Develops sustainable cities, homes and property

Key ratios

	2016	2015	2014
Operative net sales, MSEK 1)	7,639	7,605	7,830
of which Property Development	1,385	1,634	1,407
of which Housing Development 1)	6,254	5,971	6,423
Operative operating profit, MSEK 1)	622	398	342
of which Property Development	89	10	12
of which Housing Development 1)	533	388	330
Operative operating margin, % 1)	8.1	5.2	4.4
of which Property Development	6.4	0.6	0.9
of which Housing Development 1)	8.5	6.5	5.1
Capital employed on 31 December, MSEK	10,281	10,838	10,646
Orders received, MSEK	8,245	6,498	5,708
Order backlog on 31 December, MSEK	6,853	4,357	3,536
Number of employees on 31 December	321	285	254

¹⁾ According to the percentage of completion method (IAS11).

Project Development, which includes Housing Development and Property Development, creates vibrant cities with both homes and commercial properties. The business area is responsible for the Group’s property acquisition and divestiture and generates contracts for the other business areas. Project Development works through wholly owned projects or in cooperation with other partners in joint ventures.

Local roots close to customers is a success factor for Housing Development and the business is therefore represented in a large number of cities in Sweden. Property Development is represented in Malmö, Gothenburg and Stockholm. Operations in Finland are in Helsinki and other large cities. In Norway operations are located in Oslo and Tromsø.

THE BUSINESS AREA IN 2016

Housing Development

The housing market in Sweden has developed positively since 2010. The market is driven by urbanization, low interest rates and a level of construction that has been way too low for many years. On top of that is a substantial need for more housing to keep up with the growing population. The consequences of all this is a huge demand for new housing and a continued positive market. The greatest challenges Peab faces are the labor shortage in the industry, particularly in large cities, cost increases, especially in subcontractors and higher land prices.

2016 was a strong year for Peab and production starts in Sweden accelerated. Business was characterized by high completion of planned projects. More than 2,600 of our own developed homes went into production in Sweden, Norway and Finland, creating homes for over 7,500 people. Peab has a good development rights portfolio and in 2016 it intensified its efforts in business development and personnel recruiting in order to acquire and develop new development rights for future homes.

Peab’s ambition is to be at the forefront of sustainable city development by creating vibrant cities where financial, environmental and social goals are fulfilled. The objective is to develop housing that caters to the needs of many different people and offer all kinds of housing such as apartment buildings in tenant owned, ownership and rental forms as well as single homes.

In the traditional dockyard in central Lindholmen in Gothenburg about 450 houses, daycare centers, restaurants and offices are being planned. Here Peab is creating a vibrant city area characterized by diversity, creativity and proximity to Gothenburg’s city center. The houses will comply with the Swan environmental standard. The first 67 apartments were sold in the spring of 2016. Another example of how an industrial area can be transformed into a residential city district is Kvarnholmen in Nacka in the Stockholm area. By 2025 a total of 3,000 apartments will be built. In April 2016 Peab put 47 apartments in Kvarnholmen up for sale. Another example is Vallastaden in Linköping where Peab is one of the contributors to developing a new visionary part of the city. Peab is building 136 of the 900 apartments being constructed by a large number of developers. The area will contain a wealth of forms of housing such as rentals, tenant owner and ownership apartments.

Since Peab is located all over Sweden it has a strong market position. In order to meet the growing demand a new region was added in Uppsala in 2016 and in January 2017 Housing Development strengthened its presence in southeast Sweden with a new region.

Operations in Norway and Finland

In 2016 housing prices rose by 8.3 percent, much more than expected, on the Norwegian market (source: Boligprodusentene). Prices are expected to continue to rise in 2017. Price increases on Peab’s largest markets, Oslo and Tromsø, were 23.2 respective 7.5 percent in 2016. Peab is a relatively small player on the Norwegian market, but during 2016 it acquired development rights in order to initiate a number of housing projects in the coming years. In 2016 three significant development projects were acquired in Oslo: Hans Haslumsvei (planned sales start in 2019), Trondheimsveien 113 (sales start 2017), and Skårer/Lørenskog (sales start 2018). In 2016 Peab started the partly owned project Himmel & Hav in Tromsø with 300 apartments. This is Peab’s largest own development project in northern Norway ever.

Sales volumes of new housing grew by some 25 percent on the Finnish market and there were about 34,000 new apartment start-ups. Helsinki and Tampere represent about 55 percent of new construction in Finland (Source: Statistikcentralen). These cities are also Peab’s growth areas. The number of Peab’s sold homes on the Finnish market increased in 2016. Three important sales starts in 2016 were Kronobergs in Helsinki, Teku in Oulu and Korkeavuori in Turku. Housing Development in Finland also acquired land in 2016 in both Tampere and Helsinki, creating a good foundation for future development business.

Property Development

The market for offices in the areas around the largest Swedish cities was strong in 2016 along with the real estate market. Positive development is expected to continue in the rental market as well as stable development of housing prices.

As a property developer Peab has broad range of expertise in enriching and developing areas and land for commercial space or uses such as offices, malls, hotels, industries and sports facilities. Peab’s main ambition is to develop projects based on our own development rights in our own balance sheet. Cooperation with other partners in joint ventures may occur during a project. The aim is to create capital efficient development in cooperation with partners that strengthen our business and profitability.

