Fastighets AB Balder
STO:BALD B
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
61.86
91
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Fastighets AB Balder
You don't have any saved screeners yet
Good morning and welcome to Balder's presentation for Q1. [Operator Instructions] Presenting today is Erik Selin, CEO; and myself Ewa Wassberg, CFO here at Balder.On that note, I hand over to you, Erik.
Thanks, Ewa, and welcome, everybody. High level information about Balder you have on the first slide where you can see our high level number, property value and other important figures. Moving over to Q1 2023. We released figures today and rental income was an increase of 15% and profit from property management is an increase per share of 9%, a bit more the absolute amount that we have more shares outstanding than compared to last year. Earnings capacity we have now updated as we do every quarter and there we are at SEK5.15 and that is a decrease compared to the same period last year with 1%. Net debt to assets 48.2% and like-for-like rental growth in Q1 stands at 5.5%. NAV SEK91.65. Looking at the property portfolio. This more or less always looks kind of the same. It's concentrated to larger cities and capitals in the Nordics.And if you look at categories, residential is dominating with a bit around 50% more or less, a bit more and then we have a diversification on the commercial side between office, retail, hotel, industrials and other properties. We also have some development of properties mainly residentials, but also in some cases prelet commercial properties. And there are basically 2 categories, one is that we build and keep it and the other one is we build and sell convenience to consumers. And what you can see is that that part of the balance sheet will decline over '23 and '24 since we are very careful with starting new projects and the existing one is being completed as we go along. So you have a declining value in the balance sheet for projects in these 2 categories. And during Q1 we finalized 1 property in the category to sale with a quite good sales result and we also finalized some properties for management. And the long-term trend and our goal is to over time increase earnings capacity and cash flow from property management.So on this slide, you can see the development from 2015 and forward and we also have the last figure there is the last 4 quarters. And here on next slide, you can also see the development from inception at '05; portfolio value, debt to assets and occupancy rate; where you can see that the occupancy is very stable for the last 18 years and for the last 7 years maybe has been the exact same occupancy rate. So it tends to be very sticky and stable of course in some parts because of all the residential, but even the commercial assets have proven to be very stable over long time periods. And here is the earnings capacity that we update every quarter and now it's slightly lower than last quarter and you can see the explanation is that we are spending more money on financial cost because of higher interest rates. Otherwise it's very small changes from the last quarter. And we have a forecast for '23 of SEK6.2 billion as an outcome for property management profit and the forecast is unchanged compared to last quarter.
Over to sustainability. Balder strives to take long-term responsibility when we build, develop and manage properties. Our framework for sustainability contains the company's material topics in respect of social, environmental and economic sustainability. During the spring, Balder's sustainability policy has been updated and the Board of Directors decided on higher ambitions regarding an increased portion of green financing, more environmentally certified properties in existing property portfolio and the importance of measures to preserve diversity. Let's move on to see some sustainability activities that took place during the first part of the year. As property developers and property managers, we have an important role to play in reducing climate change. In order to prioritize measures that we need to take to reduce our impact, we have carried out group-wide climate calculations.It is important to have a base year calculation when we apply to have our climate target validated by the Science Based Target initiative by the summer. The EU taxonomy has accelerated new processes in the business, including the launch of climate risk analysis in Balder's property portfolio. This includes screening of relevant climate risk based on future climate scenarios, vulernability analysis and action plans. Balder has conducted approximately 100 climate risk analysis in Sweden, Denmark, Finland and Norway. Balder works through social initiatives to create even safer and more pleasant residential areas. During the spring, we have expanded the coordination of area development and we have developed 5 pillars for social area development with the aim of working in a more structured manner with social sustainability and also to be able to follow up our social investments more clearly.And over to financial strategy. We have conducted a number of activities to manage our balance sheet and maturity structure during the quarter. We have made placement of a 5-year convertible bond of EUR480 million, which has extended the maturity structure. We have also continued our buybacks of bonds during the quarter and have repurchased SEK2.6 billion. The largest part has been bonds maturing in 2024 to 2026, but we have also repurchased bonds with longer maturities. The hybrid with first call date March 2023 of EUR320 million has been repaid. And as you can see in the graph regarding available liquidity in comparison to maturities, we are well equipped for the coming year. And as I said, the available liquidity as of 31st of March was SEK25 billion and maturities rolling 12 months is a little less than SEK14 billion. Out of these, SEK7.8 billion is related to maturing bonds.And the available liquidity corresponds to 111% of Balder's future maturities of interest-bearing liabilities within 18 months and 74% within 24 months. 70% of the loans is hedged as of Q1. And in the graph, you can also see that our net debt to total assets is 48.2% as of Q1 and secured debt in relation to total asset is 19.2%. On the next slide, you can see the split between financing sources as well as a split between unsecured and secured loans. Balder is a significant issuer in the bond market and strives to have a financing structure that provides stability to operations over business cycles. To the right, you can see the interest rate fixing structure and the average interest rate for the current year also includes the margin for the floating part of the debt portfolio. When you look at the financial targets, all are in line with our goals. Please note that the new financial target of net debt to EBITDA of 11x that was introduced ahead of 2023 is not met as of now, but has declined from year-end from 13.4x to 12.9x end of Q1.As we have earlier communicated, we will achieve this goal through a combination of reduced net debt and increased income from our existing property portfolio as well as completion of projects. Here is an overview of the debt maturity per bank, bonds and commercial paper. For 2023, the combined debt amounts to approximately SEK11 billion. The bonds maturing in 2023 amounts to SEK6.7 billion and will be repaid during Q2. So after Q2, there are no more maturities related to bonds during 2023. After the end of Q1, we have repurchased SEK funds maturing in '24 and '25 of SEK2.1 billion. When these buybacks has been taken in consideration, the remaining maturities regarding bonds in '24 amounts to SEK5.4 billion and in 2025 to SEK5.9 billion.
