Thank you. Good morning and welcome to the first quarter 2017 for Wallenstam. It is a lovely spring weather outside, and we also have a sunny result to present today. Let us turn to Page 2 . The first quarter shows evidence of a successful business model. We have a cost-efficient new construction, which has come into our management, and we have the properties at the right places so we can achieve good levels of renegotiations with our commercial tenants. After almost two years, we also have a rental agreement with the Gothenburg Tenant Association, and it is from the 1st of April 2017. We received more land allocations during this quarter. We fill up our project portfolio all the time, and it is for our future projects. One example is in Barkarby, where we became an anchor developer and get allocation of at least 100 apartments.
We also got around 320 apartments in land allocation in Mölndal, close to Gothenburg. In March, we signed an agreement with Castellum, where we buy two properties for further new constructions of residential properties. One is in Kallebäck, where we have a huge urban development project already, which we will start here in the close future. We also bought a property in Mölnlycke, where we also are going to start some new constructions. Castellum buys two commercial properties from us in Mölndal. The properties will be taken into possession on the 15th of December this year. From 1st of July, Marina Fritsche will be the new member of the group management team when Thomas Dahl leaves his position in the June 13th. Now turning to Page 3 . We have completed one new construction during this first quarter, and it is Stallbacken Punkt1.
We started to occupy this property at the end of last year. It is in total three properties, and now it is the last one in this project. We moved in in 75 apartments in March this year, and we occupied 113 apartments last year. It is a project of total 188 apartments. Now we have four phases left here in Stallbacken, where we have started three of them, and we have one left for start during the year. Now turning to Page 4 . In accordance with our contract with Willhem, they took the property Vildvinet into possession in February this year. After this transaction, we have two properties left. It is Stengläntan in Mariastaden in Helsingborg, and also a future project in Pålsjö which we will start here now in the future. After this transaction, we do not have any more properties in Helsingborg.
Now turning to Page 5. We have around 1,900 apartments under construction at the end of March. As you have seen, we have no starts during the first quarter, but we plan to start a lot more in the coming quarters. We keep to our guideline of starting 7,500 apartments during this business plan. Nothing is changed there. Now turning to Page 6 . Go on with our financial information for the first quarter and turn to Page 7 . I will start to talk a little bit about our income from property management, which has increased by 14%, and the rental income increased by almost 4% in our comparable holdings and around 4% because of our completed new construction coming into management. The operating expenses are almost at the same level as last year.
Now we will turn to Page 8. I will go into detail in the different parts in the net operating income. Now I am on Page 8. The net operating income increased by 8% compared to last year. If we start with the rental income, we can see that the new construction increased by SEK 14 million compared to last year. It is our new construction coming into management during quarter two, three, and four, and quarter one this year. We also have a successful letting, as I said when I started my conference call. We had good renegotiations with our commercial tenants. That is the biggest part of those SEK 16 million, but it is also from our residential properties. We have sold properties which affect SEK 9 million minus in the rental income.
It is the sellings which we did in quarter two, three and four last year and the first quarter this year. It has been business this year. This in total means an increase by SEK 21 million in rental income. If we move on to our operating expenses, we have also there the new construction with -SEK 2 million. If you see the rental income of SEK 14 million and the operating expenses of SEK 2 million, the new construction creates a surplus ratio of 86%. It has also been a warmer climate this quarter compared to last quarter last year, which affects SEK 3 million. We also have higher property maintenance of SEK 3 million. The property sales affects positively here in the operating expenses with SEK 4 million, which means the operating expenses is SEK 1 million lower compared to last year.
This together creates a net operating income of SEK 22 million higher compared to last year. Now turning to Page 9. Our property holdings gets more efficient for every year. It has increased almost 80% per square meter during the last five years. We have sold our unstrategic properties and have no transaction plans of properties that we do not want to own. We think that we have the right property holdings right now. That feels reassuring when the new tax proposal was released. The main worry for us with that proposal is that it can affect the new construction in a negative way if it affects the supply of land selling. It is just a proposal, so we do not know how it will end. It is sent out for consultation and will not be included in the forthcoming autumn budget. We just have to wait and see.
Now turning to Page 10. I will start with the income from natural energy operations, which has increased SEK 26 million compared to last year. It is +SEK 8 million. The main reason is that we sold energy certificates on forward prices. As you may know, the energy certificate prices are very low at the moment, but because of the forward prices, we sold those energy certificates at an average price of SEK 155 per certificate compared to the market price at the moment of SEK 80 per certificate. Then move on to the revenues and expenses of co-op apartments and development property sales. I told you before that we have one transaction this year, the divestment of Vildvinet.
Vildvinet consists of two properties or five properties, but one property which are a new construction property that we build, and then when it is ready, we sell it. We have to recognize that divestment in another way. For the new constructed property, the revenue and expenses are on the co-op apartment and development property sales line. The four other properties in Vildvinet 1, which are the existing older properties, which we have refurbished, the realized changes in that comes on the realized changes in value line. Hope you understand, but we have to recognize it like this. Now turning to Page 11. Move on to the unrealized changes in value. In total, SEK 369 million. From the new construction, it is SEK 132 million. From others, from our existing properties, it is SEK 237 million. We have not changed our yield requirements. They are at the same level as at year-end.
