Fastighets AB Balder (publ)

Hello and welcome to the conference call in connection with interim report January, June 2022. My name is Ben and I will be your coordinator for today's event. Please note for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad. If you require assistance at any point, Please press star zero and you will be connected to an operator. I will now hand you over to your host, Mr. Eric Selin, CEO, to begin today's conference. Thank you.

Thank you. Good morning, everybody, and welcome to this conference call for Balde Q2 interim report. If we look at some figures for the first of 22, we can see that in Q2, The rental income was 20% better, 20% increase from last year. And the profit from property management was 1.5 billion, and that is increase of 29% and also 29% per share. And for the whole of the first half of 2022, it's similar figures. We have rental income up. 19% and profit from property management up 28% compared to last year. Now I'm at page two now. And if we also then compare one year ago and see how it looks, then we can see that the audience capacity is 11% better than one year ago. And we have net debt to assets around the same level as previous quarter, 46.5. Like-to-like rental growth is at 2.9 this quarter and NAV per share, 92. Now, if we go to page three, we have the current earnings capacity. And what you can see there is the If we compare the last quarters, we can see an upward trend in rental income, but you see also an upward trend in, of course, net financial cost because we have increased interest rates from Riksbank and we'll also have from ECB. But all in all, the increased rental income covers increased financial costs, so we have a slightly better earnings capacity compared to last quarter. So far we are absorbing higher interest rates with the underlying business. Page 4, the property portfolio, no big changes there. It's 80% in capitals and larger cities. The split between residential and commercial is also very similar, so Roughly half is residential and the other half is commercial properties of different kinds. Some industrial logistics and some other properties. And now moving to page five, property development. In our property development, we have basically two categories of property development or new construction that we built. So one is properties where we intend to keep it long term under our own management. The majority of that is residential, but we also have a few pre-let properties. We have one school, we have an office building, we have a hotel. And then we also have the other category that is properties that we build to sell and we sell them to retail flat by flat and it's mostly in Sweden but some projects even in Denmark, Finland and Norway so you have in this development two different categories and if we look ahead a bit and see how will this look like in 2023-2024 because right now it's not likely that we start a lot of projects near term because of higher construction costs and also uncertainties about construction costs. And we also had some uncertainty about prices for apartments and also higher interest rates that make it less attractive to develop rental residentials. So just an example, we looked at what happens if we from now don't start new projects. And how will this play out then in 23 and 24? And then we can see that the net investment for us in that case will be slightly negative. And how can that be? And the explanation is that development properties for sale, the amount we are then going to receive will be actually higher than the amount it takes to complete properties that we will keep for management but then we will have the effect that NOI from projects will on a yearly basis once they are all completed increase our NOI with 500 million per year so this is an interesting thing to know so we will actually then have 500 more NOI but no net investment actually slightly negative when we look at it but everything can change there can be better maybe circumstances if we are far ahead but interesting to see see how this we and we have no project that we have to start so it's absolutely up to us if we think it's positive or advantageous we can start otherwise we can just wait I thought it was interesting to look at those figures and then if we take page six financing we have increased the credit facilities lately with 10 billion so we now have available liquidity and credit facilities of 23 billion as of this half year report 70 percent of the debt is hedged for fixed rate loans and we meet all our financial targets as you see in this graph as well. Page 7, we continue with financing there. There you can see the interest rate maturity structure. And if we look at that to begin with, we can see that if we look at 22, 23, 24 combined, it's roughly 55 billion SEK. And so then we roughly have 50 billion SEK net debt. We have some cash commercial papers and so on that we own. And those 50 billion SEK will most likely be at higher cost than we have now, given the outlook for interest rate hike. But on the other hand, we most likely get higher indexation on our rental contracts So we have this 50 billion will be more expensive, but we have yielding assets of 200. So it's an interesting comparison. And of course, we don't know the outcome, but we have 200 working for us in a higher pace, most likely, and 50 getting more expensive. Looking at debt maturity structure, you have it there on every year, and this is the total So this is not the bonds. If we look at 22 first, we have one bond, but that was actually paid back 1st of June. So from now and the rest of 22, we have no bonds expiring. Then in 23, we have roughly 14, 15 billion if we take everything. so if we compare the bond that expires with liquidity we already cover all of those maturities and then of course we have the cash flow as well on top of that and then you can see it continues more or less the same amounts every year going forward so a stable situation there and I've been increasing the liquidity as you can see lately the last one two months just to have the optionality if the bond market is not attractive then we can just wait with that for a while and I also think we can increase liquidity even more if we think it will not be interesting even in 24 then we I think we can increase and then wait even one more year if we think it's better to not go to the bond market but hopefully things will normalize and we like to be in both markets obviously but I think it's always good to have alternative and optionality and looking at page eight here I have some different things I wanted to give some update on. And also I have been talking to a lot of investors lately, so I picked up some questions that is often asked. So if we start with recent events, that was one and a half months ago, there had been some misunderstanding that Balder was actually a part of this sort of insider thing. That is not the case. It is former employees that is a part of it. and they have left their positions, but there's been some misunderstanding. Nevertheless, we have tightened governance anyhow, and we are now, you can say, basically in line with how banks and fund managers work. So you basically have to have permission to do anything. And this is not Balder shares only. We want people to have Balder shares, but if it's