Wihlborgs Fastigheter AB (publ) (WIHL) Earnings Call Transcript & Summary

Welcome to the presentation of Wihlborgs First Half Report 2026. So let's start with the future and the acquisition of 95 properties in Malmo, Lund and Helsingborg. 635,000 square meters initial yield, including property management costs at 5%, just in line with our Swedish portfolio and this is before we have done any efficiency improvement that we expect from ourselves. Additional upside is 15% vacancy to give development possibilities ahead. The total portfolio suit us almost like a tailor-made glove. And the location is right into our most appreciated areas, the mix with both offices and industrial logistics is perfect. If we look at the location of our properties in Malmo City, including part of Dockan and Nyhamnen, Wihlborgs owned the black colored buildings in this map, and here, we can add on 11 properties in the same area located as the red dots. In the area of Fosie in Malmo, we can add on 17 properties. In Lund, at the Ideon site, there is 4 properties from Castellum, 2 of them our land for development. In the city center of Helsingborg, we have several large properties, and here is the location of 14 additional properties. And in the Berga location in Helsingborg, we can add on 10 properties. So almost like yin and yang for these portfolios. Now we can work with a larger portfolio for our tenants, but also to make room for the other investors that might be a better owner for some of the areas of properties. The interest for investments in the region is high. This is a way to create possibilities for future growth of income and growth of operating surplus for our shareholders. If we can choose, we are totally convinced that if you can get growth in the market you already know very well, you can perform better. And if you combine a large acquisition with both higher operating surplus immediately and larger possibilities for future development, it's a perfect match. We have done things like this several times before. The acquisition of Ideon from Ikano 2013 increased the LTV to 63% initially, and the acquisition of Nya Vattentornet 2019, gave us a quite large additional vacancy in an area where the vacancy in our own portfolio was already high. Now the Ideon area is very successful and filled with tenants in different sectors. Our plan is to do the same thing with the Castellum portfolio, and it will demand hard work and some time. But for us, this is a very well-known business in a very well-known market. The price of the portfolio as agreed to SEK 13.3 billion, 5% under Castellum's valuation. And let's remember that Castellum from 2022 had ahead decreased the valuations of the properties significantly. We think that Castellum's valuation can be fair, but the total portfolio and including the whole business, the price should be a bit lower than the valuation property by property, just in accordance with the agreement. And what about timing? Is summer 2026, not the time for cautiousness? Our call is that business is best done when the shop is open, and it's better to be ahead of the queue. Running a property portfolio means to look far ahead, to put some plants in the soil and be prepared to harvest in the long run. We think the opportunities for Wihlborgs improved significantly with this transaction and there's no opportunistic thoughts behind that, just a dry, data-driven investment model. Let's go to our report, and we'll start with a summary of Q2 26 rental income, up 7% compared to a year ago, a new record level. Operating surplus plus 6%, also a new record. Income from property management, plus 6%, net letting positive at SEK 5 million, but most important that the number of discussions and possibilities ahead have improved after the frosty start of the year. Market rents as well as rental income in like-for-like portfolio continued to develop positive. Net debt-to-EBITDA at 10.7x and of course, we signed the agreement with Castellum, as I just mentioned, but high focus on daily business, which continues to be our strong core. With some more figures on that for the full period, rental income up 8% to SEK 2.324 billion. The operating surplus, plus 8%, SEK 1.664 billion, and income from property management, plus 9% to SEK 1.077 billion. New record for all of them. The result for the period was SEK 850 million, corresponding to SEK 2.76 per share and EPRA NRV has increased by 9% to SEK 99.66 per share adjusted for paid dividend. A comparison of the rental income, first half '25 and first half '26. Indexation, plus SEK 22 million; acquisition, plus SEK 59 million; currency effect, minus SEK 16 million, additional charges plus SEK 26 million and not at least, completed project new leases and renegotiations plus SEK 91 million, which means that our investments and activities pays off. And the net letting positive with SEK 5 million, lower activity on both new leases and termination than a year ago, but most important, much better activity now than in the beginning of the year. So positive signals for the fall, but as usual, now promises ahead. The number of discussion is higher and the volume of possible new areas per tenant has also increased. Now we also see signs of tenants who decreased their areas a few years ago. They're coming back and ask for additional areas, an upgrade as we like. And to comment on something that happens on other markets, the large Ericsson agreement in Stockholm, which I see as a clear sign that the trend we have seen among smaller tenants for quite a long time also is in line with how larger companies make their decisions. Location, yes, attractiveness for the employees matters. Design, all the projects in Hagastaden have in common that they focus on human needs. And what about time? The leases signed clearly that Ericsson's things that they will need office space is also in 20 years' time. And all of us understand that the Ericsson employees will do totally different things in 20 