Hello, welcome to the interim report January to June 2020. For the duration of the call, your lines will be on listen only. You will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero on your telephone keypad, and you'll be connected to an operator. I will now hand you over to your host, CEO, Erik Selin, to begin today's conference. Thank you.
Hi. Thank you, and welcome, everybody. It's me here and also Jesper Mårtensson, CFO of Balder. Welcome to this update of Q2 for Balder. Starting on page two, some comments about COVID. Obviously, we have the closer contact to tenants that are most affected of this, and that is the hotel segment and the city retail. In some cases, we have give them some support. Could be deferred rental payments or some rebates in some cases. Overall, the situation is quite much better than it was a couple of months ago, obviously. For this quarter, it seems to be much calmer. On the investment side, we took possession of a couple of properties in Gothenburg and one in Oslo, and also some land that we're going to build resis on. We also divested some development properties in Gothenburg and Denmark.
That is projects that we sell to private customers, residential projects. Where we have good margin in Sweden and lower in Denmark because that was the first project there of this concept Bovieran . We also completed 400 apartments rentals in Finland and 130 in Denmark. That is also rentals. Moving to page three and look at the Q2 number. The profit from property management was 2%-plus, that is obviously a very low figure. That is affected by lower results from Collector. We have the lower rental income from hotels, the variable part. Including that and also the discounts, rebates because of COVID, of course. This combined sets pressure on the increase of the profit from property management, but still a small increase. From this level, we obviously have potential on those segments that is pressuring us now.
The NAV SEK 355 is 19% better than last year. Net debt, SEK 48.3, came down a bit this quarter because we were not investing that much, also currencies made the level to go down a bit. We have like-for-like rental growth 1%. That is much lower than last quarter. The explanation for that mainly is the hotel rents that we don't get the turnover part, that makes the increase be just 1% for the portfolio. The big explanation, the difference is the turnover rents in hotel that we didn't get that now. Page four, you have these graphs for the long-term trend where profit from property management and NAV, nothing special there. We have a upward trend, obviously, my goal is to, over time, increase the cash flow as much as possible without taking any unnecessary risk.
That will, over time, make this company worth as much as possible. If we look at page five, the earnings capacity. We update this every quarter, as you know. Now June, we are at SEK 4 billion, SEK 75, that is up SEK 75 from last quarter. On this slide, you can't actually see that. It's kind of stupid slide, actually. If we compare to year-end, it's a small increase, and compared to last year, 10%. Even in these figures, we are affected by turnover rent and so on. Still, we are in the increasing territory again. Page six, we can see the income statement. We focus, as you know, on profit from property management. On this six months, we are up 4% compared to last year.
We have much smaller value changes on the property portfolio, and that makes the total net profit for the period to decrease, obviously. Our main focus is always cash flow, and that is up some %. We still have some value changes, mainly from projects, realized and unrealized projects. After all, in this environment, pretty stable, I would say. Looking at page seven, the balance sheet. Nothing special happened there this quarter. We have lower value on investment properties then of the Q1, and that is effect of exchange rates that the Swedish krona strengthened against the euro in particular. That, of course, makes our balance sheet to shrink a bit if we count it in SEK. We have the property value SEK 146 and last year SEK 126. It's still a good increase in pace.
We also in this quarter have a lot of liquidity and cash. We thought it could be a good idea to have extra much liquidity and cash around, and maybe that was unnecessary. Let's see that we have a lot of liquidity as you can see in this report, and if you read the full report also. The portfolio, page eight. This looks pretty similar every quarter. You have residential 59%, including the project portfolio, office, retail, and other. Other is 14%, and of that 14%, 8% is the hotels. I think this is more or less exactly the same as of the Q1 or year-end. Geography-wise, we have Helsinki, Stockholm, Gothenburg, Copenhagen as the big parts for us, and that will be the same also going forward, if I'm guessing.
Looking at financing, you see the structure for debt and for interest maturity, that is also in line with what we have been presenting the last quarters. Financing overall in this tough period, you could say, or perhaps I guess you already know, but we experienced the banking system to be very supportive. There were actually no problems to take up new bank loans even in the worst days of this crisis. The bond market and the CP market is also working. Right now it's working pretty well actually, the spread's gone up there and like all crises, the spreads kind of boom in the beginning and then slowly normalizes depending on what happens in each specific company.
The situation right now is the bond and CP market is open and quite strong, higher spreads than before COVID, but they are coming down as we see it. As I said, the banking system is very supportive, been all the time. There are good availability of financing overall. Page 10, you see financing, you can see the net debt to assets and also secure debt out of total debt and also secure debt out of assets. Secure debt out of total debt and assets, that is important figures for our rating. We are rated by S&P BBB flat. That's why it's important to have these figures on a good level and also always present them. We have actually big headroom if you look at secure debt out of assets and so on, compared to our rating.
