Earnings Call: Q1 2021

Apr 26, 2021

Welcome to the presentation of the Q1 Report 2021. And first, I'd like to hand over the directly to Orsa and give us a short update on the figures for the Q1. Thanks, Stefan. Please turn to Slide 2. This year has started much like the previous one ended with working from home both for us at Faberge and for our tenants. Sveen. Rental income for the Q1 came in at SEK707,000,000 slightly lower than the previous year. In an identical portfolio, rental income decreased by 1%, which was mainly due to vacating Gladion 12, which is now a project property under reconstruction and the fact that we made a provision of €5,000,000 as a result of the pandemic. This year, we had a more normal winter and thus more normal costs for heating and snow clearance. The surplus ratio came in at 72%, Which may be considered normal for a winter quarter. Central administration includes non recurring costs the of almost SEK 7,000,000 relating to the move of our headquarters. Interest expenses increased slightly compared to the previous year, which was due to an increased loan volume. The average interest rate fell with a few points to 1.75% at the end of the quarter. Earnings in associated companies amounted to minus €1,000,000 and mainly related to capital contributions to Ariana Belaget during the period. For the full year 2021, however, we expect to be at the same level as the previous year. That is approximately around minus €50,000,000 And in total, we reported profit from property management of 346 million. Last year, the properties in the portfolio were independently valued several times. Now we are changing to more normal routines and before the end of the quarter a little more than 30% the portfolios independently valued. We saw continued value growth. Total changes in value amounted to SEK 514,000,000 of which SEK 102,000,000 related to ongoing projects. The changes in value portfolio were related approximately equally to cash flows and slightly lower yield requirements. Yield requirements fell by 2 points during the quarter to an average of 3.86%. The deficit value in the derivatives portfolio decreased further by SEK 234,000,000. And then finally, the tax expense amounted to minus SEK 231,000,000 and related to deferred tax only. Please turn to next page, key ratios. Reported equity decreased by SEK 1 per share to SEK 126 SEK per share and the long term net asset value, the EPRA NRV amounted to SEK 154 per share. Equity has decreased with the declared but unpaid dividend almost 1,200,000,000 in total. 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 next page, financing. In relation to our banks, the situation is still Sable. The capital market has been strong early in the year and we have taken the opportunity to issue SEK 1,600,000,000 in total, of which approximately SEK 400,000,000 related to early redemption and refinancing of future maturity. The commercial paper market has also been strong, and we have refinanced according to plan. We are still proud that we achieved our goal of converting the entire loan portfolio to green financing by the end of last year. And after year end report, we continued our buyback program. During the Q1, we repurchased 3,000,000 shares, Which means that we now hold almost 7,600,000 treasury shares. The shares were repurchased to At an average price of SEK118.75 per share, we will retain these treasury shares until further notice. So the message is that all is still stable and secure in Fabry gear. And now back to Stefan. Please turn to next page. Thank you for the review, Orsar. We saw a quarter with stable rent levels. Especially during March, we also saw increasing activities in enquiries. Of course, there's still some uncertainty about the continued development due to the COVID-nineteen and after that we hopefully get back to what we call normal, but it's much more positive discussions and as we said activities. Our net letting came in at plus €36,000,000 where new leases of more than €100,000,000 and some terminations of €65,000,000 but this was, as we said, a positive quarter and good discussion for the future. Next slide please. We also see a lot of activities in Stockholm and a growing Stockholm. During the last 10, 15 years, we have seen the office buildings in the space going from a little bit more than 11,500,000 square meters up almost 13, and we still see some more space coming into the market the next years. But we also see a lot of growing Stockholm, as we said. On next page, you can, for example, see the development number of the office employees. It has also been growing and we still see it's growing. We see more people working in Stockholm today than we saw some years ago, and it will continue. And next page, we see the real average trends and vacancy rates in the CBD. We see even COVID-nineteen situation, stable rent levels. We don't see any new top rents, new record highs, but we see very stable, especially in the CBD, stable levels. Even if it's we have seen a little bit larger vacancy rates, higher vacancy rates. It's the vacancies rates are more in locations where you don't have the best commuting opportunity or and so it's as we said before, it's a little bit different. The location is very, very important here. Parts as stable market and continue. So we are positive for the Stockholm outlook. Next page please. As you know, we have a stable occupancy rates, well above 90%. We have in the managed portfolio 92%. We have no structural vacancies in the portfolio. We have some vacancy because of the projects we have ongoing, part we also on the we will come back to that to tell you a little bit more about the project, but they all we have or most of them that we have contracts. We have signed contracts. But anyway, I think the vacancy rate give us some opportunities. It is a little bit too high. We have also, therefore, strengthened our letting team in order to increase it even further, especially in the property management portfolio. And it's primarily in Soma Business Park where we currently have some vacancy series base. And I hope we will during this quarter and the next quarter be able to give you some positive news on that. So please go to slide 10. This is mainly to remind you to how stable customers we have with long agreements. As you know, SEB, Telia, ECA, Sberbank are our largest shareholders. 