Good morning. Welcome to the interim report January to September 2020. My name is Anna, I will be your coordinator for today's conference. During this call, you will be on listening only. However, in the end of this presentation, you'll have opportunities to ask questions by pressing star one. I will now hand you over to CEO, Erik Selin, your host for this call. Thank you.
Hi. Good morning, everybody. Thank you. We will have a short presentation of the Q3 report, and then as usual, we go over to Q&A after that. We start right away here. Balder Q3, it was a bit calm quarter, obviously summer and also this calmer market because of COVID. In our daily operation now COVID is not that bad as before. Rent collection is actually similar to last year, this period. Right now you can't see any differences. However, we have, of course, lower rental income from variable hotel rents and so on. Otherwise, it's surprisingly stable as we see it. In Q3, we agreed to acquire 50% of ADN in Norway. They have a separate homepage you can look at.
We are very happy for that acquisition because it's a very good platform for us to be able to invest more money in Norway and together with excellent people. The biggest asset there is a quarter in the CBD called the ADN quarter. We also made a deal with Hedin to build their new head office. In the picture at page two, it's actually just showing how it will look like in a couple of years. We just started the construction. We hope it will be like this. We have long lease with Hedin in this, and also Hedin is performing extremely well in this market. They have a better profitability and a lot of liquidity, so it's a super strong tenant. Good to know. We completed some apartments in Finland, and we made some small divestments of development projects in Gothenburg and Karlstad.
Looking at the numbers, profit from property management in Q3 was 9% positive from the comparing period last year. NAV SEK 363, net debt to assets 47%, and like-for-like rental growth 1%. The low figure there is explained by hotel rents coming down because we have now only floor or fixed hotel rents and not the turnover part, and that makes that figure go down in the company, but still slightly positive. Obviously if we didn't have this COVID effect, we would have a clearly higher increase than 9% in profit from property management. Still, not that bad considering what's happening. Page four, you can see the longer-term development in cash flow and NAV. It's slowly moving upwards. If we take page five, this is a more specified version of that.
You can see right now the earnings capacity is at SEK 4.2 billion in the parent company or SEK 23 per share. We are a bit ahead of the year-end. Despite corona and hotel rents not being the same as we would have hoped way back, obviously. We're trending positive, but a bit slower than we used to. Page six. There you can see more in detail the rents, costs, and so on. Also value change is quite small. Residential prices still trending a bit up and otherwise pretty stable. The result net profit goes down from last year, and that is obviously because of the smaller value changes in properties. Otherwise, pretty stable, I would say. Turning to page seven, the balance sheet. That is worth to notice that we had a lot of cash and cash equivalents, financial investments.
Maybe even a bit too much, but we've been playing it pretty safe, having a lot of cash and liquidity on hand since the market is still a bit volatile in the funding market. I think total liquidity is like SEK 16 billion-SEK 17 billion. That's quite a lot. Actually, a bit too much. Page eight, we have the property portfolio. Haven't changed, I think, since last quarter in the percentage of different categories and cities. I can just remind that in the other category, hotel is 8%. It's not to be mistaken that it would be 14, but it's actually eight. Then you have no bigger changes in geography. Turning to financing, page nine. We believe right now, or for the last month, the financing market has been pretty stable, actually getting slightly better and better as we see it.
By that I mean the bond market. Bank market's been performing normally actually through all this crisis. Nordea Bank's pretty strong, and we had that support all the time. Banks been very positive, supportive, and stable, but as always bond market and commercial paper moves much faster up and down, and the spreads went up heavily and now been tightening again. We think it's a pretty okay situation. What you can say, there is liquidity, a bit more costly than before COVID, but still within reasonable levels. Let's hope that that continues. Our rate shows otherwise it's pretty stable also compared to the last quarter or last year. You see the debt maturity profile, and we can actually handle all the debt maturing this next year without any special actions.
