Wallenstam AB

STO:WALL B

Earnings Call Transcript 2020-Q3

[Susann Linde]

Welcome to the presentation of the third quarter 2020. If you have any questions, please click on the envelope here on the screen.So now turn to next page. The title on the report is Wallenstam generates results through its own work. And thanks to our business model with cost-efficient new construction, we can generate results in more uncertain times like this through our own work, both in management of the completed new construction as well in value changes.Turn to next page. In short, I can start to say that this quarter has ended a lot stronger compared to the second and first quarter this year. Now the second wave of the pandemic has started, so we are humble about the future of the pandemic effect. But so long, so far, it looks good.During the start of the second quarter, the capital market was almost dead, but it recovered very fast, and now it's almost at the same price level as before corona.We issued a green bond this quarter of SEK 300 million. And the 13th of September, we had an Extraordinary General Meeting, where a resolution passed on a dividend of SEK 0.50 per share for the financial year of 2019.Turn to next page. Earlier this week, we launched our 4 new climate goals. We are constantly working on sustainability, and we're the first in the industry to be self-sufficient in renewable energy through our wind turbines. These goals clarifies the work we will do within this current business plan. Goal number one applies to our construction operation, where we shall reduce our CO2 emissions by 10% per square meter. We shall also reduce the CO2 emissions from the properties' energy consumption by 15% per heated square meter. We shall reduce the properties' residual waste by 10% per square meter. And the last one is that our business trips shall be carried out by electric car, train or completely carbon-neutral air travel.Now turn to next page. Today, our property portfolio looks as follows: We continue to operate in the growth regions, Gothenburg, Stockholm and Uppsala, like always, and also the commercial part in Gothenburg inner city. The distribution of the rental value is 50% in residential, and this part has risen slightly since the last quarter, and this is due to the completed new construction of rental apartments. 50% of the commercial part is offices, and on next page, I will talk more about the market right now. So please turn to next page.Yes, a little bit about the market and some of the segments in which we operate. And first, we can start with residential, which is our largest segment. There is a high demand -- a huge demand and our own queue has increased further and now amounts to 120,000 people in the queue in our own queue. Our residential holding is fully let.Regarding the commercial part, it's different situation depending on which segment. So in total, in the commercial portfolio, the occupancy rate is 95%. Our second largest segment, offices, is doing well, and we have a high level of activity of new leases, and they take place at the same rent level as before corona started. There are discussions how the future will looks like regarding offices and how they will be used. I believe that it's very important to have a social meeting point, and the office is also important for the company brand and the business culture. And this is -- Teams cannot replace this. We have our offices in the CBD areas where it's popular to have your office.Retail has a tougher situation and even before the pandemic, there is still a flow of people in the city but lower than before. So far, we have not noticed the higher proportion of bankruptcies in our portfolio. We also review the stores that are on 2 floors and plan other businesses on the second floor.Restaurants begin to look better. And even if it's not like before the corona because you can only have a limited number of visitors, it still work on. On the next page, I will show you an example of this.Now turn to next page. This is the old Artilleristallarna on Magasinsgatan in Gothenburg, where we have rebuilt into a restaurant Tavolo. So here, you can see a before and after picture and it's a wonderful restaurant. This was previously used as a parking garage and has now become this fantastic restaurant. They had 11,000 people who prebooked before they opened. Since opening about a month ago, it has been totally booked every night and lunch. So when you're in Gothenburg next time, it's worth a visit.Now turn to next page. During the third quarter, we completed 145 rental apartments. In total for the 9 months, there are approximately 630 completed rental apartments. So on the next page, we will see which 145 apartments that we completed, so please turn to Page 9.On the left side is Parkstråket 1 in Haninge, where we have completed 36 apartments out of a total of 154. In these 154 apartments, it also include 17 apartments for Colive, the co-living company, which contains 85 rooms for rent. So this 17 apartments is 85 rooms for rent.And to the right, it's another completed project in Stockholm in Österåker, Söra Kvarter, where we completed 109 apartments, out of a total of 305 apartments.So now turn to next page. As usual, we start by looking at how our property management is going. We report a net operating income of SEK 1.2 billion, which is 4% better compared to last year. The surplus ratio amounts to 76.4%. But adjusted for nonrecurring effects for corona, the corresponding figure is 76.9%.And here, on next page, if you turn to next page, I will tell you more about the details. So Page 11. Rental income increased by a total of SEK 65 million. As you can see, corona discounts have a negative net effect of SEK 30 million. During this third quarter, we gave another SEK 2 million in discounts to tenants, which are covered by the government's expanded list for exposed sectors. Other discounts applied for, we have received SEK 2 million, and the others are being processed and will be recognized the day we receive the compensation.We have, as I mentioned, occupied 630 new apartments during the 9 months, which has a positive rental effect of SEK 58 million, and it has also been affected by the apartments, which were completed during the quarter 4 2019.Adjusted for corona discounts, rental income in comparable holdings increased by about 3%. Operating expenses increased by SEK 20 million in total, half of the increase is due to larger holdings due to new construction entering the management. It has also been a warmer climate, which give us reduced operating expenses of SEK 6 million. The main reason why the operating expenses increased by SEK 8 million is because of increased tariffs regarding, for example, water distributing among other things. So in total, net operating income increased by SEK 45 million.Now turning to next page, Page 12. Net operating income continues to increase as our new construction gradually enters our management and get an even more efficient property holding, like you can see here, the rolling 12 months, the net operating income amounts to almost SEK 