Welcome to the KlaraBo audio conference for teleconference Q1 2022. For the first half of this call, all participants will be in listen-only mode, and afterwards there'll be a question and answer session. Today, I am pleased to present CEO Andreas Morfiadakis and CFO Jenny Appenrodt. Speakers, please begin.
Thank you, welcome to the KlaraBo Q1 presentation. Like you just heard, the presenters from the company today is CFO Jenny Appenrodt and CEO Andreas Morfiadakis. If we go to the next slide four. KlaraBo is a residential property manager and developer in Sweden. We have three areas of growth strategy. The first strategy is that we have existing investment properties. Today we have approximately 5,600 apartments in property management. We do invest in these properties through value add strategies, where we go from quite low average rent per square meter. When tenants move out, we actually go in and upgrade these apartments.
At the moment, we have 3,500 apartments that we have identified with renovation potential. The second area of growth strategy is that we develop new rental apartments, and we do this with a very high industrial produced KlaraBo-hus, which are mainly produced in the Baltic region in wood. We have found that this is a very high quality and cost-efficient way of developing new rental apartments throughout Sweden. At the moment, we have approximately 1,700 apartments in our project portfolio. After the end of the quarter, we have applied another 150 apartments through our land allocation we got here in Malmö. The third area is in acquisitions.
We do want the company to be a growth company, and we do want to identify new investment properties with renovation potential throughout Sweden, and we also want to get more land allocations throughout the country. At the moment, like I said, we do have 5,600 apartments under management, which gives us a very solid and low-risk base when it comes to the cash flow. On top of that, we do have 1,700 apartments in our project portfolio. Go to the next slide 5. The company has, of course, set out some financial operational targets and the dividend policy.
When it comes to the financial risk limitations, we have said that the equity ratio should always exceed 25%. We have an interest cover ratio that should exceed one and a half times. The loan to value should never exceed 65%. The dividend policy so far is set out to pay out 50% of income from property management after tax. However, we do not see that the next couple of years, the dividend should be paid out. The board have also proposed for the AGM that no dividend for 2021 should be paid out.
When it comes to operational growth targets, we do see that for the existing properties that the rent for the apartments we do want that rent to exceed the general annual rent that everybody in the market gets. So far, we are doing very well when it comes to that. We have another graph that will show that. When it comes to the project development, we do plan to commence construction of at least 200 apartments per year up until the year of 2023. After that, we want to increase that so we can commence construction 500 apartments per year. If we go to slide seven.
When it comes to the first quarter in brief, we do see that the quarter has given some strong numbers. All the numbers are pointing in the right direction. Revenues, NOI, income from property management has increased well over 100% since corresponding quarter last year. The profit for the quarter sums up to SEK 1.43 per share. This is a result that we do see that the business model, the value-add is proven once again.
Like you can see on the graph on the top. We have refurbished almost 70 apartments this quarter alone, and that is the main reason why the gap of the rental value relative to the general market is increasing for this quarter again. At this time, the increase for the total of the graph down below, the rental value has increased with 9.4 percentage point, which is something that you will see even when we go forward next couple of quarters. I am extremely satisfied when it comes to the earnings capacity of the company.
We see for just this last quarter, the income of property management has increased with 4% alone, that is like-for-like properties. No new properties has been added to that. What we have increased then is our cash flow with 4% for just one quarter. We think that gives us a very solid base going forward. We know that the business model that we have does work, and there's a large demand for the type of apartments that we actually work with. It's very satisfactory for the quarter that we have just gone through. If we go to the next slide.
We do see that Sweden still needs a cost-efficient rental apartment and in attractive regions. That is something that KlaraBo does supply. Because of that, we are also very happy to sum up the new projects that we have received during the quarter and also just last week. We have increased our project portfolio with approximately 400 new apartments just during this first four months of this year. They are all in very strong locations like Malmö, Skellefteå and Växjö.
On top of that, we also worked quite closely with the three of our banks, and we managed to refinance credits of a sum of SEK 1.5 billion last week. On top of that, we also got another SEK 1.5 billion in a new credit facility that is both secured and non-secured. Jenny will brief you on this a little bit further in the presentation.
