Earnings Call: Q1 2021

Apr 27, 2021

Thank you. So welcome to this presentation on rework's Q1 2021. And we'll start at Page 2 with a short summary. We see that market conditions remain stable. We have positive net letting. The rent levels continue to develop in a positive and many industries experienced a good recovery. Although divestments and vacancies affect the FX, the revenue levels. But earnings in relation to debt will remain strong, and we have a solid balance sheet and liquidity position, which means that we can continue with our project investments but also ready for other investment possibilities. We continue to focus on development in the portfolio and high earnings capacity. Of course, Parts of the business are affected by this pandemic, but we are stronger than ever and ready for new investments. Our team, Deebo, continues to take every opportunity for dialogue with our customers to capture needs and trends for further change. Stability and growth continue to be important tools in these times. And we continue to Page 3 with a summary of figures for the quarter. In Q1 2021, our rental income is by divestments, as mentioned, but also some currency effects and the income summarized to SEK 738,000,000. The operating surplus to CHF 509,000,000 and income from Property Management amounts to CHF 460,000,000 also affected by higher cost of snow and heating than 2020. Actually, Q1 2021 was the coldest winter in Helsinki World for the last 10 years. That's not the kind of record that we like the most. The net results amounts to SEK 478,000,000, which corresponds to SEK 3.11 Per share and IFRS NRE increased 2% to EUR 155.59 And Page 4. Since we're not used to that our income is lower than before, it's worth mentioning the reasons. If we compare to Q1 2020, this quarter is affected by minus €24,000,000 from divestments, minus €4,000,000 COVID discounts, minus 8% as currency effects and minus 13% as lower service income, for example, parking and cantinas. Minus €20,000,000 in higher vacancy in line with the figures from Q4. And then we have a positive effect from, for example, higher rents index and new projects amounting to plus SEK 26,000,000. This picture might give some extra information even if most of its known fact since before or can be calculated. Page 5. As mentioned, we continue with positive net net net netting also in Q1, plus €9,000,000 We have signed leases for €56,000,000 and termination summarized to €47,000,000 There is business to be done and the rent levels are moving in the right direction. This quarter, new signed agreements are and 9% higher level than terminations. But of course, it's always difficult to draw conclusions from a mix of deals. The net netting in historical perspective at Page 6. Positive figures for the last 24 quarters. And of course, that's not any a guarantee that we will never be below 0. But overall, this proves that we have a good potential in our markets, And we will continue to do everything we can to keep this curve on the right side of the line. A part of the termination this quarter is a could see that maybe it was a bit of a surprise for us, and it was not connected to the pandemic. CDNs made the choice terminate their business in Denmark due to poor agreements they signed, and they couldn't get out of it in any other way. Not the most common course of action that we see, but I'm sure that our Danish management team will soon fill this gap again. Turning to Page 7 and this to our 10 largest tenants. The rental income, which comes from public tenants, is now up to 20 4%, public tenants continue to be important in our portfolio. But as I say every quarter, It's the widespread across many sectors in a region that is the strength that brings stability. On Page 8, rental value is now SEK 3,205,000,000 per year Our rental income, SEK 2,952,000,000 after divestment. And looking at like for like figures, we can see that rental value is up just a bit over index, which was 0.3%. And that's a signal that the activity as our tenants have been there this year. They haven't had the same needs of changing, and therefore, we haven't had the same opportunity to raise the rents at a normal time. But this will come back again. And the rental income is affected by higher vacancy, some of them chosen by us, but also, for example, exits moving out from a temporary lease in the investment order form. Rental value and rental income is affected by well, they will be approved this year with tenants moving in, for example, in Paninahlen and Ulfsula 1 in Helsingborg. Page 9. The occupancy rate is at the same level in Marvelland owned as last quarter, a bit lower in Helsinki World because of Pembinaalem and Unsera 1. As I mentioned, we're waiting for the tenants to move in. These figures will also improve over time when the properties where we have chosen termination as a possibility for refurbishment and transformation for new demands. Some