Ladies and gentlemen, welcome to the Wallenstam Q4 2018 report. Today, I am pleased to present CFO Susann Linde. For the first part of the call, all participants will be in listen-only mode, and afterwards, there'll be a question-and-answer session. Speaker, please begin your meeting.
Thank you, and welcome to our conference call for the fourth quarter of 2018 and also the final period of this business plan. Now turn to page two. What have happened in 2018? We are proud of many things. The first that we recognized, record income from property management exceeding SEK 1 billion, and we are very, very proud of this. It's an increase of 25% compared to last year. Also, I forgot to say that you can see here on the right, upper corner that in this 2019, we will celebrate 75 years as a company. We have also achieved our goal for this business plan 2018, and we are very proud of that as well. We have also, as you may all know, released a new business plan for 2023.
We have also been owner of CONVENDUM, the co-working concept of 25%. In December last, this year in 2018, we bought more shares, so now it's 25%. The board also proposed a dividend of SEK 1.90. Turning to next page three. Here is a quick look of 2018. You see the surface ratio of 75% which has grown since last year, which, where we can see that we have more efficient property holding compared to last year, that's because our new construction coming into management. That's also a part of why the income from property management has increased by 25%. We have almost 2,200 apartments under construction at the year-end, which are a lot as well. We keep our stable financial position with a loan-to-value of 45%.
Turn to page four. Here is almost the same slide as last quarter. It's where we have our properties, you may all know that we are situated in both Gothenburg and Stockholm. In Stockholm we take into account even Uppsala region. The one-third in Stockholm where we have mainly residentials, two-third in Gothenburg where we have both residentials and commercials. We have our commercial properties in the city center of Gothenburg. To the right, you can see how the distribution is of the rental value, where the main part is in residentials and the second part is in offices. Turning to next page five. I will talk a little bit about our completed new construction in this fourth quarter 2018. We have started 308 apartments.
We start with the completed new construction. We have completed 220 constructions in this fourth quarter. In total for 2018, we have completed 1,186 apartments. Now turning to next page. We have completed Lunden 61:9. We called it Ulfsparregatan before. It's 115 rental apartments. This one, as well as all our other projects, is very easy to let out. We have a queue of people who wants to live in our property. They are very popular, and we can see a huge demand for our products. Now turning to page seven. This is Mässhaken two in Pålsjö in Helsingborg. This is our last project here in Helsingborg. After this project, we will leave the Helsingborg market.
This project, Willhem, as you may all know, will take over this. Now in February, they will take over this property for their operation. Turning to page eight. We come with the construction starts. We have started 308 apartments in this fourth quarter. In total for the whole year, we have started almost 1,400, just about 1,400 new apartments. Turning to page nine. I forgot to say as well that this completed new construction that we have had this year, it's a record number for Wallenstam. It's very
Also it's very difficult to have such many completion occupations in one year, so we need to have focused on how to go into the properties and in different phases so because there are a lot of occupations. Yes, now we are on page 9. Finally, we have started here in Mölnlycke in Härryda Kommun. It's Kvarteret Rosengången of 123 rental apartments. Next slide, page 10, you can see one more for this year, Kvarteret Kvarnen of 185 rental apartments. This together is 300 apartments, and we will build as much as 600 in this area in total. Now turning to page 11 and start with the financial information.
Like I said in the beginning, it's a fantastic result that we released today, and we are very proud of this and for all our employees that worked hard to reach these figures. Now turning to page 12. Start with the income from property management, which has increased by 25%, so we exceed a number of SEK 1 billion in income from property management. It's mainly affected by our new construction coming into management, but also a strong letting market. We have a record low vacancy rate in the commercial premises of 2%, the residentials are fully let. We keep our management cost expenses at the same level as last year.
Regarding the financial expenses, you can see that we have now the effects of our realization of the interest derivative, which we did in the middle of this 2018. For just the October to December, you can see that we have almost halved our financial expenses. Now, at the closing day, we had an average interest rate of 1.06%. We have a very low interest rate, the interest-bearing liabilities has on an average, it's increase of SEK 3 billion of loans compared to last year. Now turning to page 13.
