Diös Fastigheter AB (publ) (DIOS) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Dios Interim Report January through June 2026. [Operator Instructions] I will now hand the conference over to Johan Dernmar, Investor Relations Chief. Please go ahead.

Thank you, operator. Hello, and welcome to Dios interim report presentation for the first half of 2026 with a particular focus on the second quarter. The quarter once again confirms Dios' ability to deliver stable performance in an uncertain market. David will start with a brief summary of the quarter, followed by Rolf, who will cover operational development and the portfolio. David will then conclude with our outlook before we move into the Q&A session. Instructions how to submit the question will be provided at the end. I will now hand it over to David.

Thank you, Johan, and hi, everyone. Let me start by saying that this quarter has once again been strong and stable. We operate in a market that continues to be affected by geopolitical uncertainty and financial market volatility. But despite that, our performance is stable and in line with our strategy. Our focus remains very clear: drive cash flow, maintain high leasing activity and allocate capital where we create the best shareholder value in the long term. And in this quarter, we delivered on all of that. Let me now take you through the key highlights. Operationally, this is a solid result. We delivered positive net letting of SEK 10 million, which reflects continued strong activity and confirms that our active way of working continues to generate results. At the same time, our occupancy remained stable at 90%, which we consider to be at a good level in today's market. Looking at earnings. Income is in line with last year at SEK 667 million, despite a reduction of approximately 100,000 square meters in leasable area. Like-for-like rental income growth was 0.8%. And the surplus ratio improved to 74% which shows that we continue to manage both revenues and costs in a disciplined way. This also reflects the impact of our transaction activity, where we have divested assets with lower operational efficiency. We also see clear value creation from what we do operationally. During the quarter, we report positive unrealized value changes of SEK 109 million. driven only by new lettings and value-creating investments. This is important. It shows that our model works. Leasing activity and investments translate directly into higher property values. On the financing side, conditions remain good. Our average interest rate decreases to 3.8%, supported by refinancing at attractive margins. Yield gap continues to improve and now stands at 2.3 percentage points compared with the valuation yield while the yield gap on new debt is close to 3%. So to summarize, strong net letting, stable occupancy high activity across the portfolio and positive value creation from our core business. All in all, this is another quarter where we deliver stable performance and continue to create value in a volatile market. Over time, our portfolio has shown resilience in both occupancy and property values. Valuation yields have remained stable over the past 4 years, while our portfolio has continued to grow through profitable investments. This is particularly important given that we have been a net seller of assets during the same period. Vacancy remains around historical levels, and recent movements mainly reflect strategic divestments of fully let assets and completed projects, not weaker underlying demand. I will now hand over to Rolf.

