Earnings call transcript: Sveafastigheter AB Q1 2025 sees rental income surge

Sveafastigheter AB reported a significant increase in rental income for the first quarter of 2025, with revenues reaching $376 million, up 20.4% year-over-year. The company’s stock gained 2.35% in pre-market trading, reflecting positive investor sentiment following the earnings announcement. The net operating income also saw a robust increase of 31.3%, reaching $270 million.

Key Takeaways

• Rental income increased by 20.4% to $376 million.
• Managed 14,794 apartments with a 0.3 percentage point rise in occupancy rate.
• Stock price rose 2.35% in pre-market trading.

Company Performance

Sveafastigheter AB demonstrated strong performance in Q1 2025 with notable growth in rental income and net operating income. The company continues to benefit from its strategic focus on high-demand housing markets, particularly in Sweden’s metropolitan and university regions. The occupancy rate increased to 94.9%, indicating effective property management and strong market demand.

Financial Highlights

• Revenue: $376 million, up 20.4% year-over-year.
• Net Operating Income: $270 million, up 31.3% year-over-year.
• Profit from Property Management: $56 million.
• Like-for-like portfolio rental income increased by 6.81%.
• NOI margin (12-month rolling) increased to 64%.

Market Reaction

Following the earnings announcement, Sveafastigheter AB’s stock price increased by 2.35% in pre-market trading. The stock closed at $34.06 the previous day and has shown resilience, trading closer to its 52-week high of $40.6. This positive movement reflects investor confidence in the company’s strategic direction and financial health.

Outlook & Guidance

Sveafastigheter aims to start constructing 600-800 apartments annually and reach a 70% NOI margin by 2029. The company is planning to continue investing in new construction projects and expects one-off costs similar to Q1 in the upcoming quarter.

Executive Commentary

Erik Hevermark, CEO of Sveafastigheter AB, emphasized the company’s commitment to sustainability, stating, "Sustainability is at the core of everything we do." He also highlighted the potential for increased occupancy rates, saying, "We see strong potential to increase occupancy rates," and underscored the strategic reinvestment of cash flow: "Our strategy is to reinvest our strong and stable cash flow."

Risks and Challenges

• Potential fluctuations in capitalized interest could impact financial results.
• Market saturation in key regions could limit growth opportunities.
• Macroeconomic pressures, such as inflation, may affect operating costs.
• Regulatory changes in the housing market could pose compliance challenges.
• Dependence on high-demand regions may increase vulnerability to regional economic shifts.

Q&A

During the earnings call, analysts inquired about the company’s apartment upgrade plans and potential new housing project starts. Management clarified variations in capitalized interest and discussed ongoing efforts to enhance the NOI margin.

Full transcript - Sveafastigheter AB (SVEAF) Q1 2025:

Conference Operator: Welcome to Svea Fast Diodor Q1 Earnings Call twenty twenty five. For the first part of the presentation participants will be in listen only mode. During the questions and answer session participants are able to ask questions by dialing 5 on their telephone keypad. Now I will hand the conference over to the company. Please go ahead.

Christa, Head of Treasurer and IR, Svea Foscillator: Welcome to Svea Foscillator’s earnings call and presentation of our q one twenty twenty five results. My name is Christa, and I’m head of treasurer and IR. Today’s presenter is CEO, Eric Hevermark. After the presentation, we are opening up for q and a. Now I’m handing over to Erik.

Please go ahead.

Erik Hevermark, CEO, Svea Foscillator: Thank you, Kirsten. And also from my side, good morning, and welcome to the presentation of the results for the first quarter of twenty twenty five. Despite our short history, our results in the first quarter demonstrate clear progress in executing on our strategy with focus on increased profitability and organic growth. I’ll start the presentation with a quick overview of Svea Fafceten and then move on to the performance in the first quarter. Svea Fasseter is a value based company striving towards our vision to become Sweden’s leading residential company.

