Sveafastigheter AB

Welcome everyone to Svea Fastigheter's first earnings call and presentation of our Q3 report. My name is Krista Leisman and I am the head of treasury and IR. Today's presenters are CEO Erik Havermark and CFO Martina-Louise Kristensen. After presentation, we are opening the lines for Q&A. Now I am handing over word to CEO Erik Havermark. Please go ahead.

Thank you, Christian. This is an important day for Sveafastigheter as this is our first interim report as a public company and we are very happy to be able to present a strong financial report given our very short history. Since we are a new company, I want to start with some general information about Sveafastigheter before we look into our interim report. Sveafastigheter was established in June by merging properties from three separate companies. That in turn means that our financial historical numbers before that are a combination of the financial statements from these companies. Therefore, it's worth mentioning that certain aspects of our financial history are not truly representative for Sveafastigheter going forward. 5,200 apartments of our standing assets will continue to be externally managed until the end of the year and from 2025 will our property management team take care of all of our properties and then we will be able to fully benefit from our value adding property management philosophy and benefit from the economics of scale that exists in the Sveafastigheter group. Despite our short history, it is important to point out that our organization has managed large part of our portfolio over many years. And it's also worth mentioning that these residential properties then were part of a larger property portfolio, where the focus wasn't solely on residentials and operational efficiency. We have identified many improvement opportunities that will help us to reach our targets. So on the next page, you see a picture from our listing. Sveafastigheter have reached two very important milestones this year. Firstly, the legal and capitalization restructuring in June that sets Sveafastigheter in the shape it is today. And secondly, the listing in October on Nasdaq Premier First North Growth Market, where we welcomed over 10,000 new shareholders. The book building was significantly oversubscribed and the majority of allocations at the IPO were to long-owning sector specialists and Nordic investors. As an independent company and with the broad ownership of Sveafastigheter we are stronger and it will, moving forward, enable us to capture the full potential of our property portfolio and development pipeline. On the next page, you see an overview of our business model that is based on two very strong business areas, our property management and our new construction. The combination of these two business areas allows us to benefit from the very strong and stable cash flow from our sizable portfolio of standing assets in a rent regulated market, but also expand the business in a profitable way with our new construction that continuously will add new builds to our property management portfolio This is also clearly presented in the numbers in our interim report for the third quarter that I shortly will present. We focus on increased profitability and organic growth. And with a strong and sizable property portfolio, an experienced in-house organization and a conservative capital structure, we feel very comfortable at achieving our goals, of which our key targets are within the coming five years to upgrade at least 2,000 apartments start construction of 600 to 800 apartments annually, obtain land allocation for 800 apartments annually, and reach an NOI margin, including property administration, of 70%. Our annual growth of NAV shall be on average about 12% over business cycle and our LTV below 50%. Finally, in this intersection, our mission is to manage and develop homes for more people where cure and future generations can thrive and feel secure so let's take a closer look into the numbers in our interim report The financial performance in the third quarter shows strong growth in both rental income and NOI, driven by completed new construction projects and the yearly rent increase in standing assets. The rental income for the third quarter was 357 million, an increase of 19.8%, and the net operating income was 252 million, an increase of 18.3%. The profit from property management was 85 million in the third quarter, and the unrealized changes in property value was minus 265 million, where the restructuring of sveafastigheter had an impact of minus 124 million. And the result for the quarter was minus 338 million, a result that is affected by higher tax than a normal year, also due to the formation of sveafastigheter. On the next page, we can look at our period from January to September, where we see a clear indication that we are already delivering on our strategy. During the period, we have completed 1,020 apartments from our new construction, and the yearly rent negotiation landed on an increase of 5.2% in rental income. In the like-for-like portfolio, the rental income increased by 6%, and our net operating income increased by 6.6%, meaning that the underlying profitability is strengthened. The restructuring and formation of feafastigheter have incurred higher administration costs for this year despite that remain the NOI margin including property administration relatively stable and the NOI margin excluding property administration has increased from 60.9% in 2023 to 61.9% the last 12 months. This indicates that we are on the right track on our goal of reaching an NOI margin including property administration of 70% within five years. On the next page we can note that our occupancy rate has increased to 94.7% compared to 94.3% in the last quarter. increasing occupancy rate is one of several key focus areas within our strategy to improve the profitability of our standing assets we do expect some quarterly fluctuations and therefore a long-term trajectory is more important and we firmly believe in the set plan we are following then on the next page you can see our income statement that is affected by the restructuring information of sveafastigheter. Our administration includes costs of 37 million related to the restructuring information of sveafastigheter and 42 million are related to the other income, where the majority relates to an external property management agreement with SDB, where sveafastigheter managed a residential portfolio until 2026. The interest cost before the restructuring of sveafastigheter and the current capitalization structure includes interest costs of parent company loans that don't reflect sveafastigheter as a standalone company. Additionally, tax are also impacted this year by the formation of sveafastigheter, which is obvious when you compare current tax in relation to our result before financial items for this period to the situation in 2023. So let's have a look at our investment properties on the next page. We have a sizeable portfolio of standing assets in strong locations. 