Earnings Call: Q2 2021

Jul 6, 2021

Quarterly report

Ladies and gentlemen, welcome to the Plattsburgh Tiger Audiocast with Telecom Conference Q2 2021. For the first part of the call, all participants will be in a listen only mode. Afterwards, there will be a question and answer session. Today, I am pleased to present CEO, P. G. Person and CFO, P. G. Kuoem. Please begin. Hello, everybody. This is PG Persson calling from Gothenburg. I'm the CEO at Klapsell. And with me, I have Fredrik Kourin, CFO. Yes. And we're happy to have you all listening to us to do our presentation of our Q2 interim report, which we think is a really good one and there's a lot of things that's been happening in the Q2 report. And we will do it in 2 sections. One section, when I talk A lot about what has been happening activity wise. And then one section when we when Fredrik will go through the numbers. And then I will advise you to go to Slide 2, please. On Slide 2, we have a summary of What activities we have done, the large activities in Q2, and it's been a really good Q2 when we have done a lot of things, strategic good things for the company, both in the short, immediate Terms and also in the long term. We bought portfolios, which is the next largest one, the 2nd largest one In the Stoeplatzert, and I have been the CEO since 2,008, so it's 13 years now. And It was SEK 1,900,000,000 from Heegaard. And we will talk a little bit more about that later on in this presentation. We also got rented out a new logistic property to Entex, 14,000 square meters, which I will also come to a little bit later. And we did a combination deal with Volvo Cars, which was one part was renting out and doing project development and the other part was sale of 2 Properties office properties in Torslanda. We also got our share in green destination from Nasdaq, which we are very proud of. We are the 1st company on large capital, and I will also come back to that. And we're also included in EPRA index 21 June. And also we got an investment grade rating B-. Please change to Slide 3. The numbers, Which I will summarize here and Fredrik will go through in detail in the presentation. We increased our rental income. We also increased our income from property management to SEK 365,000,000,000 last year. And everything is in Swedish krona, SEK 1,000,000, of course. I hope you are familiar with that. The profit per period increased a lot, And Frederic will tell you why. And we also increased the portfolio mainly because of The 2 because of the acquisition and also from the project development And value changes. And also the of course, the earnings per share totaled to And AV and RV, that's all increase. And Frederic, we'll go through all those Numbers coming up the next couple of slides. So I will hand over to you, Frederik, And you will also get to them to know what slide we are getting to. So we can start with Slide 4, rental income. I will give you some comments about that. We have a total increase of 3.2% For the period. And like for like is negative, but that It's depending on property development projects in existing investment properties. And the positive outcome out of this is mainly because mainly due to Goravesta, Our project that our tenants have started moving in. And the other part is Our acquisition in Q3 2020 of a property called Vinomberg Dravensensivira Cool. On Elva, you can take the next slide, please. Our rental income, as I said, increased with 3%. We have an operating surplus that also increased 3%. We have a record quarter now with for the quarter, we have SEK 229,000,000 Swedish krone. So in the isolated quarter. Our income from property management increases With the same rate. We have a really positive period for the change in value of properties. And we have For the isolated quarter in Q2, we have the value uplift from our projects, which we were Lacking in Q1. So it's a much better quarter for us. And we are in line even a bit better than the previous Period of 2020. So we are coming out really good for the first half of the year looking at Our value update. We have a Positive effect if you look at the change in value and derivatives are financial instruments. So there's a difference there in the payer with SEK 200,000,000. So that's a contributor as well to the profit for this period, That's mainly because of the profit development. Next slide, We are in a good region. We like Gothenburg. Otherwise, we wouldn't be Yes, totally focused on Gothenburg and the region. We have a decreasing unemployment. We have the best The unemployment rate, if you compare us to Stockholm and Malmo region For now. And we have a strong recovery with the automotive industry that's coming back to really good with Good order books. So we are looking really forward to what that can bring in for us and our tenants Actually, it was who are some of them who are dependent on the Automotive Ministry. As well as the export industry, we have a