedish National Pension Fund. SEK 163 M was distributed and Class B shares to a value of SEK 24 M were bought back. Interest-bearing liabilities Sagax s interest-bearing liabilities at the end of the year amounted to SEK 7,32 M (6,3). Of these interest-bearing liabilities, an amount corresponding to SEK 2,145 M (1,875) was recognized in EUR. Interest-bearing liabilities rose SEK 71 M (decline: 64) due to exchange-rate fluctuations during the year. Sagax s interest-bearing net debt amounted to SEK 6,897 M (5,916), corresponding to 64% (63%) of the market value of the properties. Interest-bearing net debt to banks corresponded to 54% (57) of the market value of the properties at December 31,. The remaining 1% (6) comprised listed bond loans of SEK 1,1 M (6), of which SEK 5 M was issued in. In accordance with IFRS, distributed borrowing costs of SEK 48 M (48) reduced interest-bearing liabilities in the balance sheet. Interest-bearing liabilities of SEK 6,985 M (6,252) were recognized in the balance sheet. The average remaining fixed-interest period and loan maturity was 3.7 years (5.2) and 3.5 years (4.3), respectively, at the end of the year. The average interest rate for the company s interest-bearing liabilities was 4.4% (4.6%) including the effects of derivative instruments at the end of the year. Different types of fixed-income derivatives are used to limit the interest-rate risk and increase the predictability of the company s profit from property management. Accordingly, the company s profit from property management will only be affected by changes in general interest rates to only a slight extent in the foreseeable future; refer to the sensitivity analysis on page 25. Due to higher market interest rates during the year, the reserve for the negative market value of fixed-income derivatives declined by SEK 24 M (increase: 67). The total market value of Sagax s fixed-income derivatives was a negative SEK 316 M (neg: 52) on the balance sheet date. The reserve of SEK 316 M will be gradually dissolved and recognized in profit and loss by the expiry date of the derivative contracts, regardless of the interest rate scenario. The time factor alone, all other things being equal, entails that reserves for the deficit values of fixed-income derivatives in Sagax will be dissolved in a total amount of SEK 93 M over the next year. Over a five-year period, as a result of the time factor alone and with the assumption of unchanged market interest rates, a total of SEK 35 M would be recognized as revenue in the consolidated financial statements. Sagax entered into agreements for one nominal interest rate swap for a total of SEK 14 M beginning in 214 and expiring in 221. This derivative with an interest rate of 3.6% led to an extension of Sagax s fixed-interest term and did not affect the recognized interest rate level. Working capital and liquidity Sagax s working capital, excluding current interest-bearing liabilities, amounted to negative SEK 58 M (pos: 121) at December 31,. Sagax s available access to funds was SEK 772 M (979), of which SEK 128 M (379) in the form of bank deposits and SEK 644 M (6) in the form of unutilized committed lines of credit. No additional collateral is needed to be pledged to utilize these lines of credit. FIXED-INTEREST PERIOD AND LOAN MATURITY DECEMBER 31, Fixed-rate period Loan maturity Matures in SEK M Interest Share SEK M Share 214 2,48 2,5% 29% 163 2% ,1% 7% 458 7% ,1% 1% 223 3% 217 1,194 6,1% 17% 1,587 23% ,2% 14% 4,332 61% >218 2,269 5,3% 32% 28 4% Total/average 7,32 4,4% 1% 7,32 1% DERIVATIVES, DECEMBER 31, Amount in SEK M Nominal amoun Share Market value Dec 31, Market value Dec 31, Change for the period Nominal interest-rate swaps 4,443 89% Interest-rate ceiling % Total 5,8 1% Year-end report 15

18 STATEMENT OF COMPREHENSIVE INCOME Amount in SEK M Oct-Dec Oct-Dec Rental revenue Other revenue Operating expenses Maintenance costs Site leaseholds Property tax Property administration Net operating income Central administration Profit from associated companies of which, profit from property management of which, change in the value of properties of which change in the value of financial instruments Financial income Financial expenses Profit including changes in value in associated companies of which, Profit from property management Changes in value: Properties, realized 4 1 Properties, unrealized Financial instruments, realized 4 Financial instruments, unrealized Participations in associated companies, realized 16 Profit before tax Deferred tax Current tax Profit for the period Other comprehensive income items that may be reversed to profit and loss: Translation differences Comprehensive income for the period Earnings per common share, SEK 1) Earnings per common share after dilution, SEK 1) Average number of common shares, millions 1) Average number of common shares after dilution, millions 1) ) Comparative figures have been adjusted for the bonus issue of Class B shares in, by multiplying the number of shares by 11. The conditions of the bonus issue were 1 Class B shares for each Class A share. The bonus issue was registered on April 4,. 16 Year-end report

