For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead.
Thank you, and welcome to this presentation of Wihlborgs First-Half Report 2024. Curiosity, knowledge, and grit, important factors for sustainable business. I'm very proud of being a part of Wihlborgs and that our strategy for long-term stability and growth seems to work. We change a bit every day, trying to avoid drama, planning a long time ahead to be prepared also when changes come, and most of all, we really love our core business. To be there for our tenants, knowing our products really well, improving techniques, and finding new and more efficient solutions along the way. Also important, working in close relation with our municipalities to contribute and improve the cities. That is why we call us a relation and region builder. Let's go to our report, and we start with a summary of Q2.
A new record in operating surplus for one quarter: SEK 764 million. Since focusing on cash flow and cost control in operation, this has a meaning for us. Net letting positive at quite high numbers. The demand for good quality and good location continues. Higher financing costs but an ICR at 2.5x, and our project volume gives a good potential for growth. Results for the first half: 2024. Rental income increased by 7% to SEK 2,072,000,000 billion, and rents increased more since service costs decreased. The operating surplus increased by 7% to SEK 1,482,000,000 billion, and income from property management amounted to SEK 804 million, affected by higher financial cost. The result for the period amounts to SEK 688 million, corresponding to SEK 2.27 per share, and EPRA NRV has increased by 2% to SEK 88.72 per share, adjusted for paid dividend.
A comparison over the rental income: first half 2023 and first half 2024. Indexation: +SEK 88 million. One-off from Q1: SEK 20 million. Acquisition: +SEK 6 million. Property tax has increased in Denmark, and that gives extra income of SEK 5 million. Currency effect: +SEK 3 million. Supplementary billing and income from canteens decreased by SEK 12 million, and completed projects, new leases, and renegotiations: +SEK 27 million. We have signed new leases for the last quarter of SEK 94 million-SEK 270 million in the period. The positive net letting for the quarter is SEK 21 million and SEK 50 million for the period. The high activity continues in all our four cities, and I'm very grateful to the whole organization that works hard, listens to our customers, and finds really good solutions.
Also, the last quarter, we have succeeded to switch tenants in the same area almost from one day to the next, but even if we always have discussions ongoing, this is not the normal procedure. We have just started July, but I feel positive also for the fall. Some of our new tenants that we have signed during Q2 on this slide, and as always, a wide spread of many tenants in many sectors contributes to a growing market. Here we have schools, consultants, logistics, tech companies, and the governmental sector represented. Here we have the net letting in historical perspective. Letting in light green, terminations in light blue, and dark blue stacks are the net letting. Now 37 positive quarters in a row, and even if we don't hit new records in volume, the net letting of SEK 21 million is a good level.
No promises ahead, but we do everything we can, every single day, to continue. We love our core operation, and this is the heart of the core. The list of our 10 largest tenants in alphabetic order: strong customers, and they contribute with 20% of our rental income. Seven out of 10 are governmental tenants. The rental income from public tenants is in total 23%, and they contribute to long-term stability in our cash flow. Rental value, as of 1st July, is SEK 4,490,000,000 billion per year, and rental income SEK 4,102,000,000 billion, + 5%. A good part is, of course, indexation, and let's remember that indexation in Denmark and Sweden has been quite different during 2023. Approximately 1% in Denmark and 6.5% in Sweden.
In Sweden, the indexation is made once a year with October CPI as the base, but in Denmark, the indexation is made all year round depending on when the lease was signed. So, low inflation in Denmark affects these figures. Looking at like-for-like figures, comparing the properties we owned a year ago with updated figures, we can see that the rental value is up 6%, and rental income is up 5.3%. If we just look at offices in Sweden, rental value is up 6.7% in like-for-like. Let's look at changes in the market value of our properties. We started the year with SEK 55,872,000,000 billion in accordance with our 100% external valuation.
