Wallenstam AB

STO:WALL B

Earnings Call Transcript 2022-Q3

[Susann Linde, executive]

Hi, and welcome to the presentation of Wallenstam quarter 3 report for 2022. My name is Susann Linde. I'm CFO and Head of Investor Relations here at Wallenstam. So please turn to Page 2.

We are in a turbulent environment with high inflation, high electricity prices and a stable capital market. The headline of our interim report: Strong foundation to stand on. We have a stable financial position, primarily financed through bank loans. We have the properties in the right locations where people want to live and work, and we are also self-sufficient in renewable energy. Of course, we are humbled by the situation, but the company's position feels good and stable. Now turn to next page.

As I said, we have a stable financial position. We have an equity ratio that has strengthened further during this quarter, landing at 48% and an LTV of 42%. It's turbulent on the capital market, and we have always chosen to be primarily financed through bank loans. The relationship with the financier has always been important to us. The proportion towards banks has increased further during the quarter, and now amounts to 90%. During the year, we eased off by buying back bonds and decreased volume of commercial papers, a total decrease of both bonds and CPs of SEK 2.8 billion.

Regarding the interest rate, we also secured an additional volume early in the year through interest rate derivatives. And now we have fixed interest rate maturity period of almost 4 years. So this altogether feels like a good base to enter these times with.

Now turning to Page 4. We always talk about that location is very important. And then we mentioned 3 location -- location, location, location, and now we add one more location because it's more important than ever. Having an attractive location of one's properties is very, very important. And we have our residentials in attractive residential areas and our commercial premises, mainly in Central Gothenburg. Demand is high for both segments. Residentials are fully let, and the occupancy rate for commercials amounts to 95%.

Now turn to Page 5. As I said, we have a great demand for our completed new constructions, more than 210,000 people are in our own queue for just over -- for just our new constructions. Recently, we have had a record number of interested when we had our latest showings in our soon-to-be completed apartments. Maybe it is an effect of the market situation. An example is a showing of 55 apartments, where there were over 1,400 interested.

Now turn to Page 6. Our sustainability work is a natural part in our business. During this quarter, we have certified our 2 headquarters in Gothenburg and Stockholm, according to the Miljöbyggnad iDrift rating system at gold level. You can see our head office in Gothenburg here in this picture, which also has been nominated as a finalist in the Sweden Green Building Awards 2022, which we are very proud of. We think this is a good way to work with older properties to get them more sustainable.

We also focus on reusing materials. We have started an inventory in our urban development project in Älta, where we will save as much of the material that is demolished as possible, maybe it will be in our own projects or in collaboration with other actors. We have also joined Hållbart Stockholm 2030, which is a collaboration with other property companies to reduce the ecological footprint of the industry and to take social sustainability more seriously.

Now turning to Page 7. As I said, our business is growing well. We have a great demand for our properties. Our net operating income increases by SEK 118 million compared to last year despite the fact that we have a lot of sales of properties.

On the next page, as usual, I'll go into more detail about where the increase comes from. So turn to Page 8. The NOI increases by SEK 118 million, the rental income by SEK 142 million. Without acquisitions and sales, where we lose SEK 46 million in rental income, it increases by almost SEK 190 million, where 2/3 come from the new construction coming into management, around 600 apartments this year, but new completion of apartments has taken place during this third quarter. The other 1/3 comes from our existing holdings, where, among other things, commercial base rent has increased by just over 5%.

We move on to the operating expenses, which increased by SEK 24 million, where most of the increase is due to completed new construction. Otherwise, the climate has been better, which has had a positive impact on operating expenses by SEK 5 million. But the maintenance, it increased by SEK 16 million, among other things, due to higher electricity price as well as other tariff increases. So a total increase of SEK 118 million in net operating income.

Now turn to next page. As I said, the net operating income continues to rise, and the surplus ratio has risen further in the rolling 12 months and amounts to just over 76% despite higher operating expenses.

Now turn to Page 10. And then we go further in the income statement and add our administrative expenses and financial net, which becomes our income from property management, which increases by SEK 25 million.

