Business area Project Development
Sustainable urban development is the cornerstone of lasting profitability
Key ratios
| 2017 | 2016 | 2015 | |
| Operative net sales, MSEK 1) | 8,629 | 7,639 | 7,605 |
| of which Property Development | 1,013 | 1,385 | 1,634 |
| of which Housing Development 1) | 7,616 | 6,254 | 5,971 |
| Operative operating profit, MSEK 1) | 811 | 622 | 398 |
| of which Property Development | 98 | 89 | 10 |
| of which Housing Development 1) | 713 | 533 | 388 |
| Operative operating margin, % 1) | 9.4 | 8.1 | 5.2 |
| of which Property Development | 9.7 | 6.4 | 0.6 |
| of which Housing Development 1) | 9.4 | 8.5 | 6.5 |
| Capital employed on 31 December, MSEK | 10,024 | 10,281 | 10,838 |
| Orders received, MSEK | 8,496 | 8,245 | 6,498 |
| Order backlog on 31 December, MSEK | 8,198 | 6,853 | 4,357 |
| Number of employees on 31 December | 361 | 321 | 285 |
1) According to the percentage of completion method (IAS11).
Project Development, which comprises Housing Development and Property Development, creates sustainable and vibrant urban environments with both residential and commercial property. The business area is responsible for the Group’s property acquisitions and divestitures as well as project development which generates contract work for the other business areas. Project Development works through wholly owned projects or in cooperation with other partners in joint ventures.
Peab is one of the largest housing developers today in Sweden. The business has a strong position on the Swedish market spread broadly in seven regions and 19 offices all over the country. In Finland Peab is represented in Helsinki and seven other large regional cities. In Norway operations are located in the Oslo area and Tromsø.
Property Development develops new offices, premises and sometimes whole city districts in cooperation with municipalities and other partners. The business is represented in Malmö, Gothenburg, Stockholm and Helsinki.
NET SALES AND PROFIT
In business area Project Development operative net sales for 2017 were SEK 8,629 million (7,639) and operative operating profit increased to SEK 811 million (622). At the end of the year capital employed amounted to SEK 10,024 million (10,281).
RECLASSIFICATION OF PROPERTY
After a revision of Peab’s property portfolio it was decided that some property previously reported as project and development property, i.e. inventory properties, will instead be classified as operations property or investment property, in the case where there is no plan to divest the property and it is expected to remain in the Group for the foreseeable future. The properties are owned for the purpose of income from rent or appreciation or a combination of both. For this reason, as of 1 January 2017 properties for a total recorded value of SEK 619 million have been reclassified as operations property and properties for a total value of SEK 629 million have been reclassified as investment property.
Capital employed
| MSEK | 31 Dec 2017 | 31 Dec 2016 |
| Operations property | 1,036 | – |
| Investment property | 871 | – |
| Project and development property | 6,439 | 7,007 |
| of which housing development rights | 5,116 | 4,125 |
| of which commercial development rights | 627 | 675 |
| of which projects under construction | 383 | 736 |
| of which completed projects | 170 | 1,246 |
| of which other | 143 | 225 |
| Participation in joint ventures | 912 | 682 |
| Loans to joint ventures | 1,383 | 1,694 |
| Working capital and other | -617 | 898 |
| Total | 10,024 | 10,281 |
Operative net sales
Housing Development
Peab’s position on the Swedish market is good. Being spread all over the country creates a local organization that builds up close customer relationships and effectively meets the demand for new production of homes in varying price classes. Our range of housing forms is broad; tenant-owned apartments, condominiums and apartments for rent as well as homeowner or tenant-owned single homes.
The strong development of housing construction in Sweden slowed down towards the end of the year and sales took longer than before.This is believed to be due to a surplus of homes in some areas, the more stringent amortization requirements put in place by the government and higher requirements from banks for loans. Peab’s housing is primarily in the mid-priced segment and we see that there is still a big need for new housing in this range.
The development rights portfolio for Swedish operations is spread across the country. A number of development rights were acquired in 2017. Among them were some 600 development rights in Kvarnholmen in Nacka, some 700 development rights in Upplands-Bro, some 700 development rights in Norrköping, some 500 development rights in Södra Änggården, Gothenburg and several land allocations in the areas Peab is established.
Peab strives to be a forerunner in sustainable urban development and build attractive and sustainable projects that meet economic, environmental and social goals. Peab considers social sustainability essential, which means creating vibrant and safe neighborhoods with meeting places. As of September 2017 all new, own developed apartment buildings will be certified according to the Swan with Bra Miljöval (Good Environmental Choice) labelled electricity.