25 largest customers represent more than 40% of the rental values. And as you also know, almost 85% is offices. Next slide, please. Will we need the office in the future? This has been discussed. It is discussed a lot mainly in also in the newspapers. We are convinced that the office will be needed. We see 4 dominant trends in the development of the office markets. The digital transformation that started heavily 20, 25 years ago with internet and so we'll continue and even increase in speed. The need for flexibility, simplicity and service is always there and will be even more important. Values, well-being and sustainability is very important. This is not new. It's things that we know has been there for a while, but there are no standard solution that suits everyone. What we feel quite convinced about is that we will travel less. We will not go for meetings only for updates and so on. We will take those meetings for over by Teams or Zoom or whatever. But some sales meetings and so on will continue to be in real life. One of the conclusions will be anyway that it will be different offices for different future needs. It will change. And we have to talk a lot about this with existing and potential customers and clients. So it will change, but we really see the need for offices even in the future. Next slide please. At the end of the Q1, we have about 75,000 square meters in the project portfolio. We have a high occupancy rate as you know about 85%. You see to the left in this picture, in this slide the pool and project with here to Erbriu will have a Swedish head office. We have invested in almost SEK400 1,000,000 this first quarter and about SEK100 1,000,000 of them were in the management portfolio. In the Q1, we realized value chains for a little bit more than €100,000,000 in the product portfolio. Go to slide 13 please. A short update about our projects and our future projects are Reina Stade and Haganora. As you know it's really huge areas. In the left corner you see Haganora, where we also have the projects where Belia moved into the office in the Q1 and where we also have this marketing and selling the residential apartments. Arena started, I think every time I see this picture, it's fantastic what has been creative for over the last 15 years and we're all only halfway. Next slide please. We have potential office projects in Areana Start and Haganora over the next years that we can start almost 200,000 square meters. 2021, we expect to start a little bit more, 15,000. And then year, every year, that we have the opportunity to start 50,000 to 60,000 square meters. Next slide please. We also have the opportunities and the potential in our solar business park and Hovstad. We have to the right here, you see the park park park house that we are now working with. We can add another 20,000 square meters 2021. And the next 5 years its much more opportunities in the Sonar Business Park. Next slide, please. We also, during the Q1, got an agreement with Sona, the city of Sona, land allocation for about 50,000 square meters office space in Huyvestor and some 10,000 square meter of residentials. Next slide please. I mentioned Park Hills at the Park House before. It's a really interesting project because it also had the goal to halve the climate impact. The SEO emission will go we've halved. We also having this as a project for rehousing to construct the building from old buildings from the and to reuse for example the concrete framework and building with wooden framework. We will tell you more about this in the future but I think it's a really interesting project to see how we can develop the projects to have less impact on the climate. Next slide please. Flemingsberg. As you know, we have during the last year acquired what we call the larger building in the middle of the picture, Regulaton 2. We already own the left building Regulaton 1. And now we have also allocation agreement with Hodingen for the land next to Regal Aton II. So most of what you can see on this picture in the middle is now controlled one way or the other by us. And we also started the next step of the project. We will start to build to construct the building for Uprandar Martin in 2022. And we have a lot of other discussions going on. So if you go to the next slide please, you can see here more what we own today as I said, and also the land allocations we have got. SOW. It's really now we have control of both the commercial part of it and the residential opportunities. Next slide please. We like to show you a map of our inner city properties. Sometimes I think it's good to remember where we have about 40 percent of the values. We have it in the inner city. In the upper part of the map you can see we see a Van de Graen center and all the property we have about in the notarial. If we walk around the studio plant in the middle of the map we have fantastic properties. As you see in the end to the left to the lower picture is Boakken 39 for example where we signed a new contract we commendum in the beginning of the year. The 2 other properties are the upper one is Sapateria Caravan where we have had a lot of product as the last years. It's now fully occupied. The last IT company Mentimeter has moved in now. Andy and it's huge and fantastic probably in the middle of the city. The picture in the middle is also very well located. And there we have some it's today full activity in the house tenants, but there will be some opportunities and some projects in the future, which we're working with. Next slide, please. We also have some ongoing projects in Kungsolman, which is on the left on the in the map and the upper two pictures. And finally