Hi, everyone, and welcome to this presentation of Balder's Q3 results 2026. Within the room, I have Sharam and Ewa, CEO and CFO of Balder. I will first hand the word to them for a run-through of some of the slides, and then we will open up for questions.
Thanks, Jonas. As usual, we start with this picture. Our portfolio is roughly half residential and half commercial. We have a portfolio value of SEK 246 billion and an occupancy rate of 95%, and net debt of 50.2%. We have a good liquidity of SEK 25 billion, and NAV per share now stands at SEK 97. That is a growth comparing rate of 24% since the start of Balder. Our credit rating from S&P remains at BB B with a stable outlook. If you look at the figures for this quarter, rental income is up 6%. Profit from property management is down 2%. If you adjust the comparative figures for the effect of distribution of Norion Bank means that we have an increase of 11%. Our funding cost increased from last year, but at a slower pace than our portfolio has grown.
In current earning capacity, we have seen an increase in profit per share of 11%, adjusted for Norion Bank's contribution in the comparative figures, which means that we have seen an underlying healthy growth. Like-for-like rental growth is 1.2%, and NAV per share is now SEK 97 as I said before. Looking at the earning capacity, you can see that rental income is up and the net financial items is up as well. All in all, SEK 6.1 billion, which is unchanged from the last quarter, and SEK 5.2 per share. You can also see that the improvement per share is a bit better than the profit improvement. The reason is that we bought back roughly 13 million shares in this quarter. Here is an overview of the portfolio, which is very well-diversified. Helsinki is the single largest region, followed by Gothenburg, Stockholm, and Copenhagen.
The residential side of the portfolio is a little bit more than 50% of the portfolio. Office stands for 15%, retail 11%, industry logistics 7%, and other stands for 13%. The hotel are the majority of that. Looking at the whole portfolio, you can see that 80% is located in capitals and larger cities. We have always had a long-term view on the business, which of course we will continue. If you take a longer time horizon, we have a really good improvement over the years. The latest three, four years has been flattish, obviously because of the interest rates going from zero and upwards and because of the distribution of Norion Bank. Here you can see that the development of property values, net debt to total assets and occupancy. We have over time increased the portfolio and the net debt has been around 50% for some time.
We would like to decrease our leverage a bit over the coming years. Occupancy rate is now 95%, and as you can see, it has been very stable, which is an effect of our diversified portfolio. The explanation for a bit weaker occupancy compared to earlier 96% is primarily due to some weakness in the office segment occupancy. Yes, that was all for me, and now I will hand over to Ewa to comment a little bit more about the financing.
Thank you, Sharam. Looking at the financing, the funding mix is more or less a 50/50 split between bank and bond financing. The level of available liquidity is continuously a bit elevated due to the concentration of large maturities in the beginning of 2027. The interest rate fixing and hedging ratio is stable. Our average funding cost has increased slightly in the quarter. During the last couple of years, because of the volatility in the rates market, we have had the opportunity to enter hedges with optionality, like an extendable swap at very favorable rates. It's hard to judge whether these opportunities will continue. If they don't, this might present a slight headwind on our financing costs compared to our normal hedging activities. Net debt to total asset is down a bit to 50.2% in spite of continuous share buybacks.
The ICR is at 2.4x and rolling 12 months net debt to EBITDA is 13.0x. If you look at Q3 compared to last quarter, net debt to EBITDA was down 0.7x , primarily due to FX effects, and that acquisitions made in previous quarters were not fully reflected in the EBITDA for the second quarter. Here you can see the long-term trend of the portfolio value in relation to net debt to total assets. As I mentioned on the previous slide, net debt to total assets came down a little bit during the quarter, from 50.4% to 50.2%. Current encumbrance level is at 24.1%, and with our current funding mix, we think a level roughly in the 23%-25% range is where we'll be. Over to the maturity structure.
During the quarter, we took advantage of the favorable conditions in the bond market and issued a green bond in the Swedish kronor market amounting to SEK 500 million on the tightest spread level since 2021. Currently, our bond funding is cheaper than the bank funding comparing like-for-like maturities. However, during the last few weeks, there has been a widening of bond spreads, in particular in the Eurobond market. Let's see how things develop in coming months and quarters. This slide we have shown before, and it's a structural overview of the funding and capital side. As we said before, we will continue to have a balanced capital allocation until reaching our target of 11 times net debt to EBITDA, and that target remains unchanged. We expect net debt to EBITDA to gradually come down.