Hyllie is Malmö’s largest expansion area and will be a global model for sustainable urban development. Peab is building 179 apartments in the city block Tor in a mixture of housing forms with both rentals and tenant-owned apartments, along with a preschool, and all of them share a courtyard. To promote bicycling instead of driving all the tenant-owned apartments come with an electrical bicycle. The roof of the construction is covered in solar panels that provide electricity for the building and charging the bikes.
Partille Port in Gothenburg is Peab’s single largest housing project with around 900 apartments, commercial space, senior housing, a garage and parking. Recycling permeates project thinking and, for example, rainwater is collected to water the included green areas. The first stage is expected to be ready to move into in the beginning of 2019.
The Norwegian housing market developed positively in the beginning of 2017. However, more stringent loan requirements from banks led to falling housing prices which became apparent in the spring of 2017. The negative development in prices mostly affected the market in Oslo but even other large cities felt the effect.
Housing development rights
| Number, approx. | 31 Dec 2017 | 31 Dec 2016 | 31 Dec 2015 |
| Development rights on our own balance sheet | 20,700 | 17,300 | 17,400 |
| Development rights via joint ventures | 4,800 | 3,900 | 4,400 |
| Development rights via options etc. | 7,100 | 7,200 | 6,800 |
| Total | 32,600 | 28,400 | 28,600 |
Own housing development construction
| 2017 | 2016 | 2015 | |
| Number of housing starts during the year | 3,048 | 2,651 | 2,363 |
| Number of sold homes during the year | 2,734 | 2,044 | 2,295 |
| Total number of homes under construction, at year-end | 6,333 | 4,381 | 4,043 |
| Share of sold homes under construction, at year-end | 72% | 69% | 82% |
| Number of repurchased homes on the balance sheet, at year-end | 33 | 50 | 61 |
Peab is a relatively small player on the Norwegian housing market. In 2017 development rights were acquired for a number of housing projects. In, for instance, Vestfold over 1,000 development rights were acquired. Peab also acquired 140 development rights in Moss and 400 in Lørensskog on the outskirts of Oslo.
Himmel & Hav (Sea & Sky) in Tromsø is the largest own developed project so far in Northern Norway with 17,800 m2 residential space and 2,000 m2 commercial space. The project consists of some 180 apartments in total and is expected to be ready in the spring of 2021.
As the Finnish economy grew stronger in 2017 housing sales accelerated. Peab’s growth areas are Helsinki, Tammerfors and Åbo, which combined represent around 50 percent of new housing production in Finland. In 2017 Peab’s sales on the Finnish market grew by 40 percent, primarily in Helsinki, Tammerfors and Jyväskylä. Land for exploitation was acquired in, among other places, Tammerfors and Helsinki. In Tammerfors Peab is building Ranta-Tampella, which consists of 39 apartments that make up the second stage of five housing projects on Näsijärvi shore. The entire block is expected to be finished in 2022.
Net sales and operating profit
Continued strong demand on the housing market has had a positive effect on both net sales and operating profit in 2017. Operative net sales amounted to SEK 7,616 million (6,254), an increase of 22 percent. Operative operating profit increased to SEK 713 million (533) and the operative operating margin improved to 9.4 percent (8.5).
The number of start-ups of our own developed homes has increased during the year and amounted to 3,048 units (2,651) with a good geographic spread. The number of sold homes during the year was 2,734 (2,044). The number of own developed homes in production at the end of the year was 6,333 (4,381). The level of sold homes in production was 72 percent compared to 69 percent at year-end 2016. The number of repurchased homes per 31 December 2017 was 33 (50).
Peab has had a central role in the development of Vallastaden in Linköping, which was the location for Sweden’s largest Living Urban Expo 2017. Peab built 136 apartments in the new city district in a mixture of rentals, tenant-owned apartments and condominiums, which reflected Peab’s offer of different housing forms.
The project Hämeenlinnan Henrietta with 52 apartments is being built on cultural land in the middle of the historic city Tavastehus. The area is close to the beach, foot paths and cultural experiences. The project will be ready after the summer of 2018.
In Jessheim/Gardermoen Peab began building Yesheim III, which comprises 103 apartments, in September 2017. The apartments are expected to be ready to move into in the second quarter 2019.
Property Development
Property Development has broad, extensive expertise in refining and developing areas and land for purposes such as offices, malls, hotels, industries and sports facilities. It is primarily geared to run development projects based on development rights on our own balance sheet. Cooperation with other partners via joint ventures may occur at different times during a project.
In 2017 the market for office buildings in Swedish big city regions was robust and there were a great number of market transactions. The market for office rentals is expected to continue to develop positively and real estate prices are expected to have a stable development.
Growth in the Finnish economy contributed to a more and more active real estate market and the total value of transactions was EUR 10.2 billion at year-end (Source: KTI Property Information Ltd).
