Earnings Call: Q3 2021

Oct 19, 2021

This is P. G. Perston from Gothenburg calling in. And Frederic, good evening. Beautiful. Yes. We have a cold day today in Gothenburg, but it's nice weather. And then you can start with Take going one slide, one more slide ahead. This is a summary of what happens without numbers. We made an acquisition Of Nemo in Mandal from NCC, we sold part of Arenal to Port of Gothenburg. We have established our MTN program And launch of Green Finance Framework, 1st green bond also issued, and we won the MSCI Ballant Fund award. That's I will all come back to that. But not the MSI balance, but the other guidance will come back in this presentation. Next slide. Okay. And these are the numbers figures for this quarter. And Fredrik will all come back or me will all come back to those numbers. So I think we will go ahead to the next slide, please. This is I will start with the macro on Gothenburg. We are still in a growth period for The Gothenburg, and so in 2021, we are have a decreasing unemployment. There is a very strong recovery in all the industries in Gothenburg and especially the export industry. And Gothenburg is growing again. And if you look at the trade and next slide, yes, we will do that also. If you look at the trade and industry indicator for Gothenburg, you can see there is a very good situation for the economic. It's more than an economic peak right now in Q2. And we think that this is Sigish for Q2. And we think that we know that in future, we sort of could we have not seen the latest figures follow Q3, but we have talked to the business region, Gothenburg, and they are showing the same numbers for Q3. So please continue. Yes. Next slide, please. If you look at the office market in Gothenburg, we are In fact, we are in the office market and within in the industrial and logistic market. If you look at the office market in Gasselberg, first, We have an increased vacancy in the rental market. We are mainly because of There are relocations from old to new buildings, and many new projects will have been started due to Yes. 2022. Usually, we are usually have around 30,000, 40,000 square meters, a new area in Very good. Every year. And 2022, there will be 170 new square meters. So there's a lot of new square meters out there. The prime rents are very stable, but the rental levels in general are, of course, increasing. And That's because of the new projects. When new projects are done, average rental levels will be higher than the ones in the old buildings. So we are seeing rental levels in general increasing in the new projects. But if you look at the prime office rents, they are pretty stable. And we see also a clear improvement in the electric market. And that's, of course, driven by the new projects that are very much rented out in Gasfelberg, although there are very many of them. If you look at the property market, We have an increased activity 2021 compared to 2019 2020. We have a high volume of indirect acquisitions. And when I talk about indirect acquisitions, I, of course, talk about the when the real estate is not bought directly, but what the companies are buying other companies. We still have a seller's market Situation, both on the office market in Gatomberg and the Industrial and Logistics, I will come to the next slide. And we think that the yield requirement, it's difficult to have we haven't In that many objects for sale, but we see that there is a premium when the companies are bought. But we still think that the deals requirements are stable. If there's somewhere they will probably go, it could be a compression. Yes. We don't want to take that into account. So we are our view is that the yield requirement was payable for the moment. If you look at the industrial and logistics market, we have in the rental market, of course, there's no vacancies. Prime rents are stable. We don't see any increase in rents, although there are no vacancies. We are there is an increased demand, but it's usually there is usually picked up by supply. And we can see compared to the office letting, there is the competition from a more wide geographic area in the rental market in logistics. We are competing in Gothenburg in the office. We are competing with other offices in Gothenburg. But in the industrial and logistics market, we're also competing with other areas in Sweden. And if we look at the property market, there's as in the office market, the sellers market, Even more, I would say, in the industrial and logistics market. And we still see although we didn't think that was possible, we still see yield compression in the industrial and logistics market in in the industrial and logistics market in Gothenburg. Next slide. This is how we Do our business and make sustainable value. We are, in general, a property owner, And that's about 90 plus percent of the properties in Plattsburgh. Then we do transactions and development in order to generate our growth. And that will all gain sustainable value. And we need our competence and our capital to do so. That's the way we can finance our and do our growth. Next slide. This is the area where we are in, the Gothenburg area. And you can see the all Different colors, where will be divided into the different office areas, 3 different office areas. 