I would not expect net debt to decrease in absolute amounts, but rather EBITDA being the factor that will improve this metric. Here is also an updated calculation on the convertible bond, which when that is converting, assuming that we are above the strike price, obviously will have a positive effect on the indebtedness numbers. That was all from us, and on that, I will leave the floor open for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Staffan Bülow from SB1 Markets. Please go ahead.
Good morning, and thank you for the presentation. I have a couple of questions, starting off with the buybacks. So you have repurchased shares for SEK 700 million this quarter, and that is a run rate of SEK 2.8 billion or 5% of the shares, as you say in the CEO letter, and you have reached the conclusion that that pace suits you well. Could you elaborate on how you have reached that conclusion?
Morning, Staffan. No, I think when you look at our cash flow run rate, and then you deduct some sort of minor investments that we always take in development projects or the existing portfolio, then you have a certain amount left. If we are pretty much zero net buyers in the market, you will end up with something around that number. We might even be able to buy something small, but that is really using the cash flow for share buybacks for the most part.
All right. So pre-cash flow funded buybacks, understood. Looking at the investment cash flow in Q3, you have been a net buyer of investment properties, quite small, but still. Do you expect that to be the case going forward as well?
I think Sharam mentioned in the CEO letter as well that most of those transactions have been ongoing discussions for a long time. I do not think we would have initiated those discussions today when we have this share price level. The relative attractiveness of the share buybacks is too high. At the same time, I think the difference is not as large as you might think, because the acquisitions that we have made, I think we feel are pretty decent. I think ultimately, Staffan, I fully realize why you are focused on the share buybacks, but I think from our perspective, having 11% growth of the profit from property management per share in Q3 compared to last year, I think that is more the number that we are trying to optimize.
Obviously share buybacks is a very good tool, and the share price is at the current level, but it is not the only tool in the toolbox.
Okay. Yeah. Thank you. You have made one divestment of associated company, Anthon Eiendom, in the quarter. Are you looking to divest more associated companies and JV structures?
No, Anthon was not part of a divestment program of any kind. I think Erik alluded to that when we started that process as well, that it is a generation shift in that company. We have built the company with the founders, and when they retired, we decided to divest it. So it is not part of a structural program to divest things. But it was good timing, and it suited us and the other owner as well.
Okay, that makes sense. One final question from me, and that is on the like-for-like outlook for Finnish Resi. What is the right interpretation for that?
Sorry, let me just add one thing on the JVs, Staffan. I think what we have said as well for the last few quarters is that JVs obviously should exist for a reason and for a purpose. There is no point in having loads of assets in JVs for the sake of it. You have seen us obviously divest some of those in the last few years. So in that sense, I think we have become a little bit more stringent and there has to be a very clear purpose with the JV. Anthon is one example. We also divested parts of the portfolio that we owned together with Investor recently, as you have seen. So I think I just wanted to add that to the discussion around the JVs.
All right. Yeah. Thanks for the clarification. Then, yeah, my final question was on the like-for-like outlook for Finnish Resi for next year.
I don't think we try to forecast that. I think your guess is as good as ours in a way. What we can see is that the Finnish economy seems to be recovering. There's been sort of estimate upgrades of Finnish GDP during the year. I think the general consensus seems to be that the labor market is finally looking to improve, and will improve more noticeably into next year. All else equal with a very low new construction and a recovery of the economy and the labor market, I think it should be positive for our business there as well.
All right. Thank you. Excellent. Those were my questions.
The next question comes from Robert Phillips from Green Street. Please go ahead.
Thank you very much for the presentation. I just had two questions from my side. Firstly, you've asked management to reevaluate how you work with the aim of reducing costs and lowering vacancy. I was just wondering if you could kind of elaborate a bit on those plans and what specifically you plan to do differently to achieve that.
No, I think the point that we're trying to make is that we need to be prepared to reevaluate everything we do. I think the signal is that we're not content with the efficiency level that we have. Let's look everywhere we can look to find efficiency improvements. We mentioned one example in the report where we're moving our Norwegian, the headquarter for Aker BP from Oslo to Trondheim. That will save a bit of money, and actually move the company management closer to its clients as well. There are two good aspects with it. There are many more examples that we're working with. We're not planning to give any clear guidance.
Sharam stated in the CEO letter that we're expecting costs to go down in absolute terms, but we've also flagged that we might need to do a little bit of investment to make that happen. The direction is down, and I think that's the clear message. We don't have a finalized list yet of exactly what components will make that happen. We are not content with the efficiency. We see potential in various areas that makes us confident that we can have a decline in the central administration expenses.
