The Annual Report
”We’re sitting in the middle of the floW of business prospects Which means that We can react quickly and make decisions When the opportunity arises”
anders Jarl Chief Executive Officer
Wihlborgs Fastigheter AB
January–December 2006
contents
1 The year in summary 2 CEO’s review 4 History 6 Operations 8 Organisation and employees 10 The Environment 12 The share 14 Market overview 17 Property portfolio 32 Projects and development 34 List of property acquisitions and sales 36 Valuation principles 39 List of properties 46 Risk factors 47 Tax situation
48 Administration Report
financial reports 51 Profit and loss account 52 Balance sheet 54 Changes in equity 55 Cash flow statement 56 Accounting principles
62 Notes 69 Audit Report
70 Corporate Governance Report
78 Five-year Summary and Definitions
79 Articles of Association
production:
Wihlborgs in collaboration with Pennan AB, Lund 2007.
Svanenmärkt, license no. 341 115.
Photographs: Marcus Carlsson, Bertil Hagberg, Ola Hansson, Stefan Larsson, Martin Palvén.
MILJÖMÄRKT 341T RYC K S AK115
invitation to the annual general meeting
The Annual General Meeting of Wihlborgs Fastigheter AB (publ) will take place at 5 p.m. on Thursday 26 April 2007 at Slagthuset, Jörgen Kocksgatan 7A, Malmö.
Shareholders wishing to attend the meeting must be included in the register of shareholders maintained by VPC AB by 20 April 2007 at the latest, and must also send notification of their participation by letter to Wihlborgs Fastigheter AB, Box 97, 201 20 Malmö, or by e-mail to annika.nordbeck@wihlborgs.se or phone on +46 40 690 57 70 or fax on +46 40 23 45 52.
Notification must reach Wihlborgs by 4 p.m. on Friday 20 April 2007.
The notification must state the shareholders’ name, civic registration number/
corporate identity number, address, telephone number and number of shares owned. Shareholder with nominee-registered shares in order to participate must re-register their shares in their own name with VPC AB.
A request for such re-registration must be made in good time before Friday 20 April 2007.
financial information 2007
Interim report January-March: 26 April Interim report January-June: 16 August
Interim report January-September: 1 November
Wihlborgs is the leading property company in the Öresund region. the properties’ book value totals sek 11 billion with a lettable area of approximately 1 million sq.m. and an annual rental value of sek 1 billion.
Wihlborgs shares are listed on the stockholm stock exchange,
mid cap segment.
The year in summary
2006 entailed high transaction volumes both in terms of acquisitions and sales. Wihlborgs’ property portfolio has grown substantially through property acquisitions totaling SEK 3.6 billion.
The acquisition total includes Tornet’s Malmö holdings of fourteen proper- ties and the Ideon property in Lund.
The sales amounted a total purchase price of SEK 1.6 billion. During the year, new full-year tenancy agreements amounted to SEK 80m with notices of termination amounting to SEK 60m. Profit after taxes amounted to SEK 850m (470m).
May 2006 Wihlborgs implemented a 2:1 share split, one old share was replaced with two new shares. The split meant that the number of outstand- ing and registered shares increased from 19 214 182 to 38 428 364.
Wihlborgs shares are listed on the Stockholm Stock Exchange, Mid cap segment.
n Rental income for 2006 amounted to SEK 909m (736m) n The profit for the year after tax was SEK 850m (470m) n Earnings per share increased to SEK 22,12 (12,33)
n The Board of Directors are proposing a dividend of SEK 5,50 (3,50) per share
n Equity/assets ratio was 32.7 (34.8).
Key ratios1 2006 2005
Rental income, SEKm 909 736
Net operating income, SEKm 627 497
Profit after financial items, SEKm 1,064 649
Return on equity, % 26,6 18,2
Equity/assets ratio, % 32,7 34,8
Interest coverage ratio, multiple 3,3 2,9
Earnings per share, SEK 22,12 12,33
Cash flow per share, SEK 10,96 8,24
Dividend per share, SEK2 5,50 3,50
1. For definitions, see page 78.
2. This refers to the Board of Directors proposal of dividend for 2006.
WIhLBoRg ANNUAL REPoRT 2006
1
A dynamic business in a dynamic region
n Dear Shareholders,
Wihlborgs’ business model for creating shareholder value is really quite simple. It’s a case of creating value for the customers and ensuring they are satisfied. But this demands that we as a landlord engage in our tenants’ (or customers as we like to call them) needs and activities. Today we are far from the traditional image of property management. For us it seems obvious to actively resolve our customers’ premises problems. This means that, together with our customers, we engage in discussion to arrive at a suitable position as well as an optimum design of the premises by starting from existing premises or a plot.
The concentration on commercial properties is a case of concentrating all our efforts and resources on one area. The concentration on the Öresund region is
also quite obvious. It is a dynamic region which has excellent prospects for con- tinued, positive growth.
Growth in the coming year is estimated at 4.5 per cent. All it needs is a quick look at the map to see how close the Öresund region is to the Continent’s pop- ulation centres. Even now, more people live in the Öresund region than any other region in the Nordic Area. Living and working life are now being quickly integrated despite certain remaining fiscal difficulties between Denmark and Swe- den. Despite this there are good opportunities for increased movement into the region as a whole. This is stimulated by good business prospects and recreation opportunities for employees.
It is easy to attract skills that can be developed at one of the 14 universities and colleges as well as even more research villages and clusters that are found in the region. Or one of the service and knowledge companies that are established here. Furthermore, the region has a well-developed communications structure, both digital and physical, and which is continuously being developed. Altogether, this means that Öresund is becoming an even more attractive region. We are sat right in the middle of this – close to our customers and their requirements. In this way we can offer short decision paths and, not least, good premises which can be refined in good locations.
