Hello, and welcome to the conference call of the 2021 year-end report for Balder. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero, and you will be connected to an operator. I will now hand over to your host, CEO Erik Selin, to begin today's call. Thank you.
Thank you, and welcome everybody for this quarterly call for Q4 Balder. During Q4, we bought 43% in one of our associated companies, Serena, from Varma, the other owner, so we now consolidate that. We also will propose a split of the shares to get a bit more attractive share price. Completion of apartments was 800 in Finland. On ESG, we updated the rating from Sustainalytics. It's now 13.8, which is very well within the low risk section of this rating. In the beginning of the year, we refinance some of our outstanding debt. For the remaining of 2022, there is not much actually to refinance at all, so very stable financing situation.
Moving on to the figures on next slide. In Q4, profit from property management was up 44%. Earnings capacity, which is actually more important, 24%. NAV 30% compared to last year, and we had a small rental growth. This quarter, profit from property management was boosted a bit by financial income. If we look at next slide, you see the development from 2018 and going forward. You see a slowly upward moving trend in both profit from property management and then NAV per share. On page 5, the earnings capacity is also updated as we always do. You have all the figures, and at the bottom line, you can see that per share the earnings capacity is 24% above the level from 1 year ago.
Compared to last quarter, I think it's 6-7%, something like that. This comes from more rental income, more income from associated companies, mostly. Of course, this is our long-term job to always make this increase over time. Looking at the total result, there was a good result in Q4 from cash flow and from value changes. So profit before tax was SEK 9 billion. That was compared to SEK 4.7 billion last year. Looking at the balance sheet, big change. The two big changes is properties value is higher because of investment and some value changes, and also associated companies is larger investment than last year. Most of that is explained by more Entra shares among the associated companies.
As I mentioned on next slide, sustainability, we updated the rating from Sustainalytics just recently. So now with 13.8, if I remember right, it was around 20 before this or 21 perhaps. Looking at the property portfolio, not any big changes quarter to quarter here as always. And 80% of the value is in larger cities and capitals. Residential is dominating with 56%, and then we have office, other, and retail on 9%, including the Serena acquisition. Property development that runs quite smoothly, and we have a very large pipeline of both building to keep and rent it out and also building to sell. In general, we have a strong market for selling apartments in Sweden. We sell also a few in Finland and will do in Norway.
It's okay in those markets as well. If we go to rentals, it's overall good demand for rentals with one exception, and that is the Helsinki region that temporarily has a bit too much construction going on compared to the take-up. There is the market with slightly higher vacancies and flat rents. We believe, though, it's a temporary weakness due to high construction and temporarily less demand from students and so on. Long-term outlook hasn't changed, but if you just look at small details. As of today, there is a bit softer market and otherwise it's strong in all the other places. Looking at financing, as I mentioned in the beginning, we did a Euro bond beginning of January, 5 and 9 years, with fixed rate.
Of the debts in 2022 that is maturing, SEK 7 billion is already refinanced, partly because of the Euro bond, of course. In the total portfolio, 70% is hedged with fixed rate, or in some cases, swaps. The financial targets are met at year-end. On next slide, you can see we had for 2022, like SEK 12 billion-SEK 13 billion, and seven is already down, so there might be 5, 6, and that's basically nothing. Stable situation on the financing side, both in terms of access to capital and on the cost of capital. You can see equity ratio is about 40% and net debt 47%. You also have the interest maturity structure specified there.
Finally, looking at the share price, this you already know that over time, it will most likely follow NAV and earnings capacity. That will always be the case in the long run as we believe. We also have a component that we didn't have a couple of years ago, and that is the development part that comes in profit quite irregularly. On top of the normal earnings, there will be some development profits from selling of condominiums, and of course, that could have a value as well. In general, nothing special in this quarter. It was stable and things are moving along quite smoothly. Now we open up for questions.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of Markus Henriksson from ABG Sundal Collier. Please go ahead.
Thank you and good morning. A few questions from me. Start off with the valuation yield. It's almost flat here Q-on-Q. Could you highlight for us what adjustments have been done in the portfolio and how you view the residential valuations relative to what we've seen in the direct market here during the Q4 ?
Thank you, Marcus. The big change is that we have, of course, consolidated Serena and ABP during the year. They have a bit, on average, higher yields than we do in the previous portfolio that Balder had. That has, of course, increased the yields on the total level. That's why it's flat year-on-year. If you look at the residential part, I think approximately 60% of the value changes is from residential properties in this quarter. That is down approximately ten basis points year-on-year.