1.6 billion. The surplus ratio shown here for the last period is also rolling 12 months and amounts to just over 75%.Now turn to next page. Income from property management has increased slightly compared with the previous year, a total of SEK 9 million. Our administrative expenses as a whole have decreased slightly compared to last year, but the distribution towards properties has increased since the previous year. The financial expenses have increased by SEK 30 million compared with the previous year. There are several reasons for this, higher average debt of SEK 3.3 billion, but also higher average STIBOR rate during the period and also higher prices in the commercial paper market. However, the commercial paper market has recovered to more normal levels, and we can see that the average interest rate in our closing has fallen by 13 basis points since the close of quarter 2 and landed at 1.27%.Now turn to next page. The average fixed interest term is 38 months. We hedged the interest rate with the help of interest rate derivatives, where we now have interest rate derivatives of SEK 10.8 billion of the total debt volume of just over SEK 26.5 billion. Here on this graph, you also see the average interest rate during the period, which amounted to 1.31%.Now turn to next page. If we look at our profit before changes in value, they amount almost the same as last year. We are a third-part owner of the co-working company Convendum and recognized our share of their losses. In total, for the period, it amounts to SEK 6 million minus and the status of the Convendum is now very good. They had a tough start in the corona, but now they are in the same and higher occupancy rate than before corona. Yesterday, we released the news that they rent additional square meters to the existing hub on the avenue here in Gothenburg, and they can see a high demand for the product.During the quarter, another co-op apartment in our project Vasagatan 33 was taken over. So now in total, there are 3 apartments left to sell in this project, out of a total of 30 apartments.Other income and expenses mainly consist of our electricity production and amounted to minus SEK 9 million, which is still better than the previous year by SEK 20 million. However, during the quarter, it has been worse as prices have been lower.Now turn to next page. Overall, we have no change in value in our existing property holding. However, we have some value changes. And the value changes that we recognize come totally from our new construction where we gradually revalued during the construction time. The surplus value in the new construction for this 9 months amounted to a total of SEK 616 million. So in total, the profit after tax is SEK 974 million for those 9 months.Now we turn to next page and go to the balance sheet. And in total, the property value amounted to SEK 57 billion, of which SEK 56 billion are investment properties and SEK 291 million are development properties. The development properties consists of co-ops and properties that we build to sell and mainly consist of the new construction on Gärdet, New York, that was also the place where we recorded our quarter 3 movie, which we released today. It's a property that [ Sahlgrenska ] will take over in mid-December.Now turn to next page to Page 18. As I mentioned before, we have not adjusted our yield requirements during this quarter. But if you look at the yield requirement for the residential, it has come from 3.2% last quarter to 3.1% this quarter, but the reason is that just -- it's just the decimal because of rounding up. So we have not adjusted our yield requirements. And for the commercial part, it's 4.5% on average.Now turn to next page. We have invested a total of SEK 3 billion in construction during these 9 months and an additional SEK 300 million in the acquisition of land or properties for future new construction. In our plan, we will invest around SEK 3 billion to SEK 4 billion annually. So we are almost there now.Now turn to next page. As I said before, we have not chosen to postpone any projects due to corona, but what has made the starts a little poorer is simply that corona has had an effect on the plans and that they have been delayed due to the increased processing time. The project that we started during the quarter is a further project in Kallebäcks of 85 apartments, of which 12 apartments are co-living apartments, which means 121 rooms for rent. So in total, we have 786 apartments and the construction here right now in Kallebäcks.Now turn to next page. So in total, we have now approximately 2,900 apartments, 2,939 to be more exact. What I want to make clear is that the ones that we have marked with light blue are the occupations, which start in 2020 and will continue for some time as we cannot occupy all apartments at once. An example is Söra Kvarter, which has a total of 305 apartments, where we have 196 apartments left to occupy and 109 was completed this quarter. We are working on many more projects for our future that have not started yet. And one of the projects we have worked on for a long time that has come a little further since the previous quarter is the one on next page. So please turn to Page 22.Älta Centrum. It's our urban development project here in Älta where we are densifying between our existing properties. The zone plan for 950 residential apartments and premises around the new square was adopted by the City Council in the middle of October this year. We bought our existing properties in Älta during the Lehman crisis in 2009, so it feels good that this project is finally becoming a reality.Now turn to next page. Cash had decreased compared to previous quarter when we had SEK 922 million as an extra reserve due to uncertainty in the market. Now however, we have reduced it, and it amounts to SEK 489 million. Interest-bearing liabilities amounted to SEK 26,517 million, which is on average SEK 3.3 billion higher compared to last year. The reason is the investments that I talked about earlier.Now turn to next page. As I mentioned before, the capital market has returned to almost the same level as before corona, and the recovery has been very fast. However, we have reduced our outstanding commercial papers to approximately SEK 2 billion. Due to this, we have chosen to reduce our backup facility to SEK 3 billion from SEK 4 billion this quarter. We have also made a decision from now on only issue green bonds, which we also did now during this quarter.Now turn to next page. And here is a selection of some key figures and I have already mentioned the most of them. The LTV has gone up a bit to 46% from 45% and the equity ratio down to 42%. The net asset value per share ended to SEK 95.1. And on next page, I will tell you more about it. So please turn to Page 26.Our goal in the current business plan is to create a net asset value of SEK 40 during these 5 years. Up to now, we have created by SEK 15.9, which means SEK 3.8 for this first 9 months. So this is the start for coming up to this SEK 40. And this was all for me for today. And I thank you for listening. Thank you. Goodbye.