Olav Thon Eiendomsselskap ASA

A warm welcome to this presentation of the 4th quarter of the Olatone Oil Company in 2023. We have to say that the quarter, in spite of the loss of value, has been a good quarter for us, and I come back to that. It's nice that so many have found space in front of the PCs to watch this presentation, and have faced rain and sludge in the Østland area, and maybe, what do I know, maybe there's sun in Sweden. We don't know that. We know that there are some Swedish inhabitants, and that's especially nice. Today's agenda consists of main points. A little about stock information, financing, interest rate development. Sustainability is one of the main points. I will tell you a little about the business portfolio and investments, and also about Norway Bank's prognosis for the Norwegian economy. that came in December, and we have questions and answers at the end. It is possible to ask questions quickly and during the presentation. We will come back to that at the end. There are no questions that are too small or too big. But if we can answer them, it remains to be seen. In short, the fourth quarter was a good quarter for us, with a solid operating result. But in line with the property market, we have adjusted the value of the property portfolio. In addition to increased interest rates, we have seen a large bookkeeping deficit in the fourth quarter. The number in parentheses is the same period as last year. It can almost look like we always go under, but we don't. The result for the tax was minus 1.8, while the total value changes were at minus 2.3. The key number that we think is important to focus on is the operational result, namely the result before the tax value changes and the currency, which was 530 million, an increase of 5-6% from the previous period last year. In spite of this undercut, we have a solid financial foundation, with a one-capital share of 50% and a loan rate of 37%, which is far below our own goals. The liquidity reserve is also solid, with 5.4 billion kroner against 5.1 billion kroner a year ago. The stock exchange rate has also had a positive development in the fourth quarter, rising by 13%. The shopping malls in the shopping centers continued to increase in the fourth quarter, with a 5.1% growth compared to the same quarter last year. And if you look at the whole year, there was an increase of 6% from 2022. We will come back to this later. The main figures in Q4 compared to last quarter and the full-year figures in 2023 are shown here. I would like to focus on gross income, where we see that we have had an increase of 16% throughout the year. The result before the tax value changes and the currency, we have had an increase of 4%. As I mentioned, the loan rate is still at a very moderate level, despite the reduced interest rates. The interest rate, which is a key number that we experience there is a lot of focus on, with interest rates in the market, is at 3.1 in 2023, a rolling 12 months. The single capital is comfortable with 30 billion, and the share price has also increased by 7 kroner per quarter. If you look at the rental growth in 2023, we can divide it into rental growth, the existing properties, i.e. properties owned per previous year's shift. This is an increase of about 10 percent, while new properties stand for 190 million. We are pleased with a rental growth of 10 percent, Also in light of the fact that the rental regulations last year were 6-7%, and we have a rental growth beyond that as well. Operative results and substance value per share in the last four years. We dare to claim that we have had stable and good operative results through varying market conditions in the last four years. We are also happy to see that the rental growth reduces the effect of the high interest rates. In the table on the right, we see how it looks. We compare the rental income in 2021 with the last year with low interest rates. If we compare this with 2023, we see that our net rental income has increased by 20%, 580 million kroner, while the interest rate has increased by 370 million kroner. If we then look at the key figures that I mentioned, we focus a lot on the result before the tax changes and the sale profit, we have an increase from 2.1 to 2.25 billion kroner. We also have a slightly larger increase from last year than what the forecast looks like, because in 2022 we had a sales profit of SEK 70 million. We dare to claim that we have had stable, good operating results through varying market conditions since 2020. Stock information. We celebrated with Fynn & Clem, 40 years anniversary as a listed company. That means it was a bit of an anniversary that could only be focused on these quarterly presentations, but still. We are then quite clear in the magic of Norway's and perhaps Norway's oldest listed property company. We celebrated the 40th anniversary with a discount of about 10% on the share. The stock market value has grown to 18.9 billion. We have 3,773 shareholders from 15 countries. Now 98% of the value is owned by Norwegian shareholders. If we look at the development from 1983, the share has given a yearly drop of 12-13%, and we have 40 years of surplus before the value adjustment of the property portfolio. I also have this time a quote from Nordea, which states that since 1997, Olatone Aarhus has given the shareholders the fifth best discount of all companies that are still listed in Oslo. So we are very pleased with that. If we then divide the discount into different periods, We see that the last 24 months have been a bit stifling, with a drop of 2% in total. But in the last 3 and 5 years it has been better, by 11% and 49%. A bit below the main index on the Oslo Stock Exchange, but we have had very varying frame conditions from 2018 Starting with the death of a shopping mall in the US. Some of you may remember the monster pictures of shopping malls that were broken down. Network trade to heaven. After having ... We used some arguments against the net trade, that it would take over the shopping centers. Then came the pandemic, the shopping centers had to be partially closed. When we had proven that it would destroy the shopping centers, there was inflation and expiry time, and then interest rates, which was the strongest for several decades. When you take into account the five points that are considered particularly positive for our company, we are very pleased with the nominal cost that we have had. If you look at who the biggest shareholders are, it is the Olatun Group. We have a number of credible, good long-term shareholders