Earnings Call: Q3 2024

Oct 22, 2024

Good morning and welcome to this Q3 presentation of 2024. My name is Sussan Linde. I'm CFO and Head of Investor Relations here at Wallenstein. It has been an eventful quarter, even if it doesn't look like that when you see this slide with just two points. We have continued with further starts of new construction this quarter as well. We have started approximately 170 apartments, both in Stockholm and Gothenburg in 2 different projects. It was good that we are finally starting to add additional housing to our 2 growth regions, Stockholm and Gothenburg. And one big thing for us, in the picture you see 2 happy gentlemen who have just signed an agreement on a property deal. None of you have probably been able to avoid it. Valestan has taken the step into the commercial segment now also in CBD Stockholm. We have residentials both in Stockholm and Gothenburg, commercials in the CBD in Gothenburg. And now the 3 leaf clover is finally becoming a 4 leaf clover. It is a unique property that we all recognize, the scraper at Sergilstori, the 5th Hertoriskrappan. We will take possession of the property in January next year and the purchase price is based on an assessed property value of 2,800,000,000 Our vision is to refine and modernize this iconic building both internally and externally and create attractive premises with amazing views over Central Stockholm. Our property holding looks like it did even in last quarter. We have just completed 28 apartments this quarter, which is the only difference. We have also more apartments under construction than last quarter, but I'll come back to that later. The distribution of the rental value is 50% residential and the other half, commercial. And if we are to summarize our sustainability work during this quarter, we have developed proper routines around background checks. We have worked with our commercial tenants long time, but this year intensified the work with our suppliers. We hope that with this work we will make it more difficult for crime. We are also working with an additional focus on trying to think even more about bringing reuse into our renovation projects and local adaptions, also encouraging new tenants that you don't have to change the premises too much. So far this year we have received 28 tons of textiles by placing recycled bins for these in 25 properties, which would otherwise have largely ended up as a residual waste. So, and let us move to our income statement for this Q3. We have a good letting operation and stable demand for our premises. The residential holding is fully let and the commercial holding in Gothenburg has an invadercy rate of 6%. We can notice that it takes longer time until you sign a new contract with a new tenant. And we keep our focus to keep the existing tenants and now we have a surrender rate at 90%. The NOI for the 3 quarters is up by 11% compared last year and we received a surplus ratio of 77.1%. But let us go to the next page and look into more details. As I said, the NOI increased by 11% SEK168 1,000,000 for the 1st 9 months. The rental income has increased by SEK151 1,000,000 up by 7% compared last year and half of the increase from the completed new construction and the other half from our comparable holdings. The commercial base rent has increased by almost 6% and the negotiation with the tenants association about the residential rents ended with a total growth on average for the group of 4.5%. And as I said before, we made a 2 year deal and there will be almost the same growth next year. The operating expenses has gone down by 3%, net CHF 17,000,000 The main reason to lower operating expenses is lower electricity price, which has gone down by 40% compared last year. The effect including VAT is about SEK 54,000,000 lower expenses. But as I have said before, in total for the group, it is a zero sum game because we are self sufficient in renewable energy. But the rates and charges for water and sanitation and cleaning are higher like the other quarters and also because of some higher expenses regarding property management of total $28,000,000 and also the weather related expenses were higher compared last year by $3,000,000 So in total, the NOI is up by during this Q3, we have partly completed a popular project in Naka, Naka Grace, as you can see here on the picture. In September, 28 apartments were completed and occupied. There was a lot of interest in those apartments with over 10,000 interested just after a few hours. And we will successfully complete the rest 148 apartments Next going quarters. If we look at the total income from Proctor Management and includes administrative expenses and finance net, We recognized €880,000,000 It's up by 6% compared last year. The administrative expenses are on the same level as last year, but the financial net is still some higher compared last year by 24%. But the increase begins to slow down for every quarter because of the decreasing interest rate. As we exit this quarter, we have an average interest rate of 2.95 percent. And the main reason of the decrease is because of lower STIBOR, but it's also affected by the fact that we have taken up new interest rate derivatives by a volume of $1,400,000,000 this quarter of an average 7.5 years. And we can see it on the next picture. We have new derivatives, 2027 to 2029 by SEK 200,000,000 per year. And besides that, we have new derivatives of SEK 400,000,000 each for the year 2,034 and 2,035, which means we have extended the average fixed interest rate term to 38 months and 58% of the loan volume has a fixed interest more than 1 year. And if we go back to the ordinary income statement because now we report the income from property management as an own note. One of the items I want to comment on is participation in profits losses of associated companies where we have written down a part of the value in Coliv and Conventum Stockholm by a total of $152,000,000 and this quarter by $100,000,000 and it is for the Stockholm part of Conventrum, which has a tough time now and is also under reconstruction since last Friday. But the business in Gothenburg is still working well. And some words about the value changes. If we start with a change in value of properties you can say it is basically still. There are just changes in the net income that has affected the value. We haven't changed any direct real requirements this quarter. The value of the interest rate derivatives has gone down by this quarter by approximately 420,000,000 dollars Because of lower long term interest rates this quarter, that is the reason why the total result after tax for just this quarter is minus. But in total, it is just good for our business if the interest rates are going down. So in total, for all three quarters, we recognize a result of SEK 139,000,000 compared the last year of SEK 42,000,000. Dollars The balance sheet. Our balance sheet is still stable and we have an equity ratio of 45% and an LTV of 46%. We have a property value of almost SEK 65,000,000,000 and during this quarter, we have invested SEK 400,000,000 approximately in our projects. Properties in operation amounts to SEK 59,000,000,000 and property for future construction and under progress is just over SEK 5,000,000,000. As I said before, we haven't adjusted the direct yield requirements. They are still on average SEK 4.6 for the commercial holding and 3.6 for the residential holding. 56% of the property value are residential properties and the rest commercials. We have invested SEK 1,600,000,000 during these 9 months in re and new construction and it is still lower than you can say the good years. But now we have started some new construction and that feels very good. A total of 169 apartments have restarted this Q3 and I will show you which ones on the next picture. Fratier 1 is under construction and now we have also started this Fratier 2 in the middle on this page. It's a total of 50 new apartments here but also a new cultural center and this project will be ready for occupancy in 2026. And then we move on to Gothenburg, to be more exactly in Mundal. Here we have started our project on Obivariska Thann. It isn't far from the Gothenburg city, but it is in Mundal. Here you can see the property, how it will look like when it's completed. This is a project where the first stage consists of 119 apartments and in total with all three stages we will construct around 400 apartments here. This project will be ready for occupancy in 2027. So in total, with these starts and the completion we had during the year, we now have 13.79 apartments under construction. And now Stockholm has more than Gothenburg. It was a time when Gothenburg had more than Stockholm, but now it looks like it usually does that Stockholm has more projects. So if we turn to the debt and equity side, we haven't increased our interest bearing liabilities since the previous quarter. They amount to SEK 30,000,000,000 and as I said before, we have a stable balance sheet with a loan to value of 46% and an equity ratio of 45%. During the quarter, we have expanded overdrafts facilities by approximately SEK 400,000,000. So now we have a total of SEK 1,800,000,000. The distribution between different funding resources is the same as last quarter, where bank loans are still on 95% and the rest for the next 5%. So that was a short summary of our Q3. And if you have any questions, please contact me or you can also have some questions in our Swedish live conference call where we end up with questions where also Hans will attend to this question and answer time. So thank you for listening and have a nice day.