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

Good morning, and welcome to the conference call in connection with year-end report 2020. My name is Erna, and I will be your coordinator for today's conference. [Operator Instructions] I will now hand you over to CEO Erik Selin, your host for this call. Thank you.

Hi. Good morning, everybody. Erik Selin here from Balder. I also have Marcus with me to give some comments about our Q4 figures that we released just now. If we start with the actions regarding COVID-19. We have not had any problems with collecting the rents, and that is the same situation as quarter before and so on. So rent collection is very stable. Actually it is like same -- it works the same way as last year. We are, of course, in need of helping some especially troublesome tenants, and that could be particularly small shops and restaurants and so on. And we look at that case by case. And then as you all know, we have some hotel turnover rent that obviously will not be paid now, but otherwise, all in all it's a quite stable situation regarding the pandemic. Otherwise, in Q4, we made a share issue of B shares, 6.5 million. We took possession of 50% of Anthon B Nilsen in Norway. We communicated that a while ago, but now it was really closed. And also 50% of Karlatornet, the project in Gothenburg; and some shares in Entra. We also signed to acquire a company in Sweden called Masmästaren that has real estate of roughly SEK 5 billion. And that is 50% commercial and 50% residential properties, and that fits us very well. We completed apartments in Denmark and Finland for rental. And we also completed some development projects in Gothenburg and Denmark, and there was then profit on those projects in Q4 of the SEK 109 million. And we have the system that, when the project is completed and we sort of hand over the keys to the buyers, then we book the profit. So before that, we have it only at costs in our books. And that will be huge differences between different companies how they book their results of projects and developments. And if we look at some figures at Page 3. And in Q4, property management was up 3% and, for the whole year, 5%, per share. And that is, of course, a bit low as we see it, but that is affected from turnover rents and so on. So the underlying trend is obviously stronger, but 5% is -- we think it's a bit too little. And NAV, 13% better than last year. Like-for-like rental growth, 1%. And if we look at earnings capacity year-on-year this year and compared to last year, then we are 12% better per share. On the next slide, #4. You can see here the developments from property management per share and the NAV. So it's continuing to trend upwards. And next slide, 5. There we have again the earnings capacity. And so you can see rental income; property costs; management, administration; financials; everything. And then at the bottom of the page, what is really important is obviously profit from property management per share. And now we are at SEK 25 compared to 1 year ago at SEK 22.39, and that figure is counted on the current situation. So obviously, when COVID will be okay again, we will have, on top of these, turnover rents coming back and so on, but this is calculated at the present situation with no turnover and it's important to know that. And next slide, #6, and we have the income statement, not that exciting. I think it's pretty stable. We have one item there which perhaps you could wonder how we booked it, and that was unrealized change in value of long-term financial assets, SEK 462 million. That is related to the Entra shares. So that is now in the books. Otherwise, nothing special in this. So we have the property management, SEK 1.1 billion; some value changes. And then at the bottom, we have profit per share after tax, SEK 20. And the balance sheet, that's Page 7. And compared to last year, they are also not that dramatic. We have a lot -- a bit higher value on investment properties, a bit more development properties. Associated company, there's a big increase. That is Entra's share in that figure included. And then we have SEK 9 million, SEK 10 billion in more equity; some more debt. So year-on-year it's improvement on all the lines and a bit bigger, [ but for being us, it's ] very stable '19 compared to '20. Property portfolio, on Page 8, and often looks quite the same and this quarter is no exception. So you have the biggest part in Helsinki, Stockholm, Gothenburg, Copenhagen. And also then residential is the biggest category, office, retail and other. And of the other, 14%, we have 8% is hotel. And other things could be schools or elderly care, yes, a bit different kind of mixed properties. And in the retail segments, the part that is sort of struggling right now is [ the retail ], and that is maybe 1% or perhaps 2%, I think, 1%, 1.5%, for us. So this has not a big impact on the overall portfolio, as you saw during the year. And then we have made some updates, if you look at Page 9, and in the report also it's in more detail, of our ongoing projects. That is more or less only residential projects. So if you look there later on when you have the time, you can see projects that are ongoing, projects that we'll be able to start in the next 12 months; and then also looking beyond that, how is the pipeline after 1 year from now. And it's also divided between projects that we'll keep and projects that is for sale. And so as you can see, we have a very good pipeline. And we'll be able to start a lot more residential projects from Q1 '21 until Q1 '22, and it's more or less only residentials. And the majority is for keeping and renting it out, but in Sweden we also sell owner's apartments or condominiums. This was to give more detail about this because it's business that's performing very well, very stable, and we see over a long time a big opportunity for us there. And we actually think it's perhaps the best segment for us to invest in our own resi development. So that will be a bigger part going forward. Looking at financing with Page 10. The ratios and figures are roughly what they've been last year, a bit lower net debt-to-assets. We took in some equity in Q4, so obviously strengthened the balance sheet a bit. And you can also see we have very much liquidity, SEK 20 billion, per year-end. Page 11 shows the net debt-to-assets over time and also secured debt of -- debt/assets and out of debt over time. And those are important for the rating agencies. So that's why it's worth to have them, but stable, as you can see. Not much happened from quarter to quarter in our business. Page 12 is also you see the share and the share price compared to profit from property management and compared to NAV. And over time, this will correlate pretty good. And that was a brief summary of Q4, and then now we can see if we have anything on Q&A.

