Sveafastigheter AB

Welcome to Sveafastigheter's earnings call and presentation of our year-end result 2024. My name is Kristel and I am head of treasury and IR. Today's presenter is CEO Erik Havermark. After presentation we are opening lines for Q&A. Now I'm handing over word to CEO Erik Havermark. Please go ahead Erik.

Thank you, Kister. Good morning, everyone. My name is Erik Kavermark and I'm the CEO of Sveafastigheter. 2024 was an eventful and successful year for Sveafastigheter, during which we have created and listed Sweden's largest listed pure play residential company. Despite our short history, we are already demonstrating that we are delivering on our strategy with focus on increased profitability and organic growth. Sveafastigheter in its present form was established in June last year. Therefore, it is relevant to begin with a brief summary of our business model and how Sveafastigheter has been formed before we move on to our performance in the fourth quarter. Our mission is to manage and develop homes for more people where current and future generations can thrive and feel secure. This is what we do in our daily work to reach our vision to be Sweden's leading residential company. Let's go over to slide five and our business model. Sveafastigheters business model is based on two strong business areas, our property management and our new construction. The combination of these two business areas gives us access to both the strong and stable cash flow from our sizable portfolio of standing assets in a rent regulated market and a profitable growth from our new developments. We currently have 14,669 apartments in standing assets, of which 93% are located in Sweden's three metropolitan regions and university cities. Additionally, we have 1,030 apartments under ongoing construction and 6,844 apartments in our development portfolio, of which 93% are located in the Stockholm Mälardalen region. With a strong property portfolio, experienced in-house organization and a conservative capital structure, we are confident in our targets, which focus on increased profitability and organic growth. Our operational targets for the next five years include start construction of 600 to 800 apartments annually, obtaining land allocation for 800 apartments per year, and upgrading 2,000 apartments. Through profitable investments in both standing assets and new construction, we are on a clear path to increase our NOI margin with a financial target to reach 70%, including property administration, within the next five years. In addition, we have a financial target to achieve average annual growth of at least 12% in net asset value over a business cycle. Our new construction will not only drive profitable growth for Sveafastigheter, but will also increase our presence in the Stockholm Maladalen region. Now let's move to slide six and have a look at our history. To understand our historical financial figures, it is important to consider our history. Sveafastigheter was established in June last year through the merger of properties from three separate companies, creating a large operational focused residential company with a portfolio consisting of only wholly owned residential properties and a clear and transparent capital structure with low risk. In January this year, we took over the property management for 5,200 apartments and our in-house property management team now manages our entire portfolio of 14,669 apartments. This transition gives us economics of scale and enables us to apply our value-adding property management strategy across all of our assets. Although our history as one large company is relatively short, our organization has managed a large part of the portfolio for a long time, but then as part of a larger group where the focus wasn't solely on residentials and operations. Consequently, we have extensive knowledge of our assets and a strong foundation to continue to build on for the long term. In the fourth quarter, we reached an important milestone with our listing on Nasdaq's first North Premier growth market and welcomed over 10,000 new shareholders. The listing and Broadnet ownership will provide Sfeafastigheter access to better long-term financing. With that introduction, let's take a look at our performance in the fourth quarter and start with slide nine. Our rental income grew by 22.6% to 352 million, and our NOI increased by 36.9% to 250 million. This strong growth was driven by the completion of new developments, the annual rent increase and efficiency improvements in property management. Profit from property management amounted to 39 million. Changes in property values were 195 million, meaning that after 11 consecutive quarters of decreasing property values we saw an increase in the fourth quarter. Sveafastigheter delivered a strong result in the fourth quarter amounting to 256 million, impacted by non-recurring costs related to the restructuring and formation of Sveafastigheter of 25 million. After closing the full year we can on next slide 10 see that we have delivered according to our ambitious strategy. During the year we have experienced strong growth in rental income and an even stronger increase in net operating income. Our rental income increased by 20.9% to 1,361 million and in the like-for-like portfolio it grew by 5.6%. net operating income increased by 25.5% to 860 million, with an increase of 8.4% in the like-for-like portfolio. As mentioned, our strong growth primarily derived from the completion of new developments and the annual rent increase. In the fourth quarter, we completed 120 apartments, and for the year, we have completed 1,138 apartments. from our new developments. Properties that have not, the annual rent increase landed