Olav Thon Eiendomsselskap ASA

A warm welcome to this presentation of the quarter quarter report and the upcoming year's forecast for 2022. I would be pleased if you would take the time to listen to us in these times where this Thursday is a big quarter report day, so we have many good competitors. To sum up, I would say that the fourth quarter was a good operational result, but the adjusted operating values give a weak financial result. The agenda follows a set goal where I will go through the fourth quarter. We will also focus a good deal on the whole of 2022. Financial conditions will perhaps be a little more extended than usual, since we experience that there are a lot of questions about and are important today, where the interest rate is rising and there is a focus on running time on yield, etc. We will of course talk about sustainability. We have to talk a little about the left side of the balance sheet, our business portfolio, and we will also talk a little about external ramifications. In the end, there will be a Q&A session. We have already received a few questions. You can ask them during the session, which will be saved at the end. So, welcome! Fourth quarter in a nutshell. Good operational results with value adjustment of the property portfolio contribute to a support. The result before tax in the quarter was minus 796 million, but if we correct for these value changes, which caused about 2% of the property portfolio, then the result before tax, value changes and currency, which is a key figure we focus on, is 507 million kroner. Despite this solid support, as some in the press call it, we still have a solid financial foundation. The equity share is 52%. The loan rate is down to a moving low of 35%. We have a liquidity reserve of 5.1 billion kroner. If we compare this to the planned withdrawal in 2023 of 2.6 billion kroner, we sleep well at night, and we have a solid financial foundation. In the fourth quarter, we had a relatively stable development in the exchange rate, with a decline of 2%. The turnover in the shopping centres continued to increase in nominal terms. The retail sales rose by 1% from the fourth quarter last year, and by 13% from the fourth quarter of 2019. So 2019 was the last year before the pandemic. Now we're going to stop talking about the pandemic for a while, but we're still in the middle of it. If you look at the price rise in the period, it's a bit on the lower edge. 13 percent, so the shopping centres have absolutely maintained their market position through the pandemic and after the pandemic. In the fourth quarter, we have also entered purchase agreements at two centres. The largest is that we buy 50 percent of the ownership in Sørlandsenter Kristiansand, which we have owned with DNB since 2008. The decision was made in January 2023. Now I have been in a slightly weak quarter due to declines. When we talk about the whole of 2022, I would say that the picture is good, absolutely. Despite significantly higher interest rates, we have good results. The result of the previous tax was about 3.1 billion. It was high enough last year, but we think 3.1 billion is pretty good. The key figure, where we take out these value adjustments, is that before, the tax value of the currency was almost 2.2, an increase of 5% from the previous year, and the rental income also increased by a nice 8%. The financial foundation is solid, I was aware of that at the time. We had a slightly weak development in the stock exchange rate, 7% down in the last 12 months, including exchange rates. The turnover in the shopping centres has stabilized at levels above 2019 for the entire year. It increased by 3% from 2020, probably a little lower than the price rise in the period. 14% from 2019 is then something higher than the price rise. When it comes to the capital distribution for the shareholders, in the fall we bought back 2.1% of our own shares for 386 million kroner. The board now proposes an exchange rate of 6.5 kroner per share, which is 674 million kroner. This picture shows a lot of numbers. I'm not going to go through all of them here. I'll just show that in 2022, we have increased the rental income by 8%. The result is a decrease from last year, with 3.1 billion. Before tax and value changes, there is an increase of 5%, as I mentioned. The value of property is increased by 2%. The interest rate is kept unchanged, and the loan rate is also unchanged. The equity is increased by 4%, and the share price has gone down, and the laxative substance value per share has increased. I just want to dwell on the column on the far right, which is the 2019 figures, where we see that the market value of the company's assets has increased by a little over 3.5 billion since 2019. The yield has dropped by 1.2 billion, so the loan rate is at 35% versus 39% in the course of these terrible years. The result before the tax return and the currency is also stabilized at a level that was significantly higher than in 2019. I will now talk about shareholder relations and talk a little about as it was. We have a 40-year anniversary for the exchange rate. This is a picture of the drawing from 1983. Forty years ago, a drawing was sent out by Olav Thon, approved by the Kreditkassen and Fondsfinans. In summary, the stock market value has increased from 200 to 18.6 billion. The annual rental income level has increased from 27 to over 3.3 billion. The stock market value has increased from 27 to over 3.3 billion. The stock market value has increased from 27 to over 3.3 billion. The stock