Acquisition adds on SEK 201 million, investments SEK 1,040,000,000 billion, divestment - SEK 4 million, changes in valuation -SEK 31 million, and together with currency translations of SEK 107 million, that summarized to SEK 57,159,000,000 billion .
The value of the portfolio has developed, as you can see on this slide, since 2005, without raising any new equity. With investments, new leases, and a few transactions we have also during the last years with rapidly higher yield requirements, we've been able to increase the value somewhat. Valuation is interesting, but most of all, it's interesting to measure how we actually perform in relation to these values. These figures, the running yield, show how we actually perform. So, this is not the valuation yield. For the whole portfolio, the occupancy rate is 93%, excluding project and land, and with an operating surplus of SEK 3,091,000,000 billion, that gives a running yield of 5.7%. Fully let, the portfolio would give a running yield of 6.3%. Good earnings capacity in relation to the value of the portfolio.
In the office portfolio, the market value now is SEK 46.5 billion, and overall, the occupancy rate is 93%. 96% in Malmö, a high level, 91% in Helsingborg and Lund, and 92% in Copenhagen. When we add new projects to the market or buy vacancy, that can affect the figures downwards a bit, but we have kept the numbers at good levels despite that. In the best days, we can improve a bit, except in Malmö, but we see positive changes over time, not at least in Lund, where the improvement has been ongoing for some years. The operating surplus from offices summarized to SEK 2.6 billion and a running yield of 5.6%, 6.1% fully let. This brings stability and resilience. The demand for logistics and production continues to be good.
Occupancy 94% in Malmö, 85% in Helsingborg, a bit lower, mainly according to changes between tenants, 98% in Lund and 97% in Copenhagen. 90% occupancy rate as a whole with a running yield of 6.7%, 7.6% fully let. A total value of SEK 7,371,000,000 billion. High flexibility and changes at a faster pace is especially important for logistics in this segment. Production seems to be more persistent and focused on high quality. Development of our total portfolio, running yield 5.7%, brings stability, not at least since the portfolio overall has high quality and good locations, but a quick increase of the running yield since 2021. ESG performance at this slide. We continue with our certification program. Now 85% of the Swedish office portfolio is approved. Energy savings are also of highest interest, and we continue to improve here as well.
The carbon dioxide figures are at low levels for Scope one and two, but affected by a breakdown in a cooling machine at one of our district cooling suppliers. This proves how important it is that we continue to influence their production methods as well. Other sustainability actions I would like to point out are Blekhornet 1, first in Sweden with a new manual for Miljöbyggnad 4.0, which also includes parameters in line with the EU taxonomy. We have gold level here. We start our first larger battery storage in Lund, a way to also contribute to balancing the electric supply system. We have new requirements for procurement of solar cells, which includes demands for people and production methods. Will give us some headache for some time, I guess, but the only way to go.
Continue our work with climate adaptation, especially heavy rain and rising water levels, now also with a more scientific method. And our geolösningar are fitted in everywhere we can, saving a lot of energy. Lately, we have also found methods to get away with our energy suppliers to improve the business model for this, and this will improve the economic numbers further. A catalog of our value and properties in our four cities: 40% of the value in Malmö, 22% in Helsingborg, 16% in Lund, and 22% in Copenhagen. Last time, I mentioned the massive ongoing infrastructure investment in Denmark and the construction of the Fehmarnbelt tunnel, which are ongoing.
And this time, I would like to comment a bit on how the commuting possibilities in the Swedish part of the Öresund region contribute to making it easier for people to actually meet, easier to get to work, easier to choose where to live, and still have several interesting job possibilities close by. The white connected areas in this picture show how far you can live from the city center and commute in less than 30 minutes. All our four cities are connected in this pattern, and I'm totally convinced that this increases the attractiveness of actually working at work. Together with your colleagues and on the next level, I'm totally convinced that this affects the productivity, interaction, and innovation in companies and also in the region. It's fun to work together, but it must be reasonably easy to meet. And time for financials. Over to you, Arvid.
