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Edited Transcript of DCAR B.ST earnings conference call or presentation 25-Oct-19 8:00am GMT

Q3 2019 Hembla AB Earnings Call

Stockholm Oct 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Hembla AB earnings conference call or presentation Friday, October 25, 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 Third 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. On 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 continuous high pace of refurbishment with 340 apartments completed in the quarter, totaling 1,072 for the 3 quarters combined. We have several improvement and cost control projects ongoing in the company constantly, one of them being to improve our apartment renovations both from a logistic and quality perspective as well as reduction of direct costs. We can see that this is paying off.

We are now renovating an apartment on average 10% less than a year ago. The NOI for the 3 quarters combined increased by 9.1% compared with last -- with 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 3.6% so far this year compared to the same period last year. Increase in value of our properties by more than SEK 1.2 billion for the first 9 months, giving us an EPRA NAV of SEK 184.4 per share.

Please turn to Page 3. This quarter was the first full quarter of our new organization in place. We can already see the effect of it through the delivery of our -- of better service to our tenants. The new organization now has also created internal career opportunities across the company, enabling us to take advantage of the full strength of our organization.

We are further strengthening our service centers through extending our opening hours and hiring more colleagues. We can now handle service calls in over 13 languages, which is a key component to our success so far. We take approximately 5,000 calls a week, which is quite impressive. We are still a long way to go to reach our goal for our service level, but we are on the right path.

Please turn to Page 4. We are constantly living and working on our promise of Tenants First in everything we do. We have a realistic approach to our community development. We conduct dialogues with our tenants where we can -- where we survey what they want us to develop and it comes to their homes and surroundings. This includes renovation of facades, windows and outdoor areas.

The overarching feedback we are getting is that our tenants want us to continue with the development and improvement work we are doing. We get feedback on what type of commercial offering that they think we should have available in our communities in order to make life easier for them as tenants.

We have a constant focus on collaboration. We have a great relationship with Haninge municipality; and the organization, A Healthy Generation; and also in Eskilstuna with the women's football club Eskilstuna United.

Please turn to Page 5. Now changing gears a little. This slide is a slide we show with every presentation of Hembla. We are proud to own and manage a great portfolio of homes in the larger Stockholm region, more than 21,000 apartments with market value of SEK 33.5 billion.

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

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

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Thank you, Svein Erik. Please turn to Page 6. Reiterating the strength of the Stockholm rental housing market, the housing queue keeps increasing and surpassed 635,000 people by the end of last year.

The average waiting time for an apartment in the Stockholm region was about 10 years. We expect a strong underlying need for rental units to remain in Stockholm.

Please turn to Page 7. In the third quarter of 2019, rental income increased by 3.6% on a like-for-like basis compared to the corresponding quarter last year. At the same time, NOI increased by 1.7%, again for a like-for-like portfolio. This is slightly down from the corresponding quarter last year, primarily due to continued proactive approach to maintenance costs as well as property caretaking and strengthened security efforts. The NOI margin for the like-for-like portfolio amounted to 57% for the quarter.

Please turn to Page 8. The EPRA NAV reached SEK 184.4 by the end of the period. The growth compared to the corresponding quarter last year is driven by a combination of cash flow improvements and stronger market conditions. And thus, equity ratio reached 38.7% at the end of Q3, which is well above our long-term financial target.

Please turn to Page 9. While we're still in the process of investing and strengthening our organization in order to deliver an improved service level to our tenants, the CA cost is down somewhat on an LTM basis reaching SEK 187 million. In addition to providing a better customer experience, we expect investments in CA to improve performance at asset level and fully implement it.

Please turn to Page 10. No major financing activities took place during the quarter. Drawdowns on CapEx facilities amounted to SEK 199 million. At the end of the period, the average maturity on secured debt was 5.6 years and the average interest rate was 2.0%. The total LTV is now 53.5%.

Please turn to Page 11. During the quarter, we continued our efforts to provide an improved living environment for our tenants and finalized renovation of 340 apartments, bringing the total number of refurbished units to just over 6,700. 69% of our apartment stock remains unrefurbished, highlighting the underlying remaining potential of our business.

During the quarter, SEK 192 million was invested in items other than apartments such as new facades and outdoor environments.

Please turn to Page 12. For the first 9 months of the year, our rental income reached SEK 1.435 billion, while our operating costs, maintenance costs and other expenses amounted to an aggregate of SEK 672 million, bringing us to an NOI of SEK 763 million for the first 9 months of 2019. This translates to an NOI margin of 53%.

Also worth pointing out is that the reserve related to the recently launched and ongoing restructuring of our property management organization impacted the result for the period by SEK 25 million.

All in all, the income from property management for the first 9 months for the year amounts to SEK 285 million.

Please turn to Page 13. The notable increase in income from property management for the first 9 months of 2019 as compared to the first 9 months of 2018 is the result of the larger portfolio as well as contribution from operations.

The cost increase on the operating side is once again mainly driven by a larger portfolio, but also from higher service and maintenance costs. As we have pointed out previously, we have heightened our ambitions in terms of proactive maintenance spend.

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 14. A few weeks ago, German residential company, Vonovia, agreed to acquire Blackstone's shares in Hembla. And I want to take this opportunity to state that we are extremely grateful to Blackstone for their guidance, focus and approach since they became a large shareholder in the company in 2016. We have benefited greatly from their contributions.

At the same time, we welcome Vonovia as the new major shareholder in our company. Vonovia is an undisputed leader in the best-in-class management of rental housing across Europe and a company that has consistently demonstrated the same strategy, approach and prioritization of tenants in the way that they operate as we do.

Lastly, I want to highlight a couple of important points we always stress. We continue to take our tenants seriously and to listen to their needs. Our tenants always comes first, and we want to constantly improve the level of service we offer to them.

Thank you for listening.