Page 10 shows basically some of the same things, but you can also see net debt to assets and how much secure debt out of total assets. They are trending slightly down, and we are with a big margin inside of what is required for our current rating from S&P. Finally, you have the graphs of the share price way back. You can always see that over time, the share price will correlate with earnings and NAV. That was a short brief of the quarter. If there are any questions, we can now move on to Q&A. I also have Marcus with me if there are specific questions about, for example, financing. We move to Q&A now.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Please note that we need to take your name for your question. The first question, I will open up your phone line privately and talk to you and then take your name. Please make sure your phone line is open locally. We have a couple of questions coming through, so I'm going to start taking the names. Thank you. The first question comes from Jan Ihrfelt from Kepler Cheuvreux. Please go ahead, your line is now open.
Okay, good morning. Thanks for taking my questions. Actually I have three of them. I start with the property value uplift, which was rather modest in the quarter, as you mentioned. If you just could elaborate a little bit upon the split between different segments. Are you maybe increasing your values on residentials and cutting it a little bit on hotels, or just give us a feeling for how the movement has been during the segments.
Yes. Thank you, Jan. You're absolutely correct. We have lowered the values on some of the hotel properties. We also had a negative currency effect from the St. Petersburg assets. That is on the negative side, and on the positive side is the residential properties that has had a positive effect. Most of the positive effect is actually that we have completed apartments and changed the values on them. That is related to Finland for the largest part.
Okay, most of the uplifts are from the project portfolio, so to say?
Yes.
Okay. My second question regards your costs here. If we look at the earnings capacity in the second quarter and compare with the outcome for this quarter, both financial costs and central costs were 15% lower. Are there seasonal effects or is there anything behind it?
If you take the financial cost, STIBOR has come down, that is mainly related to that. You can also see in the current earnings capacity that we have taken that down due to a lot of STIBOR effect.
Central costs, are they becoming a little bit lower on the COVID times or?
Yeah. The administration is really related to several different areas. You have both lower costs on consultants and marketing, and also personnel is a bit lower in Q3 normally. It's on several lines there. It's not related to one area. It's several areas which is much lower than earlier, and it's probably a bit related to COVID that we haven't had the same activity ongoing as we used to.
Okay. My third and last question regards your residential development. The contribution this quarter was SEK 6 million and SEK 65 million for the nine months. When we forecast our figures here, going forward, were they a rather lower figure in the third quarter, or was it rather high in the first half of the year? Just give us a feeling what we could expect for the future finalizing of the residential apartments.
Yeah, that was a pretty low figure, Jan. What we think is that this sum year- by- year will move up over time quite substantially. It will be very irregular from quarter- to- quarter because we book when the people in possession of apartments, so we don't do it before. We will have quarterly very irregular figures. If you compare year- over- year, at least we hope you will have a very good performance.
Yeah. The variation, I think mostly is due to the volumes rather than. The contribution per apartment, so to say.
That's also very project to project actually. Some are very profitable and some are not that profitable. It will be very mixed. If you see the long-term trend and the big picture, you will have an increased contribution from that segment. It will not be easy to forecast quarter- by- quarter.
We are only switching up the results at completion, so we don't do any successive results. The profit only comes at completion.
Yeah, I know. Was the first half of the year rather high or just get a feeling for it?
No.
Over time will be rather low conservative figure. We expect more over time.
Okay. Thank you so much.
Thanks.
Thank you.
The next question comes from Tobias Kaj from ABG. Please go ahead, your line is now open.
Yes. Thank you. I would like to start to ask regarding your hotel portfolio and Scandic has communicated after their report that they want to try to renegotiate contracts. Have they been in contact with you and do you see any risk that you need to lower your rents?
No, we don't actually see that as a big risk. Most of their contracts are fairly long, so I think we only have a couple of negotiations in the coming years. That is not going to be noticeable for a while. We would also expect that the market will come back and perform in a few years' time as well. We don't see that as a big risk.
We also prefer to talk with customers directly and not in media.
Yes. Thank you. Just a detailed question also in P&L, you have other income and costs which came from plus SEK 6 million Q3 last year to minus SEK 26. Even though it's quite small numbers, it has some impact on the total. Can you explain what this is related to?
That is related to our own operations on hotel side.
