Earnings Call: Q2 2020

Jul 17, 2020

Sussan Linde here, CFO and Head of Investor Relations here at Sandlin Stan. I will present our first half of twenty twenty today. If you have any questions, I welcome you to click on the envelope on this page or send me an email and I will answer them. This quarter has been a turbulent quarter for all of us and it affected us all in different ways. Today, I will give you a view of our position right now. So let us start with next page. Our title for this report is Ballistam is positioned for future opportunities. We bought some land during this quarter, so now we have currently about 16,000 apartments in our land bank for our future. Turn to next page. As I said, corona has had an effect on us during this second quarter. We began to see signs as early as at the end of the first quarter, but this second quarter, it had an impact on the figures. We have tried to help our tenants and fellow human beings in the best way and an example is that we have bought about 15,000 lunches from our restaurants and then donated these to aid organizations and also donated four tons of drinks, energy bars and candy to the intensive care department at Saviienk University Hospital here in Gothenburg. During the quarter, we also, as I said, positioned ourselves further for future opportunities. We acquired land for future new construction. In April, we acquired Terbe Park in Terbe Zentrum, which is a new municipality for us and where we will finally build residentials. At the June, we agreed on the acquisition of land at Ustroke Golf Course for future urban development, involving construction of housing and services. It's a very nice location and we will take over gradually from the September 1 this year. In mid June, we signed an agreement on the sale of our ongoing project in New York at Jadet in Stockholm, and this is also the property that you see here to the right on this picture. The property is planned to be taken over when it's completed around December 15 this year. From start, the idea was to sell it the property as a co op, but now Nanns Puscherk Schneier became the buyer and the result will be recognized the day they take over the property as always when we sell a development property like this. Now to turn next page, Page four. A reminder of what our property holding looks like. Half of the rental value is residential and half commercial, and half of the commercial part is offices. Our portfolio is centered in the growth regions of Gothenburg and Stockholm Uppsala. Now turn to next page, Page five. And a little bit about the market. As I said, we have a mix in our holding and and the different parts have different conditions in these times. I will go through how we experience the market in the different segments. So let's start with the offices. We still see a great demand and even during this uncertain time that has been, we have new agreements, which have been signed with commercial tenants. And something else that is worth mentioning is that the new construction of commercial premises has almost the same rent level as existing premises in the city center of Gothenburg. So in this way, existing commercial office space competes well with new production outside the city. Regarding retail, it is tougher. We have the retail premises in our inner city properties on the Ground Floor. Now it's not a big part of our holding, but we focus on this, of course. For example, we don't think two floor stores work, so we work to replace retail on the Second Floor with other activities such as offices, for example. The restaurants we have in our holding are seeing better times now. They are still limited in terms of spreading the guests, so they can't fill the restaurants with as many as before, but they go well. Residential, there is a huge demand. We have around 9,800 apartments in our holding and are gradually occupying our new construction. We have 100% occupancy rate in the residential and our own housing queue for our new construction has increased further during this time and we have now just over 1,000 applicants 100,000 applicants. Now turn to Page six. During the quarter, we occupied 86 apartments and a total of almost 500 apartments during this first half year. On next page, I will show you which projects we have completed this quarter. So turn to next page, Page seven. Both properties are in Stockholm. So we start with the left. It's Trollesunds Quarter in Van Tagen, where we have completed the last 48 apartments out of a total of 158. So now this whole project is completed. And to the right, it's Umami Park Stage 1A. We occupied the last 38 of a total of 147 apartments, and even this is now fully completed. Now turn to next page, Page eight. I start to look at the income statement and the net operating income, which has increased by SEK 25,000,000, and we recognized the surplus ratio of 75.1%. These numbers have been negatively affected by one time effects due to the corona, which I will return to on the next page. So let's change to page nine. Rents increased by a total of SEK 40,000,000 and as you can see, new construction is what saves rents this half year. They