Heimstaden AB (publ)

Welcome, everyone, and thank you for joining us for the presentation of Heinstaden Bostad's Q2 2026 results. I'm Christian Fleurland, co-CEO of Heinstaden, and I'm here today with Paul Spiener, CEO of Heinstaden. Before we get started, I'd like to mention that this presentation is intended for investors and other financial stakeholders. After the management presentation, we will welcome your questions either by phone or in writing via the webcast. The operator will provide instructions on how to submit questions over the phone. Please note that we will focus solely on questions related to Heinz van Bostad on this call. For any follow-up inquiries, particularly those concerning financial modeling, please contact our investor relations team who are available on Bloomberg. Turning to the highlights for the quarter. Operational performance continues to be strong with like-for-like rental growth standing at 4.1%, 0.1 percentage point down versus the prior quarter. This is continuing to be driven by the strong fundamentals in the residential markets with very limited supply coming and despite inflation continuing to trend down, we see rent perversion continuing to persist in our portfolio. Combined with the strong top line growth, we've also been able to set a new record high last four month NOI margin of 73.1%, 50 basis points up compared to the trailing 12 months NOI margin in the prior quarter. This is both driven by the top line growth, but also our ability to continue to drive OPEX efficiency and OPEX reductions on a unit by unit basis. Finally, we reaffirm our 2026 year end guidance, including narrowing the range on the items where we feel it appropriate now that we have better visibility on the outcome for the first half of the year. On that backdrop, I will hand over to Paul for further details.

Startinging with occupancy, our real economic occupancy improved to 98.8% from 98.5% a year ago. At this level, the portfolio is effectively full. This reflects, of course, strong local leasing execution, but supported by the structural shortage of housing across our markets. The quarterly improvement came mainly from continued stabilization of newer assets, particularly in the UK. Germany was slightly lower as recently completed value add units moved through their normal lease-up phase. We continue to expect occupancy to remain high and maintain our full-year guidance of 98.5 to 99% for the full year. Turning to rental growth, like-for-like rental income increased by 4.1% across a comparable portfolio, which now represents 99.7% of our total rental income. Of that 4.1%, 2.7% came from contractual indexation, 0.5% from value accretive tenant improvement investments, 0.4% from rent reversion upon re-letting, and 0.3% from improved occupancy. With weighted core inflation at 2.1%, rental growth remained around 200 basis points ahead of inflation. Looking at selected countries, performance was broad-based. Sweden delivered 3.3%, Germany 4%, and Czechia remained particularly strong at 6.5%. The UK figure reflects the continued lease up of our Edinburgh asset and should not be viewed as normalized growth rate going forward. At mid-year, we've narrowed our full year guidance to 4.0 to 4.5% from 4.0 to 5.0%. This remains fully within the previous range and reflects greater visibility on the likely outcome. Lower churn has delayed some of the growth from rent reversion and tenant improvement, but that opportunity, of course, remains embedded in the portfolio and will come through as units turnover, hence the tighter range towards the mid to low end of the full year guidance for 2026. That growth is translating into margin. Our last 12 months NOI margin reached a new record of 73.1%, driven by a strong quarterly result of 75.9%. The improvement was supported by both sides of the income statement. Rent income continued to grow well above inflation, while property expenses were 7.2% lower than the second quarter last year. Over that same period, the number of units declined by approximately 2.3%, which translates into property expenses being 5% lower per unit. This reflects our continued work to simplify, centralize processes, expand the use of digital solutions, and operate the platform more efficiently wherever possible. We maintain our year-end NOI margin guidance of 73.5 to 74.5. On privatizations, we generated 2.2 billion SEK of sales from 538 residential units. We did so at a gross premium to book value of 30.1%. Volumes were lower than in the previous quarter, but pricing remained strong, in particular across both the Netherlands and Denmark. which together account for about 75% of our total privatization sales. We continue to prioritize price and value and remain comfortably on track against our full year guidance of SEC eight to 12 billion. To bring the operating outlook together, our occupancy, NOI margin and privatization guidance for the full year of 2026 remain unchanged. As discussed, we've narrowed the like for like rental income growth to four to four and a half percent within the previous guidance range. At the halfway point, demand remains strong, rents continue to outpace inflation, and operating efficiency continues to improve, all trends that we also expect to continue to be true for the foreseeable future within our business and our portfolio. With that, I'll hand over to Christian to take you through fair value and our financial guidance.

