Wihlborgs Fastigheter AB (WIHL) Q2 2026 Earnings Call Transcript

And welcome to the presentation of Wilbur's first half report 2026. So let's start with the future and the acquisition of 95 properties in Malmö, Lund and Helsingborg. 635,000 square meters initial yield, including property management cost at 5%, just in line with the Swedish portfolio. And this is before we have done any efficiency improvement that we expect from ourselves. Additional upside is 15% vacancy to give development possibilities ahead. The total portfolio suits us almost like a tailor-made glove. The location is right into our most appreciated areas. The mix with those offices and industrial logistics is perfect. If we look at the location of our properties in Malmö City, including part of Dockan and Nyhamnen, Wielborg own the black colored buildings in this map and here we can add on 11 properties in the same area located as the red dots. In the area of Fosie in Malmö we can add on 70 properties. In Lund at the Ideon site, here is four properties from Castellum, two of them are land for development. In the city centre of Helsingborg, we have several large properties, and here is the location of 14 additional properties. And in the Berger location in Helsingborg, we can add on 10 properties, so almost like yin and yang for these portfolios. Now we can work with a larger portfolio for our tenants, but also to make room for the other investors that might be a better owner for some of the areas or properties. The interest for investments in the region is high. This is a way to create possibilities for future growth of income and growth of operating surplus for our shareholders. If we can choose, we are totally convinced that if you can get growth in the market you already know very well, you can perform better. And if you combine a large acquisition with both higher operating surplus immediately and larger possibilities for future development, It's a perfect match. We have done things like this several times before. The acquisition of Ideon from Econo 2013 increased the LTV to 63% initially, and the acquisition of Nya Vattentornets 2019 gave us a quite large additional vacancy in an area where the vacancy in our own portfolio was already high. Now the Ideon area is very successful and filled with tenants in different sectors. Our plan is to do the same thing with the Castellum portfolio, and it will demand hard work and some time. But for us, this is a very well-known business in a very well-known market. The price of the portfolio is agreed to 13.3 billion, 5% under Castellum's valuation. And let's remember that Castellum from 2022 and ahead decreased the valuations of the property significantly. We think that Castellum's valuation can be fair, but the total portfolio and including the whole business, the price should be a bit lower than the valuation property by property, just in accordance with the agreement. And what about timing? Is summer 2026 not the time for cautiousness? Our call is that business is best done when the shop is open, and it's better to be ahead of the queue. Running a property portfolio means to look far ahead To put some plants in the soil And be prepared to harvest in the long run We think the opportunities for Vibroys Improve significantly with this transaction And there is no opportunistic thoughts behind that Just a dry, data-driven investment model Let's go to our report And we start with a summary of Q2 26 Rental income up 7% compared to a year ago, a new record level. Operating surplus plus 6%, also a new record. Income for property management plus 6%, net letting positive at 5 million, but most important that the number of discussions and possibilities ahead have improved after the frosty start of the year. Market rents as well as rental income in like-for-like portfolio continue to develop positive. Net debt to ABTI at 10.7 times. And of course, we signed the agreement with Castellum, as I just mentioned, but high focus on daily business, which continues to be our strong core. With some more figures on that for the fall period, rental income up 8% to $2.324.000. The operating surplus plus 8%, 1,664,000,000. And income for property management plus 9% to 1,077,000,000. New record for all of them. The result for the period was 850,000,000, corresponding to 2.76 krona per share. And EFRA NRV has increased by 9% to 99.66 krona per share adjusted for paid dividend. A comparison of the rental income, first half 35 and first half 26. Indexation plus 22 million, acquisition plus 59 million, currency effect minus 16, additional charges plus 26, and not at least, completed project new leases and re-negotiation plus 91 million, which means that our investments and activities pays off. And the net letting positive with 5 million, lower activity on both new leases and termination than a year ago, but most important, much better activity now than in the beginning of the year. So positive signals for the fall, but as usual, no promises ahead. The number of discussion is higher and the volume of possible new areas per tenant has also increased. Now we also see signs of tenants who decreased their areas a few years ago. they're coming back and ask for additional areas. An upgrade that we like. And to comment on something that happens on other markets, the large Ericsson agreements in Stockholm, which I see as a clear sign that the trend we have seen among smaller tenants for quite a long time also is in line with how larger companies make their decisions. Location, yes, attractiveness for their employees matters. Design, all the projects in Hagastaden have in common that they focus on human needs. And what about time? The leases signs clearly that Ericsson thinks that they will need office spaces also in 20 years time. And all of us understand that the Ericsson employees will do totally different things in 20 years, but they still think that they will have