Perfect. Thank you very much. Just secondly, on your debt metrics, they're of course slightly higher than your targets, and I was just wondering how you plan to balance continued buybacks against getting your leverage back to targets.
Yeah, no, it's a relevant question. If you look at the different metrics, I think they exist for slightly different reasons. The net debt to EBITDA metric, where we are the furthest away from the target, has been a self-imposed target that we issued as more of a directional statement. The more, let's call it hard, or de facto restrictions on our balance sheets are obviously the leverage metrics from S&P, and there we're well in line with where we need to be for the current BBB rating. I think long term, we still are clear that we want the leverage to come down slightly, but it's not going to happen at a very dramatic pace. It's not going to require us to take active actions with the balance sheet, but rather have those metrics improve slightly year by year going forward.
Got it. Thank you very much.
I think Ewa mentioned as well that the net debt to EBITDA target, we don't expect the net debt to decline in absolute amounts, but rather the EBITDA doing the job of closing that gap over time. But it's going to take a while. We're not particularly stressed about that.
Understood. Thanks.
The next question comes from Lars Norrby from SEB. Please go ahead.
Good morning. I have a follow-up question on share buybacks. First of all, I appreciate the clear message. Right now, it's the best investment available, quoting from the CEO letter. Funding it through cash flow is one thing. Another thing is to finance buybacks through divestments of properties. I'm thinking, of course, about what Castellum has been doing, which freed up some SEK 8 billion yesterday for buyback. What's your view on divestment-funded buybacks? Is that an option for you?
I think we're always weighing all capital allocation options. I haven't read Castellum's report, so I don't know what kind of growth numbers they're looking at. We're pretty okay with the 11% year-over-year growth in profit from property management per share that we showed in Q3. I think that's our main metric that we're trying to steer on. If we can find interesting opportunities to divest something and do share buybacks, then it's definitely on the table as well. It's the earnings per share that is our overriding metric that we're trying to optimize.
Well, let's just assume that if you would sell something, either it's because you're actively looking for it yourself or if you're approached by another entity that would like to buy a portfolio for you and you think it's a fair price, the profits of such a transaction, what would those be used for?
If we were to be net sellers, I would assume that we would use that for share buybacks, definitely.
Okay. Thank you.
After some debt repayments, obviously.
The next question comes from Fredrik Stensved from ABG Sundal Collier. Please go ahead.
Yeah, thanks. Morning, all. Most questions already asked. I'll have one. The acquisitions in Q3, SEK 1.3 billion and the divestments of SEK 360 million. What is that? Is there anything we should keep in mind thinking about the contribution in the next quarter versus Q3? Thanks.
There are a number of different transactions behind that number. We do not usually comment individual transactions, and it is not one large one either. There are quite a few behind it, but all of them are a little bit too small to dig deep into.
Understood. Thanks, Jonas.
The next question comes from Tobias Kaj from Nordea. Please go ahead.
Yes. Thank you. I also had some question regarding buybacks, but I think that has already been asked many times. On another note, you have some debt maturing or interest maturing going forward. Can you give some indication on what we should expect regarding the average interest rates one year ahead from now, given the maturities you have and the current interest rates level you see in the market?
Interest rates have been so volatile recently which impacts both obviously the funding costs per se, but also the hedging that we do of interest rate risk is even more impacted by that. It is a little bit hard to make a precise forecast because it all depends on what interest rates you assume going forward and which day you are looking at the interest rate curve. But with the current curves, we are going to creep up slowly in the interest expense or in the interest rate level for sure. It is not going to be that dramatic. We are pretty well hedged, and that is the way it should be. I do not think we need a very high like-for-like rental growth to compensate for the higher interest expenses with what we are seeing in the rates market today.
Having said that, I think last quarter we also commented that when we look at the interest expenses quarter by quarter, they are not moving in a linear fashion because you have, for instance, in Q1 next year, you have two large Eurobond maturities that have been issued under pretty much the zero interest rate environment. When those are refinanced, obviously you are going to see a slight tick up that particular quarter, and then you might see even a decline in other quarters as we are refi-ing bank loans that were issued in 2022 and 2023, 2024. It is not a linear development. Just be aware of that. Try to look at rolling 12 months development would be my best tip there.