So looking at the share price development, you can see here from 2015 and forward the development and what we believe is that over time the share price will correlate with net asset value and profit from property management over the long time horizon. Sometimes the share is a bit over the curve and sometimes a bit below the curve and right now as you can see, we are trading quite lower than the normal share price compared to the underlying metrics. And as an appendix, you also have the consolidated statement of income, balance sheet or financial position and you also have the shareholder structure.And with that, we thank you for listening in at this Q1 presentation.
[Operator Instructions] The next question comes from Markus Henriksson from ABG Sundal Collier.
Few questions from me. First off, net interest coming at around SEK650 million here in Q1. You had in the earnings capacity in Q4 around SEK725 million per quarter and STIBOR and other underlying has increased since. What's the main drivers here for the deviation versus the earnings capacity in Q4?
Here the driver basically is, Markus, that we historically have been very conservative when we look at financial income from cash and investments and also financial investments or borrowings to joint venture. And historically, the interest rate was 0 more or less so it really didn't matter. But now we had some positive results from -- I mean this is like SEK10 billion, SEK15 billion in interest-bearing assets.
Very clear. Then looking at the earnings capacity, it's now at SEK5.940 billion and you reiterated the forecast from Q4. So first, is the CPI for residentials included here in the earnings capacity as I presume most of it is from Q2? And secondly, what's the main drivers for the rest of the year to reach the forecast? I guess you mentioned that the financial income is 1 key thing, but any other to highlight?
Exactly, Markus. We have some financial income and you're also absolutely right that some adjustments on the resi side will occur after Q1 actually so very well spotted. And also the first quarter started out a bit better than the forecast. Let's say that everything would have stayed the same as first quarter, then we would actually have outperformed a bit because the forecast divided by 4, normally Q1 is a bit weaker. So we are a bit ahead after the first quarter and then we will get more income during the year from a lot of completions. There will be very many projects completed in the next 2, 3 quarters as well. So that's why we think the forecast, we see no reason to change it.
I didn't catch you there. Is the CPI for residentials included in today's earnings capacity?
In some cases it is and in some cases it isn't because the negotiations is not all at the same time. So it's a little bit of both actually.
All right. Then a question on the capital injections. Do you see any potential needs in associates or JVs in 2023 supporting debt repayments or credit metrics at those entities?
Not that we know of right now anyway. And I think later on it will be the other way around because in the associates, there are also some projects ongoing as you know and when they are completed, the cash flow will go the other way. So I think it looks stable, but maybe it's more like '24 we get money flowing in from that part. And the debt has been a bit lower actually in the JVs combined this quarter. So right now we don't see any need for that.
Last question. You have a lot of project completions that we can see in the tables. But if we exclude them, what's your view of Balder's for maintenance CapEx? If you can give us a percent of property value or a rough absolute figure what you think is needed to maintain your portfolio in good shape?
We have been guessing before maybe SEK200 million per quarter, but normally that will also give us some sort of return. So I think we don't have an exact figure actually, Markus. But normally CapEx gives you either reduced cost or some income. But so far it's quite good, the tenant demand and still quite stable markets so then we can invest and get the reasonable return on the investments.
Please state your name and company.
Can you hear me?
Yes, now we hear you.
So just a few questions. Andres Toome from Green Street here. Firstly, on credit metrics, obviously there was a credit downgrade from Moody's, which was sort of unsolicited. But just trying to understand also what sort of conversations have you been having with S&P on that front and what are they sort of saying about your credit metrics? Secondly, just looking at your ICR, it's coming down pretty quickly now. Just wondering what is the debt reduction strategy to keep this contained and are you now perhaps leaning a bit more towards disposals?
