Fastighets AB Balder (publ)

Good morning everyone and welcome to this conf call for Balder's Q2 2026 results. With me in the room I have Sharam and Eva our CEO and CFO who will take you through some slides initially and then we will open up for questions.

Thanks, Jonas. Yes, most of you have seen this picture before, but I think it's good to show it again. Our portfolio is roughly half residential and half commercial. We have a portfolio value of 241 billion SEK and occupancy rate of 95 and net debt of 50. We have a good liquidity of 23 billion SEK and AB Per Share stands now at 94.3 SEK. And that's a growth comparing rate of 24 since the start of Balder. Our credit rating from S&P remains at BBB with the stable outlook. If you look at the figures for the second quarter, rental income is up 5%. Profit from property management is down 10%. But if you adjust the comparative figures for the effect of distribution of Nurion, we instead have an increase of 3%. Our funding costs increased from last year, but at a lower pace than our portfolio has grown. We have also a bit higher central admin expenses and that is partly because of a slightly higher activity in new development and partly because we are investing a bit in digitalization and making our central functions more streamlined. The effect should be that we can scale the business more efficiently in the coming years. And on the income side, we also need to work even harder with our occupancy. We have an amazing team and they always do well, even in the challenging market conditions. In current earning capacity we see an increase of 10% adjusted for Nurion's contribution in the comparative figures which means that we see an underlying healthy growth. Like for like rental growth 1.2% and NAV per share is 94.3% as I said before. Looking at the earning capacity, you can see that rental income is up and net operation income is up as well. All in all, this summarized down to 6.1 billion SEK and per share 5.21 SEK. You can also see that the per share improvement is a bit better than the profit improvement. And the reason is that we bought back almost 16 million shares in this quarter. Here is an overview of the portfolio, which is very well diversified. Helsinki is the single largest region, followed by Gothenburg, Stockholm and Copenhagen. And the residential side of the portfolio represents a little bit more than 50% of the portfolio. Office stands for 16%, retail 11%, industry logistics 7% and other stands for 13% and hotel are the majority of that. Looking at the whole portfolio you can see that 80% is located in capitals and larger cities. We have always had a long-term view on the business, which of course will continue. If you take a longer time horizon, we have a really good improvement over the years. The latest three, four years has been flattish, obviously because of the interest rates going from zero and upwards. Here you can see the development of property values netted to total assets and occupancy. We have over time increased the portfolio and netted is now at 50% in the longer time period. We would like to come down. occupancy rate is now 95% and as you can see it has been very stable which is an effect of our diversified portfolio. The explanation for a bit weaker occupancy compared to earlier 96 is primarily due to some weakness in the office segment occupancy. And now I will hand over to you Eva to comment a little bit more about the financing.

Thank you, Sharon. Looking at the financing, the funding mix is more or less a 50-50 split between bank and bond financing. We have a slightly more bond financing as of now compared to last quarter. The level of available liquidity is continuously a bit elevated due to the concentration of large maturities in the beginning of 27. The interest rate fixing and hedging ratio is stable and the average interest rate is unchanged compared to last quarter at 2.9. Our funding is now well reflective of the interest rate curve and margins, so I wouldn't expect any significant shifts in our funding costs in relation to the net debt on the cash funding side. During the last couple of years, because of the volatility in the rates market, we have had the opportunity to enter hedges with optionality, like an extendable swap, at very favorable rates. It's hard to judge whether these opportunities will continue. If they don't, this might present a slight headwind in our financing cost compared to our normal hedging activities. Net debt to total asset is up a bit to 50.4%. due to the distribution of Norion and to some extent share buybacks. The ICR is at 2.5 and rolling 12 months net debt to EBITDA is 12.8. Per quarter end net debt to EBITDA was down 0.3 times compared to last quarter. Here you can see the long-term trend of the portfolio value in relation to net debt to total assets. As you can see here, as I mentioned in the previous slide, net debt to total asset increased during the quarter related to the distribution of Norion and share buybacks. Current encumbrance level is at 24.5% and with our current funding mix, we think a level roughly in the 23 to 25% range is where we will be. So over to the maturity structure. On the bank side, it has been business as usual, rolling maturities. In the bond market, we have been taking advantage of the favorable conditions and issued bonds in the SEK market amounting to 1.6 billion SEK. Currently, our bond funding is cheaper than the bank funding, looking at like for like maturities. This slide we have shown before, it's a structural overview of the funding and capital side. As we have said before, we will continue to have a balanced capital allocation until reaching our target of 11 times nettoebita. And that target remains unchanged. We expect nettoebita to gradually come down, but we see no reason to be forceful about it. The direction is more important than the pace of the reduction. Here you can also see an updated calculation on the convertible bond, which when that is converting, assuming that we're above strike price, obviously will have a positive effect on the indebtedness numbers. And in terms of funding strategy, there is no change compared to previous quarters. That was all from us. And on that note, I will leave the floor open for questions.