people working in common areas. And something about the price. Yes, they're willing to pay. It will be very interesting to see where this trend continues. Here are some of the tenants that we have signed new leases with during Q2. The defence industry continues to be interesting with the lease with Vabel Scientific at Sorte Moseve for the full property. And the medtech sector are represented by Cantaglia. Here we have the net letting in a historical perspective. lettings in green terminations in light blue and dark blue stacks are the net letting we know that we have attractive products to offer and when the market grows which i will come back to we will be a part of that growth on both the swedish and danish side of ursund and the list of 10 largest tenants in alphabetic order strong customers and they contribute with 90% of rental income, 7 out of 10 are governmental tenants, and the public sector contributes with 22% of rental income. Rental value, as of 1st of July 26, is 5,167,000,000 per year, plus 7.4%, and rental income 4,562,000,000 plus 6%. Strong figures, and this is an effect from acquisitions, indexation, but not at least new project and tenant willing to pay for the right quality. Looking for like-for-like figures, all the properties we owned a year ago, excluding projects, compared with updated figures, we can see that rental value is up 2.6% and rental income is up 1.5%. Better than indexation of 0.9% and still with a high vacancy, that means that rents continue up. Changes in the market value of our properties we started the year with 64 billion 440 million in accordance with the external valuation of 100 of our portfolio we made acquisition which adds on 534 million investment 1 billion 42 million divestment minus 4 changes evaluation plus 28 and together with currency translations of 212 million that's summarized to a value of 66 billion 226 million swedish krona Valuation parameters are without changes since year-end, including assumed indexation of 1%. So very small changes in valuations. The growth comes mainly from investments and the transaction we made in Copenhagen. Here's the long-term trend for portfolio growth from 7 billion to 66.2 billion in 21 years' time and growth every year. These figures, the running yield, show how we actually perform in relation to the valuation, so not the valuation yield. Some of the project, Black Hornet 1 in Malmö and Post Hornet in Lund, have moved from project line to the running portfolio. So even if they're not fully completed and occupied, that's the main reason for occupancy dropping one percentage point to 89% excluding project and land. With an operating surplus of 3 billion, 389 million, that gives a running yield of 5.4%. Fully let, the portfolio would give a running yield of 6.3%. In the office portfolio, the market value is 53,241,000,000 with an occupancy rate of 89%, 88% in Malmö, 90% in Helsingborg, 88% in Lund and 91% in Kobernägen. The operating surplus from offices summarized to 2,809,000,000 and a running yield of 5.3%, 6.1% fully let. And as mentioned, the occupancy in Malmö and Lund are affected by moving the projects Bleckhornet and Posthornet from project line to the running portfolio. In Helsingborg, the occupancy has strengthened, and most of all, the ongoing discussion in the office market have improved. The logistic production portfolio have a value of 9.378.092% occupancy in Malmö, 82% in Helsingborg, 96% in Lund, and 99% in Copenhagen. In all, 87% occupancy with a running yield of 6.2%, 7.3% for Lillette. the development of total portfolios running yield 5.4 percent still brings stability not least since the portfolio overall has a high quality and good locations an increase of the running yield since 21 but the vacancy has a negative impact and we will aim we aim to turn that around in line with improvements of the market so what about the market in the last report from Öresundsinstitut that we can once again remind us of Malmö as the driving city of employment growth in the Öresund region, Malmö in yellow, Stockholm as their ruled grey line and also interesting to see the pickup in Lund the last year's, the green line. We can also see that the number of unemployed decreases quicker from a higher level though and the number of newly started companies is also higher than elsewhere. As usual, it's most important to be in the right places. Almost all development in Skåne is in the western part. So Lund, Malmö, Landskrona and Helsingborg continue to be the places to invest for us in Sweden. On the Danish side, we note the record high GDP growth for the first quarter of 6.2% compared to the same quarter last year. And it's also worth mentioning that the infrastructure investments that could continue with, for example, these three completed projects. Kyrgyz Station, a new bridge across Storströmmen, and now four tracks with new platforms passes through Copenhagen Airport. A catalogue of our value and properties in our four cities and Q2 2026. 39% of the value is in Malmö, 22 in Helsingborg, 17 in Lund, and 22 in Copenhagen. The region continues to attract attention from investments, for example, Saab and SAS. It will continue to be positive for the region, for Villeborgs and for Sweden. Some sustainability highlights. We continue to improve our figures and have also got some international sustainability recognition, for example, being one of three Swedish property companies on Time's list of world's most sustainable companies, which also includes business models and financial performance. We also got the approval for our updated science-based target. And some figures showing improvement here. Maybe I'm most proud of the figure for low climate impact from our latest completed projects, 202 kilograms per square meter carbon dioxide equivalents. Really low levels from successful projects, but more on that topic in the report. And time for financials. Over to you, Arvid.