We have very good headroom, and that makes us, if we want to, we can take secured bank loans without coming out of the rating grid. Finally, you have a graph over the share, and also compared to NAV and cash flow. This just shows that over time, this will, of course, develop in roughly the same pace. Over time, if the profit from property management increases, it will take the share with it and also the NAV. Obviously, short-term swings can be huge as we've seen this quarter. Kind of interesting. Also in our full report that you can read on the net, you have the presentation for the 15 years that we've been active, where we can also compare share price and NAV. They actually been very tight, close to each other over time.
From year to year, quarter to quarter, it could be huge discrepancies. That was a brief summary from us in the Q2. If there are any questions, we welcome them now.
If you would like to ask a question, please press star 1 on your telephone keypad. Please ensure your line remains unmuted locally. I will then speak to you individually, take your name, and introduce you to the call. We have a question coming from the line of Tobias Kaj. Please go ahead.
Yes. Thank you. Good morning. I would like to start to ask you regarding your rental income. They were flat quarter-over-quarter despite that you completed quite some few apartments. Did you have any further negative effects in the second quarter compared to in the first quarter or were some of the apartments completed late in the quarter, so they didn't really contribute to the second quarter?
Exactly, Tobias. They were completed like in June, and we also had some rental rebates, not in Q1 but in Q2. The COVID support for tenants is only in Q2 and not in Q1. These are the two things explaining why the rental income doesn't increase. These are the two factors.
The discounts related to COVID for the third quarter compared to the second quarter, can you say anything about that?
If we look right now, it seems to be much less or very little actually, but anything can happen, as we all know. If we look at it just today, it seems to be small discounts, Q3, almost nothing. Automatically we have an improvement Q3 versus Q2. If nothing new happens, we have some tailwind there.
Regarding revenue-based incomes from hotels, do you think you will see any improvement in the second half related to that, or is that more for 2021 to hope for?
I think it's better to suggest it is 2021, Tobias. If we are lucky, maybe we see in the last quarter, but I don't know. We are more calculating that hotels will have a very tough year all of this year, and then next year it could be better. We are a bit on the low side there.
The NOI margin improved quite a lot year-over-year, both in the first quarter and in the second quarter. Is that something that you expect to continue for the second half? What's the reason for that?
I think it will be better than last year since we had a good start and so on. Also part of the improvement can actually be COVID-related because when everything sort of is locked down or still, obviously some costs decrease also. I don't know exactly how much, but I'm not surprised that the margin was higher. It becomes like that.
Okay. Regarding the drop in income from JVs, is that only related to Collector or have you seen negative trends also for real estate holdings?
No. It's Collector related.
Your funding expenses increased quite a lot sequentially despite a lower net debt, even if that is related to currency effects. What's the reason for the big increase in expenses on the funding side?
Sometimes it could be between quarters a bit bumpy for us because we count in SEK, but we have a lot of funding in other currencies. Then you sort of book it quarter by quarter what you think the outcome will be. If you pay once a year, that could be between quarters some big jumps. I don't know exactly what was the explanation this time, but it's better to look on yearly rolling 12 months than quarter in our case. Then also, of course, we have unnecessary much liquidity, and that's been an extra cost. I don't know how big, but cost us something. We were a bit too cautious perhaps.
On the call after the Q1 report, you were quite cautious regarding the outlook for acquisitions, saying that sellers are waiting and buyers are waiting, so it's unlikely to see any major activity near term. Do you think that's still the case, or do you think that outlook for transactions has improved?
My guess is that this will pick up in the autumn or winter. Now it's a totally different feeling in the market. I think there will be much more opportunities after the summer. That's my guess.
Do you think that the opportunities will be open up because sellers are expecting or accepting lower prices, which they didn't until now? Do you think rather that buyers are accepting kind of old prices?
I rather guess that buyer will have to accept old prices, Tobias. Everyone has too much money, I think it will be quite strong, actually. Of course, it will be different in different geographies and categories, obviously. Overall, I think it will be stronger than we guessed last quarter.
Regarding your revisions in the second quarter, it seems like in the segment Other, you had some negative revisions. For apartments, values are down like SEK 1.2 billion, but is that only related to currencies, or have you also had some negative value revisions in that segment?
You mean property value for apartments?
Yeah.
No, that is currency related because we have a lot of Denmark and Finnish holdings. It is like this. The P&L you have the average currency for the quarter when you count the P&L, but if you take balance sheet, it's always the currency price at the end of the quarter.
Yeah. Have you actually had positive value revisions for apartments?
We had four completed projects and so on. We have plus in the resi segment and maybe some minus in Other, and in Other it's hotel included, could be some small negatives there.
Okay. Thank you very much for taking my questions.
Thank you.
Hope you have a great summer.
Yes, we will.
The next question is coming from the line of Jan Ihrfelt. Please go ahead.