These are premises that we have been able to acquire thanks to our local knowledge and long-term presence. That’s the other part of our business – transactions and project development. This is where we create value through acquiring and redeveloping properties which, later on, are sold on to other serious managers. Our portfolio is dynamic and we expect that, in the long term, we will have an average turnover of approximately 1 0 per cent of our properties. In this way we will renew our portfolio and adapt to market development.
During 2006 we were very active and increased our property portfolio by acquiring 45 properties in accordance with our acquisition strategy for a value of SEK 3.6 billion.
As the same time we have disposed of 17 properties for a total value of SEK 1.6 billion.
And I feel that we have been successful. During our second full year as an independent company, we increased our result from SEK 470m to SEK 850m, an increase by approxi- mately 80 per cent. We will therefore continue along the chosen path by acquiring and managing commercial properties that can be developed in our carefully-selected strate-
gic areas. Thereby strengthening our positions.
In plain words this means a strong presence in Lund, for example, which for vari- ous reasons is highly interesting and is therefore given priority. It is against this background that we should view the acquisition of Ideon AB. An area where we see considerable development potential. I am convinced that we can do a lot more with the property. But we also view it as a way to establish and develop interesting relationships within an area that is interesting for a number of reasons.
We will also strengthen our existing significant presence in different ways at Dockan in
”Tobebestatmeeting
ourcustomers’requirements
anddemands,wewill
concentrateouractivities
oncommercialproperties
intheÖresundregion.”
”We’resittinginthe
middleoftheflowof
businessprospectswhich
meansthatwecanreact
quicklyandmakedecisions
whentheopportunity
arises.”
”realisedand
anticipatedinterest
increaseswillprovide
acorrectionof
marketprices.”
WIhLBoRgS ANNUAL REPoRT 2006
3
Anders Jarl Chief Executive officer
Photo: Marcus Carlsson
”And we have the resources to invest
in good properties.”
”Environment as an integral part”
Västra Hamnen since Malmö’s office market is growing outwards towards the harbour at an ever-increasing rate. This is where we will be moving ourselves during the summer.
This means that we will be moving nearer to many of our customers.
Copenhagen is another priority area where we already have a presence. We will be increasing our presence in order to create a critical mass for effective manage- ment. At the same time we will gain a bridgehead for further development on the Danish side of the Öresund region. A market which after many years of stagnat- ing lease levels is beginning to appear increasingly interesting.
The recent time’s focus on environmental issues, and CO2 emissions in particular, is some- thing we take very seriously. With the environment as an integral part of our
activities, we are working continuously with environment-enhancing meas- ures. Our long-term environmental objective until 2009 is to reduce the con- sumption of electricity and heating (kWh/sq.m.) by 6 per cent in our properties.
I also believe that we will see a number of business opportunities as early as during the current year. I do not believe that we will see any major price falls. But a sufficient decline to initiate a number of sales of both good and less desirable properties. A trend that will possibly arise will also be strengthened by foreign investors changing their investment horizon.
Within the framework of the given solidity, Wihlborgs’ balance sheet can withstand fur- ther acquisitions to the value of approximately SEK 2 billion. Refer also to the income statement. We have traditionally chosen to finance our activities with a large proportion of variable interest rates since that has been shown to be the most profitable. To reduce interest costs during rising short-term interest rates in 2007 we use different interest deriv- atives. To our acquisition capacity I can add the 10 per cent renewal of the property port- folio that I spoke about earlier. I also expect that we will be able to expand our portfolio by a further 10 per cent through the profit and cashflows that we generate continuously.
This is because I believe in good growth for 2007 with further reductions in vacancies.
There was strong growth even in the fourth quarter of 2006. Independent assessors fore- cast good growth in Sweden and not least in the expansive Öresund region where integra- tion is increasing at an ever higher rate.
I have great confidence in our dynamic organisation with all its employees and their capacity to manage the properties in a competitive manner in the future
thereby creating value for our customers. And I would like to take the opportunity to thank all employees for the organisation’s achievements in both development and management. Last but not least, I’m looking forward to an exciting 2007.
History
n
TheAnnualgeneralMeetingof9May2005decidedinaccordance
withtheboard’sproposaltochangethenameoftheCompanyfrom
WihlborgsFastigheterAbtoFabegeAb.Thisoccuredasaresultofthe
impendingdistributionoftheCompany’sportfoliointheÖresund
regionundertheCompanyWihlborgsFastigheterAb.Thefollowing
sectionpresentsthehistoryunderlyingthedevelopmentoftheproperty
portfoliointheÖresundregion.Thecompanyreferredtobelowupto
theyear200asWihlborgsFastigheterAbisthecurrentFabegeAb.
1924 In 1924, master builder O P Wihlborg established a building company in Malmö that provided the name for Wihlborgs Fastigheter AB. For a pro- tracted period, the Company built, owned and administrated properties
in Malmö.
1985 Building operations are sold to the Active Group, based in Malmö, and the Company becomes a traditional property company.
1990 Wihlborgs Fastigheter AB is listed on the Stockholm Stock Exchange’s O-List. Peab AB becomes the new majority shareholder in Wihlborgs Fastigheter AB.
1993 In conjunction with a new share issue of SEK 371m, Wihlborgs
Fastigheter AB acquires 33 properties in Sweden, of which 22 properties are located in Malmö and Helsingborg. Bergaliden becomes the new major shareholder in Wihlborgs Fastigheter AB.
1995 Fastighets AB Stillman is acquired and Wihlborgs Fastigheter AB gains properties in Malmö, Lund and Landskrona with total lettable area of 44,000 sq.m.
1996 Wihlborgs Fastigheter AB acquires 76 properties with total lettable area of 178,000 sq.m. from Retriva (currently Kungsleden). Wihlborgs Fastigheter AB and Fastighets AB Storheden conduct an exchange of properties, through which the Company takes over 35 properties in Skåne with lettable area of 78,100 sq.m.
The Board of Directors in Wihlborgs Fastigheter AB makes a public offer to acquire M2 Fastigheter AB on 22 November 1996, involving the acquisition of properties with lettable area totalling 364,000 sq.m.
