Fastighets AB Balder (publ)

Good morning and welcome to Balder's presentation for the year-end report. Presenting today is me, Eva Wasberg, CFO, and Erik Selin, CEO at Balder. After the presentation, we will have a Q&A session. And on that note, I hand over to you, Erik.

Thank you, Eva, and welcome to Balder year-end figures. The big picture is we have a real estate value that stands at 212 billion. 96 occupancy the equity ratio is or the leverage rate on net debt is 50 and we continue to have a high liquidity of almost 18 billion and nav year-end stands at 85 kronor per share Over the long time, we had a good increase in NAB at 28%, if you look back in time over the longer period. And we have primarily Nordic exposure, roughly half residential and half commercial properties. Looking at Q4 specifically, compared to last year, the rental income increased 10%, as well as the operating income. Profit from property management saw a smaller decrease and that comes from higher financing cost. But otherwise it was very stable and increasing rent and NOI. Like for like, rental growth was 4.9% and debt to assets 50%. Looking at the property portfolio, this has been looking more or less the same for many years, but the focus is on larger cities in the Nordics. So capital cities and Gothenburg. So we have Helsinki, Gothenburg, Stockholm, Copenhagen dominating the portfolio. and looking at the categories residential is by far the biggest of roughly half of the portfolio and then it's diversified between office retail hotel warehouse and other properties we also have some property development this has been decreasing for a while due to the market situation with higher building cost and higher financing cost and also slower market for condominiums. We have two categories, one that we build and keep for the long term, and we also have development that we sell to consumers primarily in Sweden. So right now this is a declining part of the balance sheet. We are very careful in starting new projects and we don't see any building starts for ESSI this year. And the commercial projects is soon to be finalized. So this is an interesting part of the business for the long run. Right now it's decreasing, but we will keep working on zoning plans and other things for the long term value creation. um otherwise we are focused on cash flow or what we call profit from property management and that been for the whole 23 more or less the same as 22. um so but this is our long-term goal to over time increase this figure of course the long-term value of the company is the present value of the future earnings and that's why we have to increase earnings At the same time we want to have financial stability so looking at these charts you can see that the net debt to assets gone up slightly the last years and that is because values are coming down a bit but we have a good resilience because we have strong cash flow and so we have earnings that partly can meet these lower values and occupancy been very stable around 95-96% for many years. We also have this slide called earnings capacity where you can see basically what is the running rents and cost and so on on a 12-month basis. This is not a forecast so it's just a you can see the status as a specific date or a quarter and so at year end this stands at 5.8 billion earnings compared to last quarter was 5.7 and obviously it's financial costs going up a bit and then rents going up that offset the increased financial costs And this is also in quarterback water can be a bit affected by currency moves as well.

Yes, and here you can see an overview of our framework for sustainability, which is based on the international goals of Agenda 2030 and our commitments. There are no changes made to our goals. Here are some points that we would like to highlight regarding our ESG work. We are adapting our sustainability report for 23 to EU's new directive, and we are affected by the new requirements in January 24, that is for the sustainability report for next year. But we have started the transition early on in order to prepare and implement changes. We hope this will make it easier for our stakeholders to get access to requested ESG data going forward. We have also implemented a new digital reporting system for sustainability reporting. With increased reporting requirements, the ambition is for the system to facilitate data collection, auditing, internal control and contribute to resilience. During the autumn, we carried out a double materiality analysis in line with ESRS to prioritize material sustainability issues, and it was approved by the management and board during the fourth quarter. Balder works actively to manage the risk that follows by climate change. And this work includes, among other things, climate risk analysis of the property portfolio. At year end, large parts of the property portfolio had undergone climate risk screening. Let's go over to some financial figures. The available liquidity as of year end is a little less than 18 billions. And maturities of interest bearing liabilities coming 12 months is 12.3 billion, which means that available liquidity covers maturities for the coming 12 months with about 1.4 times. When you look only at maturing bonds coming 12 months, which for us is more relevant since our bank debts are rolled forward continuously, we cover the maturities with over three times. We will continue to maintain a conservative profile of liquidity risk in the company through a long maturity structure and a large reserve of liquidity and financing lines. And this level of liquidity will be kept as long as we think the markets are strained. Here you can see our ratio of secure debt to total assets, which is still low. And as of year end, it's 22%. which is a large headroom to the 45% we have as a financial covenant. Net debt to total assets is a little bit higher than last quarter due to decrease in values. As of year end, 74% of the loans are hedged with interest rate swaps and fixed rate loans, which is a little bit higher than in Q3 when we had 70%. This is due to an increase in interest rate swaps made in the fourth quarter when we took advantage of lower long-term interest rates. Here you can see the split between financing sources as well as the split between unsecured and secured finance. Butler is and will be a significant issue on the bond market and we want to have a financing structure that provides stability to operations over business cycles. To the right, you can see the interest refixing structure where the average interest rate for 24 includes the margin for the floating part of the debt portfolio. The average interest rate as of year end was 2.9. And regards to the goals, all financial targets are in line with our goals and the new financial targets of debt to EBITDA of 11 times has come down to 12.3 from 13.4 of last year. This change is a combination of increased net operating profit and decreased net debt. Here you can see an overview of the debt maturity for bank loans, bonds and commercial paper. For 24, the debt maturities amount to 12.3 billion. Of this, maturing bank loans amounts to a little less than 6 billion. Outstanding commercial papers, 1 billion. And maturing bonds in 24 amounts to 5.4 billion. And if you look at the maturing bonds, which we think is the most relevant since maturing bank loans will be extended, you can see available liquidity, covered bond maturities for 24, 25 and a large part of 26. Maturities for those three years amounts to 19.7 billion in relation to available liquidity as of year end, which was a little bit less than 18 billion. The remaining slides are more as information for you. So this was all from us for now and we will open up the Q&A session. So thank you very much for listening in.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 5. 6 on your telephone keypad.