Now we're on slide 10. We delivered another strong quarter, and we have continued our growth journey through value-add renovations in the existing portfolio, conversion of parts of the portfolio to new homes, new land allocations, and a small acquisition in Umeå. In line with our growth, the number of renovations has increased in scope, and we have, just as Andreas said, carried out 69 renovation projects during the quarter, which increases cash flow, net operating income, and thus property values. The expected additional contracted annual rent after renovation of the existing unrenovated portfolio amounts to approximately SEK 87 million. Revenue amounted to SEK 118.7 million for the quarter, and is up by 6% on a like-for-like basis from quarter one last year.
Through active management and refubishments, rental income development for existing housing units exceeded the general annual rent increase by 0.9 percentage points for the period. The increased electricity prices have not started to have an impact. The price for the majority of the volumes were fixed until quarter four last year, while 80% of the current volumes are now set at variable price. Measures have been taken where it has been possible to mitigate the cost. For example, in Trelleborg, where we, since the beginning of the year, have shut down heat pumps in favor of biogas, where we have locked the gas price until 2024. Other material costs, i.e. heating, water, and waste, are all in line with quarter one last year on a like-for-like basis.
Surplus ratio ended at 50%, compared to 45.7% in quarter one last year. Profit from property management per share is up by 15% compared to last quarter. We have accounted for almost SEK 170 million as changes in value of properties as a result mainly of increased rental income due to value-creating investments. The properties acquired in Umeå have been fair valued, which resulted in an increase of approximately SEK 15 million. In addition, the yield in these has been slightly lower during the period. The market value of our interest rate swaps have significantly increased during the quarter as a result of higher interest rates.
Earnings per share, which you've already heard before and after dilution, amounted to 1.43 SEK. If we look at the right-hand side of the table, the current earnings capacity, which is based on contracted rents as of first of April this year and on budgeted costs, you can see that rental revenue is up by 3.8% from the preceding quarter as a result of continuous renovation, the carry through of the general annual rent increase and finally the acquisition in Umeå. The surplus ratio is at 59.2%, up from 58.6% last quarter, and up from 56.2% in Q1 last year.
The increase is mainly explained by the gradual increase in cash flows from the implementation of value enhancing measures, reduced maintenance cost of our renovated properties, and finally a higher surplus ratio of our construction project compared to our existing investment properties. Central administrative costs have been increased by SEK 2 million to SEK 37 million annually as a result of our continued growth. Income from property management per share based on the earnings capacity is up by 5.6% from the preceding quarter and ended at 1.32 SEK per share. The interest coverage ratio on a forward-looking basis ended at 3.32 times. We have introduced another column, the gray shaded in between of quarter four and quarter one, which shows the number on the like-for-like basis compared to previous quarter.
Here you can see that income from property management per share is up by 4% during the quarter, which clearly demonstrates the organic growth of the business. Once again, increased cash flow as a result of higher rental income and reduced maintenance cost is the explanation. If we now go to the next slide, and now we're on slide 11, we have the balance sheet. Total assets up from SEK 8.5 billion in December to close to SEK 8.9 billion in March. Investment properties continued to increase, and SEK 175 million has been added relating to the acquisition in Umeå. It is worth mentioning that only approximately SEK 150 million of the total of SEK 8.9 billion is attributable to new production. Hence, the risk in our portfolio is very low.
Equity has increased by net result of the period, and as already mentioned, mark to market of our derivatives is up by almost 40%, 40 million SEK during the period. Long-term debt has increased slightly as a result of refinancing of our properties in Umeå and in Uppsala. The financial ratios are kept at approximately the same level as in quarter four. LTV ended slightly higher at 42.8%, which is a result of cash outflow seen in the period. Equity ratio landed at 49.6%. Interest cover ratio is steadily increasing and will continue to do so. EPRA NRV per share is up by almost 40% since quarter one last year. If we now go to the next slide, and now we're on slide 10, we find the cash flow statement for the period.
We have spent just over SEK 120 million during the period. The net between newly raised loans and resolved loans increases our cash position by approximately SEK 60 million. We paid SEK 118 million for the shares in Umeå, but net of the cash that we took over from the business we acquired, the outflow amounted to just under SEK 90 million. The remaining outflow is explained by three different things. One is investment in new construction, where 70% of the cost of new construction is financed by bank loans and the remaining is financed by our cash flow. Secondly, value enhancing investment in existing properties, which on a daily basis are financed by our cash flow. The properties are however, financed on a continuous basis in line with increased market value and the reduced LTV.
