Please go ahead.
Hello, and welcome to the presentation of Wihlborgs Q2 report 2023. When people talk about the digital revolution, we know it's not here yet. Sorry for the delay. Financial costs continue up, but market rent rise as well, and our remedy for rising interest, as always, spells out strong cash flow. High activity among our tenants contributes to a quite positive picture also ahead of us, and that includes our confidence that our region continues to deliver. If life was a racetrack, we would focus on the hole shot. There will come other kind of times after this. We have prepared and have a good position on the way into the turn, but our goal is to come out even better. Let's go to our report and a summary of Q2.
Rental income up 20%, operating surplus up 25%, higher financing costs balanced by increased earnings, positive net letting, stable balance sheet, continued access to liquid funds. By that, we can also continue with our investment. The result for the first half 2023, rental income increased by 21% to SEK 1.935 billion. The operating surplus increased by 22% to SEK 1.389 billion, and income from property management amounted to SEK 948 million. The result for the period amounts to SEK 625 million, which corresponds to SEK 2.03 per share, and EPRA NRV increased to SEK 90.41 per share, +7% compared with one year ago, adjusted for paid dividends. A comparison of the rental income between first half 2022 and first half 2023.
Acquisition, SEK +94 million, currency effect, SEK +27 million, indexation, SEK +137 million, supplementary billing increased by SEK 48 million, and other increases from completed project, new leases.
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SEK 32 million. The canteens in Denmark were outsourced from the first of March 2023, and that gives lower income, but also lower cost. We have signed new leases for the quarter of SEK 77 million, SEK 154 million for the first half of the year, and the positive net letting for the quarter is SEK 14 million. A high activity rather than the opposite, and we see the same signals as last quarter that customers also have done terminations, but we are quite sure that they will come back on the positive side when they have decided about their future. We see many examples of new leases in production logistics in Helsingborg, more offices in Lund, and a mix in Malmö and Copenhagen.
New tenants are, for example, Carl Ras in Copenhagen, the municipality of Malmö in Malmö, together with the gaming industry and a new head office moving from the western part of Sweden. I repeat myself from Q1: if I see any trend, it's the demand for high quality and efficiency, and no trend that clients are leaving us for others. Last quarter, we have signed leases at new records for us in Malmö, SEK 3,600 per square meter. If we look a few years ahead, we know that we will see some changes, for example, Saab leaving Malmö and moving to Lund, but we have already good discussion with a possible new tenant looking for high security building in a good location.
Some of our new tenants that we have signed during Q2 on this slide, as usual, a mix of different segments: governmental tenants, together with lawyers, banks, the life science sector, and combination of production logistic are especially active in a positive way. Here we have the net letting in a historical perspective, letting in light green, termination in light blue, and dark blue stacks are the net letting. Now, actually, 33 positive quarters in a row, and only one quarter with a negative number for over 14 years. We will do everything we can to contribute like this, but always, let's keep in mind that a quarter is quite a short period. Here is a list, our 10 largest tenant in alphabetic order. Trygg-Hansa is new this year. All these tenants are strong customers, and they contribute with 21% of our rental income.
Seven out of 10 are governmental tenants. The rental income from public tenants is, in total, 24%, and they contribute to a long-term stability in our cash flow. Rental value as of first of July is SEK 4.25 billion per year, and rental income, SEK 3.905 billion, + 20.6%. A good part is, of course, indexation and acquisitions, but it's a good signal of growth. Growth both in volume, but also in high quality that our tenants are willing to pay for. Looking at the important like-for-like figures, comparing the same properties one year ago, we can see that rental value is up 10.4%, and rental income is up 12.1%.
Rental income, again, actually continues to beat our ambition to exceed index by at least a percentage point. A part in the strong figure for rental income like-for-like is higher occupancy, +1.5%, also a good number.
I believe the presentation slides are not visible on the webcast screen. Is that correct?