Here you can see that the net operating income has increased by 13%. The rental income has increased by SEK 209 million. The main part is from our new construction of SEK 144 million. It's both from the new construction coming into management this 2018 of 1,186 apartments, also a total year for the one that we occupied last year in 2017. We have also a successful letting, which affected the rental income by SEK 50 million. Some property transactions of SEK 50 million. The operating expenses has increased by SEK 44 million. The main part is because that we have more square meters to manage. It has been warmer climate in the summer, which affected the climate negatively by SEK 3 million.
The property maintenance has increased, the main reason is because of the taxes for the district heating. We have SEK 5 million of re-investing, and that cost is still some gain in the total of the net operating income because you can find the opposite cost from the successful letting with SEK 5 million. In total, it's an increase of SEK 165 million in net operating income, and two-third is coming from our new construction. Turning to page 14. The first line, the realized changes in value. I told you last quarter about this as well. It's SEK 767 million, and the main part is from our realization of the interest rate derivatives.
In total, it's still a sum game because you can see the opposite figure under the unrealized value changes on next slide. Next line is income from natural energy, which is SEK 5 million better compared to last year. We have seen higher energy prices as well as energy certificate prices. This result should have been much higher if we should have had hedge accounting, which we don't have now at the moment. If we should have had hedge accounting, we should have had SEK 44 million better result this year. It should have been SEK 9 million, and last year, minus SEK 33 million.
It's a very technical question, but you can see this in our segment, how this income from renewable energy really works. We go to the revenues and expenses regarding co-ops and the development properties. The main part here is one divestment of Skäran one in Helsingborg, which we sold to Willhem this year, and also 13 apartments from Vasagatan 33, the co-op project here. Turning to next page 15. We have unrealized value changes at the value of SEK 1.8 billion regarding the investment properties, where SEK 600 million is coming from our new construction, and the other part is from our other properties, investment properties.
We have had a good market, but also, as you have seen, higher NOI, which affect the valuation of the properties as well. Here you can also see the unrealized changes in value of financial instruments of +SEK 778, and that was the post I talked about earlier. We have also reversed our impairment losses from the wind turbines. Some of them, SEK 524 million in reverse impairment losses. I talked about that last quarter because at that moment, we started to see that the energy prices started to go up as well as the energy certificate. It's a very volatile market, so we wanted to wait and see to have more stable situation.
Now we thought that it was time to correct our value of the wind turbines. For the taxes, there has been we made one single effect because of the revaluation of the deferred taxes because of the new lower tax. That affected by SEK 312 million this year. Now turning to page 16. This graph shows how the surplus value is in our completed new construction. We have invested SEK 2.1 billion in this completed properties. The valuation now is SEK 3 billion for those properties. We have created a surplus value of 43%. Now turning to page 17. Here you can see that our main asset is our investment properties.
You can here also see the wind turbines, where they had a value of SEK 682 million last year, and now it's over SEK 1 billion. Turning to page 18. Here is our investments in properties during 2018. It's SEK 2.7 billion in total, and the main part is for the construction. We have also some acquisition, and it's for land for further new construction and also our office in Uppsala and some more smaller properties. On the picture here is our project in Umami Park in Hallonbergen, we have started more than 200 apartments here, but we will have around 800 apartments in this area when it's completed. Turning to page 19. Here is a map of our ongoing projects.
We have 2,167 apartments under construction, and you can see here when they are completed and the start of occupation. I just want to say that to the right, you can see Terrassen Elva in Tyresö, 54 apartments. That is one project that when we started it, we thought that should have been a co-op, but we decided, as we have done before, to switch that into a rental apartment instead. Turning to page 20 and look at our equity and liabilities. I just want to say that we have SEK 3 billion on average higher interest-bearing liabilities compared to last year. You can also see that we have more capital tied up in the long term compared to last year. Turning to page 21. We keep our financial strength.
We have an equity/assets ratio of 45 as well as LTV. We have also an interest rate on closing day of 1.06%. About the financing, we think that we will have. It's very important for us to mainly be financed through bank loans, 67%. I think that was the right decision because now we can see that the margins is spreading regarding the bonds. We think they will wait and see what will happen with this market, but we think it's good to have the bank relationship. We have commercial papers of 17% and bonds of 16%. The bonds amounts to SEK 3.4 billion and the commercial papers at SEK 3.5 billion, and the other parties for bank loans. The interest maturity is 39 months now.