Thank you very much, Ulrika, and good morning, everyone. We can see that rental income increased by 7% to SEK 1,032,000,000 billion, and operating surplus increased by 6% to SEK 764 million. As Ulrika mentioned, that is actually a record number for an individual quarter when it comes to operating surplus. Income from property management amounted to SEK 460 million, which is -6%, affected by higher financing costs, and we'll get back to that in a few slides. With small positive value changes regarding our properties in the quarter, +SEK 28 million, valuation yields are basically flat, and then we'll see what happens with valuation yields going forward. It is, of course, interesting to watch what central banks will do to the rates during the second half of the year and how that may affect valuation yields. We had a profit for the period amounting to SEK 350 million.
Looking at the balance sheet, investment properties versus 12 months previously increased in value by SEK 500 million- SEK 57.2 billion. Equity decreased by approximately SEK 1 billion. You shall, of course, remember that we paid approximately SEK 1 billion in dividends during Q2. In the same time perspective, our borrowings increased by SEK 1.1 billion. Translating that into key ratios, you can see that the equity ratio now stands at 37.6% and the LTV at 51.8%. The LTV has, of course, been affected by the dividend payments, and that effect corresponds to basically one point or approximately 1.7 percentage points on the LTV number. It can be worthwhile keeping in mind. The interest cover ratio multiple is now 2.5x. The EPRA NRV, as Ulrika mentioned, increased 2% versus 12 months previously, adjusted for dividends, and now stands at SEK 88.74.
On the next slide, you can see the historic development of EPRA NRV. Since 2009, we still have an average annual growth rate of 15% in this number, adjusted for dividends, of course. The historic development of our financial ratios is visible on this slide. Equity assets ratio at 38%, the LTV at 52%, and interest cover ratio at 2.5x. We also, on the next slide, have a financial metric we've been talking about for several years now, which we feel is relevant for showing our financial stability. Net debt in relation to EBITDA stands at 10.2x, which is the same as last quarter. As you can see on the graph, actually a slight improvement over the past couple of years, which I think is positive given what the world has looked like in that period of time.
Looking at our financing, we still have approximately half of our financing from bilateral bank agreements with Nordic banks. Approximately 40% of the financing from the Danish real mortgage system and now 10% from the bond market. As you are aware, the bond market has improved significantly over the past six to nine months. We issued a bond a few weeks back, a 3.25-year bond with a margin of 123 basis points. That is, of course, a huge improvement over a nine-month period and quite competitive now versus secured bank financing. Bank financing has also improved over the past six to nine months. Looking at the next slide, you can see the details of our loan portfolio. The average interest rate, excluding costs for credit facilities, is 4.05%. That is slightly up during the quarter versus a quarter ago.
We've had an effect of lower STIBOR, which has affected this number by approximately -10 basis points. At the same time, we've had interest rate swaps at very attractive levels expiring, which has affected this number upwards by approximately 10 basis points. Then we've also had an upwards effect, partly from increased debt, but also renegotiated bank agreements, which have a slightly higher margin than the previous agreements had. To put that into perspective, you can say that the agreements we have renegotiated, the last time we did renegotiate those contracts or bank facilities was approximately three years ago. So the world looked slightly different at that point in time. Going forward, you can bear in mind that we still have some advantageous interest rate swaps, which will expire, as you can see in the table in our report.
We have, of course, expectations of further central bank rate cuts during the second half, which will improve the situation. You can also bear in mind that you have some new regulatory changes regarding capital requirements in the Danish real mortgage system, which may affect those margins slightly upwards. Looking at interest rate sensitivity, you have a graph showing that on this slide. The conclusion from the slide is basically that the underlying interest rate, STIBOR, can increase by 1.5 percentage points, and we would still be at an interest cover ratio of 2x , which is our stated targets. The underlying rate could actually increase as much as 5 percentage points, and we would still meet our bank covenants of 1.5x interest cover ratio. The fixed interest period and the loan maturity on the next slide.
