Welcome to the Cibus Nordic Real Estate audiocast with teleconference Q3 2021. Today, I'm pleased to present CEO Sverker Källgården and CFO Pia-Lena Olofsson. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Speakers, over to you. You may go ahead and begin.
Thank you very much. Once again, welcome to the interim report presentation of the Q3 result for Cibus Nordic Real Estate. As previously said, the speakers today are, apart from myself, Sverker Källgården, Pia-Lena Olofsson, our Chief Financial Officer. Next slide, please.
Summary of the periods. Pia-Lena will take us through all the numbers later on in the presentation. However, we have had some significant events during the period. On July the 1st, we acquired three properties in Sweden, and on September 6th, we announced that as of September 2021, the Cibus share would be included in the EPRA Index, which is a leading global index for listed property investments. On September the 24th, we signed acquisitions of five properties in Finland.
Then on the last day of September, we took our first step into Norway when we announced that we had purchased a portfolio of eight properties in southeastern Norway. Next step, please. Next slide, please. Well, Norway, we are happy to open up a third market for Cibus, and now we can truly call ourselves a Pan-Nordic company.
We on the 30th of September, we acquired our first eight properties in Norway. They are 100% grocery with a long WALT of over nine years, filled with strong tenants and on very good location. The Norwegian market is characterized by smaller, and the density of grocery stores are higher than in Sweden and Finland. Contracts are fairly similar to Finland as the tenants bear most of the common costs in a property, and there are no general possession rights.
Next slide, please. We've also had a significant event after the end of the period, and that's on October 6th, we announced that the nomination committee in preparation for the next annual general meeting had been appointed. Next slide, please. What about Cibus? What kind of company are we? Well, we are a real estate company focused on daily goods properties. We fill them with strong tenants to provide dependable income to our shareholders.
We are listed since March 2018 and on the NASDAQ Stockholm Mid Cap since June 2021. We have a clear Nordic focus, and we pay out monthly dividends to our shareholders as the first company on the Nordic Stock Exchange, and we are currently paying out 0.94 EUR for the current 12-month period. Next slide, please. The story of Cibus is more or less the story of portfolio diversification.
Traditionally, these kind of assets were owned as either single assets or in small portfolios, which meant the owner had a very high-risk concentration. If the tenant left, you lost all your cash flow. That meant you came into a weak negotiation position with the tenant and the banks realized this, so it was hard to get proper funding, which meant it was a high risk, but also a high return business.
What Cibus realized is that if you own 310 of these properties, you diversify the risk and lower the concentration. None of our assets stand for more than 2.5% of our NOI. When you own such a large amount of properties with a handful of tenants, you become an active corporator with the tenant and not just the landlord.
The banks realized this, so the bankability is higher, which means that you lower the risk, but you have the same return as for a single asset. Due to the risk factor, we can buy assets 50-100 basis points higher than the existing portfolio is trading at, and therefore produce value creative growth for our shareholders.
Next slide, please. Cibus also sets apart that we can see we have a resilience towards e-commerce. Even during the pandemic, when the share of the online trade rose to around 4%, we've seen a negligible negative effect because a large share of this volume is click and collect from our stores.
There are very few operators worldwide who make a profit on online food sales due to the low margins and the high costs of packaging and delivering the food out to the end consumer. On the other hand, we see a notable positive effect as our existing stores, they can work as a natural distribution network for other goods consumed online.
This is a strong trend, and you see it all over the Nordics, these kind of boxes in the entrance of the food store where they pick up points for e-commerce goods. Next slide, please. We also set apart from the rest of the companies in our segment that we are an active property manager. We have our own organization that actively works with our portfolio and with new acquisitions.
Next slide, please. When it comes to sustainability, we continue to work together with our tenants. In Q3, 38 of our properties in Finland had solar power plants installed on the roofs, and these were installed and paid by Tokmanni. We have also in the second quarter signed a collaboration agreement with Järntorget to jointly develop the part of the Cibus Swedish portfolio that's not used for daily goods retail. These homes will all be carrying the Nordic Swan Ecolabel.
Next slide, please. Growth. As you can see on this slide, we have managed growth way above our growth target. In 2018 and 2019, we met the growth target of EUR 50 million, but from 2020 and onwards, we have grown way north of the growth target. So far this year, we have grown by around EUR 160 million, and the pipeline is still strong. Acquisitions normal growth will be financed through cash and bank or bond financing.
If we see opportunities for more rapid growth, that may lead to an equity raise or a hybrid bond to secure the LTV within the company financial target. Next slide, please. Looking at the shareholders list as of the last of September, the largest shareholder is the fourth AP fund, followed by BMO Global Asset Management, Marian Bragecevic, and Dragfast. In total, the 15 largest shareholder owns 42%, approximately 42% of the company, and we had 40,000 shareholders on September 13th.
