Neobo Fastigheter AB (publ)

Welcome to Neobo Q3 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 key 5 on their telephone keypad. Now I will hand the conference over to CEO Ilvasabi Westman. Please go ahead.

Good morning, everyone. Unfortunately, I can't change the slides. I don't know what the problem is. Can financial hearings please help me? It's not able to change the slides.

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Good morning everyone and welcome to the presentation of Neobo's interim report January to September 2024. My name is Ylva Thalby Westman and with me here today I have our CFO Maria Strandberg. Sweden needs more residentials that people can afford to live in and by managing and refining our properties and adapting them based on people's needs we want to contribute to a more sustainable residential property market in Sweden. The fundamental objective of everything we do is to create attractive and sustainable living environments where people can thrive and feel secure. And this is an executive summary of our business ID and the single most important factor that will lead to increased returns from the property portfolio going forward. After an intense period of focused work preparing NUBO for Nasdaq Stockholm's listing requirements, We entered the main market on the 20th of September and rang the stock exchange bell for the second time in our lifetime. We are very proud of Neobu and the refinement of the company that we have achieved since the start. The list change provides confirmation of the work performed and a feel of quality as we now take the next step in our journey, focusing on portfolio optimization and growth. Operations are continuing to develop positively and rental income has increased by 6.3% in the like-for-like portfolio as a result of rent increases and reduced vacancies. Net operating income increased by 8.5% in the like-for-like portfolio and profit from property management totaled 122 million. Unrealized value changes amounted to minus 244 million, which is a decrease of 1.8% during the year. We have a residential focused portfolio with a value of 13.7 billion and 8,300 apartments. Residential properties account for 90%, 95% of the value, and the remaining part mainly consists of community service properties. We have a rental value of just under 1 billion. 77% comes from residential apartments and 20% from our commercial premises. Increasing the occupancy rate has been a top priority since we started Neobo. And the rate has improved by 0.8 percentage points since the beginning of the year. During the third quarter, the occupancy rate decreased by 0.2 percentage points. points as a consequence of some commercial tenants moving out. In September, we signed a six-year lease agreement with the Swedish Prison and Probation Service for commercial premises in Sollentuna, comprising approximately 3,400 square meters with an annual rental value of 10 million. In conjunction with occupancy during summer 2025, the commercial vacancy rate in Neobu will fall by 2.8 percentage points relative to the end of September 2024, and the total rental value will simultaneously increase by 5.3 million. If the tenant had moved in at the end of the third quarter, the total vacancy rate in Neobu would have decreased from 7.2% to 6.6%. The work to refine our property portfolio continues and since year end we have invested 101 million in value creating measures that have contributed to increasing our revenues and reducing our costs. This includes renovation of 70 apartments and a number of sustainability investments that have generated attractive returns. Our sustainability work continues with full force, and during the autumn we have developed a climate roadmap with all the activities that we need to manage to succeed in achieving our climate goals before 2030. We have also carried out a survey of climate-related risks in all our properties, showing their exposure to different types of climate hazards. The analysis was conducted based on the geographical location of the properties, climate scenarios, risk maps, and data from national authorities. The properties were analyzed based on 10 risk indicators. And in the next step, we will conduct further assessments and identify preventive measures and establish adaption plans to mitigate the risk. A brief market view. There is still a strong demand for rental apartments in Sweden with a low market vacancy and a majority of the municipalities reporting housing shortage. During the first nine months of the year, the transaction volume in the Swedish direct market increased by 10% compared to 2023, but it is still a low volume in a longer perspective. We are optimistic about the future and believe that activity will pick up further when interest rates and financing gradually stabilize. Some comments on our result. Rental income increased to 680 million, which is a net effect of higher income in the like-to-like portfolio and the absence of income from seven divested properties. The like-for-like portfolio showed an increase in rental income of 6.3%, explained by rent increases, reduced vacancy, and rent increases as a result of apartment renovation. Total property costs increased by 26 million to 318 million, and the increase is a net effect of higher costs for operations and property administration, as well as reduced costs for maintenance and sold properties. The increase in operating costs is mainly attributable to increased costs for tariff-based costs and snow removal at the beginning of the year. Excluding non-recurring costs, property administration costs are in line with the previous year. The reduction in maintenance costs is due to lower maintenance requirements compared with previous year. Net operating income fell by 3 million to 363 million due to the divestment of seven properties during the year. In the like-for-like portfolio, net operating income increased by 8.5%. Central administration costs declined to 55 million, and non-recurring costs to prepare new bulls for the switch to Nasdaq's main list and reorganization have impacted the period by 10 million. Excluding one-offs during both the current and preceding year, central administration costs decreased by 3 million. Profit from property management for the interim period totaled 122 million, and the decrease is a result of divested properties and higher property and financing costs. The earnings capacity is not a forecast and does not include any assessment of future trends. Since the previous quarter, profit from property management in the earnings capacity has decreased by 2 million, and this is a net effect of one divested property during the third quarter and improved net financial items. The negative unrealized value changes in the property portfolio amounted to 1.8% since the beginning of the year as a result of higher yield requirements in the market. However, during the third quarter yields have stabilized and the average yield requirement used in the valuations remains unchanged in the third quarter on 5.0%. We continue to carry out external valuations of all our properties every quarter to ensure accurate book values. We have a strong financial position based exclusively on bank financing from banks in the Nordic region. And during the third quarter, two loan agreements of 2.6 billion were refinanced and extended at lower margins than the average margin for our existing loan agreements. And this is a testament to the shift in quality that we have achieved and a clear indication of improving market sentiment. The average debt duration amounted to 3.1 years in the end of September. and our average interest rate amounted 3.3%. Since we have a high hedge ratio of 76%, it effectively has offset the upswing in interest rates that took place over the past years. The average fixed rate period was prolonged from 2.2% in December to 2.7% in September. Sorry, from 2.2% years in december to 2.7 years in september and the icr amounted to 1.6 times on a rolling 12 month basis and amounted 1.9 times during the third quarter during the third quarter the swedish central bank continued to cut the policy rate in line with a more expensive monetary policy and more rate cuts are expected in the future And for us, this offers a stronger financial position and improved opportunities to carry out value-generating investments that increase the return from our property portfolio. In order to secure future cash flows and further reduce the financial risk, we use interest rate derivatives. At the end of the period, the aggregated nominal value of these swaps was 5.4 billion, with maturities of between one and seven years. In addition to this, there are interest rate derivatives with future starts at a nominal amount of 1.4 billion. Here you can see our largest shareholders at the end of September. The total number of shareholders amounted to 108,000, and the picture is from Times Square on the listing day. Some key takeaways from the period. Continued positive development of net operating income, plus 8.5% in the life-for-life portfolio and positive outlook. An extensive letting of 3,400 square meters of commercial premises with an annual rental value of 10 million that will increase our occupancy rate when the tenants move in during summer next year. Divestment of seven properties in two transactions at price levels that confirms the property values in the balance sheet. refinancing of bank loans of 2.6 billion as attractive conditions. And finally, the listing on Nasdaq Stockholm's main market, an important milestone as we now take the next step on our journey, focusing on portfolio optimization and growth to further create shareholder value. And with this, I would like to open 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. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Yes, we have some questions from the webcast. How long time will it take before all loans have been renegotiated with hopefully better levels of interest rates and how much impact will it be?