other companies where someone in the Balder management have an insider position, normally through a board position or through a big ownership, then we say that don't buy and sell those shares unless you get permission. There can always be reasonable things for actually There can be good reasons to only share, but then we have to have a process for it that is in place now to avoid that anything like this can happen. And on top of companies where we have insider positions, we also added companies where the perception can be that we have it, even though we don't, because it can cause the same damage, actually. So it's very similar to banks right now. That's been well received. I also got some questions about associated companies. For us, it's always been the case that that is a part of the normal investment activity and capital allocation strategy. If there's a market that I think is interesting but I don't have access to direct deal flow or don't find deals that is attractively priced, we can consider it to be owners in a company if we like the other owners so it's not more complicated and it's a part of the capital allocation process to reach interesting markets where we might not have the same possibility ourselves and we also get good input from our partners and increases our network and deal flow also this worth to mention that we have never made any transactions between balder and associates because i got those questions as well but we never bought or sold from balder to associate or the other way around so i think it's interesting to be clear on that as well and in these associated companies we have no obligation to buy and sell anything so we have no put to call options or nothing like that so It's based on a good cooperation with good partners. I think it's also interesting to mention a bit about indexation and rent increases going forward. Of course, this is a getting game and nobody knows. Inflation figures is very high all over the world right now, but I think it will also be very volatile. So I'm not the right person to make forecasts for this, but I think in our portfolio it can be good to know that there are different kind of rental adjustments or indexation. So in general, with few exception, it is like this that commercial properties and Danish residentials, they are linked to the CPI in the respective country, obviously. So commercial properties, Danish res is in the contract you normally follow CPI. Yearly negotiation, that is for Swedish residentials. It's a regulated market, so you have yearly negotiation with a tenant association. Normally, the outcome is, over longer time periods, you can see that the outcome is slightly higher than inflation. But on a yearly basis, they can be decoupled. So typically, if you have zero inflation, you still get some rental income. And my guess is that if we now have very high inflation, we will not get that high rent increases as inflation. So you can say that the result sort of smooths out different years with extremely high or low inflation. But over a longer time period, it's been actually a bit higher increases than inflation. And that is not so surprising because over time you should have some real GDP growth and then you have salaries and purchasing power growing faster than CPI. And that also leads that you can afford to pay slightly higher rents even in real terms over time. And that is even if you have market rent or CPI linked when contract expires. Over time, I guess, you will have a slightly higher trend than CPI. And then we have another category, market rent, and for us that is Finnish residentials. So there the rental level and the rental movement is much more, of course, than dependent on how is the market, how is supply, demand, how is the economy. and in Finland or in Helsinki in particular there's been a bit much a bit too much supply perhaps last one two years very much construction going on what we saw earlier was the the forecast is that that will slow down so you will have less supply compared to before and if I'm guessing I think it will be slowing down a bit more due to this the same reason that we think that construction costs are higher and it's a bit messy and if you have higher interest rates that also squeezes the margin so my guess is that the supply will be less than forecast and that will be of course supportive for the for the market and vacancies are slowly getting better actually so we have a low positive trend already now we guessed before that that was maybe for next year but as of today it's actually a bit better than we might have guessed let's see if it continues and then we also have another category that is turnover rent and in our case it's mostly hotels a few retail contracts can also be turnover rent. We have one fixed part and then a turnover rent on top of that. Very, very small part for us, but in our case, it's hotels, but it's only some of the hotels that have a rental floor and then turnover rent on top of that. Many of our hotels have actually fixed rent, but some of them have this combination, and I think one or two has pure turnover rent. So this covers basically our portfolio, these four categories. And the biggest is then CPI linked because it's all commercial properties and Danish residential. So that is over 50%. So then the question is, what will the average of all of this be? And I don't have an exact figure for that because then you have to guess about the inflation. You have to guess about negotiations and so on. But right now, maybe you can guess inflation, perhaps 7%. It was higher. There came a figure yesterday or the day before yesterday. And the negotiation is very difficult to know, actually. I think it will be not that much, maybe 2%, 3%. And if it will be something like this, then the average perhaps can be four or five percent. But it's very hard to predict, actually. So this is more of a way to see roughly how is the total thing developing. So right now you can say CPI is high. Negotiations, I think, a bit lower. Finnish residential will be better, but I think next year more than this year. And in cases with turnover and hotel and retail, there will be much bigger increases in percent, but that is not such a big category for us, but they are moving a lot faster. And you also saw that in Pandox figures today. So that was an update. And then next slide, you have the share long-term development where you can now see that there's a big discount and lower valuation. compared to cash flow and so on. And the page 1011 is the P&L. And I don't think I go through that. It's easy to read anyhow. So the overall situation is that it's quite stable right now in the market. They still predict some real GDP growth for next year. And beyond that, even though interest rates move up, we have stable growth. portfolio extremely diversified and we increased liquidity to be able to be flexible and it comes to bond maturities and all in all this can be that higher interest rates most likely roughly will be compensated with index and completed projects if we look at it but it can be a bit irregular between quarters and so on and indexation is year-end and but the long-term trend right now looks that higher interest rates will roughly be absorbed by higher income. So that was the presentation and now let's see if there are any questions.

