Fastighets AB Balder (publ) (BALDB) Earnings Call Transcript & Summary

Hello, and welcome to the conference call in connection with year-end report 2019. [Operator Instructions] I will now hand you over to your host, CEO, Erik Selin, to begin today's conference. Thank you.

Thank you, and welcome, everybody, for presentation of Fastighets year-end and Q4 report. In Q4, we dive right into it. We took possession of some acquisitions that we made during the autumn. And that was a large CBD property in Gothenburg with office and hotel. We also took possession of two centrally located office properties in Stockholm. And on top of that, some projects for residential construction in Gothenburg. And we also completed a couple of hundred apartments in Denmark and in Finland. That is ongoing business, as you know. But, more than usual, was completed in the Q4. And if we turn to next slide, in Q4 isolated, we had an increase in property management profit of 20%. So we reached SEK 5.85 per share in the fourth quarter. NAV stood at SEK 346, 23% better than last year this time. And we had a net debt of 48.2%, roughly the same as a year ago, and net debt-to-EBITDA of 12.8, that is for Q4. And also, like-for-like rental growth was 3.8%, a bit higher than it was previous quarter. If you turn to the next slide, you can see some graphs showing profit from property management, on the left side, and long-term net asset value, NAV, on the right side. So basically, it's not so much more to say than that's continuous trend upwards. And of course, that is my job and Magnus' job to ensure that the profit from property management, over time, increases. And if that happens, of course, over time also, NAV would increase. Next slide, we have current earnings capacity, as we update every quarter. And this is a yearly comparison from a year ago. You see rental income, 14% higher, and operating, profit 15% higher. And then parents profit from property management, 13% higher. And this is not the forward cost. This is just against that year-end. So obviously, during the year, there will be transactions and construction and a lot of things that always make these figures not turn out like the figures just this quarter. But it's sort of an easy place to, by 1 page, an opinion about how the company earns, if basically nothing happens. On next slide, we have consolidated statement of comprehensive income. And you can see in the quarter, we had an increase of profits from property management, from Parent company, and that is of the deduction from noncontrolling interest of SEK 1.053 billion. And that was 20% better than last year this quarter. And also, in the quarter, were value changes unrealized in properties. And a big part of that is change in how we value the properties in Fastighets. That is now, more or less, deal-based. So it's market price what we see when the transaction is made in an investment market. And previously, there were bigger deviation between different methods. One of them was acquisition cost, and also that you compared selling apartment by apartment and with a discount, and they've had the old principal evaluated for many, many, many years, as in Coyame. And then you can see when yields come down and as there is lot transaction in the market, we, as Coyame, could see that this valuation that we have now is much more reflecting the real values than the old approach. So that's part of the explanation on the big change in this Q4. And next slide, financial position. There, you can see a higher property values, obviously, we invested in some of the value changes. And also, more equity and the underlying follow-up. So it's basically like 20%, 25% margin numbers than last year. Nothing other special on that. If we turn to next property portfolio, 80% of the portfolio is in capitals and larger cities. And Gothenburg, this is a big part, it's not the capital, but it's, for us, a large city, depending on how you compare them, obviously. Residential, 59%, Office, 18%; Other, 15%; and Retail, 8%. So this is very -- looks like, I think, more or less, exactly as a year ago. This doesn't move around much per quarter or per year. And going forward, we think it will be something like this. Next slide, financing slide. Now we have the average interest rate cost of 1.5%. That is slightly lower than before. And that is, of course, you all know, very low interest rates in the market than in the bond market, and also, on older loans matured. We get new ones with slightly better levels. So there's a downward trend on this. Fixed credit terms, 5.8 years and a fixed rate period, 3.1 years. Also, net debt to assets, 48.2% and equity/assets ratio of 38.6%. So there we are, slightly above -- below our target. But the target is more a long-term target. We don't have to reach it every quarter. So -- but the trend is still that we would like a bit higher equity ratio than we have right now. Debt maturities. You can see bond terms quite well spread out until we get all the way down to '28, '29. So -- and the latest bond emissions has been on the long end at quite attractive prices. And if you turn the page again, that's another financing slide, where you can see, of course, portfolio value, net debt to assets, and also, at the bottom, secured debt out of total assets and secured debt out of total debt. And those metrics is important for rating agencies or the rating grid. And then, they are going in the right direction, and we have quite big headroom there compared to what we have -- have to have for the present rating. And so finally, next slide, the share price, and we have it compared to NAV and profit from property management, and not much more to say about that because we're going in the right direction. And you all know stocks, I guess. So it's listening to this. So this was a brief summary of the Q4 and the year-end. And now we welcome you for any questions. Me and Magnus is here.

[Operator Instructions] Our first question is coming from the line of David Flemmich from Handelsbanken.

I only have 1 question today regarding the net financials that continues to surprise, coming below, at least my expectations. Can you please elaborate a bit on the net financials? Because when I compare them to the earnings capacity, for example, I find the annualized net financials in Q4 being at 20% below the earnings capacity. And that has gone through all of 2019, basically. Are there any like one-offs or other things impacting on net financials in Q4?

Small one-off seen in the Q4 report in the net financials. You have some value changes from financial positions. And -- but then it's also difficult always to project how the currency is going to differ from quarter-to-quarter or year-to-year. So that's mainly a part of the effect.

But then all else equals, should the net financials, going forward, be in accordance with the earnings capacity because it has surprised, basically, every quarter in 2019. And it's quite a large deviation when comparing with paid net financials and the cash flow statement.

No, I wouldn't try to indicate the financial costs that are in a year basis, but they're probably a little bit on the conservative side.

The next question is coming from the line of Tobias Kaj from ABG.

I would like to start off regarding your holding in Stockholm, I mean, given that the cost might have been obvious for other minority owners, that the valuation of the properties have been rather cautious in the past. And now you make this revaluation. Do you think that you would be able to increase your owner share in Stockholm in the next few quarters?

It's very hard for us to predict. We are, of course, interested in buying if the price is reasonable. But right now, we have no such discussions. So let's see what happens.

So the change was not triggered by, like, a requirement of some of the other owners who stand if you change your valuation method?

No, it wasn't. No. It was just that, of course, when we look at it and the year passes by, you can see the difference between, for example, acquisition cost and market value guidance for the time. And that they had this revaluation method forever. And sooner or later, everything jump nonetheless by the Coyame changed it first, and they are listed so Fastighets, of course, maybe even more focused on it. And then when Coyame changed it, it also made us think that, okay, this will be strange if 2 big companies that are totally different, approaching and evaluating the same assets. So that's why we changed it. But, of course, in a single quarter, it looks maybe a bit dramatic. But then, I know you and other ones following this, commented that the value seems to be a bit low. But then again, we also wrote to them, principle was the combination of different methods. So let's see.

And regarding your balance sheet, I mean, you have had quite small changes in your gearing during 2019, as you've been very active with acquisitions and investments. If opportunities occurred, would you like to be as active in 2020 as well? Or would you like to reduce your gearing and, for example, aim for higher ratings?

We would use -- we would like to reduce gearing, slightly. But on the other hand, if we find good investments, we are not in a hurry or in a rush to change the gearing. So we always think about the long-term shareholder and what would make sense in the long run. So if we find good investments, then we can, of course, wait some quarters with lower gearing. But if we get, we will have slight delay gearing and hopefully, we find good investments as well.

And if you look at the competitive situation today when compared to a year ago, do you think like the outlook or growth rate is similar as a year ago? Or has it changed in any direction?