The commercial real estate market has been good in the Norwegian areas where Peab primarily operates, Oslo and Tromsø. The market is expected to continue to be strong during 2018.
Net sales and operating profit
Net sales and operating profit from operations are derived from acquisitions and development of, maintaining and 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 the year net sales were SEK 1,013 million (1,385) and operating profit was SEK 98 million (89).
Operating profit included capital gains of SEK 75 million from the divestment of Peab’s participation in joint venture companies to Catena. Peab and Catena have for a long time collaborated on four development properties in Skåne owned as 50/50 companies, which were divested during the first quarter. In December 2016 Peab and Fabege agreed that Peab would in January 2017 sell a number of assets in Arenastaden and Ulriksdal in Solna. The transactions took place in January 2017 and the divestments in Ulriksdal affected net sales during the first quarter by SEK 577 million. The transactions had no net effect on profit since the divestitures in Ulriksdal had a positive effect of SEK 180 million on profits while the divestitures of the assets in Arenastaden had a negative effect of SEK 180 million. 2016 included the partial sales of properties in Hyllie, Malmö with an underlying property value of SEK 777 million which affected operating profit by SEK 104 million. The total effect on profit from divestitures of property and joint venture companies in 2017 amounted to SEK 94 million compared to SEK 136 million in 2016.
Profit from partially owned companies has improved compared to the corresponding period last year.
The capital employed in Property Development includes operations property for a reported value of SEK 1,036 million and an office building in Helsinki, Finland, office buildings in a business park in Ängelholm as well as an office building in Solna under construction. Investment property amounts to SEK 871 million and consists primarily of a hotel in Västerås, commercial space in Sigtuna and Märsta as well as a business park in Ljungbyhed.
Peab is developing a completely new city district in Ulriksdal with comprehensive solutions within sustainable urban development. Peab is creating attractive and vibrant urban environments with homes and commercial space. Peab’s new office is being built in the area, a BREEAM certified building of around 12,000 m2, which will be ready to move into for some 500 Peab employees in 2019.
In Hyllie, Malmö, Peab is together with Volito developing the 110 meter high office building The Point. The building will contain around 20,000 m2 office space and there will be shops, a lobby and shared lounge. The customer is Point Hyllie Holding which is owned equally by Peab and Volito. Construction began in April 2017 and occupation will take place at the end of 2019.
Construction of the second office building, Ultimes Business Garden II, in Sockenbacka business park in Helsinki began in August. It is seven floors high with around 7,900 m2 office space for rent and 150 parking places. The building is expected to be ready to move into at the beginning of 2019. A total of six office buildings are planned for the area and together they will hold about 50,000 m2 office space.
Significant joint ventures
Peab’s significant joint venture companies Fastighets AB Centur, Tornet Bostadsproduktion AB, Fastighets AB ML4 and Point Hyllie Holding AB are developing well and via them Peab has built up considerable indirect holdings in investment property and development property for both commercial and residential purposes. Ongoing returns are in the form of shares in the profit from joint ventures recognized in operating profit and interest income on lending. Changes in market values of property that effect reported values in joint venture companies are not recognized in Peab’s profit.
Fastighets AB Centur
Own, manage and develop commercial property and housing.
Peab’s share: 50 percent
Partner: Balder
Geography: Stockholm, Gothenburg and the Öresund region
Tornet Bostadsproduktion AB
Build and manage attractive and environmentally friendly rentals in larger cities in Sweden.
Peab’s share: 31 percent
Partner: Riksbyggen, Folksam and Balder
Geography: Stockholm, the Mälaren region, Gothenburg and the Öresund region
Fastighets AB ML4
Own and manage the research facility Max IV. The facility is rented to Lund University.
Peab’s share: 50 percent
Partner: Wihlborgs
Geography: Lund
Point Hyllie Holding AB
Develop the office property The Point and own and manage the hotel property Värdshuset 5.
Peab’s share: 50 procent
Partner: Volito
Geography: Hyllie, Malmö
Key ratios 2017 significant joint ventures 1)
| MSEK | Fastighets AB Centur | Tornet Bostadsproduktion AB | Fastighets AB ML4 | Point Hyllie Holding AB |
| Net sales | 275 | 101 | 85 | 28 |
| Profit for the year | 157 | 96 | 12 | 1 |
| Total assets | 5,055 | 2,896 | 1,980 | 872 |
| – of which recognized value of properties | 4,978 | 2,830 | 1,854 | 818 |
1) Refers to the recognized value of joint venture companies for January – December 2017 and per 31 December 2017. Since Fastighets AB Centur and Tornet Bostadsproduktion AB apply the market value of properties, the values in the table above differ from the values presented in the Peab Group for joint venture companies in note 18.