Thank you, Paul. Over the quarter, we saw a 0.2% increase in fair values, corresponding to $772 million. During the quarter, we also invested 1 billion SEK in our investment properties. The vast majority of this related to investment in standing assets, and the residual of 70 million SEK was in investment properties under construction, our forward funding development projects. We had privatization sales of 1.6 billion SEK departing from the investment property classification, which is obviously the book value, so it doesn't take into account the premium, which is accounted for separately. Over the quarter, we saw the SEC depreciate compared to our other currencies, in particular the Euro, resulting in an FX gain of 3.3 billion SEC, whereby we ended the quarter with 331 billion SEC of investment properties. The quarter was marked by the volatility that we have seen from the geopolitical situation in the Middle East, and that has its toll on, in particular, the interest rate markets, where interest rate curves continue to trend upwards, and we saw a steepening of the interest rate curve. During such an environment, it should be no surprise that investors are continuously evaluating how they should price the stabilized yield requirements of real estate investments. And that in particular had an impact on the lower yielding investment markets, such as Germany. In the UK, we also saw that the sterling yield market was in particular volatile and we saw a yield expansion there, also causing a slight decrease in valuation despite strong operational performance. In Norway, we had an owner-occupier market that continued to show very strong transaction activity, but we also saw that the supply of new stock trying to benefit from the strong market also put some bargaining power on the buyers, and we saw a moderate decline in that quarter. That is also reflected in our execution of privatizations where we reduce the sale pace in Norway in order to ensure that we don't cannibalize on pricing in a market where we feel that the supply-demand situation is more of a temporary nature and we believe that our pricing power will improve in that market when we look into the end of the year and going into 2027. In Finland, we also saw a marginal decrease reflecting their operational difficulties still prevailing in that market from the excess supply. As we went through on the like-for-like growth side, we've only saw a flat like-for-like growth of 0% year over year. And in a market where there's increased inflationary risk, there should be no surprise that that is also a market where you start to price in more in your yields if you cannot assume that you get the inflationary protection of your income. So that led to yield extension for that market as well. The two markets that really stood out as the strong performers was Czech Republic and Denmark. The Czech Republic continues to show very strong rental growth. maturely above inflation, so despite a stable year development quarter over quarter, we actually saw a 3% increase in values, purely driven by NOI growth. In Denmark, the ownership housing market has continued to be very strong, and we set new record price in Q2, and that is also fading into our valuation. On top of that, we also see investment properties bought with the purpose of long-term rental is also showing yield compression despite the interest rate volatility that we have seen. That comes on the backdrop of very strong rental evidence where rental growth is anticipated to continue to grow and investors are willing to factor in more long-term rental growth prospects into their yield requirements. Overall, we saw a six basis point increase in devaluation yield for the quarter. And in particular, we saw a large increase in the UK, which is not driven by increasing stabilized yields only. The waste majority of this increase reflects the continued stabilization of our heading. Looking to the financial guidance for 2026, we maintain our S&P defined ICR of 1.8 by the end of the year. We reached 1.8 in this quarter based on a rounded basis where we're just standing above 1.76 and we see that will continue to trend up. Looked at two decimals for the remainder of the year. Looking into 2027, we will continue to build a comfortable headroom to the 1.8 threshold, which is according to our financial policy. And we also see, given that this is a trailing metric, we also have very high visibility, both combined with the hedge ratio that we are maintaining about 80%, but also the deleveraging from the privatization, that we have very strong visibility on this will continue to increase irrespectively of the increased interest rate volatility that we have seen in the past six months. That also means that we maintain our assumed average interest costs for the year, which is set to stand between 3.1 to 3.3%. For the quarter, we were at 3.22%, well within this range, and we are comfortable that we will maintain this guidance range. On the S&P defined LTV, we were flat quarter over quarter at 53.2%, mainly driven by the fact that we had the reclassification of our LUMO holdings from associated companies to financial assets. For the remainder of the year, we continue to see that the deleveraging impact from privatizations, combined with moderate value growth, will get us within the guidance rate of 50 to 52%. The secured LTV, which is very much driven about how we plan our refinancing efforts, we have high visibility on that, given that we have very few maturities coming up here in the second half that has not already been addressed. and where we will enter this range will, to a large extent, depend on at which phase we would execute privatizations, where we are continuously retaining asset-backed funding as part of this program. That was it for the management review. Now we will open up for Q&A.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 and 1 again. We will now take our first question from the line of Nirvaj Kumar from Barclays. Please go ahead.

