Earnings Call: Q2 2021

Jul 9, 2021

Welcome to Fabrega's presentation for the first half of twenty twenty one. The short version is that earnings were stable with good activity in the rental market. But now I will start to hand over to Asa, who will tell us more about our results and go further into details. Thank you, Stefan. Please turn to next page. Now it feels like the whole economy has gained more momentum and that things are starting to ease a bit. This is also being noticed among our tenants even though it's still tough for some ones in the exposed sectors. Rental income during the first half of 2021 came in at SEK 1,400,000,000 slightly higher than the previous year. In an identical portfolio, income was largely unchanged. Vacations ahead of projects and granted Corona discounts were offset by occupations in completed project properties. This year a more normal winter was followed by a greater need for cooling early in the summer. Thus compared to the previous year, we initially had higher costs for heating and snow clearance as well as higher costs for cooling towards the end of the quarter. The surplus ratio still came in at 74% like the previous year. Central administration includes non recurring costs of the need for cooling early in the summer. Relating to the move ahead to the We really hope that we will soon have the opportunity to welcome both employees and visitors here. Interest expenses increased slightly compared to the previous year, which was due to an increased loan volume. The average interest rate fell slightly during the first half year to 1.71% at the end of the second quarter. Earnings in associated companies amounted to minus $12,000,000 and mainly related to capital contributions to Ariana Belaget. For the full year 2021, we still expect to be at the same level as last year, which is around minus SEK 50,000,000. And in total, we therefore reported profit from property management of SEK 715,000,000. Last year, the properties in the portfolio were independently valued several times. Now we are changing back to more normal routines. And before the end of the second quarter, around 40% of the portfolio was independently valued. We saw continued value growth. Total change in value amounted to just over SEK 1,500,000,000 of which SEK 2.40 SEK 2,000,000 related to ongoing projects. The change in value in the investment portfolio were related to cash flows and to slightly lower yield requirements. The yield fell by 2 points to an average yield of 3.86 percent at the end of the second quarter. And the deficit value in the derivatives portfolio decreased a little bit further, in total SEK268,000,000 in the first half of twenty twenty one. And finally, the tax expense amounted to minus SEK 532,000,000 and related to deferred tax only. Please turn to next page, key ratios. Reported equity increased by SEK 3 per share to SEK 130 per share and the long term net asset value, the per NRV amounted to SEK 160 per share. Equity has decreased with the declared but unpaid dividend of SEK 580,000,000 The only key ratio that does not currently meet our target level is The debt ratio which amounted to 14.1. Otherwise, the key ratios are in line with our targets and expectations. Our balance sheet remains very strong with a high equity asset ratio and a low loan to value ratio. And now please turn to Page Financing. Both the capital markets and banks have been there for us during the first half of twenty twenty one. We have been active in the capital market through several bond issues, in total SEK 1,900,000,000 and regular issues and sales of commercial paper. We have also refinanced bank loans according to plan. We continued our buyback program which has been paused however since We entered into the silent period. During the first half of twenty twenty one, we purchased 4,200,000 shares, which means that we now hold almost 8,800,000 treasury shares. The shares were repurchased at an average price of SEK 120 point SEK 26 per share and we will retain these treasury shares until further notice. And now please turn to next page. The most exciting development on the financing side during the first half of twenty twenty one was the fact that we were able to secure a loan that is based on the new regulations for green financing in the EU taxonomy classification system. We are doing this together with Handelsbanken. The financial world has a great opportunity to steer developments into a more climate friendly direction. And as borrowers we have significant potential to contribute to this. Since Faberge achieved 100 and green financing last year, we are now taking the next step via this taxonomy linked loan. The property, Singhalen III in Ariana Staden is the collateral for the loan. The property has received an energy performance Certification of level A, which is the highest level. We have also conducted a comprehensive analysis of potential climate related risks for instance such as flooding, soil erosion, heat loads and extreme weather events and such as storms. And now back to Stefan. Thank you, Asa. Please go to Slide number 6. During the first half of the year and especially during