at 5.2%. At Sveafastigheter, we focus on operational efficiency and increasing the profitability from property management. As mentioned, our target is to increase the NOI margin, including property and administration to 70% within the next five years. Even though we have a short history as a pure play residential company with an operational focus, and it was only in January 2025 we took over the property management for all of our properties, we already see that our NOI margin is increasing. In 2024, the NOI margin increased by 2.3 percentage points to 63.2%. And including property administration, it increased by 0.5 percentage points to 55.7% compared to 2023. Let's go over to our occupancy rate on slide 11. An important focus area for Sveafastigheter is to improve our occupancy rate. As shown in this chart, the occupancy rate remained relatively stable throughout 2024. We expect it to increase going forward, driven by measures we have implemented, including appointed a head of leasing and increased marketing and advertising efforts. New developments are in general located in strong areas with high demand for housing, although occupancy rate can vary until a mature level is reached. The mature occupancy rate for new developments is typically significantly higher than for older buildings. Therefore, it is important to focus on properties older than three years, which also represent the vast majority of our portfolio. From the chart, we can see that the occupancy rate for buildings older than three years has increased by 0.2 percentage points since last quarter. On the next page 12, you see our income statement. We delivered a strong result for the quarter of 256 million, impacted by non-recurring costs related to the restructuring and formation of Sveafastigheter of 25 million. Looking at the full year, the restructuring and formation of Sveafastigheter contributed to 61 million in administrative costs in 2024 that are non-recurring. Furthermore, as mentioned earlier, Sveafastigheter was established in June last year and until then our interest costs include costs for parent loans which are not representative for Sveafastigheter as a standalone company. Additionally, the creation of the legal structure resulted in higher tax expense for 2024 than what can be expected going forward. Let's go over to sustainability, which is at the core of everything we do at Sveafastigheter. Sveafastigheter has historically been at the forefront when it comes to sustainability, and we are now preparing to strengthen that position further. During the year, we conducted a double materiality assessment and identified our 10 key material sustainability topics. We are now setting our targets and defining the metrics we will use to track our progress. Our climate emission reduction targets will be set in accordance with SPTI's criteria. We are well prepared for the upcoming Energy Performance of Buildings Directive and continuously monitor the energy performance in our portfolio, taking measures in our worst performing assets. As a result, we both strengthened the portfolio's ESG metrics and achieved a solid return on our energy investments. During the year, we invested 55 million in projects, improving the energy performance. As highlighted earlier in the presentation, Sveafastigheter have two strong business areas, our property management and our new construction. To fully understand the value creation within Sveafastigheter, it is important to understand each business area and their respectively assets. Let's start with our business area property management and our properties under management on slide 14. Seveafastigheter has a sizeable portfolio of standing assets with 14,669 apartments under management, of which 94% are located in Sweden's three metropolitan regions and university cities. The property value amounts to 24.8 billion and the rental value is 1.6 billion. As mentioned, we have had a strong rental growth for the full year in the Like for Like portfolio with an increase of 5.6%, primarily driven by the annual rent adjustment. Furthermore, the NOI margin is strengthened due to apartment renovations and energy investments, where we lower our energy consumption and consequently reduce operating costs. During the year, we renovated 73 apartments and invested 55 million in profitable energy saving investments. In 2025, we will increase the pace in apartment renovations as part of our goal to renovate 2000 apartments over the next five years, and we will continue to invest in profitable energy efficiency projects. Rent agreements for 2025 have been finalized for 80% of the portfolio with an average increase of 4.8%. On the 1st of January 2025, we took over the management of 5,200 apartments. Now, all of our 14,667 apartments are managed by our internal property management organization, ensuring a uniform and efficient property management for all of our assets, which strengthens our operational efficiency. In addition, to increase profitability, we see that our local and present property management improves tenant satisfaction, as highlighted when we received the award Kund Kristallen for the largest uplift in tenant satisfaction in 2024. Strong rental growth, apartment renovations, reduced energy consumption and economics of scale in the property management combined with the new builds added from our ongoing construction form the foundation of our journey to increase our NOI margin with a goal of reaching 70% including property administration over the next five years. On the next slide, the age structure of the portfolio is presented. 