Good questions. If we start with the S&P, we are you can say in the middle of the range where we shall be for the BBB flat. We haven't had any discussion with them lately. We normally update after quarters and basically nothing happened either so there wasn't really a big reason to have a discussion. So we update every quarter and I don't see any changes there. If we look at their rating grid, we are very spot on and we have headroom in the ICR. So even if it's a bit weaker, it's still stronger than it has to be compared to the rating. So I think that looks stable. They were more cautious about liquidity actually S&P and that improved a lot. So that was more what they were looking at. And then buying and selling assets, well, our guess is that we will be most likely some net selling in Q2. No, nothing dramatic, but that is our guess. And then we will have more income from completed projects and the project part of the balance sheet will decrease quite rapidly in the nearest 2, 3 quarters because there are lot of assets being completed. So then we will have a return on those and a smaller part for projects in the balance sheet and that is also, you can say, to some extent a rating positive. They prefer cash flow properties compared to projects if we look at the rating.
Understood. And my second question is around foreign currency exposure. Maybe you can give a bit of color in so far as how euro and Norwegian krone exposure is hedged? How much of that is naturally and how much sort of financial hedging do you need to use? And related to that, also the like-for-like rent growth of 5.5%, what would that be including those currency fluctuations?
The 5.5% is adjusted for currency otherwise it will be very complicated to compare. So that is adjusted for currency. And if we look at euro, we have a small net position. So you can say if the krona weakens against the euro, we will have a small positive effect on the NAV if everything else stays the same. If you look at the Norwegian krone, then we will lose when it's weakening. So there we lost some equity this quarter. On the other hand, we gained that equity last year so it goes from time to time in different directions. So basically a small net exposure in euro, a bigger net exposure in Norwegian krone right now.
Understood. And then my final question is just coming to the reported valuation. You've done I guess internal valuations now 2 quarters in a row. Just wondering when will you take in a third-party appraiser for valuations?
We've been doing internal valuations since we started in '05, but we always do external as well as comparison and second opinion. So the last quarter was a lot of external valuations, more or less everything if you look at it. And this quarter is not that much because if we do it every quarter, it's extremely a lot of cost. I mean from quarter-to-quarter, there are not that much new information. But our adjustments for yields are you can say the most low yielding assets where we have discussions with external valuators where we think then that the yield should be a bit higher and also in some cases with lower risk, yields we think that they should be a bit higher. So our adjustments are on, you can say, low yielding properties on average.
The next question comes from Neeraj Kumar from Barclays.
So my first question is if you could please provide us more color on your unutilized credit facilities. I mean any details on margins or condition attached would be helpful.
Sorry, could you repeat that, please?
So on your unutilized credit facilities, if you could provide any details on margins or any conditions attached.
No, there are no special conditions on those.
Okay. And margins if you could provide only?
You mean if we use them, I think it's more or less like a low margin, isn't it. Slightly higher maybe, yes.
Got it. That's helpful. Also do you have any update on the potential rating from Fitch? If I remember correctly, you are talking to them, right?
Yes, we are talking to them and we are still evaluating if we should go with them as well or not. Maybe Fitch has a kind of different way of measuring. So we have to think about is if we can combine those in a good way because S&P is more LTV, ICR features, more debt to EBITDA. So we have to think so we don't do anything that will be complicated for us. But otherwise, we have discussions with them and they are very professional.
Got it. And my last question, it's more on a broader note. So the sentiment on Nordic real estate market seems to be quite bearish. Do you think the presence of perceived for sellers in the market can take a toll on the valuations?
Very hard to tell actually, but I mean I guess that the yields will move up a bit more perhaps. On the other hand, we have higher rental levels as well so maybe it's compensated in a way by more income. And right now what we see is there are sellers, but not anyone who want to sell sort of cheap. So if you get a good price, then you do a deal otherwise you don't sell. So there seems to be a lot of buyers hoping for low values, but nobody is selling at low values. And I heard it's actually the same in Norway, everybody says that we will buy if it's cheap and if everybody says that, not much will happen. So I think it's more stable in the perception.
The next question comes from Fredric Cyon from Carnegie.
A few questions. So starting off with the investments. So I was a little bit puzzled and surprised by the property management investments during the quarter so they stood at SEK1.9 billion according to report Page 9, which is up versus the SEK1.6 billion reported for the first quarter last year. Considering the remaining investment side, I would have expected that to decline. Can you give some clarity on full year expectations on investments in existing properties and projects?
Good question, Fredric. They will decline quite rapidly. If you look ahead 2, 3 quarters, there are not that much left actually. And also there have been some stages of development projects that was sort of, how to put it in English, all the requirements in the deal were fulfilled. So there are also some stages that were not in the list last quarter. So that is one of the explanations as well. But now there are nothing more that will come into that list. And then you have some investment that is not new build projects on top of that. But this will drive more income for us. So the amount will go down and the projects in the balance sheet will go down and the rental income will go up.