Okay. Thank you. The activity in the third quarter remained quite low in terms of transactions, but it's normally much higher in the fourth quarter. Do you expect that the transaction volume will improve in Q4 this year as well? Do you expect that Balder can capitalize out of this?
Yes. That is our ambition, and we hope that that will be the outcome.
One final question regarding your resi development. It seems like you didn't start any new development projects in the third quarter while we have seen a quite high activity in some peers. You did postpone some planned starts during the spring. What's the outlook for fourth quarter and for 2021 in terms of starts?
I think we expect just if you take Sweden and Denmark, we expect to make construction starts for approximately 3,000 apartments. If you add Finland to that, I would expect at least around 500. Maybe around 3,000- 3,500 apartments will be construction start during Q4 and 2021.
Q4 and 2021-
Yeah.
-combined. Yeah.
Okay. Thank you very much for taking my questions.
Thanks.
There are questions coming through and due to people can't hear your questions and your answers, just going to quickly take another person's name and then introduce the next person. Bear with me one second. I'll be back shortly. The next question comes from Johan Hellekant from Svenska Dagbladet. Go ahead. Your line is now open.
Yes. Hello. I'm wondering about in the report you tell about your biggest customers and among them are Scandic Hotels and also Winn Hotel. Could you specify a little bit more about the hotel situation?
In our P&L now we have the fixed or minimum rents. We don't anticipate turnover rents if you look at the Balder figures. That's good to know that our rental income is quite much lower than in a normal situation.
Yeah.
Otherwise, Scandic is a big tenant and Winn Hotel, and we have some other hotel operators as well. We had it for a long time.
How much lower the normal has it been?
It's very big difference because in some we have one or two extreme case with just turnover rent. In some cases it's only fixed rent and some leases is a combination. There's not one type of contract.
Yeah.
They are very different in this hotel portfolio.
Scandic told that they are from now, from this month, stopping full rent because of the pandemic. How many hotels are concerned in Balder from this?
I think maybe 10 or how many Scandic do we have, Marcus? Do you know?
Yeah, something like that.
What you mean stop paying rent? I didn't really catch your question there.
Well, they're telling that they are not paying full rents anymore, from they told yesterday.
If it's a misunderstanding, they will be paying full rents according to their agreement.
Pardon. Excuse me.
I think it's a misunderstanding. Scandic is paying full rents according to their agreements.
Well, they tell that in central big cities, in the central positions, they will not. They're negotiating new deals in central.
We have no information on that ourselves. I think we haven't seen that, so I don't think we should comment on what they might do. If you think it's what you ask in that case, but we don't know.
Yeah. Another question is that you have Nordic Choice Hotels as a customer also, and you are building a new hotel for them in Gothenburg. That deal was made just before COVID. Can you comment a little bit on that?
The construction is going forward according to plan, and it will be completed in mid 2023. There are no other news on that.
There might be contraction now at the same time as we are talking. Skanska was also reporting. They tell that they think that there will be concerns for the offices, and they think it's probable that there will be a lower demand in future. Both hotels and offices could be affected a lot longer time than we thought earlier this year. What is your picture of this?
Our impression is that the activity is very high on the offices. We have signed a few leases this week, which is fairly big for our company. We feel that the activity is just as it was before COVID, I would say. We don't see any lower activities there. Just to guess what is going to happen then with the office market going forward, it's very difficult. I think it's too early to have a view on that.
Okay. Thank you so much.
Thank you.
Thank you.
The next question comes from Markus Schmidt from Prisma Investment. Please go ahead. Your line is now open.
It's Markus Schmidt. Doesn't matter, actually. Good morning. I have three questions, if I may. One is on your hotel assets. I think current market intelligence applies somehow that hotel assets could be structurally valued lower by about 15%-20% as a ballpark number post-COVID. Is that a valuation you could agree to, or is it a bit too early to comment on this? What the consequence of the pandemic is for hotel assets?
I think it's too early for us to comment on that.