years. But they still think that they will have people working in common areas. And something about the price. Yes, they are willing to pay. It will be very interesting to see where this trend continues. Here are some of the tenants that we have signed new leases with during Q2. The defense industry continues to be interesting with the lease with Babel Scientifique at Sorte Maseve for the full property and the med tech sector are represented by Cantargia. Here are the net letting in a historical perspective, lettings in green, terminations in light blue and dark blue stacks are the net letting. We know that we have attractive products to offer. And when the market grows, which I will come back to, we will be a part of that growth on both the Swedish and Danish site of Oresund. And the list of 10 largest tenants in [indiscernible] order, strong customers, and they contribute with 90% of our rental income. Seven out of 10 are governmental tenants and the public sector contributes with 22% of rental income. Rental value as of first of July '26 is SEK 5.167 million per year, plus 7.4%, and rental income SEK 4.562 billion, plus 6%. Strong figures, and this is an effect from acquisitions, indexation, but not at least new project and tenant willing to pay for the right quality. Looking for like-for-like figures, all the properties we own a year ago, excluding projects compared with updated figures, we can see that rental value is up 2.6% and rental income is up 1.5%, better than indexation of 0.9 and still with a high vacancy, that means that rents continue up. Changes in the market value of our properties. We started the year with SEK 64,414 billion in accordance with the external valuation of 100% of our portfolio. We made acquisition, which adds on SEK 534 million; investment, SEK 1.042 billion; divestment, minus SEK 4 million; changes in valuation plus SEK 28 million. and together with currency translations of SEK 212 million. That's summarized to a value of SEK 66,226 billion. Valuation parameters are without changes since year-end included assumed indexation of 1%. So very small changes in valuations. The growth comes mainly from investments and the transaction we made in Copenhagen. Here is a long-term trend for portfolio growth from SEK 7 billion to SEK 66.2 billion in 21 years' time and growth every year. These figures, the running yields show how we actually perform in relation to the valuation, so not the valuation yield. Some of the projects like Konnet 1 in Malmo and Posthornet 1 in Lund have moved from project line to the running portfolio. So even if they're not fully completed and occupied, that's the main reason for occupancy dropping 1 percentage point to 89%, excluding project and land. With an operating surplus of SEK 3.389 billion, that gets a running yield of 5.4%, fully let, the portfolio would give a running yield of 6.3%. In the office portfolio, the market value is SEK 53,241 billion with an occupancy rate of 89%; 88% in Malmo; 90% in Helsingborg; 88% in Lund and 91% in Copenhagen. The operating surplus from Market summarized to SEK 2.809 billion and a running yield of 5.3%, 6.1% fully let. And as mentioned, the occupancy in Malmo Lund are affected by moving the project BlackHornet and Posthornet from project line to the running portfolio. In Helsingborg, the occupancy has strengthened and most of all, the ongoing discussion in the office market have improved. The logistics production portfolio have a value of SEK 9.378 billion; 92% occupancy in Malmo; 82% in Helsingborg; 96% in Lund and 99% in Copenhagen. In all 87% occupancy with a running yield of 6.2%, 7.3% fully let. Development of total portfolios running yield 5.4% still bring stability, not least since the portfolio overall has a high quality and good locations, an increase of the running yield since '21, but the vacancy has a negative impact, and we will aim -- we aim to turn that around in line with improvements of the market. So what about the market? In the last report from Oresunds Instituttet we can once again remind us of Malmo as the driving city of employment growth in the Oresund region, Malmo yellow, Stockholm as their ruled gray line and also interesting to see the pickup in Lund, the last years, the green line. We can also see that the number of unemployed decreases quicker from a higher level, though, and the number of newly started companies is also higher than elsewhere. As usual, it's most important to be in the right places almost all the development in Skane is in the Western part. So Lund, Malmo and Helsingborg continue to be the places to invest for us in Sweden. On the Danish side, we note the record high GDP growth for the first quarter of 6.2% compared to the same quarter last year. And it's also worth mentioning that the infrastructure investments could continue with, for example, these 3 completed projects. Koge Nord station, a new bridge across Storstromen and now 4 tracks with new platforms passes through Copenhagen Airport. A catalog of our value and properties in our 4 cities and Q2 2026. 39% of the value is in Malmo; 22% in Helsingborg; 17% in Lund and 22% in Copenhagen. The region continues to attract attention from investments, for example, Saab and Sas. It will continue to be positive for the region for Wihlborgs and for Sweden. Some sustainability highlights. We continue to improve our figures and have also got some international sustainability recognition, for example, being 1 of 3 Swedish property companies on Times list of World's Most Sustainable Companies which also includes business models and financial performance. We also got the approval for our updated size-based target and some figures showing improvement here. Maybe I'm most proud of the figure for low climate impact from our latest completed projects, 202 kilograms per square meter carbon dioxide equivalents, really low levels in successful projects, but more on that topic in report and time for financials. Over to you, Arvid.

