Earnings call transcript: Fastighets AB Balder sees income dip in Q1 2025

Fastighets AB Balder reported a slight decline in rental income and profit from property management in Q1 2025, reflecting ongoing challenges in the Stockholm office rental market. The company’s stock price fell by 1.95% following the earnings announcement, closing at 79.35, amid broader market uncertainties. According to InvestingPro data, the company’s shares are currently trading near Fair Value levels, with analysts maintaining a moderate buy consensus.

Key Takeaways

• Rental income decreased slightly to SEK 865 million.
• Profit from property management fell to SEK 285 million.
• Occupancy rate declined to 87%.
• Positive net letting of SEK 6 million was achieved.
• The company maintains a strong market position in Stockholm and Solna.

Company Performance

Fastighets AB Balder experienced a decline in key financial metrics for Q1 2025, with rental income dropping slightly and profit from property management decreasing compared to the previous year. The company’s focus on strategic locations in Stockholm and Solna remains a positive aspect, though challenges persist in the office rental market.

Financial Highlights

• Rental Income: SEK 865 million, a slight decrease from the previous year.
• Profit from Property Management: SEK 285 million, down from SEK 329 million.
• Surplus Ratio: 69%, adjusted to 70% for non-recurring items.
• Unrealized Property Value Changes: Negative SEK 565 million.

Outlook & Guidance

Fastighets AB Balder aims to increase its occupancy rates to 95% by 2030, with no plans to initiate speculative projects. The company is focused on completing existing developments and anticipates potential market improvements in the next 2-3 years.

Executive Commentary

CEO Stefan expressed confidence in the long-term prospects of the company’s markets, despite current challenges. He highlighted the increasing trend of office occupancy and the value companies place on dynamic workplaces. CFO Osa Bergstrom assured stakeholders that the company has facilities in place to manage upcoming loan maturities.

Risks and Challenges

• Decreasing rental income and profit from property management.
• Declining occupancy rates in key markets.
• Negative changes in property values.
• Weakness in the Stockholm office rental market.
• Flat employment in office-intensive industries.

Fastighets AB Balder continues to navigate a challenging market environment, with strategic initiatives aimed at strengthening its position and improving financial performance in the future. While currently not profitable over the last twelve months, InvestingPro analysts expect the company to return to profitability this year, with projected earnings per share of $0.43 for FY2025. Discover detailed analysis and more insights with InvestingPro’s comprehensive research reports, available for over 1,400 stocks.

Full transcript - Fabege AB (FABG) Q1 2025:

Stefan, CEO, Fastighets AB Balder: Welcome to our presentation of q one twenty twenty five. As usual, I have our CFO, Osa Bergstrom, with me. And after our review, there will be, as usual, the opportunity to ask questions. So first slide, please. Or next slide, please.

As you know, we have a modern portfolio with focus on Stockholm. I don’t have to repeat that too much, I think. It but what’s new on this slide is that we only have 99 properties since we have been selling off in England this. So but then the quarter property value of almost 80,000,000,000, and but what important here is may that all the focus on the stock of areas of the sector to part sub areas. So next slide, please.

With all this happening in the now in the world, with all the terminals, with the from day day to day, you don’t know really what will happen. We said that we thought we’re coming from a tough 2024, or or we really have a tough start of the twenty twenties, we thought maybe it could be a brighter 2025. And we were quite optimistic until maybe a couple of weeks ago when we saw when the turbulence stopped. But we don’t all know what’s happening in the world right now. So what we’re doing, we’re really focusing on what we can impact.

And we can impact our, what, our areas. We can impact, or, you know, or have close relations with tenants. We can focus on nothing and the daily work. And we can focus on Stockholm. We really believe, and I like to say that we believe continue to believe in Stockholm.

Stockholm as a growth area of Sweden. We it is the engine of the Swedish economy. It’s a more volatile when you have a struggling economy, but both Swedish and international companies have have many of their main quarters or their Nordic headquarters here in Stockholm. So I’m convinced that Stockholm will continue to be Sweden, largest square region for the foreseeable future. But like any all metropolitan areas have challenges and the potential for improvements, but the other is also there, of course, and we work with that.

