Welcome, everyone, to Sveafastigheter 's Earnings Call and presentation of our Q2 Result 2025. My name is Kristel Eismann, and I'm Head of Treasury and Investor Relations. Today's presenter is CEO Erik Hävermark. After the presentation, we are opening the lines for Q&A. Now I'm handing over to Erik. Please go ahead.
Thank you, Kristel, and a warm welcome from me as well to Sveafastigheter's second quarter earnings call. In Q2, we continue to strengthen our key operational metrics, which I'll walk you through a bit later in the presentation. Sveafastigheter is Sweden's largest listed pure-play residential company, with assets totaling SEK 28.6 billion. Our business model rests on two strong pillars: property management, which provides stable and resilient cash flow, and new developments, which drive profitable growth. Our vision is simple yet ambitious: to be Sweden's leading residential company. Our mission goes hand in hand with that: to manage and develop homes for more people, homes where current and future generations can thrive and feel safe. In the second quarter, we kept building momentum, improving our key operational metrics and profitability, right on track with our strategy. This quarter is also special. It marks Sveafastigheter's first full year as a company.
Before diving into the Q2 numbers, I want to take a moment to reflect on what we've accomplished in just one year, shown on the next page, page 5. Sveafastigheter was restructured and formally established in June last year. Just four months later, in October, we were listed on Nasdaq First North Premier Growth Market, welcoming around 10,000 new shareholders. In January this year, we took over the management of the remaining part of our portfolio, bringing all properties under our own management. In February, we received an award for the largest improvement in tenant satisfaction. Our strong and conservative financial profile was confirmed in May when we were assigned an expected investment grade rating of BBB- with positive outlook, which was affirmed in June.
In June, we issued three and five-year green bonds totaling SEK 1.2 billion, followed in July by an additional SEK 0.5 billion bond maturing in 2030. As mentioned, in October last year, Sveafastigheter became a public company through our listing on the Nasdaq Growth Market. Despite the demanding work involved in taking Sveafastigheter public through an IPO, we announced our ambition to be listed on the main market within 12 months. We achieved this in just eight months, starting to trade on the main market, Nasdaq Stockholm, in June this year. Very few companies have managed an upgrade from the growth market to the main market in such a short time frame. This accomplishment reflects not only the quality of our processes and routines, but above all, the competence and dedication of our employees.
Alongside this highly eventful and evidently successful year, we have remained focused on our strategy, enhancing profitability in our standing assets and driving growth through new construction. In the second quarter, we continue to deliver on this strategy. Let's move over to the next page and the financial results for the second quarter. Our rental income grew by 13% to SEK 383 million, and our NOI increased by 19.4% to SEK 269 million, meaning that rental income continues to grow faster than costs. This strengthens the important NOI margin, which I will return to later in the presentation. Profit from property management amounted to SEK 97 million, impacted by non-recurring administrative costs of SEK 40 million. I will provide more context on administrative costs shortly.
Changes in property value totaled SEK -137 million, mainly due to revised market assumptions for a couple of projects in ongoing construction and project development. Finally, net profit for the quarter was SEK -155 million, impacted by the non-recurring cost of SEK 40 million mentioned earlier and SEK 89 million in value changes in financial derivatives, a non-cash accounting effect resulting from lower market rates. Let's turn to the next page, slide 7, where we look at the performance from our standing assets for the first half of the year. Rental income grew by 16.5% to SEK 759 million, while net operating income increased by 24.3% to SEK 487 million. In the like-for-like portfolio, rental income increased by 5.3% and net operating income by 9.3%.
As noted on the previous slide, we continue to strengthen our NOI margin, which for the last 12 months stands at 65%, or 58.2% including property administration. Our target is to reach a 70% NOI margin, including property administration, by June 2029, and we are clearly on track to meet that goal. Our rolling 12-month NOI margin, including property administration, has increased by 3.2 percentage points since the second quarter last year. As a pure-play residential company, with a sizable portfolio of standing assets and an in-house organization, we have several key drivers to further strengthen profitability. On the next page, we highlight four main factors. Firstly, through apartment upgrades, we not only achieve substantial rent increases but also deliver attractive apartments that require minimal maintenance over the long term. Our goal is to upgrade 2,000 apartments over the five years starting June last year. We're stepping up the pace.