Fixed interest period now stands at 2.5 years, and the loan maturity at 5.9 years. Last of the financial slides, we track our available funds, that is, unutilized credit facilities plus liquid funds, which at the end of June stands at SEK 2.8 billion. With that, I hand the word back to you, Ulrika.
Thank you. Acquisition and transaction. The transaction market is there and possibilities arise, but no reason for us to get wild. When the right opportunity is there, we can act. During Q2, we have acquired land for our project Källdiket at Galoppen, and we have also acquired this property, Värdshuset 2 in Malmö. Not the largest ever seen, but a good possibility for us. Almost 4,000 square meters at best location in Hyllie, actually on top of the train station.
Property value SEK 180.5 million, and it includes some vacancy and a very poor energy classification. Here we know that we can add knowledge and improve value by that. An update on our investment in progress and a quick overview of our largest projects. During the first half of the year, we have invested SEK 1,040,000,000 billion, and it remains SEK 3,103,000,000 billion to invest in improved projects. We have quite quickly been able to improve yield on costs in our projects and adjusting to higher yield requirements. The volume that we have been able to continue with the last year gives a solid foundation for our growth. This is the kind of possibilities that stabilities and good cash flow gives.
We got the opportunity to buy land from the municipality of Malmö at Galoppen, and here we will build a facility for Källdiket , approximately 10,000 square meters , production, logistics, and office. Total investment SEK 264 million and completion in Q3 2025 and yield on cost 7%. Another new project is Kranen 4, a rising star in our portfolio, showing possibilities in the most unexpected places. Almost down for the count in an area waiting for a new zoning plan, and the most likely thing was that these premises would be demolished. Instead, we will be able to transform the building for the police education at Malmö University. We invest SEK 106 million, 10 years lease, and yield on cost of 11%. Completion in Q3 2025. Börshuset 1 in Malmö is also under transformation, but at another level. We knew this was good when we started.
An iconic building right beside the train station, 6,000 square meters offices, restaurant, and co-working at absolute top rents in Malmö perspective. Approximately 60% pre-let and completion in Q4 2025. Our largest ongoing project is Blekhornet 1 in Hyllie, the one I mentioned with the Miljöbyggnad 4 certification. It follows the schedule well. First completion of the mobility hub later this year, and for the office completion starts in Q4 2025. Yield on cost 6.2%. Posthornet 1, phase II, a new build office at 10,100 square meters in the center, right beside the center station in Lund. Investment of SEK 448 million includes value of the land, SEK 374 million excluding land. Completion with start Q1 2026 and yield on cost 6.5%.
Ongoing discussion for at least 5,000 square meters. In Hørsholm, Copenhagen, we invest for a new school for NGG, 25 years lease, 11,600 square meters and investment SEK 390 million.
The building process has started well, and completion is expected to end 2025. The facility for Nederman with a 20-year lease at Rausgård 21 in Helsingborg will be completed in Q3 this year. Investment SEK 420 million or SEK 370 million excluding cost for land, and also that includes a new shelter and a considerable amount of environmental decontamination. We also continue our project for Rollco at Storskogen 5 in Helsingborg with a yield on cost of 7.1%. At Sunnanå 1254, we build the 17,000 square meters logistic, 100% pre-let at a 15 years lease with completion in Q3 2025, yield on cost 6.4%. Bildrutan 5 in Landskrona, included in our Helsingborg portfolio. Here we will complete a facility for Dachser late this year at an efficient time schedule with a 15 years lease and the yield on cost including value of the land is 6.7%.
Here we can add on some extra volume to increase the value further. That was some of the ongoing portfolio, and let's also mention something about future investments. Amphitrite in Malmö, where we have signed an agreement with Malmö University after a Public Procurement Act to create a project together. Approximately 15,000 square meters. Now the architectural competition is completed, and we can continue with the zoning plan. Time schedule indicates a possible project completion in Q2 2027, but it's a bit early to say. Four possible projects in Lund and Helsingborg. Here we can develop some 70,000 square meters in the future. Zoning plans are approved for the first three projects. Some office possibilities in Malmö in the area of Nyhamnen and Dockan continues to have high attention from us.