market value has increased from 27 to over 3.3 billion. The stock market value has increased from 27 to over 3.3 billion. The stock market value has increased from 27 to over 3.3 billion. The picture on the left is Olav 2, not taken this month, but 40 years ago. If we look at the historical share exchange rate, we can see that in 2022 it gave a negative 7% drop, weaker than Oslo Børs, but better than Oslo Børs if we take out Equinor. We see in the column to the left under drop that it has given a positive drop in all periods, but something weaker than Oslo Børs. We would conclude that it has not been a disaster to invest in the YOLATON property company shares, but we who have been in other sectors may have had a better historical return in the last five years. We have 3,744 shareholders from 15 countries. The number of shareholders has increased significantly in recent years. 97.8% are Norwegian investors. The largest is the Olatone Group, which has been and is with 74%. Folketrygdfondet is still the largest. In comparison to a year ago, the biggest change is that Olatone has 2.1% of its own shares. Exchanges and exchange policy. The exchange policy states that there will be a stable annual exchange rate of 30-40% of the result. As shown in the graph, we have been faithful to this throughout the year, except in 2020, during the pandemic, when we canceled the exchange rate. For 2022, the board proposes an exchange rate of 6.50 kroner, also for 2022, which is unchanged from 2021. This exchange rate accounts for 34% of the result. The board's view is that this is a balanced proposal for exchange, which combines the shareholders' desire for a stable exchange payment with changed framework conditions and increased interest rates in the future. So, the board believes that this is a balanced proposal. Now we are going to look at financial conditions. And we have an investment grade BA2 with stable outlook from Moody's. We have, through 2021 and 2022, not been able to change either the rating class or the outlook, so we are very pleased with that. We believe that the reason for that is that we have relatively strong key figures. That is the reason for having a solid rating. In relation to the goal setting on the right, we are very low on the loan rate. Our interest rate was 3.8 in 2022, far above the goal setting of 2. It will go down when the financial costs increase. Our liquidity reserves are good. We have said that we will have 100 percent during Our liquidity reserve will cover 100% of the interest rate in the next 12 months. We are almost at 200. Our loan portfolio is also extended. We could probably have it even longer than 3.0, but we are in line with the target. Our interest rate portfolio is good. Unplugged units are increasing, and plunge-safe LTV is now also much lower than the target. In summary, it is these strong thresholds that keep our rating and our views. We are pleased with that and have a desire to continue with that. Our sources of financing are the capital market and the bank, and 2022, even though it was a troubled year in the capital market, we have defined our access to financing as advantageous both in the bank and the capital market. In short, we have about 60% in the capital market. While if you include unused credit scores of almost 5 billion, then it is 48% in the capital market and 52% in the banking market. We believe that this is a reasonable distribution over time. And even in a troubled year in the 2022 capital market, we had six debt exemptions of 1.5 billion, with an average of 8.4 years. This is very positive in order to increase the duration of the Gjeld portfolio. This is one of the questions we get a lot about, how is it with liquidity reserves and deductions in the future. Here we have already shown liquidity reserves in relation to deductions in the next 12 months. If we take the next 24 months, then we also have almost liquidity reserves to cover deductions until February 2025. That is, no major decline. We do not need to do anything in the financial market in either 2023 or 2024. It is very hypothetical. We do something all the time and will do something in the future as well. The interest rate development has historically been flat and nice. Since 2017, the interest rate has varied between 3 and 4.5 percent. In the last six months, we have seen an increase in interest rates that not many had expected. The portfolio interest rate has increased by 2.75. The Nibor rate has increased by 2.8. The Svopper interest rate has also increased. This is not relevant for our current interest rate. Our annual interest rate has increased by 1.33. What about the future interest rate development? Our prognoses, which are based on unchanged interest rates and today's interest rates, indicate that the general interest rate is estimated to be below 4.6% by 2028. In other words, we are very close to our own interest rate peak and do not believe in any major interest increases in our portfolio in the next few years. There has been an increase in interest rates in the last few years by 33 percent. Simple mathematics shows that it is about 266 million per year. This means that in order to compensate for this, we have to increase the gross income by around 8 percent. Already from June 30, 2021, the rental level has increased by 4%, so we are on our way to compensate for that, but we have to expect some weaker results in the future due to the interest increases. Sustainability is increasingly important for us. We decided on a new sustainability strategy