Summary 2014

• Purchase of a building site for a new office building, 14,000m², in central Asker
• Purchase of Kleivveien 22 for residential development in Bekkestua, Bærum
• Purchase of Strandveien 10 in Lysaker, Bærum
• New financial investment in Norway and Sweden for approximately NOK 200 million
• Partnership agreement  with Selvaag Bolig ASA for the development of 320 residential units in Tiedemannsbyen, Oslo

Ferd Real Estate is an active real estate investor, involved both in real estate development and asset management with particular focus on the market segments of residential development, office premises and warehouse-/logistics facilities.

Portfolio and operations
At the end of 2014, the equity value of the portfolio was NOK 1.95 billion. The portfolio generated a return on equity for 2014 of 15.1%.

Market 

• Commercial property rental market:
  The office rental market, particularly in CBD areas, started the year with rental levels rising and vacancy rates remaining at a low level. At the same time areas outside CBD experienced somewhat higher vacancy rates, causing a lower growth in rental levels in these areas.
  
  At the end of 2014 there was a wide decline in oil prices which particularly influenced companies in the oil- and offshore sectors through reduced order inflows. Several of the affected companies made staff reductions and their office space requirements were reduced. When several of these companies were seeking to sublet their premises the office rental market in business districts with clusters of oil and oil-related tenants experienced a flattening and perhaps even decline in rental levels as well as increased vacancy rates due to the increased competition for new tenants. The rest of the office rental market did not experience the same effects of the wide decline in oil prices, but rental level growth is slowing and office vacancy rates are increasing slightly also in these areas.
   
• Purchase and sale of commercial property:
  2014 ended up with a record-high transaction volume, and Entra’s stock exchange listing, major ownership changes at Norwegian Property, and Starwood Capital’s purchase of DnB Nor Eiendomsinvest I ASA where some of the largest individual transactions. In 2014 the commercial real estate market also experienced a raising share of foreign buyers entering the Norwegian market, as they accounted for approximately 20% of the total transaction volume. The reduction in interest rates throughout 2014 contributed to the decline in investors’ yield requirements, which decreased by around 0.5 percentage points (prime-yield).
   
• Residential real estate:
  After a weak second half of 2013, residential real estate prices increased significantly throughout 2014, driven by factors as low unemployment, urbanization, and low interest rates. In addition, transaction volumes for new-build properties returned to more normal levels from the low volumes seen at the end of 2013.

Organisation
Ferd Real Estate has 8 employees and is organised into the areas of development/projects, investment/finance, markets/rental and property management.

Residential Real Estate Development Portefolio

• Tiedemannsbyen, Ensjø:
  The Tiedemannsbyen project has a development potential of approximately 1,200 residential units, and will be developed over a period between 10 to 15 years. The first 600 units will be developed by Tiedemannsbyen DA, while Tiedemannsfabrikken AS will develop 350 units.
  
  Tiedemannsbyen DA is owned 50/50 by Ferd Real Estate and Skanska Bolig, while Tiedemannsfabrikken AS is owned 50/50 by Ferd Real Estate and Selvaag Bolig.
  
  The second sales phase of Petersborgkvartalet was launched in autumn 2014. Petersborgkvartalet is located in a quiet and attractive area with good access to recreation area and public transport. The first sales phase, which was launched in autumn 2013, comprised a total of 61 residential units, while the second phase comprises 84 residential units. The project includes commercial premises on the ground floor, including food outlets. Petersborgkvartalet will comprise 210 residential units in total.
   
• Bråtejordet:
  Ferd Real Estate is developing a townhouse project at Bråtejordet, adjacent to Strømmen station (a few train stops from Oslo), in collaboration with Mestergruppen. The project will comprise around 350 undetached houses and apartments. The first sales phase was launched in autumn 2014 and construction work on the first units is expected to start in 2015.
   

Commercial Property Portfolio

• Development:
  In 2014 Ferd Real Estate had one office building and one mixed-use building under construction as well as one office building under renovation.

  Aibel’s new office building in Bergen, approximately 25,000 m2, is a state-of-the-art office complex with particular emphasis on a number of environmentally friendly and energy-efficient solutions. The building will be certificated with energy efficiency class ‘A’ and a BREEAM score of ‘very good’. This office building will be the first building in what will become a modern business park at Kokstad (Kokstad Business Park). The building is due for completion in the first half of 2015.

