Neobo Fastigheter AB (publ)

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Hi, and welcome to Kvartalet, a report pod for you who like properties, from Fråga Lo. In this episode, we hear Ylva Sarby-Westman, CEO of Neobo, comment on the company's report for the second quarter of 2024. The interview is made by Sverre Retour, but first we listen to a quick analysis by Erik Nyman, analysis chief at JLL.

If the Neobos report for the first quarter was a bit of a disappointment, the report for the second quarter gave more positive news for the market. The rents increased by 7.3% compared to what was in stock for the first half of the year, and a little more than that in the second quarter. If it was housing, it must be considered very good. The corresponding rent increase for 2024 is 5.1% in the stock, but it does not really get the full effect for the coming quarter. Also, vacancy reductions and renovations have positively affected the rent increase. As we have noted earlier, there is a reason to assume that housing rents can continue to increase in a slightly faster pace than inflation in the coming years. Not least with regard to the receding effect that the three-part solution has. The net profit is almost 9% better than last year. The surplus has risen to 61%, up from 58% last year. which is in relation to the surplus rate in the first quarter at 40%, we get a little feeling for the big seasonal variations that exist in housing management. Despite higher financial costs driven by a higher revenue, the management result increased by 26% and Neobo creates a little necessary margins in its business. The interest rate rise to 1.9 times in the quarter and 1.6 times in the last 12 months. At the same time, the investments in existing properties decrease a little bit, and as of the last 12 months, you now have an administrative result that is in principle in parity with the investments. A smaller sale of a property in Falun during the quarter is also announced, in an effort to optimize the property portfolio in order to create a little extra investment space. Notable, despite the fact that it is a very small business, is that the depreciation occurred to a value of 18% over the last quarter. Neobo har hela sin skuld hos bankerna och efter utgången av andra kvartalet har ett lån om 955 miljoner kronor med förfall under andra kvartalet 2025 refinansierats till en marginal som understiger den genomsnittliga marginalen i Neobos låneavtal. Snittkostnader för Neobo per halvårsskiftet är 3,4% i likhet med som situationen såg ut i årsskiftet och även efter första kvartalets slut. On the access side, you have continued to write down the values marginally on the portfolio, with 0.6% in the quarter. The drop-off requirement has been adjusted to 5.0 from 4.7 at the turn of the year, while higher estimated future housing revenues have affected the values positively. Now it is up to Neobo to do what it can to close the gap between the reported direct drop-off of 3.8% and the valuation drop-off requirement of 5%. The reported stock value is, in principle, unchanged since the change of year, with just under 45 kronor per share. The valuation thus indicates a still very large discount, despite a fantastic share travel during 2024, as the best share in the real estate sector. The real estate is valued at 19,412 kronor per carat in the balance sheet, while the implicit valuation on the stock market indicates about 14,100 kronor per carat, at a level with companies like Fortinova and Klarabot. Som vi också varit inne på tidigare så är det positivt att bolaget fortsätter sitt arbete med ambitionen om ett byte till huvudlistan under året. Det skapar inte minst förutsättningar för ytterligare institutioner att intressera sig för aktien.

Hej Ylva. Hej Sverige. Hur är läget? Mycket bra, tack. Härligt, härligt. Sol och sommar.

Ja, eller inte så mycket utanför fönstret just nu. Sommar är det i alla fall. Sommar är det.

Jag hoppas att värmen och solen kommer också. 20 plus idag. Ja. Rapport idag. Jajamän. Är du nöjd?

Very pleased. It's been an intensive six months here. It feels good to be able to release new reports. Both rental revenues and net sales are increasing and we can tell about the nice refinances we've made. So it feels very good.

And that's exactly what I was thinking, that we should devote some time to. But at the beginning of the talk, it just seems like the stock market is pleased as well. Yes. The share was 3.4% when I checked. Yes, cool. So it's a thumbs up there. Yes. If we start by looking at the housing revenues. Yes. They are increasing a little bit, but the degree of expansion has not increased from quarter to quarter, right?

Exactly, it's stable. But if you look at the 12-month period, Back in time, the rate of evictions has increased by 1.3 percent. So we are still satisfied with that. It is a long-term work. And just this quarter, it is stable with 5 percent vacancy in the housing stock. And 7 percent in total, if you count the commercial premises.

You sold a property, and we will talk about that later. But that has not affected the vacancy. You sold the vacancy, or you sold it fully.

Vi har inte frånträtt den än, utan den kommer att frånträdas i tredje kvartalet. Det är då den får effekt i siffrorna. Det fanns lite vakanser i den fastigheten också, men ingenting som kommer att påverka bolagets totala vakansgrad.

Ni har ju jobbat mycket, det skriver du i vd-ordet, i Falköping, i Stockholm.

Sundsvall och Öresundsvik valde vi att lyfta fram som exempel. Vi finns ju i 40 kommuner runt om i landet och jag skulle vilja säga att vi har jobbat lika hårt överallt med att både renovera lägenheter för att göra dem mer attraktiva, förbättrat marknadsföring, ökat kännedomen om ni och Bo och gjort mycket olika aktiviteter för att öka utnyttjningsgraden. Så att i förra rapporten lyfte vi fram Tida Holm som solskänsor. Exempel, och nu känns det kul att visa på Sundsvall, Övik och Hjälpen. Och Falköping.