As a reminder if you would like to ask a question please press star 1 on your telephone keypad. To redraw your question, please press star 2. Please ensure your lines remain unmuted locally. You will be advised when to ask your question. The first question comes from the line of Frederick Sion calling from Carnegie. Please go ahead.

that you mentioned for 2023. Some of them are hybrid related.

What do you see as opportunities to switch some of the bond loans into bank facilities during next year? In general, I think that is very doable. We already now have available facilities to take care of all the bond 23, so we don't even need more. But I think if we want more, it's not a problem. So it can be the case that bank financing will increase the part and lower part of bonds. But it's a very volatile market, so anything can happen. But for the moment, it looks much more attractive with bank financing. And we have big headroom there because we also want to keep this unencumbered asset level good. But there's a big headroom for us to have another mix in the funding. And with regards to investments in the existing portfolio and projects, it was 4.1 billion during the first half of 2022. I'm aware of the long lead times, but it's a very high level historically for Balder. Moving into 2023, you talked about investments probably going to be a lot lower. Can you quantify that? Yeah, I tried to explain that earlier. we will invest complete projects that is ongoing. But on the other hand, a lot of properties will sort of go out of the balance sheet because we build and sell to consumers. And it's basically just time that has to pass by. Most of it is already sold, so it just has to be completed. So if we don't do anything, the forecast now is that... investment will be less than we receive when we sell the apartments. So that's why I try to highlight that 23, 24. I mean, we don't have to start any more constructions if we don't want to. And if we don't do that, that will be roughly the same sum. Right now, if we guess, it looks like a negative investment of 200 million. It can boom and quarter to quarter also. So you can't say really exactly, but that's how it looks like negative. So this is slowing down 22 and then 23, 24. If we don't do anything new, it will actually be nothing. But then we have the properties being completed and then we'll generate NOI. So we will get 500 more NOI, but no debt. My final question relates to acquisition opportunities. There seems to be some for sellers in the market. Do you foresee opportunities near term for Balder, or do you think it's still a wait-and-see game to see where property yields are heading? I think it can be the right thing to wait and see, and so far I haven't had any for sellers that call me at least, but maybe there will be or maybe there are, but I haven't seen anything. So the latest processes that we have been into, there actually has been very strong demand still and prices more or less the same level as before. But I think we will see in the autumn or when it comes to year end how this plays out. But I think you can expect quite low activity from our side. That is my guess. Okay, thank you very much. Those were all my questions.

Thank you. The next question comes from the line of Andres Tum calling from Green Street. Please go ahead.

Hi, good morning. I had a first question about just general credit conditions and also the credit facility you have drawn. Maybe you can give some guidance insofar as what are the terms of the available liquidity you have at the moment? insofar as the interest rate goes and what sort of period you can use that facility for. You mentioned that you could cover next year bond maturities, but go beyond that.

Yes, it's normally longer than one year. So normally we borrow money for two, three, four, five years sometimes. And bank loan, I mean, the thing is that you always prolong them. So So far, I never experienced a bank loan that you don't prolong. So it's more a question of the terms, if you think it makes sense, longer duration or shorter. And sometimes it's not a big difference in pricing and sometimes there are. So this is something that we always have to look at the total portfolio and see what makes sense and what doesn't make sense. But we increased bank facilities to be able to... Let's say that the bond market is dysfunctional or if the interest rate is too high, then we can simply pay the bonds back and don't use bonds for a while. But hopefully it normalizes. I mean, sooner or later it always does, so... We want to be long-term in the bond market, but right now I think it can make sense to have headroom to be able to wait for a year or two if it's a tough situation out there.

And the interest rate on these available facilities, it's not agreed upon yet, right? Then you will agree?

Yeah, you have the interest rate disagreed, the margin, but then it's different if you take floating fixed and so on. So, I mean, you don't know that before. But you can say in the banking system that they are the same as before. I would say that I haven't seen any big changes there. But then, of course, you have to guess about what is the interest rate later on. So, obviously, it's higher. The question is how much higher.

Understood. And then maybe you can add some color insofar as what happened to like or like rent growth pace? I mean, it's accelerated quite a bit. And just question on what's driving that, what sort of sectors, geographies?

No, in general, better than last quarter. But there can be movements from quarter to quarter also because, for example, in residentials, you don't have the adjustment at the same time. So that's why it can be, you know, it can move from one quarter to another sometimes. Sometimes you adjust first of February, sometimes first of May, first of April. So this moves around. The long-term trend is much easier to focus on, you know. But these short-term things, they can be sort of better figures sometimes and less good sometimes. But I wouldn't pay too much attention to that. But, of course, if you look last year, you have higher numbers. indexations in general and a very strong rental market in general so it's reasonable to believe like for like will continue to improve if we're guessing that that I mean next year will probably be a couple of percent higher something like that

And my last question pertains to valuation changes in the second quarter. Just wondering what is driving that? Is it mainly project completions or is it something also on the stabilized asset side?

Yeah, it's a bit better, you know, for NOI forecast and then it's also completed projects. But it's very small change, you know, in general. But there are no yield changes. It comes from projects and forecasted a bit better NOI going forward. But we haven't put into valuations forecasted CPI for this year. You can do that, but we haven't. So that effect will be later.

All right. Thank you.

Thank you very much. The next question is from Jan Hufeldt calling from Kepler Shower. Please go ahead.

Okay, thanks for taking my questions. First one regards your equity ratio is currently at 40.8% at the same time as your target is above 40%, so pretty close there. Is there anything you adjust for to make that figure better or could you comment upon that fact? You mean going forward or... Yeah, if you consider it when you do certain decisions.

I mean, we want to be over 40. But going forward, if we change the target, that can be that we haven't changed it this quarter. But you can say if we don't do anything and everything is just flat and it improves automatically with earnings. So, So if we want it to be higher, we can basically be just still, and then we will have earnings coming in, and that will drive the figure upwards slowly. And we also will have earnings from all the completion of projects 23, 24, because also when we sell to retail consumers, the profit is booked when we actually hand over the keys, so it's no problem. it's zero until we do that. So those profits will be irregular, but they will show up 23, 24. And that will, of course, automatically, if everything else is equal, give us a bit higher equity ratio.

