Welcome to the Platzer Q2 Conference Call. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the Conference over to the speakers. CEO, P-G Persson, and CFO, Fredrik Sjudin, please go ahead.
We welcome everybody to Platzer's Q2 presentation for 2023. My name is Fredrik Sjudin, the CFO. I will now hand over to our CEO, P-G Persson.
Hello, and welcome, everybody. I'm P-G Persson, the CEO. This is my last report, I will come into that later in the presentation. I will go through with Fredrik, our key numbers for the 2Q in 2023. I will start with some of the events. In Q2, we had acquisition of three properties in Sörred Logistikpark, which is our JV, our own JV. We also got a affirmed BBB- investment-grade credit rating with stable outlook. We made a sustainable linked bank loan. Fredrik will come into that a little bit later in the presentation.
We also see a really good net letting, especially in the office segment in Platzer, which was one of the major ones, was one in 3,800 square meters in Lilla Bommen. If we look at the numbers, summary in January, June, the first half, we have increased rental income. We have increased operating surplus, but decreased income from management, of course, due to the interest levels. Unrealized change in values of property was negative, SEK -620, which is, of course, because of the yield decompression. The result for the pro period was negative instead of positive last year.
We have a value change of increasing because of the investments and also the acquisitions. If we look at the economic activity in Gothenburg, it was slightly better than we expected. We still see low unemployment figures. The inflation is somewhat a little bit decreasing, and also we see the GMP growth is slightly better than we reported in the Q1. This was a little bit unexpected for us. We have also talked to some of our major tenants about it, and the picture is that the market situation is slightly better than many people think it is. This was, which is also shown in those figures.
We don't know. We haven't got the Q2 figures yet. We will see after the summers, where the economic activity in Gothenburg is headed. What we should say is that, Although it's positive, it's still not normal economic situation, for the normal economic situation is around 100. It's still somewhat tough out there. If we look at our market situation for our property, we are. If we start with the property markets, we can see in the office sector that the prime yields are still slowly increasing, and it's driven by the sentiment and increasing policy rates rather than implemented transactions. We have no major transactions in Gothenburg in Q2 and not in Q1 as well. Of course, there is uncertainty going forward on the magnitude of the yield compression.
There's a situation on property market where most market operators are waiting for a less uncertain environment in general, and especially where the policy rate is heading. If we look at the rental market, even though the vacancies are on a high level, it's stable, and we had the rents went up with the CPI. We don't see any decrease in rents, but we don't expect so much, so many further increase in 2023. If this CPI is flat from now until October, we will have an increase of 4.5%, but we, in the, in the valuation, we have calculated on 6%.
We also see from a record year, 2022, when we had a lot of projects, 270,000 sq m, we now see a more normal or low volume of office projects in the coming three years from now and to 2025, around 30,000-40,000 sq m, which is more normal in Gothenburg. It was a very high office project due in 2022. We still see a good demand, which we also can see in the net letting for office, that we still have a good demand on the rental market in Gothenburg. If we look at the industrial and logistic market, and I start with the property market, we can still see that the prime is slowly increasing.
I think I said last quarter that there was a increasing prime yield. We now see that it's slowing down. There are more transactions on the logistics market in Sweden, still few in the Gothenburg region. There's still some uncertainty going forward on the magnitude of the deal compression in the industrial and logistics markets as well. More implemented transactions makes the market situation more confident. We have seen a slightly slowing down the yield, the yield decompression is slightly slowing down. If we look at the renter market, we still have very low vacancies. Prime rents are stable, not increasing as much.
For us, being in Gothenburg, we still have a good demand from e-commerce, from tenants looking for a product development close to the Volvo plants, and also close to the harbor. We can also see there is a little bit more hesitance in and longer processes from tenants renting. The net letting in the industrial logistics is slightly weaker for us right now in the first half of 2023 than in the office segment. These are our locations, and this is not new for the people that follow us.
We have 75 properties in selected focus locations in Gothenburg, where you can see, of course, that the red dots are the offices in central Gothenburg, and the gray and black dots are in outside the, to the west, and that's our industrial and logistics. We also have some residential building rights still that we had parts. Most of them we have sold, but they're not being converted. We still have them. We have signed the contracts, but we still have them in our books, so that's the green dot. If we look at our earnings capacity, we had a record high earnings capacity.
It's up to operating surplus is now up to SEK 1.28 billion. That's a record high earnings capacity. That's of course, due to the transaction, the acquisition we made, but also that we are now seeing the, our projects being finished and the result and the letting out is coming into the books. Of course, if I look since 2013, and map the quarter that we did the earnings capacity chart and look 12 months later, you can see that it's almost, it's very correlated between what we say we are going to be and what we have in fact are coming, the coming also in 12 months later.