Now turning to page 22. We finally achieved our goal. We recognized, net asset value growth of 17.4% on average per year for this period. In figures, it's SEK 14 billion that we have created during those five years, and we are very proud of it as well. Now turning to page 23. What have we done during those five years? You can see a part of it on these pictures. We have occupied and completed 3,600 apartments. We have started construction of 4,600 apartments. We have invested SEK 13.5 billion in new construction. We have also sold properties at a value of SEK 9 billion.
We have done a lot of things during those five years, and we will do a lot of things for the five years in front as well. This together has created SEK 14 billion in value growth. Turning to page 24. Here is a graph of how those SEK 14 billion have been created. You can see here the income from property management and new construction, and also the existing properties. We know that we have been helped from a good market with low yields. I will also say that we have worked a lot in-house to get better NOI, which also affects the valuation of the properties. We are very proud of those SEK 14 billion. After dividends and repurchases, it's SEK 10 billion, SEK 10.5 billion growth. Turning to page 25.
You may all know our new business plan. I will take a few words about it here today. The business plan is for until 2023. The goal is to have an increase in net asset value per share of 40%. If we compare that with our old business plan, we will create double value growth as compared to last business plan. I will know that it is a very challenging goal, but we like to have a challenge, and we think that we can't rely on the market this time. We need to have focus on the cost efficiency, but also our service because without our customers, we are nothing. We need to create this by ourselves and have a focus. Now turning to page 26.
This is why we think net asset value is a good goal because it's, you can say it's a summary of all what we do in our company. You get the successful lettings, efficient management, but also the value growth in our investments, and also our new construction, and also good business activities. We think that it's a very good measure for our operation. Turning to page 27. The work always starts with a vision. As I said, without our customers, we are nothing. We need to have a focus on our customers. Wallenstam's vision is Wallenstam shall be the natural choice of people and companies for housing and premises. To succeed with this, we need to have focus on the service. We're turning to page 28.
Our business concept, we will work with the same as we did the other business plan. We will have our commercial properties in Gothenburg, we will have focus on Stockholm and Gothenburg. We will do it even better compared last business plan, and also have cost efficiency. Now we're turning to page 29. I talked a lot about service, this is also one of our guiding principles to achieve this higher service rate. We need to focus on this. To do that, we thought that it was good to have this as a guiding principle. The most important thing that I personally think is the one in the middle, because our most valuable asset is our employees. We have very dedicated employees.
They work hard to create this value. We need to keep our strong culture that we have here on Wallenstam. When you grow the company, it's very easy to destroy the culture, so we need to have focus on this and keep our dedicated employees. We shall also reduce our environmental impact every year. This together will is our guiding principles for the business plan. Now turning to page 30. This was what I had today, and we think that the future looks bright, and we look forward to start working with the business plan. I forgot to say that we start to measure the business plan from the first October of 2018, it's for from the beginning of the fourth quarter.
Now I'm ready for some questions. Thank you.
Thank you. Ladies and gentlemen, if you do have a question for the speaker, please press 01 on your telephone keypad now. The first question is from the line of Tobias Kaj from ABG. Please go ahead. Your line is open.
Thank you, congratulations to strong results. I would like to start to ask regarding your new production. You started some 1,400 units, of production, I think, in 2018. Do you think you can start as much or even more during 2019, or what should we expect in terms of starts for this year?
Hello. Thank you. Yes, I think that we will have almost this pace of new construction starts. This year we will also start Kallebäck, for example. It's, we are waiting for that for long. Maybe on somewhere here around 1,500.
Okay. The proposal of implementing market rents for new production, is that something that impact your willingness of start new projects, or do you think that the rents already are relatively close to market rents in new production?
We think that we will not change because we start everything that we can as rentals, so it will not affect our business.
Okay. In terms of your ownership in Convendum, should we expect that you will be more active in the commercial segment? Do you aim to do more development of offices, for example?