in November. I went over that last time, so I won't go into it in detail. To sum up, we are at an ambitious level, which means that we are engaged. Sustainability is the right and smart way to go. Our ambition is net zero emissions by 2050. We also have a goal of reducing emissions in scope 1 and 2 by 60% by 2030. The strategy also set relevant goals for essential areas until 2030. And the strategy defines updated and clear frameworks for sustainability work in the future, with pillars. I will show you briefly. Three main pillars, climate and nature, circular solutions and social justice. The ambition for climate and nature is, as mentioned, net zero in 2050. and we should be nature-positive. On circular solutions, we should be 70% circular by 2030, and among other things, have 30% recycled materials, and 50% cut in food waste. Social justice, we should have full insight into the value chain, we should have 100% documented high-risk supplier chains, And we will have representative management. On the picture to the right, you can see the maintenance goals that the different pillars support. The property portfolio. This is what we are living off of. The shopping centre property is our largest segment. We are still Norway's leading shopping centre actor, with a focus on the largest centres. 59 centers in Norway and Sweden, where we have 6 of the 10 largest in the country. In addition, our sister company, Tone Holding, is Norway's second largest, and administrator number 8 for external owners. So we have a good market position, and in terms of value, these top 10 centers account for about 40% of the purchase center values. The total rental tax level, including the rental, is 2.9 billion kroner. In the last six months, the yield has increased from 5.27 to 5.46. This is an overview that I know many of you are starting to get a little fed up with. Bad news, I'm not fed up with it now, I will continue to show it. I think it gives a very good insight into our dominant market position within the big companies. And the orange ones are those owned by Olatone and Enselskap. We see that the big companies have developed well from 2022, and the column to the far right shows how they have developed since 2019. We see that everyone has had a relatively good growth. This shows the retail turnover in the fourth quarter, divided by each month. I have taken this with me to show that in October there was a lot of writing about reduced purchasing power, which led to a decline in the turnover in the shopping centres. But when Christmas came, and people started to think about Christmas gifts, and now we're going to enjoy ourselves, there was an increase, both in November and December compared to last year. And compared to 2019, a marked increase, also corrected for inflation. In other words, Christmas trade and the fourth quarter became much better than what many experts had predicted in advance. And we are happy about that. Neighborhoods account for almost 30% of the company's value. We are a major player in the Oslo Board. Karl Johansgård 25 is one of the most beautiful downtowns we have. We have 60 of them now. Trade, office, logistics and hotels. 400 apartments. The rental income level is 780 million, and the yield has increased a lot, also within this segment, from under 4%, which is the lowest we have ever had, to 4.21%. A more summarized overview of the property portfolio, where you can see that the purchase interest rate is 73% and the real estate rate is 27%. We see that the shopping centers within the top 10, and those between 10 and 25, account for almost 70% of our shopping center portfolio, and are our flagship segment. We have adjusted the yield in the last six months. We had an increase in value in the first six months, and an increase in value The total amount is the values in positive terms, year 101, while the yield has increased. Our total portfolio has increased from 2021, from 2013 to 2010, that is, it has gone down a bit on the total portfolio. It has gone up at the shopping centre and down at the business sector. I see that this table takes the starting point in 2019, and in that context, we are on a level on the total portfolio. We are a little higher on the shopping center, and we are a little lower on the nearsightedness. What happens when there are so many traces that the yield is going up? I'm not going to say anything about the likelihood of it, just to show the consequences. If we take a look at the bottom line of the table, we see that with an increase of 0.5%, the equity capital will be reduced by 3.5 billion, the equity capital percentage will drop to 50%, And the reward rate goes from 35 to 38, i.e. lower than the level we were at 31.12 to 20.19. This shows, according to our opinion, how robust the balance of interest is in relation to changes in operating values. The investment strategy since 1983 has been acquisition, development and ownership. Ownership and projects around implementation is the highest focus. In the last five years, we have invested around 5 billion kroner. It is easy, even for a guy like me, to expect that the average will be about 1 billion kroner a year. And in 2022 we were close to that, with 880 million kroner. Now we have had a slightly active start in 2023, with Sørlandsenter Kristiansand, which has been owned by DNB since 2008. It is Norway's sixth largest shopping center, with 2.9 billion in revenue. The rental income last year was 137. We signed an agreement there in the fourth quarter, and we took over in early January. In