Earnings Call: Q1 2020

May 8, 2020

Good morning, and welcome to the interim report January, March 2020. My name is Anna, and I will be your coordinator for today's conference. During this call, you will be on listening only. I will now hand you over to I will now hand you over to CEO, Erik Zallin, your host for this call. Thank you. Hi, everybody. Good morning. This is Erik Schallen, and I have Marcus Hansson with me also on this little call with Walder for the Q1 report. If we go right ahead, some words about COVID and our actions. Of course, we have a lot of contact with tenants, and the tenants that are having their largest challenges in this environment is, as you all know, hotels and also restaurants. And most of the retailers, some retailers doesn't, but many retailers also suffer from this, obviously. What we have been doing is, in general, not giving any discounts or rebates. But in some cases, we held good tenants with the liquidity that we changed from the rental payments quarterly in advance to perhaps monthly afterwards or but there are a lot of different things we've been doing, and that is sort of looked at chase by chase. So everything is handled from some weeks ago. And the total sum of deferral rental payments is €135,000,000 and that is not just for Q2. That is also some deal that is longer, and that is the hotel part of the portfolio where we have a with a bigger tenant, so longer deals than just for Q2. So we sort of fixed the situation for the whole of 2020. And in general, all rents are paid. So the effect in Q1 is that we have lower turnover rents in our reports because we are quite clear that there will be no turnover ends for the hotels in 2020. So we already took that into account in Q1. So the effect is already in Q1. And we also had in some extra provisioning IFRS 9, and that is we've seen technically fixed. So far, they haven't seen anything actually. But so we have a drag on Q1 from COVID on those two big items. Otherwise, we have taken possession, now I'm in Page 3, of some properties in Gutterbroil in Sherfin and some retail properties in Finland. That trends is trended by Tesco. And we also completed 360 apartments in Finland. And then Page 4, this leads us to some numbers. And we had in Q1 profit from property management, plus 7% compared to last year, a weak figure for us compared to last year's. But as far as that is the corona effect is already in there. NAV, dollars 3.48 per share net debt to assets, dollars 49,700,000 and rental growth, dollars 3.1 And of course, this is Q1, so nobody knows what will happen going forward. Our guess is Q2. We will not see much. So the question is what happens later. And if there is an effect, I think we can see then Q3 or Q4 maybe. So for the time being, it's still pretty stable. Page 5, you see the development from property management and NAV, nothing dramatic there. Next page, earnings capacity. It's in March, slightly lower than year end, and that is effect in corona related effect and also lower from associates and with more financing costs. But in general, pretty stable. Compared to 1 year ago, it's still a good increase, but we're sort of flat compared to year end. Next page is Page 7, the total income. We have profit from property management, obviously, and then small value changes in this quarter. So the net profit was €1,200,000,000 And turning to Page 8. Investment Properties value are up a bit compared to year end, and that is we bought some assets. We invested some money. And also, we have the currency March 31, the Swedish kronor was very weak compared to the euro. So I think if we look to pay, it's €1,000,000,000 that will actually shrink the balance sheet. But right this day, the Swedish Krona was pretty weak. And that led the property value to be €151,000,000 Page 9, the portfolio. I think it's identical from last quarters, more or less. Residential, 60% office, 18%, retail, 8% and other, 14%. And of the other, 14%, hotel is 8%. Retail, 8%, and we have the largest part, is car retailing. And they are actually doing better than you could see here. If we look at new car sale, the figures are down dramatically, but it doesn't affect their P and L as much as you could guess because they have they don't earn much money on selling new cars. The income stream comes from service financing and insurance. So they are, of course, doing less good than before, but not as bad as all else you might see here just looking at new car sales. We're pretty stable even in this tough situation. And regions are the same as in the top from Luxembourg Copenhagen. It's 80% of the portfolio. Going into Page 10, financing. From last quarter, it's previously the situation. I mean, the 1st month, we were very strong, and we made some bond issues. And then when the crisis corona crisis escalated, then of course, the credit market also turns weak and shaky. But we have a lot of facilities and cash flow and liquidity. So far, this has been we've been doing quite well. And also, we did the bond transaction in April in the Eurobond market. But for the time being, a bit tougher financing market, obviously, as you know. And next, Page 11, there are the charts with secured capital assets, secured debt of total debt. And the trends haven't changed anything in Q1. And we don't think that will change much in Q2 either. And finishing with share price, you have the graphs. And you see the long term trend. Obviously, share price over time correlates recently with NAG and