Wallenstam AB

STO:WALL B

Earnings Call Transcript 2023-Q2

[Susann Linde, executive]

Hi, and welcome to the presentation of the second quarter. I'm Susann Linde, CFO and Head of Investor Relations here at Wallenstam.Please turn to next page, Page 2. The headline of this report is a long-term focus. I said it last quarter as well, but it is a good summary of our company and our current position. We always focus on long-term decisions and what we believe is the best in long term, not just for the moment.Turn to next page, Page 3. As you all may know, we keep focusing on our growing regions, Stockholm and Gothenburg. We have a strong demand for both the residentials and commercials. We have our residentials in attractive and good area for living and the main part of the commercials in the attractive inner city of Gothenburg. The total occupancy rate is 96%, where residentials are fully let and commercials 91%.Next slide. The distribution of the rental value are almost at the same level as last quarter. The residentials increased a bit because of the completed new construction this quarter. Regarding the distribution of the market value of the investment properties in management, the residentials increased by 2 percentage points from 55% up to 57% for the same reason, as I said, for the other graph.Now turn to Page 5. We have decreased the level of new starts of constructions during the last year, but this quarter, we started one new product. It is 172 rental apartments in Farsta in Stockholm, and hopefully, we can start some more during this year.The demand is huge, which you can see on next page, Page 6. Here is a graph of our own housing queue where we have more than 250,000 unique applicants and it has increased a lot during the last years. Here on the graph, you can see for all of the 3 cities; Stockholm, Gothenburg and Uppsala. And if you summarize, you get far more than 250,000 people. But it is because each person in the queue can choose more than one city.Now turn to Page 7. In total, we have 1,236 apartments under construction right now. And with this demand for new homes, hopefully we can start more. We have an important role to help Sweden and the Swedish growth with this. Now we work even harder with energy saving projects, and I want to show you some examples.Now, turn to Page 8. The first energy project is the commercial property in Solna in the middle of our urban development project here. It all started that we bought this commercial property and then we built it -- built properties around it. The EPC was E before we started to work with this property. And we have rebuilt it and also put solar cell installation on the roof and geothermal heating. So now we have received BREAAM Excellent and EPC B. We went from 176 kilowatt hours per square meter down to 62 kilowatt hours per square meters, which means that we reduced by 65%.Now turn to Page 9. An another example of a commercial property, Ostra Hamngatan, which we bought last year. When we bought it, the EPC level was E. And now we have done a lot of energy savings and received Miljobyggnad iDrift Gold. And we will do some more energy saving work. And after that, we will reach EPC C. We will reduce the energy consumption from 115 kilowatt hours per square meter down to 77 kilowatt hours, which means an improvement by 33%.And the last example on next page, Page 10. And now it's an old residential property from 1955, Skebokvarnsvagen, in Stockholm with an EPC level of F. Here, we have added insulated facade, changed windows and installed exhaust air heat pump. We have also optimized the heating and ventilation. We will also put solar cells on the roof after the summer and after that, we will reach EPC C, which means we will have a decrease from 113 kilowatt hours per square meter down to 75 kilowatt hours, which means a decrease of 33%.So let us now talk about the result for the first half year. And we go to Page 11. And we start with the first line in the income statement, net operating income, which has increased by SEK30 million compared last year.And we turn to next page, Page 12, to go into more detail. And we start with the rental income, which has increased by 8% compared to the previous year, SEK103 million. Our new construction and large project that has been completed has a positive impact of SEK53 million, so almost half of the growth. The acquisitions and sales we made last year and this year have a negative impact on rental income of SEK26 million.In the comparable holdings, it is up SEK77 million. The base rent has increased by 3.1% for residential and 9.1% for commercial compared to the same period last year. In the commercial part, we recognized an occupancy rate, as I said earlier of 91% and where the biggest part of our holding is in Gothenburg, and that has 94% occupancy rate. And it's on the same level as last quarter for both.The surrender rate for commercial properties, which reflects how large a proportion of consumable leases are extended, amounted to 87%. And now we go to our operating expenses. They increased by SEK73 million. And if you want to sum it up, it is mainly due to higher electricity prices of SEK57 million, and that's almost 80% of the total increase. And in total, we are self-sufficient in renewable energy, and we will see further down in the income statement that this is met on the total when we include our wind power operation. Otherwise, it can be said that it is mainly tariff increases and cost inflation. So in total, it is SEK30 million up in the NOI.Now we go to next slide, Page 13. We have completed a lot of apartments during this second quarter. In total, it's 558 completed apartments, and I will show you which properties.We go to Page 14. First, we go to our urban development project in Kallebacks, Terrasser in Gothenburg. This is also the place where we also recorded quarter 2 fill in the park in the middle of all the houses. Here, we