It is because of higher net operating income, which gives us higher value in our existing properties. For the new construction we have last year, you can see it was SEK 279 million. It was a post there of SEK 100 million. We cannot compare those figures because we have those SEK 100 million there from changes. We changed the way to value the new construction last quarter. Now turning to Page 12, start with the investment properties. It is around SEK 37 billion in investment properties, and those SEK 37 billion includes SEK 3.6 billion under construction projects, so they do not give us a cash flow. We also have work in progress under current assets, and it is the co-op apartments as well as the properties that we build for sale. It is amounted to SEK 765 million.
Now turning to Page 13. The total equity are SEK 3 billion up compared to last March 2016. It is SEK 18.3 billion. As I always tell you, we have also a deficit in derivatives, which affects us with around SEK 800 million. We have around SEK 1 billion in increased interest-bearing liabilities compared to last year. How they are shared, you can see on next Page 14. We keep the same financing as before. It is 75% bank loans and commercial papers 16%. We have increased our interest-bearing liabilities, but it is the same share between bank loans and commercial papers. Now turning to Page 15. Move on to our goals. We want to create a net asset value growth of at least 10% annually. On average for those 12 rolling months, we have created 23.5%. It means it is SEK 600 million during this first quarter.
On page 16, next page, we can see how it has been increased. We started with the income from property management of around SEK 200 million, and our unrealized changes from our new construction with around SEK 130 million, and the unrealized value changes in the existing properties of around SEK 230 million. We have realized value changes of around SEK 50 million and others like tax and so on. Which means that we have created SEK 600 million during this first quarter.
Now turning to Page 17 and some key ratios. The surplus ratio shows that we have a more efficient property holdings. We recognize this 73% in surplus ratio, compared to 71% last year. We have an ICR of 6.5[x], and it is the same level as the year before. We have an average interest rate of 2.8%. The LTV of 41%, we get a more stable financial position for every year. So now it is as low as 41% compared to 44% last year. And, like I said before, it feels reassuring with our future investments to have this low LTV. The equity per assets ratio recognized at 46% compared to 43%. Now turning to Page 18. With this short presentation, I am now ready for questions.
Thank you. Ladies and gentlemen, if you have a question for the speaker, then please press zero one on your telephone keypad now. That is zero one to register for a question. There will be a brief pause while questions are being registered. Our first question comes from the line of Erik Granström from Carnegie. Please go ahead. Your line is now open.
Thank you. Good morning. I have about three questions, and I will just start off with the P&L. The cost control obviously continues. It is very good operating surplus margin, I must say, in a Q1. You mentioned the mild weather, but it seems that underlying you are improving that as well. My question is perhaps on central costs. They seem at least surprised me of being a little bit higher than I expected, and you stated that they were about SEK 2 million higher than last year. Could you give us some more information as to why central costs were so much higher this Q1 versus what we saw for most of last year?
Yes. It will not be this for the whole year. It is one-time post, you can say. You cannot just take those SEK 51 million, multiply with four and get for the year. So you can say the SEK 2 million, it is because of one-time post.
Okay. So there were basically some extraordinary costs related to Q1.
Yes.
Okay. Fine. Then my question is on the number of starts in terms of your construction. You mentioned early on in the presentation that you are sticking to the aim of starting 7,500 units by the end of 2018. But I was just wondering, could you explain a little bit how you anticipate to increase production that dramatically in the coming quarters? Because it just seems like it is a very tall task to reach that at this point.
Yes. We follow it all the time, and we wait for the planning process to go through. As soon as we get it, we start it. The plan, as I said, is to start those 7,500 until 2018. So that is the only thing I can say, that we keep on with this guideline.
Okay. But to me then it seems like it is more about the planning process versus the municipalities rather than a capacity issue, because obviously the construction market is very strong right now, and I would assume that that makes capacity perhaps a little more scarce than normally. But you are saying that it has nothing to do with capacity in the market or your ability to start. It has more to do with the planning process. Is that the way that we should interpret it?
Yes. That is correct. We have the capacity and we use our capacity to get new land. We use the capacity that we have and wait until we can start and wait for the planning process so we can start. That is correct.
Okay. Finally, have you seen any cost inflation in the market? There is a lot of talk about capacity being scarce, and that obviously pushes prices as well. How do you handle that? Or have you seen any, and how do you handle cost pressure in the construction sector right now?
Yes. We see that as everyone else, but we work with a very cost-efficient production, and we work with the cost all the time. We have to do that because we build rentals, and we have to be efficient with every square meter and krona per square meter in production costs. We have those 13,000 future projects, and when we go to a contractor worker with those in pipeline, it is good to have Wallenstam as a customer because we have those in a long-term future.
Okay, good. Thank you very much. Those were all the questions I had.
Thank you.
Our next question comes from the line of Albin Sandberg from Handelsbanken. Please go ahead.
Yes. Hi there. Three questions from my side. Following up on the starts questions. If you go back and look when you reported Q4, were your expectations that Q1 would show zero starts or did something happen or not happen in Q1 that made you push those starts into the rest of the year?