Okay. On your debt maturity profile, I'm wondering if you want to keep that maturity profile as it is. If you plan to shift it a bit more to the right, skewed to the right, to avoid running into pressure in a crisis like the beginning of the year. The crisis did not hurt you really, but I would assume that extending the average maturity would not be so expensive for a company of your quality, given the interest rate compression particularly for investment grade-rated companies. Is it, let's say, a financial target for you to bring it more to the right? That's the question.
I think we have on average almost six years today, and I think that is fairly long for a Scandinavian company. I think we are fairly happy to be on average around six years.
Okay. I'm just looking at the year's trends.
If it's very favorable terms, we don't mind having more to the right. We're not against it, but it always is the balance between pricing and how much to the right we want to be. I agree that if it's very favorable conditions, we wouldn't mind going to the right.
From my perspective, I totally agree with what you say. From my perspective, I feel a little bit uncomfortable when I look on the years 2020 and 2021, and it's not a big number, but not a small number as well. If you could shift that more to the right, bring it into 2026, 2027, 2028 or so, it would be costly a little bit, but maybe would take pressure away from you and the people like me asking these stupid questions.
I think it's very wise and normal questions, actually.
Yeah. Okay.
This is something we think about all the time, debt structure. I think it's very good to be on top of that. You can say already today we have available facilities and cash to cover all the maturities in 2020 and 2021.
Right.
We don't have to borrow money until 2022 if worse comes worse.
Okay. No, understood. Finally, on your strategy, will you target also more central European markets and assets, or is this not on the agenda for you? I see companies like Akelius going to Germany, for instance. Is it something you have in mind as well, or do you feel comfortable in your geographies?
Right now we are not doing that. It's always interesting to see return compared to risk and also diversification. We're not against it, but right now we're pretty focused on the Nordic countries still. I think we have a lot to do here. We're still small, and we have a lot of opportunities.
Okay. Good. Understood. Thank you very much.
Thank you.
Thanks.
Before we let the next person ask the question, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. The next one comes from Markus Henriksson from Pareto. Please go ahead. Your line is now open.
Good morning, Marcus and Erik. I have a question regarding like-for-like. What was it adjusted for the burden from hotels? There was 1%, but if we adjust for that.
I guess it would have been in the area two and a half to three somewhere.
All right. Thank you. A follow-up on the margin on co-ops. Your first sale was very strong, a very strong margin, and now it's much lower. Should we expect 10% margin or 20%? You mentioned that, of course, the difference between all your projects, but what do you think with the whole parts margin?
It will be very irregular figures from quarter- to- quarter. I think it's better to look at it year by year, even if it is very long. You have to have a long attention span in that case. Over time, we think 10 is too low for us, so we have higher ambitions. On the other hand, I think it will be hard to have more than 20. I would say more like 15-ish, but very irregular from quarter- to- quarter.
We can also say-
That's a great answer.
-the margin looks a bit weaker than it actually is also in the quarter because we book marketing costs over every quarter, and if we have low income on sales, that is going to affect the margin because of that. We book marketing costs even if we don't have any projects that we are taking the results from.
Understood. Long-term perspective and then 15% margin is reasonable.
That's our ambition.
Yeah. Then also follow up on revaluations. I think Jan pointed at this, but several other companies have made significant uplifts on residentials during Q3. You mentioned that as well, that you have uplifts on residentials, but still you must have a lot of burdening on other parts, like you mentioned St. Petersburg and hotels, but could you highlight a bit more? Are you a bit more cautious than other companies for residential?
I think so. The value changes you can see is more project-related, so we haven't really changed the yields on the overall portfolio there. No yield change. It's project-related, the positive changes.
That actually means we're more cautious.
Yeah.
Conclusion.
That's correct. Last question regarding transaction markets. Do you rate Norway higher than London at the moment?
No. We don't want to decide beforehand what's good or bad, so we look at it always case by case. My ambition is to always be neutral before I look at something. We think U.K. also can be interesting. Now we have a better platform in Norway because of this deal, so it's easier for us to look at more things in Norway than it was before the deal with ABN. It will bring some positive effects for us over time.
All right. Thank you. Thank you for taking my questions.
Thanks.