the second quarter, there was a good level of activity in the rental market with many viewings and inquiries. The net lettings for us for the 1st period came in at in total 56,000,000 and for the 2nd quarter it was plus 20,000,000 and I am optimistic for the also for the rest of the year. Normally, letting activity in the Q3 is lower than the Q2, however, I think this year the Q3 will be better due to the discussions we are having with the potential customers. The renegotiations completed during the period resulted in an increase in rents of 12%, which is slightly higher than we expected and we're expected to be at the start of the year. Please go to Slide number 7. We usually show this slide and what is interesting is that you previously and that you previously will have seen a connection between vacancy rates and rental levels. We are not seeing this today, rather vacancies have increased slightly, but rental levels have remained robust. Next slide, please. Our vacancy rate in the investment property portfolio is still a bit a little bit high. We have no structural vacancies in the portfolio, but it is more related to a number of smaller premises. Ahead of the autumn, we have strengthened our lettings team and this is currently high level of and there is currently a high level of activity to reduce this vacancy and also to find new tenants for our project opportunities. Next slide, please. As you know, we have a very stable customer base with long agreements. We have said it before, but the SEB, Telia, ECA, Swebbank is all around it, really larger and more stable Swedish companies. So under 20 5 percent, the largest customers represents about 43% of the rental value. So it's a strong base. Please go to the next slide. What will happen to the office market after the pandemic? What we see and hear in our discussion to our customers is that there is not going to be any standard solution, but all customers will find their own unique solution that suit their organization and corporate culture. I am convinced above the continued importance of the offices for creating strong brands, a sense of togetherness and a loyalty among employees, a place for meetings and creativity and its positive significance for companies' development. On the other hand. I am not saying that all will be the same as before. We will see more remote working, less business travel and more digital meetings. The customers will surely demand more meeting rooms and more open meeting areas. But as stated, there will not be any standard solution, but there is a great very ancient in the view of developments after pandemic among our customers and in the society as whole. Flexibility, hybrid solution, together with the continued legalizations will be the key words. Please go to the next slide. During the pandemic, we have focused extra strongly on cooperation with our and close dialogue with our customers. Some of the conclusions we have drawn from these discussions are that there is a willingness among customers to change and develop the Office after the pandemic. There is a willingness to invest in creating attractive office in order to create a we feeling, as we said before, the loyalty for the office and the company. The customers are looking for guidance now, but we are waiting to see actual employee behavior before making final decisions on changes. Some other concrete aspects we have seen are that the customers we'll invest even more in digital equipment. They are, as we said, requesting more flexibility, moveable walls, more small rooms and so on and so on. And they are less focused on traditional and even less focused on traditional desk workspaces. Next slide, please. Our projects are progressing well and according to plan. We see some tendencies towards increased construction costs and that's primarily on, for example, steel and woods. However, this is a marginal impact on our ongoing progress since most of the larger processing has already been completed. We have invested almost SEK 1,000,000,000 during the first half of twenty twenty one. Next slide please, slide number 13. During the quarter, we have completed 2 projects. 1 of the projects is the Nachana and a free in Arena Staden, which is our 1st 0 energy hotel. There would be a hotel, a long stay apartment and an office for the Norwegian Choice Hotels, and the house is now called Choice, the house of Choice. We also have moved our own, the Faberge headquarters and our new WAV, the work away from work solution, that has been moved to Stibigen II, also in Arenasdaran. And we hope that we can welcome you all there for maybe already during Q3. Next slide, please. Slide number 14. We also turned the 1st SARB for and started the in Flemmingsburg and I started Opera and Dan Martin project. This is a it's really great that we had finally got started with this planning. It will be the digging will start in the beginning of 2022 and the Royal Swedish Opera and the Royal Dramatic Theatre will move in 2024. And the investment is will be about SEK0.5 billion. Slide 15 please. We have, as you know, over 800 or 850,000 square meters of commercial development rights in our