Wallenstam AB

STO:WALL B

Earnings Call Transcript 2022-Q1

[Susann Linde, executive]

Welcome to this call, where I will go through the first quarter of 2022. And as always, if you have any questions, please click on the envelope here on this page, and I will try to answer them later.

So turn to Page 2. We are once again reporting a good result and growth. All key ratios are further strengthened, but there is a great deal of uncertainty in our world with a pandemic replaced by war. But we as a company are entering stable during this time of uncertainty, with a strong balance sheet in combination with the property holdings in attractive locations with a stable demand. Our own queue for our new construction has increased during this first quarter to 185,000 in total so our rental apartments that are completed have a good demand.

Please turn to Page 3. So what happened during this first quarter? We vacated 8 properties during this quarter, 2 properties in Tyreso, 2 properties in Syndbyberg and 4 in Grondal in Stockholm. We have also taken in possession the commercial property in Central Gothenburg from Handelsbanken, where they also are the largest tenant. We have acquired additional shares through a new share issue in the co-working company, Convendum, which means that we now own 37% in the company. We were also honored to receive an award as the Property Company of the Year, Residential at the Real Estate Gala, which is arranged by World in Property and Lokalguiden. And it's good that our work to add new homes to the market is appreciated. You can see here when we received the prize here on the picture.

Now turn to next page, Page 4. Yes, we focus on the growth regions in Sweden, Stockholm, Uppsala and Gothenburg, and the distribution between the regions has changed somewhat as we sold properties during the quarter in Stockholm and acquired in Gothenburg. It's only by 3 percentage points. The same applies to the distribution between residential and commercial rents as it has decreased by 2 percentage points regarding residential and increased by the corresponding amount in offices.

Now turn to next page, Page 5. We have 4 climate targets, and the outcome for 2021 shows that we have worked well to reduce our CO2 emissions. The most challenging is our construction operations, and there, we have decreased by almost 8% where we have made climate calculations in the planning stage in several of our projects, and accordingly made more climate-friendly material choices. We are not just self-sufficient in wind power. We have continued to install solar cells into properties where it is possible. We have also reduced the properties' energy use per square meter by just over 25% with the help of optimization work such as adjusting heating systems, et cetera. Residual waste has been reduced by 20% per square meter, where we have, among other things, supplemented environmental rooms with additional sorting fractions. And finally, business trips. They have been relatively few during the pandemic, however, they were mostly carried out in a climate-neutral way. For example, we have our own carpool with only electric cars. So we are very proud of this result.

Now turn to Page 6. We completed 354 apartments this quarter and on next page I will start to go through which one. So we start with Page 7. And here to the left, we have our project Umami Park in Phase 3 in Syndbyberg, where we have completed the entire project now with these last 50 apartments that were occupied in March. The project is on a total of 133 apartments. To the right, we have Flanoren in Uppsala, where we have occupied into another 36 apartments. There are about 70 apartments left here that are not contributed yet.

Now turn to Page 8. To the left in this picture, we have kvarteret Kvarnen in our urban development project in Molnlycke Fabriker where we have completed 62 apartments out of a total of 185 apartments. And this property is now fully completed. And to the right, we are in the same area, the neighborhood to kvarteret Kvarnen and it's kvarteret Vaven, where we completed all 116 apartments here during the first quarter, and they were occupied in March. This means that we have 3 projects fully completed here in Molnlycke Fabriker now of about 420 apartments. So now we have started almost half of the apartments in this area.

Now turn to Page 9. The second house of 3 in this project, kvarteret 11 in Kallebacks Terrasser was completed in February this year. Now there is only 1 house left, then this whole project is completed.

So now turn to Page 10. So now we go through the results, and we report a net operating income for the quarter of SEK 459 million, which is an increase of 11%, SEK 44 million compared with the previous year. This is despite the fact that we have had sales that we lose operating net from, but since we primarily build rental apartments, they enter our management and have a positive effect on our net operating income. We have further increased our surplus ratio to 74.5% for the quarter.

More about the details we take on next page, Page 11. And as I said, NOI increased by 11% compared to the previous year. And if we start to look at the rental income, we can see that SEK 41 million comes from our new construction, and we completed approximately 350 apartments during the quarter, but they don't have an effect throughout the whole quarter. We have lost rental income of SEK 13 million due to the transactions we have made. And in the comparable holdings, we have increased rental income by SEK 21 million which corresponds to an increase of around 3% in base rents. We have also recognized an estimated increase in property tax due to increased assessment values which leads to increased income of SEK 6 million for the quarter and also higher expenses, of course. We reinvoiced around 90% of the property tax.

We have a total occupancy rate of 97% where residentials are fully let and the commercial holding amounts to 94%. And the operating expenses, they increased by SEK 10 million. And even there, the greater part of the increase, SEK 6 million, is due to the fact that we have larger property holdings to manage as new construction enters management. And it has also been warmer and less snowy, which had a positive effect on our operating expenses of SEK 6 million. And again, it's worth commenting that we are self-sufficient in renewable energy by our wind power, and it has been a good hedge now when prices have risen as they have done.