No, this is just an investment, but we think that we have synergies, and they are now in, both Umami, will be a tenant in Umami, but also here on Avenyn in Gothenburg. We will have the same focus as before regarding our commercial premises. We have some projects in front of us here in Gothenburg, close to Ullevi and also the building of Götatunneln. It's the same as before we went into CONVENDUM.
Okay. In terms of your dividend per share, it's an increase compared to last year, a quite small one, especially if you compare it to the very strong growth in recurring earnings. Why is the increase in dividend relatively small?
We have never lowered or decreased the dividend, and we think that we want to use the money in our business, in our operation. We think that we want to increase the dividend, not that we need to decrease it. We think it's better to be cautious in increasing, so we don't need to decrease it in the future. We think that we need the money in our operation.
Okay. Thank you. One final question, if I may, more technical. Your result in the quarter was a bit more than SEK 1.2 billion, but the EPRA NAV increased by SEK 1 billion. Can you explain what's the difference between those two?
Maybe it's the taxes because we reevaluated the deferred taxes.
No, result is after tax SEK 1.2 billion.
Yes, when we count the EPRA NAV, we take the deferred taxes back, and then we take a lower part back. Maybe we can take that afterwards because now, you know that you say that's 1.2. Sorry?
Yeah. I just noted that the net result was SEK 1.2 billion, and the increase in EPRA NAV was SEK 1 billion. I wonder if it maybe had anything to do with the reversal of the windmills, if that had any tax impact in some way.
I guess it's the tax, but I can come back to you because I can't say that because I just do it from the total year.
Okay. Yeah, that would be good.
I'm pretty sure because it's because of taxes.
Okay. Thank you very much for taking my questions.
Yes.
Next question is from Albin Sandberg from Kepler Cheuvreux. Please go ahead, your line is open.
Yes, thank you. I start with a follow-up from the previous one, that's a little bit on that discussion about free rental on new production. Just to clarify, do you think that will have any impact to the market whatsoever, or was it more concerning your own strategy about starting rental versus co-ops?
Hi, Albin. I would say that for us it doesn't matter because we will start as planned, and we will see what will happen with this. After they have made a decision, I can come back to that because now it's just a proposal. We think but that we will start as planned, no matter this market rents.
Okay, great. Just on the net letting, it seems to be negative in the final quarter. I just wonder if there's any specifics that drives that, on the commercial side, that is.
That's also our projects that we have started now in Umami, for example. We have a negative income from property management because that we, because we have a project there, we need to put the tenants out. That affects also the figures in negative way. It's just a small part. We always have those projects. That affects in this quarter.
Okay. You expect that possibly to be let out then in 2019 or?
We start the project now, but we have ongoing projects like this all the time, like here on the Avenyn. Here on the Avenyn we have exactly the same, but now they will move in during 2019 in those projects and will have a positive impact. Together, we have both negative but also positive in the of new tenants coming into projects.
Basically you give that number as tenants move in rather than when the contracts are signed.
Yes, they haven't moved in because the construction is, they will be now in the spring or summer it will be completed.
Yeah. Okay. Get that. On the wind side, I know in the past we discussed that you would have written the value down to zero, before it's actually, you know, still regenerating economic value. With this writeup, are you kind of more in line now, going forward?
We think that this now is the right value. We waited because we wanted to see a more stable market. We, this is when we do the valuation, we have also an average of future and historical figures about prices. We take the average of those to have more stable view of the situation. Now I think that we have the right valuation.
Yeah. Okay. Two more questions. One is on the, on the interest rate hedging strategy. I think we have discussed a little bit in the past whether you found current hedging fair or possibly increase it. What's your view here going forward?
About the interest rates?
Yeah. On your hedging strategy around that and your interest rate exposure.
Yes. We have done a few more of those agreements since closing day. Now I have SEK 19.2 billion in interest rate derivatives. Because we saw that it was good prices now, but now we think we had enough. We have higher interest rate maturity now.
Okay. Current levels would be fair assuming, rest of 2019 as it is now at least.
Yes. Yes.
The final question is just now you've done some, I guess, legal arrangements and stuff like that in your group. Maybe having had the time to review the tax proposal even further as we now enter 2019. What's your, what's your thinking about, paid tax, let's say this year and next?