harbor that's reporting better and better numbers due to the Focus on export in the Gothenburg region. If we change to Slide 7, we have An indicator that's the limit for calling it We are on the limit to a really good Period. Because we have a good recovery from the pandemic, we are now That's a value of SEK 107,500,000,000 and anything above SEK 100,000,000 is a positive indicator. We had a sharp year during COVID-nineteen, but we have recovered really well in the trade and industry in Kothenberg. Next slide, please. The net netting for the period is Positive. We had positive Q1 and positive Q2 that we are really happy about. We can sense that we are coming back and P and G will talk more talk some more about the project that things we have done for the period. So which are not included in these numbers. So You will have them to remember because they when they are in 18 months, then they will be included in the net netting. So the last things that PG will talk about is not included in these numbers. So we are keeping pace with the The previous year, and we hope to increase looking forward. If you take the next slide, we have some Historical numbers and our disappointing Q3 there, we had the only quarter For a long period of time with negative net netting. And we are, of course, Working really hard with our renting out department to making the net debt positive In every single quarter looking forward. Next slide, please. The contract structure, we have rental income in Around SEK 1,200,000,000 and our 20 largest leases is represented And 32% of the rental value. Hence, The newly May transaction, we will have a bit more tax finance The comment leases and there will be for now, we have 21% tax finance Properties and it will increase to 26% when we have taking into account the whole transaction of SEK 1,900,000,000. Next slide, please. Here, we have a breakdown of the rental income, which shows that in the Parable properties. We have a negative development, 2.7%, And that's because of the properties that we have emptied now to do Property Development Project, it's 2 properties in Wilberswaf CBD that Are affected, and that will show in the numbers of the segment reporting, which is the Next slide. So we changed to that one. We are in our office business area. We are divided into 3 Geographical areas, central, south and west, north and east of Gothenburg. We have now in the books the first section of the transaction with EgoV in the books, which affects the Central Gothenburg number, We're now at SEK 12,900,000,000 of fair value in properties. The second Stage will happen in Q3, Q4. The company also Take into consideration, we are as well we are keeping pace with our project properties, and We are in about 9% of value in the project properties. So And some of them will be finished during 2021 in CordaWest, and we will get back to that later. Next slide, please. As I said before, during the income statement, we have SEK 500,000,000 in changes in value for the period. We also have the acquisitions and we have SEK 900,000,000 worth All acquisitions for the period and the second phase will come in later during 2021. And we also have for a SEK 110,000,000 made in investment in existing properties. And that will build up to our summarized value of NOK 24.4 SEK 1,000,000,000 for subsurth in Q2. Next slide, please. You have here a trend over time since 2013 where that Yeah, it was made public company. And the difference is, you see, we have the less red It's the industrial logistics, which is from the deal we made with Volvo in 2016, late 2016, Where we bought a large portfolio from volume was SEK 2,800,000,000, So let's say, the largest affair in Telstra's history. But this is the largest one now with HIGA without Adding some equity for from our shareholders. So we manage this one without And the initials. Next Slide 6. Our balance sheet for the period, our assets, as I said, SEK 24,400,000,000 We have a solid increase in equity for the period. We are making good results. The deferred tax increased as well with the valuation of our properties, of course. And we have some increase in debt because we are ongoing in investments, Both acquisitions and our project development. Next Slide 6. Our key figures are Going better and better. We have had a loan to value that has decreased For some time, since 2019, we changed our target to over time Keep below 50%. And now with this deal, of course, we it will affect that Key figure, but we are confident in we can manage with our 50% maximum and Still produce good value looking forward. Equity assets ratio, it's 40%, Keeping good pace forward. Our investment yield is Diminishing somewhat since Q4, we are down at 3.8 Right now. But we are looking good in surplus ratio. We had a really good Yeah, last year, and we are hoping to keep the pace looking forward as well. A key figure to comment as well is the economic occupancy rate That is slowing down. And that is