1, industrial and logistic area and also the green ones are projects. And projects are around 8% to 9% of the property in Plattsburgh. Next slide, please. This is how it's divided into money, fair value. The fair value in Central Gothenburg is 53% As of the 30th September, Northeast Gothenburg, 17% Gulf West, 4 Industrial and Logistics, 17% and project properties, as I said before, around 89% right now, 9% of the total fair value in Plattsa. A total of SEK 24,600,000,000. And how did we then get this growth? Next slide, please. If you look at how the changes in market value has been In 2021, you can see that we have invested SEK 655,000,000 in existing properties. We made property acquisition for SEK 900,000,000 and that's and we have sold for SEK 300,000,000 and change in value of SEK 750,000,000 That would go Take us around SEK 2,000,000,000 up from the start of the year to right where we are right now. Yes. And if you break down the change in value 2 thirds, so it's made by ourselves By renting, letting out and our property development and 1 third is from yield compression in our portfolio. So we are about SEK 25,000,000,000 in value by the end of September. Yes. And here you can see how we have been growing the last couple of years. We are growing by SEK 2,000,000,000 to SEK 2,500,000,000 to SEK 50,000,000,000 every year. And usually, mainly by offices. It's been more from offices than industrial logistics in the future or in the past, excuse me. Next slide. I will hand over to you, Frederic. Yes. I'm on the slide Contract structure numbers. The rental income about SEK 1,200,000,000. And the largest tenants is in it's 9% of our rental value right now. After we The acquisition of Medicina, Bariet, and we got that in our books. We will be about 1 fourth from public sector in our rental income. And we have a continued growth when you look at year on year Between 2016 2017, that's when we bought the big portfolio from Volvo real estate. So that's the increase and then we made an emission of our share as well. Economic occupancy right now is about 91%. I will get back to the details behind that to slide starter on. Next slide, please. We have a decrease in our rental income in comparable properties, and that's mainly due to 2 large properties in Gullbersvlatz, which we have emptied and we're now doing 2 major renovation there on 2 property development projects. And the increase is mainly due to Gora Westa, the tenants that are moving in and the transactions that were made In we have the hotel property that we had in our books from Q4 2020. And then we have part of the Mendocino Valley transaction that we have in our book since June of Turkey. The second part, we haven't in our books yet. Next slide, please. We have an Increase in our rental income, we had an all time high in the isolated quarter as well In rental income as well as in operating surplus. And for the period, we have declined SEK 95,000,000 in operating surplus. Next slide, please. One positive thing about Q3 and definitely if you take it if you compare it with Q3 2020, we have positive net letting. We have a negative 1 in 2020. And We have some termination in our investment properties, but mainly that this Tenants as well that are moving within our own properties and our new properties, the project properties. So we have a positive net left. Thanks. For the period, we have SEK 12,000,000 and for the quarter, we have about SEK 8,000,000. Next slide please. Our key figures, We have a solid growth. We have a solid and stable financial figures. Our loan to value is 49%. If you look at The net LTV, we are about 47,000,000, 47.4 percent to be exact. And we are Managing to create our own growth without adding any equity. And we are ongoing. Our lettable area by Q3 is 815,000 square meters not taking into account our joint venture. And we can go to next slide. Our creative solid growth Over the years has by that we have produced a solid increase in our EPRA, NRE. We have a 14% increase right now. We are at SEK 105 Swedish kronor share by September 30. And it's a solid pace and we have no plan on doing otherwise. And we go to the next slide, please. I'll talk a little bit about the sustainability, which we are warm and hot. 92% of our Properties are environmentally certified. And that's when they're doing acquisition, it's And pretty common that they are not rectified. So we see where we will land by the end of this year. But we have made a large green package this year to get an uplift in our existing certifications and make some certifications in properties that have hasn't had any certification earlier. We have increased our green financing to 66%. So if you go to next slide, You will see the green financing broken down in parts Where to see where it comes from. We got 44% from Green Bank loans and 22% in green bond. That's bonds in our own name and bonds through Yes. And you can go to the next slide please. In June this year, we got our rating from NCR, Good for us. And it's received to our investors that we are a solid competitor to invest in. You can go to next slide, please. Leaning back on that rating, we made our first issue in September, Follow-up by the second one. So we made emissions of 2 green bonds in our own name. We made the first one with SEK 600,000,000 for and a duration of 4 years And the other one, SEK 300,000,000 for 5 years. This is in our own name and we will be recurring this year. And