Thank you very much, Ulrika. If we look at the income statement for the second quarter isolated, we had rental income of $1,174,000,000. That's up 7%, corresponding to 77 million increase a quarter on the second quarter of 2025. I think it's important to highlight also that out of the increase of 77, 57 actually comes from renegotiations, new leases and projects. So that is the core business showing growth, which is positive. The operating surplus amounted to $864 million, up 6%, representing a surplus ratio of 74%. The income for property management amounted to $556 million, up 6%, and that includes transaction costs of about $5 million, stemming from the acquisition from Casellum, which Eureka talked about earlier. Both rental income and operating surplus and income from property management actually show record levels historically for Wielburgs, which also, of course, is very satisfying. With positive value changes in the quarter of plus 10 million, so very small, but still on the positive side. Negative value changes of the derivatives, but all in all, a profit for the period of 301 million. Looking at the balance sheet, investment properties amounted to 66.2 billion Swedish kronor, up 3.5 billion versus 12 months previously. Equity amounted to 24.2 billion, up 1.2 billion. And loans or borrowings amounted to 35.7 billion, up 2.4 billion versus 12 months previously. On the next slide, we can see how that translates into key figures. The equity ratio now stands at 35.4%. Leverage is at 53.9. Worth noting that the dividend that we paid in Q2 affects the LTV by approximately one and a half percentage points. And the interest cover ratio stands at 2.9 times. We have with these ratios a strong enough balance sheet to finance the acquisition from Castellum with debt without exceeding the limits that we've set for ourselves for certain key metrics or key ratios. Over time, leverage shall be brought down. How and when remains to be seen, but we will continue to act in the best interest of both the company and our shareholders, of course. Looking at the EPRA NRV, that stands at 99.66 krono per share, up 9% versus 12 months previously adjusted for paid dividend. On the next slide, you can see the historic development of EPRA NRV. Over this long time period, since 2009, we can actually still show an average growth of 15% on a yearly basis adjusted for paid dividends. On the next slide, you can see our key financial ratios in the long-term perspective. the graph starts year end 2011 equity ratio well above the 30 percent threshold that we set for ourselves LTV still before the acquisition of course well below the 60 percent threshold I think it's also worthwhile noting that although the interest cover ratio has varied a lot over this period, 2.9 times is a strong ratio. And I think it's also worth remembering that in 2022, 2023, when interest rates went up sharply, we still had a low point of the interest cover ratio of 2.5 times, which I think is still a very healthy level. Looking at the next slide, you can see the historic development of the net debt to EBITDA, which now stands at 10.7 times a level where we're quite comfortable. Looking at our sources of financing as of end June, we have increased the portion of bond financing slightly over the quarter, now representing 20% of our borrowings. About a third comes from the Danish real mortgage system and a bit less than half of the borrowings from bilateral bank agreements. And I think it's worthwhile repeating that the access to capital on attractive terms is still good, both from the banking system and from the bond market. Look at the structure of our loan portfolio. You can see the details on this slide. The average interest rate excluding cost for credit agreements is 3.25%. It's a very small change over the quarter. The average fixed interest period is now 2.5 years and the average loan maturity is 4.9 years. And on the next slide, you can see the development over a five-year period of the fixed interest period and loan maturities, and it's no drama in those two graphs, I would claim. And on the next slide, you can see our available funds, That is unutilized credit facilities as of end June, plus liquid funds. And we now have access to a bit over 4 billion Swedish kronor in unutilized facilities as of end June. And that also, of course, is a good starting point for the second half of the year. And with that, I hand the word back to you, Ulrika.

