Earnings call transcript: Dios Fastigheter Q2 2025 sees rental income rise

Dios Fastigheter AB, a prominent player in the Real Estate Management & Development industry with a market capitalization of $1.02 billion, reported a strong second quarter in 2025, with notable increases in rental income and property management revenue. The company’s stock experienced a decline of 2.21%, reflecting investor concerns despite the positive financial performance. According to InvestingPro analysis, the stock appears slightly overvalued at current levels. The earnings call highlighted Dios Fastigheter’s strategic focus on growth and sustainability in Northern Sweden.

Key Takeaways

• Rental income increased by 5%, demonstrating robust demand.
• Income from property management rose 12% to SEK 268 million.
• The average interest rate decreased to 4%, enhancing financial flexibility.
• Northern Sweden’s green transition investments present growth opportunities.
• Stock price fell 2.21% despite positive earnings.

Company Performance

Dios Fastigheter showed solid performance in Q2 2025, with rental income and property management revenue both seeing significant increases. The company maintains a healthy gross profit margin of 68.58% and has demonstrated steady revenue growth of 0.91% over the last twelve months. The company has leveraged its strong presence in Northern Sweden to benefit from regional investments in renewable energy and natural resources. The decline in the average interest rate to 4% has further strengthened its financial position. InvestingPro subscribers can access detailed financial health metrics and 12+ additional expert insights about Dios Fastigheter.

Financial Highlights

• Rental income: Increased by 5%.
• Income from property management: Increased by 12% to SEK 268 million.
• Operating surplus: Increased by 7%, with a surplus ratio of 73%.
• Market value of properties: €32.6 billion.

Outlook & Guidance

Dios Fastigheter is targeting a 10% annual growth in income from property management. The company plans to maintain a high transaction pace with a focus on centrally located properties. Additionally, Dios aims to deploy €1 billion annually with 50% leverage, anticipating vacancy stabilization and a positive trend in occupancy rates.

Executive Commentary

CEO David Carlson emphasized the strategic importance of Northern Sweden, stating, "Northern Sweden is experiencing a wave of investments tied to the green transition." CFO Rolf Larsson highlighted the company’s financial strategy, noting, "Our average interest rate continues to decline and stood at 4% at the end of the quarter."

Risks and Challenges

• Economic occupancy rate remains at 90%, indicating room for improvement.
• Potential market volatility in property values due to economic fluctuations.
• The need to manage credit losses, although currently low at 0.29%.
• Strategic focus on Northern Sweden could expose the company to regional economic risks.
• Maintaining growth momentum in a competitive real estate market.

Dios Fastigheter’s Q2 2025 earnings call underscores its strong financial performance and strategic positioning in a rapidly evolving market. Trading at a P/E ratio of 16.32, the company maintains a balanced valuation profile. The decline in stock price suggests that investors remain cautious, possibly due to broader market conditions or specific operational challenges. For comprehensive analysis including Fair Value estimates and detailed financial metrics, investors can access the full Pro Research Report available on InvestingPro.

Full transcript - Dios Fastigheter AB (DIOS) Q2 2025:

Breeka, Call Coordinator: Good morning, everyone, and welcome to the Dios Festia Interim Report January to June 2025. My name is Breeka, and I will be coordinating your call today. I will now hand you over to your host, Johan Dannema, Chief Investor Relations Officer, to begin. Sir, Johan, please go ahead.

Johan Dannema, Chief Investor Relations Officer, Dios Festia: Good morning, and warm welcome to this year’s Q2 twenty twenty five result presentation covering the period January through June. My name is Johan Dormer. I’m the Chief Investor Relations Officer. I’m joined today by our CEO, David Carlson and CFO, Rolf Larsson. In today’s presentation, we’ll begin with a brief overview of the performance in the second quarter, followed by the more detailed walkthrough of our financial results.

We’ll then provide a market update before opening up a Q and A session at the end. Thank you for joining us. With that, I hand over to David.