Our mission, which describes what we do every day, is to manage and develop homes for more people where current and future generations can thrive and feel safe. Let’s have a look at our history on the next page. Was established in June by combining properties and organizations from three separate companies. In October, we did an IPO and was successfully listed. And from January, we managed all of our properties with our in house property management organization.

Managing all our properties is essential in our strategy to reach the full potential from the property portfolio. Let’s move over to our business model showcased on the next slide. Svea Van Sjertes business model is based on two strong business areas, property management with 14,794 apartments under management and new constructions with 908 apartments under construction and 6,658 apartments in development. The combination of the two business areas provides Svea Fasseter with a clear path towards continued profitable organic growth. The total property value of our portfolio is 28,200,000,000.0.

The strategy for Svea Fassettel is to reinvest our strong and stable cash flow from standing assets in new constructions and value adding investments in our standing assets and by doing so, create profitable growth of the business and a solid total return. Our growth strategy is behind our operational targets to start new construction of 600 to 800 apartments annually and to upgrade 2,000 apartments by 2029. So with that short summary of Svea Fasterte and our history, we move over to the next slide and have a look at our performance in the first quarter. Svea Fossierde continues to deliver strong growth. Our rental income grew by 20.4% to $376,000,000, and our net operating income increased by 31.3% to CHF $270,000,000, meaning our income grew faster than our operating expenses, leading to a strengthened NOI margin.

Profit from property management amounted to CHF 56,000,000, a profit that was impacted by nonrecurring administrative costs of DKK 11,000,000 attributable to the formation of Svea Compared to the previous quarter, our administrative costs have decreased by DKK 12,000,000, and the administrative costs will continue to decline as organizations now are adapting to the new phase, Sveafracetirizine, post the from listing of the company, with focus on operational efficiency and organic growth. The value change for the quarter was minus DKK 72,000,000. During the quarter, we invested EUR 178,000,000, and the average yield requirement in the quarter was 4.43%. In the prior quarter, it was 4.38%. And the result for the first quarter was 39,000,000.

Let’s move over to the next slide. As I mentioned, we have had a strong increase in rental income and net operating income, partly driven by completed new construction, which amount to 442 apartments since the same quarter last year. In a like for like portfolio, the rents increased by 6.81% and net operating income by 13.9%. The growth in the like for like portfolio mainly derived from the yearly rent increase that for 2025 now is completed and landed at 4.9% on average for the portfolio. About 70% of the rent increase came into effect gradually during the first quarter.

The rest will kick in during the second quarter, of which the absolute majority was in April. The NOI margin, twelve months rolling, has increased by three percentage points to 64% compared to twelve months rolling the same quarter last year. And with property administration included, it is 57%, an increase by two percentage points. We have target to reach a NOI margin of 70%, including property administration in 2029. We have several tools in the toolbox to achieve this, adding new builds with higher NOI margin than older buildings, upgrading apartments, lowering our energy consumption, and last but not least, increase our occupancy rate.

On the next slide, you can see how the occupancy rate has developed. We now see that the measures we have implemented to increase the occupancy rate are starting to have an effect. The occupancy rate for buildings older than three years has increased by 0.7 percentage points compared to the prior quarter. And for the portfolio as a whole, it has increased by 0.3 percentage points to 94.9%. We see potential to further strengthen the occupancy rate going forward by continuing on the same path.

We usually don’t comment on the leasing situation in individual cities. However, I believe it’s relevant to say a few words about the situation in Koleftu due to the northward situation. The demand for housing in Koleftu is naturally affected by the job cuts in Northvolt, and we are observing signs of rising vacancy rates in Koleftu. Svea Fatehter’s portfolio in Koleftu primarily consists of older properties with low rent levels, or to be a bit more precise, 51 of our apartments have high new build rents corresponding to 3% of our apartments in Koleftio. And we believe that it is in new builds with higher rents that will be affected the most by an increase in vacancies.

