Fastighets AB Balder (publ)

Welcome to the Balder Q4 Report 2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Eric Sellin and CFO Eva Wasberg. Please go ahead.

Hi everyone, welcome to this call around Baldr's Q4 results for 2024. We'll first have a brief presentation and then open up for Q&A. With that I'll leave the word to Erik Selin, CEO of Baldr.

Hi everybody and welcome to this Q4 and result for 2024. The first slide here Baldr at a glance, we are as you know a listed real estate company with the focus on the Nordics. We have a few assets in Germany, UK as well. A little bit more than half of the portfolio is residential and the other half commercial. The portfolio is very diversified both in terms of category and geography. Looking at the last quarter, The rental income grew 8% as well as the operating income. Profit from property management per share compared to last year Q4 increased 3%. So this was the first quarter for a while that we have an increase year over year. And in the earnings capacity, profit from property management is 9% better than last year for the same period. Net debt to assets 49.4 and like for like rental growth a bit slower now 3.5 but still okay level and NAV stands at 88.3 per share Looking at the current earnings capacity this is a slide that we update every quarter you can see now that the rental income is up quite a bit from last from Q3 and that is a combination of acquisition from the joint venture Centur completed projects and indexation and looking further down we have profit from property management 6.5 billion compared to 605 the quarter before and per share that is increased from 516 to 546 we also issued some shares in Q4 you might remember that so but still per share we now have the highest earnings capacity so far and combined with the relatively slow growth in balance sheet we now have if you look at earnings capacity we now have a EBITDA 11.8 and then we exclude projects but we include financing for projects and if you compare one year back and count it the same way where we then have the hybrid as debt that came from 12.6 so it's quite a big improvement in one year we still have the target of 11 but the strong cash flow now and improvement gives us the possibility to actually do some investments and at the same time strengthen the balance sheet and the debt EBITDA number going forward as I said in the beginning a diversified portfolio you can see here regions Helsinki Gothenburg Stockholm Copenhagen and resi is by far the biggest and then we have office retail and hotel other properties so no single category or geography or tenants can make a huge change in the company so and that is our intention that is diversified with a very low risk on the asset side looking at the longer term here is a graph from 2015 we can actually go back to 05 also if we take a longer period but then you can see the long-term trend is of course we want to increase earnings per share that is what this is all about we have had for a couple of years a downward trend because of the rate interest rate increases but now since interest rates are coming down our financial net is stabilized and so now if you compare earnings capacity to outcome you can see the high probability of a up going trend again and here we have from back 05 also the longer term with value debt asset and occupancy and occupancy been extremely boring for almost 10 years more or less always 96.

Regarding ESG we continue our work with meeting the requirements of EPBD as well as the adaption to CSRD our ESG ratings are BBB with MSCI and 14.9 with Sustainalytics which places us within low risk Funding condition has continued to normalize and during the quarter we have refinanced a couple of more expensive bank loans that were taken up during 22 and 23 with lower credit margins. The net financial position has improved a bit and with the balance sheet we have today we should be able to continue to improve the financial cost a bit during the year. Not necessarily a linear improvement. It can bounce a little bit between quarters. And as you can see here, net debt to EBITDA is now at 12.2 compared to 13.5 when we introduced the target of 11 times. And also, as Erik mentioned, if you look at the earnings capacity, we're now down to 11.8, which to some extent shows where the trend is heading. We continue to have a high level of available liquidity. Per year end, we have available liquidity of 21 billion SEK, which corresponds to one point time, two times, rolling 12 months. During the fourth quarter, S&P confirmed our credit rating BBB and changed the outlook to stable. And we have, in general, good margins in our metrics.

