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Edited Transcript of DCAR B.ST earnings conference call or presentation 19-Jul-19 8:00am GMT

Q2 2019 Hembla AB Earnings Call

Stockholm Jul 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Hembla AB earnings conference call or presentation Friday, July 19, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jonas Andersson

Hembla AB (publ) - CFO & CIO

* Svein Erik Lilleland

Hembla AB (publ) - CEO

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Presentation

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Svein Erik Lilleland, Hembla AB (publ) - CEO [1]

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Good morning and welcome to Hembla's Second Quarter 2019 Presentation. I'm here with Jonas Andersson, our CFO, and we will go through the numbers and major events for the quarter.

Please turn to Page 2. Here in this slide, you can see a synopsis of our main figures for the quarter. Jonas will go through these in more detail later, so I will just give you a quick overview.

We have a continued high pace of refurbishment with 411 apartments completed in the quarter, totaling over 730 for the half year.

We have a continued focus on optimizing our renovation process, so we are always looking for improvements. This goes for the experience for the neighboring tenants, the materials and products we use for the apartments as well as our costs.

The NOI for the first half year of 2019 increased by 13.3% compared with the same period last year. This is driven largely by a larger portfolio and apartment renovations.

Looking at like-for-like portfolio, the NOI has increased by 4.7% for the first half year compared to the same period last year. Increase in value of our properties by more than SEK 1.1 billion for the first 6 months has given us an EPRA NAV of SEK 181 per share.

Please turn to Page 3. Again, a busy quarter on many fronts. Last quarterly audiocast, we spoke about our work to reorganize our property management organization. We have now accrued SEK 25 million for the quarter for the works throughout the quarter as well as for the implementation over the next 18 to 24 months in relation to this reorganization. We believe these changes will yield a yearly cost saving in excess of SEK 10 million going forward.

The new organization was launched in June, and the overall purpose of the reorganization is to deliver on our promise to our tenants and to give them faster and better service in every aspect.

We have changed our property management organization from a regional organization of 7 regions to a functional organization of 4 functions: customer service, customer management, technical property management and business development. This organization will have a better and closer dialogue with our tenants daily on every level.

We have opened 8 hours every day for our tenants to call us and we can answer them in most of our tenants' native languages. This is greatly appreciated by them.

Please turn to Page 4. At Hembla, we are constantly discussing how we can create vibrant communities in order to create better living. We have a way of coordinating our work and initiatives for this in every city district called [boost]. This work is now overseen by a newly appointed city district manager. And we do not work in isolation when we're trying to create these vibrant communities but rather closely with our tenants, Tenants Association, neighbors and local politicians. We feel we have a good relation with all of our stakeholders.

Please turn to Page 5. Our approach beside renovating apartments is to do full upgrade of our city districts, including the building themselves, with façades, with added insulation, energy-efficient windows, balconies, staircases, lifts and more.

Further, we upgrade the outdoor common areas, both thinking of enhancing the living conditions as well as the environment. The outdoors is upgraded with new playgrounds, outdoor gyms and barbecue areas to benefit -- to the benefit of all our tenants.

We are installing new recycling waste management systems in several areas in order to make it easier for our tenants to live more environmentally conscious.

Please turn to Page 6. Our sustainability thinking as a landlord goes far. We have installed geothermal plants in Jordbro, Norrköping and Vårberg already and started in Husby, Ronna, Visättra and Uppsala. Added insulation and upgraded windows have been installed in Huddinge, Södertälje and Husby. Many more areas are planned.

We are doing all this in order to bear our part of responsibility for the environment. We have, through these investments, reduced our carbon footprint. In Katrineholm, we have reduced our CO2 emissions by 15 tonnes per year.

Please turn to Page 7. Two of the geothermal plants installed are in Katrineholm and Södertälje, both have an energy saving of close to 70%.

The geothermal mechanism is that our need to buy heating from external parties is eliminated or greatly reduced. Instead, we extract the needed energy from circulating fluids and deep holes in the ground. This energy is then transferred to our heating systems in our buildings.

The only energy we have to introduce is the electricity to run the pumps and the heat exchangers. The stackup of our energy consumptions can be seen on this slide.

Please turn to Page 8. To further reduce the need for external and, in some cases, environmentally unfriendly electricity for the heat exchanger and pumps mentioned on the previous slide, we have started installing solar panel on our roofs.

We have piloted 2 projects in Katrineholm and Eskilstuna for almost a year now and they work. The investments are easy to justify for us at Hembla.

Please turn to Page 9. Another important part of the sustainable thinking is our engagement with the local communities. We are part of several BID projects where a large group of local stakeholders in an area all emphasize on improving the district through investments and collaboration. We enable our tenants to meet and form relations at our new and upgraded outdoor common areas. We have collaborations with the tenant associations in 23 local areas. Together with them, we organize and finance many activities for kids and older alike.