Okay. My second question relates to your yields on Swedish residentials. If you just could comment upon what kind of yields do you have for your Swedish residential and if you see any risk that the yields are expanding in this segment?

I think I don't have the exact number. I think it's around 4%. And if it's expanding or not, I think it's a bit difficult to have forecasts on yield actually. I mean, the system is more that you always see how is the market and then we make valuations that is as close to market as we can do so to speak but I think maybe the lowest yield that we've seen in the market last year that has been 2.5 I think that level will not be possible to get actually unless you're in central Stockholm or Gothenburg because then it's not a yield case it's more of an square meter case or a trophy case. But if you take mid-sized cities where they're in transactions for 225, 2.5, I think that will be very hard to achieve. But on the other hand, those transactions were made way above valuations because what it used to be was that you have a big premium, especially for bigger portfolios. So this portfolio premium is I think will not be there anymore. But on the other hand, the external valuations didn't take in portfolio premiums. So if those values come down, it's not necessarily so that they are lower than the current valuations. So you had sort of two markets before, one that is the valuation for, let's say, X, and then a big portfolio was sold for X. 1.3x or 1.2. And I think that will not be the case going forward. That is my guess.

Okay. So you're on a total base of Swedish residentials around 4%. Is that true?

The next question comes from Jaffa Ibar again Going from , please go ahead. Please ensure your line is unmuted.

Hello, can you hear me?

Now we hear you.

Okay. Thank you very much for taking my question. I heard that Emshtein did recently an operation to reduce debt and increase its equity. You said that you have the comfort from your bank. Could you comment on that recent operation as a good opportunity they used to take in front of the bond market price mostly? And after, could you give us some more detail regarding the interest rates if you draw in full your available credit line to cover need in 2023, please?

I'm not quite sure I heard the question completely, but I think you asked about if we sort of exchange bonds for bank loans and use credit lines, what's the cost for it?

Yeah, it's an angle to see the question, but I mean, if you have an available credit line, why don't, I mean, it could be an opportunity to reduce your bond exposure at a good price opportunity if they are able to be drawn. And what could be the step up of interest rate if you draw your credit line?

Yes, I understand the question. Yeah, we can draw the credit lines tomorrow, today, anytime. And I agree that there could be interesting buying opportunities in the bond market for us, actually buying back bonds. And we also wrote that in the report. If you read the full report, we mentioned that that can be the case.

Okay, and so... much clear, so if you draw your credit line, what could be the margin in full?

I think roughly margin is around 1% area. It can be slightly higher, slightly lower. The margin, if you have those things, but around there.

Okay. If we imagine that you draw in full your available credit line and if you increase this available credit line amount, what is the commitment bank asks you to cover them somewhere? What is the commitment in terms of increasing cash position in hand on your balance sheet?

What's the target? No, banks don't require cash on hand. So bank loans are basically two different categories. So we have secured bank financing and unsecured bank financing. So you can just take mortgage loan, you know, with the security in the real estate. And we have a lot of assets, you know, so it's not a problem to make that kind of financing if you want to. But then we also have a lot of unsecured bank financing. So it's a mix between unsecured and secured bank. We can do both. Oh, we are doing both, actually.

Okay. And what's the target in terms of increasing secure and unsecured loan in the next two years?

No, we don't have a target for it, actually. But we have big headroom to increase security if we want to compare to where we sort of supposed to be given the bond rate. We have a big headroom, so if we want to, we can do much more secure, but we don't have a target.

If you increase your secure loan, you will generate more insecure debt holders, so it could be interesting to buy back them. before the maturity at a good price. Exactly. Okay. In terms of asset arbitrage, so if I heard very well, you are looking to sell some flats to your renter. Could you go a bit more in details what is the target you have in mind in terms of asset sale to increase cash position?

No, it's already sold more or less. You sell to the consumer, so most of it is already sold, but we get the money once it's completed. So it's not the sale after going forward. So the normal thing is in the Nordic countries at least, that you sell the apartments one to two, sometimes even three years before completion. So then it's just time has to pass by. And also construction has to run accordingly. So that's why the assets that will be sold, they are basically already sold. The majority of it is just that time has to pass by. It's actually very simple. So it will automatically leave us and then we complete yielding projects. But then the net investment will be around zero for the projects, 23, 24, unless we do new projects. But then the completed cash flow properties will start to generate on a yearly basis around 500 million NOI. So that is already sort of... That is already done. It's just time has to pass by.

Okay. And in front of that, you have available credit line or more liquidity from banks?

Yes, we have increased credit lines, 10 billion just lately. So we have 23 and then we have the cash flow. If we don't do anything, we have cash flow since we don't pay dividend, you know. But of course, we will buy and sell something if we look at years to come, we always buy and sell something. So this is more an example that you can say ongoing projects, we can't really stop them. It would be totally crazy. And then it's interesting to see, okay, what could happen in 23, 10 to four projects already ongoing. And there you can see that the net investment will be, let's say zero. And it can be good to know since many investors are focused on funding. So I think it was interesting information to know that projects 23, 24 don't require funding. It can be quarterly uneven, you know, but if you take the whole period, because it's much focused now on bond debt expiring. And of course, if you have to invest, you have to fund that on top of that. So in our case, the net investment, if we don't do anything new, is around zero. We have bonds expiring, but then we have cash flow and we already have the credit facilities.