Two larger property deals were sealed in 2016. One was establishing a joint venture together with the Malmö-based real estate company Volito in order to build the largest office building in Hyllie as well as own and manage the hotel property Värdshuset 5 at Hyllie Station Square. The 110 meter high office property The Point is Peab’s fourth project under development in Malmö’s new city district Hyllie. The other property deal was Peab’s contract with Fabege for the divestment of assets in Solna. The transaction included Peab’s entire share in Arenabolaget in Solna KB that owns Friends Arena, Peab’s entire holding in the company Visio Utveckling AB, 50 percent, that owns assets connected to Friends Arena, as well as development rights in Solna and properties and development rights in Ulriksdal. For ten years Peab has participated in developing Arenastaden in Solna in cooperation with the municipality and private players. The transactions were completed on 12 January 2017 and will be reported in the first quarter of 2017.

Operations in Norway and Finland

Peab’s property development is relatively small in Norway. The market is considered to be stable, particularly in Oslo and other major cities. The operations have an ongoing project in Tromsø, a BREEAM certified office property of 9,700 m2.

Total real estate volumes on the Finnish market reached record levels of EUR 7.2 billion (Source: KTI Kiinteistötieto Oy). In 2016 Peab completed the office project Ultimes Business Garden in Helsinki, divested Nereis Business Garden in Turku and presented a new concept, Service Garden, for cities and municipalities. Service Garden is, like Business Garden, our own concept and one that is exceptionally flexible using space modernly and efficiently, and is environmentally efficient as well.

NET SALES AND PROFIT

Operative net sales for 2016 in business area Project Development amounted to SEK 7,639 million (7,605). Operative operating profit increased to SEK 622 million (398).

Capital employed in Project Development at the end of the year amounted to SEK 10,281 million (10,838).

Capital employed

MSEK	31 Dec 2016	31 Dec 2015	31 Dec 2014
Housing development rights	4,125	3,831	2,974
Commercial development rights	675	543	710
Ongoing projects Property Development	736	944	1,144
Investment property Property Development	1,246	1,244	1,406
Participation in joint ventures	682	693	752
Financial receivables and others	2,817	3,583	3,660
Total	10,281	10,838	10,646

Housing development rights

Number, approx.	31 Dec 2016	31 Dec 2015	31 Dec 2014
Development rights on our own balance sheet	17,300	17,400	15,200
Development rights via joint ventures	3,900	4,400	6,900
Development rights via options etc.	7,200	6,800	7,000
Total	28,400	28,600	29,100

Own housing development construction

	2016	2015	2014
Number of housing starts during the year	2,651	2,363	2,502
Number of sold homes during the year	2,044	2,295	2,871
Total number of homes under construction, at year-end	4,381	4,043	4,034
Share of sold homes under construction, at year-end	69%	82%	84%
Number of repurchased homes on the balance sheet, at year-end	50	61	97

Housing Development

Operative net sales for 2016 in Housing Development amounted to SEK 6,254 million (5,971). Operative operating profit increased to SEK 533 million (388) and the operative operating margin improved to 8.5 percent (6.5) primarily as a result of the strong demand on the housing market.

The number of start-ups of our own developed homes has increased and amounted to 2,651 units (2,363) with a good geographic spread. The number of sold homes during 2016 was 2,044 (2,295). The number of own developed homes in production at the end of the year was 4,381 (4,043). The level of sold homes in production was 69 percent compared to 82 percent at previous year-end. The number of repurchased homes per 31 December 2016 was 50 (61).

Property Development

Net sales and operating profit from operations is derived from managing wholly owned property, shares in the result from partly owned companies as well as capital gains/losses from the divestiture of completed projects and shares in partly owned companies.

During 2016 net sales in Property Development were SEK 1,385 million (1,634) and operating profit was SEK 89 million (10). The year included the partial divestment of a hotel property and the development rights for offices at Hyllie Station Square in Malmö. The underlying property value amounted to SEK 777 million and the effect on profit was SEK 104 million. The previous year included the sale of a cold storage space in Bjuv for an underlying property value of SEK 590 million. The total effect on profit of property divestments amounted to SEK 136 million (32).

Projects under construction included in the capital employed in Property Development were, among others, a parking garage in Ulriksdal and a hotel in Västerås. Investment properties include, among others, an office building in Ulriksdal, one in Helsinki and one in Sigtuna. Financial receivables and others include loans to partly owned companies and working capital.

Peab’s ambition is to be at the forefront of sustainable city development by creating vibrant cities where financial, environmental and social goals are fulfilled. The objective is to develop housing that caters to the needs of many different people and offer all kinds of housing such as apartment buildings in tenant owned, ownership and rental forms as well as single homes.

Operative net sales

The industrial area Kvarnholmen in Nacka in the Stockholm region is being transformed into a bustling city district. A total of 3,000 apartments will be constructed by 2025. Peab put 47 apartments in Kvarnholmen on the market in April 2016.

Together with the real estate company Volito Peab will build the largest office building in Hyllie and own and manage the hotel property Värdshuset 5 at Hyllie Station Square.

A growing population, low interest rates and urbanization contribute to the big demand for new housing.