of these properties are, for example, Slectus, Parvem and Vosgester den Malmo and Rethmander 3, and Versted 1 in Lund. In Sluktuseppe, Parverena and Ferrante, projects are ongoing. And in Vosgesetzende, We are applying for planning commissions. So breaking to our personal business, summarized to SEK 1,892,000,000 underwriting yield at 4.8%. Total value SEK 9,202,000,000. On Page 10, we see continued high demand in logistic and production. And here, the occupancy is up in Malmo to an almost impossible 97%, temporarily down in Hensimori and 92% occupancy rate as a whole, with the running yield at 6.8 percent and a total value of CHF 5,762,000,000. Demand continues to be strong throughout this sector in all our cities. And the entire property stock, Page 11. The occupancy rate is now 90%, 1% down since Q4, the of former projects coming into operation. Operating surplus, euros 2,274,000,000 and running in 5 funds. Let's turn to Page 12. We have changes in market value of our properties. We started the year with SEK 6,000,000,000,000, 7,200,000,000 in accordance with our external valuation, which once a year is valued 100% of the stock at the same time. And we have made acquisitions for EUR 100 The €5,000,000 invested, euros 208,000,000 changes in valuations of €74,000,000 mostly coming from development gains in Denmark. And together with currency translation of SEK 168,000,000, that summarize the property value of CHF 4687,000,000. Page 13. Even if the curve is a bit slighter than before lately due to our large industrial divestments in 2020, It's still moving upwards. But there is more to come when we continue our investments, of course. And the math of our value at Page 14, 42% of the value is in Malmo, 18% in Copenhagen, 23% in Helsingborg and 17% in Lund. Also this quarter, we have good discussions with possible tenants in all our facilities. A possibly new thing is that we have seen several discussions in loans with slightly larger volumes than we have seen in a long time. That's interesting, and I'm looking forward to seeing what the next move will be there. We bought Neewassensohnlet 2, 3 and 4 a couple of years ago. And one aspect of that was to get a better composition on large and small areas in the same district. This will pay off when the timing is right. On Page 15, a glance of the general situation. We signed new leases on higher levels and terminations. The number of bankruptcies due to the pandemic is low, but vulnerable industries are still We try to help when it seems to be the right thing to do. Rents are still being paid on time. And we also see that more and more people are talking loudly about the need to meet at their workplaces. And different investigations point in the same direction. We need to meet other people to be creative, get energy and creative culture in the company. But a flexible way of working will be asked for, and the design of the workplace maybe affected in a way that makes them even more attractive. And of course, the signs are significant that economic Equity is picking up, which will contribute to decreasing vacancies. And over to Arvid. Thank you very much, Ulrika, and good morning, everyone. Moving to Slide 16. Looking at the income statement, basically, Ulrike has already talked about the rental income and the operating surplus. Worth mentioning regarding the operating surplus is that the effect Of the colder winter than compared to last year, when it comes to increased costs for heating and snow, That increased costs in the comparison is a higher cost of SEK 7,000,000 in the quarter. We have an income from Property Management of SEK 416,000,000, Positive value changes also as Ulrika mentioned. And in this quarter, we also have a positive value change in our derivatives Portfolio amounting to NOK 97,000,000. All in all, that makes a pretax profit of NOK 5.87 And the profit for the period of SEK 4.78 Moving to Slide 17, looking at the balance sheet, comparing the situation end March with the situation 12 months Previously, you can see that the value of the properties is basically flat. And at the same time, Equity has increased by SEK 1,600,000,000 and our debts have decreased by SEK 1,700,000,000. So despite the divestments, property values are basically flat and we have increased equity in, I would say, quite a decent way. Moving to Slide 18. The balance sheet transformed into key figures. Our equity Assets ratio now stands at 41.5 percent and our LTV at 48.4 Interest cover ratio remains at a very, very high 6.4 times. The surplus ratio in the quarter It's slightly lower than same quarter last year at 69%. We have now Adopted a couple of the new definitions of the EPRA key numbers. So you can see on this slide that our EPRA NDV stands at SEK 129 and the EPRA NRV at SEK 155.59. Moving to Slide 19. Based on the Earnings and the situation of the balance sheet. The Annual Shareholders Meeting, which takes place