because of the property development we are doing in our investment properties in Wilbersvatz. It's the main course of that one. Next slide, please. We have a really good organization working hard. We see some happy employees Walking in the harbor of Gothenburg in the picture that they don't only do that. They create value over time. And you can see a steady pace of increasing the EPRA MRVs since 2013. We were about SEK 30 Our share then now we are above SEK 100, so we are in the 3 digit area now, which we are Very happy about. Next slide, please. It does some charts over the Development of our financial targets actually. And we have had And a totally different environment regarding our loan to value. We were about 60% for a period of time. And we got public went public in 2013, and we have Improved our numbers ever since both the LTV and the interest Coverage ratio as well as equity to assets ratio. Next slide, please. In our financing, we have a good property management Organization, and we have all of 90% of our properties are environmentally satisfied. And that's really good for the finance department looking to allocate some green financing, Which we are doing continuously. Those follow ups may be reflected or that we had 61% In Q1, now we are 59%. Our target for the year is to achieve 70% mean financing. But due to the acquisition of the properties, which are not certified, so then we Got it. We have something to work with to make those properties even better. They are good Today, but they're not satisfied. And we think with in our top dimension, we can improve them even further and Make good use of them in the green financing department. So about 14% we're having Green bonds with SFS and Sussex Finance bearing, and we have 45% Of our financing from 3 bank loans. Next slide, please. Yes. Aside of our earnings capacity, which is the closest You will get through a forecast from us. This is signed agreements Looking forward, where we have taken in consideration the property management costs, And we have operating surplus looking forward and which will land on SEK 9 SEK 60,000,000. And here you see the proportions where the fair value is Okay. So we have 53% in Central Gothenburg, which is CBD and the adjacent CBD So CBD area. And we have 9% in our project properties, 16% in industrial logistics, which is a Number that will increase due to the project portfolio in the pipeline. With that, we can take the next slide, and I will leave the handover to PG. Yes. And I will Stop that. I will go back to Slide 20, and I will just give you some word additional word and say that I think you should also notice on Page 11 in the report that we have rental income. I will go through the projects. And lots of our projects are already rented out. And since we have our 18 month requirement to Get it into earnings capacity. We today have, I think, SEK 102,000,000 or something in the or In the Page 11, I can't remember from my head, and I don't have the report in front of me. So I will just advise you to SEK 108 and plus €12,000,000 in already signed contracts that will come in the books in the future. So just and then I will do the Section 2 then in the summary And start with the acquisition we did. And now we are on Page 22, please. The first property we are accessing and we already have access is the Engor, the Odonto log, Which is half of the value in the acquisition. And it's an area of 31,000 square meters and It's a rental income of SEK 45,000,000, which is in the earnings capacity For the Q2 report. And if change slide to Slide 23, We have the 2nd property we bought. It's the Biotech Center. And we accessed that one Preliminary in September 30, the rental income is SEK 25,000,000. It is not in the books Yes. And the third one is Helsovertervarken, which we accessed in September 30 as well. The area is 12,200 square meters and the rental income is SEK 20,000,000. And What's the good thing about this acquisition? Yes, we get more value in the books, we get more rental income, but we also Spread the risks because the tenants are all state tenants Except from the biotech center where they have life science. So we get a new client base with We already have, of course, state and municipality tenants, but we get a new pace for the life science cluster in the Medicinal Sure. In the Medicinal Bayat. And we spread the risk, as you could see in the numbers where Juan Sverdrup went through the contracts, You can see that we are not as much dependent. The larger we get and the more we spread the contract structure. We also spread the risks on 1 single tenant. So I think this is a perfect and we also can be a part in the future of developing this area. This is an area with a lot of future, and we can be part of that future. So there's a lot of more to come in the future in this area, and we can be one part of that. Slide 26, please. The next thing on the acquisition is Not acquisition, it's a divestment. And