Our financial expenses regarding properties increased by approximately SEK 70 million compared to the previous year, which is due, among other things, to higher STIBOR, which has doubled since last quarter. We secured a lot of interest rate at the beginning of the year with interest rate derivatives, but we entered at good levels. After that, the 10-year swap rates have increased significantly. It has more than tripled.

We have capitalized lower amount of interest in our projects of SEK 90 million compared to last year. The average interest rate during the period amounts to 1.4%, which is 19 basis points higher than the previous year. The average rate on closing day amounts to 1.84.

Now turn to Page 11. As I said, we took more hedges by interest rate derivatives in the beginning of this year, mainly 10-year swaps. Here in this graph, you can see the maturity of our interest rate derivatives, and you see mostly all of them is on SEK 2 billion.

Now turn to Page 12. Profit before changes in value amounts to SEK 1.1 billion, which is approximately SEK 100 million higher than the previous year. Among other income and expenses, you find the energy operation. Last quarter, we sold some of our wind farms located in energy price area 2 and the profit of around SEK 60 million is recognized here. In other respects to energy, production has been lower in quarter 3 than the previous year, partly because we have sold, but also because it has been less windy.

Now turn to Page 13. We have no value changes in either the existing or ongoing projects this quarter. We have added a risk premium to our calculations in our new constructions, given the uncertainty that prevails regarding inflation and material prices, which is why we are not reporting any gradual increase in value this quarter. Change in value of financial instruments amounted to SEK 1.7 billion, which mainly consists of an effect of rising swap rates. Like I said, the swap rate has more than tripled since the turn of the year.

During the third quarter, the value has increased further by SEK 311 million in our derivatives. When the price of electricity is increasing, we have also reversed impairment losses of SEK 300 million in our wind turbines. Overall, as a result, our wind power investment of SEK 2.6 billion in total has meant accumulated losses of approximately SEK 700 million, which we have taken in previous year's financial statements. Total profit after tax amounts to SEK 2.9 billion, which is an increase of SEK 250 million compared to the previous year.

Now turn to next page, Page 14. So let's move on to our biggest asset, which is our properties. So you can turn to Page 15. Our investment properties are valued at SEK 65 billion, and we have chosen to keep all direct yield requirements. They amounted to an average of 4.5% in the commercial and 3.0% for residentials. And 2/3 of the market value of properties are residential and 1/3 are commercial.

So now turn to Page 16. We have invested a total of SEK 2 billion in our construction, and that also includes reconstruction, approximately SEK 550 million during this third quarter. We have approximately 1,800 apartments under construction right now, and as you can see on next page, Page 17. And we have added one additional construction this quarter, and that's in Stockholm, it's Nacka Grace. So you can see here almost 170 apartments as well as some reconstruction and extension of a commercial property here in Gothenburg on Stampgatan.

Now turn to Page 18. Our interest-bearing liabilities amount to SEK 28 billion, which is at the same level as at the turn of the year. During the period, we further strengthened our balance sheet. We can see on the next page how our financing looks per the closing day. So turn to Page 19. We have increased the share of bank loans further, which I mentioned at the beginning. Now the bank volume amounts to 90%.

We have reduced bond volume and commercial paper volume during the quarter, and they now amount to SEK 1.7 billion and SEK 1.2 billion, so SEK 2.9 billion in total, and bank loans SEK 25 billion. Due to the fact that we have reduced the volume of commercial paper, we have also chosen to lower the credit commitment from SEK 3 billion down to SEK 1.5 billion regarding the commercial papers.

Now turn to Page 20. And the summary of everything I said through our key ratios, we have a business that is doing well, with an increased net operating income and increased surplus ratio. We have a further strengthened balance sheet with a loan-to-value of 42% and an equity ratio of 48%. And this, altogether, feels like a good and a strong foundation to stand on, like I said in the beginning, and we look right on the future.

And if you have any questions, please click on the envelope on this page, and I will try to answer them. And you can also listen to our Swedish conference call where we have questions, but they are in Sweden -- Swedish. Okay. Thank you for listening and have a good day. Thank you.