Next slide, please. We also continue to believe in the future of the office. The trend is that the office occupancy is increasing. Companies increasingly perceive the value of having a dynamic workplace where employees can meet, collaborate, and develop. It’s becoming increasingly clear that the role of the office is a meeting place more of a meeting place and a gathering point.

It well, and it’s very extremely important as that. If the economy cycle returns to more or less normal or we can see it’s a normal state, we would have, I we think and I think, maybe two, three years of very favorable development ahead of us. But with that said, still the world is challenging. We also could to also continue to believe in the future of the office. The trend is that the office is even more important for the companies, Not maybe only as a working place, but as a meeting place where you can meet, you can collaborate, and you can develop.

And we think this has that trend this has been increasingly clear over the last years after pandemic. Maybe you’re working from home one day or two days a week, but the office is important. And if you see if you see the economic cycle returns to more or less normal state, I think there can be a very there can be favorable development of offices ahead of us.

Osa Bergstrom, CFO, Fastighets AB Balder: Thank you, Stefan. Rental income for the first quarter amounted to 865,000,000, just below the same period of last last year. On a like for like basis, income decreased by 20,000,000 equivalent to minus 2.7%, which mainly related to relocations as a result of the previous year’s negative net letting. Occupations in completed projects were partly offset by reduced income related to divested properties, but the net was plus SEK 18,600,000.0. Property expenses includes a nonrecurring item of SEK 7,000,000.

Other deviations mainly relate to somewhat higher maintenance costs and higher property tax. The surplus ratio thus amounted to 69%. Adjusted for nonrecurring items, it was 70. As now projects were completed in VE Bustad, no turnover was reported. VE Bustad’s gross profit amounted to minus SEK 6,000,000, all related to administration costs.

And central administration amounted to minus SEK 33,000,000. This is this cost is front loaded as Q1 includes the annual bonus payment. Net interest income expense ended up in line with the previous year. Higher debt early in the year was offset by a slightly lower average interest expense. The result in associated companies amounted to minus SEK24 million and related to the period’s capital contribution to Ariana Bollarget.

Shares of profits in other associated companies only amounted to minor amounts. This meant a profit from property management of SEK $285,000,000 compared to SEK $329,000,000 in the previous year. The changes in value turned negative again after two quarters with essentially unchanged valuations. Unrealized changes in the value amounted to minus SEK $565,000,000. I will come back to this very soon.

Realized changes in value of minus SEK 37,000,000 related to the sale of Ynglingen. The property was valued according to IFRS at the sales value of SEK $960,000,000 in the Q4 accounts. The negative result that was now recognized in connection with vacation of the property related to deductions for deferred tax and sales costs. The valuation of derivatives portfolio followed long term interest rates, which varied during the quarter measured on the March, the surplus value increased by SEK 27,000,000. And finally, the tax expense, which related to deferred tax only amounted to SEK 141,000,000, of which plus SEK 128,000,000 related to a reversal of deferred tax in connection with the sale of Ynglingen.

Next slide, please. In the quarter, we have once again independently valued a large proportion of the portfolio just over 50% and the rest of the portfolio has been internally valued. Yield requirements leveled off and have been essentially unchanged since the last quarter. The average yield increased by 0.01 percentage points to 4.55%. And as I mentioned earlier, the changes in value were negative in the quarter minus $565,000,000.

This was mainly related to the fact that Values now expect longer vacancy periods and slightly lower rent levels, primarily in Solna where we have some vacancies. In addition, we anticipate longer implementation periods for future projects opportunities in Flemishburg and we have thus written down the value of the older existing properties, including existing building rights. The total property value thus amounted to billion. In addition, there is a property value of the development property portfolio in the Bostad of SEK860 million. And next slide, please.

Reported equity amounted to SEK122 per share like at the year end of 2024. Long term EPRA NRV amounted to SEK146 per share. The equity asset ratio was unchanged at 46% and the loan to value ratio was also unchanged at 43%. Both of these key performance indicators confirm our continued strong balance sheet. The interest coverage ratio amounted to 2.5 on a rolling twelve month basis, which is also in line with the previous year.