Okay. In terms of loan-to-value and in terms of cash position for 2003, what is the target you have and the commitment you have?

Right now we have a target to be below 50% loan-to-value and once we have a new target we will communicate it obviously but we've been saying that over time we will trend for slightly lower LTV and higher equity ratio but if we adjust the target then we communicate it. So right now the targets are 40% equity ratio and below 50 LTV. But if I'm guessing, the trend over time will be lower. But as I said, new targets will be communicated when or if they come.

And in cash in hand, what is the target you would like to reach?

No, we don't have a target for cash in hand. I really prefer actually to have facilities rather than cash on hand. It's normally more cost efficient. But we sold some properties. So we also even bought commercial papers because we had a bit too much cash. But the ideal situation is to really have a little cash on hand, but then have facilities instead. Normally that is more cost efficient. If you understand what I mean. To optimize, it's normally better not to have cash and then you borrow the money on the other end. But it's on the other hand, very hard to get it to zero because I mean, we have different companies in different countries and so on. So zero is hard to get, but we don't like to have too much cash on hand because it's expensive. It's better to have facilities.

Okay. My next question should be perhaps more on the liquidity on the bond markets. You know, Nordic real estate companies are very silenced. And that's a big issue because it's transfer, I would say, big liquidity on, I would say, senior and secured and junior bonds. What you guys are going to do to increase communication and to... in terms of your day-to-day business or doing a GIC with your bank advisor in order to communicate much better, to increase liquidity and to help you to refine in due time?

Yes, I don't know what other companies will do, but that is my ambition to improve communication and also to be able to reach out to more international investors and also to explain more things because lately when I talked with a lot of different international bond investors I can see that there's a big knowledge gap actually so I think I talked with a lot of them that actually I mean it's not so strange if you're a bit I mean, how can you have all the knowledge? But I realize that there's a knowledge gap and an information gap that would be very positive to make that less. So I have some ambition to improve this significantly, in our case at least. I don't know what other companies will do, but that is my ambition.

Your bank advisor, Alisa, a way to that?

No, I don't need a bank advisor to understand that, actually. I think it's pretty obvious when I talk to investors that there's a need for improvement in information. Then banks help me to find all the different investors because that is a bit complicated because it's maybe, I mean, 100 different or perhaps even more. So in that, I need the bank's help to find all relevant potential investors. That is important. Otherwise, to make better information, I think that is pretty obvious that that would be good for everyone, for us and for the investors, obviously.

Thank you.

The next question is from Simon Martinsen calling from DNB. Please go ahead.

Well, thank you, but all my questions have been answered already. Take the next guy in mind.

Okay. Thanks, Simon. The next question comes from Clark McPherson from Clearance Capital. Please go ahead.

Morning. All my questions have been answered as well. Thank you.

The next question is from Anton Nastrom calling from Fast Tickets Fairwich AB. Please go ahead.

Thank you, Anton Eström, reporter, satisfied. Maybe some questions on different subjects than before. First of all, Erik, maybe you answered this already, but just a clarification on property development with this new situation across the world with increased interest rates and inflation. How do you handle that? Will you put planned development projects on hold or are they required just

Yes, I think we already did. So I think now to start construction for rental apartments is not that advantageous for us because you have higher construction costs and also very volatile construction costs and hard to get fixed prices. And then you can't increase rent, nearby increased costs, and then you have higher funding costs. So in my view, it doesn't seem attractive to invest in rentals in general right now. So we will wait for that. We will postpone until it will be more favorable. And then if you take the market to sell co-ops, then I think projects in good locations in Stockholm and Gothenburg, they will still make sense to do them. But I think it could be also good to wait because I think it's more likely that we get better construction cost later on than now. And you also have uncertainty in the pricing in the market for co-ops and so on. So I think it makes sense to wait for a while. I don't see any big advantages with starting now compared to waiting. And for us, it's not a problem to wait. I mean, the bulk for us is cash flow generating properties. And we have a lot of projects to be completed, 23 and some 24. So, I mean, for us, I think it makes more sense to postpone building starts.

Okay, perfect. It's been quite a special month for you and not only that you clarified earlier. First of all, Eva Vassberg, was recruited as new head of finance. Can you tell me about that recruitment and why she was a perfect match, as you say?

Kind of a strange question. She starts after the summer, and she had the same position at Fabige, so I think she's well-qualified.

Okay. Do you want to elaborate anything on the recent events, including Marcus Ronson and Magnus Bjornholm?

No. What is the question?

The question is, you said in a statement that you were shocked about this and surprised with the verdict. Are you still there? Yeah, nothing new happened. Okay. Why are you surprised? Do you think they are innocent?

I really don't understand you. Nothing new happened and they are replaced and we have new, they don't have their positions. So we are not a part of it.

Okay. Do you want to say anything about your emotions during these quarters at all about the recent events?

I think you have a weird question, but the surprise came from I asked 10 different lawyers and nobody believed in this outcome. So if I wasn't surprised asking 10 experts, that would be kind of strange if I thought I knew better than 10 different other guys, but maybe you would have.

No, the thing is that we're trying to reach you by phone, but couldn't reach you. So that's why I asked those questions in this event. So yeah, it pretty strange to ask now but it's due to... Yeah, it's strange and I have no information. Okay. Thank you.

Thanks. The next question is from David Johnson, private investor. Please go ahead.

My questions have probably been answered. Thank you.