With the high volatility we have seen in the interest markets, that has also enabled the kind of contract, like callable swap contracts with very low levels, which we have seen that some of your peers have used. Is that something that you also have used but do not disclose, or have you more plain vanilla swaps in your books?
No, we have used those as well. I think we have commented on that before as well. I think Ewa even mentioned last quarter that we have done a few of those, and depending on the volatility in the rates market as well as the interest rate level, that decides whether we will be able to refi those at attractive levels going forward as well or not. So far so good with the interest rate volatility that we are seeing, but we have no idea how that will look a month from now, right?
Can you say how large part of your debt portfolio where you have used callable swaps?
That's not very low. Most of our interest rate risk is hedged through the Eurobond market. I think the total swap book is the minor part of the overall interest rate hedging, 20%, 25%, something like that.
Yeah.
Of that, in turn, only some of it is obviously extendable or callable swaps. It's not huge SEK 4 million, but it's helping us a little bit on the margin.
Thank you for taking my questions.
Thanks Tobias.
The next question comes from Pranava Boyidapu from Barclays. Please go ahead.
Good morning. Thank you for taking my question. Follow up to the previous question, actually, you mentioned the 1 billion Eurobonds coming due in January. Considering that the last, say six weeks or so in the Eurobond market, we've only had a couple of deals print. As you said, the volatility in the market has been quite high. I was wondering, what are the options for you? What are you considering in terms of how you may be able to refinance these bonds?
In our financing portfolio as a portfolio. From one quarter or year to the other, the new issuance might differ a little bit depending on what the market conditions are. I think the spread differential between bank and bond financing is probably less important to us, unless it's very large difference. But the spread differential between the Swedish Kronor and Euro markets obviously becomes more important. We can also do a little bit more bank financing if we feel that the spreads are temporarily elevated. I think it's not a matter of, from our perspective of trading, but if we see that there's a credit market event of some kind where as we've seen in the last few weeks, volumes have been very low, spreads have shot up by a few.
We're probably up by 40-50 basis points from the low point in the five-year space. During a time like that, we have no problem with sitting on our hands for a few quarters and seeing what happens in the Eurobond market particularly.
Thank you for that. That's all I have.
Thanks.
As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Stefan Andersson from Danske Bank A/S, Danmark, Sverige Filial. Please go ahead.
Thank you. Nitty-gritty one here. Sorry. Just to understand correctly what you and Ewa commented there on the net debt and LTV and leverage. Should I interpret it as you said, Jonas, that you aim to keep the net debt unchanged, not the LTV or leverage? Is that correct?
Yeah. There are two parts here. On one hand, you have the LTV or S&P calls that debt through debt plus equity, but it's essentially an LTV metric. There we are roughly where we need to be relative to their requirements for our current rating. It might come down a few tenths of percentage points, but it's no large difference. The metric where we are a little bit away from our own target is obviously the net debt to EBITDA. There we've said that we don't foresee that we will reduce the net debt in absolute amounts, but rather to improve the net debt through EBITDA, we will improve the earnings.
Yeah. I was just curious in how you aim to do that because the mix change, getting yields up and so on. My impression is that keeping the net debt at the same level and then just letting the operational improvements do the work then.
Yeah. Like-for-like growth, operational improvements, potential asset rotation, whatever it might be. That should be plenty to improve the net debt to EBITDA over time, even if our leverage in absolute terms is constant and we're not adding any assets.
Yeah. Do I interpret correctly if I assume that you hold back on acquisitions for now, but you don't rule out making them? You could still do net acquisitions going forward, even though it's on a lower level.
Yeah. It's hard to be very precise in guiding on that. I think the likelihood of us doing acquisitions that are anything more than very small bolt-ons on a net basis is pretty unlikely. I think we were pretty clear on that in the report as well that the
Yep
the relative return on share buybacks is so much better today that it's hard to find those type of acquisitions. I think it was a difference when the share price was at SEK 65, then it was easier to find acquisitions that couldn't compare to share buybacks in return terms, right?
Yeah. Then my final one. Pål at the Castellum presentation talked about Entra. Of course, this is a board decision, but his view was that Entra should move in the same direction as Castellum, selling off properties and repurchasing shares. You are two owners in that. Do you have a different view to that?
No, I think we're pretty eager to extract shareholder value from our Entra holding. If that's one option that could help us achieve that, then it's definitely on the table.
Perfect. Thank you.
Thanks.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much for listening in. As usual, we are available if you have any follow-up questions, just give us a call. We will be seeing you all, if not before that, then when we present the Q4 numbers. Thank you very much.