Platzer Fastigheter Holding AB (publ) (PLAZB) Earnings Call Transcript & Summary

Welcome to our presentation of the Q1 report of 2025. My name is Johanna Rentsch. And with me, I've got...

Ulrika Danielsson.

I would like to summarize the quarter. We have completed yet another good quarter despite the turbulent and changing macro environment. In the wake of this economic climate for the last 2.5 years, it's even more important now than ever then to focus on what we can influence. For us, that is staying close to the customer and focus on our cash flow and our cost control. The organization's hard work allow us to deliver an operating surplus that grows by 11% and an income from property management that increases by 16% compared to Q1 '24. The rental market started a bit cautiously after Christmas holiday and -- but it picked up as the quarter progressed. Most of the new letting is actually in our office business segment. Our renegotiation of lease -- of existing leases, they reached an amount of about SEK 36 million. I think this shows our ability to meet our customers' changing needs and that we are relevant with our products and in our attractive locations. So this is to summarize our period. As I mentioned, the operating surplus and the income from property management has increased and also the rental income has increased, of course. That is due to the acquisition of MIMO, our new office block that we acquired here just before Christmas. And of course, also the International English School that responded to -- corresponded to about 8%. The balance is mainly due to the index and effects from lease renegotiations, along with good cost control. The net letting amounts to minus SEK 3 million or actually minus SEK 2 million if we look at our fully owned portfolio. And if we also exclude the bankruptcy, we are just balancing on the 0. And our tenant retention rate, meaning our existing tenants that stays in our portfolio but could have chosen to leave us, is up a little bit even more. That's up to 88% at the moment. We are also, as previously reported, having a feedback from the Nordic Credit Rating that confirmed our BBB rating and raised the outlook to stable, which we are very happy to have, of course. It has been a quite intense start of the year. In the beginning of January, we recruited our future CFO that will take over after Ulrika. It's Jakob Nilsson, who will join us here in July. We have also recruited our new Chief Legal Officer, Kristina Månesköld. And I'm really looking forward to Platzer's continued journey together with Jakob and Kristina and the rest of my dedicated teams. As previously reported, we also sold the School in Södra Änggården for SEK 552 million to Infranode. And we also started a new project, a parking garage in Södra Änggården. On the same theme of this area, we have also transferred a residential building rights worth SEK 390 million to Peab a week ago and very freshly announced is also our large letting to Speed Group in Sörreds Logistikpark that will spark off a new project and starting this project of an investment volume of SEK 350 million. The annual rental is about SEK 27 million, and it's a 10-year lease. So looking into the general terms of the Gothenburg market. Looking into the economic outlook that shows improved economic prospects across all sectors in the local regional GDP, that has risen by 2% in the last quarter. Of course, this forecast does not fully account for the tariffs and potential trade wars that has been launched the last few weeks. We have not yet seen the full effects of these tariffs and their presence or their absence and neither the effects of such a trade war. So looking back at what we actually -- where we stand, it is, of course, important to see that we still have some fundamentals that are really strong and stable and I want to mention those. We have an economy that is -- should be quite resilient, such as strong state finances and green transition investments. We also -- have also significant investments going into the defense system and a broad and innovative business sector as such and the ability to adapt very quickly if you look at historical matters. And especially in the Gothenburg area, we have a very dynamic business sector spanning over 750 different industries. And the green industry transition is very, very significant in this city. We are also located geopolitically and industrially in a very well position, and we have the only transatlantic port in the Nordics. Many of the export companies are relatively well prepared. For example, Volvo have already been manufacturing their trucks in the states and supplies the full U.S. market since many years back. However, we need to keep a close eye to what happens with tariffs and trade wars globally, which, of course, is of great importance to Gothenburg. Gothenburg is Sweden's export engine and has twice as high export volume as the rest of the country. I believe