Thank you. And an update on our investments in progress and a quick overview of one of our newest project and one of our largest projects. During the period, we have invested 1,042,000,000 and it remains 1,688,000,000 to invest in approved projects. We continue to expect six or a bit above 6% yield on cost for new build offices and seven or a bit above for industrial. It's a good mix of refurbishment and new build in the portfolio. This time, just a short list of projects. You can see more on that topic and investment possibilities in the last report from April. We have a new project at Värtat One for a company in the automotive tech industry, just beside the project we have completed for ARM. We invest $82 million and get 7.4% yield on cost, including valuable property, and 13% yield, excluding valuable property. Completion in Q1-27. And the large project at Amphitrite, the one in Malmö for Malmö University, is running well, in accordance with the plan. A bit above 20,000 square meters, 100% pre-let to Malmö University in a 10-year lease. Investment 1,130,000,000 and completion is planned to late Q4-27. Discussion continues regarding a possible prolonging of the lease to 20 years. and with that we summarize the quarter again a number of new records rental income up seven percent operating surplus plus six percent income for property management plus six percent and net letting positive but most important is the list of ongoing discussion is good and more positive levels ahead also worth mentioning again that the rent levels continue to develop especially in the Swedish side. Net debt to EBITDA at 10.7 times and we continue to focus on our earnings in the daily business even if we from time to time also make good deals for future growth of our cash flow. And with that we are open for questions.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad.

Good morning and thank you for the presentation. I have a couple of questions starting off with the 13 billion acquisition. So first the initial yield is five percent.

Where do you see that yield going over the next two to three years our goal is of course to to improve that um in several ways so i think it's a good platform uh to start with but uh of course we shall improve that but i have no numbers on on exactly how quick we can make changes um but uh it's a good platform for the start Okay, thank you.

And when it comes to the vacancy rate in the portfolio of 15%, do you have a view what is the likely normalized vacancy rate over time for that portfolio? I think that's the same level as the market, around 7-8% in a better market than today, but around that level. okay um and then on LTV on the ambition to reduce your LTV to 55 over the next two years and you also comment potentially on reducing LTV via divestment could you give some flavor on what kind of assets you would be willing to sell if it's fully developed certain geographies pocket segments etc.

I think we have several possibilities in that and what would come first has not been decided yet. First we wait for the Konkurrensverket to make their uh improvements and then we can take action after that but we have possibilities in in both different geograph geographical areas and different segments of course so it's it's good we think it's good that we have several possibilities okay i see and And what is your view on dividend distribution, considering that LTV comes up to quite close to your policy?

We will, of course, take that decision in February in connection with the full year report for 2026. And I think, I mean, our dividend policy so far has always been to distribute approximately 50 percent of the income from property management, but applying full tax on the income from property management. We will, of course, look at both the cash flow generation capacity, the future outlook, what the valuations actually are at year end before taking such a decision.

Okay, thank you. And a final question from me, and that is based on the occupancy raised on the signed leases and terminations that you know about today. today do you expect the occupancy rate to improve or deteriorate over the next two quarters?

I think that we should expect it to be quite flat the coming in a shorter perspective improved during 2027 yeah okay yeah all right thank you those were my questions Good morning.

Just some follow-up questions on the acquisition. So just as it stands today, all things considered, what is your view on the best way to manage the balance sheet going forward?

Well, the best way to manage the balance sheet is to work, as we always do, very hard on improving our cash flow and our earnings. That's, of course, the starting point. Then we have, of course, a number of tools in the toolbox, as we've stated, and as Ulrike already talked about also, when it comes to possible divestments. and other capital structure measures, which could, of course, be taken if the time is right and the market is right. But I think that... Sorry.

Yes, and you mentioned the portfolio composition. Have you sort of identified any share of the portfolio or a specific segment or something like this that you would consider divesting.

We have several possibilities with products and areas that are interesting at the market today. But no decision is made in that. But it's good to have different kind of possibilities.

Yeah, good. And then just on central admin costs. in the quarter. So roughly 5 million is related to transactions, M&A, and then so the remaining increase, what should we expect on an annual basis going forward?

You should expect a bit higher than before. We have a bit higher costs on IT, regulatory, and of course, higher levels of technical demands, but not any higher expensive than we see now.

Okay, and maybe one final question on the acquisition, what's the I understand you initially have some bridge financing, could you comment on sort of the initial terms and the structure you expect more long term?