today, It's very likely to take the decision to pay dividends to our shareholders of NOK 5.25 per share. And on this Slide 19, you can see the historic development of the dividend. On Slide 20, you see the historic development of the EPRA net reinstatement value. And since 2009, the average annual growth rate adjusted for dividends has been 17%. In the historic overview of additional financial ratios, you find on Page 21. The equity assets trend is over this 7 year period, which you see in the graph, The trend is in a stable way moving upwards. And correspondingly, the loan to value trend going downwards over this period. Looking at the interest cover ratio, we had a shift in the level, as I'm sure you remember, towards the end of 2018. But since then, we've been in a stable way above 6 times in the interest cover ratio. On Page 22, you find the historic development of the key number net Debt in relation to EBITDA, it now stands at 11 times, which we feel is we feel it's a good Measure of the financial stability since it basically takes into account the cash earnings that we do generate. Moving to Slide 23. Our sources of financing has not changed much during the quarter, 46%, almost half of our finance income from bilateral bank agreements, almost 20% from the bond markets and the rest From the Danish mortgage loan system. On Page 24, You find the details of our loan portfolio. And you can see that the average interest rates That we have now is 1.32, and the average fixed interest period is 3.4 years And the average loan maturity is 6.3 years. On Page 25, you Find the historic developments of these two last numbers. As you all are probably aware, The long loan maturity that we've had over many years now is, of course, also attributable to Us being able to get very long term and favorable financing in the Danish mortgage loan system. The fixed interest period over the past 3 years has been fairly stable at around 3.5 Yes. On Page 26, you find the historic development of our Available funds, unutilized credit facilities plus liquid funds. And over the past Couple of years, we've had increasing available funds, And they are actually now around SEK 4,000,000,000. Obviously, our ambition is to be able to use this available capacity. And with that, I think it may be proper to hand over hand back to Ulrika to talk about investments and projects. Thank you very much. Thank you. So let's go to Acquisition and Divestment, Page 28. We have the higher transaction volume in Q4, And it was met by a slightly more cautious Q1 where we bought in the Zuidparken 'twenty one in Valladrupp, Copenhagen. 10,200 square meters less level area, of which 90% is leased, a property with good N and D performance at the location we would like to be. Transaction day ended up to be 21st March. But let's go to investments in progress, Page 30. We have, during Q1, invested SEK 208,000,000 in drawing project, and it remains CHF 124,000,000 in already approved projects. Overall, the targets continue according to plan without any effects from corona, but we also see some signals that The price level might go up a bit in some areas and that delivery time in certain types of products are extended. But that doesn't affect ongoing projects now. Page 31, we have started the project Atesten, at Pultejerten V in Hilliad with 16,000 square meters levered outflow area, great efficiency, a warm inner core, The highest sustainability standard with both 0 carbon dioxide footprint, environmental classification and well certification, just the right product for the future office. We have made offers for more than half of the lettable area, But there's a long time before this project is finished in Q2 2023. We have no other vacancy in this area. On Page 32, Absolanoa 1254, the project for Region Council of Skovane is completed And the one for Vihobudur is ongoing for a bit longer due to additional orders. Here's actually one sample where we can see that the energy sector affects delivery time, a question that sometimes is under debate in the south of Sweden. But these things were added after signing the lease, so it doesn't have any real effects on us. Both projects are poorly lit. Page 33, at Hintzig Ward 7, we're doing a project fully led to Beckport Automation, State of the art office at the Good Transport location in Malvern, completion in Q3 2022. Page 34. In Toronto 2, we continue with our project for regional council of Skouane and Malmo University. Full year debt to them and total, we invest EUR 237,000,000 and we also have long leases here. Page 35, there's a picture of the conversion project at Raffa and ZSC in Lund. The old tenants are moving out, and preparation and planning for the building phase continues. And we have started signing the first leases here. This investment will give us 5,800 square meters modern offices with an industrial touch, just right beside the central station in Lund. And a short