Okay. Let's see if we can arrange that, because, of course, that's important that you can follow in the presentation. Here we have, in this team meetings, we have the right. I actually think that Stenfabriken, you haven't, you doesn't show our presentation. You show the report. You're not following the slides in the presentation that we have sent to you. If you look in the team meeting that we are in, you should see the presentation slides. I would be very grateful if someone at Stenfabriken could contact me and tell me what to do, because the presentation, of course, needs the-
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We'll try and fit in the live slides in the presentation instead of the ones that we were sent. Okay. I'll tell you if they're up.
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The main conference.
Okay. Hopefully, you see the right pictures, again, and we continue with.
You are now in the main conference. Line muted.
Okay, maybe now we're back again. We continue with the rental value. Important picture to show you the rental growth in like-for-like.
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Rental value is up 10.4%, and rental income is up 12.1% in like-for-like. Rental income, again, beats our ambition to exceed index by at least 1 percentage point. If we look into changes in market value of properties, we started the year with SEK 55,179 million, in accordance with our external valuation, which once a year evaluate 100% of the stock at the same time. We have acquisitions for SEK 20 million, invested SEK 933 million, changes in valuation amounts to -SEK 87 million, and together with currency translations of SEK 584 million, that summarized to SEK 56,629 million. As always, we have a dialogue with our external appraisers, also for quarterly valuation.
Important to note that the estimate of future market rents is of great importance in valuation calculations, and today there is a good support for good market rents also ahead. We started to raise the valuation yield in Q2 last year, and continued in Q3 and Q4. Our market has not been very volatile in the past, and it's not, currently either. Therefore, the values continued to be quite stable. The value of the portfolio has developed, as you can see on this slide, since 2005, without raising any new capital. Last year, also, despite higher yield expectations. As always, valuation is a kind of calculation method with several assessment parameters. Therefore, it's interesting to measure how well we actually perform in relation to these values, and we will see that on the coming slides.
These figures, the running yield, shows how we actually perform based on that calculated valuation, so not valuation yield. Maybe you can say that we actually perform better in our portfolio than our appraisers' expectations. For the whole portfolio, the occupancy rate is 93%, excluding project and land, and with an operating surplus of SEK 2,975 million, that gives a running yield of 5.5%. This running yield was 5.1% a year ago, and the same figure, 5.1%, nine months ago. It bounced up a bit around year-end as a factor of high indexation, but in 12-month perspective, the running yield has grown from 5.1% - 5.5%. Good earnings capacity in relation to the value of the portfolio.
In the office portfolio, the market value is now SEK 46 billion, 832 million. Overall, the occupancy rate is 94%. It's 95% in Malmö, 91% in Helsingborg, 92% in Lund, and 94% in Copenhagen. Improved numbers since a year ago. Improved occupancy rate is a joy. We don't hesitate to create or buy vacancy when we think that is the right thing to do. It's a part of the growing of a growth strategy, especially a strength when we see support for higher rents and customers' willingness to pay for quality. The operating surplus from offices summarized to SEK 2 billion, SEK 580 million, and a running yield of 5.4%. The demand for logistic and production continues to be good. Occupancy, 97% in Malmö, which is a very high level.
89% in Helsingborg, 98% in Lund, and 96% in Copenhagen. 92% occupancy rate as a whole, with a running yield of 6.7% and a total value of SEK 6,798 million. A catalog of our value and properties in our four city. 40% of the value is in Malmö, 22% in Helsingborg, 16% in Lund, and 22% in Copenhagen. The value in Copenhagen is also an effect from a weaker Swedish krona. The labor market in our region continues to be strong. The level of unemployment continues down, and domestic immigration to our region is positive. Danish employment continues to increase to record high levels. Since the first corona shutdown three years ago, more than 250,000 new jobs have now been created in Denmark.