The next question comes from Fredrik Stensvid from ABG Sundahl Collier. Please go ahead.

Thank you very much. Good morning. A couple of questions. The first one is, Sharon, you mentioned in the CEO statement that there is some higher central costs and some upfront investments. Are you able to quantify those? Assuming those upfront investments are sort of temporary, anything we should keep in mind in terms of timing?

Yes I said that and that is some of them are only ones but some of them is for the digitalization for coming years and because we think that we can we can make the system more for, you know, to put together the other countries in the same system. So maybe for coming years, you can, it takes two, three years to change the system. and you're not going to see any dramatically changes or higher costs, but I just wanted to start that with this quarter to say that we are going to have these costs.

Let me mention Fredrik as well. In this quarter, there was a one-off number that was more of a periodization effect between Q1 and Q2. So Q1 was some 7-8 million lower than it should have been normally, and Q2 was 7-8 million higher. So if you look at the quarterly numbers, then Q2 is a bit too elevated compared to the run rate, sort of. But I think this when it comes to the digitization, we haven't made an exact calculation ourselves, but we're talking about a few tens of millions of SEC annualized this year and about as much next year. So that's what we know now. But the whole sort of program is not set in stone exactly how it will progress. So we'll see a little bit how that goes.

Yeah, that's That's great and helpful, thanks. Secondly, you talk about the commercial market moving in the right direction or in a positive direction. Any specific segment that you would like to call out here?

Yeah, we see a bit better movement in the office segment in Stockholm, Gothenburg. So we see the trend is positive, but that's all we see. So we see that the trend is positive. And we like that it's in the right direction for now.

We can obviously see the interest from clients in the different segments. So when it comes to smaller offices, if you're talking 100, 200, 300 square meters, there we can see a clear pickup in interest. And then I think when you look at the total volume, you don't really see that yet in the occupancy numbers, but in terms of market activity, incoming calls and some of those smaller units is where things usually start when there is a recovery and that we're starting to see. But let's see how much that translates into sort of larger volumes and on the total as well. I think that's a little bit too early to make that call.

Yeah, that's clear. Thanks. Final one, maybe a detailed one, but The transactions you closed during the quarter, did those contribute in any meaningful way during the quarter or did they close sort of end of period?

Firstly, they were not as large as in Q1. In Q1, quite a large chunk of transactions that closed really at the end of Q1.

Yeah, I would say it's mostly them that contributed to this quarter.

Yeah. So the transaction volume was much smaller in Q2 and it was not as sort of exaggerated impact in terms of the quarterly effect either.

Understood. Thanks. Thank you.

The next question comes from Andres Tum from Green Street. Please go ahead.

Hi, good morning. I had a couple of questions. And firstly, maybe just on your thinking around capital allocation in terms of share buybacks and putting that into the context of also deleveraging aspirations. So I'm just wondering, how do you see that progressing? I guess from a deleveraging perspective, leverage ratios haven't really move down a lot and sounds like you are maybe looking to deploy capital. I'm just wondering how we should think about that and how do you see maybe the math in terms of accretion if you do share buybacks today versus paying back debt or buying back debt?

And so, I mean, we obviously have several different credit metrics that we track. I think if you look at the last couple of years, the more sort of the de facto restriction on our balance sheet has been some of the S&P measures that have been well, we still had some margin to where we need to be for our current rating. But those have been sort of the ones that we need to keep closest track on. So if you look at debt through debt plus equity, where S&P requires us to be at 60% at least, we are at 58 currently, or maximum 60%. We're currently at 58. at the end of this quarter. So we don't have a huge amount of room to maneuver. At the same time, these measures can fluctuate a little bit from quarter to quarter and year to year, depending on how the balance sheet develops, obviously. If you look at the last couple of years, we've actually improved our measures quite significantly, but obviously the distribution of Norion set us back a little bit temporarily. So I think we feel that we have room to maneuver both on employing capex and bringing down the debt level or improving our credit metrics. At the same time, I think the improvement of the credit metrics, we're well in line where we need to be from an S&P perspective. And we don't really feel any stress to improve them quickly. So we can be a little bit opportunistic if we feel that we have good investment opportunities. In regards to the question about buybacks versus acquisitions, I mean, it's not too difficult to run the maths of the sort of comparative level that we need to be at yield-wise for each share price level. And obviously our share price, having come down this year, makes buybacks more attractive. everything else equal. So that's how we look at things. It's always a comparison of where the returns are greatest and we will be rational there when we employ capital.