This year's forecast is now 250 upgrades, up from the 200 we projected in Q1 for 2025. We carry out upgrades when apartments become vacant and are seeing strong demand for these units in several of our cities, which is why we now are accelerating the pace this year. In the second quarter, we completed 64 upgrades, 44% of which were in Stockholm County. Secondly, a key focus for Sveafastigheter since our establishment has been increasing occupancy rates. In Q2 last year, which marked our starting point, the occupancy rate was 94.3%. Today, it stands at 95%, an increase by 0.7 percentage points. This is particularly notable given the recent media coverage on increasing vacancies in the residential segment. As projected in Q1, vacancies have increased in Skellefteå, and this was offset by strong lifting across the rest of the portfolio.
The residential market in Skellefteå has, as expected, been affected by the bankruptcy of Northvolt. As a result, in July, we decided to use an option on our project, Kungsgatan, meaning we will not complete the development of 178 apartments, and instead, the municipal residential company Skebo will take ownership of the completed project. While it's encouraging that new owners to the battery factory have been communicated, our portfolio in Skellefteå, which consists of 97 lower-rent apartments compared to newbies with high rent, leaves us comfortable with our exposure in the city, regardless of how the factory's production develops. Thirdly, Sveafastigheter's sizable Stockholm-focused development portfolio provides us with the opportunity to grow profitably, adding newbies with significantly higher NOI margins compared to older properties. New developments in the Stockholm-Mälardalen region are estimated to achieve, on average, NOI margin above 85%.
Our target is to start construction of 600- 800 apartments annually. In a quarter, we completed 161 apartments, bringing the total for the last 12 months to 483 apartments. Finally, as a large pure-play residential company with an operational focus, we benefit from economics of scale. That said, our intensive and milestone-packed first year, which I outlined earlier in the presentation, obviously generated administrative costs that are not representative of Sveafastigheter 's operations under normal business conditions. During the period, the non-recurring costs amounted to SEK 25 million, of which SEK 40 million was in the quarter. We are now adapting the organization to the new phase Sveafastigheter has entered, what we can call ordinary business phase, and the run rate cost for our organization is reflected in our earnings capacity.
The table on the lower right of this page shows both our actual administrative quarterly costs with non-recurring costs presented separately, and the corresponding costs based on our earnings capacity for comparability. While we will continue to have non-recurring costs in the second half of the year, they are expected to be significantly lower than in the first half. Now, let's move over to slide 9 and sustainability, which is fully integrated into our organization and business. We continuously carry out profitable energy investments that reduce energy consumption and thereby lower our property costs. During the quarter, we invested SEK 50 million in energy projects. At Sveafastigheter , we place strong emphasis on social sustainability, and we believe it plays an important role in increasing the attractiveness of our apartments and residential areas.
We have therefore decided to conduct a pilot study in which we remove income requirements for tenants in 40% of the portfolio. Our belief is that this will lower the threshold to the housing market for many people, while at the same time strengthening our profitability by increasing occupancy rate and reducing administrative costs. As part of our commitment to social sustainability, we also offered summer jobs to 50 young people this year. Sveafastigheter 's property portfolio is valued at SEK 28.6 billion and consists solely of residential properties. All assets are valued by external appraisers each quarter. The portfolio is divided into three categories: properties under management, properties under construction, and properties in project development and building rights. Let's take a quick look at each category, starting with properties under management on the next page.
Sveafastigheter has 15,094 apartments in standing assets with a value at SEK 25.4 billion. 94% of the portfolio is located in Sweden's three metropolitan regions and university cities, and 73% is in our 10 largest cities. Around 2/3 of the portfolio was built before the year 2010, with the remaining one-third constructed after 2010. During the quarter, we made our first acquisition when we acquired two properties in Stockholm comprising 137 apartments. These properties can be managed within our existing organization, are located in attractive micro-locations, and offer development potential through apartment upgrades, providing a solid foundation for strong total returns over time. Growth through acquisition is currently not a priority. However, complementary acquisitions, as well as disposals to strengthen the portfolio and enhance our operational efficiency, are relevant. We will now begin negotiations for the 2026 rent increase.
