Earnings Call: Q4 2019

Feb 27, 2020

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, for presentation of RADA's year end and Q4 report. In Q4, we jumped right into it. We took possession of some acquisitions as a major in the autumn and that was a large CBD property in Gothenburg with office and hotel. We also in possession of 2 centrally located office facilities in Stockholm. And on top of that, some projects for residential construction in Gothenburg. And we also completed a couple of 100 apartments in Denmark and in Finland. That is ongoing business, as you know, but more than usually were completed in the Q4. And if we turn to next slide, English Q4 isolated, we had an increase in property management profit of 20%. We reached SEK5.85 per share in the 4th quarter. NAB stood at SEK3.46, 23% better than last year this time. And we had a net debt of 48.2, percent, roughly the same as a year ago and net debt to EBITDA of 12.8 percent and that is for Q4. And also like for like rental growth was 3.8%, a bit higher than it was previous quarter. If you turn to the next slide, you can see some graphs showing profit from profit management on the left side and long term net asset value NAV on the right side. So basically, it's not so much more to say than that continuous trend upwards. And of course, that is my job and market's job to ensure that profit from property management over time increases. And if that happens, of course, over time also energy will increase. Next slide, we have current earnings capacity as we update every quarter, and this is a yearly comparison from a year ago. This is the rental income, 14% higher and operating profit, 15% higher. And then parent's profit from property management 13% higher. And this is not the forecast. This is just a glimpse at year end. So obviously, during the year, there will be transactions and construction and a lot of things that always make these figures not turn out like the figures just this quarter, but it's sort of a easy phase 2 to buy 1 phase with a thinking about how the company earns it, basically nothing happens. On the next slide, we have consolidated statements of comprehensive income. And you can see in the quarter, we had an increase of profits on property management from parent company, and that is up better than last year, this quarter. But also in the quarter were value changes, unrealized properties and a big part of that is change in how we value the properties in Sato. That is now more or less yield based. So it's market size, what we see when transaction is made in the investment market. And previously, there were big deviation between different methods. One of them was acquisition cost and also that you compare selling apartment by apartment and with a discount. And they had that whole principle evaluated for many, many, many years as with Coyamo. And then you can see when yields come down and there are a lot of transaction in the market, we as Coelho could see that this valuation that we have now is much more reflecting the real values and the old approach. So that's part of the explanation of the big change in just Q4. Next slide, financial position. There you can see higher property values. Obviously, we invest in some value changes and also more equity and the underlying follow-up. So it's basically like 20%, 25% larger numbers than last year, nothing other special on that. We turn to next property portfolio. 80% of the portfolio is in capitals and larger cities. And Gas and Oil is a big part, it's not the capital, but it's for us a large city depending on how we compare on this. Residential, 59%, office, 18%, other, 15% and retail, 8%. So this is very looks like, I think, more or less exactly as a year ago, this doesn't move around much per quarter or per year. And going forward, we think it will be something like this. Next slide, financing slide. Now we have the average interest rate cost of 1 point 5%. That is slightly lower than before. And that is, of course, you all know very low interest rates in the market and in the bond market. And also when all the loans mature, we get new loans through slightly better levels. There's a downward trend on this. Fixed credit term, 5.8 years and fixed rate period, 3.1 years. And also net debt to assets, 48.2 percent and equity assets ratio 38.6 percent. So there we are slightly above below our target. But the target is more long term target. We don't have to reach it every quarter. So but the trend is still that we would like a bit higher equity ratio than we have right now. Net majority, as you can see, it's locked down quite well spread out until we get all the way down to 28, 29. So and the latest bond emissions has been on the long end, quite attractive crisis. And if you turn the page again, that's another financing slide. And you can see, of course, portfolio value, net debt to assets, but also at the bottom, secured debt out of total assets and secured out of total debt. And those metrics is important for the rating agencies or the rating grid. And we are going in the right direction, and we have quite a headroom there compared to what we have to have for the investment rating. And so finally, next slide, the share price, and we have it compared to NAV and profit from property management. And not much more to say about that because we're going in the right direction. And you all know stocks, I guess, who is listening to this. So this was a brief summary of the Q4 year end. And now we welcome if there is any questions. Me and Marcus Our first question is coming from the line of David Fleisch from Handelsbanken. Please go ahead. Hi, good morning. Thank you for taking my questions. I only have one question today regarding the net financials that continues to surprise coming below at least my expectations. Can you please elaborate a bit on the net financials? Because when I compare them to the earnings capacity, for example, I find the annualized net financials in Q4 being about 20% below