The company establishes a presence in Denmark through the acquisition of two properties.
1997 During the spring, Wihlborgs Fastigheter AB completes the acquisition of M2 Fastigheter AB. On 14 September 1997, the Board of Directors in Wihlborgs Fastigheter AB makes a public offer to acquire Klövern Fastigheter AB.
WIhLBoRgS ANNUAL REPoRT 2006
5
1998 Wihlborgs Fastigheter AB completes the acquisition of Klövern
Fastigheter AB and gains properties in Malmö and Helsingborg, as well as in other parts of Sweden and the Netherlands, with total lettable area of 934,000 sq.m.
On 14 April 1998, Wihlborgs Fastigheter AB makes an offer for Fastighets AB Storheden.
As a result, the Stockholm area becomes a key part of the Company’s operations.
2000 JM, Peab and Wihlborgs Fastigheter AB establish a new joint develop- ment company for the development of the Dockan district in Western Harbour, Malmö.
2004 Wihlborgs Fastigheter AB acquires the Stockholm-based property company,
Fabege AB.
In December, the Board of Directors in Wihlborgs Fastigheter AB pro- poses that the Annual General Meeting of 9 May 2005 approve the distri- bution and separate listing in accordance with Lex ASEA of the property portfolio in the Öresund region.
2005 The distributed company is given the name Wihlborgs Fastigheter AB and the distributing company changes its name to Fabege AB.
2006 Wihlborgs acquires 14 properties in Malmö with a total lettable area of 182,000 sq.m. from Tornet. Wihlborgs acquires Ideon AB in Lund by pur- chasing 40 per cent of the shares. The acquisition of the remaining shares is subject to government approval. The purchase includes the property Betahuset at Ideon (Vätet 1) totalling 24,000 sq.m.
During May Wihlborgs implements a 2:1 share split, one old share was replaced with two new shares.
Business concept, overall objectives and strategies
n
Wihlborgs is a property company focusing on commercial property in the Öresund region. The criteria for long-term and acceptable value growth are created by activities being characterised by a clear, cashflow- oriented strategy where the creation and realisation of added value are important factors. Together with a clear dividend policy the overriding objective is to create a good overall yield for the shareholders.
Business concept
Wihlborgs shall own, manage and develop commercial properties with a focus on well-functioning sub-markets in the Öresund region.
Overall objectives and strategies
Wihlborgs aims to be the leading and most profitable property company in the Öresund market. To attain this, Wihlborgs must:
n Consolidate and further strengthen its market positions in the Öresund region by concentrating on selected sub-markets.
n Actively improve the property portfolio by purchasing, developing and divesting properties. Realisation of value growth will form a key part of the operations.
n Actively and efficiently manage the property portfolio with the focus on high cost-effectiveness and a high occupancy rate by being a market leader in each sub-market.
n Strengthen customer relations by active involvement and offering a high level of service in order to create the necessary conditions for long-term rental relationships.
n Actively cultivate the rental market to obtain new customers and strengthen the brand in order to become the preferred choice for customers.
Financial goals Wihlborgs is to show:
n A return on shareholders’ equity that exceeds the risk-free interest rate by at least four percentage points¹.
n An equity/assets ratio of a minimum 25 per cent and a maximum of 35 per cent.
n An interest coverage ratio to at least 2.0.
The above financial goals have to be achieved through the active development of assets and liabilities and capital structure. Wihlborgs shall always have a capital struc- ture that gives the maximum return to shareholders, with due consideration of risk.
WIhLBoRgS ANNUAL REPoRT 2006
7
Dividend policy
Wihlborgs’ dividend policy is based, firstly, on transferring part of the profit generated by property management and, secondly, on transferring realized value growth:
n The dividend is to amount to 50 per cent of profit from ongoing property management².
n In addition, 50 per cent of realised profits from property sales are to be distributed³.
1. The risk-free rate of interest is defined as the rate on a 5-year Swedish government bond.
2. Pre-tax profit, excluding realised and unrealised changes in value, charged with 28 per cent standard tax.
3. Difference between the sales price and total capital invested, charged with 28 per cent standard tax.
Organisation and employees
n
Wihlborgs is characterised by a flat organisation with short decision paths. Wihlborgs’ organisation is designed to increase profit from day- to-day management while creating new business at the same time.
Legal structure
Wihlborgs Fastigheter AB (publ), corporate ID number 556367-0230, is the parent company of a group with a total of 102 group companies and four joint ventures.
Joint Ventures
Wihlborgs owns 40 per cent of Medeon AB. This is a marketing company that is operated together with Malmö Stad. Wihlborgs also owns 33.3 per cent of Dockan Exploatering AB. The company is engaged in the development of the new Dockan district located at Västra Hamnen in Malmö. JM and Peab each own equal shares in Dockan Exploatering.
Operating structure
The operative organisation comprises Management and the Business Development function. Management is adapted according to local market criteria and is organised as seven geographically-distributed management units. The purpose is to create the criteria for management that is effective and close to the customer. Employees shall always be close to the customers and, in this way, meet tenants’ expectations and demands. Each management unit has a manager with a clear profit responsibility.
Business development comprises two parts – Projects and Development, and Transactions. Projects and Development has a central role for improvements to the property portfolio and is responsible for new and redevelopment projects as well as procurement and monitoring. Investments in properties are prepared and evaluated by the respective manager together with a project manager. Investments in excess of SEK 10m shall be approved by the board.
Transactions are responsible for all the company’s purchases and sales of proper- ties. The transactions unit continuously monitors potential business. Evaluation is often performed in consultation with Administration to make the most of skills it has in terms of local market knowledge etc. When assessing property acquisitions the analyses conducted include the property’s long-term yield, technical standard, development potential and tenant structure.
In addition to the operative organisation there are the group functions Economy/
Finance as well as Communication and IT.
