Sveafastigheter AB

Good morning everyone and welcome to Svea Fastigheter's earnings call and presentation of our year-end result 2025. My name is Kristel Eisman and I'm head of treasury and IR. Today's presenter is CEO Erik Havelmark. After presentation we are opening the lines for Q&A. Now I am handing over to Erik, please go ahead.

Thank you Kristel and good morning everyone and thank you for joining. I will walk you through our fourth quarter and full year results, and then we will move to the Q&A session. Sveafastigheter is Sweden's largest listed pure-play residential company with residential properties valued at 29 billion. Our operations are built around two complementary business areas, two pillars that support organic growth. The first is property management, where approximately 15,000 apartments generate stable and predictable cash flows. The second is new development with a development portfolio of more than 7,000 apartments that supports profitable growth over time. Our approach is operational driven with a clear focus on increasing profitability in the existing portfolio while creating growth through new development and value adding investments. This approach underpins our targets, which I will come back to later. All of this is guided by a clear and ambitious vision to be Sweden's leading residential company. Our mission reflects this ambition to manage and develop homes for more people, where current and future generations can thrive and feel safe. For us, these are not just words. They are put into practice every day throughout the organization. This was clearly demonstrated when, for the second year in a row, we received Kundkristallen for the largest uplift in tenant satisfaction. I will now turn to the next slide and walk you through some of the key financial highlights from the quarter. Rental income increased by 9.9% to 387 million, and NOI increased by 14.5% to 246 million. This reflects continued strengthening of NOI margin, which I will return to later in the presentation. With administrative costs stabilized at the lower level compared to historical levels, we delivered a solid profit from property management of 96 million, The value of the total portfolio decreased by 138 million, primarily driven by a write-down of an ongoing project in Eskilstuna. In this project, Sveafastigheter has a legal dispute with the contractor. As a result, the construction contract has been terminated and during the quarter we decided to continue the project with a new contractor. The estimated total investment for the project has been increased by 177 million, mainly related to correction of previous construction errors and additional construction costs to complete the project. It is important to note that this project does not originate from our in-house development business. It was acquired several years ago under a forward funding arrangement, where the seller was responsible for constructing the property. Excluding the Eskilstuna write-down, we had slightly positive value changes during the quarter. As a result of the negative value changes, we reported a loss of 12 million in the quarter. Our strategy remains focused on strengthening profitability through disciplined operational execution and value adding investments. The next slide, slide six, highlights how this approach has delivered consistent results during the quarter. Rental income increased by 12.9% to 1,536 million, while net operating income grew at an even faster pace to 1,010 million, up 17.4%. In the like-for-like portfolio, rental income increased by 4.8% and net operating income by 7.4%. As these figures show, with NOI growing faster than rental income, our NOI money continues to strengthen. For the full year, the NOI margin amounts to 65.7% and 60.3% when including property administration. This represents an improvement of 4.6 percentage points year on year, which underscores the strong operational progress we have made. Our target is to reach a NOI model including property administration of 70% by June, 2029. And based on the development so far, we remain well on track to achieve this. To further enhance profitability and NOI margin, we are concentrating on a number of key focus areas outlined on the next slide, slide 7. Sveafastigheter was formed in its current structure in June 2024 with a clear ambition to perform better as an independent, large-scale and pure-play residential company. From the outset, we have operated with a strong operational focus, aiming to deliver both long-term shareholder value and high tenant satisfaction. One of our first priorities has been to increase occupancy, as we saw significant potential to reduce vacancies through a more active, locally driven property management approach, supported by clear central guidance. In parallel, we are building a scalable and simplified platform enabling us to operate more cost-efficiently and capture the economies of scale in our portfolio. Another important component of our strategy is disciplined and profitable investment activity. While new developments represent the largest share of our investments, we see also strong returns from value creating investments in the existing portfolio, particularly through apartment upgrades and energy efficiency projects. I will return to our investment activity in more detail shortly. Before that, let's take a closer look at how occupancy and administrative costs developed during the quarter on the next slide. The long-term trend in occupancy is