Next slide, please. If you look at the share price performance, we have an average daily volume of around SEK 47 million with more than 2,700 transactions per day. On the last day of September, the share price was SEK 207, and total share return since 1st January , 2020 was over 50%. Today, the share is trading at around SEK 230. Over to you, Pia-Lena Olofsson, for the financial overview.
Thank you so much. I'll just go through some of the key figures for the third quarter. Rental income was EUR 20.2 million. Net operating income grew with 16% to EUR 19.3 million. Profit from property management was EUR 12.5 million, and earnings after tax EUR 12.1 million or 0.29 a share.
Next slide, please. Looking at the P&L in more detail. As I said before, net operating income was EUR 19.3 million, and there are no non-recurring expenses in administration costs this quarter since we have not had any extraordinary projects, just normal course of business. Net financial items is affected by a positive exchange rate change of EUR 188,000.
Unrealized change in value of investment properties was EUR 1.8 million compared to EUR 0.5 million in Q3 last year. We have low current tax due to the use of loss carry-forwards and excess taxable depreciation on building inventory.
Next slide, please. Our current earnings capacity on a 12-month basis shows a net operating income of EUR 76.3 million with the properties we have taken possession of at the end of September. Profit from property management plus expenses for hybrid bond was EUR 47.3 million or EUR 1.18 per share. We have however made additional acquisitions that we have or will take possession of in the fourth quarter this year, and which we have communicated earlier.
This is the portfolio of 72 properties in Finland acquired from Sagax, the portfolio in Norway of eight properties, and a portfolio of five S Group properties in Finland. Our earnings capacity end of December with these acquisitions shows a net operating income of EUR 82.5 million and profit from property management plus expenses for hybrid bond of EUR 52.1 million or EUR 1.24 per share.
This is counted with 42 million shares since the acquisition from Sagax will partially be paid with 2 million new shares. Next slide, please. We had 310 properties at the end of the third quarter. Property value was EUR 1,336 million, and we had 789,000 sq m.
Our anchor tenants, Kesko, Tokmanni, Coop, S Group, and Lidl, stand for over 90% of our NOI. Next slide. Looking at our two segments. We had two countries, Finland and Sweden, at the end of the third quarter. In next quarter, we will add also Norway as one of the segments. In the third quarter, 84% of our net operating income come from Finland and 16% from Sweden.
Our property value, the same correlation. We have 84% in Finland and 16% in Sweden. Next slide. Cibus strategy is to give our shareholders stable and reliable dividend that increase over time. Our dividend policy says that we should increase our dividend with EUR 0.05 per year. Cibus is still the only company in the Nordics that pay out dividend monthly.
Dividend yield was 4.6% with the share price at the end of the quarter. Next slide. Looking at the balance sheet, we have property value of EUR 1,336 million. Senior debt was EUR 648 million, giving our loan to value on senior debt of 48.5%. We have our unsecured bonds of EUR 194 million, giving a net loan to value of 60.1%, which is within our finance policy target of 55%-65% loan to value.
We have a hybrid bond that is part of equity and our net asset value, EPRA NRV, was EUR 497 million or EUR 12.4 per share. Next slide. Our average remaining lease time was five years at the end of the third quarter. The WALT has been very stable around five years, as you can see from the graph below.
Next slide. Regarding funding, we had bank financing of EUR 648 million at the end of the quarter. The average floating interest margin is three-month Euribor or STIBOR, depending on currency, + 1.7%. Our weighted average tenure for bank loans was 2.8 years. 66% of the bank loans are hedged with interest rate derivatives, and the first bank loan matures in 1.7 years. We also have two unsecured bonds on the market, one green SEK bond of SEK 600 million and one euro bond of EUR 135 million. We have one hybrid bond of EUR 30 million.
Next slide. Our funding strategy in the midterm is to still have 50% or more our external funding as bank financing. We do, however, intend to be active on the bond market as well. We have an MTN program in place that covers both senior unsecured bonds as well as hybrid bond.
As like I said, normal growth will be financed with generated cash and bank loans, while larger portfolios or faster growth will be financed by bonds in combination with either a hybrid bond or a new share issue to keep the loan to value within our finance policy threshold between 55%-65% loan to value. Next slide. Our long-term funding strategy is to reach investment grade in credit rating. To reach this, we need to, first of all, grow our portfolio and then change the debt and capital structure. Over to you, Sverker.