we are aiming for about SEK 1,500,000,000 per year And as we speak now and going forward. You can take the next slide, please. I will hand over to Piyi and he will take us through the acquisitions and the targets. Yes. And I'm really sorry for the lagging. We have a lagging around 5, 6, 7 seconds on every slide. So I hope it's only us. Yes, I hope it's only us. If we go to the acquisitions we made, we've already had this on the last financial hearing. But The recognition when we get the property in our own books There's always a little bit delay. And so the one to the left, the Odon Pellegen, we already have in our books since the 30th June. And the other months will not be in our books until Q4. So that's the thing I want to say in the slide we already talked about this acquisition. So please click the next slide. This is a new acquisition we've done in Q3 and we will not be The access will not be until the second half in twenty twenty four. It's Nemo, the main project or the main office building in Mandal in the future. And this will be the profile building in Mandal. And of course, Mandal is a junction point where we very much would like to be in. So This is a perfect project for Plattsburgh. We will be the number one property owner in the best location in Mondal. And we can grow from that building even more in the future. So the area in Nemo is 32,000 square meters and the NCC So it has a pre left on 30% right now. We hope that there will be up to 100% in the second half of twenty twenty four. Next slide. We also divested part of Arendal, the one the part that is water And the land, which we are not using as much ourselves. And the harbor is the neighbor of auto. And we will think that during this transaction or divestment will let us We'll give a better market situation for the whole Lalendal area. We can do much more close collaboration with the harbor. And our tenants will also have a better situation being not being in right next to the harbor. So we think it's a really good divestment and it's really good for both us and the harbor. The estimation will take place when the surveying service has gained legal force. So it's not in the books yet, probably in Q4, maybe in Q1 2022. Next slide, please. And some of our projects, which are now soon to be due, the Golar Vesta project will be completed in Q4 And a little bit into Q1 2022, we have today an occupancy rate of 98%. We have 500 square meters left to ramp up. So the area of 27,000 square meters is The only thing we have left to ramp up is 500 square meters office. And I think that we will do that in hopefully in the next quarter, in Q4. Next slide, please. Thank you, Neurom. It's also coming up now. It looks like on the slide, We have created a new area. We are it's a very successful project. Now we have the new areas, 43,500 square meters, where we have created more new area. This, of course, will not be completed until Q4 2022, but we have an occupancy right now of 80%. And We have done some letting out after the period was also over. So it is The occupancy rate right now is even better than 80% levels in 30th September. So it's a really good project and we get a lot of Nice shares words from this project from both our both people in the industry, but also from people on the street. So it's a really nice project to work with. And this is, of course, a complementary with the NCC. So 50% is Kratzer, 50% is NCC. And then when the project is finished, we are buying 50% of the NCS share. Next slide please. The new one, the new project, well, this is a reason why we have a negative situation on the rental income Because we have emptied this building, not all the way emptied, but a large part of it. And now we are working on the next That of this property, which we call area, Oria, is close to the Opera. That's why the name is Really nice, I think. We have an occupancy rate of 46% in the September 30. But we are now starting to let this drilling out. So there will be hopefully Other numbers in the next couple of quarters. Next slide, please. And McLeough It's also a project that we are completing in 2021, maybe to in the beginning of 2022. We're not as successful in letting out here because here we have some restaurant in the bottom of the building that is We have to work with. So the occupancy rate now is 62%. And this is the new part of the Merkur building. We also have an old park, which is 5,000 square meters well. And that's those buildings are built next to each other. So this will that will be the next step to do is to start a property development of the whole building or the whole area, the whole property. Next slide, please. We also work a lot with the Nordic Strategic Park projects, which are with Bockercar. And now we are done we are doing the groundworks, and we're not ready yet with the groundworks. But we are having a lot of discussions with potential tenant. So hopefully, we can give you some more information and some letting out in Q4 or in Q1 2022. Next slide please. This is one we have done. This is the Roeland 31 to Slander where we have rented out Entex and the Projects is underway and we are not going soon to we have cut down all the trees. So that's how we have started a project. So there's no trees on that property right now. And also the next project next slide please. The next project we are doing with VCC, which