Earnings Call: Q3 2020

Oct 22, 2020

Quarterly report

Hello, and welcome to the new Folsa Q3 Report for 2020. Throughout the call, all participants will be in a listen only mode And afterwards, there will be a question and answer session. Today, I am pleased to present the CEO, Jens Engwal. Please begin your meeting. Okay. Thank you very much, and thank you for calling in. It's a very busy day with a lot of reports. Present here also in the room is Stine Allendehoek, who will be Managing Director, CEO. As from Monday, Could you just brief a little about your background? Yes, sure. As Jan said, from Monday, it's my turn to go forward with NetSolpa. And just a short brief for you, if you don't know me. But I'm 47 years old and I have worked in the real estate industry with over 20 years now. And the latest 10 years, I have focused on 1st Handforsa as a Head of Transaction. And then after the spin off, I've been COO within Salsas for 3 years. And I have been involved in the MOS transaction in the latest 10 years, which is over SEK 60,000,000,000. Okay. Yes. Yes. And Cristina, you will come back a little and tell a little about going further what will happen after we leaving. Shortly, we have a very strong growth in Q3. Still, we believe we have a low financial risk and still we have a good cash position for further acquisition. We have only been listed less than 2 years. But if we just focus on some figures on a yearly basis, this is September to Change slide. Sorry. Change slide. This should be the figure. This is Neufeldsar on the top. Sorry. You can see the figures in red. That's the last 12 months what has happened with the portfolio. It's 57% increase in property value. Property management is up 50% and earning capacity, which is a key figure for us, is up 40%. And still, we believe with the portfolio we have, we have a limited financial risk. We have an equity ratio of 41%. LTV is 60%, but net LTV is 56% actually because we have a lot of cash. And the interest rate coverage is around 4. And with the diversified portfolio as we have, we believe that there is excess low financial risk in our portfolio. Next slide. Just a few words about the impact from coronavirus. In short, we can say that the tenant who had problem in Q2 too had also problem in Q3. And it's obvious still problem for the hotels, for restaurants, conferences and that type. And but I think we can't see any major increase from other other businesses than those I mentioned. We have a slightly higher losses from bankruptcy situation. But that so far, it's very limited. It's not any dramatic. And I think we have focused on trying to help those tenants. We will want to have back after the corona pandemic is leaving us. Next page, a short summary. We are starting to be a little bigger company, the midsize, it's 2,500,000 square meters, €2,400,000,000 in rental value. And economic leasing rate is almost 93,000,000, which is quite good. And the property portfolio has from last as of September almost 29 billion. Next slide. This is just an illustration that we are working on very broadly when it goes for acquisitions or transactions in general terms. We work long term with bigger portfolios where we are very patient. Most of them, we try to act off markets. And I will say the 2 big transactions we have done this year, Randriken and SPB, are typical because they are off market and we have discussed those transactions for a quite long period. And then we also mix it with the single assets or smaller portfolios where we can also find good acquisitions. But it's important for us as an opportunistic company to always have a big pipeline of acquisition objects and be patient. Sooner or later, they might be interesting to buy. And I would say, even though the market is very competitive now, everybody is trying to find assets. You can say that more or less all this, the company and the institutions in Sweden are on the buying side. Even the foreign investors, I think, is left by. So it's a lack of it's more a lack of objects to be possible to buy. But I think with that said, still we have a quite big pipeline for the Q4. And hopefully, Stina can make some of those transactions go through. Next page. We did these acquisitions in Q3. SPB was the seller. And it's a portfolio with around 80% tax funded tenants. And this sits very well into the contribution of stable cash flow as we're seeking. And this means it's quite big proportions now. We have back standard tenants. And if we can, we would like to increase it a little further to get the stabilities from the tax under them. So we're very happy with that. And that acquisition was very important for us taking the next step, so to speak. Next page, strong period with high growth. The figures, I think, speak for themselves. On the right side, you have percentages from January to September and that also speaks by itself, I think. So it's a strong growth, but still we are able, as I said, to make further acquisitions because we are in a good financial position. Next page, we have a good efficient financing. We rely very much on lending from banks. And we have only SEK 1,500,000,000 in bonds due to May 2022. I think the banks likes us. They like the approach with cash flow and a verified portfolio. And we believe that you can say that the mood from the banks is back to where we were before corona. The pricing is similar, perhaps even slightly lower. And the banks have a lot of liquidity to lend to good tenants or to good real estate companies, which we are one of them. So it's not difficult to lend on good assets as we have. Next page. This is perhaps the most important figure that we are strengthening our earning capacity up to SEK 1,300,000,000. And we hopefully get to increase it a little further in 4th quarter. This means that profit from property management is how much per square liters? 