The outcome of completed renovation projects up to today shows that the net value increase of the projects exceed the money that we have put in as investment. Thirdly and finally, the outflow is comes from an outflow of working capital, where a lot of the listing costs have been paid in quarter one. We ended the quarter with a cash balance just below SEK 500 million. The next page, now we're on slide 13, shows a summary of our debt portfolio. Our interest-bearing financial liabilities amount to approximately SEK 4 billion. We only have traditional bank debt, where we are currently borrowing from five Scandinavian banks. The average interest rate margin amounts to 1.9%, and the average interest rate tenor as at end of March is 1.6 years.
According to our finance policy, a maximum of 60% of our interest rate maturities are allowed within the next 12 months, and we are currently at 50%. On the credit side, a maximum of 30% of the loan stock may expire within a rolling 12-month period, and at the end of March, we were at 24%. However, and as Andreas mentioned, last week we signed agreements with three of our banks to refinance just about SEK 1.5 billion of existing debt. The average margin, excluding set-up costs, is reduced by 0.1 percentage points to 1.8%. And this corresponds to an annual interest cost saving of a comparable loan portfolio of approximately SEK 3.5 million.
The credit commitment period increases to 3.2 years, and the result is that only 2% of our loan stock will expire within the next 12 months. In addition, we have signed binding commitments of an additional SEK 78 million, which corresponds to the difference between 65% LTV at the end of December last year and our current LTV on our existing properties. This money can be borrowed for 3 years at a margin of 1.57%. The headroom can be utilized when required and would all other things equal increase LTV to approximately 52%. Finally, not the least, we have secured an additional SEK 800 million for future acquisitions and investments.
SEK 400 million is an unsecured RCF facility that can be utilized for 12 months, and thereafter we need to do a clean down for three months before we can utilize it again. The second part is the secured facility that can be used against pledged assets, and thus will not be usable until we have assets that can be pledged. If we would use entire credit facilities, LTV for the business would go up to approximately 62%. To summarize, in addition to our cash balance of close to SEK 500 million, we will have headroom to increase borrowings by close to SEK 1.6 billion to continue our growth journey.
Okay. Thank you, Jenny. If we move over to page 15, talk a little bit about the business model when it comes to the property portfolio and the scope for the rent increases that we're doing through the renovation model. Like I said before, we do have 5,600 apartments under management, and we have identified that 3,500 of those have a renovation potential which correspond to 66% of the total portfolio. What we mean by renovation potential is that the current rent level has a potential of after a value-add strategy go up with at least 20% or more.
What we do is that when a current tenant move out from the apartment, we go in and do assessment of the apartment and identify what kind of value-add things that can be made in the apartment. After that, it takes approximately 4-6 weeks during the refurbishment. At the same time we also sign a new tenant agreement with a new tenant. The result that we have done so far during the last 12 quarters is that we have increased the rental value of the existing portfolio with 9.4 percentage points more than the general market.
As most of you know, the general market rent increase is that something that everybody gets with the negotiation with the Union of Tenants. This is the main factors that are driving the value changes when it comes to the existing properties. If we move over to page sixteen. There you see in the middle of the page, we do have the current annual rent that corresponds to SEK 482 million per year. If we do all the 3,500 apartments that we have identified with the renovation potential, we can increase the current annual rent by SEK 87 million. It goes from SEK 482 million to SEK 569 million.
That is the potential that we see that the existing properties have, when it comes to rental value. These existing properties that we do have, 32% is down in the south and 34% is on the east of Sweden. The two largest cities that we currently have is Trelleborg and Visby, where we have approximately 900 apartments in each of those two cities. If we go to next page. We have just identified the market value by region. Of course, the two largest regions that we do have is the south and the east, and where most of the market value is actually located there.
The property value by the end of the period sums up to SEK 8.1 billion, and that correspond to approximately 19,000 SEK per square meter. If we go to next page. We page nineteen. We'll talk a little bit about the project development. What KlaraBo has done and are doing is that we have identified that the most cost efficient and a way of constructing new apartments in Sweden is by having a large amount of industrial thinking. We have done this by contracting 2 suppliers in the Baltic region that have supplied all the apartments that we have so far construction and have in construction today.
