Earnings Call: Q4 2019

Feb 5, 2020

Hello, and welcome to the presentation of the year end report for Valenstein for 2019. It's San Linde, CFO and Head of Investor Relations. And if you have any questions, please click on the envelope on the screen and we will also translate the questions from the Swedish call and publish on our website. So turn to Page two. And I will start as always with some important events for this last quarter. And I will start to if you can see on the end to the right on this page, we have a more stylish and modern design. We changed our logo, which we think it reflects a more modern company. So now we have started the work to change signs on our properties. We work all the time to fill up our project portfolio for future projects, so it feels very good that we became an anchor developer in Kisla Municipality. It's together with three other developers and we will obtain a land allocation of about two fifty apartments here. In October, Marina Ficce, Regional Director of Gothenburg was appointed as Vice CEO of Valentin. So now we have two Vice CEOs. It's also Matthias Aronson, the Regional Director of Stockholm. The Board proposed a dividend of NOK 1.9 per share, which is at the same level as last year. It is based on Valensdam's future investment plans to reinvest a large part of the profit in the business instead. And as you all may know, we have a plan to invest SEK 3,000,000,000 annually in the future. Now turn to Page three. So what have we done during 2019? We have done a lot of things. For example, we have invested SEK 3,800,000,000.0, where SEK 3,300,000,000.0 in our new construction and the rest in acquisition. We have also started construction of twelve twenty five rental apartments and completed two fifty apartments in two properties in the third quarter. We have sold investment properties and development properties at a total value of SEK 600,000,000, but mostly development properties. Now turn to Page four. We have properties at a value of $52,000,000,000 and they are valued at an average yield of commercial of 4.5% and residential of 3.1%. I will come back to the valuation later in the presentation. We have a total occupancy rate of 98% where the residentials are fully led and the commercials have 4% vacancy rate. Now turn to Page five. And as you all know by now, we have our focus on the growing regions, Stockholm and Gothenburg. Thirty Seven Percent of the property holding is in Stockholm, Saola and the other part, 63% in Gothenburg. Half of the rental value is in residential and the other part in commercial and 50% of the commercial rental value is in office. Now turn to next page, Page six. And I will now start with the income statements. You can turn to Page seven and I start with the net operating income, which has increased by $100,000,000 compared to last year. And the rental income is just about $2,000,000,000 which is the highest level ever for us. So on next page, I will go through the differences compared last year more in detail. So go to next page, Page eight. Yes, the net operating income increased by 7% and the rental income increased by $160,000,000 and the new construction contributed $56,000,000 The other big part is the lessening in our existing property holdings, which increased by $46,000,000 The yearly rent negotiations for residential properties resulted in an average increase of about 2%. Like for like in the commercial properties, it's an increase of 3.9%. The rental income is also including reinvoicing that also increased the operating expenses on about 7,000,000. The operating expenses increased by 60,000,000 and half of it is because new square meters from our occupied new construction. It has been warmer and not snowy weather, quite boring, but it's good for our operation. The property maintenance has increased by SEK 30,000,000, where almost SEK 7,000,000 are reinvoicing and we have also higher rates of, for example, heating, sanitation. There are also some projects where we work to do the areas more attractive around our properties and also nicer. So all in all, it's an increased net operating income with SEK 100,000,000. Now turn to next page. All that we have done during the year results in a surplus ratio of 75.5% and it has continued to increase during the last years as you can see here on the graph. So now turn to Page 10 and talk a little bit about the commercial letting. Some metrics from the commercial letting market. We have our commercial premises mostly in the city center of Gothenburg. The occupancy rate is 96% in the commercial holding and is still on a high level. This metric we find interesting and is what we follow internal in the company. That is why this quarter is the last quarter where we followed net letting. It has been a very popular metrics on the market in the latest months, but we think that it's a very volatile metric and cancellations and new lets often come in blocks and don't match each other. Also business decisions to vacate for refinement results in a negative trend. So this year, we have a net letting of minus SEK 9 million. Negative changes are mainly related to this last quarter and is primarily related to the fact that the city of Gothenburg decided to bring together operations in their own properties. The renegotiations which remained this year resulted in increased rents of an average almost 8%. Now turn to next page, Page 11. The income from property management increased by 10% CHF ninety seven million. In total, the management costs are CHF 2,000,000 lower in the group, but the distribution to the property management has increased during the year. The financial net income is SEK 12,000,000 better compared last year despite an increased debt portfolio by an average SEK 