who have been with us for a long time. And the five largest are now at about 82% of the stock market. This means that free flow is 18% and has increased through 2022. This means that the free flow of the stock market 18% of about 20 billion, which is almost 4 billion kroner. So it's not that bad. The board decided yesterday to propose an exchange rate for 2023 at 7 kroner per share, which is 36% of the result, in the middle of the interval of the defined exchange policy, which says that the annual exchange rate will be a careful exchange rate of 30-40% of the result, This gives a direct discount on the exchange rate of 3.8%. The board is of the understanding that this is a balanced exchange rate, balance the consideration that the shareholders should have a stable exchange rate with the times we are in, and that our creditors do not want us to stretch the exchange rate too far. We also think it is nice that we, as one of the few Nordisk Regnholdsselskap er fortsatt i stand til å dele et tilfredsstillende utbytte til våre aksjonærer som er med oss. Finansiering er noe det har vært mye oppmerksomhet rundt de siste årene. Vi har definert en finanspolicy. with stable and strong key figures. That has given us a solid rating. We have an investment grade rating on BAA2, stable outlooks from Moody's. It has been unchanged since February 2021. It is also one of the few Nordic companies that has unchanged both outlooks and ratings since 2021. Some of the reasons for this is to find the key figures that we have shown in the table, with a loan rate of 37%, far below our own target, a interest rate of 3.1%, we have significant liquidity reserves, we have increased the running time on the loan portfolio, we have also increased non-contracted units, which is important for the rating companies, This in sum means that we are quite optimistic about keeping the daily rating, because we have not received a signal that something else will happen. We are also quite pleased with this, and have been given conditions that are among the best in Scandinavia when it comes to the obligation market. In terms of the interest rate development, historically, we have had such a high interest rate a few years ago. The annual interest rate was 5.17%, which means that our interest rate has increased by a little over 2%. As we all know, the Norwegian Bank has increased the interest rate by 4.5%, and Nibor has increased it by 4.5%. The reason why our interest rate has increased less is because we have a lot of fixed-interest bonds. We have, as I have mentioned, solid liquidity reserves and relatively small, low falls in both capital and the banking market in 2024. 5.4 billion in liquidity reserves and a fall of 1.5 billion. 2025 there is something more. But significant parts of the bank defaults in 2025 are planned to be refinanced already in the first half year. We are well on the way there, so I look at that as completely unproblematic. Our financing sources are spread across the capital and the bank market. By withdrawing money, the capital market accounts for 56% per year. We believe that we have experienced and had a good access to financing in a varying capital market through 2023. Including unbiased credit rates of 5.2, the capital market is 45 and the bank market is 55. In a varying and demanding capital market, we let out bonds for almost 2.3 billion kroner and the corresponding amount for certificate loans. And we don't intend to put the capital market aside for the near future. That's why we sent out a report yesterday, saying that Ola 2 has engaged D&B Markets, Nordea and SEB, as advisors, to explore the possibility of eliminating one or more senior unsecured bonds, with an expected total volume up to 1 billion kroner in a little over 5 years. This obligation financing is of course dependent on market conditions, but we hope to be able to launch this loan within 10 weeks, and are optimistic about being able to achieve good competitive conditions in the capital market when we are now going out with a more mandated process for the first time in a long time. Sustainability is important for the Olatone company and therefore we have developed a sustainability strategy for a One or two years ago. It is ambitious. Net zero emissions by 2050. We have a goal for 2030 to reduce emissions by 60%. We want to be 70% circular by 2030. These are ambitious problems and goals. We are going in the right direction. When we get closer to 2030, we will see if we can reach everything. This is a very ambitious ambition, but we hope and believe that we will be able to be close to it by 2030. and certify the property portfolio, among other things, in addition to many other activities that take place in the company, to bring the company in the green direction. So this is exciting and important work. If we then go over to the property portfolio, it is a pleasure to show a picture of Norway's largest shopping center on the left here, Lagunen, which is now going to be even bigger. Our business portfolio consists of, in terms of value, 75% of the shopping center business and 25% of the other business businesses. We have a very large focus among the largest shopping centers. We see that 30% of the portfolio is shopping centers within the top 10. I will not go into too much detail on this. This yield development is interesting. This is something that there are a lot of questions about. We see that from the top in 2022, our yield has increased by a whole 1 percentage point. Half a year ago, we saw this as a worst-case scenario, that we had to increase the yield by 1%. One of Norway's best business analysts pointed out that this was the main scenario for the newcomers. He or she got it right, unfortunately. But today, our purchase yield is 6.24%. This is a significant improvement for those who had to wonder about that. And for business, it is 4.93. If we then look at how the value change on the arms portfolio has been since the top, we had the top at 30.60 in 2022. Since we have collected, we have downloaded the N-portfolio with about 6.7 billion kroner. That is a lot of money if you count kroner for kroner. In relation to the portfolio it is around 10%. This is mainly due to the fact that the rate of return has increased by 1 percentage point. However, we have had a levy increase in the period that has significantly reduced the value fall. We suggest that it is around 4 billion kroner, that is 6 percentage point. If we had had zero change in the levy, we would have had a value decline of 16 percentage point. The purchase center