Kungsleden sells 50% of public properties for EUR 1.4 bn

Listed Swedish property company Kungsleden has agreed to sell 50% of Hemso Fastighets, its investment vehicle for public properties, to a Swedish national pension fund for around EUR 1.4 bn. Kungsleden said the deal will create a stronger base for Kungsleden's other business and enable it to derive more benefit from future deal opportunities in public properties.

The buyer is Tredje AP-fonden (AP3), one of five so-called buffer funds in the national pension system in Sweden. The pension funds are mandated by the Swedish parliament to generate maximum possible benefit for the pension system by management of the fund capital.

The sales price is based on the total value of Hemsö’s constituent properties of SEK 15.4 bn (EUR 1.4 bn), which exceeds the acquisition value by SEK 2.1 mln and represents approximately 98% of the book value. The deal reflects a yield of 6.3%, based on pro forma operating net profit in 2008.

The deal, which is expected to be completed during the first quarter of 2009, will generate immediate liquidity for Kungsleden of some SEK 2.3 bn, and produce a preliminary profit for 2009 of SEK 800 mln.

The 277 assets involved range from home to care and school properties. They are concentrated in major regional cities throughout Sweden. The average returns for Kungsleden on the holding in Hemsö since 2001 has been 25%. The gross leasable area of the properties is 1,326,000 m² and total rental value is some SEK 1.4 bn as of September 30, 2008.

Together with AP3, Kungsleden will continue to make an active contribution to Hemsö’s development for a period of at least five years. Hemsö’s operations will initially be safeguarded through a management agreement between Kungsleden and Hemsö. The transaction is conditional on Hemsö retaining its financing on satisfactory terms and on approval from the Swedish Competition Authority.

Commenting on the deal, Kungsleden’s CEO Thomas Erséus said: ‘Kungsleden has been accumulating a substantial holding within Public Properties since 2001, a business we think has very good potential extending into the future. We're delighted that AP3 shares our view of this sector, and through this deal, we’re creating good prospects of continuing to develop Hemsö alongside AP3 optimally, and further consolidate Hemsö as a capable partner and landlord for existing and future tenants.’

Public properties represented 54% of Kungsleden’s total book value as of 30 September 2008. This portfolio is well diversified in terms of customer segments, tenants and geographical diversity. Public properties feature stable tenants with long rental contracts.