Skaraborg och Norrland.

Precis, lite blandad kompott. Men för att ändå exemplifiera att det även i mindre marknader går att lyckas. Mm.

Now Sundsvall is a slightly different example than Falköping and Örvik, because a lot is happening in Sundsvall. But can you talk about some kind of new housing model in how you can work with the vacancies?

Absolutely. I would really like to say that. I think that from day one we have directed the spotlight against this issue as the most important in the company. That all employees, both administrators and tenants, but also technicians and... communications and marketing chiefs and so on have focused on this issue together and done everything that is in our power to bring up this degree of exclusion, that it has had a very big effect. And I also think that we have taken different types of measures. In Örvik, for example, we had an open exhibition. In some other market, we have done digital styling of apartments. In some cases, we have given a little rent discount initially. And that you work with different things that fit the specific situation. I think that has been a success factor as well. Så vi har fått frågan från någon branschkollega hur vi har lyckats med det här. Så det tycker jag låter som alldeles utmärkt att kalla det för nyobomodellen.

Jag tar lite provision på det här. Men ni har 5% avkast, vilket är för ett bostadsbolag ändå relativt högt. Absolut. Men ni har ju ganska stort behov i beståndet. Vad liksom... I'm thinking of evacuation facilities and so on. What is optimal, if I may say so?

Well, we are roughly half of the apartments in our portfolio that are renovated. And it's not like the remaining 50% There is a potential to increase the rent by doing these renovations, but I think it's more of a one-off work. In some municipalities, it has been a more challenging situation with higher vacancies, and then you have to be creative and work on all fronts to lower the rate of vacancies. Det är svårt att säga någon nivå som känns långsiktigt rimlig men vi tycker att den ska kunna ligga betydligt lägre än vad den gör idag.

The rental market or the housing market has started to become, in a different way, a bit polarized. And there is a lot of talk about it being cancer in Stockholm, which was not heard about for just a few years ago. There is also talk that renovations are not always what the tenants want. No, exactly. How do you resonate with that?

Yes, but we try case by case to adapt the business plan for each area according to the conditions that exist. And it is of course so that with the tough economic situation that has been for households during a period in Sweden, there are municipalities where it is easier to rent out non-renovated apartments. So we have been very close to that question all the time, in order not to invest the money in a market where there is no strong demand for a renovated apartment. Then you have to bear in mind that the average rent in Neobos is very low, around 1,300 SEK per square meter and year. So in many of our municipalities, the demand is greater for nice, totally renovated apartments. And there you can also get a lot of rent by doing renovations. So we try to prioritize hard and do the renovations in those markets where there is a strong demand for it. Och då har det, eftersom det då blir lite mer område för område, så har vi kunnat hantera det hittills med hjälp av naturliga omflyttningar. Vi har passat på att då renovera lägenheter.

You mentioned in the report that the net profit is increasing with 11 million SEK during the quarter. In addition to that, there are also increased rents, partly negotiated rents, but also reduced property costs. I know that you turned your attention to the incredible cost you mentioned. Really. How do you work with the costs?

Yes, well... Housing management is very much about being effective on the cost side. In our case, which does not have such a large number of newly produced apartments, it is low rents as we were talking about earlier. And it is a large number of costs when you as a property owner stands for heating and heating. I think we still have a lot of potential to work with in the future to find a lower cost level in the portfolio. And that's all from using synergies in the company, making frame deals, central purchases and lowering costs in that way. to make sure that we have an optimal portfolio, that it's not too small in the market, where our employees just have to sit and travel between different municipalities, but that we, in the long run, should have stronger hubs that can also contribute to reducing costs.

Okay. And we're talking about portfolio optimization. You have sold one stock in Gästkustuna. Yes. And then you sold a commercial property in Falun. That's right. Which you haven't managed yet. No. What's the next step?

We now hope that the transaction market will open up further and that there will be good conditions to do good business. We would very much like to be active in the first step, as we have said, on the selling side, to optimize the portfolio further. And you can imagine that we will remove properties in the same way as we did now with this property in Falun, where we have single properties in a municipality. You can also imagine that in the next step we will remove the corresponding Eskilstuna, which was a property with a low rate of surplus, high costs and high investment needs in the future, where we felt that this was better for us to free up capital that we can use in our other properties.

You now have 61% in the quarter, which is not... It was lower when we met for the first time. It is not to be ashamed of in a real estate company.

They are between 55 and 65. Yes, that's right. If you look at the part-year period or the first half of the year, we are at 51, I think. There are high heating costs and snow removal costs in the first quarter that have affected that figure. So it's just like you say, that it's lower in housing companies, but we still think that there is potential to get it up and down.

If we circulate back to the portfolio. When I look at the key figures, you have a loan rate of about half, 50.7. You have a solidity of 42, right? Yes. Five years ago, this would have meant a buying position, that there are resources to invest in. How do you respond? Can you buy to a better key?