that what will affect us most is how long it takes for the national economy and the household spendings to turn around, and that will likely be driven by the households according to many experts. Looking into the net letting and the link to how that is correlated with the economic activity in this region. We can see that when we have had a weak economy, the net letting is normally also dipping with about 6 to 9 months delay. And we can see that in a few different places if we're going back here in history. And right now, we are still, of course, in a weak economy, and we can also see that we are around 0 when it comes to net letting. That also -- what is also worth to mention is that our vacancies in our portfolio is, of course, worth a lot of money, just over SEK 200 million. And it's such a fantastic potential in those vacancies when it comes to our earnings. And that's why we focus so dedicated on this in our daily work. We have two segments. They complement each other very well, which is very evident in this type of economy. Gothenburg is, of course, an industrial and high knowledge-based city. And we have the highest ranking of the list of the best logistics location in the Nordics. This list combines hard criteria, such as infrastructure, freight flows, land availability and logistics stocks; with softer values, for instance, access to logistics expertise and regional cooperation climate. Gothenburg has topped this list 23 out of 24 years, which we should be very proud of. Our portfolio is located in the best location, close to the proximity of the harbor. As I mentioned, we have also started a project here in this quarter -- actually, not in the quarter, it's actually just after the quarter. If you then look at the offices, transaction has picked up at the end of the year after almost 3 years of stagnation. And vacancy rate is fairly high. It's high for this market. It's about 12%, which is about 1% higher than a year ago. But we have very stable rental levels. They are -- have a -- if you can look at the next picture here, you can see that we -- the rental development in both the A and B classification has been growing the last years and the take-up in Central Gothenburg has also actually been around the 5-year average, if we look at 2024. It's a little bit early to say how 2025 develops. But what is worth to mention, I think, is the basics that's actually driven the office market in Gothenburg. We have, during the last 10 years, had a 40% increase in office-intensive sectors and that's significantly faster growth than in other industries. And this bar can actually show us that. And during the recession, since 2023, however, the growth has, of course, slowed down, but office employment is expected to grow faster as the economy strengthens, which also means that the vacancy level will decrease. I find it very interesting to look at the chart in the upper right corner. It shows the distribution of different industries that use offices in the Gothenburg area. Here, you can see that Gothenburg has a significantly higher proportion of business services working towards the industry sector, of course. And we have a smaller portion that is IT and finances compared to Stockholm. And this is actually quite interesting from an office usage from how you use your offices since the green area showing then the industry that it works close to our heavy industry on the floor, so to say, that one is, of course, more present in the office premises. However, the largest structural shift in the Gothenburg region is the investments in research and development, where you can see in the statistics that Gothenburg region has now taken over as the country's absolute leading center of research and development in terms of where companies invest. We have 35% of Sweden's total R&D resources, and that's a substantial increase of SEK 10 billion in 1 year, and the shift of the Sweden's research resources is clear towards Gothenburg. And what is interesting to highlight here is how these environments, what that means for the long-term growth of the city. I also want to mention where we are from a sustainability point of view. Platzer has continuously, and for many years, actively worked with improving our sustainability impact, and we aim for our property management to be climate-neutral by 2030. Energy performance is becoming more and more relevant for the property values going forward. And therefore, I'm also very proud that our long-term efforts are visible in the results. We have reduced energy consumption by 4% during last year, and we have improved it by 39% during the last 10 years. And if we look to the bar chart to right, it shows how Platzer compares to other commercial property companies in Sweden. This is the Swedish Energy Agency network, Belok, that makes a comparison between property companies in terms of energy efficiency. And we are ranked as top 3 in this path. Now I'm handing over to Ulrika.