enter the management in a very, very nice way. In the existing holdings, the total net is zero. This is because we recognized corona discounts of about SEK 30,000,000 this quarter. Worth mentioning is that this is the gross figure. We haven't recognized any support from the state yet. We are of course applying, but will not recognize anything until the day we certainly have the money on the account. During the quarter, we mainly work with discounts and just a few deferrals. Adjusted for Corona discounts, rents in comparable holding increased by just over 3%. Operating expenses increased by SEK 50,000,000 in total. Half of the increase is due to larger holding due to new construction coming into our management. It has also been a better climate in terms of management, which gives us reduced operating expenses of SEK 5,000,000. During this half year, the tariffs, for example, water and electricity has increased, among other things, which is the main reason for the increase in operating expenses of SEK 8,000,000. So in total an increase of SEK 25,000,000 in the net operating income. So please turn to next page, Page 10. In total, the occupancy rate in the commercial holding amounts to 95%. The occupancy rate fell slightly during the quarter, but not significantly. In the total holding, the occupancy rate is 98% as 100 occupancy rate in the residential. Now turn to next page, Page 11. We continue to increase our net operating income and now mostly thanks to our new construction in this half year, which I mentioned before. The surface ratio amounts to 75.1% and adjusted for corona discounts, it would have instead been 75.7%, so just the same as last year. Now turn to next page, Page 12. And now the income from property management. We keep our cost level in terms of administration at the same level as last year. We can see another corona effect in our financial expenses, which are SEK 20,000,000 higher than last year. This is mainly due to the fact that we choose to borrow earlier than we actually needed to ensure liquidity and have freedom of action in these uncertain times. But now we feel that it has started to come down a bit and we see this in the commercial paper market as well as being completely dead for a while then came back but at a higher price level, which has also affected our financial expenses negatively. Due to this, we have reduced our volume during the year. Now turn to next page, Page 13. The fixed interest term is thirty nine months and during the quarter, we hedged an additional SEK 500,000,000 with the help of interest rate derivatives with a term of eleven years. In total, we have interest rate derivatives of SEK 10,800,000,000.0 of the total debt volume of just over SEK 26,000,000,000. Now turn to next page, Page 14. If we look at the profit before changes in value, it's amounted almost to the same as last year. During the year, we divested our reorder shares, which shows a profit of SEK 4,000,000 in this quarter, but we have previously recognized unrealized changes in value of SEK 23,000,000 in previous reports. So the total profit is SEK 27,000,000 and the acquisition value was SEK 9,000,000. Our part income vendor is declining by SEK 4,000,000 during this half year. And the situation for co working looks bright and in June, they had a positive net letting and on the same level as before Corona. During the quarter, seven apartments in our project, Vazagarta, were taken over. And in total there are four apartments left to sell in this project. In this profit, there is also selling of other corrupt apartments included. Other income and expenses mainly consist of our wind power and amounted to SEK 20,000,000. There has been good wind during the quarter and we have had produced more than last year, but prices have been lower. Now turn to next page, Page 15. Overall, we have no change in value in our existing holding. However, we have some changes within the holding. In this valuation, we have included improved net operating income in our residential and we have adjusted the yield requirements in the commercial holding in the properties with the lowest yield requirement of 3.8% up to 44%. Overall, this has a marginal effect on our average yield requirements and they still amount to the level of commercial 4.5% and residential 3.2%. It's the same amount as last quarter. The value changes that we recognize come from our new construction, where we gradually recognize the surface value during the construction period. It amounts to a total of SEK $429,000,000. In total, the profit of the tax is SEK $631,000,000 and is an improvement of SEK 56,000,000 compared to last year. And now turn to next page. And now we are on the balance sheet and we start with the properties. So on the next page, we can see what the holding looks like. So we go to page 17. We have a total value of SEK 55,000,000,000 and they are divided into two twenty five properties at an area of 1,200,000 square meters. Our valuation, which I mentioned before, amounts to an average yield requirement of 4.5% in the commercial and 3.2% on residential. Now turn to next page. We have invested a total of SEK 2,100,000,000.0 