The next question comes from Lars Norby from SEB.

Please go ahead.

Good morning.

Good morning, Lars. So I think 2023, if anything, has been a year of finalizing ongoing projects, not starting many new ones. You've had virtually zero net acquisitions. You've been maintaining good liquidity versus bond maturities. Now we're into 2024. Is it still very much the same among all these factors? I mean, if anything, the bond market is improving, isn't it?

Yes, I think it's quite much the same. The bond market, you are absolutely right, Lars. It's improving quite fast recently. so let's see where that leads but otherwise I think our 24 will be kind of similar to 23 but less spending on construction of course because in a couple of quarters there's not much left and we are not planning to start resi construction at least in this year so I think 24 will be similar to 23 actually but calmer and we think bond market will come back and we actually did some bonds in January not that much but it was an incoming call so we did some bonds.

Okay and just to follow up on that regarding capex I think you had some 7.5 for the full year down from close to 11 in 22 in the fourth quarter basically cut in half compared to last year looking into this year on 25-26 what kind of level are you aiming for or expecting?

I think it will maybe be cut in half again Lars or something like that so it will be it will be much slower on that side for 24 and probably even 25 actually because we have really no start planned and even if we start something 25 it will not be much anyway so I think 24 and actually 25 also will be very calm.

Okay thank you that's for my questions. Thanks Lars.

The next question comes from John Vong from Kempen. Please go ahead.

Hi, good morning.

Thank you for the question. In the report, you state that you expect profit from property management to stay stable over 2024. Could you provide a bit more color on the drivers of this guidance? Essentially, it means that you're getting a guidance of 6.1 billion compared to your earnings capacity at 5.8 billion which I guess means a six percent earnings growth from annualized levels.

We haven't said a specific figure you know but we think it will be stable around these levels that we have been in 23 or the last quarters. we see no big changes right now actually so I mean rental income will probably be a bit higher because some negotiations are not done by year end and so on so that will come in a bit better if you compare to year end and then most likely financing costs can be maybe slightly higher but now it looks like maybe interest rates come down during the year so we think it will be small changes actually from how it looks year end and even 23 but 23 and 24 if you compare them there will be higher NOI in 24 and higher cost for interest rates because beginning of 23 was lower rates obviously but it seems to be that we will be around these levels

Okay, that's clear. Does that imply that you're also taking some cost optimization measures?

Yes, we continue with that. So we think we have some potential as is as well.

We hope so. We think so.

Okay, thank you. And on your discussions on renegotiations essentially, are you seeing any pushback on the indexation you're getting this year?

No, very little in general, more or less nothing actually. So indexation was high, but at least it was lower than last year. And I think that can have an effect, you know, that it's not as bad as it was the year before. And also it's very known before because there's a lot of, you know, newspaper writing about it and everything. So when the indexation comes, no one is sort of surprised. But I can say it's been less dramatic than you could have guessed or we could have guessed if we would have guessed long before.

And I think all the companies will say the same, by the way. Okay, that's very clear. Thank you. Thanks.

The next question comes from Andres Toom from Green Street.

Please go ahead.

Hi, good morning. So a couple of questions. And firstly, I guess on capital allocation, you've been quite active this quarter, I suppose, selling some assets, buying some of them, building rights. Just wondering in terms of direction of travel for this year and the next, I mean, you did mention that Certainly no development starts, but in terms of acquisition disposal activity and thinking around that.

We've been selling some building rights and we made some small investments, but I think if I'm guessing 24, it will be the sum of the transactions will be still very small. It will not be zero, but it will be very small. So I would guess we buy something, sell something. And we've been selling building rights. this year. So but I think you can if you sort of make a forecast or something you can assume that it will be very low activity. So we will be net selling building rights most likely and maybe do some investments but not much.

And based on your experience being in the bidding tent and on the selling side how does the transaction market feel at the moment?

it's still very slow so there are not much transaction but what I feel right now is that I get more calls from investors that are interested to buy than I used to get actually so I think it's maybe during the year transaction will pick up a bit but hard to guess and I think also when I talk to all the banks, they are also feel much more interested in new transaction in general, because if you look at all the banks balance sheet, they were basically flat lending in both the private segment and corporate segment. And you can have that for a while, but long term, if you're a bank and the loan book is flat, you end up having problem with the cost side in that case. So I feel the banking system is I mean I thought it was quite good all the time but now it seems to be even more stable and better with big profits so I think banks will be more supportive to transactions as well so and then yes

Yes, and final question now is just about rent growth potential and specifically in Finland. How do you see that market evolving at the moment and what are your sort of projection for the next one or two years?