So my first question is if you can help us understand your thought process about the potential dividend payment for this year.

Yes, happy to do that, Neeraj. So in general, I would say we maintain the commentary that we had in Q1. We feel that there is still an increased interest rate uncertainty prevailing in particular also now with oil prices going up again here in the last couple of weeks and July seeing a further increase in the curve. So we want to make sure that before there is any considerations on reinstating dividend that we are building sufficient buffer within our forward-looking ICR. So on that basis, I feel even more confident that we should not anticipate a dividend for 2026 fiscal year.

Got it. Just a linked question to that. Is the dividend payment contingent on you getting upgraded to BBB from S&P or not really?

No, there is nothing in the financial policy that dictates that we should be a free-will-be company. Our financial policy dictates we should be an investment-grade company, and we should fulfill the criteria of an S&P-defined ICR of at least 1.8, and that is coinciding with the criteria that should be from S&P for a free-will-be flat rating, but there is nothing that is linked to a free-will-be flat rating in terms of distribution.

Got it. Thank you. So my next question is with regards to your refinancing needs. You have over 1 billion of hybrids resetting in next 10 months or so. You have approximately 700 million euro unsecured bond maturing in March next year. So I wanted to better understand how you're planning to approach these refinancing needs, especially in this current interest rate volatile environment, and how does that align with your ICR forecast for next year?

As you will see from our cash position, including our committed facilities, we continue to run a very big liquidity buffer in order to have flexibility for our liability management. And that also allows us to use our proceeds from the privatization program in an efficient manner to build up that liquidity capacity in an ICI efficient manner and utilize that in order to address the maturity that we have here in Q1-27. so when you have a coupon outstanding at 1.375% obviously we will hang on to that for as long as possible but that is fully covered already by the privatization proceeds that we have accumulated and repaid on our secured RTFs on the hybrid side we will have a more opportunistic look yes we want to stay with the current low coupon hybrids for as long as possible towards the reset date But we obviously also want to look at it as we did earlier this year in January where we did the April 26th reset some months ahead of time. We will continue to monitor when is the right time here in the second half of 26 in order to take care of the January 27 reset and also considering how we should combine it with the one coming in later in the first half of 2017.

Got it. That's helpful. Thank you. My next question is with regards to the property portfolio valuation. If interest rate were to remain at current levels, do you foresee any valuation decline going forward or not really?

We definitely see that there's an increased risk of valuation declines. I think it's an important lesson for the last couple of years that as long as increased interest rates are coinciding with increased inflation that is supporting the fundamentals of the undersupplied residential market, it has a different impact across markets. But if we look at the regulated markets where we have the least pass-through or the slowest pass-through of inflation to rental growth and the lowest yields, I do see that there is an increased risk of valuation declines. However, I do think that the most likely base case is that we will rather see a flattening of values and whereby you will see a yield expansion from the underlying Y growth rather than that you would see any material valuation declines as we saw in 2023.

Got it. Are you also looking to dispose large assets around these values? Can you do that in the current market?