Thank you, David. Let's take a closer look at the earnings performance for the current quarter. Rental income was in line with the previous year with an economic occupancy rate of 90%. Several new leases were signed during the quarter, and we expect the rental market to gradually improve. There is still good demand for modern, centrally located premises where our portfolio is well positioned. It's important to note that it usually takes 6 to 12 months from lease signing before it generates rental income. Property costs were slightly lower during the quarter, primarily due to reduced expenses for electricity and heating and somewhat lower maintenance cost. Energy consumption for the first half year on a climate adjusted like-for-like basis decreased by 1.6%. Overall, this resulted in an operating surplus of SEK 485 million, corresponding to a surplus ratio of 74%. Net financial items improved by SEK 4 million compared to Q2 last year, driven by improved refinancing margins and lowest LIBOR rates. Income from property management increased by 4% year-on-year. And we've had positive value changes with valuation yield 1 basis point lower than last quarter, and I will come back to this later. Our well-diversified portfolio continues to strengthen the resilience of our top line. On a like-for-like basis, rental income increased by 0.8% compared with Q2 last year. With 33% of rental income derived from public sector tenants, we have a solid foundation for passing on CPI adjustments. This supports our ability to defend and increase rental levels in connection with both renegotiations and new lettings. In total, 98% of our commercial lease agreements included indexation clauses, of which 95% are linked to CPI. We see clear potential for further rental growth through rent reversions, improved occupancy and by developing modern and efficient office space in prime locations. As the market leader in our core cities with strong local management and solid cash flow, we hold a competitive advantage compared with many other real estate companies in our markets. Net lettings during the quarter were positive, totaling SEK 10 million. Tenant concentration risk remains low. Our 10 largest tenants account for 20% of total rental income with a [indiscernible] of 4.8 years, and the [indiscernible] for the total portfolio remained stable at 3.6 years. We continue to see a clear trend where tenants prioritize attractive locations and demonstrated a strong willingness to pay for modern and efficient premises. Vacancy levels are significantly lower in central urban locations, where we have a strong presence. This contributes to the high resilience of our portfolio. At present, several discussions are ongoing with both existing and prospective tenants at good rental levels. The market value of our property portfolio amounted to SEK 32.8 billion. 96% of our properties were externally valued during the second quarter. The inflation assumption for the first year remains at 1% and then increases to 2%. The average valuation yield amounted to 6.8%, representing a decrease of 1 basis point compared with the previous quarter. Overall, this means that we reported positive unrealized value changes of SEK 109 million for the quarter, driven by strong leasing activity and by deals such as converting vacant retail space into fully let offices. And we note that our divestments are made at or above book value, supporting our assessment that the reported property values reflect fair value. During the quarter, investments totaled just over SEK 300 million, primarily related to tenant adaptations and new developments. Risk in our project portfolio remains low as pre-letting is a requirement and most of the rental income is generated from tax-financed operations. All ongoing projects are progressing according to plan, both in terms of costs and time lines. Currently, 10,000 square meters are under construction, corresponding to a total investment volume of SEK 320 million, remaining investments amount to SEK 100 million. In addition, we hold 310,000 square meters of existing and potential building rights, representing significant opportunities for further value creation. Around 50% relates to commercial premises with the remainder allocated to residential properties. Going forward, our focus will be on tenant adaptations and selectively new builds secured by stable tenants and long-term lease agreements. In May, we issued a 3-year bond totaling SEK 600 million while at the same time, redeeming $300 million of bonds maturing in October. As a result, our average debt maturity stood at 2.8 years at the end of the period. Over the next 12 months, we will have additional loan maturities, excluding commercial papers of SEK 2.9 billion, corresponding to 17% of interest-bearing liabilities. We continue to actively work towards a more prudent maturity profile with longer debt maturities. The average interest rate decreased from 3.9% at year-end to 3.8%, driven by lower margins upon refinancing. In mid-June, we entered a new 3-year interest rate swap, extending our fixed rate maturity to 2.4 years. Bank financing is and will continue to be our most important source of funding. Currently, 62% of our outstanding loans are financed through banks. We maintain a very constructive dialogue with all our lending banks who have demonstrated a clear willingness to support our growth ambitions and offer competitive terms. The margin on the 3-year bank loan is currently around 115 basis points with a 3-month's LIBOR, this implies an all-in interest rate of 3.15% compared with our average property yield of 6.8%, this corresponds to a yield gap of close to 3 percentage points, supporting strong and resilient cash flow generation. For comparison, the margin on a 3-year bond is currently around 135 basis points. In total, 62% of our financing is bank-based. In addition, we have SEK 2.4 billion in undrawn credit facilities and a secured loan-to-value ratio of 36%. Further borrowing capacity will also be added through completed development projects. Taken together, this, combined with our strong banking relationships, makes us feel confident regarding our future refinancing needs. We continue to apply a conservative balance sheet approach, reflecting our strong commitment to financial discipline and effective risk management. Over the past 2 years, we have reduced financial risk and improved our key financial metrics through divestments and a more cautious approach to larger new development projects. The balance sheet has also been reinforced through strategic transactions, while cash flow is developing positively. Loan-to-value currently amounts to 52.6% and net debt to EBITDA stands at 9.9x. The strong cash flow, combined with a solid balance sheet provides us with the financial capacity to pursue both new investments and acquisitions. I'm comfortable with our current financial position and actions taken to date. Our robust cash flow is sufficient to cover the approved dividend, operating expenses, committed CapEx and to support continued growth. With that, I will now hand over to David again.