: Thank

David Carlson, CEO, Dios Festia: you, Jo Anne, and good morning all. We’re closing the books on an eventful quarter, one marked by strong momentum across several fronts. We’ve seen a dynamic mix of transactions and new lease agreements alongside successful refinancing of debt under highly attractive terms. These achievements reflect our continued focus on value creation and financial resilience. The growth in income from property management amounts to 12% for the quarter, which is very strong.

We continue to see the average interest level declining and once again a positive net leasing. Rental market in Northern Sweden remains resilient, where renegotiation and renewals are settled on CPI index trends or higher. Economic occupancy stands at 90%, same as last quarter. Service ratio is reported on satisfying 73% with stable cost and energy efficiency improved by 5.8%. Credit losses now at 0.29% compared to historical average of approximately 1.4% shows the resilience in our business.

Access to financing remains strong and evidenced by 15 to 30 bps lower margins in both banks and bond markets compared to six months ago. We have, during the quarter, refinanced 5,000,000,000 debt, resulting in five bps lower credit margin at portfolio level. The marginal cost of debt is lower than the average cost of debt in the portfolio, which will give lower average interest rates going forward. The transaction market has continued to gain momentum, with several deals being finalized. An encouraging indicator that reinforces the valuations recorded in our books.

Our recent acquisition in Vimeo, valued at $1,660,000,000 represents a strategic addition to our portfolio and is fully aligned with our long term growth ambitions. As part of our ongoing asset rotation strategy, we also divested the educational property, Mima One, in Boro Lange during the quarter at $7.00 $6,000,000 achieving a sale price above book value. We will elaborate further on the asset rotation approach later in the presentation. I see strong potential to deliver long term shareholder value through profitable growth in our income from property management by share, targeting 10% annually. Our tenant offering remains highly attractive, and the solid recurring cash flow enable us to pursue value creating investments.

Owning properties in the right locations provides long term revenue stability and minimizes vacancy reset. The outlook is bright. I will now leave the word to Rolf to go through the result in more detail.

: Thank you, David. Let’s get deeper into the result outcome. Rental income increased by 5%, and the economic occupancy rate was 90% compared with 91% last year. The change is mainly explained by the divestment of fully let residential properties and completed new construction, which has created short term market vacancies. We see that the vacancy trend is turning in the second half of the year as we see the effect of positive net letting in recent quarters and completed new builds.

Property costs are at the same level as previous year, and we’re pleased to observe that our daily effort to optimize property management have resulted in increased energy efficiency. All in all, this means that operating surplus for the quarter increased by 7%, which corresponds to a surplus ratio of 73%. Financial costs are at the same level as last year, and income from property management increased by 12% to SEK268 million. And we’ve had slightly negative value changes regarding properties, and I will come back to this later. Current tax is negatively affected by €10,000,000 due to withdrawal taxation in connection with property sales.

Our well diversified portfolio has strengthened the resilience of our top line. With 32% of our rental income derived from public sector tenants, We have a solid foundation for passing on CPI adjustments. And we see that we can defend and increase our rental levels in connection with renegotiations and new lettings. And notably, 97% of all commercial lease agreements include the indexation clauses, with 94% specifically tied to CPI. Like for like rents decreased somewhat because of vacancies arising in Q1 now having full impact.

However, we continue to experience strong demand for premises in central locations and expect positive development in the second half of twenty twenty five. With lower financing costs and more optimistic economic outlook for Sweden, we see great potential in our rental growth, both when it comes to rent aversion, a continued increased occupancy rate and created modern and effective offices in prime location. As a market leader with local management and being a company with strong cash flow, we have a competitive advantage over many other real estate companies in our cities. Net letting has been positive in 24 of the last 26 quarters, including 2,000,000 this quarter. The office’s role as a brand builder and meeting place is becoming increasingly clear.

We continue to see a strong trend that tenants are looking for attractive location and that the willingness to pay is high for modern and efficient premises. Vacancies are much lower in central location in our cities where we are well positioned, which means that the resilience of our portfolio is high. And currently, we have several dialogues underway with the existing and new tenants at good levels. We have a low tenant concentration risk. Our 10 largest tenants, of which six are tax signers, account for 20% of our total rental income with a vault of five point three years.

