Diös Fastigheter AB (publ)

Good morning and warm welcome to this presentation of the ÖS half-year result for 2020. My name is Knut Rost, I'm the CEO of the ÖS Fastigheter and together with me I have Rolf Larsson, our CFO. We have an extraordinary quarter behind us where we have been navigating in uncharted waters. My own take on this is that we have been successful. In this presentation, we will guide you through the result and the effects of the action we've been taking. We will discuss our underlying business and strategy, which is strong. Finally, we will discuss some of the ongoing trends within real estate and the uncertainty of the ongoing pandemic. If you have any questions, you will be able to ask questions at the end of this presentation. Turn to page two. I will start with saying that the primary focus has been to prioritize health and safety. We are and have been very cautious and have taken measures to reduce the risk of infection. Over to the significant events of the quarter. We have been very active during the quarter to handle all the effects of the pandemic. Our employees have made a heroic performance in taking care of our tenants in a professional and digital way. I state that our proactivity and determination have prevented many bankruptcies and mitigated the impact of the result. The net effect of the rental discounts that was offered to our tenants for the second quarter rent payments amounts to 24 million Swedish crowns and affects the total income line in the income statement. Unrealized values in properties was mainly affected by a lower inflation assumption. The inflation effect stands for 138 million Swedish crowns of the 143 million Swedish crown we presented for the period. Our surplus ratio was 65%, which is the strongest ever for a half-year result, and it is an effect of reduced costs. I hand over to Rolf, who will present the result in more detail, and then I will return to discuss the strategy, the strong business and the effects of the pandemic. Rolf.

Thank you, Knut. We can move to page four. Under current circumstances, this is a report that's in line with our expectations. We still see higher rental levels for offices, lower operating costs in our property management and continued good return on our investments. Rental income was negatively affected by 34 million due to rental discounts and other income was positively affected by 10 million, both items being a one-off effect and are linked to the state rental subsidy during Q2. Income from property management decreased by 2% compared to the same period last year. If we exclude COVID effects, income from property management increased by 3%. Like for like, rental income decreased by 1.4%. Excluding COVID effects, rental income increased by 2.4%. 1.2% is due to indexation, 0.3% to costs transferred to our tenants, and 0.9% was due to renegotiations and new lettings. Our net letting for the period was strong and amounted to 29 million. Demand for qualitative offices in central locations remains high. For the second quarter, net letting amounted to minus 2 million, of which minus 7 million is due to bankruptcies during the quarter. Our operating surplus increased by 1%, resulting in a surplus ratio of 65%. Net financial items are higher due to higher stiver during the period, lower share of capital market financing and higher average debt. Unrealized changes in value for properties amounted to minus 143 million. Profit of the tax is lower compared to last year, which is mainly explained by lower unrealized changes in value. Continue to page 5. If we go on then and look at the development of our cash flow in the form of earnings per share and our management efficiency measures as surplus ratio, we can see that there is a clear upward trend for both measures. 10% is the average growth in income from property management per share over the past 13 years. We have achieved this by raising rents and reducing vacancies. by reducing our financial cost and by making the right transactions. If we look at the surplus ratio, which is the line chart, it has increased by more than six percentage points over the last five years. This is a result of our strategy, urban development. We have made the right transactions. We have acquired properties in CBD and sold non-priority cities and properties in peripheral locations in our cities. As a result, we have reduced industry in favor of primary offices. We have increased the quality of our portfolio through investments, which has led to higher rent levels and lower vacancies. The rental income per square meter has increased by 34% during the same period. Go to page 6. What this slide shows is that we have a well-diversified portfolio when it comes to type of properties, industry and geographical location. Our exposure to industries that currently belong to the most exposed is relatively limited. Hotels and restaurants stand for 6% of total rental value. Retail in city malls for 8% and high street retail stand for 10%. This category includes, for instance, grocery stores, pharmacies and systembolaget, a state-owned chain of shops that have the exclusive right to sell alcoholic beverages. The majority of our rental value come from type of premises that are currently regarded as secure payers. Offices account for 53%, housing for 8% and healthcare and education for 6%. We can turn to page 7. As you can see, we have low tenant concentration risk. Our 10 largest tenants account for 17% of total rents. Most of them are tax financed. 27% of our total rental income comes from tax finance operations. The average contract period at the end of the period was 3.9 years. We are, as I said before, well diversified with relatively low exposure to exposed sectors. But there is still great uncertainty about the pandemic's continued impact and what the long-term economic effects will be. Continue to page 8. The market value of our properties amounted to 23.5 billion, an increase of 600 million since the turn of the year. The change is due to investments. Unrealized changes in value amounted to minus 143 million, which is largely explained by a lower inflation assumption in the valuation model that has had a negative impact on the value by 138 million. The inflation assumption affects both cash flow and yield. Our lettings and investments in primarily offices and higher rental levels than expected for housing have had a positive impact on the value, while the outlook for above all certain retail has had a negative impact on the value. The average valuation yield was 5.9%. Go to page 9. There is a clear trend that the investment volume has increased in recent years. To the right, you can see some of our larger projects. We currently have more than 100,000 square meters under construction with an investment volume of about 2.8 billion. The positive cash flow effect will mainly come during 2022 and 2023, which will also have a positive impact on other key operating figures. In addition, we have an additional 100,000 square meter in existing or possible building rights in central locations with an estimated investment volume of just over 2 billion. We will complete our ongoing investments. Then we must be humble in the current situation and let the future show at what pace new projects are started. Move to page 10. As you can see, Our net debt to EBITDA is stable, and it amounts to about 11 times over time. This is clearly below the average for listed Swedish real estate companies, and again shows our strong cash flow. Our low to value ratio at the end of the period was 54.9%, which is still far below our covenant levels. During the first quarter we have refinanced 5.1 billion of bank loans on better terms than before. In connection with this we have extended our average loan maturity. In addition we have increased existing credit limits by 600 million to, among other things, finance ongoing projects. During the second quarter we have refinanced bond maturities of 829 million through bank loans. The terms we're offered are attractive, which shows great confidence from our banks. We have no further loan maturities in 2020. we can see that the capital market is beginning to function again. We have issued certificates for 615 million during the second quarter, and the corporate bond market is starting to work again. But prices still remain at high levels compared to post-corona. The average annual interest rate was 1.3%, which is the same level as in Q1. Thanks to a strong cash flow and an interest coverage ratio around six times, we continue to choose a short interest rate fixing. We, like many others, continue to see low interest rates in the foreseeable future. Overall, we have a strong financial position. In addition to existing loans, we have liquid funds, unutilized overdraft facilities and unutilized credit facilities available, corresponding to 900 million. Continue to page 11. We report the EPRA key figures according to the new standards. EPRA NRV increased by 6% to 73.8 per share. The interest coverage ratio remains strong and amounts to 5.7 times. The growth in income from property management per share, rolling 12 months, amounts to 0%. The change is mainly a result of temporary rental discounts as a result of COVID-19 and higher financial costs. And then I will hand it over to Knut again.