Group Management comprises the CEO, economy and finance director, property director, information director and assistant to the CEO. The responsibilities of group management include overall responsibility for strategy issues and business development, economic control and profit monitoring as well as issues concerning information.
Employees
The skills and commitment of the employees are vital to the group’s development and for the quality of the service offered to customers. Staff policy is structured and strongly linked to the company’s activities. Employees are encouraged to engage in innovative thinking and their own initiatives since this is an important driving force for the company’s development.
WIhLBoRgS ANNUAL REPoRT 2006
9
As at 1 January 2007, the number of employees was 77. The proportion of employees with an academic qualification was 29 per cent. The average age of the employees was 49 and the proportion of women amounted to 31 per cent. The largest age group that comprises 25 people was those aged 46-55. The company’s staff turnover in 2006 amounted to 13 per cent.
Sickness absence
Wihlborgs has a low level of sickness absence which in 2006 amounted to 3.5 per cent. The proportion of long-term sickness absence of the total sickness absence for 2006 was 58.1 per cent.
Wellness
Good health is a resource for the individual as well as the company. This is why wellness is of significant importance to Wihlborgs’ activities and profitability. All employees are offered wellness assessment and monitoring. Joint training is also offered in the form of different fitness activities.
Skills development
Wihlborgs encourages its employees to engage in skills development and has partici- pated in a Växtkraft Mål 3 project since May 2006. The project is supported through the European Social Fund (ESF) which contributes to increased employment, equality between men and women, sustainable development as well as economic and social cohesion. Wihlborgs follows the approved skills development plan
that has been drawn up according to the staff’s individual criteria and skills development requirements.
Incentive programme
Employees in the group, with the exception of the CEO, benefit from the profit-sharing fund. The purpose of the profit-sharing fund is to stimulate employees to achieve predetermined objectives that are part of the company’s activities. A whole proportion in the event of maxi- mum allocation corresponds to shares in Wihlborgs to a value of one base amount which is currently SEK 40,300. All employees receive equal shares in the fund irrespective of their position in the company.
The share amount in the case of part-time employees or those who work only part of the year is adjusted.
All funds that are allocated to the profit-sharing fund shall be invested in shares in Wihlborgs.
Business Development Projects and
Development Transactions Economy/Finance Communication/IT Purchase
Environment
Group Management
Management Malmö/Lund 3 management units Helsingborg 3 management units Köpenhamn 1 management unit
The environment as an integral component
n
Today’s growth has meant an increased awareness of the private sector’s important role in contributing to a sustainable society. The term sustainable business development is often used in these con- texts. Wihlborgs’ environmental work is target-oriented and long- term and is operated as an integral component of both property management and business development.
Wihlborgs’ environment work
Wihlborgs’ environmental work is based on the ISO 14001 standard where all manda- tory requirements are met:
Environmental objectives for 2006
• Reducing heat consumption (kWh/sq.m.) by 1.5 per cent in comparison with 2005.
• Reducing electricity consumption (kWh/sq.m.) by 2 per cent in comparison with 2005.
• Converting oil-heated properties to district heating.
The environmental objectives for 2006 were achieved, except for one oil-heated property.
Environmental objectives for 2007
• Reducing electricity and heat consumption (kWh/sq.m.) by 2 per cent in comparison with 2006.
• All properties from between 1956 and 1973 shall be checked for PCB.
• Compile a redevelopment plan for 2008 on the basis of this PCB inventory.
Long-term environmental objective for 2007–2009: Reducing the consumption of electricity and heating (kWh/sq.m.) by 6 per cent.
Folksam’s Climate index 2006
• Folksam has assessed Wihlborgs’ environment work on the basis of the following criteria: Corporate-wide, Properties, Production, Goods transports, Business travel, Product design and Climate work.
• Wihlborgs was presented in Ekonominyheterna on 30 November 2006 as one of the companies within the framework of “Next best in the class” where Wihlborgs took a leading position among property companies.
Environmental survey Environmental policy
• Document control
• Activities control
• Emergency contingency measures
• Monitoring
• Non-conformances, corrective action and preventive measures
• Explanatory documents
• Environmental audit
• Organisation and responsibility
• Education and training
• Communication
• Documentationn
• Environmental aspects
• Legislation and other requirements
• Environmental objectives
• Environmental manage- ment programme Management review
meetings Develop Plan
Follow up Implement
WIhLBoRgS ANNUAL REPoRT 2006
11
New in the environmental area 2006
During the year Wihlborgs employed an environmental coordinator who will work full-time on planning, implementing, monitoring and developing Wihlborgs’ envi- ronmental work.
Environmental policy
Wihlborgs’ environment work shall be a natural and integrated component of man- agement, projects as well as purchases and sales of properties. Our environment work is continuous and objective for the purpose of preventing and reducing nega- tive environmental impact. Activities shall be operated through the effective use of resources and employees’ environmental skills shall be continuously developed. We endeavour to harmonise solutions for energy and our tenants waste with the envi- ronment. Construction methods and materials are chosen with respect to the envi- ronment. Wihlborgs continuously improves its environmental work, where legisla- tion is viewed as a minimum requirement, and conducts regular follow-ups.
Energy effectivisation 2006
Problem description: The property Utgrunden in Malmö was previously oil-heated.
In line with environmental objectives for 2006, the property was converted from oil heating to district heating. Conversion also meant the replacement of technology and control functions. The controls function is now demand-regulated in part of the property.
Environmental auditing and building harmonised with the environment
• An environmental audit is always conducted when a property is purchased. To facilitate and drive the environmental work there is a working group comprising representatives from property management and business development.
• A natural part of Wihlborgs’ environmental commitment is to work with environmental programmes for all rebuilding and new building work.
• Compliance with environmental requirements is demanded from our suppliers.
Environmental handbook and environmental database
To facilitate day-to-day work, strict demands are made to ensure that environment- related information is available to employees. This information can be found in Wihl- borgs’ environmental handbook and is continuously updated. Wihlborgs has even developed and completed an environmental database that contains information on PCB, refrigerants, radon, oil separators etc for each respective property.