Also important to point out is that our properties had a good occupancy rate even before Northvolt established their business in Koleftio. Svea Fassetta had two ongoing constructions in Koleftio in one, with a final phase of three, is estimated to be completed in second quarter this year. We have low rents due to governmental subsidies. In the other, we have an agreement on which the municipality owned housing company will become the long term owner of the property if We also believe that potential vacancy increases in Koneftu can be offset by continued strong occupancy in our other locations.

This underlines the strength of Svea Fatheater’s property portfolio benefits from geographical diversification and thereby a lower overall risk profile. Let’s go over to the next slide for an overview of our sustainability focus. Sustainability is at the core of everything we do at Svea Fastenter, and it is an integrated part of our Our focus on sustainability strengthens our profitability in our standing assets, and it makes Svea Fasteater a preferred partner for the municipalities and other important stakeholders for new developments. The stop the clock directive that was decided by the EU parliament will postpone the implementation of CSRD and EU taxonomy. This will not change Svea Fassett’s focus on sustainability.

Instead, it enable us to focus even more on achieving our sustainability goals and less on reporting. However, an increased transparency in our sustainability sustainability work remains the strategic priority for. During the quarter, we invested 60,000,000 SEK in profitable energy projects. After testing and evaluating an AI control system in a selection of properties, we have decided to implement this technology at short of our properties. This technology is self learning and automatically takes into account factors such as weather and heating system to optimize and lower energy consumption in each building.

During the quarter, we also launched a pilot initiative in seven locations where we removed the income requirement from our letting policy, an effort aimed at lowering thresholds to the housing market and broadening access to our apartments. We believe that there are unmotivated hurdles for many to get access to market and that these changes in our letting policy will support our work on increasing the occupancy rate and also lead to less administration. Now we move over to our property portfolio, which consists of properties under management, properties under construction and project development, which combined has a total property value of 28,200,000,000.0. Let’s start with properties under management. Properties under management amount to 24 in property value and consists of 14,794 apartments.

94% are located in Sweden’s Three metropolitan regions and university cities, and this exposure to strong housing markets is why we see a strong potential to increase occupancy rates. Our portfolio consists solely of residential properties. 7% of our rental value comes from commercial space, premises that are usually on the Ground Floor in the residential buildings. As I mentioned, we have a target of thousand apartments by the year 2029, renovation that are conducted with our upgrade concept called HemLift. We are ramping up to reach our target, and in the first quarter, we upgraded 55 apartments.

We intend to upgrade at least 200 apartments in 2025. To understand Svea Fastjetter, it is important to understand the geographical exposure and age structure of the top lease and hold portfolio, presented on the next slide. As mentioned, 94% of our properties are located in Sweden’s Three metropolitan regions and university cities. 72% of the portfolio are located in our 10 largest cities, with the greatest exposure to Greater Stockholm. In the upper table, you can see that approximately two quarters of the portfolio is built before the year 2010 and have a property value of 20,905 SEK per square meter, and one third of the portfolio is built after 2010 and has a property value of 40,227 SEK per square meter.

In the lower table, the age structure for each market is presented. The majority of our our newer buildings are in Stockholm and the portfolio’s exposure to Stockholm will increase we continue to add new builds from our development portfolio. Let’s go over to our second business area, new construction, and start with properties under construction. In the first quarter, we have completed 122 apartments in phase one of two in project Baumushka in Ermu. The second phase, comprising 101 apartments, is estimated to be completed in the second quarter of twenty twenty five.

In the same quarter, the third and final phase of our project in Kulefcu with 60 apartments is also expected to be completed. This project, as I already mentioned, has a low rent due to its being subsidized. Besides these two projects, we have four projects under construction that are expected to be completed in 2026, and after completion, add 747 apartments and 113,000,000 in rental value, of which 178 apartments and 23,000,000 in rental value is in the project Thunggatan in Horefjio, where we, as I described, have the option to hand over the project to the municipality owned residential company. Zvi Fassietrich investments in new construction gives a solid return on invested capital and grows our portfolio with properties that have significantly higher NY margin than older properties and strengthens our earnings capacity. We have an operational target to start construction of 600 to 800 apartments annually, and we are planning to start new projects this year.