clearly visible when looking at the quarterly development since veafastigheter was established. At the end of the quarter, the occupancy rate amounted to 95.3%, an increase of 0.7 percentage points year on year. Compared with the previous quarter, occupancy declined by 0.4 percentage points. This decrease is primarily explained by higher number of apartments undergoing upgrades at quarter end compared with the previous quarter. Adjusted for ongoing upgrades, occupancy declined only marginally by 0.1 percentage points. We see continued potential to strengthen occupancy during 2026, although some quarterly fluctuations should be expected. After an intensive initial phase focused on establishing Sveafastigheter as a standalone company, we have now entered a new phase with full focus on operational optimization. The initial phase resulted in non-recurring administrative costs amounting to 28 million for the year. The previous quarter was the last to be impacted by these non-recurring items. And in the current quarter, our administrative costs have normalized and are in line with the cost levels reflected in our earnings capacity. Let's move to slide nine and take a look at our value adding investments in the existing portfolio. Our ambition is to upgrade 2000 apartments by June 2029, starting from July 2024. During the year, we upgraded 254 apartments, of which 77 were completed during the quarter. These renovations have generated a genome cost above 6%, demonstrating the strong profitability in upgrades. We are prioritizing upgrades in larger cities where demand for renovated apartments is particularly strong, targeting to upgrade 400 apartments in 2026. The second key area of investment within the existing portfolio is energy efficiency projects. By reducing energy consumption, we are able to lower tariff-based operating costs, which result in attractive returns on invested capital. During the year, we invested SEK 71 million in these initiatives, achieving a yield on cost exceeding 10%. In addition to strong returns, these investments also strengthen the portfolio from an ESG perspective and in light of upcoming regulatory requirements. In 2025, Veafastigheter invested a total of SEK 267 million in the existing portfolio. The majority of these investments were directed toward our focus areas, apartment upgrades and energy efficiency initiatives. The remaining was allocated to measures to support NOI growth, such as tenant adaptions and fiber installations. As mentioned earlier, the largest share of our investment volume is allocated to new developments, which I will cover on the next slide. During the year, we started the construction of 218 apartments and completed 403 apartments. In the quarter, we started the construction of 131 rental apartments in an attractive central location in Västerås, a so-called infill project in an area dominated of co-ops and home ownership. We did not complete any apartments in the quarter. At present, we have 787 apartments under construction. Upon completion, these projects are expected to contribute approximately 103 million in NY. Demand for our newly developed apartments remains strong, and we have now, in the first quarter of 2026, entered an intensive letting phase in projects Solhusen and Enhörningen. both located in Stockholm, projects that are expected to be fully completed during the summer this year. Our ambition is to initiate between 600 to 800 apartments per year. Obviously, volume in itself is not the objective. Our focus is on starting projects that meet our return requirements. Given the depth and quality of our development pipeline, we are confident in our ability to combine attractive profitability with our targeted production levels. The portfolio has an average project margin of around 20% which means that developments clearly strengthen overall return on equity. Our ongoing construction portfolio has a yield on cost of 4.7% or 5.1% when excluding the project in SKStuna. New projects starts are expected to generate higher returns. For example, the project in Västerås that was initiated during the quarter is expected to deliver a yield cost of 5.3%. Since the AGM last year, the board has a mandate to repurchase up to 10% of the outstanding shares. Given the current NAV discount share buybacks potentially funded through selective asset disposal are capital allocation alternatives that we are evaluating. We are currently seeing a strong demand in the transaction market for newly built residential assets in the Stockholm region. Selective divestments within this specific segment could allow us to realize the value created in our development business and reallocate that capital to further strengthen shareholder value. Importantly, any such measures would complement, not replace, our ongoing investment program. We continue to see attractive returns in both new development and value-enhancing investments in the standing portfolio. Our objective remains clear, to maximize long-term shareholder value through disciplined capital allocation while maintaining a strong financial position and low financial risk. Let's now move over to our assets on slide 11. We divide our asset portfolio into three categories, properties under management, properties under construction and properties under development and billing rights. The portfolio totaling 29 billion provides a strong combination of stable and resilient cash flow and growth potential in the Stockholm region. I will begin by focusing on