At the same time, the weak Swedish krona means that Skåne's economy is supported by the increasing number of Danes who come to Sweden side to shop and, tourist. Unlike Sweden, the Danish economy is expected to continue to grow this year. In both Sweden and Skåne, unemployment continues to fall, even among group that tends to be further from the labor market. In Skåne, the unemployment fell to 8.2% in April, and that is now the lowest number since 2009. The demand for new labor continues to be high in many industry, and we also see that passengers traffic at Kastrup Airport continues to increase. Now, largest airport in the Nordics, again, after Gardermoen, also other infrastructure investment increase massively in Denmark.
The parties in the Danish parliament have agreed to invest around EUR 22 billion in the country's infrastructure until 2035, that is the largest Danish infrastructure plan ever and will, of course, obviously benefit our entire region. No acquisition during the quarter, fourth of July, we acquired a property in Copenhagen on the same block as we already have properties, Klædemålet , fully let to a school and with a property value of DKK 71.5 million. Finally, time for financial. Over to you, Arvid.
Thank you very much, Ulrika. Looking at the income statement for the second quarter, isolated, you can see that our rental income amounted to SEK 964 million, 20% up versus the same quarter, year previously. Operating surplus was SEK 722 million, up 25%. Thereby, the operating surplus margin amounted to almost 75%, 74.9%, in the quarter. Should bear in mind, however, that during the quarter, we have accounted for the state support for electricity costs in the way that operating costs have been decreased by SEK 20 million, but at the same time, we've also decreased rental income by SEK 15 million, since the largest portion of such costs we pass on to tenants.
The net effect of that state electricity support is SEK +5 million in the quarter. Income from property management amounted to SEK 491 million, up 2%, despite interest costs in the quarter being three times as high as in Q2 2022. Excuse me. Also here, you should bear in mind that included in the income from property management are a positive effect of SEK 20 million, which is an effect for its a realized gain on a sale of a part of a property in one of our joint ventures. We have change in value of properties of SEK -59 million, and Ulrika has already touched upon the driving forces behind that.
Small positive value change in our derivatives portfolio, and all in all, a profit for the period of SEK 370 million in the quarter. Looking at the balance sheet on the next slide, you could see that in a 12-month perspective, the value of our investment properties has gone up by SEK 4.9 billion . At the same time, equity has gone up by approximately SEK 500 million , and our loans have increased by SEK 3.6 billion in a 12-month perspective. Taking those numbers, computing key figures, we have an equity assets ratio of 39.6%, and an LTV of 50.3%.
Y ou can also note that the stronger Danish kroner affects our LTV upwards by approximately 0.5 percentage point, since we have basically as large loans in Danish kroner as we have assets in Danish kroner. The interest cover ratio for the six-month period amounts to 3.2 x. EPRA NRV stands at SEK 90.41, which is 7% off versus the year previously, adjusted for the dividend of SEK 3.1 paid out in May. Looking at the EPRA NRV in a historical perspective, you can see on this graph on page 22, and since 2009, the annual average growth rate has been 16%, adjusted for dividends
On this slide, you can see how the financial ratios have developed in a long-term perspective. We usually show this slide in a five-year perspective, but we thought this time it's actually interesting, given that the times are changing, to also look at this in a slightly longer perspective. The graphs actually go back to end of 2011. You can see how interest cover ratio on the left-hand side of the slide has gone down from above 7 x to 3.7 on a rolling 12-month basis. Historically, this is not unusual levels. We've been around 3 x, as you can see, a number of years back in another interest rate environment than we have had over the past few years.
I think it's also worthwhile keeping in mind that if you go back to 2012, 2013, 2014, 2015, our equity assets ratio was about 30%, and it's now around 40%, and our LTV was around 60%, and it's now around 50%. We have a stable financial position going into these changing times, as we see currently. On this slide, you can see our net debt in relation to EBITDA on a rolling 12-month basis. As over the past couple of quarters, the ratio has come down and now stands at 10.6 times. Looking at our financing situation, we have total debts of SEK 28.5 billion .