And the vault for the whole portfolio is stable at three point six years. The market value of our properties amounted to €32,600,000,000 During the quarter, we have invested €223,000,000 in projects. 91% of the property portfolio has been externally valued in Q2, which has resulted in slightly negative unrealized value changes of million, corresponding to minus 0.4% of the market value. The impairment is mainly due to reduced revenue from specific properties, such as turnover based rent from a hotel and a few major tenant departures that we have previously guided on. We see no general impact related to yield requirements, market conditions or similar factors.

The average yield was 6.15%, which is two basis points higher since last quarter. The change in yield is as a result of the transaction that has been made during the quarter. And we see that our transactions are made at book value, which supports our view that our property values are at fair value. As I said earlier, we have invested $223,000,000 in tenant improvements, property improvements and new builds. And there’s low risk in our major projects where pre let is a requirement, and most of the rental income comes from tax finance operations.

All new commercial projects are built according to BRIEM, at least level very good. And we currently have around 16,000 square meters under construction, with a total investment volume of $530,000,000 where remaining investments amount to 170,000,000 All our ongoing projects are proceeding according to plan, both in terms of cost and time. And in addition, we have around 200,000 square meters of existing or possible building rights, where we see great potential for further value creation. 50% of the building rights refers to commercial premises and the remaining 50% to residential. During the quarter, we have refinanced $5,200,000,000 in bank loans with maturities from September to March and at the same time redeemed a bond corresponding to $248,000,000 This together means that we have lowered our average margin for the whole portfolio by five basis points and extended our debt maturity to two point six years.

And we’ll get the full impact of lower margins in Q3. In the next twelve months, we have additional loan maturities, excluding commercial paper, of 2,700,000,000.0, which corresponds to 15% of interest bearing liabilities. And we’re actively working for a more prudent maturity profile with longer debt maturities. Bank financing is and will be our most important source of financing, and we currently have 73% of our outstanding loans with banks. We have a very good dialogue with all our banks, and they are clearly willing to join our growth journey and offer us good terms.

The margin on the three year bank loan is currently around 125 basis points. And in June, we updated our MTN program and our green framework. At the July, we issued two and three year bonds of a total of SEK850 million and at the same time redeem the bonds maturing in May and October next year, corresponding to SEK450 million. And today, a three year bond has a margin of 175 basis points, which is 20 basis points lower than three months ago. Our average interest rate at the end of the period was 4%, which is 20 basis points lower compared to last quarter.

And the marginal cost of debt is now lower than our average cost of debt, which will have a positive impact on our income from property management when refinancing and taking out new loans. We have 73% of our financing in banks, 1,700,000,000.0 in unused credit facilities and a secured loan to value of 43%. We will also add additional borrowing capacity through completed projects. This, together with good relationships with our banks, makes us feel comfortable about future refinancing. We have a conservative balance sheet approach, which reflects our commitment to financial prudence and risk mitigation.

During the past year, we have reduced our financial risk over time and improved our key financial figures through divestments and a more cautious strategy regarding new major projects. This, together with a strong cash flow and available liquidity, means that we now see opportunities for growth, which primarily means an increased volume of tenant adaptions and acquisitions. And as we mentioned earlier, in June, we acquired three centrally located properties in Ermiok for CHF1.6 billion. We have also sold a newly built school in Boro Lange for CHF700 million and used the proceeds to amortize debt to lower our leverage. We will also sell noncore properties and amortize debt to ensure our long term financial stability.

Yet again, I feel comfortable with our current financial position and action taken. Our strong cash flow will serve operating expenses, committed CapEx and further growth. And I will now leave the word back to

David Carlson, CEO, Dios Festia: David. Thank you, Rolf. Let me remind you of the transformation we’re witnessing in our market. Northern Sweden is experiencing a wave of investments tied to the green transition, a transition that is crucial for Sweden’s climate goals as well as the competitiveness of Sweden as a leading country of high quality products for future demand of non fossil products. We’re seeing new factories being built to refine natural resources into sustainable products alongside energy plants, infrastructure upgrades and housing developments.