Very good question. As I mentioned, we have an average debt duration of 3.1 years. So you can see in the maturity overview in the Q3 report when the loans mature and expire. And as I also mentioned, we use the interest rate derivatives to really secure the low interest rate levels that we have seen in the market. And the average fixed rate period is now 2.7 years. Since we have a high hedge ratio of 76%, it means that 24% of our total loan volume will have direct effect when the interest rates start to decrease. Hopefully, we will see some lower interest rates during autumn and further coming year. And when it comes to the renegotiations, we really see it as a strength that we have been able to refinance and extend the loan agreements at margins that is lower than our average loan margins in the existing debt portfolio. But it's hard to say how the effect will develop. I think you need to do the analysis and assessment of how the underlying interest rate will develop going forward to be able to answer that question.

Yes, and the next question. Will Neobo switch to financing from bonds in the future?

Yes, also a very good question. I mean, my experience is that it is, of course, good to have a diversified funding structure and the possibilities to loan from both banks and also in the bond market. So hopefully we will be able to do that in the future, since we have very strong relations with our banks and we are very thankful for the great support that we get from them in this phase of our journey. It's not the most important thing for us to prioritize at this moment, but I really think that it is an interesting opportunity for us going forward.

And the next question, how do you view the reduced population projections from SCB?

Yes, it's, I think, a very interesting question for Sweden. I mean, we need a growing population in able to be to be able to create economical growth, of course, as a country. But when it comes to our 8,300 apartments, we don't see it as a problem right now. We see that we still have good opportunities to lease out our apartments in the rental market. And that rental apartments is a very strong, I mean, it's still a very strong demand for rental apartments in Sweden. And I think that it will continue to be so, even in the future, even if the increase in the total population is a bit slower.

And the last question, you will now focus on optimization and growth. How do you want it to grow?

Yes, also a very good question. I mean, we have started the optimization of the property portfolio and we think it's very important for us to continue that work. And it's good timing now when the transaction market hopefully will open up further. to be able to create a more efficient property portfolio and a more efficient asset management organization. And of course, it's also important for us to grow in order to be able to create shareholder value going forward. So we will look at the Possibilities to continue to do value creating investments in our portfolio, to be able to grow a profit from property management. And we will also look into the possibility of doing acquisitions and grow the company in that way.

Yes, thank you. Actually, we have one more question. Can you please elaborate on the increased operation cost during Q3? What is included in the higher tariff-based cost, and what are your expectations going forward for that cost line?

Yeah, we have tried to really describe it in the report, and when it comes to the Cost increases when it comes to heating, electricity and so on. It's still an effect of the increased costs in the beginning of the year. And the same with increased costs for a very snowy and cold winter. So we are focusing now on both. reducing the energy consumption per square meter, monitoring it very, very closely, one property at a time. And we also have negotiations with municipalities that provide us with district heating and so on, to be able to stop the increases when it comes to tariff-based costs. We are in the budget process for next year right now, and we have a big focus on reducing costs on every line in the result. So it's both the property costs, the administrative costs, and so on. I mean, it is... important for us and a very big focus in the next step yes thank you so much no more questions okay thank you very much for listening in and have a nice friday bye