we divested 2 properties to Volvo Cars. One of them is the old headquarter of the other Volvo, not the Volvo car, Volvo, the truck Volvo, which we acquired when we did the Artos acquisition, which Frederic mentioned before, 2016. The recognition will be in September 1, so it's not in the books yet. The area is around 10,000 square meters. And then we go to Slide 27. The other building that we are selling to Volvo Car is the 30 724. It's also being sold or resignation in September 1. It's So inside, of course, the deal, otherwise you wouldn't have it in the Q2 report. The area is 15,000 square meters And both those are office buildings and close to the Volvo car headquarters. So The Volvo will have more space available in the future for the office people in Tuschlumber. And for us, it's a good situation because we are now moving out of the office market in Tushlanda, which are very dependent on A few tenants. And we are also doing in the deal with VCC, Volvo, we also Did a renting out of a logistic building in 20,000 square meters. I will come to that a little bit later in this Slide structure. Please go to Slide 29. I will go through some of our projects. And if you haven't heard of me and Fredrik talking before, you probably heard this A couple of times, but now it's really soon to be finished. The Gorda Vesta, 24,000,000 square liters. We are completing it in Q4 2021. We have invested SEK 1,200,000,000 and we have the occupancy rate when we stopped in the Q2 2 was 95, but we are working. We only have 2 spaces left. I think in Q3, we will probably Have an occupancy rate on 100, I hope. I think that it's not too high of an expectation. Next large project in GoaDA is Kineum. It's 42 1,000 square meters in total, but 26,000 square meters is new area. That's the Spider building. It's the A new one. And the one to the left, you can see it's in the right picture, it's the old building. And we are putting them together as one building in the future. The project will We completed in Q3 2022. It's a total investment and it's The old building, of course, SEK 600,000,000 and also the investments. So the total investment, It's different from Vodafesta where we have only one investment. It's a new building only. So this is the total investment of both the existing building when we started the project. Today, we have an occupancy rate Oh, 82%. And this is done with together with MCC. So it's So joint venture, 50% each. And when the project is finished, we are buying the 50% back From MCSIP, so we will own it 100% in the future. Please go to Slide 31. Fredrik has talked about the comparison where we end up being negative if you look like for like. And that's because we have Emptied this building, not only, but the main reason is that we emptied this building. We had the tenant, Schenker, moved out. And we're now doing a project in an existing building. And that's why the numbers get so strange. It looks like we are not doing our job, but we definitely are because this is a really good this will be a really good project. The occupancy rate today is 46% when we start this project, and we have started it. We hope to complete it In Q3 2023. And the total investment, of course, that's a lot It's already the value of the building when we start. And the total investment will be SEK 1,100,000,000 in Swiss francs. And this is a really good area in CBD. And so we will we're already starting to have a lot of interest from potential channels. We will talk more about this in the future reports. Next slide please, 32. This is the Mercure building, which consists of 1 New building, the one you see in the picture, and the old building is right back behind. And the area of 5,400 square meters is the new building only. And the next step for this building is to do a The refurbishment of the old building as well. This one is completed in Q4, And we have invested in the new building SEK 270,000,000,000 and the occupancy rate today is 62%. This is a JV With Briglota, a local customer company not listed. And this project It's right in the middle of Gosteboye, at Krebskruel. Next slide, 33. These are the this is the JV. Now I move from office buildings, office projects to logistic projects. These are the Projects we are doing with the Wokkerkru, which are today 2 properties, will probably in the future at least become 5 or 6 properties. This is how it looks when it's finished. Today, it's only a groundworks. We are working with to prepare us and we're also working with the pre letting activities together with Bockenheim. It's around 130,000 square meters in total when everything is finished. Next slide, please. Now I'm moving into the project development and the renting out, which are almost the Same in the logistics because you have one building and one tenant. The first one is in Entex, Where we have rented out 13,950 square meters in our properties, Siedrola 31. And if I go to Slide 35, you can see where that is