  Swix Sport’s new mixed-use building of approximately 10,000m2 is under construction, and will be completed in the first half of 2015. The building, which is located near Lillehammer, will include a visitor centre, Swix’s products shop and a Swix museum, as well as a factory, a warehouse and a logistics centre.

  Strandveien 4-8 is an office building under total renovation where the main tenant Lundin will lease approximately 16,200m2 of the total 18,000m2 available. The property has an attractive location close to the transport interchange at Lysaker, and has good access to the E18. Lundin will move into its premises in the second half of 2015.

• Warehousing/logistics:
  Ferd Real Estate has three sites intended for warehousing and logistics purposes at Gardermoen, Vestby and Mastemyr close to Oslo. In addition, Ferd Real Estate owns 50% of Frogn Næringspark AS, which has a 95,000m2 site intended for warehousing at Måna, immediately adjacent to the entrance to the Oslofjord tunnel. These sites represent total development potential of around 180,000m2.
   
• Commercial rental:
  Ferd Real estates rental properties was virtually fully let at the start of 2014, including the office space at Ensjø and the factory buildings that are let on leases adjusted to the Tiedemannsbyen residential development project. Ferd Real Estate’s commercial rental portfolio amounted to approximately 80,000m2 at the close of 2014.

Financial investment portfolio
Ferd Real Estate continually evaluates financial investment opportunities where the underlying asset is real estate. We invested around NOK 150 million in this such assets during 2014.

International Real Estate Portfolio

• Rental:
  Ferd Real Estate owns a warehouse/production complex of approximately 30,000m2 in Aarhus in Denmark. The entire complex is leased to Elopak on a long-term lease contract.
   
• Financial investments:
  In 2013, Ferd Real Estate bought 17.2% of the equity in SPG Bostad Örebro, a company that will develop approximately 220 student and leasehold flats in a central location in Örebro, Sweden. The company developed and completed around 90 student apartments for the housing rental market in 2014. The remaining units of approximately 130 leasehold flats are expected to be completed in 2016.
  
  We also subscribed to 37.7% of the equity in a new leasehold flat project in Sweden through SPG Bostad Kronetorp in 2014. This is a company that will develop approximately 425 leasehold flats near Malmö. These are expected to be finished in several stages between 2017 and 2020.
  
  In addition, Ferd Real Estate has committed a total of EUR 50 million, equivalent to just over NOK 400 million, to the Harbert European Real Estate Fund II and the Harbert European Real Estate Fund III. The Harbert European Real Estate Fund II is in a disposal phase, while the Harbert European Real Estate Fund III is currently fully invested. The funds have performed well, and the timing of the investments proved to be good.

Outlook

• Commercial property rental market:
  Unemployment is expected to rise slightly in 2015 and we think that particularly industries that have been affected by the recent developments in the oil price and the following reduction in oil producers investing ability and willingness will be affected. The commercial property rental market will, as a result of this, probably be more demanding in the year ahead, particularly in areas with clusters of businesses highly exposed to oil-related activities. Properties in central locations are still more attractive, and vacancy rates for office space remain low, but we believe that also these areas will experience increased competition for new tenants in the coming year. Ferd Real Estate expects rental levels to remain flat in central locations, while the non-central areas will experience a slight decline in rental levels, particularly in clusters exposed to oil-related activities. Both the quality of the space offered and its location will be more decisive than before in the competition to attract major tenants.
   
• Purchase and sale of commercial property:
  Due to low interest rates we expect fewer investments to meet investors target for internal rate on investment. This, in conjunction with the relatively stable outlook for the Norwegian economy, despite the recent fall in the oil price, makes it likely that investors' interests in commercial property will continue to be strong in 2015. Ferd Real Estate continues to work on identifying attractive investment opportunities that fit with our strategy and meet our target for internal rate on investment.
   
• Residential real estate:
  2014 was a good year for the residential real estate market, with high price growth, particularly in major towns and cities. Although the supply of new residential units under construction are increasing and the unemployment rate is expected to rise slightly, we think the residential real estate market will continue to be shaped by the solid outlook for the Norwegian economy and low interest rates. The conditions for further price growth are therefore present, possible at a slower rate than in 2014. However, we do recognise that there may be regional differences in price growth due to variations in unemployment trends.