Fastighets AB Balder (Stockholm:BALD B) Q1 2026 Earnings Call

0:00 Good morning, everyone. Welcome to this presentation for BALDERS first quarter results 2026. My name is Jonas Eriksson, investor relations. And with me in the room, I have Erik Selin, CEO and Eva Wassberg, CFO. So I'll hand over to Erik and Eva for some opening slides, and then we'll open for questions after that. Thanks, Jonas. Looking at Balder at a glance, the overall picture, you can see that it's a Nordic real estate exposure. Roughly half is residential and half is commercial. By this quarter, we had a portfolio value of SEK $237,000,000,000, occupancy rate 95%, Net debt, 49%. The portfolio value of SEK $237,000,000,000.

0:49 Occupancy rate, 95%. Net debt, 49%. We have good liquidity of 22,000,000,000. NAV per share stands now at 96.6, and that's a growth compounding rate of 25% since inception. And also worth to mention, we have a rating from S and P BBB flat, and that was recently confirmed, that was in April. Moving on to the first quarter, rental income is up only 1%. That is quite a low figure, we think. We have some explanations for that. And we have a currency effect that is a headwind for us because of the Swedish krona strengthening.

1:38 So there you have a couple of percent if you have constant currency. And also in the NOI increasing 1%, you have the same effect and also that it was colder climate than normally this quarter. So adjusted for that, I think we will be rather 5%, 6% improvement. Profit from property management is down 12%. And there you have the explanation in the name of Norion that we will most likely decide to distribute later today in the AGM. So if you adjust for that, the Norwegian shares will be as a dividend for all the shareholders. So adjusted for that, we have a 3% increase as is. And of course, if you wouldn't have the currency headwind and the colder climate, it will be a bit better than that. But So you can say it's okay. We would prefer, of course, a bit stronger increases, but not totally bad.

2:47 And if you look at earnings capacity, we have decrease, but the same explanation, Norwegian. So if you exclude that, we are on track for a healthy growth in profits from property management. And like for like rental growth, 1.3%, NAV 96.6%, as I said just before. Looking at earnings capacity, our more or less favorite slide perhaps. You see this quarter that the rental income is up and NOI is up as well. And why this figure is slightly stronger than the outcome Q1 is that we made acquisitions Q1, but they closed very late in the quarter. Actually, one of them was the last day and another big one was maybe one week before quarter end.

3:41 So this is sort of including all the investments. This is the run rate now. And all in all, this summarizes down to 6,100,000,000 and per share 5.17. And you can also see that the per share improvement is a bit better than the profit improvement. Reason is that we bought back 6,000,000 shares in this Q1. And portfolio wise, Helsinki is the single largest region, followed by Gothenburg, Stockholm, Copenhagen. And as said, we have RESI a little bit more than 50% of the portfolio, office 16%, retail 11% and industry logistics 7%.

4:33 And this figure has been around these numbers for a couple of years. Looking at the whole portfolio, you can see that 80% is located in capitals and larger cities. And the long term trend that is our focus, we always have a long term view on things around here. So we had, if you take a longer time horizon, we have very good improvement over the years. The latest three, four years been flattish and obvious because of the interest rates going from zero and upwards. Here you see also property values, net debt to asset occupancy. So we have over time increased portfolio of course, net debt around 49.

5:22 In the longer time period, we like it to be a bit lower, but we have even there a long term view on it and not so focused by quarters. Occupancy rate is now 95. It's more or less always 96 if you look back, but some occasionally it has actually been 95. So very stable in general. And the explanation for the bit weaker occupancy is primarily located to some weakness in the office segment occupancy. Looking at the financing, the funding mix is a fiftyfifty split between bank and bond financing. The level of available liquidity is continuously a bit elevated due to the concentration of large maturities in the beginning of twenty seven.

6:12 The interest rate fixing and hedging ratio is stable, and the average interest rate is unchanged compared to last quarter at 2.9. This quarter, we had some volatile currency movements that have temporarily affected some of our key ratios. For example, net debt to EBITDA. In the balance sheet, at the end of March, we see a weaker Swedish krona against the euro compared to year end, and at the same time, the average exchange rate affecting our income statement during the quarter was stronger against the euro. Worth mentioning is also that Nordea no longer contributes to the income statement and the acquisitions made in the quarter have not contributed to the earnings in Q1 since they were finalized late in the quarter. Here you can see the long term trend of the portfolio value in relation to net debt to total assets.