portfolio. The majority of those are in Sona in Flemingsberg. Our goal is that 300 of those 300,000 square meters will be ready for project starts within the next 5 years. Looking ahead, this means that we have great opportunities to start new value creating products. We are working continually now on creating and develop the development rights in our existing portfolio. Next slide please. But we also have about more than 500,000 square meters of housing development rights, equivalent to approximately 8,000 or a little bit more than 8,000 apartments. We have 3 right now, we have 3 ongoing joint ventures within resessions. They are almost one is finished and in under production right now we have in more almost 600 apartments. These have also provided us with great experience how we can maximize the value creation from these rights. The strategy for the rights, for the building rights and residential building rights will vary from project to projects. Next slide, please. As we said, the joint venture projects are progressing very well. This is reflects the stronger residential market in Stockholm. In Schiester and Rossunder, more than 80% of the apartments are already sold. In Haga Norah, 365 of 368 our partners are of the first two tranches are have been booking we have booking agreements and the next tranche of sales will be planned to start in the autumn. The current joint venture projects are recognized according to the equity method. Income recognition will not be take will not be placed until completion of the projects. Slide 18, please. Here we can see the overview of Arena started in HagaNora, and it's from 2020. And if you go to the next slide, We see an updated photo from Haga Norah, where the entire demolition work is now on the old Belia site is under its way, it's ongoing, and it is expected to be finished right after the summer. And then we will start to work on the next phase in Haggen Ora. So if you go to Slide 20, please, You can see here that the green is Phase number 1 where the Bylia facilities now and also the residential bills that we're talking about before in the joint venture with Bravo. We will now enter into Phase 2. We will provide in total more in the red, 30,000 square meters of commercial and also the residential next step in the residential development. And we will come back to this during the second the next months. I'll tell you more. Please go to the next slide. In Flemingsberg, you see our existing holdings, almost all you can see in this picture is now owned by Faberge, one way or the other. It's a long way to go for creating the vision we have, but a lot happening now all the time in the project. And in the mid down in the middle there is where we now will start the Oprander Martin project. Next slide, 20 2 please. And here you see what we now have the ownership of and what we have agreements on land and education. So it's almost the whole area where so before. Next slide please. During the quarter, 20 This is what I've been talking about before is that we have 27,000 square meters on that gained legal approval during the quarter, and that's open under Martin and also a residential area of 45,000 square meters in Hoeghvstad, where we were now also working with how to take the next step. Please, in the next slide, Slide 24. We showed this slide in the Q1, but I think it's important to point out what is what that sustainability work is. It's a natural part of everything we do. We're also getting more and more questions from investors about this. And I think it is and should be, as we said, a natural part of everything we do. So please, next slide. It's not enough to be a cutting edge today, but we must constantly challenge ourselves through clear end demand and goals so that we also remain at the cutting edge in the future. And these goals were the targets we have talked about before. And I think it's important to have, as we said, all The picture is the Natural Arena 3 or the House of Choice, which is the I talked about before. Next slide please. Sustainability has been strongly focused on hard questions such as energy consumption and certification of properties. I think there is also a big aspect in the work is social sustainability. As a dominant property owner, we can make a difference in our areas. Here you can see in this picture, you can see some of the initiatives and activities we are doing right now in our areas. The picture is a new park in Sonae Business Park, which is focusing on to tell the story about the UN 17 and the goals for the Agenda 2,030, and you probably recognize all the colors. And this will make this we think will make the area more attractive, and Betty also tells you we will all be there every day we will be seeing and we can discuss the blip plan for the future. So with this, We will open up for questions and thanks for joining us. Thank you. Okay. There looks to be no questions from the audience This time, so I'll hand back to our speakers for the closing comments. Thank you for joining us today, and then I hope to see you after the summer, hopefully in real life. But have a nice summer and be careful out there. Thank you.