Thanks. Next question is from Ria Gandhi calling from Mizuno International. Please go ahead.

Hi, thank you for taking my question. In terms of accessing funding, how are you currently evaluating the trade-off between senior bonds, hybrids, and any other terms of funding?

Right now, you can say that the bank market is functioning extremely well, and the bond market is volatile and a bit complicated. And that's the reason why we increased facilities So we can have the flexibility between bonds and using facilities. But this is, I mean, this can also, I mean, this is a volatile market. So I hope long-term and I think long-term we'll use all sources as before. But I think right now it makes sense to have more flexibility than you normally perhaps have. So that's why we increased available facilities a lot. to have the optionality to take bonds or to not take bonds.

So are you looking to expand further in the bond market in the future when it's a bit more stable?

Yeah, if we think it makes sense, we can do it, and otherwise we will not.

And I just had another question. So the CFO in the first half of 2022 was, I think, around $1.5 billion. versus the CFI of, I think, minus 6.8 billion. So in this environment of tricky capital markets, are you going to continue investing heavily?

No, that's not likely. So I think investment activity will slow down dramatically. And also I tried to explain, you know, ongoing projects that we already, I mean, they are being built. So, I mean, we will complete them. And that's why I also try to explain that if you take all those combined and look ahead 23, 24, the net investment is actually zero because we will be selling as much as we will spend on new construction. But then we will, of course, buy and sell something on top of that. We always sell something and buy something. But the big picture is that my guess is this will be low activity and then we have strong cash flow generating capacity that can reduce debt if we want to. And the net investment for projects will be, let's say, zero. And then it can be some investment for tenants and so on. But I think it will be less activity. Thank you so much.

That's all my questions. Yes, thanks. The next question is from Pranava Oidapu. Coming from Barclays, please go ahead.

Accordingly, if the scheme becomes effective, those Unity shareholders who are on the Unity register on the permitted dividend record date and who continue to hold their Unity shares until the scheme record date at 7 p.m. on Thursday, 28 July 2022, will receive the scheme consideration of $5, comprising a fully frank dividend of 10.5 cents per Unity share, payable by unity plus $4.89 and a half cents cash per unity share payable by NBC bid code. Depending on individual shareholder circumstances, the franking credit attaching to the dividend will deliver additional value of up to approximately 4.5 cents per share. The role of the shareholders, being Unity's Managing Director and Chief Executive Officer, Mr. Michael Simmons, and Chief Infrastructure, Networks and Technology, Mr. Jeffrey Aldridge, and entities controlled by them, respectively, where applicable, have elected to receive a predetermined portion of their scheme consideration as shares in the ultimate holding company of NBCBidCo, which I will refer to as the script consideration being an entity named MBC Topco PTY LTD with the remainder to be received as cash consideration under the voting and rollover agreements which are described in further detail in section 10.7 but we have to I think the call date is March next year so

We will come back to it.

Okay, thank you. And my second question is around external valuations. If I see like it's around like 20% is valued externally and another like some 20, 25% is second-party opinion on the valuations you have done. I think for other companies it's more like fully accurately valued. Is there any reason that we have less amount of external valuations in case of Waldo?

No, we actually never did everything externally. And I think my general thinking is that the company should have a good knowledge about their own assets and the balance sheet and have the knowledge to make correct evaluations. But then we all do external second opinion, you can say. And then you also have the situation if you have 10 properties at the same place and you make valuation for one then you actually know the other nine if they are similar but it will be very expensive to do 10 valuations more or less unnecessary so that's why I think it doesn't make sense to evaluate 100 because you it will add no more information basically but if we look back we've been listed for 17 years you can say the average has always been that external valuations are slightly higher than our internal. If you take the average over a 17-year period, externals tend to be slightly higher than our internal valuations.

Got it. And probably my last question is, given the current share prices, are you looking to disperse some properties and do probably share buybacks or something like that?

Yeah, we will always try to do what makes sense, you know, in general. So that can be an alternative, of course, if we think it's good for the whole picture.

Got it. Thank you.

The next question is from Phil Puller calling from Declan Investment. Please go ahead.

Hello. Thanks for taking my questions. Can you hear me? Yes, I hear you. Great. So my question would be on your associated companies. because you are invested in quite some associated companies and I wonder you have made an analysis like which of the associated companies have publicly traded equities outstanding and where the publicly traded equity trades now below the price for which it is in the books.

Yes, we have a few of them traded publicly and right now there is a gap but the principle is that if you think it's a permanent gap you adjust the value and if it's a temporary gap you don't adjust it. And if you have a surplus value you don't adjust it. But if you look at this as a group and time passes by my guess is that the values will over time actually be a bit lower than the actual value because you always book just equity, you know, on top of the value. So you, in effect, book 100% deferred tax as time goes along. I think the long-term will be slightly undervalued if you compare to the real value.

But can you tell how big this gap is?

No, I don't have the exact figure actually, but... I mean, we follow the principles we have to follow since we're listed in IFRS, you know.

Okay, thank you.

The next question is from Ye Kian from Atlantic Economium. Please go ahead.

Hi, thank you for the presentation. I have a few questions. The first one is an easy one. Could you share the percentage of the portfolios that are really turnover-based and whether the rent flow is CPI-linked a lot?