50% come from bilateral bank agreements with Nordic banks, 42% from the Danish mortgage loan system, and 8% from the bond market. Looking at the next slide, you can see how our maturities come over the coming few years. The loan maturities of SEK 820 million in 2023 are on loans falling due in Q3 and Q4, respectively. Given how the bond market works currently, we expect to repay those bonds as they mature. The average fixed interest period is now 2.5 years, and the average loan maturity is six years.
Can see how the average interest rate has gone up, particularly during 2023, that is, of course, an effect of STIBOR and CIBOR continuing upwards, about 50 basis points during the quarter. It's also, of course, an effect of interest rate swaps maturing. Those swaps were at very favorable rates, we've entered into new swaps at current market rates, which are significantly higher. On the next slide, you can see our interest rate sensitivity. In the graph on the left-hand side, it basically shows you that if STIBOR and CIBOR momentarily would increase by 2 percentage points, our average interest rates would momentarily move up by approximately 1.1 percentage points. The interest cover ratio, of course, comes into increasing focus in today's environment.
Looking at the situation as of end Q2, if the underlying interest rate of STIBOR increased by 2 percentage points, the way our loan portfolio looks, we would still have an interest cover ratio above our target level of 2 x or 2.0 x. You can stretch that even to a 5% increase in STIBOR momentarily, and our interest cover ratio, which would still be at 1.5 x, which is the covenant that we have in our bank agreements. On the next slide, you can see how the fixed interest period and the loan maturities have developed over the past five-year period. I've basically touched upon those numbers before, 2.5 years fixed interest period and six years in average loans maturity.
Lastly, on my slides, looking at available funds. At the end of Q2, we had unutilized credit facilities, plus liquid funds amounting to a bit over SEK 2.6 billion. With that, we feel that we stand on firm ground for continuing our operations according to plan. With that, I hand back the word to you, Ulrika.
I will shortly mention an update on our sustainability, and then I will shorten the project part so that we can come to your questions as soon as possible. First, update. We continue with our certification program, adding new projects to this list. This is the certified properties this year. The forecast for the year is 80%, and our goal is that 90% of the Swedish offices will be certified until 2025. On the certification program, we are especially proud to be a part of developing the new zero carbon dioxide certification system. Here we are one of the first to get a certification according to this system for a ready building, Pulpeten 5 in Hyllie, Kvartetten.
Now we also have a new pilot project in the same system with space in Lund for a laboratory building. We also continue to develop the way we measure, and we learn a lot. Very proud of really low levels of Scope 3 in at Kvartetten, approximately 230 kg per square meters in total. One of the things that we have learned is that it's not possible to see on the outside of a building if it's good or not so good. We have actually built that building with what you could describe as well-known and traditional technique. We have a steel structure, and we have concrete slabs, and still, that building will get a lower climate impact than a new modern wood building produced at a top level of what's possible. That is good to know.
You can't see on the outside what the overall product gives. We and the business must continue to learn and do even better on this case. We also continue with energy savings, another 3% reduction in energy consumption in Q2. A part of that is a continued investment in our own innovative reversible heat pump system that saves up to 40% on each building. Our largest problem with that system is what to call it. We have decided just to call it the Janne solution after the inventor, Janne Larsson. Another important part of sustainability and ESG is, of course, social commitments. In our report, we mentioned a few of them, and here we mainly focus on how we can support young people to get an education or start new companies, and how to stimulate growth in young companies.
We do this together with, for example, HETCH in Helsingborg for Techship, and together with Region Skåne for Ideon Navigator Scaleup. Shortly mention on the investment. We have made some new groundbreaking ceremonies. Under the first half, 2023, we have invested SEK 933 million. Construction cost continues to improve from our point of view, and that helps us to get our calculation together with an even higher real requirement, as we all are aware about. I go through these projects very short. It's good to know that we think that we can also fulfill our project, Project Posthornet, at good construction cost levels. Completion in for the office's end of 2025, and at in total, at least 5.7% yield on cost.