down to the left we see probably where we have very close to where the Swedish government are located close to the old town, and we will also have today some we see some opportunities for future to maybe increase the area. So a lot of our holdings are in, as you know, in the city, and I think it's well very well positioned portfolio. Next slide, please. As you know, we have today also talking about a little bit more about the opportunities we have in residential markets. We have today 3 joint ventures in Solna and Sheetsa, which are going on developing very well. We also have more than 500,000 square meters of building rights, corresponding to about 8,000 apartments, which we're now trying to take to the next step and discussing how to work with them in the future and how, of course, to focus on how to optimizing the value creation for those building lights. Next slide, please. Warsaw. Can you please tell us a little bit more about this work we do in the sustainability? The interest in sustainability issues and Faberge's to And it's great to see that the financial market in particular is paying increasing attention to sustainability issues. We have set ambitious targets, and we also think that it is important to be transparent with how we are approaching sustainability issues how we can make Fabry gear more sustainable. The work that began many, many years ago with the aim of reducing energy consumption costs now covers all parts of the business. And on this slide, you can see some examples of where we are. We are now at 100 percent green financing. We have certified all the properties in the project property management portfolio. We are certifying all the properties in the project portfolio. We have reviewed all the strategic suppliers from a sustainable point of view. We are using almost only renewable energy sources. We are now at 96%, of course, with the target to reach 100%. And we are also aiming at 100% green leases. Today, a little bit less than 80% of the total area It's signed with Green Leases. Please turn to next page. As I mentioned, we have tough targets for sustainability. Among them, energy consumption is one of the most important. We had a good very good year in 2020 due to a mild winter and also the fact that many of our tenants were not actually occupying the offices. A couple of years ago, we set a target to reach neutral carbon neutral property management portfolio in 2,030, a target which we feel is very likely that we will reach. A much tougher target refers to indirect emissions, the Scope 3, where we have set the target to reduce them by 50% until 2,030. And the project Park House that Stefan mentioned earlier is one project which we are investing the opportunities already now to reduce the emissions by 50%. Please turn to next page. Thank you, Rosa. It's also important that we as a major property owner contribute to creating greater security and well-being in our main areas through different and various initiatives. Among other ways, we can do it by contribute to improved education, leisure activities and job opportunities. But we can as a property owner make change. Here you see a list of some of the activities or initiatives we have going on right now. The next slide please. We also have some changes in the executive management team. Our Head of Technical Operations, Anders Boygren, will retire and we hired Fred Grenval as new coming during the summer as new Head of Technical Operations. Also our Director of Business Development, Claus Hansen Vikstrom as many of you know will go retire. And we hired Johan Sackerson as a new director of business development. He will start in August. Next slide please. And to end with some very fantastic beautiful pictures of the whole executive management team from August 2021. I think it's a great team. We have 190 total very great employees. And as you know real estate is about human beings. So I think with this team we will also be able to make changes in the future. Finally Faberge has a strong balance sheet, a stable customer base, a good property portfolio in great location and many, many development opportunities. During the quarter, we also utilize this strength to repurchase almost 3,000,000 shares and we did all we do with ambition of creating additional shareholder value. Thank you. Thank to Our first question is from Paul May of Barclays. Please go ahead. Your line is open. Hi. Hopefully, you can hear me. Just three quick questions from me. What is the total size of Bakken 39? Obviously, the development table just Covers the refurbishment part that you're doing. Just wondering what the total size is. Secondly, Stockholm CBD vacancy Increased and rent declined slightly in 2020 in terms of prime rents. Any concerns with this at all? Or are you do you see this sort of a one off And you expect that vacancy to be let up and then rents to start to grow again? And just wondered on the development pipeline, You talked a lot about in the past of hitting this, I think it was a SEK10 billion investment over a 4 year period. Obviously, that's Becoming increasingly more difficult and then the pandemic has hit, which obviously made that extremely difficult. Just wonder what your thoughts were about your ability to invest In your development opportunity over the coming 2 to 3 years, I appreciate you've got the potential, but potential and ability are slightly different. I just wonder what your thoughts are there. Thank you. Thanks for questions. It was a little bit difficult to hear, but I think we try to answer what we heard at least. To the Blokken39, I think the space is about a little bit less than 8,000 square meters, I think it's 7,600 square meters in total in that product. Rents in this CBD, it's we see a stable market, we see the same levels on the rent levels as we saw before the pandemic year over year, year and a half ago. The SEK 10,000,000,000 go for investments, I would say, for a 4 year period. We know that it has as you know, the 2021 will be a little bit lower, so