<strong>Skanska</strong>Project Developmentand Real EstateThe business area is responsible for collaborating with other <strong>Skanska</strong>units to identify, launch and develop real estate and infrastructureprojects in Sweden and other countries. The operations of the businessarea also include the management, upgrading and divestment of <strong>Skanska</strong>’sportfolio of investment properties.Operations are organized into three project development units –Sweden, Europe and BOT (privately financed infrastructure projects) –and three real estate management companies: Stockholm, Gothenburgand Øresund.● 32 <strong>Skanska</strong> <strong>Annual</strong> <strong>Report</strong> <strong>1999</strong>Business orientationWith the help of <strong>Skanska</strong>’s collective resources,<strong>Skanska</strong> Project Development and Real Estatedevelops commercial real estate and infrastructureprojects in which the Group investsits own capital. Value-added can be generatedin several stages, by combining resources andexpertise in project development, leasing,project management, construction, propertymanagement and financing.The goal is to achieve a high return on capitalinvested, with limited risk-taking. Thebusiness area seeks a high turnover in its propertyportfolio. In deciding whether to divest aproperty, <strong>Skanska</strong> continuously compares currentmarket value with the current value ofeach property’s future earnings capacity. Propertiesto be divested are packaged in such away as to command the highest possible price.The buyers are primarily institutions and realestate companies.Project development operationsspecialize primarily oninitiating, developing and managingcommercial real estateprojects, such as office buildings,shopping/business centers,distribution centers andvarious infrastructure facilities.Development of commercial real estateprojects is currently taking place in Stockholm,Gothenburg and Malmö, Sweden;Copenhagen, Denmark; Warsaw, Poland;Prague, Czech Republic; Budapest, Hungary;and Munich, Germany.New markets are developed gradually incollaboration with other business areas. Alloperations take place through <strong>Skanska</strong>’s ownlocal organizations. During <strong>1999</strong>, the businessarea established a local presence in St.Petersburg and Moscow, Russia; and inBuenos Aires, Argentina to explore the opportunitiesfor profitable project development.The business area’s real estate portfolioconsists of commercial space in major metropolitanregions.The real estate management companiesfocus primarily on leasing, operation anddivestments of existing investment properties,but they also carry out minor renovationand upgrading projects.Build-Own/Operate-Transfer (BOT) operationsfocus mainly on airports, harbors,hydroelectric power, roads and bridges.These operations have a broad internationalmarket base.The business area pursues active work inthe environmental field, which is expectedto strengthen its long-term competitivenessin the rental market.Earnings in <strong>1999</strong>Due to smaller gains on the sale of properties,the year’s operating income, SEK 1,390M, was somewhat lower than in 1998.The operating net of investment propertieswas higher than in 1998, due amongother things to lower costs for the adaptationof premises to tenant requirements andhigher rents.Market value of investmentpropertiesDuring <strong>1999</strong>, the business area conductedan internal appraisal of the market value ofits investment properties, partly based oncollaboration with outside appraisers. As ofDecember 31, <strong>1999</strong>, the market value ofthese properties was estimated at SEK 13.2billion, of which SEK 0.2 billion was <strong>Skanska</strong>’sshare in partly owned properties. Thecorresponding book value totaled aboutSEK 6.9 billion.In these appraisals the average requiredyield, using a normalized operating net,amounted to more than 7 percent. The increasein the estimated market value of anidentical property portfolio during <strong>1999</strong> wasabout 10 percent.Important business eventsHigher project investmentsDuring <strong>1999</strong>, the business area approved theconstruction of new projects with aggregateleasable space of about 100,000 sq m (1.07million sq ft), representing a total investmentof about SEK 1.3 billion. These new projectsincluded office buildings for Ericsson Swedenand Intentia in Stockholm, new phasesin the Barkarby shopping center outsideStockholm, new office space for Telia inMalmö, as well as new phases in KalvebodBrygge in Copenhagen, the West End BusinessCenter in Budapest and the Atrium projectin Warsaw. In addition, <strong>Skanska</strong> beganconstruction and sold one phase of KalvebodBrygge to Germany’s Landesbank Kiel. TheFisketorvet shopping center in Copenhagenwas sold to the associated company Piren.Acquisition of building rights and propertiesThe year’s investments in new buildingrights and properties totaled about SEK 0.9billion and included Irinyi Jósef u. in Budapest;the Dykaren, Lammet and Gångarencity blocks of central Stockholm; and additionalland in Barkarby. Total properties andbuilding rights acquired were equivalent to260,000 sq m (2.8 million sq ft).Properties completedDuring the year, <strong>Skanska</strong> completed propertieswith a book value of SEK 1,259 M and ayield on book value of 10.8 percent.
Property divestmentsProperties were divested in Malmö; Copenhagen;Vienna, Austria; and Stockholm,among other localities. The total sale pricewas SEK 1,438 M, with a capital gain of SEK803 MNew BOT projectsIn Great Britain, an agreement was reachedon a BOT project, Kings College Hospital,just outside London. The project, which<strong>Skanska</strong> is implementing in collaborationwith Costain and others, includes construction,facility management and financing.<strong>Skanska</strong>’s ownership stake totals 33.3 percent.Environmental certificationThe business area has introduced environmentalmanagement systems and has obtainedISO 14001 certification for all unitsexcept one. All units in the business area willbe certified by the end of 2000.Market situationDuring <strong>1999</strong>, most markets developed favorablyin terms of vacancy rates, rent levelsand property prices. The Swedish, Danishand British markets strengthened further.The picture is more divided in Germany andCentral and Eastern European markets. Ofthe Central European cities where the busi-<strong>Skanska</strong> Project Development and Real EstateSEK M <strong>1999</strong> 1998Net sales 1,309 1,265Operating income 1,390 1,585Income after financial items 1,151 1,375Return on capital employed, % 15.7 20.3Cash flow from business operations 213 457Average number of employees 225 211Percentage of <strong>Skanska</strong>’scapital employed2 (2)%Percentage of <strong>Skanska</strong>’scapital employed40 (40)%● 33 <strong>Skanska</strong> <strong>Annual</strong> <strong>Report</strong> <strong>1999</strong>
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