This is happening now and for years to come. The fundamentals behind these investments are incredibly strong and long lasting. Northern Sweden is rich in natural resources, minerals, forests, and the overarching goal is clear: transition to a net zero economy. We benefit from access to affordable, clean, renewable energy through hydropower and wind power a cold climate ideal for energy efficiency and based areas of land available for development. To put this in context, the electricity prices in the Northern part of Sweden has this year been one third of the prices in Germany.

Our high transaction pace continues, and we are delivering in line with our strategy. Acquisitions of SEK3 billion and divestments of SEK3 billion made over the past eighteen months have contributed to an increase of more than 2% in income from Property Management. Our focus is clear. We want to own centrally located properties with development potential and or synergies with our existing portfolio. At the same time, we are divesting non core assets, properties with limited potential low returns for those located outside city centers or in municipalities that are not part of our strategic focus.

Our primary focus is on owning office properties in A and B plus locations, although we remain open to all segments where we see value. As earlier stated, we have over the past eighteen months acquired properties worth approximately billion dollars and divested assets for a similar amount at or above book value. This represents a significant portion of our current portfolio, which totals to €3,600,000,000 It clearly demonstrated the liquidity of our market and the reliability of our valuation. We’re continuously working to streamline our property management through smart operational solutions, strong cost control and ongoing investments. We also see economies of scale and synergies in larger units, ideally with multiple tenants across different segments.

One of the key strengths of our portfolio is its flexibility. The ability to repurpose and convert spaces allows us to adapt quickly when transit or tenant needs change. This adaptability builds resilience and reduces vacancy risks. Looking ahead, we expect both acquisitions and divestments to remain at a high pace. It’s a natural and essential part of how we create long term value.

Deo Earth is fundamentally a cash flow driven company, where investors can expect stable growth and long term development. We operate in a market characterized by lower volatility in property values and lower rental costs per employee for a tenant and therefore more reluctant to change premises. Our strategy is clear. We focus on centrally located properties in cities with a single well defined center. This creates natural limitations in location options for tenants seeking urban qualities and brand alignment, making our locations highly attractive.

It also means our properties offer strong alternative use potential. Offices that no longer meet demand can be converted into residential and retail spaces in less optimal locations can be transformed into desirable office environments. Rental levels in our market make these conversations both feasible and profitable, which in turn reduces vacancy risk. A clear example of the alternative use case is our lease to Hogstromska Upper Secondary School in Follon. Here, are converting vacant former retail premises into modern and functional educational premises in the city center.

We can reuse previous fixtures, fittings and adaptations, while the tenant can benefit from the city center’s existing infrastructure,

: such

David Carlson, CEO, Dios Festia: as public transport, shops and restaurants. Our current portfolio, excluding project properties and development rights, generates a running yield of 5.6%. This provides a solid cash flow foundation, while we also see significant upside in well located vacancies, value adding investments and operational efficiencies. Today, the cost of new bank financing is approximately three months TIBOR plus 125 basis points, which means financing on 3.3% with Stybor on 2.1%, a really attractive deal gap relative to a running yield. When we invest in tenanted adaptation and energy efficiency upgrades, we on average achieved a gross yield on cost of around 9% and net above 7%, further enhancing total returns.

Our average interest rate continues to decline and stood at 4% at the end of the quarter. The marginal cost of financing remains 30 to 50 basis points below the average, indicating further potential for interest rate reduction. As Rolf mentioned earlier, our recent refinancing activities have lowered the interest rate on our debt portfolio by approximately five basis points, while also extending our debt maturity and reducing financial risk. Looking ahead, the potential for increased earnings lies in raising our run-in yield, thereby widening the yield gap by reinvesting our cash flow, excluding dividends with 50% leverage. We have the capacity to deploy around €1,000,000,000 annually.