7:03 As you can see here, net debt to total assets increased during the quarter, which is related to the reclassification of norion and currency movements. The current encumbrance level is 23.9, which is around the same level as earlier quarter. Over to the maturity structure, we have refinanced bank loans of around SEK8 billion with maturities in SEK26 during the quarter. And in the bond market, we have been quite active, taking advantage of favorable conditions in the beginning of the year and have issued in both Euro and SEAC, as well as within the remaining hybrid capital. And here is a more structural overview of the funding and capital side.

7:52 As we have said before, we will continue to have a balanced capital allocation until reaching our target of 11 times net debt to EBITDA, and that target remains unchanged. Here is also an updated calculation on the convertible bond, which when that is converting, assuming that we are above strike price, obviously will have a very positive effect on the indebtedness numbers as well. And in terms of funding strategy, there is no change compared to previous quarters. This was all from us. And on that note, we leave over to Q and A. Let me actually just mention one thing before we go into the questions.

8:43 So I've been receiving a couple of questions this morning about the consensus numbers, and the sell side analysts are kind enough to share their estimates with me. When I sort of look at the profit from property management consensus and strip out the Nourion contribution for those who have not yet done so, I landed the consensus number from property management of fourteen ninety five in the quarter. So about 3% from the actual number. I just wanted to mention that as I've received a couple of questions about it this morning. But let's open for questions. 4.7% to almost 4.9% in Q1 compared to Q4.

10:02 Is that because of high yield in acquisitions or is it an improvement like for like? I haven't actually done that reconciliation Tobias. So let's get back to the precise numbers. I mean we have done some acquisitions, as Erik mentioned, in the quarter. And I think it's fair to assume that on average those are slightly yield enhancing, but that shouldn't be that big of a difference considering our total portfolio size. And then obviously you have some like for like growth as well as we mentioned in the report of 1.3%. But I haven't done the exact reconciliation of those numbers, so I would have to get back to you on that.

10:52 And if we look at the improvement in NOI in earnings capacity of SEK 300,000,000 and puts that in relationship to SEK 5,000,000,000 of acquisitions, you get a yield of roughly 6%. Is that a fair assumption that you buy on roughly 6%? Or is it something else that explains the improvement in earnings capacity? I mean, just careful that we the earnings capacity is obviously rounded up to even SEK100 million, so you can't get too precise in it. I think it's fair to say that we're definitely buying at sort of a yield accretive level, and then there are very large differences in the initial yield of the various transactions that we are doing.

11:40 I mean there's a pretty wide range depending on whether you're buying sort of larger properties, central locations, very liquid markets are pretty efficient in pricing. You might be able to find attractive deals in terms of sort of future rent increased potential, but those are more rare. Whereas we have other examples where we do transactions in the high single digits in terms of yields, but those are then you know obviously much smaller and more rare to come across. So it's I think we mentioned in the report as well that we obviously always compare returns on acquisitions with share buybacks when we do things.

12:31 And I think overall we are seeing that we are getting returns that are matching very well with sort of buyback as an option, if you look at sort of how the share price has traded overall for the quarter. Okay. Thank you very much. That's all for me. The next question comes from Lars Norby from SEB. Please go ahead. Good morning. A couple of questions from my side. First of all, you mentioned it's been a cold first quarter, increasing cost for heating and snow removal. Can you quantify that roughly?

13:23 Haven't done that quantification, Lars. I mean, it's obviously very difficult because we there's no precise estimate. But I think if you look at our surplus ratio, that is slightly elevated compared to what we're used to. So it's a few tens of million SEK, but I can't give you a precise number because it's impossible to make that estimate. Okay. Thank you. Second question regarding net debt, EBITDA isolated in I'm sorry, quarter Rajat. I would note though that there was a very, very cold winter both in Sweden and in Finland.

14:08 So mean those are the two markets where that's most visible, just to be aware. Okay. Second question regarding net debt to EBITDA isolated in the quarter SEK 13,600,000, up from SEK 12.2 No RION impact, was it 1.1%, so still an underlying rise. Point 6%, retaining target of 11.0%. What does that mean for your room for expansion in 2026? You bought a property in London for some SEK 2,200,000,000. Do you have any room for more acquisitions in 2020 I would just be aware of a couple of things when you look at the Q1 numbers isolated.

14:57 So the first one is that in the quarter the average exchange rate meant that the Swedish krona was strengthening. So we had a weaker result compared to Q4 from currency effects, whereas the exchange rate on the March 31 compared to year end actually meant that corona was weakening, which means that we get a higher net debt. So that technical effect will obviously even itself out over time. The other one is, as Erik mentioned initially, we've done acquisitions in the quarter that came in very late into our book, so there's very little earnings contribution, but obviously there will be visible in the net debt.

