Earnings call transcript: Neobo Fastigheter sees strong Q2 2025 gains

Neobo Fastigheter AB (market cap: $257M) reported robust financial results for the second quarter of 2025, driven by significant improvements in property management profits and operational efficiencies. The company saw a 50% increase in total property management profits over the first six months, alongside a 12% improvement in net operating income for its like-for-like portfolio. The stock price of Neobo Fastigheter rose by 1.55% to 17.08 USD, reflecting investor confidence in the company’s performance and strategic initiatives. According to InvestingPro analysis, the stock is currently trading below its Fair Value, suggesting potential upside opportunity.

Key Takeaways

• Total property management profit surged by 50% in the first half of 2025.
• Rental income and net operating income both showed positive growth.
• Operational efficiencies led to a decrease in property management costs.
• Neobo’s stock price increased by 1.55% following the earnings report.

Company Performance

Neobo Fastigheter AB demonstrated strong performance in Q2 2025, with significant gains in property management profits and operational efficiency. The company’s focus on cost savings and energy efficiency contributed to a decrease in property management costs by 18 million USD year-on-year. Despite a slight increase in residential vacancies, the company remains optimistic about improving vacancy trends through ongoing renovations and strategic lease agreements.

Financial Highlights

• Total property management profit: +50% in the first six months
• Rental income increase: +4% in like-for-like portfolio
• Net operating income: +12% in like-for-like portfolio
• Property portfolio value: 13.8 billion USD
• Surplus ratio: 56% (12 months), 65% (quarterly)
• Interest coverage ratio (ICR): 1.8x (12 months), 2.2x (quarterly)

Outlook & Guidance

Looking ahead, Neobo plans to renovate approximately 100 apartments this year, which is expected to enhance property values and reduce vacancies. The company has secured a new lease agreement with the Swedish prison and probation service, commencing September 1, which is anticipated to provide stable income streams. Neobo’s guidance for the coming years suggests continued focus on profitability and operational efficiency.

Executive Commentary

CEO Ulfa Sarvi Wesman remarked, "Despite a turbulent global environment, we have remained focused on our core business." She emphasized the company’s strategic focus on profitability, stating, "We are on the right track by maintaining focus on increased profitability." Wesman also highlighted the company’s operational achievements, noting, "We see the highest quarterly levels of surplus ratio and ICR since Niobo was founded."

Risks and Challenges

• Increasing residential vacancies could impact rental income if not addressed.
• Market volatility and economic uncertainties may affect property values.
• The success of new projects, such as the water recycling initiative, remains to be seen.
• Interest rate fluctuations could influence financial costs and investment returns.

Neobo Fastigheter AB’s Q2 2025 performance showcases its resilience and strategic focus on enhancing property management and operational efficiencies. The company’s forward-looking initiatives and recent lease agreements position it well for continued growth, despite potential market challenges.

Full transcript - Neobo Fastigheter AB (NEOBO) Q2 2025:

Conference Operator: And hand the Ilva Sarbi Wesman. Please go ahead.

Ulfa Sarvi Wesman, CEO/Presenter, Niobo: Thank you, and good morning, everyone, and welcome to the presentation of Novo’s interim report January to June 2025. My name is Ulfa Sarvi Wesman, and I’m joined here today by our CFO, Maria Stambari. Despite a turbulent global environment, we have remained focused on our core business, creating attractive sustainable living environments where people can thrive and feel secure. And it’s rewarding to see our efforts paying off and that we are on the right track. Profit from property management increased by 50% in the first six months of the year despite seven properties being divested last year.

Rental income in the like for like portfolio increased by 4%, and net operating income improved by 12% in the like for like portfolio as a result of both higher rental income and lower property management costs. We are reporting positive unrealized value changes in the property portfolio of 11,000,000 as a result of stabilized yield requirements and increased net operating income due to investments being made in the portfolio. The property portfolio now has a value of 13,800,000,000.0 comprising 8,300 apartments, and residential properties account for 95% of the total value. Rent negotiations for 2025 are completed with an average increase of 4.8% in the residential part of the portfolio. We continue to create value through strategic improvements.