Okay. So the [ SEK9 billion ] you had last year, any idea on what that will land for 2023?
Maybe if I'm guessing, then maybe [ SEK5 billion, SEK6 billion ] perhaps if I'm guessing, Fredric. It's very hard to know exactly because if there comes up reasonable things, then we want to do reasonable things.
I'm glad you say that. It's difficult for an analyst as well. So second question. So you have a negative outlook with a BBB flat rating from S&P. What do you reckon are the key steps to remove the negative outlook from S&P?
I think they have been very focused on liquidity because otherwise we are in the middle of the sort of figures that we should have for that rating. And I hope that they will feel secure about liquidity. Maybe they want to wait 1 more quarter. It is difficult to tell exactly, but their concern was liquidity. And we didn't really was concerned about it because we know banks are not -- bank loans even if they expire you roll them, but they have sort of a different angle on that. So that was the thing that we had, we made different projections actually. But now even with their way of measuring, we have a very good liquidity position. So I think if the market doesn't -- if anything dramatic doesn't happen, then I think they will see that we are very in the middle of where we should be for this rating that we have. We haven't talked with them lately. Actually we always update after quarters and in the meantime if nothing special happen, then we don't update if there's nothing to update.
As you can imagine, there's a lot of focus on liquidity right now. But just to understand their methodology so how much unutilized credit facilities plus cash are needed for them to feel secure about not having a negative outlook on Balder?
They want to have SEK1.2 billion for 1 year ahead, rolling 12 months and we have SEK1.8 billion as of now.
Yes. Okay. So the one you report on Page 11 in the presentation, that can compare with the SEK1.2 billion you're looking at.
Exactly.
Okay. Perfect. Two more questions. Third one, loans hedged 70% as of Q1. So what will that be if you don't enter new swap agreements let's say 2 years out?
Then you add on '23 -- if you look at the slide with the loans and you add '23 and '24, that's roughly SEK50 billion. And then you said 2 years, then you add '25 as well so maybe then it will be SEK36 billion perhaps, if I'm sort of guessing, SEK35 billion to SEK37 billion or something like that.
Okay. And then my final question rather nitty-gritty. But if you look through the earnings capacity Q-on-Q development, rental income increased slightly, but the net effect on NOI is actually slightly lower than it was at year-end. What constitutes the difference there? Why are property costs growing faster than rental income?
Yes, we always -- I mean it's very hard to know exactly. So if you just take 1% or 2%, SEK100 million, SEK200 million is a small percentage and makes big differences in money. And maybe we think the cost side will be a bit higher, but that depends also on what happens with energy prices and everything. And also it can be that there will be subsidiaries to companies as well for energy. But when we did this, we haven't any -- I don't know if we had a firm decision on that. But that can always be adjusted up or down 1% or something like that.
[Operator Instructions] The next question comes from Jan Ihrfelt from Kepler Cheuvreux.
Just if we could stick to that earnings capacity slide. If you look at the noncontrolling interest that goes from SEK560 million in the fourth quarter to SEK410 million in the first quarter. What's the reason behind it?
Higher interest costs basically and little bit more vacancy also, but higher interest costs. A bit higher cost otherwise and a bit more vacancy.
Okay. And second question regards your administration costs that were as I look to it on all-time high level for first quarter. Should we expect that line to come down during the year?
I hope so. That's our ambition at least.
Okay. And third question regards your rent negotiations on your residentials just to get a feeling for what kind of portion were negotiated in the first quarter and what remains?
I don't know exactly on that actually. No, I don't have the exact number in my head on that.
Okay. Fourth question really regards your Entra position. What's your long-term strategy for your Entra Holding?
The long-term strategy is to have the holding. We will not buy the whole company. That will be too dangerous and it will also be negative because change of control can make their funding less advantageous. But the share price is extremely cheap right now and it looks good for them. They have a strong market in Oslo. They have also been selling some assets. So I think they are in a quite good position, Entra, that we will not do anything with that right now. I think even if it's cheap, it will be not -- I mean it's a big move to actually do something there so we will wait and see.
Okay. And my final question regards your commercial properties and offices, et cetera. Do you see any signs of increased vacancies in that space?
So far it seems to be more stable than we could have feared if we go back in time. But of course we follow it very closely. But so far it's better than what we could have feared even in Stockholm because maybe there we could see these higher rents and what will happen and everything, but there's still very good demand. So let's hope it continues. Right now it looks like that and the economy is not that bad overall either. I mean it's also been better than what we could have guessed in general. But we are very focused on occupancy and do everything we can to always try to rent out vacant spaces.
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Okay. Thank you, everybody, for listening in and have a nice day.