Good question. I think what we see now in Finland is that we have like for like positive at least. It was for a while negative and then flat and now it turned positive. Finland and especially Helsinki had a very big supply of apartments for many many years but now the situation there is like here that there are basically no building starts or very very few but you have record level of migration to Helsinki and some other Finnish cities so I think it was the highest population increase for I don't know for a very very long time so the underlying demand is strong and now I think the supply side will during the year get sort of better if you own properties so I think you can be quite optimistic for 25 at least when it comes to Finnish resi but maybe we need two three quarters more before you see it more clearly in like-for-like rents and so on but I have a feeling that 25 can be very interesting there, maybe end of 24. But to be on the safe side, one year from now, I think it will have a very good trend there.

Okay, thanks very much. That's all from my end. Thank you, Andres.

The next question comes from Niroj Kumar from Barclays. Please go ahead.

Hey, morning, everyone. So a few questions. To begin with, do you disclose the amount of unencumbered portfolio you have? I just wanted to know, given you're increasing your secure debt to total assets, how much more there is capacity around that?

We don't disclose it, but there are a lot left to go.

Got it. And regarding your S&P rating, I think in last earnings call we were discussing that you're pretty comfortable that S&P will revise the outlook to stable or something of that sort. Any progress on that side?

I mean, the key figures and the markets are moving in the right direction and we fulfill all the metrics. But as you know, it's also forward looking and other aspects that we can't say anything about. So let's see what S&P will do.

got it uh it's interesting that you mentioned about the opening of the foreign market uh are you sort of keen to do another convertible uh probably backed by your interest rate or something of that sort any thoughts around that no we have nothing planned on that we were actually not planning to do bonds now either then they came investors and we thought it was interesting to do some transactions but our plan was actually to to wait maybe one or two years more. But if it's opening up, we will be looking at it. But we have no plans now.

Got it. Makes sense. I think the last question on my side is, it's very interesting to see that the asset values have been very resilient. I think the yields just moved by 30 basis points throughout the year, despite the interest rate volatility. Do you expect the valuations to remain resilient going forward? I just wanted to get your thoughts on that.

a bit difficult to forecast because I mean there are a lot of different factors that can affect yields but if we're just guessing and I mean the economy overall in the Nordic seems to be doing quite okay despite all the things happening and if it is like it is now that they think interest rates come down during the year a bit and nothing else happens then I it's difficult to forecast but values should stabilize, I would guess, if we're guessing right now. Because we have quite good underlying trend, underlying demand. The underlying metrics are good and then it's just a question of investor appetite and confidence and financing, you know. But right now I think it looks better and Yeah, let's see what happens.

Time will tell. Yeah, indeed. Yeah, that's all my questions.

Thank you very much. Thank you.

The next question comes from Jan Eyrefelt from Kepler-Tjuvriax. Please go ahead.

Okay, good morning. I have a couple of questions. First one, going back to Finland, I just wonder if you could touch upon how high your vacancies are in Finland and if there's any potential of bringing down vacancies to... Good question, Jan.

Vacancies, if you look at one year back, kind of the same I mean it can change a bit from month and quarter and so on but the vacancies are still a bit too high I would say and that is because this huge supply coming to the market for many many years and I mean even if you say that now we stopped building it takes two years or even more before you know it's a long time uh when from from start to completion and so on so i think we have potential in vacancy for sure but i think it will be more during the end of the year or one year from now or something like that so i think there's double potential rent levels and vacancy actually but i think more 25 than 24 on if you guess on the years so to speak

And what kind of vacancy levels do you have? Is it like seven or eight percent, three to four?

No, we are around five-ish, but I still think that is too much. I mean, five is too much. I think if I can choose, we would have, in a way, I always say zero. But in market rent, maybe you should have three, four. So there can be one, two percent, I think, better. That would be ideal. And then... I think rental increases will pick up one year from now. So it can be very good. The combination can be very interesting.

Yeah, yeah. Second question, just confirmation maybe, but you have 10% of your portfolio is retail. And as you previously stated, do you see that you could

put through the indexation also in all kind of retail assets you have yes on average there's been no problem then tenant by tenant there can always be problems but that's been the case forever more or less but if you take it as a segment or in general it's has not been a problem but you have always retailers that are performing good and some in the middle and some less good yeah and last question from my side the property value changes you made here in the fourth quarter what kind of segments were affected and what were probably not affected in general I would say that low yielding assets is more vulnerable than high yielding so you can say low yielding resi maybe CBD properties and the things going much better is segments with higher yields or segments where actually figures improve like hotel where you get higher turnover ends and so on so I think basically the same has been during the year that lowest yields are more affected than high yielding assets okay thanks for taking my questions thank you very much John

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you everybody for listening in and for your questions. Have a good day. Thank you.