Hopefully, this operating surplus will show up in the books in Q2 through 2024, hopefully in rolling twelve. The investment properties is now a major, more major part of Platzer than we've had before. Usually, the project property stands for around 1-10% of the portfolio, and now it's 4%, and that's also because of the situation on the market. I think we will keep it around that for the moment. I think it's a good ratio, around 5%, 4% or 5% of the fair value is the project.
We also have the same ratio in the associates now, since we have finished our logistic park projects, two of them. There are two, three of them, and there are two more to go. I think that's a good ratio right now, looking at the situation on the market for Platzer. Our value creation, we haven't changed anything in how we work. We are working with the letting and property management. We are working with our property transactions, and we're also working with the project and development project.
Everything is dependent on our capital and employees, of course, and we are working on all the time to create sustainable value for all our interests in Platzer, the shareholders, the customers, the employees, and the municipality and everybody that is around us. If we look at the numbers on the value creation, you can see there's a difference between 2023 and 2022, where we sold a lot in 2022, and that's also the reason why we can do the acquisitions. This year, we have very strong numbers on key figures on, you know, finance.
You can also see that, there's a major change in changes in value, where we have positive changes in value 2022 at the same time, and now we have negative changes in value. Still, if you look in the long term, this is how I think you all property companies with a long-term strategy should look, where you can see that the market value is continuing to grow. I mean, we can't decide how the market situation will be. We can work in all types of market situation. I think this chart shows that Platzer is a company which can work in all types of market situation.
That's one of the things that I'm very proud of, being the CEO since 2013, when we got listed. I will hand over to you, Fredrik, to talk them through some more numbers.
Thank you very much, PG. I will just comment on the previous slide as well. As you see, the office segment in value, that's where we have the large decrease in value in Q2. You see the share of industrial and logistics are increasing, and that's due to the acquisition we made with Sörred Logistikpark in 30th of June. Rental income, we have a steady pace of increase if you look at the whole period, 2023 up until now. We are up at SEK 679 million in the comparable properties. The main increase, if we compare the periods, it's due to Kineum project in Gårda. That's the main contributor. We are really happy with the occupancy rates.
That's kind of a receipt that we are making good progress in hesitant markets. Income statement. If you look at the isolated quarter for rental income, if you look at Q1 compared to Q2, you see a decrease, and that's mainly due to the support in the energy support for electricity. We have a decrease of SEK 10 million in the isolated quarter, but we have an increase in the contribution in costs with SEK 50 million. The net there is +SEK 5, but that's the deviation, if you compare isolated quarter to the previous quarter this year. We have a growing operating surplus, that means we are making good progress in our operations, I would say.
Change in value, as PG commented, SEK 0.6 billion for... That's in Q2. We had no net zero changes in Q1, but we had it, the effect is in the second quarter for 2023. Positive net lettings. We were into that as well. We made some progress in industrial and logistics, but if you look at that isolated, it's negative, and we have good progress in our office lettings. The net, previous quarter, we were at SEK 26 million, I think, and now we are at SEK 30 for the accumulated period of this year.
We have not made so much lettings in project properties, that if you look at the decrease in possibilities there as well, if you have only 4% in projects, that will naturally go down. Key figures. One of the main focuses now for every property company or every debt dependent company is the interest coverage ratio. If you look at the rolling 12 months, we are at 2.7. If you look at the isolated quarter, it's 2.4, you always measure this by four quarters, so that's important to take note of.
Due to the increasing rates, interest rates, this will go down as long as we can't keep up the good work in operating income to give more support. We hope. We have a, if you look at the Sveriges Riksbank, we are closing the top levels. We are to the peak levels, I would say. With our strong ratios, our strong balance sheet, and our strong earnings capacity, we will meet this and have good pace going forward, I would say. We have a good running yield. It's about 3.9% now, if you look at that in a whole. Decrease in EPRA NRV, it's mainly due to the property values decrease.
We also had a reporting error due to our IFRS reporting. We have reported two high numbers in profit from associates. We have updated this retroactively in the report to give the best view, to give a good view of what it should have looked like. If you look at the isolated effect per share in the quarter is about SEK 1.4 per share negatively. Net asset value compared to share price over time. Over time, they seem to correlate that we have a large deviation now.
It's not unique for Platzer, it happens to all of us right now, but over time, we will see this tool will have a tightening spread, I would say, so it's a big discount. In our sustainability work, we are keeping up the progress in that sector. We are committing more of our financing through our sustainability work and linking that to our operations, and we have made a sustainability-linked loan agreement with Handelsbanken in this quarter. That is directly connected to both energy efficiency, but also the social responsibility to contribute to the employment market and contributing to getting people into work.