14,550 apartments with a value of 24.5 billion and a rental value of 1.5 billion. 94% of our standing assets are in Sweden's pre-metabolic regions or university cities. The yearly rental increase for 2024 was 5.2%, and we have, for about 15% of the portfolio, reached agreements for the rent increase next year, 2025. In those agreements, the average rent increase is over 4.6%, and we believe that it will be possible to reach an even higher increase for the portfolio that yet not are negotiated. We continue investing in our properties to increase net operating income and NOI margin. And as mentioned, our goal is to achieve an NOI margin of 70% including property administration within five years. During the quarter, we have upgraded 19 apartments and our goal is to upgrade 2000 apartments in the coming five years. And we will gradually increase the pace to reach this goal. And importantly, investing in energy projects would additionally help us to reach our NOI margin target. So far this year, we have invested 39 million in energy projects. As a large pure-play residential company, we benefit from economics of scale. One example of how we capitalize on this potential is that we have decided to bring our customer service, which is currently being managed by an external provider, in-house. Then over to our ongoing construction on the next page. Sveafastigheter AB has a proven track record of completing new construction at pace, on time and to a high standard. And importantly, in line with budget. During the quarter, we have completed 80 apartments and year-to-date 1,020 apartments. This quarter we have started three new projects with a total of 540 apartments and we now have 1050 apartments under construction that will add an estimated rental value at completion of 141 million and an estimated property value at completion of 2.5 billion. One of our key operational targets is to start new construction of 600 to 800 apartments annually projects that derives from our very strong project development portfolio which we present on the next page. Our project development portfolio includes 6608 departments and 93% of the portfolio are located in the Stockholm Mälardalen area. It is in Stockholm Mälardalen we see the strongest profitability for development and it is in this region we will grow with our new construction going forward. Our projects are in very good micro locations where there is a strong demand for housing. We see good profitability in our project with a project margin well above 15%. As we continuously start new construction projects we also want to add new building rights into our portfolio. and our target is to obtain land allocation of 800 apartments annually in the coming five years. Let's have a look at our earnings capacity on the next page. The net operating income is 970 million from our standing assets. We also show the earnings capacity from ongoing construction that we expect to be completed within the next 12 months. This represents 609 apartments of our total ongoing construction of 1,150 apartments. When we include these properties, our net operating income is 1,017 million. And as I already have mentioned, our portfolio is constantly growing by our new construction. And this year alone, we have completed 1,020 apartments. We have analyzed the rental income and operating costs for these properties in our earnings capacity, as well as the properties that until June was reported as joint ventures. And thereby the earnings capacity better display the present situation than what the income statement does. In our earnings capacity, the income from external property management agreement that we have with SPD is on the row other income. And our costs for this assignment are included in the administration cost with 42 million. Fleafastigheter has historically been in the forefront in sustainability. and now as a larger and stronger group we are preparing to strengthen that position with a long-term target of becoming climate neutral. This autumn we have carried out a double materiality assessment and identified and validated 10 material sustainability topics for our business. We have established a climate target group and we have started climate data collection for scope 1 to 3. Our emission reduction targets will be set in line with SPTI's methodology and to further enhance our focus on social sustainability, we have appointed a head of social sustainability. By lowering our energy consumption, we reduce both our carbon footprint and our property costs. During the period, we have invested 39 million in profitable energy investments. On the next page you see how our property values have evolved. And after 10 consecutive quarters with increased yield requirements and declining property values, this quarter the valuation yield is unchanged compared to the previous quarter. We also note that the transaction market is starting to pick up albeit in small volumes. This month, the central bank cut the policy rate by 0.5 percentage points to 2.75, and the rate has fallen from 4% in February. The central bank has communicated that further cuts in December and the first half of 2025 are potentially on the table. This, combined with other factors that now are present, usually entails good foundation for increasing property values. Financing. Sleafastigheter has a conservative capital structure with a low risk. Our LTV is 43%. Our average interest rate is 3.2% and our ICR is 2.1. After the quarter, we have refinanced a bank loan of a bit over 1 billion that was maturing in 2024 with a new loan that matures in 2027. and in conjunction to the listing, the shareholder loan was repaid. After the end of the quarter, we also signed a credit facility of one billion that provides us with a solid liquidity position and confidence to carry out value adding investments in our standing assets and our development portfolio. finally to summarize we are happy for our first interim report that shows strong growth in rental income and net operating income and that we are already seeing signs of increased profitability we have a strong capital structure with a low risk and a strategic and operational focus going forward and we expect a strong rental development for 2025. That was the presentation. Thanks so much for listening. Now we are ready for your questions.

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