I can't say how much it will be, but we work to have it as low as possible. It's the only thing I can say.
Okay. Will it be more paid tax 2019 versus 2018?
I can't say that.
Okay.
I can just say that when this proposal was decided, we, Hans said in his CEO words that in his comments that if we should have done nothing, it should have affect us by SEK 60 million. That's not the truth right now. Much I can say that it's much, much lower.
Okay. Okay.
Yeah.
Okay, great. Those were my questions. Thank you.
Thank you.
Next question is from Niklas Berglund from Nordea Markets. Please go ahead, your line is open.
Yes, good afternoon, Niklas Berglund. A couple of questions from my side. Firstly, if we start with the impairment reversal on the wind side. Have you had seen any transactions, or have you conducted an external evaluation that has triggered the value uplift?
Hi, Niklas. I can say that we have a valuation model which our counters has said okay to. It's very hard to do a valuation of wind turbines because of the volatile prices. That's why that we have an average of historical prices and also future prices. It's just an internal valuation model.
Yeah.
You can also compare to other companies. If you do that, we have done more impairment losses compared to those. We have lower value per installed megawatt.
Could you share any return, numbers or expectations on those assets? What are we sort of explicitly expecting here? Is it kind of IRR, for those assets as it stands?
You mean, the return from, the wind turbine?
Yep.
How many percent or that?
Yeah, that's basically it. I guess. What's your return expectations? I mean.
I can't give any more costs. We don't know about how the energy prices will go. You don't know the production because you have to know how much it will blow. It's the wind is very so that you can see on this year because we produced 43 gigawatt hours less compared to last year because that the wind was it wasn't as windy as last year. There are so many parameters in regarding the wind turbines and the results. I can't say that. Sorry.
On the financial costs, I mean, last quarter you had a one-off gain. Your cost this quarter is also on a very low level. Have you continued to find some good gains here or is this more a reflection of your lower, well, interest rates after the netting out of swaps?
You said that we had last quarter on closing day, we had 0.98% in on average interest rates, and now we have 1.06%. That's because we have turned into some new swap agreements. We will keep this level of interest rate.
Okay. Looking at this sort of co-op contribution, you're now running only one small project. Will you have any costs that will occur on this sort of item in the P&L? Should we expect no contribution or very limited contribution on that line until you sort of start up co-ops again or what's your thought?
We recognize when the cost recognizes when the customer or the buyer take over the apartment or the share in the co-op. When they take over it, we will have revenue as well as cost or expense.
Okay. Fair enough. Fair enough.
Yeah.
My last question, if I may. What's your thought on this sort of rental index renegotiation for 19 regarding the resi apartment side in Gothenburg and in Stockholm? Will it be on 1.5%, or what's your
You mean for the residentials?
Yep, for the residentials. The other one winning.
Yes. We have an agreement there of 1.1 in Gothenburg and 1.2 in Stockholm.
Okay. Fair enough.
No, it's for. Yes.
Okay. Thank you.
Thank you.
There are currently no further questions registered. I'll hand the call back to the speakers for any closing remarks.
Yes. We have a question from Simon Mortensen. How will property tax impact NOI margins in 2019? It will affect, but not as much, because we get higher rental income and also but in still some gain in the NOI, but it affects negatively, but not much. We got another question. How are raised credit spreads in the bond market impacting Wallenstam? How much of the loans are due to renegotiation in 2019? Regarding the bonds, if it was the question about the loans, bond loans, which will be refinanced next year, a little 2019. We have the green bond of SEK 500 million, which we will refinance during March.
If we do it on the bond market or bank loans, it's not, I can't say that at the moment. Other refinancing or regarding next year, 2019, we are mainly short credits, except SEK 8 billion of our SEK 21 billion. Those SEK 13 billion will be renegotiated. About the credit spreads, we think that we will not be affected by this because we have also the bank loans. If we don't want to be on the bond market, we don't need to be there because we are not rated company, so we are more flexible. We can do whatever we want to. We think we have good opportunities for this situation.
There are no more questions, I will say thank you and hope to see you now in 2019. Thank you.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.