Perfect. Thank you. Looking at Stenhus Fastigheter, to an associated company, and also, as you mentioned, consolidate the Serena Properties. If we look at the earnings capacity here, it's up 6.4% Q-on-Q. Could you highlight for us what is the underlying increase in the portfolio versus Q3? I see the rent income is also up around a little bit up, more than 6% here Q-on-Q.
You have an indexation which of course helps it up. Also in Q3, you didn't have Serena in there. That is, of course, a positive as well. You can see that the JVs are continuing to deliver and the profit is increased, even in the current earnings capacity from the results from joint ventures. That's most of the changes related to that.
What's your take on like-for-like growth for 2022? It's been around 1%. We have a strong CPI figure in Sweden. Norway, we have potential rebound in Finland, occupancy, maybe also for hotels with lifted restrictions. Could you elaborate a little bit on like-for-like growth going forward?
Well, we expect it to be higher than it has been in the last couple of years, mainly due to indexation, but also that we have residential property in Sweden. Of course, we don't always get the residentials from year-end. We have an effect that comes in later in the quarters. We do expect it to be higher. We can't really guide on the like-for-like what we expect, but it will be higher than what we have seen in previous years.
Thank you. Last question. I note that Balder acquired some shares in Castellum here in the beginning of 2022. What's your take there?
No, we just had it as a financial investment.
Okay. Thank you. Those were my questions.
The next question comes from the line of Andres Toome from Green Street Advisors. Please go ahead.
Hi, good morning. I had a question regarding the Helsinki residential market. I'm just wondering, are you seeing any improvement already in leasing inquiries in Helsinki after the government announced the restrictions were lifted?
No, there was a time lag, I would say. I think you should expect the market there to be quite competitive, at least for the first half of 2022. Nobody knows for sure, but I think it's at least six months more of quite competitive market. Hopefully after the summer, it can be better.
Okay. Thanks for that. I guess another question regarding hotels and what sort of recovery are you seeing in the hotel market at the moment?
I mean, it's been a week or a couple of days, so it's too early to see that, I think. If you look at what happened in the autumn, it recovered quite fast actually in regions, but not in capitals. When it recovered last time, you had regions were actually at 90 levels almost immediately, but you have a lag in Stockholm, Helsinki, and Copenhagen, and that is because of international business travelers and so on. There is a time lag even in that. Even if they lift all restrictions in the whole world tomorrow, you have a time lag. It's impossible to say, but maybe 1 or 2 quarters.
The good thing was it's actually seems to rebound quite quick once they lift restrictions. That, that's a positive thing to have in mind.
It's also positive that Q1 is always a bit weak on the hotel side, and that is the worst performing quarter. If they lift restrictions already in the Q1 , that is, of course, a positive.
Perfect. Thanks. Just wondering also on the residential asset value trends, what are you seeing in kind of real time in live bidding processes? What are the pricing trends at the moment? I'm particularly curious about Helsinki residential because there's a lot of large portfolios in the market at the moment.
What we notice there is still a huge investor demand. Even though the figures are weaker, if you look at the NOI rentals and so on, there are wall of investors. I would say that the values is up, but the underlying earning is down. I think it's because of the. It's still stable and the long-term trend is still favorable. If you want to invest there, you basically don't get scared because it's weaker if you know the why it's a bit weaker. We've been actually surprised by the strong investor demand for offices in Helsinki and in Finland in general. There is a lot of investors from all over the big names, Germans, BlackRock, Blackstone, whatever, you know. A lot of capital looking to get exposure to the Nordics.
Okay, perfect. My last technical, I guess. Just wondering about the financial, sorry, the gains that you made on financial investments. It seems to be coming in for the Q2 now. Is this something that we should consider as a recurring item or is this gonna kind of fade out now?
No, it was actually higher than what we expected or planned, so it was more accidental. It's almost like we have to say we're sorry that we had so much income, but it happened. Over time it will not be that high. This is higher than what you should expect going forward. You have all in all here, you have higher financial income than sort of normalized figures, and you have lower income in the hotel and the Helsinki portfolio. You have one plus and two minuses if you look at the whole company.
Okay. Thank you very much.
The next question comes from the line of Erik Granström from Carnegie. Please go ahead.
Thank you. Good morning. I have a few questions. First off, just the earnings capacity. When we look at the net financials, I assume that returns on financial investments are included in that figure. That's correct, right?
Yes, that's correct.
Okay. Could you give us some sort of help here? Because I mean, obviously you do have financial investments, and it would be a situation where you will always have lower net financials than the earnings capacity as long as you do have, for example, dividend from these holdings. I mean, what are the major holdings? Could you give us some sort of guidance of that so we get a sense going forward?