Thank you very much, Ulrika. If we look at the income statement for the second quarter isolated, we had rental income of SEK 1,174 billion. That's up 7% and corresponding to SEK 77 million increase quarter on the second quarter of 2025. I think it's important to highlight also that out of the increase of SEK 77 million, SEK 57 million actually comes from renegotiations, new leases and projects. So that is the core business showing growth, which is positive. The operating surplus amounted to SEK 864 million, up 6%, representing a surplus ratio of 74%. The income from property management amounted to SEK 556 million, up 6% that includes transaction costs of about SEK 5 million stemming from the acquisition from Castellum which Ulrika talked about earlier. Both rental income, an operating surplus and income from property management actually show record levels historically for Wihlborgs, which also, of course, is very satisfying. We had positive value changes in the quarter of plus SEK 10 million, so very small, but still on the positive side. Negative value changes of the derivatives. But all in all, a profit for the period of SEK 301 million. Looking at the balance sheet. Investment properties amounted to SEK 66.2 billion, up SEK 3.5 billion versus 12 months previously. Equity amounted to SEK 24.2 billion, up SEK 1.2 billion. And loans or borrowings amounted to SEK 35.7 billion, up SEK 2.4 billion versus 12 months previously. On the next slide, we can see how that translates into key figures. The equity ratio now stands at 35.4%. Leverage is at 53.9%. Worth noting that the dividend that we paid in Q2 affects the LTV by approximately 1.5 percentage points. and the interest cover ratio stands at 2.9x. We had with these ratios a strong enough balance sheet to finance the acquisition from Castellum with that without exceeding the limits that we've set for ourselves for certain key metrics or key ratios. Over time, leverage shall be brought down. How and when remains to be seen, but we will continue to act in the best interest of both the company and our shareholders, of course. Looking at the EPRA NRV, that stands at SEK 99.66 per share, up 9% versus 12 months previously adjusted for paid dividend. On the next slide, you can see the historic development of EPRA NRV over this long time period since 2009. And would actually still show a growth of -- an average growth of 15% on a yearly basis adjusted for paid dividends. On the next slide, you can see our key financial ratios in the long-term perspective. The graph starts year-end 2011. Equity ratio well above the 30% threshold that we set for ourselves, LTV still before the acquisition, of course, well below the 60% threshold. I think it's also worthwhile noting that although the interest cover ratio has varied a lot over this period, 2.9x, it's also worth remembering that in 2022, 2023, when interest rates went up point of the interest cover ratio of 2.5x, which I think is still at a very healthy level. Looking at the next slide, you can see the historic development of the net debt to EBITDA, which now stands at 10.7x, a level where we are quite comfortable. Looking at our sources of financing as of end June, we have increased the portion of bond financing slightly over the quarter, now representing 20% of our borrowings. About 1/3 comes from the Danish real mortgage system and a bit less than half of the borrowings from bilateral bank agreements. And it's, I think it's worthwhile repeating that the access to capital on attractive terms is still good, both from the banking system and from the bond market. Look at the structure of our loan portfolio. You can see the details on this slide. The average interest rate, excluding cost for credit agreements is 3.25%, it's a very small change over the quarter. The average fixed interest period is now 2.5 years, and the average loan maturity is 4.9 years. And on the next slide, you can see the development over a 5-year period of the fixed interest period and the loan maturities. And it's no drama in those 2 graphs, I would claim. And on the next slide, you can see our available funds. That is unutilized credit facilities as of end June plus liquid funds. And we now have access to a bit over SEK 4 billion in unutilized facilities as of end June. And that also, of course, is a good starting point for the second half of the year. And with that, I hand the word back to you, Ulrika.