ENERGY USAGE BEFORE AND AFTER CONVERSION
Month Before conversion After conversion
kWh Kwh
Jan 147 340 80 000
Feb 130 970 63 116
Mar 130 000 52 725
Apr 103 685 23 133
May 68 760 15 228
Jun 39 291 22 525
Jul 38 200 1 730
Aug 40 200 221
Sep 62 210 2 831
oct 88 405 39 807
Nov 108 050 45 983
Dec 136 427 81 579
Total: 1 093 538 428 878
The share
n Wihlborgs’ shares were listed on the Stockholm Stock Exchange’s O list on 23 May 2005. Wihlborgs have been on the Nordic Mid Cap list since October 2006.
A 2:1 share split was implemented on 23 May 2006. At the end of the year the share capital amounted to SEK 192m distributed across 38,428,364 shares. Each share is entitled to one vote and each person entitled to vote at the annual general meeting may vote for the full number of shares held and represented by this person. All shares are entitled to an equal share in Wihlborgs’ profit. The company has not repurchased any of its own shares neither has the board exercised its authority to decide on a new issue of no more than 10 per cent of the remaining shares.
Market capitalisation and turnover
In 2006 there was a turnover of a total of 22.4 million shares which corresponds to 91,000 shares per day. The figure is corrected for the share split on 23 May 2006.
This corresponds to a turnover rate of 58 per cent of the average number of out- standing shares. At the year end the price of a Wilhlborgs’ share was SEK 142.75 which, with all outstanding shares, corresponds to a share value of SEK 5.5 billion.
The highest and lowest quotation for the Wihlborgs’ share in 2006 was SEK 147.75 and SEK 92.75 respectively.
Dividend and dividend policy
Wihlborgs’ dividend policy is based partly on transferring 50 per cent of the current investment result, and partly 50 per cent of the realised result from property sales.
Both were reduced by a standard tax rate of 28 per cent. The board’s dividend pro- posal for 2006 is SEK 5.50 (3.50). This corresponds to a direct yield of 3.9 per cent based on the share price at the end of the year. If the annual general meeting approves the board’s proposal for a dividend of SEK 5.50 and the record day of 2 May, the dividend will be paid on 7 May 2007. The Wilhlborgs’ share will be traded including the dividend up to and including the day of the annual general meeting, Thursday 26 April 2007.
2:1 Share split
Wihlborgs implemented a 2:1 share split which means that one old share will be replaced with two new shares. The number of shares increased from 19,214,182 to 38,428,364. The share split was registered on 10 May and the first day of trading after the split was 23 May 2006.
Wihlborgs – Number of shares traded (’000) SEK
150 140 130 120 110 100 90 80 70 60 50
Number of shares (‘000)
SX4040 Real Estate OMX Stockholm
Wihlborgs
2006 2005
Source: SIX / Hallvarsson & Halvarsson AB
may jun jul aug sep oct nov dec jan feb mar apr may jun jul aug sep oct nov dec 5 000
4 000
3 000
2 000
1 000
0
n International owners, 30.3 %
n Swedish legal persons, 24.8 %
n Swedish private individuals, 22.7 %
n Funds, 10.7 %
n Financial companies, 6.3 %
n Insurance, pension AP funds, 3.6 %
n Association organisations, 1.6 %
Shares development 2006 Shareholders, 31 Dec 2006
WIhLBoRgS ANNUAL REPoRT 2006
13
Ownership structure
The largest shareholders in Wihlborgs are Maths O Sundqvists company and Brino- va Fastigheter AB who own 10.7 and 10.1 per cent of the shares respectively. At the end of 2006, the ten largest shareholders held 38.3 per cent of the shares and the number of shareholders amounted to 29,437. This is a fall of around 2,000 share- holders. The proportion of foreign owners at the end of December amounted to 30.3 per cent, an increase of 7.1 per cent since the previous year end. Of the foreign own- ers, 34 per cent are from the USA, 17 per cent from Luxembourg, 15 per cent from Great Britain, 9 per cent from The Netherlands and 25 per cent from other countries.
Information to shareholders
All Wihlborgs’ shareholders have been asked if they would like printed financial infor- mation from Wihlborgs. To the shareholders who so wish, Wihlborgs distributes the annual accounts and three quarterly reports. Press releases of unaudited notes to the accounts are not printed. All financial reports and press releases are available on Wihl- borgs’ website at www.wihlborgs.se. The website has been available in English since the beginning of 2007 as are Wihlborgs’ press releases. The website also contains current information on the movement of Wihlborgs’ shares. Contacts with the share market take place in connection with the quarterly financial reports through press releases and corporate presentations in different contexts with investors, analysts, share savers and others.
SHARE DATA Abbreviated name WIhL
Listed since 2005
Traded Stockholm Stock Exchange
List Mid Cap
Sector Financials
Trading block 100 shares
Largest shareholders in Wihlborgs at 31 december 2006
Number of shares Perc. of share capital thousands and voting rights, %
Maths o Sundqvist with company 4,110 10,7
Brinova Fastigheter AB 3,867 10,1
Investment AB Öresund 2,000 5,2
Länsförsäkringar Fund 915 2,4
SEB Funds 885 2,3
Robur Funds 866 2,2
hQ Funds 750 2,0
Mats Qviberg including family 569 1,5
Förvaltnings AB Färgax 450 1,2
Fjärde AP-fonden 316 0,8
Shareholders reg. abroad 11,652 30,3
other shareholders reg. in Sweden 12,048 31,3
Total outstanding shares 38,428 100,0
Distribution of shares at 31 December 2006
Number of Number of shares Per cent
shareholders thousands of shares
1–100 12,432 388 1
101–500 13,410 3,184 8
501–1000 2,003 1,507 4
1001–5000 1,231 2,607 7
5001–10000 148 1,072 3
10001–100000 164 5,030 13
100001–500000 37 8,997 23
500001–1000000 6 4,217 11
1000001–2000000 5 11,426 30
Total 29,437 38,428 100,0
Källa: VPC AB
Market overview
n
growth within the Öresund region during 2004 was good and in 2005 it accelerated further. According to the Øresund Institute the major breakthrough came in 2005 and we can talk about the “ketchup effect”. This concerned primarily the housing and employment markets.