These are module-based building systems that are built mainly in wood. It takes approximately 10-12 months from the time that we actually start construction until the tenants can move in. Of course, that's a factor that is extremely cost-efficient in this product, of course. If we go to the next page. The project portfolio by the end of the quarter sums up 1,700 apartments that we have in planned construction going forward. At the moment, we have 170 apartments in construction, and those are mainly in Höör and Borlänge. The estimated rental value of these are SEK 185 million when complete.
That gives us an estimated market value at completion of approximately SEK 4 billion. The graph in the middle shows the rental value of the total portfolio by the end of the quarter. That sums up to SEK 513 million. If we add the 185 million that is estimated rental value from the new construction, we get a new potential rental value that comes up to 698. Then if we do add also the renovation potential from the existing properties that I mentioned before, that gives us another SEK 87 million in potential rental value.
The rental value at completion of both existing properties and new construction sums up to SEK 785 million, which is an increase of close to 50%. If we turn to the next page, the completed and ongoing projects. This is a slide that sums up what KlaraBo has completed and what is ongoing. These are the same projects that we have last quarter as well. When it comes to the market in general when talking about the new construction, we are seeing an increase of cost of course regarding to materials. We're also seeing a material shortage when we're talking to the suppliers.
We're also noticing longer delivery times. All these, of course, gives the portfolio a higher degree of uncertainty than we have had before. However, as always, we do assess each project individually and we will not start any new project until we reach a satisfactory profitability. We do have the 5,600 apartments from the existing properties that gives us a very good value-add strategy. We do see that this new construction is something that we see as a top-up of the base foundation that we have constructed with the existing properties. That is very important to know.
We have, however, updated the project portfolio this quarter because of the world situation that is ongoing at the moment. Even though we have updated, we do see that it gives us a satisfactory profitability. We are seeing some delays in some of the projects, but we are still comfortable that we will go through with the projects at some time. Also worth mentioning is the ongoing projects. Those projects are mainly at fixed prices. We don't see any risk when it comes to the increase of cost for the ongoing projects.
We have also hedged the currency since we do have we buy the house in Euro, which means that they are not we're not affected from the changes in Euro during this very volatile period that we're going through. If we turn to the last slide, which is slide 23, investment highlights, just to sum up the company on the quarter. Like I said before, I'm very pleased to see that the current earnings capacity has increased with like-for-like with 4% during one quarter. I think that if we can keep the level like the first quarter going forward, we are giving the shareholders quite some value going forward.
The base for that is, of course, the 3,500 apartments that we have identified with renovation potential. When we have refurbished all of those, we do have a potential of upgrade a rental value that sums up to SEK 87 million. The product portfolio at the moment consists of 1,700 apartments. Like Jenny was talking about before, the balance sheet is very strong. We have a very low LTV. We have a very good collaboration with the banks and the new credit facilities that we have engaged in shows that. We do look forward for the future.
We think that we have built a very strong company and have a product that is working well in the Swedish market. With that, I would like to open up for questions.
Thank you. If you'd like to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. far, we have one question from the phones. That's Marcus Henriksson of ABG Sundal Collier. Please go ahead. Your line is open.
Thank you. Good morning, Jenny and Andreas. A few questions from me. First off, you made 69 renovations here in Q1 versus 78 in Q4. How do you think we should think going forward? Do you believe that 69 renovations is the like absolute minimum, and that 78 renovations is a hard-to-reach volume to be above? Can you elaborate a bit on renovations going forward?
Like I said last quarter, I think that we have reached a level that we can keep going forward. If it's 78 or 70 apartments or if it's 80 apartments, it's extremely hard for the company to say. I think that we have reached a level that is close to 70 apartments per quarter. Of course, this all depends on which tenants are moving out and which apartments have the renovation potential. I mean, we do see. In my view, 78 or 70 apartments per quarter is the same. It doesn't make a difference if it's 5 or 8 apartments more in a particular quarter.
I think that we've reached a level that the property management can manage these. It shows that. Yeah. I would say this is the level that we will see going forward.
Again, totally agree with that. My questions was more, you know, the kind of trend, if we could expect, you know, 100 renovated units in a year's time. This kind of level, 70-80, that's fair to assume?
I would say so, yes.
Perfect. Also you have adjusted some costs in your product portfolio. The margin goes from 19.3% to 17.4%, if I got that correct. What's your view on the risk of having any delays in ongoing projects?