Not any new pictures on this side, but actually there are things going on at Nyhamnen and Kranen 15. Promises or action from the municipality? Time will tell. Our summary again. A new record in operating surplus for one quarter, SEK 764 million. Net letting positive at quite high numbers. Demand for good quality in good location continues. Higher financing costs, but ICR at 2.5x. Our project volume gives a good potential for growth. With that, we are open for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from John Vuong from Van Lanschot Kempen. Please go ahead.
Hi, good morning. Thanks for the presentation. I'm just looking at the net letting chart. Both new leases and terminations seem much more normalized compared to the outliers we saw the past two quarters. Are we back to a more normal operating environment, or is it still possible that we could still see large numbers going either way?
I think it's hard to say what normal is, of course, as usual. I think that we will continue to see new demands, and we think that is a good thing. We don't see any drama in this, and I think that we have, most of all, it's important for us that we know that we have the organization that can handle both high numbers and more of what we saw back in the days, a normal level. I know that we have started Q3 very well. So it's hard to say what a new normal level is, but I don't see any drama going on today.
Okay, that's fair. And just on the battery storage investments, is this a test pilot that you're doing in Lund, or do you see scopes to roll this out in more projects? And could you perhaps talk about the economics of this battery storage?
We have two projects ongoing on the battery storage. We think it's, I mean, the business model is working well. Of course, hard to predict how many years will you get this economical upside. So we kind of calculate that in a quite shorter time perspective. I think it's both a good, I mean, depending on the situation after 10 years or so, but I think it's a good business opportunity. But most of all, it's also a contribution to balance the electric system. So it's a bit of both. Especially on premises where we have solar cells, I think it's a good combination in that.
Okay, thank you. And then just by the sounds of it, you could do this more with projects that you're also placing solar cells on in the future.
Exactly. That's the best combination when we have larger solar cells panels. And so we both have the production side and the storage side at the same property.
Okay, that's clear. Thank you.
The next question comes from Lars Norrby from SEB. Please go ahead.
Thank you. And good morning, Ulrika. Good morning, Arvid.
Morning.
My question is, you showed an interesting chart, the one about commuting time. So just let me ask you link to that one. Thinking about office properties, and we've seen cases of several cases of companies and entities downsizing office space for employees, at least in Stockholm. So let me ask you, in the areas that you operate, what's your picture on that? Do you see examples of that? And if so, is that related to remote working, or what's the reason?
We see examples of both, I would say. So we have mentioned examples before, especially for larger international companies making the decision elsewhere that they have decided to decrease the number of square meters per employee. But we also see examples of growth, of course. And I think I mentioned this before, but the latest trend is that we don't focus on downsizing the areas. It's more of a quality you need and adding on actually areas for more focused work. More single rooms, more, I mean, you need some space for people to feel really comfortable. So it's more about how can we perform the best workplace for our employees since it's still a struggle about finding the best competence and the best employees.
That's the main driver, I would say. So high quality, good location. Of course, you try to be efficient, but you have to add on also areas for more focused work where you need some space, actually. So we see a bit of both.
Okay, and just hanging on to, I can say, demand in the market. Obviously, you're reporting once again good, I would say, net letting numbers. At the same time, I think you point out that economic conditions have remained weak. And let me ask just, is it still the case that negotiations, if anything, take time? Are we still in that mode, or is there any kind of change in either direction?
I think things take longer time today than it did a number of years back.
