Earnings Call: Q3 2019

Oct 22, 2019

Summary

Net operating income rose 8% YoY, supported by rental growth and new apartments entering management. Lower swap rates contributed to nearly SEK 600 million of negative property valuation changes over nine months.

Welcome to the presentation of the third quarter of 2019. My name is Susann Linde. I am CFO and head of investor relations here at Wallenstam. Now turn to page 2. I would like to start this presentation with a sad thing that happened this quarter. Our Chairman of the Board since 15 years, Christer Villard, has passed away, and he will be missed by us all. Vice Chairman Ulrica Jansson Messing will succeed Christer until the next AGM. Now turn to page 3. Let us move on with the positive news and some of the important events during this third quarter. We have an old, beautiful building in the center of Gothenburg on Magasinsgatan, where there is only a parking garage now. It will be refurbished, and Götaplatsgruppen will start a new restaurant here. They will open in September next year, and it will be a fantastic place to visit. We always work to get new land allocations to fill up our project portfolio, and this quarter we obtained land allocation of approximately 120 apartments in Råcksta in Stockholm. We also divested one commercial property of retail of 1,800 square meter this quarter to Ramsbury, and they took over the property the 24th of September. We have also increased our shareholding in Convendum to 30% during this third quarter. We also won the prize as the listed company of the year 2018, among other companies from Nasdaq Stockholm, by winning the most points overall in the three categories, best IR website, best interim report, and best annual report, and the proof that we give you good and transparent information. Now turn to next page 4. As you all may know, we have our properties in the most growing regions in Sweden. It is Stockholm, Uppsala, and Gothenburg. The properties have a value of almost SEK 50 billion, and the average yield for the commercial is 4.6%, and for residential 3.3%. We have not changed the yield requirements this year. In total, we have almost 9,400 apartments under management, where 4,100 of them are in Gothenburg, and the rest in Stockholm, Uppsala. We have also 1,000 commercial tenants. On the graph, you can see the distribution of the rental value, and you can see that the residential is 46%, and the office premises is 26%, and retail 10%. Now turn to next page 5. We have not started any new construction this quarter, but 930 apartments earlier this year. This quarter we completed 250 apartments, and they are now fully occupied. I will talk about them on next page 6. I start with one commercial project. It is Kvarteret Sturefors in the city center of Gothenburg, where we took down an older property and created 2,000 more square meter to the city. The occupation started gradually from the beginning of September this year. 75% of the property is fully let. Now turn to page 7, and go to Stallbacken Nivå 5 in Mölndal. It is the final project here in Stallbacken in Mölndal, close to the horse racetrack you see in the left corner. It is a municipality just close to Gothenburg. This is our fifth project here, and we have built almost 600 apartments here in total. You can see Stallbacken Nivå 5 here in front of this picture. Now turn to page 8. Tre Vänner in Rosendal, Uppsala, of 141 apartments have we completed this quarter, and now we have 550 apartments in total here in Uppsala. All of these apartments are fully occupied. Now turning to page 9. Increased net operating income. Our core business is going very well, and the net operating income has increased by 8%. It is SEK 80 million better compared last year. Now turn to next page. Start with the rental income. It has increased by 6%, SEK 89 million, and almost half from the new construction coming into management. It is both from the 250 apartments which we occupied this quarter, but also from the completed apartments last quarter 2018. We also work with our existing properties of course, and the rental income has increased by SEK 37 million in those. The residential part has grown by just about 2% in like-for-like, and all the negotiations with the tenants associations are now completed. The commercial part, like-for-like, has grown by almost 6%. It is excluded on ongoing commercial projects in these figures. We also re-invoice the most part of the increased property tax, and that affect both the rental income and also the operating expenses. The operating expenses are SEK 8 million higher compared with last year, and the main reason is the bigger property holding and also higher tariffs regarding, for example, water and sanitation. As I have mentioned before, because of new accounting rules, we recognize the site leasehold rent as a financial expense from the 1st of January, which affect with SEK 8 million. Now turn to page 11. I have one favorite key figure, and it is the surplus ratio. It is because it shows how efficient our property holding is. During this last year, we have switched a lot of older residential properties into newly built, more efficient buildings instead. You can see the effect of this in this key figure. In older properties, we had 65% surplus ratio, and in a new constructed, 85%, which means we have more left from the rental income after we have paid the operating expenses. For just this quarter, it reached up to 79%, but on the rolling 12-month period, it was 75.5%. Now turn to page 12. We still see a strong commercial market in our market in the CBD area where we have our properties. In total, we recognize a net letting of SEK 8 million for this 9 months and SEK 7 million in this quarter. For example, the letting to Götaplatsgruppen in Artilleristallarna. The renegotiated agreements resulted in increased rents of an average 7%, and the vacancy rate is 4% in the commercial holding right now. Now turn to page 13. In total, the income from property management increased by 12%. The administrative expenses in total are SEK 6 million higher compared with