Now turn to Page 12. And here, we see the development of the NOI over the past 10 years and also the surplus ratio that shows the efficiency of our holdings, and it has risen further. For the quarter, it amounts to 74.5%. And here in this graph, it's rolling 12 months. And as new construction enters the management, the surplus ratio is positively affected. Of course, the work we put to make our existing properties even more efficient also has a positive effect.

Now turn to Page 13, and if we look at the entire income from property management, it's an increase compared to the previous year by 11%, SEK 31 million. The total increase of our administrative expenses mainly consist of an increased number of employees and higher wages, as well as gifts as a result of the war in Ukraine of SEK 4 million in total. Our net financial items are slightly higher than last year, SEK 9 million. The average interest rate during the period amounts to 1.21% which is the same as the previous year. We have less interest rate capitalized in the properties of SEK 7 million. Given the current inflation entity, we have chosen to further hedge our interest rate with the help of 10 years interest rate derivatives. And this means, as we see on the next page, Page 14.

During the quarter, early in the quarter, we entered into a new 10-year interest rate derivatives with a volume of SEK 2.3 billion. In total, we have outstanding derivatives of SEK 16 billion now and a total loan volume of approximately SEK 28 billion. The fixed interest rate has now been extended to 50 months from 41 months at the turn of the year. Due to these hedges, the average interest rate as of the balance sheet date has increased to 1.34% against 1.17% at the turn of the year.

Now turn to Page 15. The profit before changes in value recognizes at SEK 349 million, which is higher than the previous year. And in addition to what I have mentioned before, it is that other income and expenses, which mainly consists of our wind power operations increased compared to the previous year, thanks to higher electricity prices and higher production by 35% compared to the previous year.

Now turn to Page 16. If we then switch to changes in value and start with changes in the value of properties, we report a total of SEK 187 million that comes totally from our new construction. Changes in the value of financial instruments have a positive effect of the long-term interest rate rising. The 10-year swap was at 1.9% this year -- this quarter end compared to year-end at 1.0%. So we recognized a surplus value in the portfolio of approximately SEK 800 million. And it's also affected negative item of our holding of listed shares.

Now turn to Page 17. In total, the property value amounts to SEK 64 billion, and it's on the same level as at year-end despite sales of SEK 2 billion but investments in our new construction of SEK 1.7 billion and acquisitions of SEK 1 billion.

And we can turn to Page 18. We haven't changed our yield requirements in our valuation of the properties, so they remain at, on average, 4.4% for the commercial and 3.0% for on average for residential. The property value is divided into 37% commercial properties and 63% residential properties, where residential has decreased 2 percentage points since the previous quarter due to residential sales and acquisition of commercial.

Now turn to Page 19. During the quarter, we invested SEK 0.7 billion in our property construction, slightly lower than last year's quarter 1. In addition, we have also, as I said, acquired a property for SEK 1 billion.

So now turn to Page 20. We have started construction of a nursery school in our urban development project, Kalleback in Gothenburg, where we have already started 1 other school last quarter. We have also started a conversion of premises to 15 apartments, as you can see here on the right on Korsgatan in Gothenburg.

Now turn to next page, Page 21. With these occupations and starts, we now have approximately 1,600 apartments under construction. We also have the commercial building in Kalleback and also the 2 schools there. And here, you can also see when the occupation starts.

Now turn to Page 22. Our interest-bearing liabilities amounted to SEK 27.8 billion, and are on the same level as last year.

Go to Page 23. We continue to have good access to financing. Thanks to the sales we made during the year, we haven't needed so much new financing despite continued investments in our new construction. We have accessible liquidity of SEK 4.4 billion. We are mainly financed through bank loans, as you can see in the graph, and they have increased slightly during the quarter even. 29% of the interest-bearing liabilities are green loans.

Now turning to Page 24. With this picture, I will summarize how we are doing with the help of our key ratios. As I said, all our economic key ratios are pointing upwards. We have further strengthened our balance sheet and report an LTV of 43% and an equity asset ratio of 47%. During the quarter, our net asset value increased by an additional 3% to SEK 117.8 per share. But more about the net asset value on next page, Page 25.

We have a closing net asset value of SEK 117.8 per share, which mean that a total of SEK 38.6 per share has been created since we started this business plan. In our business plan, which extends until 2023, we will create SEK 40 in net asset value per share, but the Board stated at the financial statements last year that it's not so far up to this SEK 40 that we have as a goal, and with this, the Board decided to start the work already now this year 2022. So we believe that the new business plan can be launched during this fourth quarter this year. And as I said, all these strong key ratios in combination with our efficient property holdings in good locations with a high demand feel very satisfying.

So this was all for today, and thank you for listening. Goodbye.