“Ketchup effect” in the Öresund region
The Öresund region has not experienced such a strong business cycle since around 1990 and the region’s economy has not been so optimistic about the future at any time during the period from 1996 to 2006 according to the weighted indicators that the Øresund Institute has compiled from the Danish consumer confidence indicator and the Swedish confidence indicator CCI.
In terms of the Öresund region, the strong business cycle means that the region is experiencing its most expansive stage to date and that the integration of the housing and employment markets has suddenly happened very quickly. In 2006, 4,700 Danes moved to Skåne, of which 2,900 moved to Malmö. This represents a 50 per cent increase in the inflow to Skåne.
Commuting across the Öresund Bridge has also increased significantly. In 2006, 14,000 commuted daily across the bridge. In total there were 20,000 people who gained some of their income from the other side of the sound. On average approxi- mately 60,000 people travelled over the bridge every day. This represents a 17 per cent traffic increase in 2006.
Approximately 3,630,000 people live in the region (Zealand and Skåne). The popu- lation is also on the increase, primarily on the Swedish side. This is a consequence of the integration that has meant that more and more Danes are moving to Skåne.
The increasing inflow creates an increased demand for commerce and service which, in turn create an increased demand for activities within these sectors. In the long run this growth will drive an increased demand for all types of commercial premises.
The region creates growth
The business climate continues to be strong in Denmark and Copenhagen. The busi- ness climate has also improved in Skåne with a greater demand for manpower. This
Per cent
Expectations of the future from the households in the Öresund region
WIhLBoRgS ANNUAL REPoRT 2006
15
has similarly resulted in an increased demand for premises.
An important factor of this growth is the mobile telephone cluster that has emerged in the region of which SonyEricsson is an example of a significant and expansive motor. There is also significant growth in medicine and biotechnology where cross- border collaboration such as Medicon Valley has had a positive effect.
A growing number of companies in the region experiences an increase in turn-over and profit. This leads to more new jobs and investments which, in turn, create an increased demand for commercial premises.
The region is also characterised by a large number of projects in progress such as Brunnshög in Lund and Västra hamnen, Hyllie and Citytunneln in Malmö.
Activity within the construction industry is also high in Copenhagen. Copenhagen’s local authority expects the population to increase by 40,000 over the next 15 years.
The number of housing projects increased by a factor of five from 800 in the year 2000 to 4,000 in 2005.
In 2006 the capital city region was responsible for approximately 30 per cent of the total investment in properties. According to the trade organisation Dansk Byggeri, 2007 will be at the same level or higher.
Evidence that the Swedish side of the Öresund region is interesting is shown by the increasing number of new companies and primarily Danish companies. It is worth not- ing that the Danish/Norwegian property insurance company TrygVest chose to estab- lish its Swedish head office in Malmö. This is an interesting break in the trend since insurance companies tend to establish their national offices in the capital city regions.
Approximately 60 per cent of the Swedish subsidiaries in Denmark are in Greater Copenhagen and 24 per cent of the Danish subsidiaries are in Skåne. In terms of the populations of Denmark and Sweden, 35 per cent in the capital region and 13 per cent in Skåne are an over-representation of around 100 per cent.
When the Øresund Institute measured the capital city regions’ attractiveness in Feb- ruary 2006 on the basis of the US business magazine Forbes’ list of the world’s 403 largest companies in seven selected industries and how they are localised in the Nordic Region, it was found that the Öresund region and Stockholm together had 86 per cent of the 112 Nordic head offices of which Stockholm had 49 and the Öresund region 47.
Growth also indicates a shift towards the Öresund region after the year 2000.
Skåne in particular is forging ahead with 8.5 new head offices in advance of Oslo, Gothenburg and Helsinki.
Forecast GNP growth (real in %) Number of established / reorganised Nordic head offices
per region and time
Sweden Denmark
Source: Nordea, Danske Bank, DnB NOR, Øl
Real in per cent
Before 2000 2000 and after Total
Stockholm Öresund region of Copenhagen of Skåne Gothenburg Oslo Helsinki Odense/Vejle Total
Source: Øresundsinstituttet
Stronger business climate
Swedish business and commerce is undergoing structural change. The greatest growth is occurring in the services and trade sector whereas the industrial sector is experiencing decline. This is where Skåne has the advantage since there are many knowledge companies in the region which can fill the gaps when industrial compa- nies cut back. The knowledge content is on the increase within most activities where SonyEricsson can be seen as one of the many examples.
Their growth creates a large number of peripheral companies that serve the tele- coms sector in different ways.
It is also expected that the business climate will continue to be strong and most indicators show furthermore that this will be stronger in Skåne than the rest of the country because of the Öresund region.
The gross regional growth is expected to be 4.5 per cent during 2006–2007. This is growth that will be significant for both Denmark’s and Sweden’s economies since the Öresund region makes up 26.7 per cent of both the countries’ overall economy.
Monetary policy remains expansive in both Denmark and Sweden. This further strengthens the business climate. There is a risk that the economy could overheat.
There are signs in housing and commerce.
In Copenhagen the effects have even reached the employment market that is suf- fering from the lack of available resources, something which now benefits the employment market in Skåne.
According to Skat Øresund, the number of Swedish-registered taxpayers increased in Copenhagen by 150 per cent under 2006. This shows acceleration in employment market integration across Öresund.