Over to project development. The transaction market has started to pick up. And within residentials, new builds in Greater Stockholm stand out as a particularly strong segment, with transactions taking place at levels that underscores the significant potential of Svea Fastertas development portfolio, which includes 6,658 apartments, of which 93% are located in Stockholm Maladoren region and 86% in Greater Stockholm. 5 Thousand 3 Hundred And 50 8 apartments in our development portfolio are rentals, and 1,300 apartments are condos. Let’s go over to our earnings capacity on the next slide where our current performance is presented.

Compared to the earnings capacity in the previous quarter, the rental value has increased, mainly due to the 122 apartment that was completed in our project in Uemu. As said earlier in the presentation, our focus on increasing the occupancy rate has already given results, and the vacancies consequently has decreased. Our property expenses have increased larger because of higher tariffs for district heating of water and the waste collection than estimated. We also have made a slight adjustment upward for administration costs. SVFASTER has an external property management agreement where we manage a portfolio of about four apartments on 2026.

The income from this assignment is on the line item other income, and SVFASTER’s related costs for the assignment are included in central administration with 44,000,000. The NOI, including property administration, is 937,000,000, and including the projects that will be completed within the next twelve months is $947,000,000. The expected earnings from projects that will be completed within the next twelve months has decreased compared to the previous quarter because of the completion of phase one in our project in Uemu, but also because of that the estimated completion date for our project in SK is two now have been moved forward to the second quarter of twenty twenty six. Now move over to Svea Fassettas’ financial position. We see solid with an LTV at 42% and a ICR at 2.2.

With our sizable and pure residential portfolio in a rent regulated market, combined with our strong capital structure, Svea Fasseter stands solid in a turbulent macro environment. The combination of a stable residential portfolio and a strong financial position is reflected in the expected credit rating minus the positive outlook that Fitch Rating published in April. As an investment grade rated company, Svea Facet will get access to even more favorable and diversified financing moving forward. To wrap it up, let’s move over to the final page of the presentation, where I will walk you through the key takeaways from the quarter. We saw a strong growth with total net operating income increasing by 31.3%.

On a like for like basis, the increase was 13.9%, showing solid underlying performance in the portfolio. Profit from property management improved to 56,000,000 despite one off costs. We also saw an improved occupancy rate rate, which increased by 0.6 percentage points since Svea Faucette was established. This is a positive sign that our focus on leasing is delivering results. In addition, we have accelerated the pace of apartment that will further strengthen our net operating income and NOI margin going forward.

Finally, we have received an expected investment grade rating of BBB minus with a positive outlook for Fitch rating, which is a clear acknowledgment of our financial strength. So that was our prepared comments. And with that, we hand over to the operator and the Q and A session.

Conference Operator: The next question comes from Ki Bin Shervantur from SEB. I

Ki Bin Shervantur, Analyst, SEB: have a couple of questions. First, on the financial expenses. So financial expenses was down by 14% versus Q4, and this is despite similar average interest rates and interest bearing debt. Could you maybe explain the difference versus Q4? And also clarify what is capitalized interest in each quarter?

Erik Hevermark, CEO, Svea Foscillator: So I would say the difference before between your calculations and the outcome in the first quarter is capitalized interest, as you mentioned. We don’t disclose quarterly the capitalized interest. You can look at our annual report to see the capitalized interest for 2024.

Ki Bin Shervantur, Analyst, SEB: Yes. And that was $46,000,000 full year. So that implies about $9,000,000 per quarter, and the difference here is about 15,000,000

Erik Hevermark, CEO, Svea Foscillator: That’s correct. So we continue to invest in mainly new developments. And, of course, as we continue to invest, the capitalized interest also increase. And when we we complete new developments, the capitalized interest will decrease. But as you know, we we plan to start new construction going forward.

So you have to take into account both continued invest completed, of course, development projects, but also that we start new constructions going forward.

Ki Bin Shervantur, Analyst, SEB: Okay. And I also have a question on the one off in the quarter. Do you believe that most of the costs have been taken? Or do you expect some type of additional one offs in upcoming quarters?