The next question comes from Philip Hallberg of Danske Bank. Please go ahead. Your line is now open.
Thank you, good morning, Erik and Marcus. I just had two questions here in regards to both the investment market and your investment activity. I think it was in your Q1 report that you, Erik, mentioned that you saw opportunities arising due to the ongoing situation at that time. Would you say that those opportunities are still around, or have the general improvement in the economy and the market, so to speak, reduced those opportunities, or are there perhaps new opportunities now?
I think to have the big picture, it's a bit reduced because it didn't turn out to be that bad as I might have feared in the beginning. There are still some opportunities, for sure. Everybody knows that this so far hasn't been that bad in the real estate market. Of course, stronger market for us means actually less opportunities. You have a bit of both. There's still something that could be interesting.
Okay. Thank you. To allude to this, I think you mentioned in the last report here or on the last call that your feeling was that buyers needed to come closest to sellers to be able to close a deal.
I would assume what you just said that that is still the case, or do you experience any shift in the market when you're looking for new assets?
My guess is that buyer will need the sellers rather than the other way around because there are too many buyers, or maybe not too many, but there are many buyers. The market's been performing stronger than what I was guessing half a year ago. I think it's much driven by all the companies are strong and have cash flow and investment capacity. Institutions are selling and buying, and then you also have international investors with a lot of money. Interest rates so low for so long times, I think it's driven by very strong investor demand in general, and that sort of affects the whole market, actually.
Yeah.
Stronger than what I guessed quarter or two ago.
Yeah. Okay. Does that mean if you look on the listed companies right now, there is quite a few companies trading at quite hefty discounts. Are you potentially looking at the stock market as well, not just in Sweden, but throughout the Nordics or maybe in some other?
Yeah.
countries as well?
We look at everything.
Yep. Okay. Thank you for taking my questions.
Thank you very much.
The next question comes from Fredric Cyon from Carnegie. Please go ahead.
Good morning, Erik and Marcus. I'll keep it short.
Hi, Fredric.
Since there has been so many questions already asked. Your peer in Finland, Kojamo, report this morning, and one of the things they stated was that there's been an increased supply in the rental housing market in Helsinki, and that has impacted their occupancy rate. How do you see the vacancy rate developing in SATO, and does that influence any decision-making with regards to new projects in Finland?
You had the correct observation. There's been a lot of completions in Helsinki and also a bit more complicated to actually make leases. There have been more lockdown mood in Finland than in Sweden. There are a bit softer figures from both Kojamo and SATO. Not dramatically, but I think in SATO it's maybe 1% lower occupancy or something like that. Rents is stable. My guess is that the market there will move sort of sideline for maybe half a year or a year, and then the long-term trend will still come back that everybody wants to move to Helsinki, Tampere, and Turku. Finland's been a bit weaker, and they have been more locked down than other markets. We will still start projects if we think it makes sense. New projects perhaps yield 5% or sometimes even more, and existing market could be at 4%.
It still makes sense to do developments. We follow it closely, and if the markets turn out to be even softer, then we don't have to start new investments. That's the good thing about it, that then we can delay. We're pretty confident about the long-term trend, and we are flexible in our short-term behavior.
Thank you very much. That's all from me.
Thanks.
Ladies and gentlemen, we're going to do one more reminder. If you would like to ask a question or would like to ask a follow-up question, please press dial one now. There is no more questions coming through. Oh, there was a late one come. I'm so sorry. We have another follow-up question from Jan Ihrfelt from Kepler Cheuvreux. Please go ahead. The line is now open.
Okay. Thanks. The final one here. Have you any guidance for completions of apartments in the fourth quarter?
I think that we are. If you take on the development for selling property, selling apartments, is that what you're asking for? Or is it completion?
Yeah.
Okay. Around 150 apartments we expect to complete during Q4 on the selling side.
1 50?
Mm-hmm.
Okay. Thanks so much.
Thank you. Thank you, everybody, for participating. We appreciate it, and have a nice day.
Thank you.
Thanks. Bye-bye.
Thank you for joining today's conference. You now may replace your handsets to end this call. Thank you.