terms of accounting, half of the company, Sørland Center's net result and N-capital, have been booked under joint control by the company in Glatone's accounting company's board of directors. However, from the first quarter, the company's results and balance will be consolidated into the board in its entirety with 100%. So, there will be consequences for the balance. We have also used the opportunity to buy a beautiful center in Møre and Romsdal, Anfi Ulsteinvik, 12,000 square meters, 20 stores, store turnover of 300 million, rental income of about 14 million, while in 2022 Yes, it is about 14 million. There is a small error in that picture, so I apologize. We have managed this centre, and now we will take over ownership as well. In the same way as the Sørland Centre, we entered into an agreement in Q4, and we took over January 13. So already this year we have investments. We have, in cooperation with the sellers, chosen not to make the purchase amount public, but based on the income they have raised, most of us understand that we are already at an investment level that is higher than we were in 2022. We have several projects under planning. They have been exposed and exposed, and increased building costs have led to the exposure of several projects. We will see what the future brings. We have faith that the building costs will go down in the first half of the year. So, time will show. External framework conditions are something we do not have control over, but which we are largely opposed to. So, short and macro. These are the last prognoses from the Norwegian Bank. I would just like to focus on line 4, private use, where Norwegian Bank received an increase of 6.5% last year, and a decline of 1.5% this year, and a weak growth in the next two years. If they are right, and we can assume that, there will be a rather weak development in consumption, and this will affect the shopping centres. Not dramatically, but we may have to be careful that the growth will be lower than it has been in recent years. Now the line over annual wage growth also shows an increase of 4.7% in 2023, and that would be a good comfort for borrowers who have received increased interest. And we also see here that the government's interest rate will reach the top in 2023. I would like to then just briefly, because I will continue to focus on line 2, registered employment, where we see that we had 1.8 percent in 2022, which is very low. And it will not increase very much in 2023 either. So that is positive for the private consumer and the purchasing sector, that people are at work. This is the figure from Norges Bank in December, where they say with clear words, there is a need for a higher interest rate in the Norwegian economy. There is a need for a higher interest rate to bring inflation down towards the target. At the same time, they say that the prognosis for the Norwegian economy is more uncertain than normal. It was also mentioned in a comment that they were more uncertain than they had been for 100 years. So I think we should be very careful and have very clear opinions about where the road is going. This is the prognosis, and it shows that the interest rate will probably reach 2023. Now a little bit about the property market. Here we support competent environments outside of the OLA 2 group. This time, Cushman and Wakefield. They conclude that the office space has decreased to 575 in Oslo towards the end of 2022. They saw a continuous increase towards the end of 2022, similar to what we did. A strong office market has given a record high rent growth. Detaljeomsetningen falt i desember, men ikke på kjøpesentrene. Service og tjenester trakk kjøpesentrene ut. På figurene til venstre ser vi utvikling i Prime Meal i Oslo, og signeringsleie på kontorer i Oslo. Leieveksten i 2022 var hyggelig med 11 %, og Prime Mealene steg. But if you look at the next one, then Kursman & Wakefield believes that the prime yields have reached the top of 375 and that they will stay out there for the year. I know that other analysis environments have different expectations and prognoses than that, but this is how Kursman & Wakefield sees it. They also see an increase in rental prices on the office market. Yes, I think we are nearing the end. I just wanted to focus a little on the future prospects for the company. What we can do something with is ourselves. We can't do anything with the interest, other than to tie the interest. We can't do anything with the real estate market, other than to try to enter good lease agreements. But the Norwegian economy is in a high position, the liquidity has fallen to very low levels, but there are clear signs of decline in the economy. At the same time, we see, and last week, that inflation is significantly higher than the Norwegian Bank's inflation target, and it seems that it may take some longer to get it down than one could hope for. In order to reduce inflation, the Norwegian Bank has increased the interest rate by over 2% from 0.5 to 2.75 in 2022, and signals that it will continue to increase. We are not going to quantify how big the insecurity is and how long since it has been so high, but we also experience that there is a lot of insecurity in the markets we operate in. What we can do is keep our housing in order, and in spite of increased uncertainty, we expect that our strong market position and solid financial position will still be able to contribute to good operational result development in the future. Now we have come to the question round. Thank you for listening.