But it's also something good with that because you work more with the product, and it's really high focus on our product, actually. So our tenants want to be sure that they make the right decisions. And I think that also affects the quality of the product. And the best thing for us is that they are very satisfied when they move to us. And yes, patience is always a tricky one, of course. But yeah, maybe things take a bit of a longer time today. You are more into processes also. You need all kinds of decisions. And many international companies have a long list of processes that have to go through before they can make the final decision. So that's a part of it. But it's worth mentioning that we have a wide sector of many different businesses in our region.
I think that is the main reason why we can work well with our letting.
Final question from my side regarding growth, future growth. Obviously, CPI indexation in Sweden has propelled your revenues quite a lot over the past three years or so. Now it seems like CPI is slowing down, obviously. So you will not get that effect to the same extent going forward, probably. But then there is project development, and then there are acquisitions, two potential avenues of growth. We've seen, I think you made some acquisitions during the year, a couple of acquisitions. Will that only be a small part of your future growth, or will it very much be down to project development?
It depends on what comes up. Our own projects, we can choose where and when and the quality and how flexible we make it.
So that is the best product for us. But when we find the right opportunities also for acquisition, that could be a good part for growth. But it has to be the right product and the right location. And the example now from Q2 when we bought Värdshuset in Malmö, that's a good example. No one can doubt that the location is right. It was a good product with another kind of product than the other one we have in the area. But most of all, we can contribute and improve the building. So today, it's a lot of vacancy, and the energy consumption is in the sky. And we know that we can fix that. So that kind of acquisition is perfect for us. But I like to think that we also, ahead of us, will have a combination. But our own portfolio is, of course, very important.
We can run that on our own. The acquisition is more from time to time. We are the only ones that make decisions on that side.
Okay, thank you. Those were my questions.
Thank you.
The next question comes from Eleni Freer from Barclays. Please go ahead.
Good morning, and thank you for the presentation. Just one question from me. So thinking about your average cost of debt, given the various impacts that you described in the presentation of it, do you have a sense of where and when your average interest rate will peak?
It basically depends on your STIBOR curve forecast. If we're not at the peak, we're very close to the peak. But it basically depends on STIBOR curve.
Thanks.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Fredric Cyon from Carnegie. Please go ahead.
Good morning, Ulrika. I have only two questions for you. Starting off with the property value changes, they were obviously quite minor in the quarter. In the CEO letter, you mentioned, Ulrika, that the positive effects have been balanced by future potential vacancies. Are there any meaningful changes to vacancy expectations, or is that just a general comment?
No, it's not any news in that. Of course, the valuations are always affected by what comes ahead. We know that Saab is moving from Malmö. At least we don't know when, but we know that that is coming. It's possible for them to move in 2026. That is a part of it, taking that into consideration. That doesn't mean that we actually will have a vacancy period, but in the valuation, that is there.
Okay, thank you. And then on the vacancy rate, it's often very limited in Malmö, only 4%. Do you have too limited supply in Malmö right now in your own portfolio?
I think that we have a good balance. I'm happy that we are ongoing with Blekhornet so that we have something for the market. I think that I'm grateful if we can start with something new in Nyhamnen, not too far away. But no, I'm happy at the moment. We have things to work with, and it's always changes coming. So we have things to work with. That's a good thing.
Do you see an opportunity to start in Nyhamnen during the second half of this year? Is that too early?
That's too early. So now we're going into, well, we're in a quite early zoning plan process, actually, for Nyhamnen. But at least it has started well. So now things are happening there. That's good. And we also have other, we're not sitting still.
That's clear. Thank you.
Thank you.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you. And maybe you should check if we have any written questions.
All right. Just to make sure.
Just before we close this up. And otherwise, you are always welcome with a question outside of this meeting, of course.
We actually do have a question. Hang on a sec. It's a question regarding termination risks and the valuation. So it was basically covered by the question from Fredrik.
Okay.
Yes.
So by that.
So nothing outstanding.
Thank you for your attention. Please don't hesitate to get in contact with us if you have any further questions. By that, we wish you a good work week.
A good summer.
A good summer. Yes, of course.
Thanks. Bye.
Thank you. Bye-bye.