7.2. 7.2 per share, which is quite good compared with at least the present stock price. I think I will stop there and give the word back to Stina and just she can give us some ideas going further what she will be focusing on. Yes. Thank you. I will just say a few words about what I will focus on going forward. As Jan said, we have a good position going forward, and we will continue with high activity on transactions. And I believe that for an opportunity, there is always some transactions to be done. So that's this transaction is a really important part in our business and will continue, of course, to be. We will continue to build strong and stable cash flow together with spreading risk with a diversified portfolio both in category and geography just as we have right now. We will continue as we have done to develop our properties. We have a really good team working with the properties every day and they will continue to develop and optimize the portfolio. Sustainable business is also important and it's hand in hand with profitability, I think. And there is now a strong focus to work through all our processes in order to optimize operations and also to reduce carbon taxes. That's what we started this year. We have just 2 years back, so this work started this year. Finally, as I said, we have a really good charting position, and we are a strong and dedicated team to ready to take NeuSolsa along. And I, as a new CEO, really look forward to lead and develop Nynsosa on our continued journey. Thank you, Spina. I will just finish off with me leaving now. I think the company is in a very good position. It has quite a lot of cash, but a lot of opportunities. And as Tina said, we have a very strong management team. And I'm very happy that Tina is the new one because she has been working we have been working together the last 10 years. So I know she can do the business. I would support the company as Board member, shareholder and advisor if Stina wants me for the next year or so. So that's I think we end. And I'm very happy and looking forward to see new transactions as soon as possible. Thank you. I will stop there. Thank And our first question comes from the line of Frederik Silholm of Carnegie. Go ahead. Good afternoon, Sten and Jens. 2 or 3 questions from my side. So at the end of Q3, you had cash of about SEK 1,000,000,000 and after that, you have announced divestment of Blackstone to the SEK 202,000,000,000, but also the acquisition of Kelliarden. So you would if you do nothing, you have SEK 2,000,000,000 in cash. For how long you think you're going to sit on that cash? I think that's the question. It's mainly for Stina and looking for me as a Board member. Then I can say as soon as possible. It's never good to have much it's good to have much cash because we can do business, but also of course we want to do it as soon as possible. So we are working as we always are doing, trying to find opportunities all the time. And there are we have a pipeline. So hopefully, we will do something that comes important. And in terms of that pipeline, how is that compared to the situation, let's say, a year ago? They have more to look at? Or is it less diminishing? I'm not I think it's pretty much the same. It's the same situation, a big supply of a big demand for properties and not so much supply. But as an opportunity, we have very much to look into. So if I compare, I think it's pretty much the same as last year. And of course, it depends on what you can never say. It always depends on what's coming up. But you have work to do? Yes, yes. Yes. We have a portfolio under consideration. I don't know how much, but it's several, several 1,000,000,000 on the consideration. So And that's how it's all Yes. That's clear. And one detailed question on the earnings capacity. So since you still own the Blackstone portfolio by the end of the quarter and Galliadren has not yet been closed, are those two portfolios are Blackstone the Blackstone portfolio still included in the earnings capacity and Galliadam? Exactly. You got it right. Okay, perfect. Those were my questions. Thank you very much. You're welcome. Our next question comes from the line of Jan Ihlfeld of Kepler Cheuvreux. Please go ahead. Okay. Thanks for that. Actually, two questions. The first one is regarding your NOI margin. That was surprisingly strong. And I just wonder if there were any one off items in that or what we could expect for the coming quarters, so to say? As far as I remember and see, there are no questions extraordinary in the report. So we believe that this is the new normal. Okay. And my second question regards your property uplift, which you are about 1.8% up. And I just wonder if you could put a little bit flavor on that regarding geographies and also segments in that figure? Well You can say that it comes from a variation of sources, of course. There are some yield drops and we have made good perhaps letting and investments in the buildings we have. We might also have bought some assets at the price which we normally should, which is the price is slightly lower than the valuation. So I think it comes from a variation of sources. You can't say it's just 1.4% or what is said on the whole portfolio. But And we also sold Blackstone portfolio. That's included as well. That's included, yes. Okay. So logistics is a large part of it or No. Just 100? Close to 100, not more. Okay. Okay. Thanks very much for taking my questions. Okay. You're welcome. And there are no further questions at this time. Please go ahead, speakers. Okay. That means that we will finish off. And thank you very much for listening in. And hopefully, you will follow the company what's happened in the Q4. It will be very interesting. So thank you very much and bye. Thank you very much.