In Kunskapen 1 space are under completion in Lund. You have seen these projects before. Posthornet 1, phase two. Here we have, maybe a bit of a delay as we see possibilities for a new and even better procurement for the construction phase. Maybe completion a bit later than Q4 2025. We continue in Lund with Tomaten for impact. It will be completed, Q2 2024. Nederman in Helsingborg, Rausgård 21, everything works out well, so completion in Q3 2024. Huggjärnet 13, the first building is completed, the tenants have start moving in, we'll continue with that until Q1 2024 for the second building. At Plåtförädlingen 15, we invest for Springhill, a very quick project, completion in Q4 2023.
We have completed building for Doka at Snårskogen 5, and now we have started our project for Rollco at the same property. The last one ongoing, Sunnanå 12:54, will be completed in Q1 2025. Some projects from ongoing portfolio, and we also continue, of course, with the planning for future projects. Maybe I can mention something about Börshuset. It's our goal that that will be the best possible office in Malmö. First tenant is signed, and we have really good discussions with several possible tenants for the rest of the building. I hope that this project will be that we can take a decision on it in September, and possible completion in Q3 2025. Good to know that we have a project ready to start, both on the office side, but also for logistics.
We also have possibilities for fill-in projects of different kind. We also continue in Nyhamnen. We have a lot of possible projects there. That will be the most the best area in Malmö in the future. We summarize the Q2 again, rental income up 20% and operating surplus up 25%. Higher financial cost balanced by increased earnings, positive net letting, and stable balance sheet. By that, we are open for question, and sorry for the delay and some technical issues during this presentation.
Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Stefan Andersson from Danske Bank. Please go ahead.
A few short questions. Surplus ratio is up quite a lot, and you explained SEK 5 million there with the energy, a net SEK 5 million on the subsidies from on the energy side. Is there something else also supporting, or could we take some of this with us when we look into the coming few quarters as well?
If you look at the quarter isolated, you should, of course, also bear in mind that, as of 1st of March, we outsourced the Danish canteen operations. Full year 2022 numbers for the canteens was, they produced an income of SEK 38 million and a loss of SEK 11 million. Of course, looking at Q2 isolated, that also makes a certain difference on the surplus ratio.
It, remember, I don't really remember it on the, what you said about the canteen loss. Is there a cyclicality? Is there a bigger loss? Was there a bigger loss last year in Q3, during the summer there, or?
No, no. My point is basically that during 2022, the Danish canteen operations were loss-making, and they were loss-making.
Mm.
-all quarters.
Right.
Um, and-
Okay, good.
Yeah.
Sorry.
Of course, energy costs, for the rest of the year are quite hard to predict. I think that we have them under control.
Yeah, absolutely. Good. Vacancies, see, I could be wrong here, but I think it's up a little bit Q on Q. I guess we talk about decimals here. That's more a mix effect than anything else, I guess, given your positive net letting.
If you look at the lease portfolio in the property table, the increase in vacancy is 0.25%. But expressed in whole figures, it moves from 94 to 93.
On valuations there, last question here. Have you seen transactions in the market at all, or is it very slow, and do you find support there, as well, or have you more had to work with the, you know, guesstimates there?
No large transaction on the Swedish side. On the Danish side, it's more stable also on the transaction side. There is some support there. We also see examples- of course, we see examples on the Swedish side, maybe some forced sellers that might affect something. We also see examples of biddings above the value we have in our books. I think that we think that the valuation are stable.
Okay, good. Actually, one more final question. You signed some new leases here. Just curious to hear, even though I fully understand it's difficult for you to compare things here. When you look at rents and the indexation, we had almost 11% last year. Then we're looking at about six now. Do you see that the negotiations that you follow up with those levels?
Yes, a bit above. As I mentioned, the highest level we have signed last quarter is at SEK 3,600 in Malmö. That was, you know, of course, a good location and good office and good quality, but still, the rents keep moving in a good direction.
Great. Thank you. That's all from me.
Thank you.
The next question comes from Lars Norrby from SEB. Please go ahead.