We are not looking to do any disposals outside of the privatization program, and there is no doubt that the investment property market for calling larger assets and portfolios have materially improved compared to 2023 and 2024. But if we look at the micro-timing in the last three months, I don't think that there is anybody trying to push for a sale, given the uncertainty that is prevailing. So I think it's a bit too early to say whether there is an efficient and competitive market for larger assets and portfolios, which we saw that there was at least until the outbreak of the Middle Eastern situation.

Thank you. And lastly for Paul, with regards to your privatization, I mean, of course, it's been successful for your deleveraging plans, but wanted to check if you can think of any potential negatives of this program.

I wish I could, but maybe not. At some point, you know, it's quite supportive of the balance sheet values as well, selling 30% above book value, and also a really strong equity story as well as the net premiums on those sales are 13, 14%. So it really delivers quite strong equity returns for us and supports the deleveraging on the balance sheet. So for us, it's a important part of the business that will remain a part of the business hence it's no longer a time-limited program but rather just an ingrained part of our business going forward.

Got it. I was asking more in the sense of like if it increases the operational complexity of that particular asset or reduces the liquidity of that asset in this market if you wanted to sell the entire block or the financing of that asset in particular anything of that sort if that makes it a bit harder because you don't own the hundred percent of the block anymore

Okay, interesting question. I guess the answer to that is also no. When you look at the perimeter that we chose to privatize, there are, for example, certain assets, particularly in Germany, where we didn't feel we had the required flexibility in order to initiate sales, for example, on the asset-backed funding side. So the assets that we chose to privatize and that we choose to privatize are those that don't increase the operational complexity for us. And at one side of the business, yes, you might see a different buyer pool if you wanted to divest that asset, but you also might see privatization buyers coming in, which we see more of in the market. So for us, it's a very, very low risk, high reward opportunity.

And I think that is a particular bit of a myth that we see in the market, because if you look at our Danish privatization parameter, which is around 3,300 units, of thousands of units were already what you would call pepper pot and Swiss cheese. And we've been operating that for the last 12 years very easily and efficiently. In the Netherlands, where we started off with more than 13,000 units, we had 75% of that portfolio already in pepper pot or Swiss cheese portfolios. So it's been an integrated part of our DNA to also manage these owner associations and take part with private owners and to have the flexibility to do sales when we believe the market is for that and not just return into re-letting when the market changes. It's something that has been an integrated part of all our underwritings even before we launched the privatization program.

Thank you very much for taking all my questions.

Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone. That's star 1 and 1 to ask a question. Our next question comes from the line of Osman El-Eraqi from Fidelity International. Please go ahead.

Yes, thank you very much. I think Miraj covered most of my questions, but maybe just a follow-up on the dividend expectations, so probably nothing for this year. But if operations continue to be strong and you improve your ICR, 2027 would be still on the cards, you think? That's my first question.

It's definitely far to say that for fiscal year 2027 it's not in the cards. I think that all indicates that we will continue just through the privatizations and combined with even with increased interest rates. I would be very surprised if we by the end of 2027 would not have sufficient buffer to do something with good comfort. but to guide something specific would be a bit too early. I can definitely say to you that it's not off the cards for 2027.

Okay, that's helpful. Thank you. And maybe, because you already covered a lot, thanks for the previous questions, but maybe just looking at the hybrids, the next two ones are relatively close together. So combining... doing something on a kind of dual basis is something that you could consider?

Yeah, they are approximately four months in between and it's a quite large quantum so I think we need to consider whether there should be done something combined. I think I'm probably more inclined to look at doing something staged also to smoothen a bit the market risk and that obviously come with the risk that we might have to do something a bit earlier where we would lose out on the lower coupons in order to have some time in between. I think that is the most likely outcome right now. Okay, that's super clear.

Okay, I think that's it for me. Thank you very much.

Thank you. There are no further questions at this time. I would like to hand back over to Christian Flatland for closing remarks.

Thank you, everybody, for participating. As always, remain available if there is any follow-up questions when you have more time to digest the report. And if no further questions, then I just want to wish all of you a great summer break and looking forward to see you all on the other side. Take care.