Thank you, Rolf. Let me take a step back and talk about the bigger picture. We operate in a region with very strong structural tailwinds. Historically, this has been driven by energy, industry and infrastructure. But increasingly, we also see growth being fueled by digital infrastructure. A very clear example is the interest in data center investments in Sundsvall where global players, Google, in this case, are exploring opportunities to establish new capacity. This is not just another investment. It is a signal that our region is becoming part of the European digital backbone built on access to renewable energy, available land and a stable society. And what is important to understand is that investments like this have a much bigger impact than what you see initially. One investment does not just create one job. It creates an entire ecosystem. To put this into perspective, consider a city with 100,000 inhabitants. The workforce was typically number around 50,000. An establishment creating 500 direct jobs and 1,000 indirect jobs would therefore have a very significant impact. It is not marginal. It is transformational because those jobs do not exist in isolation. You get suppliers and subcontractors, service companies, increased demand for housing, more retail and restaurants and ultimately, more demand for offices and central locations. So over time, this drives activity in the city, population growth and the strong local economy. And that is directly linked to our business because when cities grow, demand for our type of properties grows with them, and rents tends to grow fastest in the center of the city where we have our properties. During the quarter, we continued to deliver high activity and a large number of new agreements. Let me give you a few concrete examples of what drives our leasing and value creation. First, we continue to deliver large, complex agreements with public sector tenants. During the quarter, we signed an agreement with the County Administrative Board of Norrbotten covering approximately 7,000 square meters in Central Lulea. The agreement includes modernization and significant technical upgrades with an investment of around SEK 111 million at a yield on cost of 7.6%. In Umea, we have signed a lease with Hanzens in [indiscernible] Galleria, a 1,600 square meter retail space across 2 floors, contributing to a more attractive city center offering. And in Sundsvall, we have signed a 10-year lease with the [indiscernible] Group, covering approximately 3,500 square meters with a yield on cost over 10%, strengthening the city's restaurants and experience offering. During the quarter, we completed the redevelopment of [indiscernible] 9 and 10 in Umea, delivering a modern and purpose-built facility for the Swedish defense Conscription and Assessment Agency [indiscernible]. The project involving investment of SEK 122 million further strengthens both the earnings capacity and long-term activeness of our portfolio and with the project profit exceeding 30%. So if you step back, the common denominator in all these deals is active asset management, close dialogue with our tenants and creating the right mix in our [indiscernible] centers. That is what drives both demand, occupancy and property values over time. So let me summarize the quarter. We delivered positive net letting, stable occupancy, high activity across the portfolio and positive value creation driven by our business. This confirms that our business model works well also in an uncertain macro environment. And at the same time, we have a strong balance sheet, stable cash flows and the capacity to continue investing profitably. So overall, we are a company with high yield, low risk and clear opportunities for continued growth. And it is important to highlight that this is ultimately driven by the work being done across the organization, very, very close to our tenants, high activity, strong execution and a clear focus on creating value. So with that, thank you for listening, and I wish you all a very nice summer.

[Operator Instructions] Your first question comes from the line of Oscar Lindquist from ABG Sundal Collier.

Can you hear me?

Yes, we hear you.

So one question for me on -- if you could comment anything on sort of how letting activity has progressed throughout the quarter and if you see yourselves to continue in positive territory for the remainder of '26?

Yes, David here. We have -- we had good leasing activity in this quarter as well as the first quarter. We had a couple of terminations at the end that affected the net letting, but it was still positive by SEK 10 million, so that was good. And we see that it will continue on this level in the coming few quarters as you asked about, but you never know, but the listing activity is on a good pace now. So and we are continuously tracking and seeing what the risks are on the downside. And we see that it's more on the upside than the downside.

Perfect. And then a question on the earnings capacity. So the reported figure is 3% ahead of the earnings capacity in Q1 on rental income. And it's now 4% to have an earnings capacity now in Q2. Is there something timing related to the net lifting? Or is there some other explanation for this deviation?

Yes, just on a rolling 12-month basis, you mean?

Just if I divide the earnings capacity rental income by 4.

Okay. Yes, there are some seasonal effects of, of course, in there and also we've been net sellers, maybe has some effect. Net letting is, of course, coming into effect later on, but that's only included in the earnings capacity when we have designed leases, as stated. So I don't have any direct answer on the effect there. So -- but we can dig into that and maybe come back to you later.

Your next question comes from the line of Albin Sandberg from SB1 Markets.