[Operator Instructions] And the first question comes from Tobias Kaj from ABG Sundal Collier.

I would like to start to ask regarding the development of the earnings capacity, yes. NOI improved by some SEK 150 million in the quarter, but I would have assumed that it should have grown around SEK 100 million more just due to the fact of the acquisition of Masmästaren, yes. Is the split -- or the deviation there, is it related to currency headwinds? Or it's something else...

Exactly, you're right, exactly.

No, you're right. I think the currency is about SEK 150 million, but then euro is lowered. And the Swedish krona is much stronger than it during the last quarter, so that has an effect of SEK 150 million on -- but just on income.

Okay. And the improvement of income from JV in the earnings capacity. And what's that related to more than the Norwegian acquisition?

No. It's related to the Norwegian acquisition. You've seen it's not in -- if you thought about -- it's not Anthon B Nilsen. It's more on Entra is booked as an associated company. So it's 25% of Entra is included in the earnings capacity.

Okay. And does that mean that the remaining parts have been declining?

No. It's stable.

And you gave some figures about expected production starts then for apartments. Can you say how long is the average production time?

24 months on average, I will say. That's the normal.

And a final question, regarding SATO. Have you been able to increase your owner share during 2020? Or has it been unchanged?

I think it's 1% lower than last year.

Yes. And what would you say is the main similarities and the main difference in your -- differences in your investments in SATO compared to your investments in Entra?

Yes. Obviously, Entra is a listed company. So that is a big difference. And SATO, we wouldn't mind buying the whole company. And we prefer to stay on as a listed independent company, but we can be the largest shareholder. But we would prefer it to continue the way it is.

But would you prefer to reach about 50%, also for Entra, and consolidate it in your balance sheet and P&L?

No, we think we will be -- we think it's quite okay the way we are around these levels actually, but I mean we can't really -- that is also -- I mean we don't know what will happen among other owners in the company and so on, but if we could decide ourselves, we can think it's -- if it stays the way it is.

[Operator Instructions] The next question comes from Erik Granström from Carnegie.

I have a few questions as well. I think you invested about SEK 4 billion in your portfolio for 2020. And it seems that you're ramping up residential production in terms of sort of projects in general. What do you look for in terms of project investments for 2021? Is 2020 a good level, or would you like that to be a higher figure when we leave 2021?

I think we have -- in the report you can see that we expect the volume that, yes, we have taken to start at year-end. And then obviously, I mean, we're going to do -- hopefully, going to find, yes, some more land that we can start construction on during the year, but at this point, I mean, the volume is included in the report, what we expect to start...

But compared to last year, the -- it's very likely that will be higher or even much higher actually.

Yes. I mean, if you look, if we look at the -- both the rentals and the co-ops, the total investment for expected starts during '21 is almost SEK 11 billion in total investment. And with 24 months, is about half a good proxy for that? Or...

Roughly. I mean normally you have more investments later on in the projects than in the beginning. So -- and it's, of course, very complicated to know exactly because they're also depending on [ construction ] companies, municipalities and so on, but the long-term trend, you can find out there. But on a 12-month basis, we can't exactly decide ourselves, but if you calculate it roughly, it would be somewhere around that. But you are in the right area, you can say.

Okay. And then also perhaps a it of a follow-up on how you report Entra. You stated that 25% of Entra is included in the earnings capacity. In terms of the value changes in the P&L for Q4, is that do you also calculate 25%? Or was that the 18% or the 17.7%...