is also The same property is a large property. So we have there will be 3 buildings in the future. We have one existing building, which are rental out to DOL. And Volvo, of course, the one the Volvo is also planning to do a lot of developing on the other side Of the test they have a test street, I don't know what's called test street, test street, test of the arena. The arena On the other side, I mean, they are now trying to get the next step in battery. So there's another thing happening around that area where the factory also is. Next slide, please. And of course, last but not least, why should you invest in Plattberg? Of course, you invest in Gothenburg. We have focused on commercial properties in the Gulf of Mexico region. We are the largest of the commercial companies right now in the region. Gothenburg is being transformed and undergoing rapid growth. As We have talked about the automotive industry, but it's also a lot of things happening in the life science cluster around the Medicinal Baggett, Sargenska and also around Gopco in Mandan and AstraZeneca. We have a clear model for value creating growth. We are creating our own growth. Although we have some help right now from yield compression, We will probably not have that in for the whole life of property ownership. And we are good at creating our own value. We have an extensive portfolio of development projects, and some of it is in your report. And are also working with the next development projects in Bratso where we probably can present a little bit more about that 2022 in the reports. And we are, of course, a real And engagement with the social responsibility initiative. That, of course, is really important for us being a large part of the region development and development of the region. So it's very important for us to be a social active social part of customer growth in that case as well. I will stop there, I think if you can click the next slide. Me and Frederik will stop there and give you some time to come with your questions. Thank you. Ladies and gentlemen, we're now ready to take your questions. Our first question comes from the line of Markus Hamrajsen from ABG. Please go ahead. Hello, Pige and Fredrik. A few questions from me. Right now, it's a lot of moving parts in Plattsa. Could you broadly take us through what will happen here in Q4 regarding Gorda Vesta sale and the Mercure project And the effects we will see in the P and L with rental income and joint ventures on a broad level? The acquisition or divestment of BordaWesta will happen in Q 1 2022. So that will not be in Q4 2021. The Mercure project is We'll be a JV even in the next part. So we will not buy anything from BBS now. They will not buy our share in that project. So we will jointly own that building together even in the future. So that will be nothing will Happened more than that, we will try to work harder as in renting out that building together with the Gerta. Okay. So Gurde Wistda contribute almost fully in Q4? Yes. So we'll contribute fully in Q4 in the books. Okay. Then regarding Merkur, how is this showings going. It's leased out to Foshmanen and Bud and Fosh. But how is it going for the rest? I mean, we are There are interests in the building. And we are trying to there's The office part of the 40 no, 38%, I think around 20% is offices and the other one is restaurants. And it's been more difficult to rent out the restaurants in the COVID-nineteen. But I think it's getting better now. And the office, we are working hard on to let out the offices. Okay. But we don't We don't have anything that was in the 30th September signed. Got it. And when will Forsman and Boenen Forsman move in to the property? Now in Q4. Okay. Going forward to Q1 or maybe already in Q4, are you going to split up The joint venture line in the P and L, so we can see what is value changes and what is income from Property Management. Yes. We will do that. We will say that in next year, we have more JVs than ever. And then we will do We will split the report. We are starting to split the report. We did some split in the earnings capacity this quarter, And we will do that even more in the maybe already in the Q4, but definitely in next year's reports. Okay, great. And then regarding SODA Engorden, you're right that you expect a decision in the autumn. And now we are in mid late October. Anything new to share as of? Yes. They gave the environmental they gave PORGM, which is the great the one that are appealing, They gave them until the 13th October to have the next saying. So we're waiting for they have done that. And now we're waiting for the court to make the next move. But we haven't heard anything since the 13th October. Okay. What's your best guess at the moment? Our guess is always that They will not grant the appeal. Yes. I was more thinking about timing. Timing. Maybe Q4 or Q1 2022? Okay. Thank you. The court has been pretty fast in deciding. Once they got all here And heard from the parts, they've been pretty fast making decisions. So But they have given the parties very long time to make the appeals. So Hopefully, now when they can start working, they will do the work pretty quickly. Got it. Last question. You mentioned that you have some ongoing discussions in logistics. If we look at The table with possible development projects, what's your view on future projects? But