Sveafastigheter AB

Welcome everyone to Sveafastigheter's earnings call and presentation of our Q2 result 2025. My name is Kristel and I'm head of treasury and IR. Today's presenter is CEO Erik Havermark. After the presentation, we are opening the lines for Q&A. Now I'm handing over to Erik. Please go ahead.

Thank you, Kristel, and a warm welcome from me as well to Sveafastigheter's second quarter earnings call. In Q2, we continue to strengthen our key operational metrics, which I'll walk you through a bit later in the presentation. Sveafastigheter is Sweden's largest listed pure play residential company with assets totaling 28.6 billion SEK. our business model rests on two strong pillars property management which provides stable and resilient cash flow and new developments which drive profitable growth our vision is simple yet ambitious to be Sweden's leading residential company and our mission goes hand in hand with that to manage and develop homes for more people homes where current and future generations can thrive and feel safe In the second quarter, we kept building momentum, improving our key operational metrics and profitability right on track with our strategy. This quarter is also special. It marks Sveafastigheter's first full year as a company. Before diving into the Q2 numbers, I want to take a moment to reflect on what we've accomplished in just one year, shown on the next page, page five. Sleafastigheter was restructured and formally established in June last year. Just four months later, in October, we were listed on Nasdaq's first North Premier Growth Market, welcoming around 10,000 new shareholders. In January this year, we took over the management of the remaining part of our portfolio, bringing all properties under our own management. In February, we received an award for the largest improvement in tenant satisfaction. Our strong and conservative financial profile was confirmed in May when we were assigned an unexpected investment grade rating of BBB- with positive outlook, which was affirmed in June. In June, we issued three and five year green bonds totaling 1.2 billion SEK, followed in July by an additional 0.5 bond maturing in 2030. As mentioned, in October last year, Sveafastigheter became a public company through our listing on the Nasdaq growth market. Despite the demanding work involved in taking Sveafastigheter public through an IPO, we announced our ambition to be listed on the main market within 12 months. We achieved this in just 8 months, starting to trade on the main market, Nasdaq Stockholm, in June this year. Very few companies have managed an upgrade from the growth market to the main market in such a short timeframe. This accomplishment reflects not only the quality of our processes and routines, but above all, the competence and dedication of our employees. Alongside this highly eventful and evidently successful year, we have remained focused on our strategy, enhancing profitability in our standing assets and driving growth through new construction. In the second quarter we continue to deliver on this strategy. Let's move over to the next page and the financial results for the second quarter. Our rental income grew by 13% to 383 million and our NOI increased by 19.4% to 269 million. meaning that rental income continues to grow faster than costs. This strengthens the important NOI module, which I will return to later in the presentation. Profit from property management amounted to 97 million, impacted by non-recurring administrative costs of 40 million. I will provide more context on administrative costs shortly, Changes in property value totaled minus 137 million, mainly due to revised market assumptions for a couple of projects in ongoing constructions and project development. Finally, net profit for the quarter was minus 155 million, impacted by the non-recurring cost of 40 million mentioned earlier and 89 million in value changes in financial derivatives, a non-cash accounting effect resulting from lower market rates. Let's turn to the next page, slide 7, where we look at the performance from our standing assets for the first half of the year. Rental income grew by 16.5% to 759 million, while net operating income increased by 24.3% to 487 million. In a like-for-like portfolio, rental income increased by 5.3% and net operating income by 9.3%. As noted on the previous slide, we continue to strengthen our NOI margin, which for the last 12 months stands at 65%, or 58.2%, including property administration. Our target is to reach a 70% NOI margin, including property administration, by June 2029. and we are clearly on track to meet that goal. Our role in 12 months NOI module, including property administration, has increased by 3.2 percentage points since the second quarter last year. As a pure play residential company with a sizeable portfolio of standing assets and an in-house organization, we have several key drivers to further strengthen profitability. On the next page, we highlight four main factors. Firstly, through apartment upgrades, we not only achieve substantial rent increases, but also deliver attractive apartments that require minimal maintenance over the long term. Our goal is to upgrade 2000 apartments over the five years starting June last year. We're stepping up the pace. This year's forecast is now 250 upgrades, up from the 200 we projected in Q1 for 2025. We carry out upgrades when apartments become vacant and are seeing strong demand