Thank you. Platzer starts the year with a growth in profit from property management of 16%, driven by stable growth in the like-for-like portfolio, contribution from completed developments and transactions where our acquisition of MIMO weighs heavily. Administration is stable as is the income from property management in our associated companies. Net financial items are slightly higher at the first glance, but it is worth noting that a year ago, we capitalized interest of roughly SEK 8 million, and now we are activating 0. Adjusted for this, the net financial items are slightly lower compared with a year ago despite a higher debt volume of roughly SEK 800 million. And this is mainly due to the fact that the STIBOR is significantly lower, but also because the company has entered into new interest rate derivatives when the market has had favorable pricing because it has been offered from time to time. All in all, this means that the income from property management amounts to roughly SEK 195 million, corresponding to a growth of 16%. Property values are stable. Adjusted for the School that we sold in February this year, the portfolio value basically increases with investments made. The rate or the pace of investment right now is somewhat low, which is natural, considering that the company has not started any major projects during this recession, but has chosen to work on strengthening the cash flow and regulating the capital structure through, among other things, divestments. And more divestments have been carried out since the end of the period, when the company in early April sold two residential building rights with an underlying property value of roughly SEK 390 million. Thus from December last year until today, we have divested properties roughly SEK 1.1 billion, of which residential building rights amount to roughly SEK 580 million. After changes in the value of derivatives and taxes, the profit bottom line amounted to SEK 186 million. Strong underlying earnings, combined with divestments results in stable or strengthened credit-related KPIs. Our net debt to EBITDA is declining, which it will be based on strength in cash flow, divestments and MIMO accelerating in terms of flow. The LTV is lower. And if we adjust for the residential building rights that have been sold after the end of this period, the LTV falls another 50 to 60 basis points, all other things being equal. Thus a good quarter and a strong start to 2025 with a high pace, a pace that continued into early April with further sales and project start on the logistics side. So to how the company has created increased rental income of 10% and increased NOI by 11%. If we look at like-for-like, meaning properties that have been under management for 2 years, income increased by 1.9%, which is above CPI and the higher rate of increase is partly due to increased rent supplements in partly to the effects of previous renegotiations. The first quarter was marred with lower energy consumption, lower energy prices and lower cost for snow removal, but this has been offset by other things, such as high maintenance, which is why we see a cost increase of SEK 2 million in the like-for-like. Overall, a stable development of 1.7% in the NOI. The projects as well as transactions have contributed with new NOI, where MIMO that we bought in the end of last year, of course, has a big impact on the numbers. Stable development in the like-for-like in combination with completed projects, and above all, completed transactions resulted in the growth in the NOI of 11%. If we leave the stable and move to something that is really not stable, and that has been like a roller coaster, the fixed income market, and our actions in such a volatile environment. In Q1, we continued with what we started in the autumn, extending the duration and reducing exposure to short maturities in order to achieve greater predictability of our earnings. We have thus taken new swaps this quarter at levels that continue to hold up well versus the pricing in the market at the moment, and we have continued to act in April. Our actions mean basically unchanged average interest rates all in versus the beginning of the year, where the interest rate itself is slightly lower, but the cost for unused credit commitments is slightly higher as a result of a larger buffer. At the same time, we have now a somewhat more even maturity structure, and an extended duration despite the fact that 1 quarter has passed. And based on the external situation, we have thus strengthened our risk profile and increased the predictability without sacrificing our funding costs. We have also been active in the bond market. Immediately after our Q4 report was released, we issued bonds in order to test our upgraded rating. With the company's instrument rating being given investment-grade status, the investor base was broadened. The interest was great. We issued a 4-year bond at 150 basis points, which was 65 basis points below our own curve. In the beginning of March, we made another 4-year but then to 142 basis points, that's another 8 basis points down. Since then, the bond market has tightened somewhat, and generally, there has been a rally upwards in the last months of 15 to 20 basis points based on what is happening in the world around us. For us, the setup has been somewhat smaller. Thus, we can conclude that the upgrade has had a side effect, a broadened investor base and thus access to more volume at competitive price levels. We have good dialogues with our relationship banks. We have not made any major renegotiations in the first quarter, but instead extended some agreements. Over the next 12 months, we have about SEK 5 billion to be refinanced adjusted for outstanding CPs, of which about SEK 2.7 billion matures in Q1 2026. So we have time to handle this. We also have a buffer in place, which makes us feel extra safe in these turbulent times. We have had a high pace, and I would say that we are in a much better financial position than a year ago on all levels. We have also continued the shift compared to the turn of the year. This means that we're much stronger than before, which is needed in the highly unpredictable world we now live in, and that enable us to continue to invest for existing and new customers. Back over to you, Johanna.