about SEK 2,000,000,000 or a little bit less. But we're still going for the SEK 10,000,000,000 goal for a longer period. So 2.5 average SEK 2,500,000,000. Andon. You can say, may and when also talking about the potential in the residential portfolio, I think it can even long term beer a little bit more. So, Ursa, do you like to add anything? No. Was it the correct questions we answered? They were indeed. And then to Just one additional one, sorry. You mentioned about the vacancy rate in the portfolio, hoping to have some good news over the coming quarters. Is that leases that are in negotiation at the moment or is it an expectation of new leases coming through the You hope to sign up over the coming couple of quarters to reduce that portfolio vacancy? I would say it's a little bit of both. It's we have, as you said, also especially at the end of the quarter, it's much more activity showings and we saw increasing demand of questions about what we can offer. So it's a it's both what we see in discussions under what we hope for, of course. But we see a more positive activity in the market. Thank you very much. Thank you. Our next question is from Jonathan Kannieta of Goldman Sachs. Please go ahead. Good morning. Thank you for taking my question. Two questions, if I may. The first one is to come back On this occupancy point, if you can elaborate perhaps more where your vacancy is actually currently located? I think You mentioned Solna partly, but if you can just elaborate and help us understand also where you think to what level you can improve occupancy in effect. That's the first question. And the second question on the residential, is that something that you're going to develop by yourself or would you also look to get partners or just to ultimately to sell the projects? Thank you. Okay. We'll start with the occupancy rate or vacancy rate. It's a mixed picture. We have vacancies in all our areas, but a little bit more, I would say, in Solne Business Park, which has not already been rented out. And then in the inner city, as we are now refurbishing for Convenom as an example in one of the CBD properties. It is right now empty and therefore it's also included to in the vacancies. So part of the vacancies are already let and will be moved into as soon as to refurbishments projects are finalized and part is of course to be let. Sorry, just to come back on that point. How much of the vacancy, the NOK 09% vacancy corresponds currently to projects currently in refurbishment? Well, it's different also because It's different if there are refurbishment projects in existing buildings and if it's new production. So if you look in the project table. You can see that for example, Stigbegen 2 and Gladion 12 and Bakken 39, these are three properties that are existing properties and where they are vacant in the vacancy table at the moment, But they are pre let to between 12% 100%. And I think the best way to see how income is Going to develop is the graph that we publish in the report on Page 13, which is based on what we know about tenants moving in and moving out in the coming 4 quarters. Okay. Yeah, that makes sense. And then sorry, the second question was? Residential building. Yes. The residential building. The government in general, so one in residential building. Because to understand, if you would do what would happen to these buildings, are you going to do them in JVs by yourself, sell them And how fast you intend to develop them? Yes. You can say, we have now some a group of working internally with the residential building rights. We have today 3 young ventures ongoing. We have about a little bit almost 500 apartments under production. But for the future and the next projects, we are discussing which way, how do we create the best values. John Sanchez, I think that's a good way. To work close together with some colleagues or some other companies. Pat. It can be that we should do it in our own books, but it can also be that we see that the best way of adding the values to sell. But I think we will see we will be much more active ourselves in the future than we have been in the past to work with both the joint ventures and maybe in our books. That's fair. But then I assume you want to sell these flats when they are produced? Or would you operate them as build to rent? It depends. 1st of all, it's a lot of what we have in there is what we call owners apartments. So it's a majority of the short term building rights or owners' apartments. And but if we it will be residential buildings for hire, it can be we to I don't like to give you 100% answer that we will sell it. It depends on what the yield we can get and how we can see on the how can we even there create cash flow on values. Okay. All right. Thank you. Thank to I have one question that came in by email, and it's regarding an environmental certification of our assets And if we have attempted to quantify the proportion according to the EU taxonomy. So we did an investigation together with Cicero, who is a Norwegian a company that certifies green bond programs and also are looking into EU taxonomy questions in the beginning of this year. And the report is published on our website. However, the exact how the EU taxonomy is supposed to work was not sure at to that moment and it still is not. But you can say that we can say that we have done the major part of the work. We have classified all our properties, But we have not yet been able to divide them into what's aligned with the EU taxonomy or not. It will be several properties that will fit in with the EU taxonomy, But there are of course also properties that will not. So I think that in maybe already in Q2 or in Q3, we will start to publish this information in the report or on our website. Okay. Any more questions? There are no further questions from the audio. So then if not, so thank you very much for joining us today, and don't hesitate to give us a call if you have any further questions or comments. So thank you and have a nice day. Be careful.