And since the start of the year, we have invested 109,000,000 to improve the attractiveness and safety of our properties. Residential vacancies increased by 27 apartments during the quarter. However, currently around 30 apartments are being renovated in areas with good occupancy rates, meaning we are optimistic about the vacancy trend in our portfolio going forward. As we have previously communicated, the lease agreement with the Swedish prison and probation service in Solentona will enter force, on the September 1. And in conjunction with occupancy, the commercial vacancy rate in Niobo will fall by 2.9 percentage points.

We continue our work towards achieving our long term sustainability goals. And here you can see some examples of value creating sustainability activities that we have carried out. As part of our efforts to reduce our environmental footprint, we have launched a pilot project in Nassam where we have installed an innovative water recycling system that connects directly to the washing machines, enabling the reuse of both water and energy while filtering out microplastics that will otherwise enter the wastewater system. The transaction market continues to show signs of improvement with volumes up by 27 compared to last year. Yesterday, we signed an agreement, to divest a billing right in Solenturna to allow allowing for the development of approximately 80 student apartments.

And the sale sales price of 19,500,000.0 is just over the most recent external valuation of the building right. Closing will take place, once the property subdivision gains legal force, which is anticipated during autumn. I have already commented on the results, but I would like to highlight, a couple of items. Total property management costs decreased by 18,000,000 year on year, and the decrease was attributable to cost saving measures in property operation and energy, as well as a milder winter compared to the preceding year. With increased NOI and higher rental income, the surplus ratio reached 56% on a rolling twelve month basis and 65% for the quarter.

Both central administration and net financial items are in line with the corresponding period last year. The earnings capacity reflects an increase in rental value of $2,000,000 as a result of revenue enhancing investment, which is offset by a slightly higher vacancy rate. Net financial items improved by $7,000,000 due to a lower policy rate and refinancing. Other items are in line with the previous quarter. Our property values have now stabilized with unchanged yield requirements in the valuations over the past five quarters.

We are maintaining maintaining a stable financial situation and the average interest rate decreased to 3.4% attributable to a lower policy rate and refinancing. The average fixed rate period increased from two point three to two point seven years during the quarter, and we have a high hedge ratio of 83%. The ICR was 1.8 times over the past twelve months and 2.2 times for the quarter, the highest levels since Neobu was established. To increase the predictability of future cash flows and mitigate the financial risk, we employ interest rate derivatives. And at the end of the period, the aggregated nominal value of active swaps was $5,900,000,000 And here you can see our largest shareholders as of the June.

And in total, we now have 91,000 shareholders. And finally, some key takeaways. We are on the right track by maintaining focus on increased profitability and due to strong commitment from our employees, profit from Property Management grows by 50%. We see the highest quarterly levels of surplus ratio and ICR since Niobo was founded. Divestment of a building right in Solentona and the price is just over the most recent external valuation.

Stabilized property values with unchanged yield requirements in the valuations over the past five quarters. And, sorry. I think it was some problem with changing slides. This is the slide of the largest shareholders, and here we have the the summary, the key takeaways. Sorry for that.

But with this, I would like to open the floor for questions.

Conference Operator: There are no questions at this time. So I hand the conference back to the speakers for any written questions.

Q&A Moderator: Yes. Thank you. We have one question. Any guidance on apartment renovation for the year?

Ulfa Sarvi Wesman, CEO/Presenter, Niobo: Yes. We we have, really tried to, increase, the pace, and, hopefully, we will, renovate around 100 apartments or or so during the year. So that’s the estimation.

Q&A Moderator: Yes. And we have another one. What explain the drop in property administration in q two?

Ulfa Sarvi Wesman, CEO/Presenter, Niobo: If if we look, at the central administration, I think it’s better to analyze, the first six months of the year since the costs will, occur in different some costs in the first quarter and some in the in the in the second quarter. The property management costs. Sorry. Sorry. Okay.

I I I thought it was the it was the central administration. In in in property management costs, it is cost saving activities that we have working very, very hard with since the start of Niobo. So it is, both, in in the management of the properties that we have been able to to to to lower the costs, but it’s also, energy efficiency due to value creating investments that are paying off.

Q&A Moderator: Thank you. That was the last one.

Ulfa Sarvi Wesman, CEO/Presenter, Niobo: Okay. So thank you everyone for listening in, and have a great summer.

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