located because at the same property, we have One existing building, but it's a large area of land. So we are also doing the Volvo car logistic project, 20,000 square meters. So the Sea Rolla 31 will in the future will become 1 25,000 square meter existing building and 2 new buildings around 34,000, 35,000 square meters. And it's right next to the Volvo car plant. So we think we can do a lot more interesting in the future with Volvo Cars being so close to both the plan and also close to the hardware. You can see Arendal Down there in the bottom of the picture. Next, in the summary, Q2, It's a totally different thing than the projects and the acquisitions. It's the green designations, which we are very proud of. We are the 1st large cap company being part of the green Nasdaq green designation. And we think this will become a large and very important thing in sustainability in the future, where Large where NASDAQ will do companies will acquire For the mass speculum destination. And we are a long way above the target. The target is 50% turnover. And we are away about that. But somewhere, the Nasdaq has to We'll get started. And we think that this will be really good for the for investors in the future to have An easier way to get in contact or get investments, green investments, Where we also have MasTec. We can do what we we are communicating as much as we can, But we think that this will be a little bit easier for investors if also Naspers is doing what they can. So we're very happy to be part of that. Then we'll change slide to 37. We also in the in this quarter, we got included in the Airta index. And of course, that's good for the share, Although we are not we're always working with the company, not so much not the shares the share of the company, trying to get The EPRA NRV and all the other numbers to be as good as possible and I hope for that the investors will like that. But of course, It's good to be in a global large index. We'll, of course, get our share to reach a wider investor base. And that will also, I think, create we will also create value for our existing shareholders. Please change to Slide 38. I'm always done, so hold on. One other thing we did in the Q2 was more there was very active choice. We started out this in September 2020, Okay. And we got everything cleared on the in the Q2 now. So we are an investment grade rated company from NCL. Of course, There are 2 things why we did it. Of course, the one thing is to increase the security for Yes, in the capital market and get a better position in hard times. We all saw what happened in When COVID started and broke up when COVID broke out in March, April, it was really tough for the not investment grade Companies to get loans from the capital market. And also, of course, we are hoping And for competitive financing. So that's, I think, the 2 key elements So while we are doing while we are getting investment paid? Then the last But not least, Slide 39, why investing in blood cell? We think that like Fredrik started very early in this presentation. Gothenburg is recovering really good. So we are in In a good position in the number 2 there, Gothenburg is still not there is still a good market to be in target. And we also are focusing on commercial properties. It's easy to know what we are doing. And now we are widening in our area base with the new acquisition of Medicinal Value, but also with a more widened Talent based. We have a clear model for value creation. It's easy to follow. We are doing acquisitions. We are doing development projects, but the bread and butter is the daily basis, owning and cash flow from owning properties. We are growing by SEK 2,500,000,000 to SEK 3,000,000,000 a year. That's Our pace, and we hope we can do that this year and also in the future. We have An extensive portfolio of development projects. Although we are now doing 35 Some square meters renting out in the logistics. We have a lot more we have around 190, 170,000,000 to 190,000,000 already zoning planned more potential, But we also have not some planned land that we are working with to get into some plans. And I think we are A really engagement, good company. We have a good feeling in this area, and we like to be part of Making Gothenburg great. And we are I think we are doing I think we are doing very good Projects in this region that we can be proud not only you investing in us, but also our Employers are the municipality, politicians and everybody that likes to get Adjusted to be a great place to work and live in. So I will stop, Leer. Do you have anything, Fredrik, that we forgot? We have already spent 45 minutes. I think we have I think we've covered it. And we will hand over to questions. Thank you, ladies and gentlemen. We are now ready to take your questions. And our first question comes from Albin Sandberg from Kepler Cheuvreux. Please go ahead. Your line is now open. Hi there, guys. I have 3 questions. I'll take them 1 by 1. What