If you follow Platzer, you saw a higher number in our certified properties in our certified buildings last quarter, but that's due to we are awaiting certification on the portfolio that we acquired from our joint venture. This will go up as soon that is in place. We are still working on our 100% target there. This is a pie chart, of course, over how our sustainability financing are looking right now, and we have a new slice from this period going forward, and that's the sustainability-linked bank loans. It's at SEK 850 million at the moment, and this will have some changes.
It's a revolving credit facility, is one of the loans there, so this will tend to vary it over time. Our loan maturities, it's always, it's in the scope of interest. If you look at the gray areas in this chart, in the short term, that's our commercial papers, so they will always be short, but we are refinancing our commercial paper program at the levels that we are at, and that's SEK 325 million. We will, of course, look forward to increase that, but we are making good progress in the refinancing and are happy with that for now. If you look at the 15, 20 months, that's our first bond maturity in our own name.
It's a bit ahead, but we have good possibilities to refinance this in bank funding, as well as the upcoming bonds in the 18 months' time. There are 2 split into bonds. One is with SFF, and the other one is in our own name as well. We have a good plan to refinance this, and if the capital market isn't to where we want it to be, we will finance ourselves in the bank market. With that, I turn over to you, P-G, and we look at our projects.
Yes, I will lead you into some of our major projects underway. We all have about 340 square meters in potential development projects, which we are working on all the time, but I will not go through those. Those are in page 10 in the report. These are the ones that we are having our office business area in Lilla Bommen, which is an office refurbished project. It's due in Q3, so it's soon to be due. We are now at 66% occupancy rate, so this will be finished, then we will take the ones we rent out. We will finish also.
Hopefully, we will get 100% occupancy rate in maybe 2024. This, we are working on renting out area. Also the same with Merkur, Skeppsbron, where we are doing, you know, associates with Bygg-Göta. We're doing refurbishment of the old part of it. The new part was built and finished 2021, this is the old part. Now we are doing that and modernizing the old part of it. It'll be a completely new total investment property of 10,000 square meters once it's finished. The old part is 64%, economic occupancy rate.
The new, also from the school, the English school in Södra Änggården, now we can see that things are happening over there. The picture to the right down is, how it's going to look when it's finished, and up to the right is how it looks today when we are building it. It's due to the school start in fall 2024. We also now showing some of our major projects underway in the next step of the industrial and logistics. We have finished 97,000 square meters, so those are not in the report. It's in the transaction, but not in the report, because they are investment properties right now.
We are working on the phase one and phase two at Södra 31. The phase one is 100% fully let to Amplex, and phase two is 59% to Vault. We're also working on our new project, V4, in the logistic park, which is not yet rented out. The new one also is Södra 243, where we have a secret tenant, so we can't report anything more than we have started the project. It's 100%. It will be 100% fully let.
Of course, last but not least, the acquisition we made from the JV, our own JV, where we're 50% owner, was 3 properties in prime logistic location, 90,000 each square meters, occupancy rate 100%, and the market value was around SEK 1.5 billion, which is around 4.5% initial yield. Good tenants, good year Vault, and it's a really best location, prime location of logistics in Gothenburg. We're really happy that we could go through with that agreement, which we made with the Bockasjö. Now we are continuing to develop 2 more properties, which will be very interesting now when Catena has bought Bockasjö.
We will do that in, together with Catena, once they take over Bockasjö in the 1st of October. I don't think it will affect so much because it's the same people working on Bockasjö will be the ones that are working with the On Catena side. That's really good. Of course, always, I said I was proud on that we can do the same things long-term in Platzer that we have been doing, although the market situation will vary through the years. I think this is how Platzer has been what Platzer has been doing during my time. This is my 39 Q2 report, and the last one.
I've said to all my colleagues here on Platzer, and I will say to you that it's, of course, a very large step for me as a person, but a very small step for Platzer. I mean, this company will continue to do the work and on the market, and one CEO doesn't make that much of a difference. Johanna, the new CEO of Platzer, will also do a great job with all the colleagues here. Thank you, everybody, for being supportive during the year.
It's been a really pleasure to have be the CEO in Platzer, and, I mean, it's not always been easy, but mostly it's been a really nice journey for me as a person and for my development in my working life. Thank you, everybody, and I will stop here, I think. Fredrik, do you have anything?
No, it's, your thirty-ninth quarterly.
Quarterly, yeah.
Not Q2.
No, sorry. Sorry.
Time flies.