for these units in several of our cities, which is why we now are accelerating the pace this year. In the second quarter, we completed 64 upgrades, 44% of which were in Stockholm County. Secondly, a key focus for Sveafastigheter since our establishment has been increasing the occupancy rate. In Q2 last year, which marked our starting point, the occupancy rate was 94.3%. Today it stands at 95%, an increase by 0.7 percentage points. This is particularly notable given the recent media coverage on increasing vacancies in the residential segment. As projected in Q1, vacancies have increased in Skellefteå and this was offset by strong lepting across the rest of the portfolio. The residential market in Skellefteå has, as expected, been affected by the bankruptcy of Northvolt. As a result, in July we decided to use an option on our project Krongatan, meaning we will not complete the development of 178 apartments, and instead the municipal residential company Skiebo will take ownership of the completed project. While it's encouraging that new owners to the battery factory has been communicated, Our portfolio in Skellefteå, which consists of 97 lower rent apartments compared to new builds with high rent, leaves us comfortable with our exposure in the city, regardless of how the factory's production develops. Thirdly, Sveafastigheter's sizeable Stockholm-focused development portfolio provides us with the opportunity to grow profitably, adding new builds with significantly higher NOI margins compared to older properties. New developments in the Stockholm Mälardal region are estimated to achieve on average NOI margin above 85%. Our target is to start construction of 600 to 800 apartments annually. In the quarter, we completed 161 apartments, bringing the total for the last 12 months to 483 apartments. Finally, as a large pure-play residential company with an operational focus, we benefit from economies of scale. That said, our intensive and milestone-packed first year, which I outlined earlier in the presentation, obviously generated administrative costs that are not representative of Sveafastigheter's operations under normal business conditions. During the period, the non-recurrent cost amounted to SEK 25 million, of which SEK 40 million was in the quarter. We are now adapting the organization to the new phases FEA Fastigheter has entered, what we can call ordinary business phase, and the run rate cost for our organization is reflected in our earnings capacity. The table on the lower right of this page shows both our actual administrative quarterly costs with non-recurring costs presented separately, and the corresponding costs based on our earnings capacity for comparability. While we will continue to have non-recurring costs in the second half of the year, they are expected to be significantly lower than in the first half. Now let's move over to slide nine and sustainability, which is fully integrated into our organization and business. We continuously carry out profitable energy investments that reduce energy consumption and thereby lower our property costs. During the quarter, we invested 50 million in energy projects. At Sveafastigheter we place strong emphasis on social sustainability and we believe it plays an important role in increasing the attractiveness of our apartments and residential areas. We have therefore decided to conduct a pilot study in which we remove income requirements for tenants in 40% of the portfolio. Our belief is that this will lower the threshold to the housing market for many people, while at the same time strengthening our profitability by increasing occupancy rate and reducing administrative costs. As part of our commitment to social sustainability, we also offered summer jobs to 50 young people this year. The property portfolio is valued at 28.6 billion and consists solely of residential properties. All assets are valued by external appraisers each quarter. The portfolio is divided into three categories. Properties under management, properties under construction and properties in project development and building rights. Let's take a quick look at each category, starting with properties under management on the next page. Sveafastigheter has 15,094 apartments in standing assets with a value at 25.4 billion. 94% of the portfolio is located in Sweden's three metropolitan regions and university cities and 73% is in our 10 largest cities. Around two-thirds of the portfolio was built before the year 2010 with the remaining one-third constructed after 2010. During the quarter we made our first acquisition when we acquired two properties in Stockholm comprising 137 apartments. These properties can be managed within our existing organization, are located in attractive micro locations and offer development potential through apartment upgrades, providing a solid foundation for strong total returns over time. Growth through acquisition is currently not a priority. However, complementary acquisition as well as disposals to strengthen the portfolio and enhance our operational efficiency are relevant. We will now begin negotiations for the 2026 rent increase. Since these negotiations have not yet started, it is difficult to predict the outcome. The two years agreements that some companies have made and that include next year's rent increase indicate an average increase of 3.5% for 2026. However, we believe that the increase for next year should be higher and this will be our position