is our largest segment, 73% of the portfolio. The market value is 44.7 billion. We have 60 purchase centers in Norway and Sweden. Here is the value per 1.312, compared to what was at the top on June 30, 2022. And in our number now, there is an included shopping centre, which was taken over in January last year, for 1.3 milliarder. So we see that the fall in value has been significant. At the same time, we also see that the rental income level is higher. We have the same conditions, that is, we have received a couple of new ones. We earn more on them, higher rental income, and yet they are lower in value. This is how the world has become, and this is not a challenge for us. As long as our key figures are so conservative and good, this is less of a headache for us. We have the six of Norway's top ten shopping centers, 41% of the shopping center values. We see here that Gilen has increased by almost 1% also in the shopping center area. I know that many of you, especially our competitors, are tired of this, and I understand that, because it shows what market position we have when it comes to the weight of Norwegian shopping centres. We have six of the nine largest, and among the top ten we stand for 64% of the turnover. We are not only the largest, but we also have those with the best turnover development. We see that the turnover for the shopping centres as owners of the two subsidiaries, top 10, has an increase of 4.8% in 2023, while the rest, Røkla, has 1.1%. We are quite pleased with that. We see that we have a good position also between number 10 and 25. Our business units are not classified as shopping centres. We are a major business unit in the Oslo area. One of our most prominent buildings is the one on the left, Tostrupgården, right next to Stortinget. We have 64 business units. The market value is 15.1 billion kroner per year. The market value was 17.2 at the top, so here we also have lower values, but higher rental income. The yield has also increased by almost 1%. We have an investment strategy that is summarized in the old traditional terms, acquisition, development, ownership. This means that we buy properties that we want to develop, and we want to maintain them as part of long-term formal management. Our investments therefore consist of purchase of property and projects under implementation. In the last six years, we have invested around 6 billion, which is about 1 billion a year. In 2023, we invested 2 billion kroner. The increase is explained in its entirety by the individual purchases we have been through several times, namely Sørland Center's 50% share and Amfi Ulsteinvik in beautiful Møre and Romsdal. We have projects under implementation and planning. We have two projects that will start this year, namely the expansion of the lagoon and the improvement of the shopping centre in Moss. We have a number of projects on the drawing board, where we are in dialogue with the political authorities. Things take some time, and the implementation depends on market conditions and the regulations we get through. Macro-economy, I was going to end with that. I'm not going to talk about the Norwegian Bank in business, focus on what I think is of great importance for the Olatone company, The unemployment rate increases from 1.8 to 2.1. Many economists would say that this is full employment and very low numbers internationally. We want to be a very positive factor when it comes to the turnover of shopping centres. We also see that the annual interest rate growth is sped up to 5% in 2024, and with a consumption price index of 4.4, it is the first time in a few years to see a real interest rate growth. This is obviously very positive for the shopping center and the consumer. Even though private consumption is sped up, and is quite modest, in 2024, but it is perhaps first and foremost capital goods that are not invested in shopping centres. We have good faith that we will be able to have an investment growth in shopping centres beyond 0.2 percent also in 2024. The part that has been most affected by our gendered business units is housing investments. We see that the new housing market has stooped, both in 2023 and 2024. We believe that the housing market will could be better than the new housing market. We want to be better, and I think that starting projects now can be quite difficult when they are finished in two or three years. So we might be able to do that. The last thing is the interest rate. We are naturally exposed to the development of interest rates. And in December, there was a hope that not only we had, but many others too, that we would let the interest be in peace. But they still stated that there was a need for a higher interest rate. They state that the price growth is clearly above the target, and the deterioration of the crown has made it more difficult to get the price growth down. The interest rate therefore increases to 4.5%. They say that the prognosis indicates an interest rate of 4.5% until the autumn, before it gradually decreases. They take into account that it can be both stronger and weaker. The latest signals that have come, including through the last interest meeting and the annual figures, is that we can not expect any sharp drop in interest, even though the interest market is somewhat more optimistic in that direction. For our part, we have not calculated any large interest rates in 2024 or 2025 for that matter. If I then summarize before we can take any questions, we have seen that the growth in the Norwegian economy decreased over the last four years. But the unemployment rate is at a low level. Price growth has also fallen, but is still higher than the inflation target. It has to be more careful, as they say. We believe, and many believe, that Norway is most likely at the top of the interest rate. But as I said, the Central Bank signals that the interest rate will remain unchanged for a good while in the future. We believe that despite strong interest rates, we are able to present a solid growth in our operating results. We are very pleased with that. We also believe that our solid market position, strong financial position, is expected to contribute to good operating results, also in the future, despite the fact that there is a lot of global and national uncertainty when it comes to economic framework conditions. We also think that we have good financial capacity, and we hope to be able to carry out interesting investments in a market with great opportunities in the future. That was what I was going to say before we might take questions.