So let us look into the future. With these good earnings and from a strong Q1 and also from a strong delivery during last year, we are putting time behind us where we are better positioned now to face these challenging world that Ulrika mentioned. Our greatest key to success has been our ability to focus on our work with our customers, both new and old, and to fill our vacant premises and secure future cash flow. This gives us the strength to continue to develop our business and our beloved city of Gothenburg. We have started two projects recently, the parking garage in Södra Änggården, and as announced earlier today, the project V3 in Sörreds Logistikpark, which comes together with this lease agreement with Speed Group of SEK 27 million. We have also worked actively in the transaction market. We have sold residential building rights of about SEK 390 million, and we are currently also in the open market testing the price and interest for the V4 logistics project that we have completed in Sörreds Logistikpark together with Catena, Bockasjö. We have the first right of refusal to acquire this building, but have decided to test the price in the open market. So let us look into the opportunities ahead. We have around 300,000 square meters in project volume ahead of us and around 55,000 of those are in the planning stage. We have, of course, project in all different stages. We have detailed regulation plans, we have projects that can be started in a very near future. What we focus in the near future is what we can see here in the picture. Here we can see the Port View in the harbor of Arendal, and this is a project that is in the building permit stage with direct access to the kai. We have also refurbishment projects and energy efficiency projects, which the picture to the right in the lower corner can represent the refurbishment projects as such. This one is in Gamlestaden. And we are focusing on these refurbishment projects together with the logistic projects, which are very limited risk and also fairly good sites and also creates a cash flow in the -- fairly quickly. If we look at a little bit more long term, we have, of course, opportunities in terms of the office segment. We plan to acquire the building rights of Lilla Bommen. We now call that project, the Big Blue or Stora Blå. And here, you can see a teaser on how we will package that project. We have also handed in application for the detailed regulation planned for Medicinareberget, which is close to Sahlgrenska University Hospital, where we are the largest property owners at the moment, and we have submitted this planning application together with Akademiska Hus. We have had historically a very good timing of our completed and fully leased office projects such as Kineum and Merkur, Gårda Vesta, and this gives us now a boost in the rental development and operating net growth. And in the right market situation, we will, of course, run large office projects again, but at the moment, this is, of course, not where we started in the near future. But we will -- we are planning to be ready when the market is there. So to summarize, in this turbulent world, we continue to focus on what we can influence. We are staying close to our customers. We are increasing and focusing on our cash flow and our vacancies. Our single great success has been and will continue to be our ability to work close to our customers. This gives us the strength to continue to develop both projects and our city and our company, of course. With the strong earnings from this quarter and from last year behind us and with the acquisition of MIMO and the divestments that we have also carried through, we are better equipped than we were a year ago. And as Ulrika mentioned, this also shows in our figures in terms of credit-related key figures that are all strengthened. We have a better rating, that means better pricing and flexibility for future capital or borrowed money for us, and that bodes very well for the future. So we own also a lot of building rights with great potential long term, and we have also project opportunities in the short term that can give us fast cash flow growth. So in the near term, we focus on quick and ready-to-start logistic projects in Sweden's best location and refurbishment projects, of course, in the office segment. In the long term, we would like to, of course, keep to do larger projects when the market is right. We continually also work with reviewing our portfolio, acquire what we think strengthen us and divest what we do not think we can further refine. And we integrate sustainability into everything that we do. So the organization has shown historically that we can deliver in a tough economy and our local market knowledge and our close proximity to our customers are our strength. And despite really quite big bumps on the road, hopefully, the economy will recover and continue to go in the right direction again, and we will meet a more vibrant rental market with that. It will, of course, not happen by itself, but we are willing to put in the hard work that is required. Thank you for listening. And now we are open up for questions.

[Operator Instructions]. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

This is Johanna and Ulrika live, unfortunately, we have lost the ability to hear any questions and we would like to ask you to write those questions instead, and then we will read them and answer in that way. So if we have anyone who is listening in and have any questions, please write them and then we'll answer them. Thank you. So we have no questions and we'd like to thank you for listening in. And yes, have a very good Friday. Bye-bye.

Bye-bye.