68% of our properties under management are built before the year 2010 and has a property value per square meters of SEC 20883 and consequently 32% are built 2010 or later and has a property value of SEC 40434 per square meter resulting in an average property value of our portfolio of SEC 24722 per square meter In the lower table, you can see that our newer properties have strong exposure to Stockholm Mälardalen region, and this exposure will increase as we continue to add new builds from our new construction portfolio. So with that said, let's go over to our second business area, new construction, and first have a look at our properties under construction. Sveafastigheter currently has 1,030 apartments under ongoing construction. which will be completed over the coming two years, adding an estimated 2.4 billion in property value and 134 million in estimated rental value at completion. In the third quarter, we started three new projects comprising 540 apartments, and during the year we completed 1,138 apartments, of which 120 apartments were completed in the fourth quarter. Our new construction provides Veafastigheter a solid return on invested capital and grows our portfolio in strong regions with properties that have a significantly higher NOI margin compared to older assets. We have a target of starting 600 to 800 partners annually over the next five years, focusing on the Stockholm-Mälardalen region. These projects derive from a very strong development portfolio, which is presented on the next slide 17. The most important resource for new development is building rights in strong locations and Sveafastigheter is well positioned with a development portfolio of 6844 apartments with 93% located in the Stockholm-Älandalen region. The strong development portfolio has taken 10 years to build and is the result of long-standing relationships with municipalities and our track record of delivering high quality projects with a strong sustainability focus over the years. Seafastigheter is a preferred partner for many municipalities, and we are pleased to have received land allocation for approximately 100 apartments in Solna during the fourth quarter, where we plan to develop rental apartments with a focus on families with children. Our new construction generates a solid return on invested capital and strengthens our portfolio with high quality assets in strong locations. our estimated project margin remains well above 15%. Fleafastigheter has a growing portfolio and during the year, as mentioned, we have completed 1,138 departments in our ongoing construction that not had full impact on the earnings statements in 2024. Our current performance is presented in our earnings capacity shown on the next slide. In the earnings capacity, we present both the earnings from our standing assets and the expected earnings from our ongoing construction that will be completed within the next 12 months, presented in two separate columns. Please note that our ongoing construction doesn't include all of our ongoing projects. As mentioned earlier in the presentation, we have completed the rent negotiation for approximately 80% of the portfolio. In earnings capacity, we have included an estimated increase for the remaining 20% of the portfolio, applying the same average increase of 4.8%. Compared with the earnings capacity in the previous quarter, the cost base has been adjusted to reflect the cost level for 2025. where, for example, tariffs for district heating and water are higher. Other income relates to the external property management assignment where we managed a portfolio of almost 4,000 apartments until 2026. The costs for this assignment are included in our central administration at 42 million. Let's go over to our property values on slide 19. We conduct external valuations of all of our properties on a quarterly basis. Since the market peaked in the first quarter of 2022, the average yield requirement has increased from 3.1% to 4.4% in the fourth quarter. During the same period, property values for the Like for Like portfolio decreased by 16%, where a strong NOI development mitigated the full effect of the sharp shift in yield requirements. We have seen that yield requirements stabilized during 2024, and after 11 consecutive quarters of declining property values, we had an uplift of 195 million in the fourth quarter. The transaction market is also recovering, increasing by approximately 45% in 2024 compared to the previous year, with residential properties being the largest segment. Now we will go over to our financial structure on slide 20. Seafastigheter has a solid financial position. We have an attractive financial structure that is focused on traditional bank financing but also includes two unsecured bonds which gives us further benefits of diversification of funding sources. In connection with IPO, we refinanced several loans, including one short-term loan of 1077 million with a new maturity in 2027. Additionally, we entered a credit facility agreement of 1 billion. Highlighting our strong financial position is our loan-to-value at 42%. Interest coverage ratio was 2.2 times and average interest rate was 3.27%. Our focus going forward is to maintain strong balance sheet and low risk financial structure together with attractive funding mix. To conclude on the final page of the presentation, the key takeaways from the fourth quarter. We have had a strong growth in rental income and net operating income with an increased profitability. Sveafastigheter is a strong capital structure with low risk, which enable us to continue to grow through new developments and apartment upgrades. And on top of that, we will have a strong rental development this year and presumably also next year, 2026. Thank you so much for listening. We are now ready for your questions.

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