Since these negotiations have not yet started, it is difficult to predict the outcome. The two-year agreements that some companies have made and that include next year's rent increase indicate an average increase of 3.5% for 2026. However, we believe that the increase for next year should be higher, and this will be our position when entering negotiations with the tenant association. Let's move on to our properties under construction, shown on the next page 11. As mentioned earlier, during the quarter, we started the construction of 87 apartments in Nacka, where we are developing attractive homes in an area with a low share of rentals. The estimated project margin, the ratio between the estimated value at completion and our investment cost, is about 18%, in line with the estimated average project margin for our properties under development. I'll present this portfolio on the next slide.
During the quarter, we completed the final phases of our projects Barnmorskan in Umeå and Jullen in Skellefteå, adding 161 apartments to our properties under management. It's worth noting that Jullen in Skellefteå has lower rents than typical newbies due to former government subsidies aimed at providing affordable housing, a program that is no longer in place. As already said, we have exercised an option for our project Kungsgatan in Skellefteå with 178 apartments. This means Sveafastigheter will not be the owner of the property, and the project will be excluded from ongoing construction in the third quarter this year. The impact on Q3 results is estimated at SEK -6 million. The figures presented on this slide include Kungsgatan. However, you can find the Kungsgatan project's figures in a table in our interim report, so you can easily calculate the portfolio excluding this project.
We are planning for further construction starts this year, coming from our strong development portfolio presented on the next slide. Our development portfolio has taken us more than 10 years to build. The 6,395 apartments, of which 5,160 are rentals, reflect our long-term relationships with selected municipalities, completion of more than 2,000 apartments in the Stockholm region, and strong credibility in sustainability. Notably, 93% of the portfolio is located in the Stockholm-Mälardalen region, 85% in Stockholm County, and 49% in the city of Stockholm. This portfolio isn't easily replicated. Our portfolio gives us the opportunity to expand our presence in the Stockholm region with high-quality buildings. The projects give us a strong return on investment, on average estimated well above 15%, and at completion of properties in prime micro-locations with long-term housing demand, properties that on average generate an estimated NOI margin above 85%.
As previously mentioned, 87 apartments have moved from properties under development to properties under construction when we started the construction in Nacka. In addition, the portfolio has shrunk due to a discontinued zoning plan in Tyresö. We are now discussing a replacement land lot with the municipality. After the quarter, we acquired a smaller building right in a strong micro-location in Sollentuna with legal zoning plan in place. We are planning to start construction for this project next year. Let's move on to our earnings capacity on the next page, 13. Compared to the previous quarter, our rental value increased by SEK 33 million, driven by the Stockholm acquisition, completed new constructions, and apartment upgrades. Vacancy remained unchanged despite the larger portfolio, corresponding to a 0.1% increase in occupancy rate. The line item other income relates to our external property management assignment, where we managed nearly 4,000 apartments.
The associated costs of SEK 44 million are included in central administration. Next, we look at our financial structure. As I mentioned earlier, Sveafastigheter 's solid financial structure combined with low-risk assets was confirmed during the quarter when we received an investment grade rating of BBB- with positive outlook from Fitch. On the back of this rating, we issued new green bonds totaling SEK 1.2 billion during the quarter and an additional SEK 0.5 billion after the quarter. The issuances strengthened our financial flexibility, and the proceeds will primarily be used to repay short-term secured debt, and also part was also used to finance the Stockholm acquisitions. Our LTV remains prudent at 43%. The average interest rate has increased slightly to 3.42% this quarter as a result of the bond issuance in the quarter and the repayment of secured loans after the quarter.
Until Sveafastigheter was established in June last year, our historical financial figures included substantial interest rates on intergroup loans, interest that naturally was detected when calculating our ICR. This is the first quarter without adjustments for internal rates, and consequently, our ICR has decreased to 1.9. Finally, let's go over the highlights from our interim report. Sveafastigheter delivered strong NOI growth in the period with an increase of 24.3% and 9.3% in the like-for-like portfolio. Profit from property management strengthened to SEK 97 million despite non-recurring costs of SEK 40 million. In just 12 months, we have increased occupancy rate by 0.7 percentage points to 95%. Our strong financial position was confirmed by our investment grade rating of BBB- with positive outlook.
We focused on creating greater financial flexibility and improved rating, and we issued new green bonds of SEK 1.2 billion during the quarter and an additional SEK 0.5 billion after the quarter. That concludes our prepared remarks. We'll now hand back to the operator and open the line for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Kevin Shirvanpour from SEB. Please go ahead.