Erik Hevermark, CEO, Svea Foscillator: Well, we expect some one offs in the upcoming quarters as well. We don’t have any any, of course, forecast when it comes to one offs. But I believe in the second quarter, we will have one offs more or less in line with the one offs in the first quarter.

Ki Bin Shervantur, Analyst, SEB: Okay. Thanks. And also on the upgrades, you stated here in the reports, it’s 200 upgrades for 2025. Do you have any indication on upgrades for ’26 and ’27?

Erik Hevermark, CEO, Svea Foscillator: No. But you as you know, we we we intend to upgrade 2,000 apartments starting from the 07/01/2024 until 2029. So within five years, we we plan to upgrade 2,000 apartments, and we will continue to increase the pace to reach this target. So it will be higher than 200 apartments in in 2026, but we don’t have any more specific guidance more than that.

Ki Bin Shervantur, Analyst, SEB: Okay. Good. And also one just one final question, and that’s that you mentioned in the report that you plan to start new housing projects this year. Do you have any indication on how many apartments that would be?

Erik Hevermark, CEO, Svea Foscillator: No. We don’t have any indications. So so we’ll come back to you with more information. We need the billing permits, of course, in place and and also to to reach agreement with contractors. So so we don’t have any more information more than that we plan to start new construction this year as well.

Ki Bin Shervantur, Analyst, SEB: Okay. Thank you. Those were my questions.

Erik Hevermark, CEO, Svea Foscillator: Thank you.

Conference Operator: The next question comes from Jan Ehrfeldt from Kepler Cheuvreux. Please go ahead.

Jan Ehrfeldt, Analyst, Kepler Cheuvreux: Okay. Good morning. A couple of questions from my side also, and I’ll start with a rather detailed one. But on page 26, you have a calculation of your income from property management, where you add, the property value changes. That’s natural, of course, as they are negative in the financial, in the P and L.

But then you also deduct goodwill despite that it’s already deducted in the P and L. So how do you come up with an income for property management of 56

Erik Hevermark, CEO, Svea Foscillator: Good morning, John. Thank you for questions. So that was a detail, as you as you said, detailed question, and we will have to get back to you with the answer on that. I believe that we do a correct calculation of of our property from property management, but let us come back to you with a more specific answer to your question.

Jan Ehrfeldt, Analyst, Kepler Cheuvreux: Okay. Thanks. And also coming back to your financial net, if we compare Q4 with Q1, were there any changes in, let’s say, the financial income between these two quarters?

Erik Hevermark, CEO, Svea Foscillator: No. No significant changes. So so Okay. Lands risk on the answer, it is no. No?

Jan Ehrfeldt, Analyst, Kepler Cheuvreux: Okay. And paid tax for this year, do do you could you provide provide us with any kind of guidance?

Erik Hevermark, CEO, Svea Foscillator: No. We don’t provide any guidance when when it comes to tax. As as you saw in our report. We we don’t have any any tax paid in the first quarter, and we don’t have any guidance more than no. We don’t have any guidance on tax.

Jan Ehrfeldt, Analyst, Kepler Cheuvreux: Okay. And your earnings capacity when it comes to NOI margin is a little bit down towards revision there, point three percentage points. Are there heating costs maybe that could cause this rather small change in your earnings capacity regarding the NOI?

Erik Hevermark, CEO, Svea Foscillator: So the NOI margin has marginally changed to the previous quarter. And I would say it’s mainly due to tariff related costs. And of course, heating district heating is the main cost driver when it comes to tariff based costs in our earnings capacity.

Jan Ehrfeldt, Analyst, Kepler Cheuvreux: Okay. Thanks. That’s all from my side.

Erik Hevermark, CEO, Svea Foscillator: Thank you.

Conference Operator: No more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.

Erik Hevermark, CEO, Svea Foscillator: Well, thank you so much, and thank you for listening and your questions. And I wish you all a pleasant day.

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