We also see considerable potential in leasing out well located vacancies and gradually increasing average rents across the portfolio. In short, we are well positioned to continue delivering strong sustainable returns. We have a unique position. Our property portfolio is concentrated in prime locations and cities with good growth aspects. The other strength lies in our local presence combined with the company’s size, which creates economies of scale in terms of expertise, favorable financing conditions and investment capacity.

This provides competitive advantages that few other companies in Northern Sweden have. However, we have not reached the ceiling in any of our cities and can continue to grow, especially in the cities with the brightest prospects. Our business model is future proof at low risk. With primarily A location, our premises have alternative uses and conversions. Offices that do not meet today’s indoor environment standards can be converted into residential units, while retail spaces on the Second Floor can become attractive offices.

With our rental levels, there are significant opportunities to make profitable deals through these changes, thereby maintaining a low vacancy rate. We are currently making very good deals through our adaptations and renovations. The gross yield on costs for ongoing investments is, as earlier mentioned, in average 9%, which in many cases also leads to an increase in value. With an improved economic outlook, we expect the volume of tenant adaptations to increase. We have top of the line cash flow generation from our business.

With prime location assets on a running yield at 5.6% and financing costs at investment grade levels, we are generating strong and predictable cash flow. Our operations demonstrate stable performance. We have observed significant resilience among our tenants throughout the recent economic cycle with relatively few bankruptcies and rent losses. The real estate market in general also shows stability, with property values being less volatile than in metropolitan areas. Our cash flow is not only higher than in many other regions, but also more stable.

Looking forward, we are now seeing vacancy levels bottoming out, and we expect a stabilization followed by a more positive trend going forward. The unrealized value changes we recorded in the quarter are linked to specific properties that require more attention than previously anticipated. At the same time, we continue to make value creation, creating investments. And with stabilizing vacancies, we believe this will have a positive impact on property values. Our own transactions confirm the market valuation, as we constantly sold properties at or above book value.

We’re also seeing increased activity from the other market participants, and there is ample capital actively seeking investment opportunities. We will continue to grow by acquiring properties with potential, assets that complement our existing portfolio and are located in regions with strong growth prospects. To maintain financial strength, we will also divest properties that are not part of our core strategy or where we see limited development potential. Our tenant offering remains highly attractive, and the strong recurring cash flow enable us to reinvest in value enhancing projects. Owning properties in the right locations provides long term income stability and reduces vacancy risk.

With lower financing costs and a more optimistic economic outlook for Sweden, I am very confident in The U. As a company and in our ability to deliver sustainable long term returns to our shareholders. That concludes my part. I will now hand it back to Johan.

Johan Dannema, Chief Investor Relations Officer, Dios Festia: Thank you, David, and thank you both for the presentation. We will now open up for questions.

Breeka, Call Coordinator: Thank First question comes from Elenci Elliff with Kempen. Please go ahead. Vansi, could you please ensure your line is unmuted locally?

Elenci Elliff, Analyst, Kempen: Yes, sorry. Can you hear me now?

Rolf Larsson, CFO, Dios Festia: Yes.

Johan Dannema, Chief Investor Relations Officer, Dios Festia: We can hear you.

Elenci Elliff, Analyst, Kempen: All right, great. Thank you for taking my questions and good morning. So two questions from my side. First, on the outlook for H2. I know you’ve talked about it and you’re positive.

I just want to ask you again, what do you see confidence that the operations will improve in H2? And second one, obviously, you’ve been a net acquirer. You’ve guided that you probably will be a net seller in the coming months. But given that there are more opportunities coming in the market, I just want to see would you be would you intend to engage in them as well? So essentially keeping LTV a bit higher for longer.

Rolf Larsson, CFO, Dios Festia: Sorry, could you take a question again? Because you were blurring in the middle there.

Elenci Elliff, Analyst, Kempen: On the second so second question is on the market. You’ve been buying quite a lot recently, and you have guided that you might be a net seller for the next twelve to eighteen months, but there are more opportunities arising. So would you consider maintaining LTV at the higher level for longer just to be able to engage in those opportunities?