Thank you and an update on our investments in progress and a quick overview of one of our newest project and one of our largest project. During the period, we have invested SEK 1.042 billion, and it remains SEK 1.688 billion to invest in approved projects. We continue to expect 6% or a bit above 6% year on cost for new build offices and 7% or a bit above for industrial. It's a good mix of refurbishment and new build in the portfolio. This time, just a short list of projects, you can see more on that topic and investment possibilities in the last report from April. We have a new project up Vatet 1 for a company in the automotive tech industry just beside the project we have completed for ARM. We invest SEK 82 million and get 7.4% yield on cost, including valuable property and 13% yield, excluding value of property completion in Q1 '27. And the large project at Amphitrite 1, the one in Malmo for Malmo University is running well in accordance with the plan. A bit about 20,000 square meters, 100% pre-let to Malmo University in a 10-year lease, investment SEK 1.130 billion and completion is planned to late Q4 '27. Discussion continues regarding a possible prolonging of the lease to 20 years. And with that, we summarized the quarter again a number of new records, rental income, up 7%. Operating surplus plus 6%, income from property management, plus 6% and net letting positive, but most important is the list of ongoing discussion is good and more positive levels ahead. Also worth mentioning again that the rent levels continue to develop, especially in the Swedish side. Net debt-to-EBITDA at 10.7x, and we continue to focus on our earnings in the daily business, even if we from time to time, also make good deals for future growth of our cash flow. And with that, we are open for questions.

[Operator Instructions]

Good morning, and thank you for the presentation. I have a couple of questions, starting off with the SEK 13 billion acquisition. So first, the initial yield is 5%. Where do you see that yield going over the next 2 to 3 years?

Our goal is, of course, to improve that in several ways. So I think it's a good platform to start with. But of course, we shall improve that. But I have no numbers exactly how quick we can make changes. But it's a good platform for the start.

Okay. And when it comes to the vacancy rate in the portfolio of 15%, do you have a view what is the likely normalized vacancy rates over time for that portfolio?

I think that's the same level as the market around 7%, 8% in a better market than today, but around that level.

Okay. And then on LTV, on the ambition to reduce your LTV to 55% over the next 2 years, and you also comment potentially on reducing the divestment. Could you give some flavor on what kind of assets you would be willing to sell? Is it fully developed certain geographies, pocket segments, et cetera?

I think we have several possibilities in that. And what will come first has not been decided yet. First, we wait for the contracts like it to make their improvements and then we can take action after that. But we have possibilities in both different geographical areas and different segments, of course. So it's good. We think it's good that we have several possibilities.

Okay, I see. And what is your view on dividend distribution considering that LTV comes up to quite close to your policy?

We will, of course, take that decision in February in connection with the full year report for 2026. And I think -- I mean, our dividend policy so far has always been to distribute approximately 50% of the income from property management but applying full tax on the income from property management. We will, of course, look at both the cash flow generation capacity, the future outlook, what the valuations actually are at year-end before taking such a decision.

And the final question for me and that is based on the occupancy raised on the signed leases and terminations that you know about today, do you expect the occupancy rate to improve or deteriorate over the next 2 quarters?

I think that we should expect it to be quite flat the coming -- in a shorter perspective, improved during 2027.

Good morning. Just some follow-up questions on the acquisition. So just as it stands today, all things considered, what is your view on the best way to manage the balance sheet going forward?

The best way to manage the balance sheet is to work as we always do, very hard on improving our cash flow and our earnings. That's, of course, the starting point. Then we have, of course, a number of tools in toolbox as we've stated. And as Ulrika already talked about also when it comes to possible divestments and other capital structure measures, which could, of course, be taken if the time is right and the market is right. But I'm mentioning -- sorry?

Yes, you mentioned the portfolio composition. Have you sort of identified any share of the portfolio or a specific segment or something like this that you would consider divesting?

We have several possibilities with products and areas that are interesting at the market today. So -- but no decision is made in that. But it's good to have different kind of possibilities.

Yes. Good. And then just on central admin costs in the quarter. So roughly SEK 5 million is related to transactions, M&A and then so the remaining increase, what should we expect on an annual basis going forward?

You should expect a bit higher than before, we have a bit higher costs on IT, regulatory and, of course, higher levels of technical demands, but not any higher expenditure than we see now.

And maybe one final question on the acquisition. What's the -- I understand you initially have some bridge financing. Could you comment on sort of the initial terms and the structure you expect more long term?

I won't comment in details on the exact terms of the bridge financing. But we've secured bridge financing for the full amount within 18 months term. So we have basically 18 months to put in place a long-term financing which can, of course, take different forms.

Good morning, can you hear me?