We have constant efforts aimed at ensuring our city districts are clean and safe through separate projects and safety initiatives. This summer, we have, together with Huddinge municipality, 35 youth working for us performing interesting and important tasks.

Please turn to Page 10. Now changing gears a little. This slide is a slide we show with every presentation at Hembla. We are proud to own and manage a great portfolio of homes in the larger Stockholm region, more than 21,000 apartments with a market value of SEK 33 billion.

Jonas, can you take us through the numbers in more detail?

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Jonas Andersson, Hembla AB (publ) - CFO & CIO [2]

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Please turn to Page 11. Thank you, Svein Erik. This is probably also one of the more familiar slides in our presentation, but it's once again worth highlighting the fundamental underlying strength of the rental housing market in Stockholm.

The housing queue keeps increasing and reached some 600,000 people in 2018. At the same time, mere 6,000 partners were let through the housing queue. It is in this market we operate.

Please turn to Page 12. In the second quarter of 2019, rental income increased by 4% on a like-for-like basis compared to corresponding quarter last year. At the same time, NOI increased by 3.8%, again, for like-for-like portfolio. And as Svein Erik highlighted, we are up 4.7% comparing the first half of 2019 to the first half of 2018. The NOI margin for the like-for-like portfolio amounted to 56.1% for the quarter, which is in line with the corresponding margin last year.

Please turn to Page 13. The EPRA NAV increased by 3.4% compared to Q1 2019. The growth is driven by cash flow improvements. The consistently strong development of our EPRA NAV is also reflected in our equity ratio, which at 38.6% at the end of Q2, is above our long-term financial target, again, highlighting the underlying financial strength of our company.

Please turn to Page 14. As we have highlighted in previous quarters, we are still in the process of investing and strengthening our organization, ultimately to be able to deliver a higher level of service to our tenants and a more scalable business. This is reflected in CA costs, which for the first -- for the 12 months preceding the end of the period, amounted to SEK 201 million, out of which SEK 27 million were one-off in nature related to rebranding and digitization.

Please turn to Page 15. During the quarter, we're continuing to pursue our financial strategy. We completed a refinancing of about SEK 3 billion with an existing bank, improving the covenant structure, decreasing the interest rate and extending the maturity.

In accordance with our strategy, a term loan was combined with a CapEx facility, allowing us to keep investing in our property portfolio in a capital-efficient manner.

Post-refinancing, all of our bank debt is now nonrecourse. Also, the average maturity was extended to 5.9 years and the average interest rate decreased to 2.7% -- 2.0%. The total LTV is now at 54%.

Please turn to Page 16. During the quarter, we continue to provide an improved living environment for our tenants, renovating 411 apartments, bringing the total number of refurbished units in our portfolio to just shy of 6,400.

Having said that, 70% of our apartment stock remains unrefurbished, highlighting the underlying potential of our business.

Also, and as Svein Erik covered in detail earlier on, it is our firm belief that a nice living environment does not only include renovated apartments but also an enjoyable, sustainable and modern surrounding. This is why we invested SEK 174 million during the quarter in measures such as playgrounds, geothermal, new façades and more.

Please turn to Page 17. A few finishing remarks on the details of our financial performance, starting off with a bridge from our rental income to the income from property management.

For the first 6 months of the year, our rental income reached SEK 956 million while our operating costs, maintenance costs and other expenses amounted to an aggregate of SEK 468 million, bringing us to an NOI of SEK 488 million for the first half year of 2019.

Also worth pointing out is the restructuring reserve related to newly launched and ongoing restructuring of our property management organization, amounting to SEK 25 million, which impacted the results for the second quarter of the year. All in all, the income from property management for the first 6 months of the year amounts to SEK 164 million.

Please turn to Page 18. The notable increase in income from property management for the first 6 months of 2019 as compared to the first 6 months of 2018 is a result of the larger property -- larger portfolio stemming from the 3 major acquisitions closed in Q2 2018 as well as our stable and high pace of renovating apartments. The cost increase on the operating side is, once again, mainly driven by a larger portfolio but also from fees related to sanding, mandatory ventilation control and other regulatory inspections.

Also, as we have pointed out previously, we have heightened our [ambitions] in terms of proactive maintenance spend.

In addition, we have improved our security efforts in selected geographies, thereby, impacting our operating costs.

Back to you, Svein Erik.

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Svein Erik Lilleland, Hembla AB (publ) - CEO [3]

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Thank you, Jonas. Please turn to Page 19. Lastly, I want to highlight a couple of important points. We continue to take our tenants seriously and to listen to their needs. We are a long-term residential owner and manager here in Stockholm and we act accordingly. We create value for our stakeholders by renovating and enhancing living environments where we own and operate. We have a strong commitment to improve and growing our portfolio.

And lastly, our tenants always comes first, and we want to constantly improve the level of service we offer.

Thank you for listening.