We have received some questions. Let's see. Let's take the first question. Someone is wondering about the number of shareholders. that the last year has increased from 12,000 to over 3,000, despite the fact that the stock exchange rate has sunk. Any explanation for this?

A year ago, the number of shareholders was about 3,600. Now it has increased to about 3,700. Ten years ago, I think it was under 2,000. But now it's like... 97% of them are Norwegian investors. I do not have an explanation for why the number of shareholders has increased, except that they may think that O2 is a good investment, which gives them a reasonable exchange rate with a direct return of 3.3%. Moreover, it is profitable.

So it's not true that the year before was 12,000?

No, it's not true. It was 3,600.

Yes, it was 1,200. It wasn't that either. I'm sorry. How do you feel that tenants handle increased rent along with the general price increase? Have you experienced pressure on the rent level?

I think we will say that tenants experience increased rents, increased energy prices, increased interest rates. We experience increased interest rates. I was within 270 million in increase per year. We experience increased energy costs, so we are much in the same boat. Some tenants have come with a wish to get lower rent regulation than agreed. We have not given any general reductions. We relate to the contract, but of course, as a market leader, we have a good partnership with all our customers, so I hope and believe that the dialogue with the customers is good.

Will you, after the last two purchases, continue to be net-buyers in 2023?

That's a good question. Unfortunately, I can't answer that. It will be very exciting to see what opportunities arise in the market. On a general basis, we can say that our loan rate of 35% should not be a hindrance to make any large and interesting purchases.

Will the Sørland Center be consolidated in the budget in Q4?

The answer is no. It was taken over in January 2023. As I mentioned, our 50% ownership ratio will come under joint control of the company in 2022, as well as the entire DAT company in 2023.

Someone is wondering why we don't own Strømmen Storsenter, that is, the ownership company.

It is also difficult to answer. It is owned by another company, Jol & Tone Gruppen. They have no answer.

Sist renten var på dagens nivå i 2012 til 2014, var deres yield på 5,6 til 5,8. Hvorfor skal vi eventuelt ikke, eller skal vi tilbake dit? Altså 5,6 til 5,8 i 2012-2014.

If you have a very mechanical approach to giving or removing a loan, you might be able to believe that. But this is also about the interest for the business as an investment object, and actually what these transactions go into the market for. So it seems that the interest for the business is clearly higher than it was in 2012-2014.

Is the valuation of the properties done internally or externally?

It is done externally. We have two external valuation companies. We can name them Music and Cashman & Wakefield. They value the portfolio, each quarter, and all properties will be valued over a year, and the largest each quarter. We then capture the value as a result of the two external ones.

What yield did 50% of Sørlandsenteret and Ulsteinvik buy?

I think it was within that we didn't make the price public. And since I have already made the rental level public, I can't give the yield. So I'm sorry.

EU vil trolig i mars i år implementere krav om energibruken på existerende eiendom. Har dere sett hvordan dette eventuellt vil sett hvordan disse maks energibruknivåene vil gi renovationsbehov i deres eiendommer?

In general, energy-efficient buildings are something that we work a lot with within the framework of our sustainable energy strategy. In the directive that will be released in March, we have not yet evaluated the costs.

På OLT-nettsiden står Sørlandsenteret fortsatt oppført som 50% eie. Sator, som er 60% eiet, er oppført som 100% eiet. Hvor ofte oppdateres nettsiden med riktige og oppdaterte eiendeler?

It will be updated relatively quickly. Normally, the business portfolio is updated once a year in QE. If there is any discrepancy between what you read on the website in Eirendel and what I am saying here, I ask you to believe me.

Thank you. Is it currently possible for you to buy back from stocks based on the big discount to E.K. slash Substance?

On a general basis, I have to say yes. We have not planned to buy back now, but we have had a running full power that has been there for many years. I think it will be extended to the annual general meeting as well.

The cost of ownership in Q4 2022 in the portfolio outside the shopping center was very high. What was the reason for this?

I think we have to... I think I almost have to ask you to send an e-mail. Then we can come up with an explanation for that. Directly to the questioner.

Then we have come to today's last question. We have received a very nice e-mail. It says, thank you very much for us small savers for owning a part of such a fantastic company as Olav Tonegndom. We appreciate the fabulous work you are doing for us shareholders. Dere skriver at dere ønsker mest mulig vekst i egenkapital per aksje. Er det ikke da bedre å kjøpe tilbake aksje til halv pris av substansverdi enn å kjøpe halvparten av Sørlandsenteret til full pris? Jeg antar at dere ikke har fått kjøpt halvparten av Sørlandsenteret til halvparten av substansverdi.

A good question. First of all, thank you for the nice introduction to the question. It was very well formulated. When it comes to the question of buying property in relation to buying own shares, as I mentioned in the previous question, when it comes to buying own shares, one does not exclude the other. In order to further develop the business, it is natural to buy property, but financially, to give money back to the shareholders, is buying back an asset from your own stock. All questions answered. Thank you for watching this episode. And then I'll just take a little disclaimer until the end. And then I wish you all a really nice day and a good winter holiday for those who are going out on that. And good luck. Thank you.