in construction during this first half year as well as an additional SEK 300,000,000 in the acquisition of land or properties for future new construction. In our plan, we will invest around SEK 3,000,000,000 to SEK 4,000,000,000, and production follows this despite the corona, and we haven't chosen to postpone any project and continue as planned as we have a large demand for what we build. Now turn to Page 19. So this is what we have under construction right now. We have almost 3,000 apartments. And as you can see, we have a lot of occupations starting this autumn in the projects that are light blue here in this picture. So now turn to Page 20. I will talk about some of our projects that we have ongoing right now. And I start in the Ljubberg region and start in Mundlijk. Here is Mundliche Fabrykke, where we have now four twenty four apartments under construction and also garage with solar panels. And they are dark green, the one that we have started through St. Goggen, Tranen and Waven. In total, we will build approximately 600 apartments in this area. And you can say that you can go here to Monlicki by car in fifteen minutes from Gothenburg. Now turn to next page. So we go from Monlijke into Gothenburg. We will see Kalubeks Craster before we come into Gothenburg. It's five minutes from Gothenburg, and this is a nice area that we fill with residentials. We have now seven zero one apartments ongoing in three different projects, and it's the non white properties that we have started, but we will also build the white ones. And after that, we have built just around 2,000 apartments in this area. We have also commercial project here to the right of the white buildings, just beside the way. Now turn to Page 22. Across the road from Kalibec, we are building three thirty six rental apartments in El Nizadal that are ready to occupy gradually from October year. So now turn to Page 23. And then we go to Stockholm. This is Umami in Sunda Valley. Here we have completed an entire property of 147 apartments this quarter. And in addition, we have three fifty apartments under construction here in three different projects, where two of the projects begin to be occupied during this autumn winter. So in total, when we have built everything in Umami, we have built around 900 apartments here. So this will also be a nice area. Now turn to Page 24. Another project in Stockholm region is Sarak Satyr in Ustrokel. This is our second project here in Ustrokel, where we will complete these three zero five apartments this autumn. But all of those projects that are so when there are so many apartments, the occupation is gradually, so it's not at the same time we occupy all the apartments. So it starts this autumn. Now turn to Page 25. In Harningen, you have these two projects, Parkstoket 1 And 2, of in total two eighty five apartments, and they will also be completed during these next six months. Here, we will also test co living in one of these properties through the company CoLive, where we also are an owner. Now turn to Page 26. And now go to our financing. As I mentioned earlier, a priority at the beginning of the pandemic was to secure our liquidity in order to have a greater freedom of action in these uncertain times. We have therefore borrowed capital in advance and have SEK $922,000,000 in cash and cash equivalents. Our interest bearing liabilities have increased by SEK 2,500,000,000.0 this year and the average debt is SEK 3,200,000,000.0 higher compared same period last year. And on next page, I will tell you more. So please turn to Page 27. As you can see in the graph to the right, we have reduced our commercial paper volume from the previous year and instead increased the CPAP volume by basically half during the year and it now amounts to SEK 2,000,000,000. We have a backup linked to the CP program, but we have not used it. In total, we have SEK 7,200,000,000.0 in available liquidity. Now turn to Page 28. Here is a selection of some key figures as a summary of the half year. We have an increased net operating income of SEK 25,000,000 and a surplus ratio adjusted from corona discounts at basically the same level as the previous year. Here you can see it's $75,100,000 but adjusted it's $75,700,000 like I mentioned earlier. Our changes in value in our new construction are the only changes in value that we recognize and they amount to SEK $429,000,000 for this first half year. We recognize an LTV of 46% and an equity ratio of 42%. Our net asset value amounts to NOK 93.8, and it's also the net asset value that we have as a goal, and that we can follow on the next page. So please change Page to 29. Our goal, like most of you know, like at the moment, is NOK 40 in net asset value growth during this business plan. Up to today, we have created 14.6 kroner, which means we have created 2.5 kroner this first half year. So in summary, we feel secure with our business model and our property holding, which we manage together with our new construction and we see a bright future in front of us. And I will thank you for listening and please send me some questions if you have any. So and I wish you also a happy summer. Thank you.