update in future investments, Page 37. Four possible projects in our 3 Swedish cities. Pljotstraatlingen will maybe be a bit transformed depending on the latest discussions. Post COVID-one is just beside Raffen Adresje. This will provide the city center with larger areas Then Raffenetreze. Raffenetreze is a bit smaller scale with another customer group. And then we have Ciemi, our CDMO yet, and it continues to get its final design. And we know that patients combined with FeAL is a good medicine, not only in pandemic times. Page 38 actually might be an example of that. We won a competition to buy land at the Sjens Village area in 2015. At that time, it was stipulated that we could only build a hotel at this spot. But clients change, and now we have the opportunity to build offices and premises for research and development here. So things are moving on in a really interesting direction. This spot just between the research facilities, MAX IV and ESF, We'll be a good spot to be in, in the future, and we are ready. Page 39, moving to Malmo. Let Kona-one, the project that we call Vista procurement is ongoing, And we are planning to start this 3rd phase with 400 parking spaces and a great sports hub in 2021. It's a unique opportunity to offer both good parking and direct access to the train station for both PSN V and Let's Hold Net 1. Page 40, Millhamnen. This picture and this land area will follow us for many years. And the Hamden in the city center and just beside the harbor in Malvern. We are looking forward to next level of selling plan, and we use the same recipe with a combination of seal and patience to get the job done. Our first opportunity with a new selling plan is still at Page 41, Smuritajen, where we at least will be able to produce between 10,013,000 square meters of the existing first project. And of course, Page 42, Planner 1, just At the end, plan 15 is the right, yes, at the entrance to the docking area from the landline. Our application for planning commission is still being processed, and we summarize Page 43. As said before, we have a positive net netting, and rents are moving in the right Direction, many industries experienced a good recovery. We are affected by divestments and vacancy, but earnings and in relation to debt remain strong, and we have a good balance sheet and liquidity position, so that we can continue with our growth. We both continue with our investments, but we focus on our earnings capacity, and we do So we'll continue the stability. And then we are open for your questions, please. Thank Our first question comes from the line of Markus Henriksen from Pareto Securities. Please go ahead. Good morning, Arvid and Alicja. A few questions on the investment levels and project portfolio. If we look at 2020, you invested around SEK 1,200,000,000 and you have currently remaining investments of Around SEK 1,200,000,000, but with some project completions here in 2022 2023. So how do you view investment levels for 2021 with that backdrop? I expect them to be approximately like 2020. We're just starting up Cortezt, and that project will speed up during this year. And hopefully, I think we also can see some further investments also decided in a soon time. But in level 2020, I would say. Okay. Thank you. Regarding future projects, what's missing, for example, short selling in In the project already, we start for quite some time now, and the market is quite favorable. Could you elaborate a bit on that What we look at, at the moment, together with the tenant, is to get even higher efficiency there so that we can expand the area actually. So I think that discussion It's a good discussion, and it's worth spending some time on that if that could give us even larger area. Okay. Thank you. That was my question. And the next question comes from the line of Erik Kramstein from Carnegie. Please go ahead. Thank you very much. Good morning, Ulrik and Arvid. I have a few questions as well. If we could start off with The net lifting figure and the rental market in general, could you say something about the activities in the different markets That you're working in. Is there any difference between the areas? Or is this fairly spread out between The Swedish and the Danish side, for example. I would say that the activity is good on both in Sweden and Denmark. Approximately at the same level and also the 3 of our Swedish cities, We have good activity. But as mentioned before, during this pandemic time, the tempo is slower than a normal year, and Sometimes it takes even longer time before a decision is made. But There is this to be done in all our 4 cities definitely. Okay. And you mentioned in the report that and this is also a little bit connected with the rental market. You mentioned that you do expect Page 10 rates, which came up a little bit versus the end of last year to remain for a while. Could you perhaps specify a little bit of what you mean by that? Do