3. Summary of Realica Properties' strategy plan for 2022-2026 After many years of steady rental revenue increase, a good

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3. Summary of Realica Properties' strategy plan for 2022-2026 After many years of steady rental revenue increase, a good profitability, and a high market value growth, we experienced some years ago that the positive development stopped. Even if we choose to disregard the effect of the pandemic, our total financial value creation the recent years have been challenged by an increasing level of vacant office and shop areas and increased costs for management, operations, and maintenance. While many financial analysts for many years kept Realica Properties ASA on their list of recommended investments, things changed around 2019. Several negative articles in business media also contributed to the impression that the company no longer was the investors' first choice for a diversified real estate placement. Early 2021, The Board of Directors gave the new management team a clear mandate; it shall in addition to securing a good and stable return to our investors, also have a constant focus on finding new and attractive customers that demand high quality standards. In the forthcoming strategy period, we must focus on consolidation rather than growth. To improve the company's solidity, we must sell approximately 15 per cent of our real estate portfolio. The cash that is left after the mortgage loans on these properties are paid will be used to reduce the borrowings on the remaining properties, particularly where the current loan to value ratio is uncomfortably high. The goal is that the mortgage loan balance of one of our properties should be between 40 and 60 per cent of the expected market value. Real estate is a capital-intensive industry, and the total market value of our portfolio is more than 20 billion kroner. The focus we have had on following up our Return on Equity has not given us the right picture of the company's profitability. We cannot influence the Capital Turnover Rate much in the coming years, and we must therefore strive to influence The Rate of Return on Sales as much as possible in the strategy period that lies ahead of us. We know that this is influenced not only by the average rent level, but also by the vacancy rate, cost of management, operations, and management, as well as the interest level. Thus, we must ensure that the development of these factors is positive and sustained over time. ople in our organization, we see a
Although we have many experienced and highly competent people in our organization, we see a strong need to increase the company's human capital to be better prepared for the changes that are ahead of us. While we for many years had an entrepreneurial type of organizational culture, we see that the organization now suffers from lengthy decision processes and the lack of a commercial business spirit. This may have caused our gradual loss of market development skills and given rise to the loss of many customers when they have chosen not to renew their contracts after the first 5-or 10-year rent period has ended. This trend cannot continue! We must prioritize activities that increase the tenants' retention rate, because when we lose customers, it will take many years before we can try to win them back. We need to make development and maintenance plans with corresponding budgets for each of our 24 properties, so we can plan for an increased attractivity for each object and secure a high rent level in the future. The increased focus on development and maintenance will not happen without an increased know-how and a good administrative capacity to develop well-functioning internal control systems for the property management. We also need to strengthen our competence within the finance and accounting areas and develop better routines and systems for the daily handling of accounting transactions. Each property will now be an individual profit center where one of the six members of Top Management will have the overall responsibility. Hence, each manager will have a portfolio of four properties to follow up. Empowered to make the necessary operational decisions daily, the manager is responsible for
reporting the status to the management team. We hope that this will reduce the number of decisions that the Top Management team will have to make, and that we now can speed up the decision processes significantly. Realica Properties ASA will also need to strengthen its professional network in the forthcoming years. We have lost many valuable contacts when former managers left the company, and we need to build up a good external network within banking and financing, law competence, and real estate engineering. We need to convince the investors that we can give the best return in the real estate sector, and we think it is realistic to achieve a Return on Investments of around 10 per cent by the end of the strategy period. Together we shall make Realica the most attractive company in the market, both for our investors and customers, and for us who work here! 4. The need for improvement of one of the company's internal processes One of Realica's three shopping centers is Myriaden in the mid-sized Norwegian city of Flekkesund. Here, the rental contracts are here not time-limited to five or ten years as most office contracts are Contrary, rent agreements are made with a 60-day cancellation period. A tenant that notifies the company for instance by the end of March, will be charged for rent in April and May and will then t move out by the end of May. During the pandemic, 20 of the 50 shops in Myriaden closed, mainly due to insolvency and bankruptcy. Realica is now in the process of finding new tenants for these vacant areas and wants to improve the effectiveness of the process where new tenants replace old ones. An important part of this process is to prepare the vacant area and make it look attractive for a new customer. In an ideal market situation, where Realica has many potential clients interested in renting shop space, the company's profitability will be influenced by the number of days that the areas stay unused. It is therefore important to see what can be done to shorten the process starting with the existing tenant cancelling the contract ending with the new tenant moving in and paying rent. The process is highly standardized and based on routines that have been developed over man By observing the process, the company has been able to document the following 12 activities in the years. NO 09:11
During the pandemic, 20 of the 50 shops in Myrladen closed, mainly due to insolvency and bankruptcy. Realica is now in the process of finding new tenants for these vacant areas and wants to improve the effectiveness of the process where new tenants replace old ones An important part of this process is to prepare the vacant area and make it look attractive for a new customer. In an ideal market situation, where Realica has many potential clients interested in renting shop space, the company's profitability will be influenced by the number of days that the areas stay unused. It is therefore important to see what can be done to shorten the process starting with the existing tenant cancelling the contract ending with the new tenant moving in and paying rent. The process is highly standardized and based on routines that have been developed over many years By observing the process, the company has been able to document the following 12 activities in the process cycle: Days per Days Activity activity accumulated 1 Realica receives a cancellation notice from Tenant X. 0 2 Cancellation period, according to contract. 60 0 60 61 3 Keys are handed over from Tenant X to Realica 4 Realica's technical team checks premises to see if a claim against the tenant can be made for any damages and what else needs to be done before new tenant can move in. External contractors are contacted for a quote for the planned work 66 5 73 87 6 Damages repaired and refurbishment works are carried out. 7 The Market Department inspects the shop and decides rental terms (such as price per square meter). 91 111 Time elapsed before Tenant Y has signed a new contract. Discussions with Tenant Y to adapt the shop to the new tenant's needs. 118 125 New round with contractors with quotes for remaining work Final inspection together with Tenant Y. 126 127 Keys are handed over to Tenant Y, start of new rental period 8 9 10 11 12 1 5 7 14 4 20 7 7 1 1
Question 1 (25%) Identify critical success factors in Realica Properties ASA's strategy from 2022-2026 and place them in the correct strategic perspectives used in a Balanced Scorecard model. Question 2 (25%) Design a strategy map based on your conclusions in question 1. Question 3 (25%) Suggest Key Performance Indicators that in your opinion have the necessary validity and reliability to be used in a Balanced Scorecard model in Realica Properties ASA. If you think that it is difficult to find well-functioning KPIs in certain areas, you should comment on this.