Thank you, Rolf. We will now turn to page 13. I will not speculate if we have the worst of the pandemic behind us or when this situation is over. What I can say is that the business activity and the functionality of the capital market picked up during May and June. We have signed many new lease contracts and been able to access the capital market issuing commercial papers to an amount of 615 million Swedish crowns during the quarter. The transaction market has also picked up. We sold two industrial properties in Sundsvall at good yield levels. The price exceeded the valuation by 18%. The change of the possession will be at the 1st of July. There is also other discussions going on for both acquisition and divestment. For our tenants, especially those in the most impacted segments like hotels, restaurants, cafes and some parts of retail, we experience a more positive tone with more visitors, more bookings and increased turnover. The uncertainty is still great, but the sickness we are seeing is positive. We have been focusing on being proactive during the last three months, and that will of course continue. We handle all our tenants on an individual basis. This means that we must take an assessment for each specific tenant based on their specific needs. By doing so, we'll get even closer to our tenants and be able to make better decisions about what actions we should take. I state that our underlying business is very strong. Only looking at net letting and adjust for bankruptcies, we have positive figures of 5 million Swedish crowns for the second quarter. There is of course a great variation of the demand between segments, with centrally located offices as the product in focus. We have signed new leases in currently vacant spaces. We have signed lease contracts where we convert former retail area into offices. And we have signed leases where we need to move an existing tenant to a new area, creating a moving chain. Several discussions are ongoing for both major renovation and new constructions. We have, as Rolf mentioned, building rights we can develop for both offices and residentials. Our well-diversified portfolio of both properties and tenants serves us well in this environment. Steady cash flow on the top line and very low volatility in values of the properties, inflation assumptions excluded. I think that the rental levels in our cities will remain stable. That is what we are seeing in the leases we have signed during the quarter. We will have a change in executive management in September. Lars Göran Dahl will leave the company. He will be replaced by Sofie Stark, currently business area manager in Sundsvall, and Mats Eriksson, currently director of projects. Sofie will be director of property management and Mats will be director of projects with responsibility of business development. Being able to recruit internally shows the great competence we have in the company and the success of our leadership program. It also enables us to keep the high pace in our business that we currently have. It is difficult to give a forward-looking picture when there is such a high degree of uncertainty about the effects of COVID-19 and the macroeconomic development. We don't know what will happen with the restrictions and economic stimulus. but how they will affect us and our tenants. We believe that many of the ongoing trends in both office, retail and residential will continue, but perhaps now at an even faster rate. Urbanization in our cities is most likely to increase. The office market has an ongoing trend of polarization. the right location is becoming increasingly important. Owning offices in the right neighborhood with the right surrounding companies and urban services as well as with good infrastructural solutions becomes more important. Here we have a unique position that is very positive. The discussion of working from home will replace the need for office space. I don't believe that. But I do believe that the content of a modern office will change to include more social areas and maybe reduce the area of working places. Retail is changing and changing fast. Physical commerce is combined with e-commerce. That trend is being accelerated by the pandemic. I think we are at the forefront of these issues and I really look forward to help our tenants in the new landscape. On the residential side, we see an increased demand for centrally located apartments, where as a tenant, you want to take advantage of the urban service offering. Although the pandemic has affected us all, and especially certain parts of retail and restaurants, we see that our business is strong. Especially our office market is strong with a high demand. In our 10 cities, the urbanization continues. I will end this presentation by turning to our employees and thank you for your great efforts during the quarter. You have shown that it's possible to make a difference by being active and supportive. It is challenging times, but I see that the US, with our high degree of activity and determination, has a unique position to continue to deliver shareholder value. It takes us to the end of this presentation. Thank you for listening. We are now ready for questions.

Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please do so by pressing 01 on your telephone keypad. If you wish to withdraw a question, please do so by pressing 02 to cancel. Just as a reminder, it's 01 on your telephone keypad if you wish to ask a question. Our first question comes from Stefan from ABG. The floor is now open to you.

Yes, good morning. This is Stefan Berdahl from ABG. I have a couple of questions. First off, regarding net financials, the figure came in at 51 million, which was 15% higher than the Q1 figure. And meanwhile, the interest-bearing debt and the average interest rate was at the same level. So I'm wondering if there are any one-offs in the net financials item?

No, there aren't. We have a higher average debt in the second quarter compared to the first quarter, and then we have higher cyber in the second quarter that affected the net financial life.

Okay, thank you. The next question, you applied the government's rent relief program for Q2 and granted discounts which applied a net effect of 24 million in Q2. Is this 24 million figure a figure you know or is that an estimate?

It's actually estimate and the figure we know. We have a little let's call it reserve to speak because we don't know if we are getting the subsidy from the government in each case. There is a little reserve there. That's the true answer.

We have been cautious when we have the taking the support from the government to 10 million in other income.

And for Q3 will you continue to grant discounts as you did in Q2 or should we view this as completely temporarily or will we see some effects in Q3 as well from discounts?

As we see it, we see this 24 million as a one-off in the second quarter. And we don't see that in the third quarter. But of course, no one knows what this pandemic is taking us. And we think that this is a matter of time. But we are optimistic about talking about discounts. We don't have any discounts for the third quarter now. And we don't see it coming just now, but we really don't know, but we are optimistic as we speak now.

Okay. And what is your expectations of rent collection for Q3 if we compare that to the 91% figure you reported in Q1 for Q2? Do you expect it to be better or worse or similar?

better compared to the second quarter of today on the same level as the third quarter last year.

Okay, so you have a Q3 rent collection at similar levels compared to last year? Yeah. Okay. A final question for me. What is your view on converting vacant retail space to other segments? I think you mentioned something about this in the presentation.

Let's say that we don't have a goal for converting spaces, but of course we have an ambition to to not have retail spaces in the second and third floors. In the future, we're talking about street shopping. Our main goal with our city support is to have a flow of people all day long. And one of the things we have done is we have started this... pickback post with this package delivery and sort of post office where about 150 to 200,000 people each year are visiting this pickback post. So we are of course very concerned about how much retail space we are going to have and we don't see that we will have more space. We'd rather see and that we will convert it probably to office space, since office demand is very high in our cities, especially centrally located close to travel centers. And there we have a very positive trend concerning office. We also have a very positive trend concerning residential. The organization is continuous in our 10 cities, And for the year of 2019, we had a positive inhabitants, the development in our tentative. So we are very optimistic about our unique position. And just to give you a figure, we can say that the last quarter we had The transport, we had 59% of office and residential in our portfolio. And now we have 61%. So it's going in the right direction.

Okay, thank you very much, Knut and Rolf, for taking my questions. Thank you.

Thank you. Just as a reminder, ask an audio question. It's 01 on your telephone. There will be a brief pause while we wait for the questions to be registered. OK. There appears to be no other questions registered at the moment, so I will hand back to any other remarks.

Well then, this takes us to the end of this presentation and questions. We wish you all a nice and warm summer and see you in August. Have a nice weekend. Bye bye. Bye.