15:45 And I think that item alone, the acquisitions alone, I think has impacted net debt to EBITDA by roughly 0.3. So those two are important to be aware of, so we don't really view the trend as having turned up the way I describe it, if you adjust for no room. But having said all that, I think we've said for quite some time that we see a balanced capital allocation strategy where we feel that we can slowly move towards the target of 11 times, while at the same time have ample of room to invest both when we find transactions or new development and or share buybacks.

16:36 So I think that's sort of the best guidance we can give. Then if you look a few years ahead, you know, let's see where the share price is in 2028 when the convertible expires, but we are sort of assuming that we will have some equity contribution from that as well. So we view this from a more long term picture, and then we can have a very balanced view, and I think we've said before that we care more about the trend and direction of the net debt to EBITDA than the actual pace that might vary a little bit from year to year. Okay, thank you. Just let me finally say, you know, Eric, thank you for your time as CEO, and looking forward to having you in your new role in the company. Thank you very much. Will you keep in contact?

17:33 Perfect. The next question comes from Andres Thoom from Green Street. Please go ahead. Hello, Andres. Andres Thoom, your line is now unmuted. Please go ahead. Can you hear me now? Sorry. Yes. Can hear you. Okay. A couple of questions from my end. Firstly, can you share your thoughts just around what made the London acquisition in the office segment attractive for you, I guess relative to other sort of alternative options you had for capital deployment?

18:21 And do you plan to scale the London portfolio further from here on? I think, I mean we're looking at that transaction. We have an initial yield that is not sort of perhaps the highest of all the transactions we did in the quarter. On the other hand, we have a current rent per square foot that is quite a lot lower than the market. So when you look at the total sort of investment assessment from a three to five year perspective, we feel that that is actually a pretty good transaction considering the risk level as well, and even compared to, you know, allocating to other sources.

19:11 We we now have three properties in Central London, office properties, and we have the last last transaction we did before this one was, I think, three years ago. And we've we've been viewing the market continuously. It's obviously very hard to say when the next transaction occurs that we find attractive enough. We've looked at sort of quite a few alternatives without executing on anything during the last three years. So far we don't sort of have a plan to do a large scale build out in The UK per se. I mean we don't have our own property management team on the ground etc. I think we need to do probably a few more of these smaller transactions before we have scale enough to justify having our own team on the ground fully.

20:04 But you know we're looking at the market and if we find good opportunities in London or elsewhere, we might act on that. But it's very hard to determine, we don't typically work with strategies of having pre decided CapEx levels or investment spend levels. Yeah, makes sense. Okay, and are you going to use local financing for this, or is it more from the corporate pool? Well, a little bit depends on how we view it. So we obviously don't take currency risk in our financing, so from that perspective it will be matched. But then we obviously have our banking relationships, and you know we might do pool and then just do a swap hedge or we do the financing directly in sterling.

21:01 Doesn't really matter from that sense. But it's it's there's no FX risk embedded in the investment calculation, that's per se. Yep. Okay. And then there was mention of you're sort of kicking off owner occupier apartment investments again. I'm just wondering how are you seeing the sort of the geopolitical macroeconomic impact, I guess, not really having a big impact then on the housing markets locally? I mean not so far. I think it's probably early to tell whether we'll have, but so far I think we've seen a fairly stable recovery domestically, especially on the consumer front. I think in Denmark, in the larger Copenhagen area, house prices were up 21, 22% in Q1 year over year, or that was actually even in April.

21:59 So it's a pretty good improvement that we're seeing. It's always difficult to judge exactly the strength and the timing. These kind of projects also take some time to execute, so you can't really be too much of a mark to market sort of decision making when taking those decisions. But we feel that there is an improvement trend that is worth investing a little bit more in. There's no large numbers compared to what we have been used historically in terms of development CapEx. In the last couple of years. Okay understood. And then my final question, a bit technical, but the like for like growth of 1.3%, is that in local currency or does that also have a negative FX impact embedded there? No, that's local currency.

22:57 For those of you with a good memory, you might remember that last year we were trending between two point five and three. I think the difference this year is partly that we have seen slightly lower indexation on commercial. We have also slightly lower growth in Swedish regulated brands by about one percentage point. So there's a slight drop from last year, and we haven't really seen our Finnish market trends of resi sort of take off for real on a like for like basis. So at some point we're obviously hoping that that will contribute a bit more to the like for like numbers, but so far that is is not really the case.

23:47 Understood. Thank you very much. The next question comes from Fredrik Stensvid from ABG Sundal Collier. Please go ahead. Thank you very much. Good morning. Two questions, if I may. The first one is sort of a follow-up on the question related to project starts in the Residential segment. The comment you write in the CEO letter, Erik, is that specific to Sweden? And is it specific to sort of build to sell apartments? Or is it several markets and also rental projects? Yes, we are looking at or we'll do one starting Copenhagen.