when entering negotiations with the tenant association. Let's move on to our properties under construction shown on the next page 11. As mentioned earlier, during the quarter we started the construction of 87 apartments in Nacka, where we are developing attractive homes in an area with a low share of rentals. The estimated project margin, the ratio between the estimated value at completion and our investment cost, is about 18%, in line with the estimated average project margin for our properties under development. I present this portfolio on the next slide. During the quarter, we completed the final phases of our projects Barnmorskan in Umeå and Jullen i Skellefteå, adding 161 apartments to our properties under management. It's worth noting that Jullen in Skellefteå has lower rents than typical new builds due to former government subsidies aimed at providing affordable housing, a program that is no longer in place. As already said, we have exercised an option for our project Krongatan in Skellefteå with 178 apartments. This means Sveafastighet will not be the owner of the property and the project will be excluded from ongoing construction in the third quarter this year. The impact on Q3 results is estimated at minus 6 million SEK. The figures presented on this slide include Krongatan. However, you can find the Krongatans figures in a table in our interim report, so you can easily calculate the portfolio excluding this project. We are planning for further construction starts this year, coming from our strong development portfolio presented on the next slide. Our development portfolio has taken us more than 10 years to build. The 6,395 apartments, of which 5,160 are renters, reflect our long-term relationships with selected municipalities, completion of more than 2,000 apartments in the Stockholm region and strong credibility in sustainability. Notably 93% of the portfolio is located in the Stockholm Mälardalen region, 85% in Stockholm County and 49% in the city of Stockholm. This portfolio isn't easily replicated. Our portfolio gives us the opportunity to expand our presence in the Stockholm region with high quality buildings. The projects give us a strong return on investment, on average estimated well above 15%, and at completion properties in prime micro locations with long term housing demand. Properties that on average generate an estimated NOI margin above 85%. As previously mentioned, 87 apartments have moved from properties under development to properties under construction when we started the construction in Nacka. In addition, the portfolio shrunk due to a discontinued zoning plan in Tyresö. We are now discussing a replacement land lot with the municipality. After the quarter, we acquired a smaller building right in a strong market location in Solntuna with a legal forced zoning plan in place. We are planning to start construction for this project next year. Let's move on to our earnings capacity on the next page, page 13. Compared to the previous quarter, our rental value increased by SEK 33 million, driven by the Stockholm acquisition, completed new constructions and apartment upgrades. Vacancy remained unchanged despite the larger portfolio, corresponding to a 0.1 percentage point increase in our propensity rate. The line item other income relates to our external property management assignment where we managed nearly 4000 apartments. The associated cost of 44 million are included in central administration. Next, we look at our financial structure. As I mentioned earlier, Sveafastigheters solid financial structure combined with low risk assets was confirmed during the quarter when we received an investment grade rating of BBB minus with positive outlook from Fitch. On the back of this rating, we issued new green bonds totaling 1.2 billion during the quarter and an additional 0.5 billion after the quarter. The issuances strengthen our financial flexibility and the proceeds will primarily be used to repay short-term secured debt and also part was also used to finance the Stockholm acquisitions. Our LTV remains prudent at 43%. The average interest rate has increased slightly to 3.42% this quarter as a result of the bond issuance in the quarter and the repayment of secured loans after the quarter. Until spherefastigheter was established in June last year, our historical financial figures included substantial interest rates on intergroup loans, interest that naturally was deducted when calculating our ICR. This is the first quarter without adjustments for internal rates and consequently our ICR has decreased to 1.9. Finally, let's go over the highlights from our interim report. Sveafastigheter delivered strong NY growth in a period with an increase of 24.3% and 9.3% in the like-for-like portfolio. Profit from property management strengthened to 97 million, despite non-recurring cost of 40 million. In just 12 months, we have increased occupancy rate by 0.7 percentage point to 95%. Our strong financial position was confirmed by our investment grade rating of BBB- with positive outlook. We focus on creating greater financial flexibility and improved rating and we issued new green bonds of 1.2 billion during the quarter and additionally 0.5 billion after the quarter. That concludes our prepared remarks. We now hand back to the operator and open the line 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. The next question comes from Keevan Shravanpore from SEB. Please go ahead.