K-Fast Holding AB: Interim report January–June 2020
Financial ratios for the period 1 January–30 June 2020
|Financial ratios|| 2020
|Rental income, SEK million||49.0||38.6||96.8||71.6||156.8|
|Profit from property management, SEK million||19.5||16.7||35.0||27.8||52.9|
|Comprehensive income for the period, SEK million||111.3||90.0||203.6||133.4||365.3|
|Net investments in investment properties, SEK million||575.6||430.9||1,084.7||568.3||1,061.1|
|Investment properties, SEK million||5,751.5||3,704.8||5,751.5||3,704.8||4,396.7|
|Long-term net asset value (NAV), SEK million||2,818.0||1,394.1||2,818.0||1,394.1||2,540.2|
|Number of apartments under management||1,865||1,418||1,865||1,418||1,711|
|Number of apartments under construction||1,249||565||1,249||565||700|
|Number of apartments under project development||2,888||1,172||2,888||1,172||1,340|
|Interest coverage ratio, multiple||2.7||3.0||2.6||2.8||2.6|
|Equity/assets ratio, %||39.1%||28.5%||39.1%||28.5%||41.8%|
|Loan-to-value ratio, %||53.4%||61.0%||53.4%||61.0%||40.2%|
|Profit from property management, SEK per share||0.58||0.67||1.03||1.11||2.05|
|Growth in profit from property management per share, %||-13.8%||89.1%||-7.0%||52.7%||24.6%|
|Long-term net asset value (NAV), SEK per share||83.15||55.76||83.15||55.76||74.96|
|Growth in long-term net asset value (NAV), per share, %||5.6%||9.3%||10.9%||14.9%||54.4%|
|Earnings per share, SEK||3.28||3.60||6.01||5.34||14.14|
|Number of shares outstanding at the end of the period, thousands||33,889||25,000||33,889||25,000||33,889|
|Average number of shares outstanding during the period, thousands||33,889||25,000||33,889||25,000||33,889|
A Message from the CEO
We find ourselves in a dramatic new reality where people’s lives and health are at risk from the spread of Covid-19, at the same time as the world’s economies are facing an unprecedented slowdown. It’s in this context that we’re presenting our strongest quarterly profit on record, while building a platform for continued growth through acquisitions of attractive building rights – our most important raw material.
At national level, sales of new-build tenant-owner apartments slowed down in the second quarter of 2020. For example, Sweden’s leading property portal, Hemnet, reported that sales decreased by 29 percent. We are noticing this in our project development operations, with significantly fewer competitors active on the transaction market for building rights compared to the same period last year. These factors favor growth in our project portfolio, reflected in the numerous transactions K-Fastigheter completed in the first half of the year.
In construction, we are also finding that suppliers of construction-related products and services are more willing to negotiate price. We have secured delivery of critical components for the remainder of the year, and built up an inventory of products that we expect will be hard to access in the event of further factory stoppages as a result of a second wave of Covid-19. Our counter-cyclical business model has been put to the test and has handled the effects of the pandemic very well to date. Given the current situation, we need to do all we can to minimize the risks to our employees, tenants and other stakeholders.
K-Fastigheter offers attractive HOMES on the Swedish and Danish housing market and benefits from operating in a less severely affected sector. We are active in countries with social welfare systems that assist affected parties with financial support. The absolute majority of our tenants have good payment ability, and in connection with new lettings we establish the tenant’s payment ability by requiring annual income from full time employment or equivalent remuneration corresponding to at least three times the annual rent.
To summarize, Covid-19 still implies considerable uncertainty for the economy. In this environment, K-Fastigheter continues to work towards our operational and financial goals which feel realistic, and I am very confident about our business model and our ability to reach these targets.
The first six months of the year were intense and rewarding, with accelerating production and development of our proprietary conceptual HOMES. I summarized the first quarter as “record-breaking” and the same phrase works well to present the first half-year. I am proud to see what our incredible employees have achieved, and how well prepared we are ahead of our continued growth journey. This is a conservative sector, and concept building solutions have gone from being something no one wanted to work with to becoming part of the solution to the housing shortage.
In the first half of 2020, we completed 68 apartments and started construction of 619, which means that the number of apartments in production has increased from 700 apartments at the beginning of the year to 1,249 at the end of the first six months, an increase of 78 percent. In the second quarter of 2020, K-Fastigheter presented its strongest quarterly profit on record. New construction of HOMES in the first half of 2020 corresponded to 102 percent of all new construction starts for the full year 2019. This would not have been possible without our efficient concept buildings, and the cost-efficient construction and management the concept implies.