24:36 It's a project we will be both built to rent and built to sell actually. So it's a mixed product. Also in Sweden, we do build to sell and build to rent, mostly build to sell actually, but as Jonas said, this is very small numbers compared to what it was historically, and compared to overall Balder, it's very, very small, but we see actually that we can, if you have good locations, you can do quite good business, quite good investments actually. So starting to getting better, and as also Jonas said, you know, Copenhagen year over year, it's like 23% plus in prices. And remember, we own only owners apartments, so the market is really super strong.

25:25 And it continued in April as well. So in Finland, we will not start anything, it's too weak. And we are quite small in Norway, but we have something maybe that can happen there as well. Also a strong underlying market in Norway. Perfect. Thank you. And then the second question is on the acquisition volume in Q1, almost SEK5 billion. We obviously know about sort of the London deal. But can you add any color or details on the other assets or portfolio that We goes into the 5,000,000,000 did a couple of resi purchases, one in Sweden, Sato did one in Finland from a fund.

26:12 And then we bought some assets in Stockholm, Gothenburg, some in Finland, Norway. So no big deals, bill by bill, when it sums up, it gets to SEK 5,000,000,000. But you can expect lower activity in Q2. Okay. And given your previous comment that the contribution then in Q1 was fairly limited, I guess, that goes for most of the smaller Exactly. I mean, for example, Finnish resi, the contribution was exactly zero because we bought it the last day and didn't get the rents on that day. It was actually zero. And UK was couple of days only, and the one in Stockholm was zero. So that explains if you compare Q1 to AI, that you have a difference there. That's explanation is we the acquisitions came in almost the last day of the quarter.

27:17 Yeah. No, that's clear. That's all for me. Thank you very much. Thank you. The next question comes from Stefan Anderson from Danske Bank AS, Danmark's Verijs Filial. Please go ahead. Thank you. Two questions from me. First on capital allocation, where we stand today with the share price of BALD, how do you view allocating capital towards acquisitions versus repurchasing? I think we are very interested in repurchasing, obviously, at this share price. So we think it's a very good deal. But you have to also have in mind that, number one, we have a long term view on the business to take care of that.

28:02 So some investments make sense to do if you have a longer view on it. And also, you know, deals can take three to six months. So if you're in a deal, you cannot tell the seller, if my share price moves around, I might not be there. So then you then you absolutely ruin your reputation. So Yep. It's not like trading equities, you know, this is a business we're running. So that's why if you know everything before, you could have perfect timing, we actually don't. So so and what if we say no to a good deal with the intention to buy shares, and it goes up, and then we ends up with no deal and no shares. So it is a combination, but we'll the current share price we are very, we like that a lot as an investment.

28:52 Perfect. Thank you. The second question is if you could elaborate around Entra maybe. I mean my impression is that Castellum is looking to exit that at one point or another. And you take a big change on the board there. I fully understand that you don't can't share too much, but could you maybe elaborate a little bit about the alternatives that you see on EMTRA? We can do all alternatives basically, but it's not likely that we buy the whole company because it will be too much debt for us. So I don't think that is likely, but then we can be, you know, short term or long term. So I think you have a difference between BALDER and Castellan, but you should really ask Castellan that, that I mean BALDER is in Norway anyway. So even if we sell Entravil, it's still in Norway. So for us, maybe it's more natural to own it. But I don't know. I think I think that that can be a difference between the companies.

29:57 Otherwise, I will look in through it more detailed now, since I am the chair there and see what we can do. It's very good underlying assets worth to remember. Perfect, thanks. The next question comes from Neeraj Kumar from Barclays. Just a quick one on my side. You mentioned the fifty-fifty split in the ideal one for you guys between bank and bond financing. I wanted to hear your thoughts on the ideal financing split for your subsidiary, Seto, as well. I see it's more like 30% bond financing as of now and 70% is through other sources. So do you think do you see Sato coming to bond market to refinance their bank maturities going forward?

30:48 I think it depends a lot on the terms, actually. Sato has extremely good access to bank financing. So they don't need bond financing, but obviously we like to have that diversified as well. But we view it on a group level a little bit, and then also we view it on Sato as an individual company, because we have partners there, you know, APG and Elo and Finnish state. So I will say Sato would do pretty much like Balder in the long run. Got it. That's helpful. Thank you. Thanks. There are no more questions at this time.

31:45 So I hand the conference back to the speakers for any closing comments. Thank you very much for listening in, and we keep in contact.