profits from property management. So this was a brief recap. And now we open up if there are any questions. And we do have the first question from Simon Mortenson from G&B. Hi, Erik. Given Tejas in English, English, English, English. But my question is, first of all, in terms of how do you want? In terms of rental payments, can you please give us how this has been also? We are now in May. How are the tenants you communicated on Q1, but prepayments from May, how's that going to be sold, not just for hotels and residential, but also for rental apartments. Can you give us some details on that? No rental apartments. Nothing happened at all actually. We've had this before. And for hotels and retail into in for No, no, they're handled. So no, they are already dealt with. So they are not new in May. Okay. Can you also you have some development projects, some where you also sell residential homes. Could you please give us like an update on what you have seen in terms of sales in that part of your operations during the COVID-nineteen? Yes, sure. Starting apartments been obviously much, much, much slower the last month. And you could guess there will be 0 selling, but it actually isn't so, but there's a slowdown dramatically. And what we've been doing right now is that we have some projects that we actually push the start forward from May to November, May to September just to see what happens. So we don't just continue to invest. So we have delayed some construction starts. Not that we couldn't spot, but I think it's not a big risk to wait a quarter or 2. There could potentially be the strategies coming up or maybe lower construction prices. From a tactical point of view, we delayed some starts. The ongoing project is working well or the construction disturbances in construction as such. And new resets have been completed. Also worked reasonably well in moving in tenants. It was a bit more tricky in Denmark and Finland where there are more restrictions than in Sweden. But it worked out pretty well. To summarize it, right now, it's slower activity in selling department, obviously, but it's not 0. And we have pushed some construction starts still after the summer. And we can delay it more if you want, but it's up to us. Yes, the delays are major referring to residential developments or Yes, we are delaying all the projects. We have residential development more or less clear 1, the hotel we are building, but otherwise these residentials are building. Evening. Thank you. Those are my questions for now. Next question comes from Tobias Kaj from ABG. Please go ahead. Your line is now open. Thank you and good morning, Erik and Markus. I would like to start to ask regarding the deferrals of payments. How much of the SEK 125,000,000 I mean SEK 135,000,000 then is to monthly payments? And how much is loan deferral to 2021 or longer than that? Longer than 'twenty one is 0. I think the majority is the quarter 2019, Q2 and Q3, But I don't have the exact figure. This is something we worry about because it's a big tenant, but it's actually we have no right time, no worries that it will not work out. But if you say that the majority is monthly, does that mean that almost half is longer than just monthly to next year? But we have a deal for Q2 and Q3 that summarizes in Q4 and that summarizes up to this 135,000,000,000. So it's not just only Q2. Maybe we should have been more specific there. Okay. And are you worried that the situation will be materially worse when you're about to put Q3 rents, for example? No, I don't think so for Q3, but you never know. I mean, it's impossible for anyone to know. We're not guessing. As of today, I think still Q3 will not be that bad. It's continuous, I think, Q4 or Q1 in that case. But the large attendance is sort of no, we don't see anything happen there near term. It's not really a systematic either. I mean, after the SEK135,000,000 it's more like that we're going from quarter to month repayments. And we have already received 2 months of the 3 months that we have agreed on for Q2. And agreements we do is with the strong demand, as Eric said. So we're quite certain that these will follow the payments. It's just giving them an easement on the liquidity situation, which happens so quickly. Okay. And you mentioned that you have adjusted the earnings capacity and deducted the turnover component base for hotels. Can you say how big that is roughly? Maybe €10,000,000 per month. Now we discount fixed rents, so we have sort of 0 turnover. And for 2020, that is our guess also that we've seen of turnover. So that's why we already in Q1 adjusted the figures. So yes. And in Q1, the NOI margin improved almost or around 190 basis points year over year. Are there any one off improvement or what is driving? No, No, I don't know. Maybe it was a better winter or some mix effects. We haven't seen anything other. And one final question for me, if I may. Regarding the income from property management from JVs fell quite significantly in Q1, both compared to Q4 and also compared to Q1 last year. But the contribution from JVs in the earnings capacity had a quite small adjustment. What's the reason for the big drop in Q1? Yes. That is related to collector and one off effects. So that's why we don't see a big change going forward. So it's more effect in this quarter than the long term effect. That's why. The next question comes from Jan Ilsa from Cheuvreux. I actually have one question here, and it's regarding your property uplift. If