Above all, young people in Skåne are experiencing a more favourable situation than in other parts of Sweden. Unemployment among young people aged 18-24 in Malmö is 1.2 percentage units lower than the country overall. According to the Regional Employment Board in Skåne, employment opportunities are expected to increase by 2.6 per cent during 2007 and this is attributed to good domestic and Danish demand for manpower. The official level of unemployment is forecast to be 3.6 per cent at the end of 2007.
For Skåne this means that the labour force can upgrade its skills and the costs of unemployment can be reduced. For Denmark this means that the favourable busi- ness climate can be extended, that new knowledge is brought into the country and that Danish business and commerce can expand into the Swedish market.
Sources: The Øresund Institute and the Skåne Regional Employment Board
Unemployment youths Unemployment total
Per cent
Sourse: AMS
Malmö Country
Per cent
Sourse: AMS
Malmö Country
Wihlborgs ANNUAl rEPorT 2006
17
1. Wihlborgs reports its investment properties (in accordance with iAs investment Property) at their market value, which means that the book value corresponds to the market value of the investment properties. Properties classified as project properties (according to iAs) are reported at their acquisition value. With the exception of a land site in Malmö, all Wihlborgs properties are classified as investment properties.
helsingborg, 31 % Malmö, 55 %
rest of Öresund, 14 %
Rental value peR Region
industrial/Ware- house, 28 %
office/retail, 70 %
Project
& land, 2 %
Rental value peR pRopeRty categoRy
rest of Öresund, 16 %
Malmö, 57 % helsingborg,
27 %
Book value
By Region Book value
By pRopeRty categoRy Project & land,
5 % office/retail,
75 % industrial/
Ware- house 20 %
Helsingborg Lund Malmö Copenhagen
Wihlborgs property portfolio
n pRopeRty poRtFolio aS oF 31 decemBeR 2006
Wihlborgs’ property portfolio consists of commercial properties in the Öresund region, located in Malmö, Helsingborg, Lund and Copenhagen. As at 31 December 2006, the property portfolio comprised 219 properties with a total lettable area of some 1,160,000 sq.m. Fifteen of these properties have a site leasehold right. The book value of the properties was SEK 10,888m, which corresponds to the proper- ties’ assessed market value1. The total rental value was SEK 1,079m and the con- tracted rental income was SEK 987m on an annual basis. The economic occupancy rate was 92 per cent. The properties in Malmö and Helsingborg accounted for 86 per cent of the total rental value and 84 per cent of the properties’ book value. The rental value of office and retail properties, in addition to industrial and warehouse properties, totalled 70 and 28 per cent of the total rental value respectively.
The properties in Malmö and Helsingborg, where Wihlborgs is one of the leading property companies, are divided into sub-markets with different market conditions.
Malmö is divided into the sub-markets of Centre & Western Harbour, Fosie & Lim- hamn and Northern Harbour & Arlöv. Centre & Western Harbour, with a lettable area of 290,000 sq.m., is Wihlborgs’ largest single sub-market. Helsingborg is divid- ed into sub-markets of Centre, South and Berga. The Centre sub-market is Wihl- borgs’ largest sub-market in Helsingborg.
In the rest of the Öresund region, Wihlborgs primarily owns properties in Copenhagen and Lund with a property value of SEK 1,713m.
Wihlborgs implements regular value-creating project within the existing property portfolio by conversion, extension and new production. Projects & land account for SEK 550m of the total book value of the properties.
Wihlborgs’ largest development area is the Dockan area, in Western Harbour in Malmö. Wihlborgs current and future building rights in the Dockan area are estimated at 90,000 sq.m.
Wihlborgs’ property portfolio is located in the Öresund region – the most densely populated region in the Nordic region with 3,6 million inhabitants, of whom 2,4 million live in Denmark and 1,2 million in sweden.
pRopeRty poRtFolio aS oF 31 decemBeR 2006
The schedule presented below is based on Wihlborgs’ property portfolio as per 31 December 2006. Rental income refers to contractual rental income on an annual basis as of 31 December 2006. Net operating income is based the earnings capacity on an annual basis as of 31 December 2006, proceeding on the basis of the contrac- tual rental income, operating and maintenance costs and property administration over a rolling twelve months and property tax and ground rent.
diStRiBution By Region and pRopeRty categoRy
Number of Lettable Ekonomic Rental Net op. Surplus
properties area Book value Rental value occupancy income income Yield ratio
sq.m. SEK M SEK/sq.m. SEK M SEK/sq.m. % SEK M SEK M % %
distribution per region
Malmö 111 571,248 6,197 10,849 592 1,037 93 548 384 6,2 70
helsingborg 83 427,753 2,978 6,961 331 773 91 301 210 7,0 70
rest of the Öresund region1 25 160,851 1,713 10,651 156 968 89 138 99 5,8 72
total Wihlborgs 219 1,159,852 10,888 9,388 1,079 930 92 987 693 6,4 70
distribution per category
offices/retail2 88 611,453 8,127 13,292 758 1 240 92 701 508 6,3 72
industrial/warehouse 94 512,248 2,211 4,317 305 596 90 275 184 8,3 67
Projects & land3 37 36,151 550 15,205 16 434 71 11 1 0,2 8
total Wihlborgs 219 1,159,852 10,888 9,388 1,079 930 92 987 693 6,4 70
1. one property located in hamburg, germany, with lettable area of 8,107 sq.m., is reported in the rest of the Öresund region.