Okay, thank you, and hello. Just to follow up on the value changes, very impressively, we hardly have any value changes in the quarter once again. I believe you externally value all your properties at year-round.
Correct.
If I remember correctly, in the first quarter, you did it 100% internally.
We always
Um
... with the external appraisers, and I think in this quarter we had, about 20.
20.
... evaluated, and as an part of a financial agreement. And we always have, of course, every quarter we have a good dialogue with the our external appraisers. We don't do it isolated.
My question was really, I mean, you had 0 external in the first quarter, you had 20 here in the second quarter, granted, you had them all externally evaluated that year round. Like, in a situation like this, where there is, if anything, some market participants or quite a few, are quite uncertain about property values, I'm talking about in general in the Swedish market, and for that matter, the Danish market. Have you considered making more external valuations quarter by quarter?
I think that the most important part of valuation is the assumption you do in the calculation method. If we do a good, set up those assumptions together with our appraisers, so we use the same method for the calculation as they do.
I mean, these are your best estimates right now, it's IFRS. Looking forward, I mean, just thinking about the movement we've had in interest rates and the indications on yields...
Yes, and.
Could you see you sailing through this whole market transition without having any material value changes?
I think it's important that we do not want to make any forecasts when it comes to future value changes. Bearing that in mind, of course, you're right, the different assumptions and the valuation models are changing and will continue to change. I think what makes us feel comfortable with the valuations that we have is really what we see on the rental market. It's. We see a good development of market rents supporting the valuations that we have, irrespective of some minor changes in valuation yields.
it's also good.
Okay
... keep in mind that we started to increase the yield, the market yields in Q2 last year. We have made changes on that part in Q2, Q3, and Q4. Therefore, no larger changes this quarter.
Okay, one more question, just turning to the operational numbers. Of course, very strong, very impressive. What is it? 33rd quarter in a row, positive net letting. All close to that. Looking forward, as some other a few other companies have made comments about third quarter, or for that matter, the rest of the year.
What are your, can you give us some signals about what you expect for the rest of the year?
I expect from us that we can continue with a positive net letting, but you never know exactly what happens and when it happens. As I also mentioned, some of the terminations that have been made in Q1 and Q2, we know that these tenants likely come back with new leases, but decisions aren't made yet.
I think-
I think we have good support in the market. There are things happening that also are good, so it's definitely possible to do good business.
Okay, thank you. Those were my questions.
Thank you.
The next question comes from Markus Henriksson, from ABG Sundal Collier. Please go ahead.
Thank you. Good morning, Ulrika and Arvid. A few questions from me. First, on the JV, you reported around SEK 2 million in Q1, and if we adjust for the property sale , it was around SEK 5+ million in Q2. First question is: Which property did you divest? And secondly, is SEK 5 million a good representation of underlying run rate in your JV?
SEK 5 million on, for the half year, is a reasonable run rate to expect going forward. The sale that was concluded, was within Hälsostaden i Ängelholm.
Thank you. You mentioned electricity costs. Do you think it's fair to adjust then rental income by SEK +15 million and property costs by SEK -20 million? We have a NOI margin of 73.2% instead of 74.9%.
That is, of course, a relevant adjustment to make for the quarter.
Thank you. Have you kept the 8% CPI assumption in your valuation?
We think that is a bit lower, but we think that the market rent gives good support for the future. If you look back, maybe at least six months ago or also in Q1, there was more of questions about if the market rent really followed the indexation and so on. We think that the market rent has proven to have a new level, and all those things, they hit fits together in the valuation. Let's hope for a lower indexation, actually, because we think that's a good thing with more of a normal levels on that.
If I get that correctly, you have adjusted the CPI a bit down, but that's offset by increased market rents?
Correct.
Thank you. Last question, you mentioned the Börshuset Trade Exchange a bit briefly. What type of investment volume are we talking about? Could you mention anything about potential for in terms of rents or yield on cost?
It was supposed to be the best office in Malmö. I also expect the best rents there, of course, new top levels. It's a good building, but we're not allowed to add on extra.