Right. Thank you, Pia-Lena. What about the future? Please turn to the focus area going forward. Focus now is growth. We are looking at new geographies in the Nordics, but our main focus, of course, is continued growth in Finland, Sweden, and Norway as we are present on these markets.
Next slide, please. The primary reasons to invest in the Cibus share. Well, we produce a high and stable yield. Cibus have never lowered our dividend in euros per share from one quarter to the next. There is potential for favorable value growth as we are buying and acquiring assets and portfolios to a higher yield than the implicit yield we're trading at. That is possibility for favorable long-term growth in share value.
We have gradually rising monthly dividends, the aim to gradually increase them by 5% annually. Last but not least, we are active in a segment with long-term resilience and stability. The grocery and daily goods sector has experienced stable non-cyclical growth over time. Thank you. On to questions.
Thank you, sir. We are now ready to begin question and answer session. If you wish to ask a question, please press zero one on your telephone keypad. I'll repeat. To ask a question, you need to press zero one on your telephone keypad. First question of the day we have from Svante Krokfors from Nordea. Your line is unmuted. Please go ahead.
Yes, good morning, Sverker and Pia-Lena. I hope you can hear me.
Yes, we can hear you fine, Svante. Good morning.
Morning. Yeah, I have a couple of questions. The first one is a nice one, I think. Are you, after the Sagax transaction, now the largest player in the Nordics?
I can't give you an answer on that because some of the companies haven't released their Q3 figures yet. We are among the largest, absolutely. What we can say is that we are the leading player in the Nordic markets as we are present in three of the Nordic countries, which is unique in this segment. Yes, we see that we are the leading company in this segment.
Yes, you said that you are also looking at other markets than the ones you are present in which basically is more likely Denmark than Iceland. Have you already looked at more in detail at the Danish market and what's the characteristics there?
We've said we use the corona pandemic to study these markets, both Norway and we have also looked at Denmark. Which is very clear is that the Nordics is a very homogeneous market and the characteristics are more or less the same all over the Nordics. We have almost identical legislation with some variations, but we feel very safe to do business in all four or five Nordic countries depending on how you look at it.
Of course, Iceland is a very, very small market, so it probably wouldn't be the first market to enter from here. We have looked at it and we are prepared to make investments in Denmark if you find good enough deals as we did in Norway.
Okay, thanks. On that theme, based on your current earnings capacity, your valuation yield is something like 5.7%. We have seen quite a significant yield compression in all segments. Is there any reason why there's not any big movements in your space?
There's probably not enough deals which are presented to the market for the evaluators to have good reference deals. We are also a bit confused of this because we think that the stability of this segment is. It earns a lower yield than we're trading at the moment.
It's obviously good for you if you want to continue to buy.
Absolutely.
Still on that note, I mean, you can buy single properties or smaller portfolio at 50-100 basis points higher yields. I guess the flip, the other side of that question is that, as there are no deals, I mean, you could imagine that a certain critical size would kind of take the portfolio premium even higher. Do you have any thoughts around this? I mean, you are still in a EUR 1.5 billion property asset company. Do you have any thoughts on that?
Yes, we are actively working with growth as we always mention in our presentation, and that's a clear focus for us on many reasons. One is the reason you're mentioning, but another maybe even more important for Cibus is to be able to reach investment grade in credit rating and dramatically lower our cost of financing. It is important for us to grow, and we have the ambition to become significantly larger in the coming years.
Thanks. Regarding the deals that haven't closed yet or were announced during Q4, can you give a recap on the closing of those?
The deals that we have, the Sagax deal, will close in the month in November, late November or early December. Then we have the-
The Norwegian deal are already closed.
Yeah.
The 15th of October we closed that deal that we're already taking possession of. Also the Finnish deal also has closed already. It closed the 1st of October. Now it's only the Fagerk deal that still we haven't taken possession of in this quarter of the three that we have in the earnings capacity for December that we have added.
Thanks. That's clear. Pia-Lena, a question to you. The hybrid adjustment you make in the earnings capacity calculation EUR 1.275 million. I come to a bit different result, but what do you make some assumptions regarding tax or how do you arrive at that?
I conclude that the Euribor is negative, and that's why I'm taking that into account when I look at the interest that we're paying.
Okay. There's no tax element in that?
No.
Okay. Perhaps the final or next to final question regarding Norway and Sverker, could you a bit elaborate. I mean, the price per square meter was quite much higher than in your earlier deals, but I guess the rents are also higher. Could you elaborate a bit on the dynamic there?
Yeah. The price per sq uare meter was a bit higher, yes. As you say, the rents are higher and it's very modern buildings. Also if you look at the key metrics all over for the Norwegian market, it's very similar on the bottom line to the rest of the Nordic countries. That's why we are very confident in continuing to grow in Norway and Denmark is more or less the same situation.