Here are some questions, so we can just go through them. The first one is about rental growth. Rental growth for shopping centers in 2023 is about 17% against growth in rental levels at 13.5%. So actually, rent growth is about 4% better than the growth in annual rent. Is the explanation in revenue-based rent, and is this calculated based on 22% revenue, or based on revenue growth in the last 12 months for the tenants?

I think we have to come back to that when it comes to the rental income level. We can say that the rental growth was 17%. A good part of it is turnover growth. It is a combination of what was in 2022, but also revenues for 2023. The organic growth was about 10% in the existing portfolio, and 7% was new properties.

Lending growth for the industry was 1% in Q4. Can this be due to a large number of tenants moving out or rehabilitation that is underway? Lending was up 7% in 2023, and lending growth was 14% for the first three quarters. Does this look like a major change in the portfolio?

It has become a question of numbers that is difficult to answer. I could get back to that.

The last question is about the exchange rate, which has been answered through the presentation. The exchange rate of SEK 7 is up from last year, but still in the lower end of the company's exchange rate policy. What will decide if the exchange rate will be in the lower end or higher end of the company's policy, 30-40% of the administrative result?

We believe that the exchange proposal is in the middle of the interval. There will be future framework conditions that determine how much exchange capacity we have. We want to shift to a financial position, but it is also important that we give a stable exchange payment to the shareholders.

Another question has come in. How do you see the rate of coverage developing in 2024?

Good question. We hope that it will not fall much lower than it is now. We estimate it to be 12 months rolling. We hope for a rental growth and somewhat stabilized interest rates. We hope that we will not go very far below where we are today.

Good, that was really it.

Then I take this opportunity to thank you for the meeting in front of your PCs, and wish you a good day, and a really good winter holiday for those of you who are thinking about such things. And I just have to remind you of the next webcast, which takes place on May 16th. It's Friday, May 16th, the day before the 17th. The day before Pinsaften. Then I will probably be able to compete with sun, green trees, warm weather, sunglasses. So then it may be that there are other things that are challenging. But I encourage you to get the webcast for the first quarter. This will be good. Thank you.