I think that in the interest rate we are in now, the reward rate is 50% more or less. There are still low risk sources and therefore also relatively low throwing sources. I think that everyone has learned in the lesson that the interest rates go up and down and it doesn't work that way. Thank you very much. Men det känns ju också betryggande. Nu har vi fastighetsvärlden som vi känner oss trygga med, med ett genomsnittligt avkastningsgrad på 5%, och det känns bra. Så jag skulle vilja säga, i det här läget som vi befinner oss i, så skulle vi gärna vilja fortsätta optimera portföljen lite grann, fokusera på det här listbytet som vi jobbar med nu, och sen i nästa steg vill vi börja växa bolaget.

Okej, okej. Yes. Yes. Yes.

Thank you very much. But we are positive about the future and think that we have a good average return on sales today.

And the business you have done confirms that with Roge. But when can you start writing up the values?

Yes, that's a very good question. I think it will take some time before the dismissal requirements start to go down again. On the other hand, you can increase the value of property by exceeding the assessment of expected rent increases and drift net increases. And I think that both by doing apartment renovations, which means that we increase the rent more than we would otherwise have done, and energy optimization investments, which means that we can improve the costs, can improve the cash flows, and that can then contribute to the values starting to go up again.

Good. You have invested, you have renovated a 50 and a half apartment, right? You have invested 58 million, does that sound familiar? 56, I think.

56? Yes.

How much power do you have?

Yes, but these 56 million is a mix of sustainable investments, apartment renovations and other valuable investments as well, where we have lifted our housing areas in different ways. And as the situation has turned out now, it is about that volume. We invested 177 million last year and we think that maybe 60 million here now is a little short on the first half of the year. A little over that volume during the fall. But it's somewhere there. Because we still want a good liquidity position and a security in that we don't use all our liquid funds. Then we think in the future, and we see it in our forecasts in the future, that the cash flows will improve as the rents increase and we get to this... I know that I've asked the question earlier.

The money you get from employees, you put into the stock, but you don't amortize it.

We amortize the loans that we have on the specific portfolio that we sell, or property, we amortize them. And then we use the remaining space to invest.

In the beginning, we saw that there was a strong demand for real estate. Can you take the whole of Sweden in one fell swoop?

In general, there is a good demand, because the population grows in large parts of Sweden, and almost nothing new is being built. Then, of course, there are individual differences between different municipalities, and some are stronger and some are weaker. But overall, it is still a good situation.

Good. Shall we talk about this refinancing? Yes. It's still perhaps the big news. Yes. You have refinanced your bank loan for over a billion under the whole half year, right?

Yes, exactly. Or actually it's a small loan on... There are approximately 80 million that have been refinanced in the second quarter, and this one is around a billion at the beginning of July. So around the half-year shift we have refinanced a loan.

Och då har ni lyckats sänka er ränta, tolkar jag det rätt? Eller marginalen?

Precis, precis. Så att de här refinansieringarna då har gjorts till marginaler som understiger den genomsnittliga marginalen som vi har i våra lånavtal. Så det är vi ju oerhört stolta och glada över.

Nu pratas det mycket om att nu börjar obligationsmarknaden bli väldigt konkurrenskraftig mot bankmarknaden. Alltså... How powerful is the threat of going to the market today?

I think that we are very happy for these seven Nordic banks that stand by our side and support us and are ready to stand by our side in the long term. We are not threatening them, but we have a very positive tone in the negotiations. For us, it works very well to loan 100% to banks and So we don't need to threaten with that.

But the marginals are also pushed down on the bank side?

Yes, but I would say that it also has a lot to do with the move we have made from Neobo since the company was founded about a year and a half ago. We have managed to increase the discount from the real estate portfolio. We have got a new strong head of the company. Several different things. We have got a sustainable strategy in place. And we are working to reach those goals. We have got down the rate of return and so on. Which makes the banks see the company positively. Okay.

I thought we should end with the stock market. You go in on First North's index 25. Right. But you are not going to be there for long.

No, we hope not.

Hur står det till med listbytet?

Ja, det är ett otroligt omfattande arbete som pågår. Det är mycket policies och processer och internkontroll och månadsrapportering och andra delar som ska komma på plats. Det har varit ett jätteroligt arbete och jag tror att det har skapat jättemycket värde i Neobo, alldeles oavsett om det blir ett listbyt eller ej. Men allt löper på bra så planen är fortsatt att listbytet ska kunna ske här under hösten. Okej, okej.

Then you get to ring the bell. Yes, again. Again. Yes. But you, before that, are you going to have a vacation? Yes, I hope so. Do you have any nice plans?

Yes, I have, absolutely. It will be a little less vacation than usual, considering everything that is happening here right now. But I will be out in the archipelago with my family at our local place, and we will go to the Mediterranean as well, and have a nice time. So it will be great.

And then we will see each other on Kvartalet Live.

Yes, we will. We are really looking forward to that.

Utmuntra alla att gå in och lyssna och titta. Men stort tack tills dess. Tusen tack. Och trevlig sommar. Trevlig sommar.

Och tack för att du har lyssnat.