Yes. One question regarding the last topic we spoke about, the property revaluations. Looking at the hotels, the main driver for the lower values in hotel, was it on the cash flow side, or was it on more like yields coming up? Could you just give it a little bit more flavor on that?
No, very good question. Right now we are more looking at the cash flow side, which is obviously affected, and we think it's a bit early to have a firm opinion about yield because we haven't seen any transactions yet. That would be much of a guessing game. You can see that we have less, for example, the turnover end. There you get small minus.
Yeah. Okay. Maybe the yields are coming up a little bit, if you would guess on hotels.
Yes, I think that could be the outcome later on, but it's also very much depending on what happens. It's pretty hard to guess exactly, I would say. If you have to guess up or down, I would also guess a bit higher yields.
if you were to guess-
On a talk to that, we can buy some perhaps.
Yeah. If we look at the resi side, I've talked to many people that saying that the interest for residential is huge.
I agree.
would say up or down on yield on resis, what would you say?
If you guess it's down there, because I agree it's a very big investor demand for resis, unfortunately.
Okay. Maybe these things will net out then. Okay. The second question really relates to your residential projects. Could you give us an update on what is expected to be completed in the second half of the year?
I don't know exactly. We will have more completion of co-ops, Q3, Q4, I guess also. We book the results when we hand over the key to the buyers. This will be over time very uneven development. It could be quarters with zero and could be very good quarters. On a quarterly basis, it will be very mixed results. Over time, this will increase. I think even more in next year and year after, we will have a lot of interesting stuff coming up. On the rental side, I don't think we have much more to complete in Finland this year. We have some Danish that will be. In Sweden, we mainly go for buy to sell.
You could give any number on the.
No, I don't remember actually number exactly for, but I guess a couple of hundreds perhaps.
Okay. Thanks for taking my questions.
Thanks.
The next question is coming from the line of Simen Mortensen. Please go ahead.
Hi, Erik. One question from my side, which is left. Most of them all has been asked off already. In terms of your hotel exposure, we don't have much details, but Maribel went bankrupt in Norway yesterday, and they have quite significant amount of hotels in Sweden and Denmark as well.
Yeah. Indeed they did. We were waiting for that.
Yeah, finally. They eventually went over. How is your exposure to that company?
Zero.
Zero. Thank you. That was what I was worrying about then. No fear. Okay, have a good summer. Thank you. The other questions have been asked.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. The next question is coming from the line of Erik Granström. Please go ahead.
Thank you very much. Good morning, gentlemen. I had a few questions as well. I was wondering if you could talk a little bit about your like-for-like. Erik, you mentioned that in Q2 it was affected by the turnover rents of hotels. If I remember correctly, you had just about 3% in Q1, and now it's 1% for the half year. It seems to be that the effect is larger in Q2 than just the turnover from hotels. Is that the only effect on like-for-like?
No, that's the main or the big part is that. If I'm guessing it might have been instead of three, perhaps 2.5, then hotel take us down to one. At first I thought we must have calculated wrong when I saw 1%, and then it came to me, it's the turnover rents for hotel that is coming into this. That is the big explanation. Actually considering that turnover rents disappear, it's not that bad anyhow to still have increase. That will be good for the future because then after this, we will have our upward trend, if I'm guessing, and then hopefully hotel comes back. The big explanation is the turnover rents.
Okay. Basically if we were to exclude turnover rents in the hotel sector, you would have positive like-for-like in Q2 isolated?
Yes.
Okay. Good. Then I also wanted to ask you about the fact that you were talking a little bit about investments. What does the investment opportunity look in terms of projects going forward? How is planning working? Has it been affected at all by the current situation? Do you still expect to follow through with your plans in terms of resis starts, for example?
We will go through with all our resis starts. I delayed some of them intentionally or opportunistic to get better prices. In some cases, we actually did that. Now we don't delay anymore because now we think it's a better decision to start. Otherwise, nothing happened. Construction hasn't been affected by this COVID at all, actually. Even in Sweden, I think it's actually been almost easier because there have been no COVID in general in construction workers, nothing else either because everyone is so careful. Opportunities haven't been that much that we could have hoped for, I think if it will come, it can be projects anyhow because it's in general more complicated to finance projects. Maybe we can find something there.
Okay.
Far not much. I think we will be back on more investing in the autumn or winter again, if nothing new happens.
Okay, in terms of acquisitions, you're talking about the market seems to be opening up a little bit. Does this mean that we will see Balder start acquiring in Sweden again? Is it still the case that you think the prices will be very tough to match and that you will probably look outside of Sweden mostly for new acquisitions?
I would guess so. Let's hope that there comes something interesting in the autumn or winter. I think you're right, it could be better opportunities in other markets than Sweden. At least we are very well prepared to invest if we find something interesting.
Okay. Those are my questions. Thank you very much.
Thanks, Erik.
There are currently no further questions.