Yeah, I actually talked about that before. Turnover rent is very little for us. It's just that it is one category. And in our case, it's some of the hotel properties that is turnover rent. Normally, we have a floor and then turnover rent on top of it. And a few retail leases are turnover rent. So I would guess in our portfolio, maybe 3%, 4% perhaps. It's not much, but it is a category. That's why I mentioned it. And the biggest part is CPI-linked because normally all commercial leases, even if it's Norway, Finland, Denmark, Sweden, it's CPI-linked. And on top of that, you have Danish residential linked to Danish CPI. So that is the biggest category. And then you have market trends for Resi Finland, and you have negotiations yearly in Sweden, Resi. So we have sort of four categories that there can be some exceptions even in this actually, but to get the big picture, four systems.

For the turnover base, I'm just curious whether the rent flow is also CPI-linked or maybe it's based on the contract?

Yeah, the rent is CPI-linked. Yeah, good question. That is true. The floor is CPI-linked. Hopefully, the idea is not to be, but it is the same in COVID times.

Okay, understood. And also under the current situation, is there any chance, I mean, even though you've answered it before, is there any chance that you might consider have your full portfolio, like external value that you reassure the market, like you give a number of external valuations versus your own internal valuation so that the market could better understand your internal model, etc.?

We have the same model, internal or external. Yes. As I said, over time, we are normally slightly lower than the external valuations. There are never any big discrepancies. We do this 24-7. I've done it for 30 years. I think it would be not good enough if I didn't have an opinion about values. This is all I do.

Okay. And also on the hybrid, I'm not sure to what extent you can comment also because of the rating consideration. So because some other peers, they comment like what scenario they might just replace the hybrid with 50% of debt and 50% equity. And for you, whether maybe issuing a bit more class B shares could be an option for you or it's not something like in your consideration for the moment?

No, I mean, it's very hard to communicate about it before we actually decide something, you know, because this is important to do the right way because there are quite strict rules. We have S&P rating. It's actually a bit easy to have Moody or Fitch hybrids because then they look at the hybrids separately. But S&P look at all hybrids as more or less one part of the capital structure. So we have to be very We have to be very careful and do it very thoroughly before we do or say anything about it. So I think it's a bit unfortunate that it is this way, but actually I have to sort of follow the guidelines from S&P how to handle it. So it is a bit difficult for all companies having these hybrids because... Okay.

Okay.

But I mean, I think March is the call date for us. So it's not that far away until we have to say anything under all circumstances.

Okay. And my final question is, when I talked to the Swedish banks, they basically decided they can support the corporate, I mean, the real estate companies in the near term, but they might not be able to refinance everything in the coming one or two years. So I'm just curious, even though you have secured some credit facilities, but do you see if the market condition remains at the current stress level, will you continue to have a lot of access to the bank loans or maybe at one moment the door will be closed as well?

If the situation is like it is now, then it will not be a problem. But I mean, you will never hear a bank say that they take all outstanding bond loans. That would be a crazy thing to say because it might not even be their customers, you know, so they can't say anything. It would be very weird if they did actually. So they look at it, you know, case by case. So I think it's a big I mean, it's different borrowers, companies, different sort of assets and so on. So I think they look at it case by case. They should do. And actually, they do. So as a general statement, they can't say that they take all bonds. That would be crazy of them to say, you know.

Okay, okay. Yeah, just to make sure they say. Okay, thank you very much. That's all my questions for the moment. Thank you.

Thank you. The next question is from Jan Eerfeldt, calling from Kepler Shover. Please go ahead.

Okay, just two more questions. I was cut away. The first question relates to your apartment that you're going to sell, the co-ops. How large portion is already sold in that portfolio that you currently construct?

The absolute majority. I don't have the exact figure, but the absolute majority is already sold. I think for 23 more or less everything, and 24 we've already started to sell as well. But the most is 23, but some goes into 24. So I think average maybe, I don't know, 75, 80, 85% perhaps.

My last question regards to the cost structure of your project. Have you, I mean,

Very good question, Jan. And you can say the absolute majority seeks prices with few exceptions. So the cost side is well under control. But if we are to start new things now, it's much more difficult. And that's why you don't do it? No, that's why I think it's not advantageous for us to do it because you have high costs and uncertain costs. And on top of that, you have uncertain values when you're going to sell it or if you keep it the yields will be lower than before and interest rates higher so I think you can perhaps find better alternatives so for the time being I think it makes sense to wait but things can change later on and that can be lower construction prices or or if there are other changes it can also come subsidiaries from the government you don't know they from time to time that shows up as well and Maybe if it slows down a lot, there can be subsidies in 2024 perhaps, but nobody knows. But I think it's important to always be able to change if all the circumstances change.

Okay. Thanks for taking my questions.

Thank you. The next question is from Tobias Kaj from Lannibor Fonder. Please go ahead.

Thank you. Good morning, everyone. All is well with you. I have a couple of questions. First of all, thanks for the clarification regarding net investments in the development. But you also have some ongoing developments in your JVs. Do you think there is a risk for any requirement of capital injections to NLJVs?

No, no. The big thing is Trenum with the AP fund, and it's already funded.

okay excellent thank you and then second question regarding buybacks of bonds do you think it's possible to do like significant volumes of buybacks in the market so to say or do you need to to make a general offer to be able to do buybacks in the bond market i don't know exactly i think it remains to be seen

I get the signals that there are perhaps low quotes on prices, but not necessarily a lot of sellers. But I don't know, actually. I think nobody knows. But I think it's at least an interesting alternative to look at from time to time. It doesn't used to be like that. But, I mean, now you can consider to buy a bond instead of buying anything else, actually. So I think it's interesting to look into that. But volumes, I don't know, actually. I don't know.

OK. Thank you very much.