Thank you and good morning. I have a couple of questions. First of all, on the Kungsgatan project, you mentioned that it will have a SEK 6 million impact in Q3. Could you maybe elaborate which item this will affect? That's the first question.
The line items that will be affected are properties under construction and also the corresponding debt for the ongoing construction.
In the P&L, which P&L item would that be?
Value changes.
Okay. Good. I also have a follow-up question on that. That is, you have invested SEK 109 million in the project, but will not have ownership upon completion. Will you be compensated for that in any way?
You mean for the Kungsgatan project?
Yep.
This project was fully financed by the contractor.
Okay. That will not have any implications that you will not finalize the project?
No, that is correct.
Good, also another question on the value changes. You have quite large negative value changes despite that you have higher occupancy and a slightly lower yield requirement. You mentioned that you have revised some market assumptions. Could you maybe elaborate what types of assumptions this is?
It is due to a variety of factors, including revised estimates from construction costs and also adjusted timelines. Additionally, we, as I mentioned, lost one project in Tyresö because the zoning plan was discontinued. In that case, we are in discussions with the municipality about an alternative land lot.
Okay. Good. Just a final question, that's on the non-recurring items. You mentioned that you expect minor costs in the second half of the year. Could you maybe quantify how much you would expect?
We don't provide any guidance on our administrative costs, but as mentioned in the presentation, we expect them to be significantly lower in Q3. Our run rate level for administrative costs is reflected in our earnings capacity, and it will be significantly lower in the second half of this year.
Okay. Do you expect the majority of these costs to be in Q3, or is it equally divided between Q3 and Q4?
I would say equally divided for Q3 and Q4.
Okay. Good. Those were my questions.
The next question comes from Stefan Bjerke from Nordea. Please go ahead.
Thank you and good morning. I have a couple of questions. I will ask one and one. Starting off with the occupancy rate, it improved in the quarter and stands at 95%. Would you say that you have reached a normalized level now, or do you see further improvements of the occupancy rate? Perhaps if you can comment if you've seen any trend in Q3.
No, we see further potential to increase our occupancy rate. We haven't communicated a target for our occupancy rate, but we do believe that we will further strengthen our occupancy rate going forward. We see positive signs across the portfolio when it comes to lifting, besides Skellefteå, where we are expecting increased occupancy rates also in the third quarter. For the portfolio as a whole, we see a positive trend.
Okay. Thank you. A question on admin costs. On the slide with the breakdown of admin costs, you indicate quarterly central admin costs of SEK 40 million going forward in the earnings capacity. When do you expect to reach that? Is that in early 2026 or later in 2026?
We expect non-recurring costs, but as I said, significantly lower in the second half of this year. We don't expect any non-recurring costs in 2026.
Okay. One final question from me, and that is about the acquisition that you did in June. You acquired apartments in Stockholm for SEK 230 million. Could you say something about the transaction yield and sort of the rationale of acquiring properties when you have a large project portfolio?
I can start with the second part of that question. Growth through acquisition is currently not a priority, however, complementary acquisitions as well as disposals to enhance the return from the portfolio and improve the operational efficiency are relevant when good opportunities arise. What we do focus on is profitable growth through our new construction and also increasing the average debt maturity as well as improving our credit rating. That is our focus at the moment. That said, in a changing world, you must remain adaptive, and should circumstances shift, we do not rule out share buybacks in the future. When it comes to our Stockholm acquisition, as you mentioned, you have the property value at SEK 230 million, which was agreed upon, and you also have the rental value. We have an NOI margin in line with or slightly above the portfolio as a whole.
By that, I think you can calculate the yield for that acquisition. If you want any more details, we can take it offline after this meeting.
Okay. Thank you. That's clear. Those were my questions. Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more callers at this time. I hand the conference back to the speakers for any written questions and closing comments.
Thank you. We have received one written question, and the question is as follows. You were eager to get the share buyback approval in place at the AGM. When will we see some buyback action?
Sveafastigheter is a long-term, operational-focused residential company that creates profitable growth primarily through new construction, mainly in the Stockholm region. As I mentioned, at the moment, our priorities are new developments and increasing the average debt maturity, as well as further improving our credit rating. That is our view for now. With that said, as I also just mentioned, in a changing world, we, of course, need to be adaptive. If circumstances change, we do not rule out share buybacks in the future.
That's it. No questions.
Thank you for your time and attention today. We look forward to speaking with you again next quarter. Have a great day, everyone.