In addition, our project portfolio of properties where construction has not yet started increased by 116 percent, from 1,340 to 2,888 apartments in the first six months. This growth constitutes good advance planning and also ensures K-Fastigheter’s future growth.
Our total holding of HOMES under management, in production, in the project portfolio and completed acquisitions where we have not yet taken possession totaled 6,151 apartments as of 30 June 2020. On the basis of rental values as of 30 June 2020, and adding projected rental values for HOMES in production and project development, and completed acquisitions where K-Fastigheter has not yet taken possession, we have ensured growth in rental values of some 240 percent from the current level.
Our ongoing production of 1,249 HOMES indicates a total acquisition cost for proprietary production of 73 percent of the anticipated market value, which implies a profit margin in the form of unrealized value changes associated with new production of 27 percent.*
In the first half of 2020, all of 75 percent of profit after tax was derived from the Project Development and Construction business areas. I cannot emphasize enough that we are much more than a property company, which the results outlined above clearly illustrate.
Profit from property management for the period increased by 26 percent year-on-year. However, profit from property management per share made negative progress, mainly due to an increased number of shares in the current period, and to a lesser extent due to the measures taken to strengthen the organization for future growth. The increase is entirely in line with our stated strategy of preparing the organization for future growth, from today’s 1,865 apartments under management to a potential 6,151 apartments under management derived from secured deals and our project bank. In the same way, we are also building our project development and construction organization, including the associated facilities for the manufacture of building components. We returned a strong surplus ratio of 67 percent, which would amount to 69 percent excluding rental losses.
Net asset value per share was SEK 83.15 at the end of the period, corresponding to growth of 10.9 percent since 31 December 2019. This is well in line with our set targets. This is despite the write-down of part of our commercial holding in the quarter.
The completion of two acquisitions in Denmark in the first half of 2020 was particularly pleasing. The acquisitions included an attractive plot in Vallensbæk Strand, 20 km south of Copenhagen, where construction has already started, and ongoing production of 36 townhouses in Høje-Taastrup where we will take possession after completion of the project. In April, we secured a promising collaboration with BoKlok, owned by Skanska and IKEA. Alongside K-Fastigheter, BoKlok is the largest concept building operator in Sweden. We focus on rental apartments, while BoKlok’s focus is on tenant-owner apartments. Together, we can create attractive urban development projects with mixed access rights. The goal is to jointly generate transactions relating to 1,000 apartments over three years, and we have already completed four transactions under the collaboration at the end of the first half-year.
To conclude, our share with the ticker KFAST B performed well (+57 percent) in the second quarter, holding up well against the OMX Stockholm Mid-Cap index (+33 percent) and the OMX Stockholm Real Estate index (+5 percent).I would like to thank our shareholders and partners for the confidence you have shown us, and alongside my excellent team I will continue to work to retain it looking ahead.
Jacob Karlsson, July 2020
*The expected profit on the project, defined as the difference between expected market value and estimated acquisition cost, has been included as an unrealized value change at 20 percent at the time of construction start and 80 percent on a rolling basis during the construction process at a pace with costs paid. Fore more information see Note 16 Investment Properties in the Annual Report 2019.
A complete Interim report January-June 2020 is attached and also published on the Group's website, under the heading Financial reports.
For further information, please contact:
Jacob Karlsson, CEO and Founder, K-Fast Holding AB, e-mail: firstname.lastname@example.org, telephone: +46 738 219 626
Martin Larsson, Deputy CEO/CFO, e-mail: email@example.com, telephone: +46 703 533 160
Anders Antonsson, Head of Investor Relations, e-mail: firstname.lastname@example.org, telephone: +46 709 994 970
This information is such that K-Fast Holding AB is obliged to disclose in accordance with the EU’s Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 8:00 a.m. CEST on 31 July 2020.
In a recorded presentation, to be published at 8:30 am today, 31 July 2020, K-Fastigheter’s President and CEO, Jacob Karlsson, and CFO, Martin Larsson, are commenting on the Group’s Interim report January - June 2020. The presentation is held in Swedish. Link to the presentation: www.k-fastigheter.se/en/investors/presentations. Questions may be addressed in writing to email@example.com with answers being compiled on an ongoing basis during the day and being published on www.k-fastigheter.se/en.