last year, and the reason is that we have more employees and have some one-time expenses, like for example, a conference for all our employees. The financial expenses are SEK 26 million lower compared with last year. The average interest rate during the period is 26 basis points lower. The financial expenses are also affected negatively by site leasehold rent, almost SEK 9 million. Now turn to page 14. A little bit about our financing. This third quarter, we swapped another SEK 200 million in interest rate derivatives. In total, we have swapped SEK 9.7 billion. The fixed interest term is 40 months. The average interest rate during this period is 1.2%, and on closing day, 1.23%. The interest-bearing liability is SEK 2.3 billion higher compared with last year and are mainly financed through bank loans. You can see that we have almost 70% in bank loans. This quarter, we issued another green bond of SEK 500 million with a maturity of two years and with a variable interest rate of STIBOR plus 60 basis points. Now turning to page 15. The income from natural energy in these figures is not like the cash flow, like I have explained before, because the hedged income is much better than this, SEK 11 million better compared with last year. The energy certificate price is lower, which affect negatively by SEK 18 million, but the depreciations are lower with SEK 15 million compared with last year. This quarter, one more apartment was taken over by the buyer in Vasagatan 33, our co-op project. In total, we have recognized the selling of 19 apartments, six apartments this year, of 30 apartments in total. We have sold 22 apartments to date. The main part of the profit is from the selling of Mässhaken in Helsingborg. The rest of the apartments will be recognized when they are taken over by the buyer. Now turning to page 16. The value changes in investment properties amounts to just over SEK 1 billion. We have not changed any yield requirements this year. Half of the value changes is from our new construction, and the other part from the existing properties. It's both because of better NOI and also occupation of the Sturefors that affect positively. The 10-year swap rate went from 1.12 in the beginning of the year to 0.24 on closing date. That's why the value changes is almost SEK 600 million negative for these nine months. Now turn to page 17. Here is the total balance sheet, which amounts to SEK 52 billion, and the assets mainly consist of our properties. We recognize our existing properties and ongoing new construction for our own management in the post-investment properties. Development properties are the one for co-op. It's the 11 apartments left on Vasagatan and also the new construction of the block New York on Gärdet in Stockholm for the moment. Now turn to page 18. We have around 2,800 apartments under construction in both Gothenburg and Stockholm, and we have three projects which will be completed this year, Norrgårdshusen and Miami and Trollesunds Gårdar. I will say more about some projects on next page, which are ongoing right now, so let's turn to page 19. Here is how it looks today in some of our ongoing projects in Gothenburg. The first one is Elisedal in Gothenburg, which will be completed in September, October 2020, and it's 336 apartments in total. We also have to the right, Godhems Backe also in Gothenburg with 138 apartments, and it will be completed in late 2020. Now turn to next page 20. To the left, we have our big development here in Kallebäck, where we will build in total 1,800 apartments, and we have started 435 apartments right now. You can see here on the picture where we have our dots here, Kvarteret 11 and Kvarteret 9, and also Andra Kallebäck, which is the commercial area of 20,000, just beside the E6 road. Now on the right, it is Mölnlycke Fabriker in Härryda of in total 600 apartments. We have started 300 right now, and they will be occupied from the start of 2021. Both the projects will start the occupation in 2021. Now turn to page 21. Here are some of the projects in Stockholm. It is Norrgårdshusen in Österåker of 128 apartments, and the occupation will start in December this year. To the right, it is Parkstråket 1 and 2 in Haninge, which will be completed the fourth quarter of 2020. It will also be here where we will have the co-living project where they will share apartments. They will live together, and it is a project that we start then. Now turn to page 22. In Tyresö, Terrassen Elva and Allén which will be completed the first quarter next year, and it is in total 275 apartments. They will move in gradually. We also have to the right, Miami. We have completed some of the apartments already and have almost 300 apartments here under construction right now of in total 900 apartments. We will soon start a third phase here as well. Now turn to page 23. We have invested SEK 2.4 billion this year, and the main part is in new construction for residential, and the rest are the refurbishment. Around SEK 600 million in the commercial areas and the rest in residential. Mainly for rent, not co-ops. Now turn to page 24. Here are some key ratios from the third quarter. The equity/assets ratio is 43%, and the LTV is 45%, and the surplus ratio, my favorite key ratio, is almost 77%. The occupancy rate is 98%, and the rentals is 100% occupancy and 4% vacancy rate in the commercial area. The interest coverage ratio is seven times, and it is so much higher compared with last year because that we realized our interest rate derivatives last year which affected negatively. The net asset value per share is now SEK 85.70. Now turn to next page 25. In our ongoing business plan, we have one goal. It is to create SEK 40 per share in net asset value. Now we have created SEK 6.50. So it is SEK 2 just for this last quarter. Now turn to page 26. Some words about the questions. If you click on the letter symbol on the screen, you can send me some questions, and you can also look at the translation from the Swedish presentation where we translate every question and answers. Thank you for listening, and have a good day. Thank you.