No. We know already in Q4 that it won't be any starts, maybe because it can be one or two months, and you can never know if it will be in March, April, or May sometimes. But we knew that quarter one, maybe it could be a start, but it follows our plan.
Okay. Yeah. The comments you were making on the natural energy side, just so I understand that right. You basically said you had sold on forward prices. How long is that kind of covered? When will your sale reach more spot levels? Do you have any visibility of that that you can share?
You can say that in March every year, you have to have the certificates in your portfolio. Everyone who sells energy has to have the energy certificates in their portfolio. In March every year, we sell, and we have already now sold certificates for the year 2018 and 2019. That is what I can say—
Okay.
—that is at a higher level compared to the prices today.
Yeah. Can you say if those prices are enough for you to show a positive result in the energy business?
I can't say that because it is so many things that affect these operations. It is the energy price, and we also write down our wind power at a high level.
Yeah. Okay. So those depreciations, they are included in those things?
Depreciation, yes.
Yeah. Okay, sure.
Thank you.
Then also just finally, your mention about tax, I just got that fully right. So you said the risk that you viewed was potentially the impact on selling of land. I am just thinking for you being a residential rental producer mainly, do you think that would have an impact to your operations or was it more of a general comment on the overall market, just to be clear?
We wait and see what the final proposal will be because we have to wait and see what happens with the interest rates. So it is hard to answer that question because you do not know what it will be at the end—
Sure.
—but we will give our consultation in this question.
Yeah. But if we assume as the tax proposal is out now and the way it looks like, do you think that would have any implication on your residential rental production?
Maybe in the future, but at the moment, like I said, that we have sold the properties that we don't want to own, and we have already land for our future projects for many years in front of us. But in the long term, when those 12,000 apartments are completed, then we have a problem, like everyone else. So it's for the whole country, I guess, but we have to wait and see.
Yeah. But obviously it doesn't change your current business plan since you're reiterating those 2018 targets.
No
I guess your way to operate going forward is—
Yes
—is unchanged.
We don't change our strategy because of a proposal, no.
Okay. Those were my questions. Thank you.
Thank you.
Our next question comes from the line of Niclas Höglund from Nordea. Please go ahead.
Yes. Good morning. Niclas Höglund here. Just three questions, if I may. First, on financing cost. Your average financing cost towards the end of the quarter are coming up from extremely low level. Could you elaborate a little bit if you have increased your capital duration? And maybe give us some help here on how much of interest cost that you activate, and if you will continue to do that with the projects that you have ongoing. Thank you.
Yes. Your line was a bit shaky there, but I heard that you asked about the capitalized interest rate, and it's SEK 17 million during this first quarter.
Okay. On the average financing cost towards the end of the period that it's coming up with 10 basis points, could you elaborate the reason? Have you moved out of the curve? Have you increased your capital duration? Thank you.
We have increased our derivatives by SEK 400 million during this first quarter.
Okay. My second question. You talked about that you finally have made an agreement with the Gothenburg Municipality on the rental level. Could you talk a little bit on the impact on valuation linked to this agreement and maybe the basis and levels, if it is a one or a two-year impact?
Yes. It is on average 1.3% in increased rents. Yes. It affects our value in our properties.
Okay, my final question. You talked a little bit about the tax proposals, you also said that we had to wait and see what will happen with interest rate deductibility. On that note, you are running with slightly lower EBITDA than most of your sector peers linked to projects and of course your residential exposure. How would you mitigate the risks for a lower interest rate deductibility going forward? Do you see opportunity to invest more towards commercial properties in order to strengthen your EBITDA, given that you have a very low loan-to-value today?
Our strategy is just at the moment to construct residential properties. We do not have a goal to have a 40% in LTV or 50%. So we keep on with our business model, and if the moment is right and the property is right, maybe we can buy a commercial property like we did Axesshuset here in Haga in Gothenburg. But we will invest our money in our new construction of residential properties. That will affect the LTV a little bit, but not so much because we create such a high surplus value in our new construction. So it does not affect the LTV that much.
Fair enough. Those were my questions. Thank you.
Thank you.
As a reminder, if you do have a question for the speaker, then please press zero one on your telephone keypad now. Our next question comes from the line of Simen Mortensen from DNB Markets. Please go ahead. Your line is now open.
Yes. Hello. This is Simen. Most of my question has already been asked already. I can follow up on the tax case. My question would be, how are you adapting these white papers, which is out there, and the new which is coming, when you are now budgeting and planning new developments? Are you taking them into account in estimating the value or selling price at all?
Hello, Simen. No. I can say the answer is No. Because mainly, we do not build to sell. We mainly keep our properties in our own management. So if we had the strategy just to build and then to sell, then maybe we would have been more shaky than we are. So the answer is, like I said before, we just have to wait and see. If it will affect our new construction, we will tell the government that it is tough because it is not good for Sweden. Yes.
Okay. I understand your take on that. All the other questions have already been asked, so thank you.
Thank you.
As there are no further questions registered, I will return the conference back to Susann.
Thank you very much for all your questions, and I wish you a good Wednesday. Thank you. Bye.