the earnings capacity. And that has gone through all of 2019, basically. Are there any one offs or other things impacting on net financials in Q4? It's a small one I've seen in the Q4 report in the net financials. We have some value changes from financial positions And it's also difficult always to project how the currency is going to differ from quarter to quarter or year to year. That's mainly a positive effect. But all else equal, should the net financials going forward be in accordance with the earnings capacity because it has surprised basically every quarter in 2019. And it's quite a large deviation when comparing with paid net financials and the cash flow statement? No, I would try to indicate the financial costs that are in the year basis, but they're probably a little bit on the conservative side. The next question is coming from the line of Tobias Kai from ABG. Please go ahead. Yes. Thank you. Good morning and thank you for taking my questions. I would like to start off regarding your holding in Sasol. I mean, given that it has maybe been obvious for other minority owners that the valuation of the property has been rather cautious in the past and now you make this revaluation. Do you think that you will be able to increase your ownership in capital in the next few quarters? It's very hard for us to predict. We are, of course, interested in buying if the price is reasonable. But right now, we have no cash discussions. So let's see what happens. So the change was not triggered by, like, a requirement of some of the other owner to sustain if you changed your valuation method? No, no, it wasn't. No, it was just that, of course, when we look at it and the year passes by, you can see the difference between, for example, acquisition cost and market value widened all the time. And they had this valuation method forever. And sooner or later, everything comes in. And that's why the COIAMO changed it first. And they are listed so far, it's, of course, to be even more focused on it. And then when Coyamo changed it, it also made us think that, okay, this will be a strange to the companies, but totally different approach is in valuating the same assets. So that's why we changed it. But of course, in the Q4, it looks maybe a bit dramatic, let's say. I know you and other ones following it, Honestly, that the values seem to be a bit low, but then again, we also wrote that the principal was a combination of different methods. And regarding your balance sheet, I mean, you have had quite small changes in your gearing during 2019 as you've been proactive with acquisitions and investments. If opportunities occur, would you like to be as active 2020 as well? Or would you like to reduce your gearing and, for example, aim for higher racing? We would like to reduce gearing slightly. But on the other hand, if we find good investments, we are not in a hurry or in a rush to change the gearing. So we always think about the long term shareholder and what would make sense in the long run. So if we find good investments, then we can, of course, create some quarters with lower gearing. But if we get, we will have price and lower gearing and hopefully, we're having good investments as well. If you look at the competitive situation today and compared to a year ago, do you think that the outlook of growth is similar as a year ago or has it changed in any direction? For investments or for in general or what do you think about? I mean both acquisitions or development here. It's so early hard to predict actually. I think development investments will be quite good. We have a good pipeline there. Acquisition is very hard to tell, I would say. Right now, it's highly competitive, but on the other hand, we look at a lot of stuff. So but I think it's a bit early to engage actually with this. Okay. Thank you for taking my questions. Thank you. The next question is coming from Niklas Hoglund from Nordea. It's Oscar Guinee. One question for me. It actually relates to the Korea more evaluation method. You have no, the software evaluation method as you have it. You have the new yield based approach, maybe more mixed than the POC demo, but you also have a lot of developments projects in. Could you help me to sort of point out the sort of yield that costs that you're running in these projects? And would you sort of agree with the statements that the new yield base or the combined method would enable a faster, I mean, revaluation of the projects that you have ongoing? The projects, there are differences when they are completed depending on where they are located, but you can say roughly between 4% and 4.7% to 5% yield, something in that area. And the market may be slight 100 points lower. So you have a point that could be a slightly positive effect on that also going forward. But the existing land bank and portfolio at this value is still at cost in Saxtel. So we don't change the value until it's completed. There are different approaches on drilling rights also, but they are at cost. Do you have a point there? That we could be make sure what we go along when we finish projects. I mean, it's more reflective to the sort of underlying trend than while previous maybe it was more delayed effect. The next question is coming from the line of Simon Mortensen from DNB Markets. Please go ahead. Hi, gents and congratulations with good results. I just have Regarding, sorry, I recall about the accounting change, which is coming in Swedish teams on residential developments, where you have to include net debt from Bostas Sjesveningen or what you do residential developments. I'm just wondering, will that impact your balance sheet and accounting at all given that you have some residential developments? We already have it in the balance sheet. Okay. Thank you. Yes, under expert hearings. We have no further questions on the queue. Okay. Thank you, everybody. Thanks for listening and thanks for following us. Thank you for joining today's call. You may now disconnect.