I haven't done 39 Q2.
No. We will with that open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Lars Norrby from SEB. Please go ahead.
Thank you. Hello. I have a couple of questions on the earnings capacity, and then a question or two about financial. Starting with the earnings capacity. As you point out, you showed a pretty big change in terms of rental income and NOI in the earnings capacity compared to the previous quarter. Partly of that is, of course, acquired growth. If I remember correctly, the acquisition of the three logistics properties inside the logistics park was in the magnitude of a rental value of SEK 68 million. Can you break down the rest of the change there? Please.
The rest of the change is, of course, net letting in Q1 and Q2, and also, projects that are being... I mean, once we sign a contract, it's not gonna be in the earnings capacity until it's 6 months before the project is finished. A lot of projects are now in that time space. If you look at page seven, Lars, in the report, you can see down to the left, we have leases for occupancy of January 2024. That one, that number was greater than before. Now, much of those projects or those lease contracts are now in the earnings capacity. I would say that that's the main part, Fredrik, which combined with net lettings.
Okay, very good. Obviously, operations are showing good growth, strong growth. In your earnings capacity, you don't show it's further down in the P&L, I mean, after financial costs. If you would, looking at profit and property management, how would that have looked like, at the end of June compared to the end of, March on that level, profit from property management?
Yes.
Up, down, up, how much, roughly?
We're not forecasting the. I mean, we are forecasting because we are doing business plans, three-year business plan. We're not forecasting the financial costs in the report. I think you could have an answer on that, Fredrik. I'm not sure.
No, we will just keep it at the, if you look at the short-term interest rate, and you look at our rate hedging. If we don't increase debt, it's about 50% of that increase that will come into our books. We have give or take the refinance, again, if we get different deals there. On the net, it's mainly due to the volatility in the short-term interest rate, the 3 months rate. That's the best prognosis for cost we give.
Yes.
Okay. Then just a couple of questions about CapEx and interest bearing debt, LTV. I mean, you have rising LTV, rising net debt, I guess, for a good reason, because your big acquisition. CapEx, pretty much unchanged in the first half. If you look at the full year, 2023, or for that matter, 2024, what are you expecting in terms of CapEx?
I think I mean, now we have around SEK 350 in Q1 and SEK 350 around in Q2. I think that we'll see a little bit decrease. It's easy for me to say being, not being,
Responsible.
I don't have to be responsible. We can see now that we are not starting that as we don't have the pace. We don't have the same pace in starting new projects that we had in the last two or three years. I think that you will see. I think you can expect a decrease from today's numbers.
Yeah, yeah. If you, we, without forecast there as well, if you look at the share of the, in project properties in our fair value, that is decreasing. We are not letting out so much for projects. The pace will go down.
Yes.
Okay, final question regarding ICR. You were at 2.7, now rolling 12 months, I believe down from 3.2 at the end of Q1. If you have a target of it, that should be at least 2. Do you feel confident of that you will be above two?
Yes.
If so, how close in the coming 3 years?
I said in the, my CEO, last, I said, "We will not be under 2.2," but I know, I don't know if,
No, that's perfect to put in the CEO word, but I will probably underwrite on that. We have a financial target of 2.0, and we will definitely do our best to keep well above that. You can read it in the CEO letter, and we will see what Johanna will be writing going forward.
Okay, thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Markus Henriksson from ABG Sundal Collier. Please go ahead.
Thank you very much. Good morning, Fredrik and PG. A few questions from me.
Hello, Marcus.
You mentioned that you see a positive one-off on NOI of around SEK 5 million. If I adjust the top line and NOI, it looks like the NOI margin is around 76.1%, down from 77.2% last year in Q2. I just want to know a little bit more what drove the decrease in margin. Why do we see higher property costs adjusted for the one-off, and should we expect similar development going forward?
Where is it in the report, Markus, so we can look at?
As Fredrik mentioned before, that you had a negative one-off of SEK 10 million on top line, plus SEK 15, and plus SEK 5 on NOI in total.
Yes
From some electricity support. I just adjusted, it looks like underlying margin is down.
The main drivers in the cost is if you compare year-over-year, it's Gårda, it's Kineum, that will be occupant. Then it's where we don't have in our agreements, when we don't have coverage for electricity costs, that will affect our margin, of course. We have a few of those properties that will be directly affecting the NOI.
Okay. Yeah, because it's going, if you look at the Q1 development, we saw a positive increase, and I would expect the CPI to positively affect the NOI margin. The way I interpret it is that this development is likely to continue going forward, if we see the similar electricity prices.
I'm sorry, Markus, but I didn't really get the question. I didn't really get the answer from Fredrik. Can we come back on this one to you?