19 CONDENSED STATEMENT OF FINANCIAL POSITION Amount in SEK M Dec 31 Dec 31 Investment properties 1,79 9,284 Investment properties for sale 77 Participations in associated companies Deferred tax assets 2 3 Other fixed assets 9 14 Total fixed assets 11,47 9,64 Cash and bank balances Other current assets Total current assets Total assets 11,683 1,88 Equity 3,723 2,794 Long-term interest-bearing liabilities 6,822 6,19 Deferred tax liabilities Financial instruments Other long-term liabilities 3 3 Total long-term liabilities 7,478 6,73 Current interest-bearing liabilities Interest-bearing liabilities attributable to properties for sale 44 Other current liabilities Total current liabilities Total equity and liabilities 11,683 1,88 Year-end report 17

20 STATEMENT OF CASH FLOWS Amount in SEK M Oct-Dec Oct-Dec Profit before tax Change in value of financial instruments Change in value of properties Profit/loss from ownership of associated companies Tax paid Other items not included in cash flow Cash flow from operating activities before changes in working capital Cash flow from changes in current receivables Cash flow from changes in current liabilities Cash flow from operating activities Acquisition of properties 1, Divestment of properties Investments in existing properties Acquisition of shares 4 4 Divestment of participations in associated companies 4 Capital contribution to associated companies 285 Decrease in other fixed assets 1 Increase in other fixed assets Cash flow from investing activities 1, Issue of common shares 285 Issue of preference shares Dividend paid to shareholders Repurchase of treasury shares Borrowings 1, Repayment of loans 933 1, Redemption of financial derivatives 4 1 Decrease in other long-term liabilities 2 1 Cash flow from financing activities Cash flow for the period Exchange-rate differences in cash and cash equivalents 1 1 Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at the end of the period Year-end report

21 STATEMENT OF CHANGES IN EQUITY Amount in SEK M Share capital Other contributed capital Reserves Profit earned incl. profit for the year Total equity Equity, December 31, ,14 2,223 Dividends Newly issued preference shares Transaction costs 9 9 Comprehensive income, January-December Equity, December 31, 317 1, ,335 2,794 Reduction of share capital Bonus issue Newly issued Class B shares Transaction costs 1 1 Dividends Repurchase of treasury shares Comprehensive income, January-December Equity, December 31, 1) 366 1, ,925 3,723 1) Equity is attributable in its entirety to the Parent Company s shareholders. OTHER INFORMATION Changes in value, properties Profit items per segment Rental revenue 1) Profit from property management Unrealized Realized Profit/loss before tax Amount in SEK M Stockholm Rest of Sweden Helsinki Rest of Finland Other Total segment level Financial instruments Associated companies Other, non-specified Total Asset items per segment Market value properties Investments properties Acquisitions properties Divestment properties Amount in SEK M Dec 31 Dec 31 Stockholm 4,969 4, Rest of Sweden 2,338 2, Helsinki 1, Rest of Finland 1,165 1, Other Total segment level 1,825 9, , Other, non-specified Total 1,825 9, , ) All rental revenue pertains to external tenants. Year-end report 19

22 KEY PERFORMANCE INDICATORS jan-dec jan-dec 211 jan-dec 21 jan-dec 29 jan-dec 28 jan-dec Property-related Yield,% Surplus ratio,% Leasing rate by area,% Economic leasing rate,% Lease term, years Lettable area, thousands of square meters 1,336 1,159 1,144 1, No. of properties Financial Return on total capital,% Return on equity,% Average interest rate,% Fixed-interest period incl. derivatives, year Loan maturity, years Equity ratio,% Debt ratio,% Net debt/market value of the properties,% Interest-coverage ratio, multiple Data per common share 1) Share price at the end of the period, SEK ) EPRA NAV, SEK Equity, SEK Equity after dilution, SEK Profit/loss, SEK Profit/loss after dilution, SEK Profit from property management, SEK Profit from property management after dilution, SEK Cash flow, SEK Cash flow after dilution, SEK No. of shares at end of period, millions No. of shares at end of period after dilution, millions Average no. of shares, millions Average number of shares after dilution, millions Data per preference share Share price at the end of the period, SEK Equity, SEK Earnings, SEK No. of shares at the end of the period, millions Average no. of shares, millions ) Comparative figures have been adjusted for the bonus issue of Class B shares in, by multiplying the number of shares by 11. The conditions of the bonus issue were 1 Class B shares for each Class A share. The bonus issue was registered on April 4,. 2) Pertains to the share price for the Class B share. 2 Year-end report