Rolf Larsson, CFO, Dios Festia: I can take that question, David. We want to be below 55,000,000 as we stated before. And now we divested in the property in Borlengen, about NOK 700,000,000. And that was the one we were guiding, but the one that one of the properties that we were guiding on that we are were on the selling list. So that’s the net selling post this quarter.

We’re looking to we’re happy to be on the level we’re at today because we have a headroom for investments. And but we are recovering, returning the portfolio and selling noncore assets in the future also and buying in the cities with the brightest growth prospects.

Elenci Elliff, Analyst, Kempen: Okay. Thank you. And then the other question was?

Rolf Larsson, CFO, Dios Festia: Yes. The first question, that was the blurred one. So take it again, please.

Elenci Elliff, Analyst, Kempen: Yes, sir. So yes, that’s on the outlook for operations. I know you’ve talked about this in the past and that you’re fairly positive that we’ve reached an inflection point or that you we will see the inflection point at the end of H1. But how has your view changed in any way? And just how what gives you confidence that this is actually the case?

Rolf Larsson, CFO, Dios Festia: We see that the pace, David, we see that the pace is continuously to be better for our tenants when coming to decisions. So we have these taking place in a higher pace than before. We have some big investments that the tenants are moving into this order. That’s going to be reflected in the occupancy rate. So we’re we’re confident that we’re we’re on the bottom now and and turning.

Breeka, Call Coordinator: Your next question comes from Alban Sandberg with Kepler.

Alban Sandberg, Analyst, Kepler: Good morning. Two questions. The first, specifically on your property revaluation and property value changes this quarter. Was that part of a bigger review of the overall portfolio? Or was there anything specific that led you to finding out about this higher CapEx needs during the quarter?

And I guess as a follow-up to that, any risk that we will see a similar comment for the Q3 report? Thanks.

Rolf Larsson, CFO, Dios Festia: Yes. I can take that, David, here. Yes. There have been a thorough project review of these vacancies that we the vacancies are known as for us as earlier stated in the last two quarters. But we have made a thorough project review and see that we have some more investments than previously anticipated.

So and the answer to your second question, no, not on these vacancies do we see any more adjustments.

Alban Sandberg, Analyst, Kepler: Yes. Okay. And in general, when you discuss with your, let’s say, external value and so on about the general state of the market. Is that very different Q2 versus Q1?

Rolf Larsson, CFO, Dios Festia: No. It’s really, really much the same discussions We’re the same discussions in in q q one and q two. The difference is that we have done done our homework on these properties. That’s that’s the difference. The the the yields are are flat, and the change from six thirteen to six fifteen is due to our transactions and not in the change of deals.

Alban Sandberg, Analyst, Kepler: Okay. And a final question also, can that maybe to the first one, asking questions about your state of the balance sheet and LTV target and so on. Do you feel you’re in a situation now where, I mean, maybe compared to one or two years ago, that that your financial flexibility is higher now, I’m assuming that that value stabilized. So do you feel that your your balance sheet is still somewhat of a constraint for you in order to what you can or cannot do?

Rolf Larsson, CFO, Dios Festia: No, we don’t see it as a constraint right now. We have so strong cash flow, and that’s been proved by our negotiations now with defending and raising rents in spite of the 20% rise in the CPI are giving us confidence that our strong cash flow remains. So we’re comfortable at this LTV level. And we have a headroom for investments.

Alban Sandberg, Analyst, Kepler: Yes. Thank you very much. That’s all for me.

Breeka, Call Coordinator: Thank you. Can confirm we have no further questions. So I would like to end the Q and A session and hand back to the management team for some closing comments.

Johan Dannema, Chief Investor Relations Officer, Dios Festia: Yes. Thank you very much and thank you all for participating in this today’s call. And as always, we’re here if you have any further questions. And by that, we would like to wish you all happy summer and a good vacation when it comes. Thank you very much.

Breeka, Call Coordinator: Thank you all for joining. I can confirm that does conclude today’s call. Thank you all for your participation. You may now disconnect.

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