So looking a bit more at the, sorry, the financing side, we have a long-term trend as you've seen of a slightly decreased net debt to total assets. At the same time, you've seen in the last couple of years the encumbrance coming up a little bit due to the shift from a very high level of bond financing into a slightly more balanced picture between bank and bond financing. You might recall that we've talked about before that we want to have roughly 50-50 split between banks and bonds. and that will take us to an encumbrance around about the current levels we are. It might be a couple of percentage points higher or lower from time to time, but I think this is a fair assessment of where we will be going forward as well. Looking at the maturity structure of our bank and bond financing, for those who have followed Butler for some time, you know that the Swedish banking market tends to be fairly short-term in its nature. Typically, we issue three-year loans, And then we roll them continuously as we go along. And we tend to always try to roll them a little bit before maturity as well to keep our liquidity metrics intact. It's a fairly undramatic process. And so far, since Butler was started, we've never failed to roll bank loan where we want to. On the bond side, there you see that we have two years with a little bit higher maturities. And here what we've said is that we would like to maintain the maturities below 10 billion per year if we can keep it that way going forward. So that might give you an indication of where our issues will be focused going forward as well. But overall, I think we're pretty happy with our current maturity structure and hedging structure as well. it's nothing to be expected that we will sort of change that going forward. So looking at a slightly more structural way of talking asset liability management. So we have an operating profit that has increased in the earnings capacity by around 10% with net debt only increasing by 4%. That's obviously according to the outlook that we've given before that we want to both invest and reduce leverage somewhat. And I think that Erik and Eva talked about the net debt with DAO both rolling 12 months, but also in the earnings capacity. And it's reasonable to expect that trend to continue. We do now, we are in a position where we have a much more balanced capital allocation, as you've seen in Q4 as well, where we've done total investments that we've signed of more than 7 billion SEK, even if not all of those are already in the balance sheet. I think that that's a testament to also our ability to both invest and reduce the leverage. And then, as we have pointed out before, it's worth noting that the convertible bond will obviously at some point have a pretty large impact on our balance sheet. So just to be aware of that and remind you of it. pretty well placed in terms of our bond presence currently. We will continue to issue bonds in the Swedish market as we started doing more actively in 2024. We have an ambition over time to increase that from the current levels that we have outstanding. And at the same time, we will entertain our European bond market presence as well. Overall, I think it's fair to say that with the financing cost of bank financing having come down quite a lot, we will obviously look at the market from time to time and decide where we feel that we want to tap financing when we need it. But structurally, I think the current mix between bonds and bank is fairly reasonable to expect. And then we will have slightly more tilt to the SEC market than to the euro market than we have today. That's the sort of more long term picture, I think. I think I'll stop there and then we open up for questions.

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 6 on your telephone keypad. The next question comes from Lars Norby from SEB. Please go ahead.

Thank you and good morning. A couple of questions from my side. First of all, on the residential portfolio in Sweden, how much of the negotiations have you completed regarding 2025 rent adjustments and how big on average is that adjustment?

I think all the negotiations are completed and the average, I'm not 100% sure, do you know Eva? Around five, yes.

Okay and obviously if that for them the completed negotiations that's been taken into account in the earnings capacity as shown in the report.

Yeah the absolute majority anyway you can consider it that it's included.

Okay and second point To me, you very much shifted into more of a growth mode in the second half of last year, illustrated by the acquisitions from Centura in particular. Looking forward, do you expect continued expansion to be primarily through acquisitions, or will there be a gradual ramp-up in projects as well?

i'm guessing it will be more uh to acquisition some projects maybe that that takes a long time also you know to ramp up that and i think we're still a bit cautious on project so i think we are more likely to do some acquisitions okay thank you

The next question comes from Uthman L. L. Iraki from Fidelity International. Please go ahead.

Hi. Good morning, and thanks for the presentation. First, a quick question for me on your hybrid outstanding. How do you think about it in the longer term? Is it an instrument that you want to keep in your infrastructure, or given the fact that you lost the APT,

I think when it comes to the hybrid, we've said that when we did the last tender offer, we've said that we don't see ourselves as long-term issuers of hybrid instruments. We've felt that it's cost us a lot of hassle during the last few years. even if on paper the sort of cost of equity implicitly looks attractive, then in reality it never is as attractive because of the cyclicality of the pricing of hybrid instruments. So we've said before that when we did the last tender that we would probably not be long term issuers of hybrids, at least not the way things look today.

Okay. And just a follow up on this. Do you think your intention to call this hybrid at the call date is something that you would question at some point? Or do you think you would follow the market norm?

I mean, we've always called on the first call date in the past. At the same time, given that we don't have any equity credit from S&P on this bond, it's a neat, very long maturity bond to have in our capital structure at the moment. From a contractual standpoint, from a liquidity planning standpoint, the maturity is very long. But in the past, we've always called on first call date.

Okay, thank you. Thanks.

The next question comes from Jan Irfeldt from Kepler-Shuvereau. Please go ahead.

Okay, thanks. Good morning. I have two questions. We've been talking and discussing about the rent uplift for Swedish residentials and Including in your earnings capacity, what kind of rent increase or decrease have you put in for your finished resi?

A finished resi, we don't forecast in that way, Jan, because it's market rent. So that is moving as we go along.

And what do you see for this year when it comes to Finland has been a lot of overproduction over construction in the last couple of years.