is The most recent update on the Sverdijkoren project and the really finalization on that? Yes. The latest update is that the municipality has answered the court The highest court has asked the municipality to answer a couple of Questions around the appeal from Porgen. And they have done that. And the court will now Look into that, and we will see what their next step. In the best time schedule, they will have some jurisdiction in Q4, but it's More likely that will be in Q1 or I think Q1 2022, we will get a A jurisdiction from that call. Yes. Okay. And you still think it will be a positive one? Yes. I mean, we had a very positive one from the Q1. So why shouldn't that be as positive on the second one? We see no reason that the second court will have another. But of course, I mean, a court is a court. An appeal is an appeal. Okay, great. And then a lot of talk about your projects. And just more on, let's say, maybe medium term Do you on top, so I mean, now you have your new leverage target and so forth, combination of what your own, Let's say, organization can do, but also what the market can swallow. But where do you see, let's say, A reasonable size of your, I don't know if you call it a steady state project development pipeline, the way you're looking at trucks are now? We still aim for 50 percent development projects and 50% acquisitions in net acquisitions In the SEK 2,500,000,000 to SEK 3,000,000,000 growth. And I will say, if you make it easy, you say the way it has been, Around SEK 1,000,000,000 in investments, SEK 1,000,000,000 net in acquisition and SEK 1,750,000,000,000 in €500,000,000 to €1,000,000,000 in value in gross of value. Okay. That's great. And my final question, also now lessons learned from since the outbreak of COVID-nineteen and Fears in the marketplace around work from home, what that has meant to tenants and maybe your discussion with tenants. And what's your view of how the office market looks like now in terms of a demand perspective? I mean, there is there has been a structural change now for a lot of years. I mean, when I started in this In the field, 94, we had around 35 square meters per workplace. And before COVID, it was around 15%. And I think that will go down a little bit further, but not as much because I think that you will need to have the it will be even more important in the future to have The culture carrier, the meeting point. And so I think we think that people will work More from home than before COVID, but not as much as that you're not going to be at the office at all. So We accept we expect that maybe there will be a slight to down in square meters per Workplace, but not as much. I don't know if that would be an answer to Maybe more details on what have you actually seen during the first half on your either new negotiations or renegotiation with tenants In terms of how much space demand and so on? We haven't seen any change. That's I mean, it's The vacancy rates in Gothenburg were has been very high compared in a stark way in But we see the we think we don't have the statistics for Q2 yet. But if you look in how it works Here, we think that the vacancy rates will come down again because there is a high there is a much higher demand Right now than we had before in Q especially in Q3, I think that was the worst quarter, Q3 2020. Okay. And that's I just had a follow-up there, so maybe you answered that. But yes, It's not only you doing developments in the Gathenburg area, but you see no risk of, let's say, oversupply Coming into the market which possibly could hit rental levels? I mean, if you look at If you look at rental levels around 4,000 square meters krona per square meters, I think if you can't Calculate on that doing a project, that could be a problem. But I mean, our projects are if you have if you get 3,000 like the rental levels is today. We get a good investment return on investment. So I think the rental levels will be stable. And the ones that can manage on those stable levels, they will do good projects. And Plattsburgh is definitely one of them. So we're not depending on an increase of rental levels to do our projects And not to do our renegotiations either because we have old The lease contracts that have a lot lower rents than the market today. Okay. Thanks a lot, Pega and Frederic. Thank you, Albert. Thank you. Okay. As there appear to be no further questions, I return the conference to speakers for any closing remarks. We can thank you very much for listening. This was the first time in this format. So we will look forward to Yes, Stuart. And feel free to give us a response on if you thought it was Too long or what we should do to in order to get to improve because we would like to give you as much of Information as possible from the report, but also not doing it not getting too much information in So that we are doing this presentation too long. Thank you very much for listening. Thank you very much for listening.