2,300,000,000.0 compared last year. On next page, I will tell you more about the financing. So turn to page 12. So what have happened during the year regarding the financing? We issued bonds of $500,000,000 and commercial papers of $400,000,000 and bank loans $2,000,000,000 This together ends with almost the same distribution between capital market and bank loans. We have an average interest rate of 1.2 during the period and also an interest rate maturity of thirty eight months. The total credit facilities amounted to SEK 6,500,000,000.0 at year end, a growth by SEK 2,500,000,000.0. We can turn to next page and I will tell you more why the credit facilities have grown. So turn to Page thirty. We are very proud and happy that we signed a loan agreement with the European Investment Bank of SEK 2,500,000,000.0. The credit facility is unsecured and will finance new construction of sustainable rental projects, a nearly zero energy building definition by the bank. The loan will have a tenure of an average seven years. Now you can turn to Page fourteen. We have sold development properties during the year at the volume of $324,000,000. It consists of Polke, 6 apartments on Vasa Gorton 33 and other co ops. The total profit is 92,000,000. The April 1, we sold the trading operation of electricity to Yenftraap that is why we no longer report this as an owned segment. So for now, it will be included in the items other income and expenses. The total loss from electricity is SEK 27,000,000, including financial expenses, compared to SEK 37,000,000 last year SEK 35,000,000 last year. We have produced almost 10% more energy this year compared to last year. Now turn to Page 15. And I forgot to say, as I said it before, but we are still self sufficient in renewable energy. So we own the wind turbines and produce energy. So it's a very strong property market out there with low yield requirements. That's why we have adjusted our yields slightly downward on average 11 to 12 basis points. In total, the changes in value amount to 2,600,000,000.0 where SEK 800,000,000 is from our new construction and the rest in our existing property holdings. And it's not only value growth because of yield adjustments even because of stronger net operating income. Because of lower swap rates, the value changes in interest rate derivatives are negative SEK $264,000,000, but in the fourth quarter it has gone up a bit SEK $332,000,000. The ten year swap rate was down 50% during the year. We have a synthetic option scheme directed to all personnel when the share price goes up this year SEK 31, the valuation also goes up SEK 40,000,000 in total this year. We recognized deferred tax of SEK $727,000,000 and last year was affected by remeasurements of $312,000,000 because of lower tax rate. That is why the tax is higher this year compared to last year. All in all, we recognized a profit of SEK2.7 billion. Now turn to Page 16. We have a book value of just over SEK 52,000,000,000 in investment properties. The properties that we build to sell, New York and the rest of the apartments on Vasa Gassan is the main part in development properties. From this year, we have to recognize lease liability equivalent to the rights of use for land leases for wind turbines and site lease of rights for some of the investment properties. $421,000,000 and the same amount as an asset included in properties and wind turbines. Now turn to Page 17. We have invested SEK3.3 billion in both new construction and reconstruction, and we will keep this high level of investments during the next coming years as I told you in the start of this presentation. And here on this picture, you can see Kalnevek, the commercial property that we have started of 20,000 square meters. So it's a very interesting urban development project here with also residential besides this commercial project. Now turn to Page 18. And some of our key ratios for this year. We have a surplus ratio of 75.5% and we keep our strong financial position with an LTV of 4% to 5% and an equity ratio of 4% and also a stronger net asset value per share of $91.3 and I will come back to that figure later. Now turn to Page 19. Another record figure for this year is our ongoing project. Now we have 3,135 apartments under construction and there are it's a lot of apartments. And now we show on next page, Page 20, where they are. And here you can also see when they will be completed. And as I have mentioned before, we start the occupation gradually, which means that an occupation can be during two years like you see up in the right corner, for example, Trollesenskoda and Norrkopfjussen that we started to occupy 2019 and we will keep on occupying those projects in 2020. And as you can all see, all those 3,100 apartments will be completed and coming into our management during this current business plan. Now turn to Page 21. This last quarter we started two ninety four apartments and I will show you those two projects on next page, Page 22. Maybe it's not the best picture, but this is a picture of our third phase in Sonne Bevel, in Mami Part of 133 apartments and now we have around 500 apartments here under construction. Now turn to Page 23 and we go up to Uppsala. We started our third project in Rupesendal Uppsala, 1 Hundred And 60 1 apartments and close to this project is Trivenna that we completed this year. And now turn to Page 24. In the business plan, we have one goal to '20 '20 '3 and the goal is to increase the net asset value with NOK 40 per share. This year, we have created NOK 9 and in total NOK 12.1. So we are on the right way up to those NOK 40 and I hope you will follow our journey to those 40 kronor. And I thank you very much for listening and please send me some questions if you have some. Thank you very much.