Neobo Fastigheter AB (publ) (NEOBO) Earnings Call Transcript & Summary

Go ahead.

Thank you very much. Good morning, everyone, and welcome to the presentation of Neobo's interim report January to March 2025. My name is Ylva Sarby Westman, and I'm joined here today by our CFO, Maria Strandberg. Despite a turbulent global environment, we have remained focused on our core business, creating attractive and sustainable living environments where people can thrive and feel secure. And we have had a strong start to the year and operations continue to perform well. Rental income in the like-for-like portfolio increased by 4.3%, driven by rent adjustments and lower vacancies. We continue to create value through active asset management, resulting in a 19% increase in net operating income in the like-for-like portfolio. Profit from property management more than doubled despite the divestment of 7 properties in the previous year. For the first time since Neobo was founded, we are reporting positive unrealized value changes in the property portfolio as a result of stabilized yields and increased net operating income. The property portfolio now has a value of SEK 13.8 billion with 8,300 apartments and residential properties account for 95% of the total property value. The rental value is steadily increasing, and this year's lease negotiations have now been fully completed, resulting in an average uplift of 4.8%, slightly more than half of the agreed rent increases took full effect in January with the remainder taking effect in April. We continue to create value through strategic improvements. And since the beginning of the year, we have invested SEK 41 million in measures that have enhanced the attractiveness of our properties. This includes the renovation of 17 apartments as well as sustainability investments that have delivered solid returns. We are actively working to improve our occupancy rate. And in the residential portfolio, the level has improved by 1.5 percentage points since the start of Neobo. The lease agreement that we have signed with the Swedish Prison and Probation Service in Sollentuna, with a rental value of SEK 10 million is scheduled to take effect on September 1. In conjunction with occupancy, the commercial vacancy rate in Neobo will fall by 2.9 percentage points and the total vacancy by 0.6 percentage points compared to Q1. At the same time, the total rental value will increase by SEK 5 million as the premises are being leased at twice the rent compared to the assumed vacancy rent for the property. We are fully committed to advancing our sustainability strategy as a key driver of long-term value creation. Our strategy is based on the 2 perspectives: Sustainable living environments and corporate social responsibility. And for these 2 perspectives, we have identified 10 material sustainability aspects. As you have probably heard, the EU has now decided to stop the clock and postpone the mandatory sustainability reporting under CSRD by 2 years. Regardless of reporting requirements going forward, we will always ensure that our stakeholders receive relevant information about our sustainability activities. We continue our work towards achieving our long-term sustainability goals, which include reducing our greenhouse gas emissions, lowering our energy consumption and ensuring that our suppliers meet our sustainability standards. In the first quarter, we published our 2024 sustainability report, which includes, among other things, our climate report and our road maps to support the achievement of our long-term goals for reduced energy consumption and emissions. Reducing our climate footprint and supporting the transition to more sustainable electricity generation is a key priority for us. And our target for 2030 is to ensure that all electricity purchased comes from renewable sources. And we are proud to have already achieved this goal by sourcing 100% of our electricity from certified renewable sources. Feeling safe at home is important to everyone, and this fundamental belief is at the heart of our vision and guides everything we do. We are actively addressing areas perceived as insecure by tenants, implementing enhanced lighting, security doors and digital entry systems to improve safety and boost tenant satisfaction. The transaction market shows renewed strength in the first quarter and the transaction volume increased by nearly 50% year-on-year. At the same time, we are seeing some hesitation in the market due to the current uncertainty. I have already commented on the quarterly results, but I would like to highlight a couple of items. Total property management costs decreased by SEK 14 million year-on-year, attributable to cost-saving measures in property operation and energy consumption as well as a warmer winter compared to the preceding year. Central administration and financial expenses are in line with the corresponding period last year. The earnings capacity shows increased rental income by SEK 17 million and higher financial costs by SEK 20 million, mainly due to favorable interest rate swaps that have expired. Other items remain unchanged during the quarter, and the net initial yield has continued to rise, now reaching 3.9%. To better leverage the potential in our portfolio, we are strengthening our organization with an experienced Head of Property Management, who will have overall responsibility for the property portfolio. At the same time, we are establishing an additional region to ensure a customer-centric organization with a focus on long-term value creation and to meet the growing demands for innovative, digital and sustainable property management. We are maintaining a stable financial situation despite the turbulent business environment. The average debt duration amounted to 2.6 years in the end of March, and we have a high hedge ratio of 83%. The average interest rate increased to 3.5% attributable to the maturity of interest rate derivatives with low fixed rates. The ICR amounted to 1.7x on a rolling 12-month basis. And to secure future cash flows and further mitigate financial risk, we employ interest rate derivatives. And at the close of the period, the nominal value of active swaps amounted to SEK 5.9 billion. Here, you can see our largest shareholders as of the end of March. And finally, some key takeaways from the beginning of the year. Strong start to the year. Profit from property management increased by 156%. Rent negotiations for 2025 are complete with an average increase of 4.8% and positive outlook for next year. Positive value changes in the property portfolio as a result of stabilized yields and increased net operating income. Organizational upgrade completed to accelerate value creation and deliver long-term shareholder value. And with this, I would like to open the floor for questions.

[Operator Instructions]

Okay. It sounds like we don't have any questions. Can the moderator please confirm?

Yes.

Okay. We have a written question.

Yes. Given the extreme discount to the NAV, are you planning to sell the assets and buy back shares?

Yes, a good question. We have the proposal to be able to buy back shares at the AGM later today. So hopefully, the Board of Directors will have the mandate to do that later today. And of course, we are evaluating the possibility to do that regarding the discount to NAV.

Yes. And we have another question, be more precise about the vacancy.

Yes. On the residential side, we see a stable vacancy level of 5.1% in the first quarter. And we are really working hard to lower that level. And we can see that our -- half of our vacant apartments are located in 4 areas. So we are really targeting them with specific activities to be able to lower the vacancy further. And when it comes to the vacancy in the commercial premises, as I said, we will see a lower vacancy rate of 2.9% when the occupancy in Sollentuna will take place in the 1st of September. And we are now looking into all our commercial premises. And hopefully, we will be able to do some successful leasing during this year as well in the commercial segment.

Yes. And that's the last one.

That's the last one. So thank you very much for listening in, and have a nice day.