Next slide, please. The access to and pricing of financing is still very good. This applies to both the capital market and banks. Both the commercial paper market and bond market are continuing to function well. In early March, the Ynglingen property was vacated and we received almost SEK 1,000,000,000 in cash.

In connection with this, we settled the bond maturity and we have also slightly reduced the outstanding volume of commercial paper. In March, we issued a total of SEK 400,000,000 in new bonds and in connection with this almost SEK 300,000,000 of bonds that mature in the autumn of twenty twenty five were repurchased. The new issues were made for two and three years respectively and at margins of SEK 74 and 97 COGS. Falling market interest rates after the RIX Bank’s cut in January and lower margins have meant that we are now reported an average interest rate of just 2.91% at the end of the quarter. And undrawn revolving credit facilities totaled SEK6 billion at the end of the quarter.

Overall, we continue to have good preparedness for upcoming financing needs and refinancing. We have facilities in place to cover the upcoming loan maturities. In total, we have bond maturities now of SEK 1,800,000,000.0 during the second half of twenty twenty five. We intend to refinance our bond maturities with new bonds whereas the bank facilities are continually refinanced through extensions. Next slide, please.

Of the loan portfolio, 52% is now fixed mainly based on long term maturities and mostly through straightforward interest rate swaps supplemented by some fixed rate bonds. In addition, there are callable interest rate derivatives totaling SEK 7,000,000,000, which are still running. Straightforward interest rate derivatives run with fixed interest rates between 0.112.18% and the callable interest rate derivatives run with an interest rate between 1.822.5%. The average fixed term amounts to one point seven years and adjusted for estimated maturity of the callable swaps, the fixed rate term increases to two point five years. Our interest rate strategy provides predictability with fixed rate terms that offer protection against rising market interest rates.

At present, we see greater uncertainty about inflation and the economic cycle and the RIX Bank has paused its interest rate cuts, although the market is now expecting further rate cuts ahead. Long term interest rates have risen and we have held off on entering into new fixed rate terms. The levels that we have managed to fix that both for straightforward interest rate swaps and for the callable swaps are levels that we think work even in the longer term. For a moving twelve month period ahead, an increase in the market interest rate of one percentage point will generate a higher interest expense of approximately SEK 146,000,000, all else unchanged. And the corresponding reduction in the market interest rate by one percentage points will result in a reduced interest expense of SEK72 million.

During the quarter, we have continued the sustainability work in line with our environmental and sustainability targets. The main targets are energy consumption, maximum 70 kilowatt hours per square meter, 100% renewable energy, 100% environmental certification of investment properties and new construction, 20% circularity index during conversions and 35% lower CO2 scope three emissions during new construction for new projects. And also sustainability audit of suppliers. We have also initiated the work on upgrading our green framework and like before, we will obtain a second party opinion from S and P. And with now with that, I leave back to Stefan.

Stefan, CEO, Fastighets AB Balder: Thank you, Osa. If, as Osa had told us, the financial market the financing market has been good over in the quarter, and we have issued a lot of some bonds on very good margins. The transactions market has been, in our view, quite healthy. Not that many transactions in our market, but at good levels. Some of them, you see here, there’s some examples that have been in Hagerstadt and at Leedinger, for example, and in old old town of Stockholm.

But I don’t I don’t think we have to go through the to close. But the the the transactions have been completed as to confirm our valuations well. And as also said, the the the yield is moving sideways. So next slide, please. As we said, this is probably the last time you see this property in our slideshow because it’s in England, at this demand, and we which we sell over the left during the quarter.

We consider to see transactions for as one of our value add value adding value part. It’s it’s part of our business model to sell off from time to time some part the properties that we think that we consider to be outside of our core areas and that we don’t see that see that we see less potential for development. So next slide, please. We also have, during the quarter, signed a letter of intent with with Solna, the city of Solna to sell Solna, Herna, Herna 1 property. The plan is to to sell it from at latest 2028.