We don't really guide on that, Erik. It's the same with the property development. We don't guide on what kind of returns we will have from that either. In the earnings capacity, it's mainly running business and what we guide there. Regarding property developments and financial investments, we don't really guide.
Okay. Perhaps could you also give us a little bit of information on these, you know, the unrealized changes in the long-term financial assets in the quarter? What did that figure mainly relate to?
The big change was the reclassification, after of course, which we changed from financial investments to associated company, and that will not be included in financial investments anymore. That has been contributing for the last quarters. That's where you're seeing the biggest change. I would say the main part is related to that.
That's actually good. It makes it less volatile.
Okay. All right. Fair enough. Also in terms of transactions, I mean, you were quite active in the market in Q4 even though we didn't know about it because you quietly acquired shares. What is the outlook for 2022? How do you see the market? Have you seen any change in liquidity in the transactions market due to sort of long-term interest rates coming up or what's your outlook there?
No, not yet. You could guess if the long-term interest rates continue to drop, that it could be perhaps for better buying opportunities. It's too early to say, Eric, actually. We hope for that.
Okay, you haven't seen anything so far?
No. I mean, it's just a couple of weeks, you know, it's not that. Real estate is more slow-moving than share prices, as we all know.
Okay. In terms of project development, you've mentioned previously that rental apartments in Sweden have become a more viable investment strategy for you. How do you view this situation going forward? Is it mainly co-ops for Sweden, or do you think that you can increase your residential rentals as well?
We can increase both, I think. We have an estimate in the report in the back of it under property development, where you can see roughly, you know, building starts, completions, and what is rentals and what is for sale.
We do expect to complete for next year about 1,900 apartments on the rental side and the same for the coming years. You can see a larger part of that comes from Swedish residential.
Okay. Good. Thank you. Finally, a clarification perhaps, just so that I didn't miss anything. When you were talking about the earnings capacity, did you say that the CPI for 2022 was included in that figure, even though it was from year-end?
Yes, it was included for the ones that we received indexation. When it comes to Swedish residential, not all is included. On the commercial side and the indexation that we received for residential that will kick in from 1st January is included.
Okay, the CPI figure from towards the end of 2021 is included for the commercial part?
Yes, it is.
Okay.
You know, on resi in Sweden, you have a lag. Normally you adjust like March, April. It depends on negotiations.
Yeah. Okay. Good. Thank you very much.
Thank you, Erik.
The next question comes from the line of Jan Ihrfelt from Kepler Cheuvreux. Please go ahead.
Great. Thanks. Hi. Good morning. I actually have three questions. The first one is regarding property uplift in your associates. They were rather high. Could you just elaborate little bit on where that comes from?
I have one part from Entra, obviously, and what are the other big part markets?
Trenum and also SATO and Tulia as is the remaining part more or less.
Next question is regarding resis. We have seen rather high energy prices. Do you feel that you could compensate that increase in cost on your rent levels going forward so then there will not be a margin squeeze, so to say?
Very good question. My guess is that, long-term you can do it, but, it could be due to time lag because, energy prices is volatile, and they can move up, dramatically, you know, from day to day, basically. Rental levels is a slow-moving income change. On a quarterly basis, there could absolutely be irregularities. Long-term, it's, fine.
I think you saw the highest price was in Q4. The prices were substantially higher than they have been so far in Q1. Of course, we have fixed approximately 70% of the electricity prices. We were not so affected by it. Of course, there's a small part that is affected.
Okay. The last question is regarding hotels. Did you increase your hotel values in the Q4 ?
No, we haven't.
Okay, thanks for taking my questions.
Thanks, Jan.
The next question comes from the line of Clark McPherson from Clearance Capital. Please go ahead.
Yeah. Good morning. Just a question on the balance sheet. Next March, you've got a hybrid which is callable, I think on the seventh of March. Just wondering, ahead of that, how you're thinking about the call. Is it something you're likely to exercise? In terms of replacement or refinancing that hybrid, how would you go about that? Would you re-refinance it with a similar debt instrument, possibly equity? In general, how are you thinking about hybrids as part of your capital structure going forward?
Relating to that maturity, we haven't decided yet. We will look at that during the year and see if we're going to refinance it. We do see hybrids as part of the capital structure. We see that the same way as all other kind of capital more or less. I think it could be good to always have a part of hybrids in the capital structure. We expect that to be part of the balance sheet going forward as well.
That's great. Thank you.
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