I would say that the risk there is quite small because they are, at the moment, full. They are keeping on track. I think if you see delays, you will see that very early in the projects. The Höör project, for instance, the tenants are moving in first of July. I do not anticipate that you will see any delays on the ongoing projects.
Very clear. Thank you. A follow-up on new construction starts. It looks like you started around 30 units in the quarter, and then we have another 520 units for 2022 with possible starts. That's down from almost 900 in Q4 if we exclude the started project now in Q1. How should we view that change from moving into projects into the future?
That's just, like I said before, Marcus, we do have a higher degree of uncertainty when it comes to the product portfolio. This is the best guess that the company has at the moment, when we're talking to the suppliers. Of course, the closer we get to a project start, everything will be on the table. That is a time where we actually will see if we do have the project start on time or not. This is the best guess that the company has at the moment. However, there is a bigger uncertainty today than we had a couple of months ago.
Thank you. Also you mentioned that you won't start any projects until you get a sufficient margins. Can you get that at all at the moment, or should we not expect any project starts in Q2 and Q3?
I would like to say that I mean we do expect to start projects during the year. At this moment, I can't say if it starts in Q2 or Q3. For us it's very important that we create value for the shareholders. That is more important than having the project start in the near future. If we need to wait a quarter or two, or maybe three quarters to reach a satisfactory profitability, we will do that. The table that we have in our report is the best estimate that the company has at the moment.
Very clear. Last question, it's on the same theme here. Could you highlight a bit what you see in ongoing discussions with construction companies and module producers, versus, say, 6 months ago or 12 months ago?
We have had an increase in materials when it comes to wood since at least one year. That has not been the biggest issue for KlaraBo. We have dealt with that already for at least the last 12 months. However, we are seeing the cost of materials when it comes to other materials than wood. They have increased quite a bit just the last couple months. That gives the suppliers. They're quite scared of giving fixed prices which, of course, gives us a great uncertainty in the production calculations. It's at the moment a very difficult time to assess each project.
However, of course, we don't believe that this is the level that we're gonna have in the long term future. We believe that it will stabilize at some point. If it takes another quarter or two or maybe three quarters, I don't know. We are quite certain that the prices will stabilize at some time and we will get a more normalized way of doing new construction again.
Very good answer. Thank you. Those were my questions.
Yeah.
Thank you. Once again, if there are any further questions from the phones, please dial zero one on your telephone keypads now. We've just had one further question come through on the phone. That's from Oscar Enquist of Handelsbanken. Please go ahead. Your line is open.
Good morning, Andreas Morfiadakis. Can you hear me? Yes, I have a couple of questions on the same theme as Marcus Henriksson here. Do you see any risk of the renovation program being impacted from the supply of building materials, or can you keep that intact?
At the moment, we don't have any negative impact when it comes to cost of material for the renovation programs. We also have noted that in the report. No negative effects when it comes to that at the moment.
Okay. If you look at an aggregated level on the project portfolio, it looks like the investment per square meter is up, like, 3.4%. Would you say that the cost inflation and increased cost in new construction is fully reflected in your updated table here?
I would say by the end of the quarter, which the numbers are based on, they are fully reflected. That is the best estimate that we have through talking to the suppliers that we have and the tenders that we are receiving on a daily basis.
Okay.
Like I said before, there is a higher uncertainty when it comes to the product portfolio. That's how it is at the moment.
Yeah. Thanks.
Thank you. Once again, if there are any further questions from the phones, please dial zero one on your telephone keypads now. Okay. There seems to be no further questions from the phones at this time.
Okay. From KlaraBo, we will just say thank you for listening and for the questions.
Andreas, there is one more question.
Okay. Okay.
It is from Peter Norhammar, NRP Anaxo Management. He wants to know, "What year-on-year rent increases will you achieve 2022 and 2023 estimate regarding your apartments that are not being renovated? Will you be able to keep up with inflation?
Well, it depends how high the inflation is, of course. As you know, we do have the Union of Tenants to negotiate with. I don't believe that we will get. Of course, I mean if the inflation is at 7% or 6%, I doubt that we will reach to that level when it comes to the negotiations. However, we got approximately 2% of increase last year. Of course, if the inflation is high all of 2022, I do expect that the rent increase will be higher than we had last year. How high, I don't know. It's very hard to predict at the moment.
Of course, if it's gonna be at this high level as it is right now, we're not gonna be compensated for all of that.