Now we hope and think that the second half of 2025 situation can improve. It's still quite competitive but it's not getting worse. But we think second half can be better because now if you look at statistic on construction starts it's been very low for a while and the completions been high until maybe half a year ago so we think second half of 25 looks looks yeah we can be more optimistic there I think maybe one or two quarters will be slow and then better okay and is it more when it comes to bringing down vacancies or do you do even so see They are very linked together actually. So if vacancies come down, then rent will come up. So I think you will have the double effect. Once it comes, you will have on both sides actually. But we have kept the vacancy a bit lower than the average. So we had a strategy to sort of not... maximize price totally so maybe in our case you have you have some potential in vacancy and then rents but if you look at for example Koyamo they have been more moving around so they were more positive on rents had higher vacancy and now I think they will go for lower vacancy and maybe a bit lower rent so but we've been more stable

But Jan, in the second half of 24, you already saw a positive movement, both on our occupancy rate and like-for-like rental growth. It's very small numbers still. I think we ended the year at 95.5 occupancy in Zato, and you have a positive like-for-like in both Q3 and Q4 on the rental side. But it's very small numbers, obviously. So the more noticeable movements might take another few quarters.

Okay. And my last question regards the hotel market. We have seen some quite promising statements from both the strawberry and pandux and so on. Do you agree on this more positive view on the hotel market?

In general, we agree on that view, but then you should look at city by city because there can be quite big difference. So in Sweden, you have Gothenburg as the slowest market with a lot of new capacity. Stockholm is very good. Malmö is absolutely okay. Copenhagen is good. But overall, absolutely, I agree. It's better. It's stronger.

Okay. Thanks for taking my questions. Thanks.

The next question comes from Venzi Iliev from Kempen. Please go ahead.

Hi, good morning. Thank you for taking my questions. First one on net debt EBITDA. So you would like to get to 11 times. Is there a period over which you want to get there? Because it can be, let's say, one year when you take into account the convertible. It can be over a five-year period. The second one, I appreciate that it is limited what you can share, but can you share anything on Norion Bank?

Let me start with the net debt to BTA. We've said that we have that target and we're moving continuously towards it. We haven't given the timeframe. I don't think it's going to be five years. But I think for us, the important thing is to ensure that we move in that direction, sort of, if not quarter by quarter and year by year. So you will see a gradual movement to the 11 times. Definitely so.

Yes, and in Norion Bank, I think I guess you're wondering about the question from the FI and they are looking at the routines and processes and, you know, policies and in different kinds of things. So it's not an actual case of money laundering or something like that. It's linked to routines, processes and, you know, for example, with AML, PEP and KYC and that kind of thing. And it's a survey did among a couple of banks, so it's not just us.

Okay, very clear. Thank you.

The next question comes from Stefan Andersson from Danske Bank AS, Denmark, Sveriges Filial. Please go ahead.

Thank you. Just a few questions for me. uh the q4 has had relatively warm weather little snow uh has that had any material impact i guess particularly on the on the swedish rescue side for you truth is i don't know exactly the number okay um uh looking at the vacancy um i guess we're talking about decimals moving here uh sorry can you can you please speak up a little because we have a little bit hard time hearing you absolutely is it better now yeah a little bit yeah Okay, I'll try as much as I can. Okay, so on vacancy, maybe you touched on that, but could you elaborate on, I guess it's small movements, of course, it's decimals here, but is it only Gothenburg commercial, or do you see also on the resty side that you have some movements?

I think overall we have slightly lower vacancy in the whole portfolio. If you compare the years, we don't see any big movements actually in general. I think our actual vacancy in office, for example, is very small changes. In Sweden, we have no vacancy, basically. It's Finland's vacancy in Resi, as you know, but not in Sweden, Denmark.

Okay. Good. Then on the valuation, there's very small value changes here, I guess. But on that valuation, what kind of rent increase on the Resi side have you incorporated? Have you already incorporated the 5%? And what are you using further on 26? Is that 2%?

Yes, correct.

And finally, on the transaction market, I guess you're in a situation where people call you up on opportunities. Have you seen any change, more activity, less activity, change in price expectations? If there's anything you can elaborate on that versus what we saw half a year ago?

Absolutely. I think in general it is more positive in the way that it's more likely to be transactions. Before it was sort of a gap and very low willingness to actually go into a transaction. Now I think it's more activity. I think pricing is not a big difference actually. The deals that are done are normally on quite, how should I put it, good prices. There are not many companies selling cheap, if you understand. But I mean, you can always find one asset at a time that makes sense to buy and so on. But my guess is also that second half of this year can be more activity. It's still a bit... wait and see mood but now you have stabilized interest rates hopefully and a lot of companies are more in the position that they can buy if they want to also some funds have raised equity and so on so i think second half i think there will be more transactions but we have a deal flow and there will be there come new deals every day okay great thank you thanks

As a reminder, if you wish to ask a question, please dial pound key five 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.

OK, thank you very much for listening in. And you know where to reach us if you have any follow up questions. Thank you.