which one are closest in time or where you have the best, yes, ceilings for Polystylf. Slide 4 is our logistics projects. Next step for the office is Gulbeschwast, down by the Yes. By far, the SORED projects are really close now. We are working very hard on renting out. And the next step for the office is that we are to buy the building right from the municipality under the bridge. The new bridge is finished and the old bridge It's torn down. But it's not done yet. But so now we are using our option to buy the land under the bridge. And that will be the next step in our office portfolio on project wise. The building, right, in CBD? Yes, it's CBD. And the next question comes from the line of Elvind Sander from Kepler Cheuvreux. I had just some Questions, even though I know it's not your formal guidance, but you help us a little bit with the earnings capacity. And when it comes to the comments about basically tenants leaving, You say there that after October 1, there is a total of SEK 47,000,000 That you will lose. Is that by the very start of Q4 or can it be spread out over time? It can be spread out over time, yes. It's not by the new start of Q2. Yes. And just on curiosity, For the new build projects, it does not mean that our tenants that have signed it first and then they decided to leave before the Building is finished? No. No? Yes. I see your question. And I don't have a good answer on why it looks That is I think one of them is quarter 2016, 2017, then we have a fixing building right next to the new building. So we have one tenant in the old building of Kineum that's 2063,000,000 to 1,000,000. And I think that one is around 8 The SEK 9,000,000. So that will probably be one of them on SEK 15,000,000. Okay. That's good. And then the other one is Just more if I take the total sum, I just compare this with Q2. We've gotten used to seeing a certain kind of increase. Now it was actually a small decrease. What's the reason for that? That's because of the divestment of each lender. Yes. Okay. Sorry to answer. Yes. We didn't have the Medicina buy was delayed. We were hoping to get the Medicina The 2 additional properties from Edusinnabate into Q3, but we didn't get it until Q4 because So the lump method is very good. Okay. So it's more of, Let's say M and A related rather than a like for like reason, I guess. And then also now another quarter after COVID and so on, the impact Offices, specifically in Gothenburg, what's your take on the market development here But you saw maybe off the summer and what's your expectations heading into next year? I think it's very positive right now. We think it is very good situation right now, especially on the new projects. We have a really good situation in the near and for instance. And so it's I think I'm very positive. I think it's my view is that it's more positive. But of course, I mean, that's our job to say that it's everything is fine. But I really think that there is a good The offset renting out and so but Darren, as I said before, there are very many new projects in Gothenburg coming up. But of course, that will have effect in the market. Yes. I guess that was part of my question. It's good that you pointed that out, Pega. But I don't think you're obvious to say that you're always positive. I think you should say what you see in the market, which I think you normally do very well. But anyhow, so that supply, is that do you think there is good enough demand? Or should that Hit rent profile in the Gathenburg office market? I think you've I'm not going to say that we don't we can't see any more increase in the base that we're lacking. We've seen much of it, right, already because you have a delay in we are making renting out. And then Like we are we have the terminations that have been done because of they are moving into our new project. So I think Some tenants are moving into the new project. I mean, at Wartsakuren and in Platin, they have 91% now. And it's not all kind of have another, of course, in the pivot. So you will have an effect of that. The vacancies are increasing because there are more supply or more square meters coming out. And in your own kind of renegotiations with tenants in the offices, I'm thinking of them, What's your feel now when they've come back off the summer and have had some time further to digest, let's say, The plans after COVID, is there do you feel there's a pressure on the space required or is it the same? You are very different between different tenants. Some tenants want more space. Some tenants want less space. I think I would say, but I'm not that you just caught me on this one, Albin. But I would say that The tenants in Gatstburg are not in the same sense. If they're really large tenants in Stockholm, doing down prices To new locations, they have the same type of key figures left before the pandemic. It's like Around 15, 12,000,000 per car per person. Okay. That's all for me. Thank you very much. Thank you. Thank you. As there are no further questions, I will hand it back The speakers for closing remarks. Well, thank you very much. I'm sorry for we had very much of a lag here. So we were a little bit in the beginning, Frederic, because we didn't know if you saw the slides. So hopefully, you had a better situation than we had. So Thank you for listening and hope you have all have a good day. Thank you very much.