Yes, we can do that. We can move forward.
I think we should. Yeah.
Yes. If we adjust for the electricity support, we have a rental income of SEK 351 in Q2. Your earnings capacity state SEK 398 per quarter. If I divide SEK 1,593, the rental income in the earnings capacity, that's a historically large gap, SEK 398 versus SEK 351. First question is: How much do you expect the logistics acquisition from Bockasjö to contribute in Q3? Could you help us in any other way, how close we will come to the SEK 398 already in Q3? Any other large drivers?
Say one more time, Markus.
Yeah. In the earnings capacity, you state a rental income of SEK 1,593 million in Q2.
Yes, yes.
If I divide that, we have SEK 398 per quarter, and you reported rental income of SEK 341, and if I adjust for electricity, it was SEK 351. You mentioned SEK 10 million. That gap, SEK 398 versus SEK 351, I expect one driver to be the logistic acquisition of Bockasjö. Any other large driver, how much do we expect from the logistics in Bockasjö? Do we have full impact in Q3? Are they already fully moved in?
No, no. No, you don't have full impact on any lease contract today. It's always a little bit in the beginning, so you can't expect full impact.
Okay. Any, any other help we can get there? I expect it to be rental discounts then. How long, is it three months or six months, or how long?
It's different, it difference between the different lease contracts.
Okay.
Yeah. It's, it's, we have one lease. One is with Schenker. That one is a longer discount than other one. We haven't communicated that to the market, we can try to serve you with those numbers, but I don't have it in my head.
No? Okay. Moving on the JV line, you reported SEK 6 million in Q2 in income from property management and SEK 7 million in Q1. The way I look at it, you should have had some more contribution from logistic tenants moving in the Bockasjö properties. Any explanation for the decline here? Do you expect
Yeah.
Major part from that is Gårda Vesta, the office building. The reason is that we have higher finance costs. The net will be lower.
Thank you. You had some contribution from the logistics here in Q2. All else equal, run rate is below SEK 6 million if we don't see more net moving in the properties.
Yes. I mean, Now, when we have bought the JV, we will only have, I would say, a contribution for Gårda Vesta. It's not much contribution from JV anymore. The Gårda Vesta and some from the Q, but, so that I would say rather six than seven in the Q3.
Thank you. You mentioned that you restated the result from JV. Could you explain a bit to us what the restatement is about?
Yeah, it's a mistake made in the when we do the IFRS reporting between the cash flow and the value changes. This is a balance sheet that is, it's not in the legal reporting for the relevant parties, and it's not in the consolidated balance sheet or a profit and loss for us. It's in between, and in that in between, we haven't had a good measurement to keep if you do the.
Of stemming.
If you, if you measure this, that where it should be. This has been some kind of a leakage in the system, but we have now closed the circuit, closed the loop, so this will not be able to happen again. It's been an unfortunate mistake that started really some, well, five years ago in the model that was set up then in the reporting. It became clear now, and we have down to the singular decimal where we should do the adjustments to make it right retroactively. It's an unfortunate mistake in the model for IFRS reporting.
Thank you. The difference is the NAV decline. You mentioned SEK 133 versus SEK 131.7. That's the total.
Yeah
restatement.
Yeah, for this period. We will do this retroactively. Now, we did it in the Q2 report, back to Q3 of 2021. In the full year, we will make the right adjustments back to 2018, where it started. If there is a significant number, it has been a success. It's been increasing slowly over the years with the same pace as the investments, you could say.
Perfect. Very clear. Last question. We note that Newsec have a prime yield of 4.75% in Q2 in Gothenburg. How do you think we should view the acquired properties from Bockasjö? The way I calculate it's a net initial yield of 4.4%. Any comment there?
Yes, yield is 4.5. My comment is that you have to look at the rent and what the price per square meter is. If you compare the price per square meter and the rent to other types, that looks the same, then you will see that this is a good price on the total acquisition. And also, if you read the Newsec report a little bit more closely, you can see that they have stated that there are some prime yield locations that could go under 4.75. We have had external valuations on that one as well. That's my, that's the.
Very clear. Thank you, Fredrik and PG. Good luck in the future, PG. Thank you for taking all the questions over the year. Good luck.
Thank you, Marcus. Thank you.
Thank you, Marcus.
There are no more questions at this time, so I hand the Conference back to the speakers for any closing comments.
We do not have any written questions that has come in. We will sum this up with thanking all of the participants, and we look forward to Q3 report. We will have a new team to answer the questions and present Platzer, and I will now hand over to PG for last words.
Yes, thank you very much, everybody, and bye from me.