Understood and then I had another question just relating to I guess a little bit follow up on the previous one in terms of the cost side and I guess in the CEO review there was a bit of a mention of perhaps finding cost efficiencies. I'm just wondering how much room do you see there and should we expect sort of margin improvement to come down the line?

I think there are a couple of moving parts here. I mean, so the current market environment with pretty slow development on the commercial side also means that we have a like for like that is a bit lower than what we would expect to have in a, call it, normal year, whenever that is. We also have a pretty low like for like still in Finland, in our Resi portfolio in Sato. But there we can see occupancy levels and the available apartment numbers are improving slowly but surely. But the low like for like also means that it becomes a little bit more difficult to maintain the same NOI margin as we had last year. So you have a margin sort of impact on that end firstly, and then on the central administration and those expenses, we've seen a slight uptick. I mean, part of it is just general inflation and wage inflation, but part of it also, as we flagged in the report, we've taken some investments both to improve our, capacity for project development that has been very slow for a few years now. And also, as Sharon talked about before, some efforts to sort of digitize our main systems that consolidate all our business so that we can hook on more units onto it and more countries onto it and streamline essentially all central functions throughout the Balder Group over time. So I think some of those expenses will remain elevated for some time. But we've also said that cost efficiency has been a very sort of a core part of our DNA. And it's obviously something where we cannot be particularly happy about seeing the growth numbers that we're seeing so far this year. So that's something that we need to keep closely track on.

Understood. Thank you. That's it from my side.

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

Just a quick one from my side. I just wanted to understand how do you plan to refinance the upcoming 1 billion euro bond maturing in January next year? Do you plan to increase the euro portion of the debt by increasing more debt or just like for like replacement of those bonds?

So in terms of our funding activities, I mean, those are essentially already pre-funded. So we're typically 15 months pre-funded. But I wouldn't expect the mix between SEC and Euro funding to change materially from here. A little bit depends on which market between SEC bonds, Euro bonds and the bank market is more attractive at the time. But we are a frequent, we're a regular issue in the We have a liquid curve outstanding going out seven, eight years. And I would expect that to sort of remain pretty much the same over the coming years.

Got it. And secondly, on your hedging profile, you mentioned 75% of debt is hedged. With this bit of change in interest rate environment because of the Iran crisis, this is like, do you have any change in thoughts on how do you want to hedge the debt profile going forward?

Not really. I mean, we have a hedging policy that is designed to be... The way we think of it essentially is to have a hedging that allows us to have a stable cash flow pretty much no matter what happens in the interest rate markets. You can see that pretty clearly, I think, going back to 2022 to 2024. During that period, we have interest rates coming up significantly, our financial expenses obviously increased, but we maintained a profit from property management that was pretty stable throughout that time. And that tells me that our interest rate hedging is working as it should. So that's more how it's designed. We don't really change that very much from year to year. Got it. Thank you. I would just note as well that even though there's been obviously a lot of volatility in the rates market in the curve, I mean, there's not a lot of drama in the short rates. I mean, we still have the same central bank rates that we did 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 very much, everyone, for listening in. Just get in touch if you have any follow-up questions.

The next question comes from Lars Norby from Seb. Please go ahead.

Thank you. Just a follow-up on buybacks and how to use capital. You spent some $5 billion on acquisitions in the first quarter, another $1.5 billion in the second quarter. Are you open to do something along the lines of Castellan, for example, that is divesting significant amounts of properties and use that for buybacks or can that be ruled out?

I wouldn't rule anything out. I think we don't have a sort of asset disposal plan, if that's what you ask. But I mean, everything has a price. And if someone comes along and shows interest in one of our properties, that's always a discussion we should take, whether There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Thanks everyone for listening in. Just get in touch if you have any follow up questions. We'll be here throughout the day and week. Thanks. Thank you.