I won't comment in details on the exact terms of the bridge financing but we've secured bridge financing for the full amount with an 18 months term so we have basically 18 months to put in place a long-term financing which can of course take take different forms okay that's all for me good morning can you hear me yes okay thank you I didn't I

get a notification so i didn't know that it was my turn uh my apologies um so i just uh want to follow up on on the acquisition you mentioned that you believe that this portfolio uh yields about the same as as vealborgs today but if i look at what you're yielding in at least in sweden it seems to be um a bit above five percent uh whereas this portfolio is around five percent obviously there's differences in occupancy but when you state that it's about the same in terms of yield how do you how do you come up with that could you sort of give us a little bit more information as

to how you view this portfolio versus your own the five percent on the portfolio that we in the acquisition is the five percent is including all all admin costs um as well and that is in line with the Swedish portfolio.

Okay, so it's including admin, and that's the difference, basically, towards what you use to report yourselves. All right, good. And then regarding potential divestments, you mentioned that you need to wait, obviously, from the Swedish Competition Board in order to sort of finalize the acquisition. But could you consider doing divestments before year-end that are not related to that from the existing portfolio?

We always look at the structure of the portfolio. And so, I mean, it's part of the day-to-day work to both look at acquisitions and divestments and trying over time to optimize the composition of our total portfolio. So that cannot be ruled out.

Okay, so basically the way that we should look at it is that your efforts to lower LTV over time, obviously it's going to be a large part of that operational but in terms of divestments you could make divestments before year end for example in order to achieve this even before you've completed the transaction absolutely possible all right um thank you uh and then again on on these assets uh i assume that you know these assets quite well it's been a competitor of for, I don't know, 20 years. How do you feel the quality of these assets versus the ones you own now? Do you believe that this has been really strong competition versus your tenants? Or do you feel that the competition in the market is such that this doesn't really move the needle? Or do you think you get clearly a stronger hold on some of these areas compared to what you have today?

I would say that I think the quality is good, very much in line with what we have today. Modern offices, good location, the area for industrial and logistic is a perfect match. So I think that on that side, it's very compatible. Maybe we have been, maybe Wielborg's has been a bit more active in the market and thereby more successful in doing business. So I think that is what we, first of all, will add on to this portfolio. And we also know that when we have many tenants that have changing needs, we can do this puzzle moving tenants around. And with a larger volume of possibilities, a greater menu of different things that our tenants can choose from, the fitting will be even better. And we have been very successful in doing these things. So I think this will be great also for our tenants ahead.

Okay. And could you say something about how much of the portfolio that you're acquiring is related to sort of land or projects in terms of size? You mentioned that there are project opportunities, but in another phrasing is how much is non-yielding other than the vacancy in the buildings in terms of the total portfolio today?

The largest project possibilities is the two properties in Lund, that was on the map, in very good location and have project possibilities. And then there is another number of project possibilities, but more adding on to already existing buildings. and and there's one larger ongoing project yes yes in in Malmö correct a logistic project with no tenants today okay and in in Lund what's the size of that land bank in terms of the projects oh I don't have the square meters on on that but roughly around 10 000 square meters i would say um okay oh that's fine um

that's fine my final question is regarding your comments on sort of the activity in the market and net letting you're you're stating that you've witnessed the increased activity in general uh from tenants and obviously um that could be a positive but i guess it could be a negative as well. So in terms of your net letting for the rest of the year, by stating that you see increased activity, does that mean that you expect net letting to be positive as well? Is it sort of a positive trend or do you run the risk of tenants actually terminating to a larger extent as well?

I would say that the number of larger leases that we thought were possible terminations on that that we have seen the last years where the volume has been quite high on on moving around and having having new needs we have i think that has slowed slowed down so what we see now on higher activity is definitely new leases so the volume is much better ahead but also let's remember that the start of the year was very poor but now the list of ongoing discussions are much better both in Sweden and Denmark so I'm actually quite positive ahead for signing new leases but you never know ahead where the market is going but definitely more activity and really good discussions.

Okay thank you those were my questions thank you as a reminder if you wish to ask a question please dial punky five on your telephone keypad there are no more questions at this time so i hand the conference back to the speakers for any written questions and closing comments there are no uh questions coming in via the email function okay so by that uh thank you for today and you're always welcome to come back with questions and yeah wish you all a nice summer absolutely bye