you could split that into different segments, were you making any write downs in part of your portfolio and up in others? Or is it more neutral on the total? Not dramatic in any industry, really. I mean, it's more likely we did a 10 year cash flow analysis on all the segments. Of course, you have an effect in the short run on the some segments. But when you look at it over a 10 year model, it's not going to have that effect. We are expecting it to bounce back next year. And hotels and retail, no major write downs there? You had some negative effects on retail and capital profit. And then you have some uplift on the residential side, which is working against that. And on the retail and hotels, could you give us a figure in percentage wise, how much has been written down just to get a ceiling for your values here? No. And I don't know exactly what it is. It's not a huge number. I'm sorry, we were taking a question for a person to answer the question. I do realize that you're finished with your answer. The next person coming through is Eric Grant from Carnegie. Please go ahead. Your line is now open. Thank you very much. Good morning. I just had one question basically and that's regarding the transactions market. I realize that you have probably been busy with a lot of other things now. But could you say something about what you're seeing in the transactions market? Is there have there been any opportunities come up lately? Or are you looking into any opportunities at all at this point? I actually got some suggestions that we wouldn't have lost if it wasn't this corona situation. So there could potentially be interesting things happening that otherwise we think the transaction market is sort of very, very, very calm right now because as you said, we're the one like us. We have busy days handling tenants and the situations. And sellers are not that stressed as we see it because of low interest rates. And I mean, it's just gone a couple of months in this situation. But we think the stress can come up in, of course, projects and development that is harder to financing and cash flow weak in some situations. And so I think it will be interesting to see what will happen. So far, very calm, Eric. But some things that we've suffered that wouldn't have been otherwise we're looking at. Okay. And then my final question is regarding the rating institutes. What are they what are your discussions with them focusing on at this point? And do you feel that there is a risk of a rating downgrade at any point this year? We are waiting from S&C, and they released their upgrade on update on us last yesterday actually. And it's been on the same rating and it's favorable and not focusing on anything. They think that this we have a very stable income and it's very diversified, which is in line. And also, the financial metrics makes sense. So there's no indication for that we should have a change rating going forward. I have a feeling they follow liquidity market, isn't it? They're most curious about liquidity. Yes, that's The most important part there. On capital liquidity, we are very strong, of course. Okay. Thank you. That's all my questions. Next question comes from Philip Kamsai from Danske Bank. Please go ahead. Your line is now open. Yes. Good morning. I think that actually most of my questions have already been asked. And maybe just a follow-up on Erik's question here that you mentioned in the report that you have received a number of proposals on yield that you would have had if the situation would have not been as it is right now. You have done roughly 15 acquisitions in Q1, if I read it correctly, and it's primarily in Finland. Is any one of these positions within the scope for what you mentioned in the report? And also, I think you already asked or asked regarding if you see it coming along more deals in 2020. But is any one of these strategic deals within the scope of sort of proposals that you have received with the corona integration, so don't you? Yes. The proposal wouldn't have happened if corona wouldn't have happened. Yes. And these are some situations where companies or sellers get more stressed than others. And so in some cases, I have that on the table, but I really haven't decided what to do yet. But the questions maybe Q1 is not really corona related. No, Q1 is not corona related at all, no. Okay. And are these proposed to sort of in the more stressed areas right now, for instance, in hotel and retail perhaps? Or is it in all just all segments? That's fair enough. Just a question regarding you mentioned that you did a bond deal in April. I did not see the terms for that. But could you just elaborate a bit of how your store development has increased? So what were the terms that you were able to get in April? And how what was the sense that you were able to get pre corona, so to speak, of the delta in spread between before and after, so to speak? It was not under what was the issue. It was Sato, which is subsidiary we made the transaction. I would guess that the margin was close to 100% higher than it was actually pre thrown. Okay. Thank you very much. Those were my questions. Thanks. There is no questions coming through. So I will hand the call back to you again. Thank you. Okay. And we thank everybody for listening to us and sharing our views and having good questions. And we wish you a nice day. Bye bye. Thank you. Bye bye. Thank you for joining today's conference. To end the call, you may now replace your handset. Thank