have fully completed these 2 properties during the quarter, Kvarter 7 and 8 of total 347 apartments. In Kvarter 7, we completed all of the 189 apartments this quarter in June and Kvarter 8 of total 266 apartments, we completed the last 158 apartments this quarter in June. So now we have almost 1,000 completed apartments here in Kallebacks Terrasser.Now turn to Page 15. In May, we completed this property in Molnlycke Fabriker of 128 apartments. So now we don't have any more projects here under construction at the moment. In total, we have developed 550 apartments here in this area.And the next page, we move to Uppsala. Next page is 16. We start with Bersan, where we have completed 65 apartments of the total of 98 apartments. During the fourth quarter, the buyer, ASPER, will take over this property. And to the right, we have completed 18 apartments in May of total 185 apartments in the project, Kompositoren. So that was where the completed apartments during the quarter.And now we go further in the income statement. We go to Page 17. And we go to the income from property management, which has decreased by SEK118 million. First, if we look at the administrative expenses, they have increased mainly because of less capitalized administration on new construction. We work in the existing properties more because of less new construction, so we focus on the energy projects. So the employees who worked with our new construction, some of them work with the energy projects instead. But the main reason to lower income from property management is higher financial expenses, which is higher by SEK140 million. And one reason is that the market interest rates has increased a lot, or the main reason is for that. And we have an average interest rate on closing day of 2.98% and during the period of 2.61%, which is double the previous year. And we have also a high debt of SEK1.7 billion compared to the previous year at the same period. But it could have been more.We have secured a lot of the interest, and I will talk more about that on next page, Page 18. We have secured the interest of almost 60% of the total loan volume. And the first interest derivative will mature in 2025, which you can see here on the graph. And if the interest rate change by 50 basis points, it will affect us by SEK64 million on a yearly basis.Now turn to next page, Page 19. The net operating income from wind power is SEK67 million. And if we adjust for the profit of selling 13 wind turbines last year and the lost production of them, this year, it is around SEK65 million higher than last year in the existing wind turbine holding.Now turn to next page, Page 20. And now we have come to the value changes. And the value changes in investment properties is SEK611 million minus. And this quarter, we have adjusted the yield requirement on almost 30 residential properties, but the yield -- but the outgoing average yield is the same as last quarter because of, for example, 3 completed new residential constructions and also higher NOI.A big part of the value change is coming from land for future construction, which we have written down during the quarter. We have also started a new option scheme, a synthetic option scheme for every employee this quarter, which the AGM said okay to in May. The valuation of the outstanding options have been evaluated this quarter of total SEK29 million, and that's included overhead expenses of SEK7 million. During the quarter, we have a reversal of impairment losses of SEK59 million regarding our wind turbines in energy price Area 2.Now we go to Page 21. So now we have a value of investment properties of SEK63 billion and SEK58 billion is properties in operation. And the rest SEK5 billion is under construction or land for future projects. And what is the investment volume for this first half year?Please go to next page, Page 22. Here, you can see when we started the construction in Larsboda on the picture here. We have invested SEK1.4 billion in construction, and it's almost on the same level as last year for the same period.Now turn to Page 23. Our interest-bearing liabilities amount to SEK29 billion, which is almost SEK1 billion more than at year-end.And more about the financing on next page, 24. During this quarter, we have further increased bank loans and decreased against the capital market, as you can see in the table to the left. We haven't been active in the bond market at all recently, but only sold bonds, but not more this second quarter. The bank feels positive and a good partner where we grew with SEK1.2 billion this second quarter. So now 96% of the total financing is from bank loans. And we also have the liquidity to [ solve ] the bonds, which expired this August this year of SEK460 million. And next year, in April, we have more SEK334 million in bonds, which will expire. So it looks good for the future.Now we turn to next page, 25. And a short summary with the help of some key ratios. The NOI is 3% up compared to last year, but the surplus ratio are negatively affected by higher energy prices and is recognized at 73%. But as I mentioned, it's affected from our own wind turbines. The interest rate is doubled and the ICR rolling 12 months is 3.3x. And we keep our strong financial position with an LTV of 46% and an equity ratio of 46%.The equity ratio has been affected this quarter of the dividend. We haven't bought back more shares during the quarter, which means the total volume repurchased shares of [ 1,500 ]. The equity share per share and the NAV per share has come down by around 50 [ odd ] since year-end.And this was all for me. And I will thank you for listening on me today. And I can also say to you that you can listen our Q&A in the Swedish call, which we send at the same time as this is released. So otherwise, you can send me questions or click here on the envelope to ask some questions. So have a nice summer, and thank you for listening.