As I say, at latest, you have we have told this before is that we will it the their their plan is to that this property will become the Solna new city hall. And Telenor, who has it as a Swedish headquarter, they have been there since 02/2018. And the so our ambition is to find a new solution for them so all three parties will be satisfied, and that can take some time. That’s why we talk about 2028 as latest. And the the property is located, as you know, between our Renastava and Sonar Business Park, and we don’t think it’s our it’s it’s it will be a fantastic city all for Sonar.

That’s the main reason for selling. Slide next slide, please. Now talk when we talk about the rental markets, there are a little bit more question marks. The Stockholm office rental market has been weak for several quarters now. We have seen increasing vacancy rates in all the submarkets of the of Stockholm, and especially, this is true in cheese stuff.

We continue to to increase, but also in the CBD. In the CBD, we can see it coming up, but but it’s also an effect that we have had some, what you can call, hidden vacancies over the last year since some of the tech companies, they rented more space than they needed some years ago. They have contracts on that. But now we also see we also see good demand in the CBD. So this figure, I think it will be many many companies see it as an opportunity to move into and to find new locations in the CBD and in the city.

The number of employees in the office intensive industries in Stockholm and the Stockholm region has been flat for the last years, and we can’t see any rising or or any growth in that yet. I think it will need some more better economy and a more a better macroeconomic situation before we see that. If if you go to next slide, please, you can see that the that the office the supply of offices in the stock of this also flat since many years. And that is what what we have very new products have started. I think very few have started on speculation.

There are some few in Skanska has one in at Kumsholm, for example, but very, very few, and more, projects are finalized the next right now, but they also have signed, many cases signed signed contracts. Next slide, please. Occupancy rate in the management portfolio have been coming down even further to 87%. Have said that before, that it will come down before it will get better. This is an effect of what the net letting figures from 02/2023 and also ’24.

That’s the effect we see right now. But also during this year, as you know, we will have the finalize the some of the projects that will have an impact, for example, but I will come back to that later. Please. Next slide. During the first three months of this year, 2025, we had a positive net lending of 6,000,000.

We have also renegotiated almost 90,000,000 at ex or extended on unchecked changed terms. We have 60,000,000 that we have re renegotiated at minus 5%. We and then also we have all some some contracts that all that are maturing between ’25. We already have been renegotiated before in in in the current agreement expires. We can say that we have, and we said that also before, that some contracts are, thanks to the indexation over the last years, maybe a little bit over rented.

And that’s where the fact we see now, but it’s for the 60,000,000 and five % is very some special contracts, especially one with with a larger one with with in that we have a building where we we we all said that we knew it was a little bit overrated. So so this is not a surprise for us. But I’m happy with that the net letting is, again, a a positive plus. So next slide, please. This we we used to show you the rental development in existing lease portfolio.

This is what we about this is based on what we know today. And this year the beginning of the year is an impacted, as you said before, over the net leasing figures from 2023, ’20 ’20 ’4. And for the third and fourth quarter this year and especially the first quarter next year is impacted by that zone in zone now. We get Saab moving in in the Merton, and Alfa Laval are moving in in during the summer in in in Plemishburg so that we’ll have a positive impact. So it’s we’re we’re coming closer to 900,000,000 in the beginning of the quarter in the beginning of next year.

So next slide, please. Now this this that we’ve been now a big surprise in this list. It will be added with with the during the year with with some of our new tenants or in the new products. When talking about conventive, we can’t say that more much more than we said in the q four report or the presentation. We will know more in a couple of weeks time when when they’re if you call it chapter 11 phase, we will lower reconstruction phase or we will we will be settled.

We have said that we will have an agreement with them. Hopefully, it will I think we would be positive for both, although it will be positive for them by making it giving them the opportunity to for for during the first year, said, a discount from us to be able to to take the the business into positive figures and then prolong the contract a little bit and then but on existing terms. So but more about this next later late late in this quarter. Ongoing products. We invested a little bit less than 500,000,000 this quarter, 447,000,000.

We continue with the development of porcelain, hamartrebusto, according to in in Haganora is Fossaab, and and Alfalavad in Plemishburg. All those projects will be finalized here this year, and it’s fantastic projects. I must say you’re you’re so welcome to visit them. It’s a residential development portfolio. We are moving moving on or continue with the project at Haganora, which is here right down in the in the or in the middle of the of the picture.