the core of the portfolio, our income generating properties. Our portfolio consists solely of residential properties with a total value of 25.7 billion. A significant share of the portfolio, 95%, is located in Sweden's three metropolitan regions and in university cities, with Stockholm County accounted for 23%. In addition, 73% of the portfolio is concentrated across our 10 largest cities, a clustering that support cost-efficient property management. During the quarter, we signed an exchange transaction with Klarabo through which we increase our presence in six municipalities while exiting five. The transaction was completed earlier this month. And on a net basis, we are a small seller and received a purchase price of 90 million. As a result of the transaction, our portfolio increases by 81 apartments while our earnest capacity is expected to initially decrease by approximately 2 million. The transaction is fully aligned with our strategy to optimize the portfolio through increased clustering, thereby further strengthening operational efficiency. Let's now turn to the development part of our asset portfolio properties under construction and project development on slide 13. Ongoing construction covers a book value at 1.3 billion and comprises, as previously outlined, 787 apartments that will add an estimated value at completion at 2.3 billion. We aim to start construction of about 600 apartments in the upcoming 12 months, projects that will derive from our Stockholm-focused development portfolio. Properties under development carry a value of 2 billion, and these projects have an estimated yield on cost of around 5.3%. To be a successful developer, you essentially need two things, the know-how and access to building rights in the right locations and at the right price. Sveafastigheter is well positioned in that respect, with an experienced in-house project management organization and a sizable development portfolio, of which 87% is located in Stockholm County. Our target is to acquire or obtain building rights for approximately 800 apartments annually. During the quarter, we received a land allocation in central Tullinge, and after the quarter, we obtained billing rights in two locations in Nacka, as well as a land allocation in a very strong micro location in Västerås. After this overview of our assets, let's move over to our earnings capacity. Rental income in our standing assets increased by 38 million compared to previous quarter, primarily attributable to the annual rent increase. By year end, approximately two thirds of the rent negotiations had been concluded with an average increase of 3.4%. And that is what is included in the earnest capacity. Based on the negotiations completed so far, we expect the outcome for the full portfolio to be broadly in line with that level. Property expenses increased by 23 million, mainly reflecting adjustments to a higher cost level in 2026, including higher tariffs for heating and water. The declarable transaction is not reflected in the earnings capacity since it was, as mentioned, finalized earlier this month. The line item, other income, relates to the external property management assignment where Sveafastigheter manages a portfolio of almost 4,000 apartments. The estimated costs for this assignment amounts to 45 million and are accounted as central administration. The parties have agreed to extend this assignment by one year and it now runs until the end of 2027. Let's move over to Sveafastigheter's financial position. Compared to previous quarter, LTV remains at 42% and IECR remains at two times. Average interest rate has slightly decreased to 3.28%. After the quarters, Feafastigheter established an EMTN program and on the back of that issued bonds totaling 300 million euro with a fixed coupon at 4.375% maturing 2031. Subsequently, we called outstanding euro bonds totaling 111 million euro with a fixed coupon at 4.75% maturing in 2027. With that, let's move over to our main priorities looking ahead. First, we will continue to improve operational profitability. Strengthening the NY margin remains central through higher occupancy, disciplined cost control and value-enhancing investments in the existing portfolio. Second, we will further strengthen our capital structure. We remain focused on maintaining low financial risk, optimizing our debt maturity profile, and over time improving our credit profile toward triple D flat. Third, We will maintain disciplined and value-focused capital allocation. Over the past 18 months, we have deliberately strengthened our financial platform, listing on the growth market, securing an investment grade rating, establishing our EMTN program and issuing SEC bonds, moving to the main market, and now in January, launching our EMTN program and issuing Euro bonds, further diversifying our funding base. With that foundation now in place, we are in a position to evaluate capital allocation activities from a stronger position. We will continue to prioritize investments that deliver attractive returns, while continuously evaluating alternatives, including selective divestments and potential share buybacks, to ensure capital is deployed where it creates a strong shareholder value. Taken together, these priorities support our main objective to deliver long-term shareholder value while maintaining financial resilience. That concludes our preparedness remarks. Operator, please 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 Shirvanpour from SEB. Please go ahead.