you expect it to remain throughout this year And then start to come down? Or what do you expect in terms of vacancies, given what you already know? For example, moving in Oresola and Terminal 1, the movement has just started and will continued during this year. And of course, that affects the vacancy. We also have ongoing projects in sectors and spats in Sverdrup in Malvern, for example. And that will also continue with moving in this year. So and for the larger areas, for example, at Neve Wasser and Kornet, I think we will see things there both this year and the next the coming years before they are built. Okay. But you do expect vacancies towards the end of this year to be lower than what we saw towards the end of last year. Is that should I interpret it that way? Yes. Okay. Okay, good. And then perhaps on the ability To make acquisitions, you have a very strong balance sheet. I know we've talked about that for a while now following the divestments. You made An acquisition now recently, what is what's the market look like in terms of your ability to find Assets to acquire. There is market, of course, but I'm interested to buy more, of course. So we are active, but we are also patient to find the right products. It's always The most important thing that is the right thing for us. But is it finding the right assets? Or is it the price level of the right asset that is holding you back? Because it seems like you're very eager to find things, but it's perhaps not As easy as perhaps we expect it to be. And is that because you can't find the right asset or because the pricing of the right asset isn't what you're looking for? I would say it's a combination, of course, because it needs to be both the right assets and the right price level and the right conditions. So we have also seen transactions with a bit special kind of Indexed in the leases and such, that's a bit tricky to the price at the right way. So it's a combination. It both Need to be the right price and the right product. Okay. And in terms of the discussions with tenants So projects, has anything changed now that we've been sort of a year into the pandemic in terms of what tenants are looking for now? Is it still the same kind of discussions of efficient space and also obviously the rent level Or has something changed in what tenants are typically looking for at this point? I would say that it's a bit different between what kind of customer it is. We see Some signals from international customers that they still discuss the possible for decrease the area for each employee. But I also see that customers in this market really want to make the workspace attractive to attract the right employees. So of course, That doesn't always give the same result. So the attractiveness of the workspace. It's in high focus. Our customers want to offer their I believe a good spot to be at, of course. So it's a bit of difference. I don't really think that there is so much discussions of the price level. It's more about the location and the quality. That's in most focus. Okay. And my final question is, your like for like development was negative in Q1, not Surprising given sort of the started of new projects and the vacancy has come up a little bit. But remembering what mentioned about the vacancy. What would you say for 2021? Do you think that you will end this year as a total with a positive Like for like development in rents? Or do you think that you are going to end up in negative territory in the end either way? I hope that the activity in at our customers will go up during this year so that we can provide them with some changes that always affect the rents in a positive way. Definitely, I hope that. And then we will end up in a positive direction here. Okay. Thank you very much. Those were my questions. And we have one more question from the line of Mr. Sverterling from DNB. Please go ahead. Hi. You finished the project Uxla and Terminaalen In, I believe, December last year. And the last pre letting figure we saw in the last report was 60% in both of those projects, I believe. I wonder how much is let out By now and the status in those and filling to fill those targets up. Yes. It Still remain some areas there. I would say that the lessening is approximately 70% now. We have signed some new leases, but there's still more to be done. And I've mentioned that it takes longer time than a normal year, But good areas in a good location and good quality, we get a high interest there definitely. So they will be filled up, but it takes some time. And it's also worth remembering, if I may jump in here, that Out of the 70%, which is now let, not everybody has moved in. So they will move in gradually during this year. Okay. Thanks. And as there are no further questions, I'll hand it back to the speakers for closing remarks. Okay. Thank you for your attention, and we will continue with our work and hope to see you soon. Thank you.