At the, yeah, at the back, you have the the the accorded, but it’s a fantastic Hoggenau would be a fantastic area. We are continuing with the investment in the residential. In the first phase, the 23 apartments of which 90 are sold. They are actually moving in right now. You see it down to the right.

It’s a red corner. It’s a fantastic product. In the owner apartments, we have now sold 39, and they they will get the or signed contracts, I should say, and they will get access in end of this year. Rental apartments are being completing for occupancy during the autumn. And then the next phase for for starting we will sell more of the next phases after the summer.

So it’s closer to to moving in. But I think this is a it’s a really great product by the store. Next slide, please. We, as you know, we have a little more than 700 or about 700,000 square meters of building rights. We we’re of 40 for the commercial portfolio, whereof about approximately 45 of legal binding.

If talking about the residential being rights, it’s more than half a million square meters, whereof 37% are legal binding. As we said before, we will not start any of these speculations, but this is a potential potential for the future and for the development of our exist on the areas where we’re active. Next slide, please. What has been important during during the quarter is that we have started in Arenalstaden with the road infrastructure in Harfal, Cairo. We will invest about 200,000,000 for for preparing for future projects.

The opportunities in the future are to build about 70,000 square meters of office under a couple of hundred apartments. We will not start the the commercial product before have signed contracts. So we we that was what what we also working with to try to find the potential tenants for that fantastic project. In Haganora, we can continue to develop the residential, but we also have a potential commercial product in Havanora to continue to the to develop that area. Next slide.

Some other project opportunities in the few for the future are, for example, Kungsoldmann, where we got the the legal binding plan for for Tegger Farasen or PariZip. And it’s a little bit more than 35,000 square meters of offices or commercial area, and it’s also some residentials. We’re right now discussing how to take that to to the next step. It’s on a business park. You get got a legal binding plan.

It’s more than 20,000 square meters of office and more than also 20,000 square meters for for us. But maybe even more important is that NCC now can start to construct or rebuild the house for Svenska KraftNet. And I think that will be really important for the development of Swaner Business Park. And as you know, we own most of the most of the other properties in in that area. We have some vacancies there.

Saab will move in close to this area. So I think it’s really what’s happening in the next years will be very positive and also an opportunity for us to to fill up the vacancies we have in in in the solar. So next slide, please. To the right, you you see with the the what we expect to Solar Business Park in five years’ time and where we are today in the middle. It will, as I said before, the sense that KraftNet or the NSSC building is in the middle.

Our potential projects are close to that. And I think this is really could be a a a great development for this area, which is the second best commuting area or or play center in Stockholm. You have the trains, you have the subway, you have a very good infrastructure. So this I think the potential in this area is is really exciting. In a tough world, in a turbulent world, in a challenging world, we believe in our markets long term.

Of course, we are we are not vaccinated by poor economy and turbulent times. But we see that we with the strong market share positions we have in Stockholm, in Solna, and with modern portfolio in good commuting on from locations. I see that also we the long term opportunities are there. What we will have focus on now is, of course, to fill up the 16 buildings. We have the goal target to increase the opens rates to 95%.

We don’t I don’t think expected to go fast. I think it will take a couple of years, and we said we said it would be at latest 2030. We will complete existing projects. And as we’ve said before, the larger ones are are are are done and also on a north accorded, it will add a couple of hundred millions of of new rental income for the next year over the next year. We will continue to not start the new products, but be able to when we find the the timing right to start new.

It will take the take the opportunities in the video I could tell you. We We will continue to do value creating transactions, and, of course, we always have focus on the cost. This, the targets, will of course, the cash flow, the growth of management profit per share, and to be the total return, the best property portfolio We’re probably looking at the total return in the in the in the suite. So thanks for listening, and questions.

Osa Bergstrom, CFO, Fastighets AB Balder: There are no questions at this time, so I hand the conference back to the speakers for any closing comments.

Stefan, CEO, Fastighets AB Balder: Thank you very much, and thank you for listening. And you, as always, you’re welcome to give us a call and ask question or have So so please give us a call, and I hope to see you soon. Bye. Have a nice day.

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