Okay, thank you. The last question regarding if Finland is your biggest market and you have probably been following what's going on in the online side there. The new Norwegian company, Oda, coming to the market any day now and Kesko also starting to implement their micro-fulfillment centers in their stores. Do you have any thoughts around this?
Yes. We discussed it with the seller of the portfolio in Norway. If you look at Oda which are present on the Norwegian market, the volumes are very low. It's a handful of supermarkets in that their taken market share is. At the moment, it isn't a threat for physical food stores. I'm confident that it won't be a threat for many years.
Okay. I guess the fact that Kesko has chosen the strategy to base their kind of online distribution to the separate stores and not have a centralized distribution is positive. But what's the same thing about S Group on that front?
What a trend that we see on the Finnish market is that a lot of food stores, especially in the larger cities, have 24-hour opening hours, which means that they can pack online grocery bags on off-peak hours, which is a good thing for them. That's one of the reasons I think that why they're choosing this tactics. The S Group is certainly looking closely at what Kesko does. If it is a positive outcome, they will most definitely do the thing.
Yes. You could, from your perspective, the structure in Finland is taking the direction that favors you?
Absolutely.
Okay. That's all from me. Thank you very much.
Thank you, Svante Krokfors.
Next, we have Joonas Ilvonen from Evli. Your line is unmuted.
Hi, it's Joonas from Evli. I hope you can hear me.
Yes. Hi, Joonas.
Hi. Yeah. It's fair to say you will continue to expand quite a lot more in Norway. What can you say about establishing a local office in Oslo? I mean, you indicate that your annual central administration expenses will increase by some EUR 400,000 by the end of this year. I think that doesn't yet include any office in Oslo. Can you talk about what's driving that increase?
It's not an office, but we have an organization. We have one CIO already working with the Norwegian portfolio, but he works from Sweden. Part of the cost for the Norwegian organization is in administration. Otherwise, we'll look closely and there will be a breaking point when we establish our own office.
So far, and looking at what we are doing at the moment, we have enough organization to continue to grow in Norway. As a lot of our management, the property management and economic and management are outsourced, we only need a limited organization when we enter a new country.
Okay, good. That's all from me. Thanks.
Thank you.
Next, we have Matias Arola from Inderes. Your line is unmuted. Matias, your line is unmuted.
Hi. Sverker and Pia-Lena .
Hi, Matias.
Hello.
Hi. Thank you for taking my questions. First, your value gains were EUR 1.8 million in the third quarter. There were no major transactions. Are the value gains related to yield compression or how should I think that?
Well, there were one transaction, a portfolio in Sweden that we acquired in the third quarter.
Yeah, that was about EUR 4 million only. Am I right?
Yeah. Yeah.
That's related solely to that transaction.
Do you mean the value of the portfolio? We also have-
No. I mean, the fair value gains in the third quarter, EUR 1.8 million.
Yeah.
Yeah. Yeah.
Now, of course, we also have a slight yield compression in Sweden also.
Yeah. Yeah.
Yeah.
Right. About your occupancy rate, your economic occupancy rate, if I looked right, has decreased 1.5 percentage points during the last 12 months. I guess that your vacancy rate has increased, especially here in Finland. What is behind this?
It's mostly because we have acquired new properties that do have vacant space in them. It's not that much that we have received a lot more vacancy in the portfolio, I mean, the properties that we have. When we acquire, we have some occupancy already, and that's something that we take into account when we buy the property.
These are not any significant areas in the buildings. Those are the kind of building areas that we talk about regularly that it might be a pharmacy or a hairdresser in connection with the food stores, and these might be vacant at the moment when we buy them.
Yeah. It's very seldom that we have one property that is empty. It's usually that we have a part of a property that's empty, and it can be office space on the second floor. They could be extension areas for the grocery stores that are empty for now. Yeah.
Okay. About your lease agreements, there are ending lease agreements both in 2022 and 2023 with the rental value of EUR 8 million. How confident you are that you can renew these agreements?
We're very confident. Most of these contracts are probably in Finland, or they are in Finland, as we have a very long WALT in Sweden and Norway. Sweden and Finland has no possession rights, we are confident that they will be renewed.
Okay. Those were my questions. Thank you.
Thank you.
At this time, there are no further questions. I would like to now hand over the floor back to speakers for their final remarks. Over to you.
No questions.
No questions from the web either.
Okay. Thank you very much for listening, and welcome back to the next presentation when we will present the full year results. Thank you.
Thank you. Bye.
Thank you so much, speakers. Thanks, everyone. You may all disconnect now.