2. Two hotel properties located in helsingborg, with lettable area of 21,262 sq.m. are reported in offices/retail.
3. According to the iFrs def. of project properties, Wihlborgs owns a project property – the site of the Dockan area in Malmö - with a book value of sEK 181m.
diStRiBution By pRopeRty categoRy By Region
Region/ Number of Lettable Ekonomic Rental Net op. Surplus
property category properties area Book value Rental value occupancy income income Yield ratio
sq.m. SEK M SEK/sq.m. SEK M SEK/sq.m. % SEK M SEK M % %
malmö
offices/retail 43 347,500 4,903 14,109 454 1,307 93 423 308 6,3 73
industrial/warehouse 46 207,745 932 4,488 132 637 91 120 76 8,1 63
Projects & land3 22 16,003 362 22,628 6 362 90 5 1 0,3 20
total malmö 111 571,248 6,197 10,849 592 1,037 93 548 384 6,2 70
Helsingborg
offices/retail2 34 148,518 1,758 11,835 167 1,123 93 155 111 6,3 71
industrial/warehouse 44 269,131 1,162 4,317 161 599 89 143 99 8,5 69
Projects & land 5 10,104 58 5,760 3 271 68 2 0 -0,4 -13
total Helsingborg 83 427,753 2,978 6,961 331 773 91 301 210 7,0 70
Rest of the Öresund region1
offices/retail 11 115,435 1,467 12,705 137 1,186 90 123 90 6,1 73
industrial/warehouse 4 35,372 117 3,314 12 328 100 12 10 8,2 83
Projects & land 10 10,044 129 12,879 7 714 58 4 0 0,1 3
total 25 160,851 1,713 10,651 156 968 89 138 99 5,8 72
total Wihlborgs 219 1,159,852 10,888 9,388 1,079 930 92 987 693 6,4 70
diStRiBution oF lettaBle aRea By Region and type oF pRemiSeS
Lettable area by type of premises
Region Offices Retail Industrial/warehouse Hotel Residential Other Garage Total Proportion
sq.m. sq.m. sq.m. sq.m. sq.m. sq.m. sq.m. sq.m. %
Malmö 284,367 36,545 222,817 2,947 11,981 10,768 1,821 571,246 49,3
helsingborg 141,951 37,623 215,690 20,799 5,367 6,133 190 427,753 36,9
rest of the Öresund region1 110,303 4,680 45,661 - - 208 - 160,852 13,9
total Wihlborgs 536,621 78,848 484,168 23,746 17,348 17,109 2,011 1,159,851 100,0
Proportions, % 46,3 6,8 41,7 2,0 1,5 1,5 0,2 100,0 100,0
Wihlborgs ANNUAl rEPorT 2006
19
Rental value and occupancy rate
The total rental value of the property portfolio at 31 December 2006 amounted to SEK 1,079m, of which the rental value for vacant premises is estimated to account for SEK 92m. The properties’ total lettable area at 31 December 2006 was about 1,160,000 sq.m.
The economic occupancy rate at 31 December 2006 was 92 per cent, with 93 per cent in Malmö, 91 per cent in Helsingborg and 89 per cent in the rest of the Öre- sund region. The occupancy rate for office and retail property was 92 per cent, with 90 per cent for industrial and warehouse facilities and 71 per cent for projects & land.
Rental income and lease structure
For Wihlborgs property portfolio at 31 December 2006, contractual rental income on an annual basis was SEK 987. Rental income includes surcharges for property tax, heating and electricity costs that Wihlborgs passes on to tenants. Wihlborgs estimates that renal income as a whole is on a market level.
At 31 December 2006, Wihlborgs has a total of 1,653 leases with a contractual rental income of SEK 951m and a average maturity of 3.5 years. Leases with a matu- rity of 3 years of more are normally subject to annual rent adjustments in view of changes in the consumer price index. Overall, the index clauses in Wihlborgs’ leas- es mean that rents rise at a pace of 90 per cent of the rate of inflation.
Rental income from Wihlborgs’ ten largest tenants totalled SEK 211m on an annual basis at 31 December 2006, corresponding to 21 per cent of the contractual rental income.
contRactual Rental income aS peR 31 decemBeR 2006 By leaSe value Number Lettable Per 31 Dec 2006 Contractual size, SEK M leases area, sq.m. SEK M propo, % Leases for renting premises
>3,0 54 328 097 352 37
2,0–3,0 38 100 712 93 10
1,0–2,0 136 191 979 186 20
0,5–1,0 181 136 630 125 13
0,25–0,50 298 110 392 100 11
<0,25 946 123 336 95 10
Total commercial leases 1 653 991 146 951 100 residential leases 233 17 403 16 Parking spaces etc. 684 0 20
Total 2 570 1 008 549 987
matuRity StRuctuRe FoR WiHlBoRgS’
leaSeS aS peR 31 decemBeR 2006
Number Lettable Per 31 Dec 2006
Expires in year of leases area, sq.m. SEK M propo, % Leases for renting premises
2007 434 178 637 143 15
2008 457 223 852 185 19
2009 420 186 794 175 18
2010 220 155 425 168 18
2011 52 106 436 94 10
2012 28 23 726 24 3
>2012 42 116 276 162 17
Total commercial leases 1653 991 146 951 100 residential leases 233 17 403 16
Parking spaces etc. 684 0 20
Total 2 570 1 008 549 987
tHe ten laRgeSt tenantS
Tenant Area
Teliasonera Malmö
Malmö University College Malmö
Teleca Malmö/lund
Elite hotels helsingborg
Malmö City Malmö
Abb Fastighet Malmö
green Cargo Köpenhamn/hbg
Tullverket Malmö
region skåne Malmö
helsingborgs City hbg
1. rental income during the period plus the rental value of vacant premises during the period.
2. one property located in hamburg, germany, with lettable area of 8,107 sq.m., is reported in the rest of the Öresund region.
3. Two hotel properties located in helsingborg, with lettable area of 21,262 sq.m. are reported in offices/retail.
tRendS in gRoSS Rental income and occupancy Rate Fot WiHlBoRgS pRopeRty poRtFolio
Per 31 December 2005 Per 31 December 2006
Rental value, Economic Rental value, Economic
SEK M1 occupancy, % SEK M occupancy, %
distribution per region
Malmö 443 92 592 93
helsingborg 275 91 331 91
rest of the Öresund region2 121 87 156 89
total Wihlborgs 839 90 1 079 92
distribution per category
office/retail3 566 92 758 92
industrial/Warehouse 251 88 305 90
Project & land 22 83 16 71
total Wihlborgs 839 90 1 079 92