Thanks. Next question is from David Schnapps, calling from . Please go ahead.

Yeah. Hi. Thank you. Just again on the hybrids, really. And I know you can't say too much, or you're not giving us too much. Can you just confirm that everything is still on the table in terms of calling, extending, probably not replacing?

Yeah, I mean, we can do anything, obviously. I mean, it's our choice. But I think the thing is that we have to be very careful with communication about this, and we have to have it... do it in collaboration or with S&P informed and so on. So that's why it's a bit difficult for all companies with S&P hybrids to do a lot of statements and say a lot of things about it. So it's hard to communicate about it. Unfortunately, it is not. I wish it was in another situation, but since they look at all hybrids more or less as one thing, And a part of the capital structure, which it is, we have to be extra careful how we handle it. If you have Moody's or Fitch hybrids, it's not the same because then you can handle them separately. So that's why it's complicated for companies with these hybrids.

Sure. I would say it's a kind of less complicated view because you don't have as many hybrids outstanding as some of your peers.

Absolutely correct. We have very little, so it's less complicated for us. Absolutely correct.

Okay. Thank you very much.

Thank you. Then this question is from Bart Ritma calling from PGGM Investment. Please go ahead.

Hi, Eric. Thanks a lot for the call today, and good to see the Q2 results were good. Just one question to check. Previously, you had the press release on the sale of Trenum, which I think was at a very good level. That one is not included in the statement yet, right? That was effective 1st of July.

You mean the sale that's made in Trenum? Yeah, indeed. That is included. The decision was 0630, actually. But it was a government decision, you know, so it was a very special situation. So the government actually communicated before they even had their decision. So it was a very different situation. I remember actually experience anything quite like that that you can have a communication before you take the decision but that was actually what they did so the minister was out the day before they had their meeting so for us it was very complicated you know having a minister saying that they have bought it and we were waiting for the decision at the same time but it is included yeah

Okay, because then I would have expected that the change in value of this realized, but that would have been somewhat higher.

In that case, it was 450 million in the JV structure.

Okay, that makes sense. Yeah. So that's not directly into the realized portion.

No, exactly. We owned it together with the Swedish state, you know, with the AP fund.

Yeah, exactly. Okay. Yeah. Thanks for the clarification. Yeah. And then one follow-up perhaps on this equity to equity ratio. You mentioned before, right, that this will basically go up naturally if you don't do anything. You have a bit of comfort now of a 40.8% versus 40% target. Of course, well, there are a ton of questions on these hybrids, right, with the series call in March 23. Can you basically elaborate a bit on how fast this grown entry, also considering what you have said on basically stalling most of the development? First, let's the impact if indeed the upcoming hybrid wouldn't be replaced.

You mean what the effect will be if it's not replaced?

Yeah, if it just would be called and not replaced with 50% equity portion.

Okay, then I understand the question. If you If you call it and not replace, then if you have S&P hybrids, then they consider all hybrids called, even if you haven't. If it is a Moody hybrid and you call it, they don't consider other hybrids called. So they look at it separately, while S&P look at it as sort of one part of the capital structure. But as we said in the last question, we have very little hybrid in comparison to the total. So for us, it's not a big difference. I mean, the alternatives is not that big difference. But if we call one and don't do anything, then they would consider the other one called as well. Yeah. No, I understand that. And if we don't call the first one, then they will not consider the other one called, obviously. Okay. there are different there are lots of different uh you know combinations in this case even though it's only two hybrids um a lot of different combinations and yeah yeah but yeah so yeah so basically you would lose that four and a half billion of of equity right because 50 percent of this of this high risk coverage equity so yeah given that the

Yeah, and given this natural improvement in the equity asset ratio, would that lead towards a ratio that is below your target of 40% or will basically the natural improvement be sufficient to still be a bonus?

I mean, there are a lot of things you have to calculate in that case, so I don't know exactly about that.

Okay. And would it be like a huge deal if it would be slightly below? I mean, is it more like a target where you roughly want to be, or is it really something that you want to be firmly above? You mean the equity target? Yeah, the equity to assets target of 40%.

We have the target is to be about 40%. But, I mean, I don't mind if it's more over 40, but, I mean, the target is to be above 40.

Yeah, exactly. And, I mean, my point more is that if this removal of equity credit of $4.5 billion would lead to, say, this target being 39.5%, would that be an issue as such? Or would you say, okay, it's still fairly close to 40%?

I haven't thought about it that exactly, actually. But you have a point in that it's not a big change. I mean, independent of what alternative there is, it's not a big change in the numbers. Yeah. Okay. Okay. Thank you. Thanks, Eric.

Thank you. The next question is from Maggie Lecker calling from PAGIM. Please go ahead.

Hi, thank you for taking my question. I wanted to ask about the optionality to raise equity, and is that something you'd do in the current environment? And also related to that, how would you look at a preference ranking of raising bank debt versus raising equity?

Thank you. I think we have to evaluate that more or less from day to day and see what is the best alternative for the overall situation and options going forward. I think it's very hard to have a fixed opinion about it. But in general, it's not good to raise equity if you have a big discount in the share price. Then you have to have very good reasons to do it and maybe in some cases you have so but I mean we always have all alternatives and compare them you know I think that is the way to handle it that you always consider all alternatives all the time more or less and then try to come to a wise conclusion for what is the best for the total if you understand what I mean

Okay, so at least short-term, we should expect you to sooner raise bank debts than go out and raise common equity?

Yeah, short-term, yeah, absolutely. Thank you.

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