K-Fast Holding AB (publ): Interim report January-March 2024

*New strategy and Business plan adopted for 2024-2028. The operations will be divided into the business segments Construction and Property Management. Business segment Construction shall sell completed housing properties with the Groups concept houses as base intra Group and to external customers besides the frame solutions from the prefab operations. Business segment Property Management shall trough efficient management of the Groups property portfolio with focus on residential properties contribute with stable and long-term cash flows.
*Strengthening of the balance sheet trough a new issue during 2024 and after the end of the period an agreement to divest a housing property portfolio in Denmark. Also through ongoing processes to divest commercial premises and housing properties in Sweden that is not built in accordance with our concepts.
*A total of 5,037 apartments under property management. Construction start of 341 apartments in Gothenburg and Västerås during the period.

Financial ratios for the period 1 January–31 March 2024
(corresponding period in 2023)

• Profit for the period: SEK 35.5 million (-195.8)
• Result in business segment Construction before taxes: SEK 140.2 million (79.6)
• Rental income: SEK 146.8 million (114.4)
• Profit from property management: SEK 25.3 million (30.7)
• Number of construction starts, apartments: 341 (53)
• Number of apartments under construction: 1,729 (1,986)
• Number of apartments under project development: 2,693 (4,058)
• Number of apartments under management: 5,037 (3,833)
• Net investments in investment properties: SEK 466.0 million (726.2)
• Investment properties: SEK 15,337.6 million (Dec 31, 2023: 14,870.9)
• Interest coverage ratio (year): 1.6 multiple (2.1)
• Equity/assets ratio: 30.3% (Dec 31, 2023: 30,3)
• Debt-to-equity ratio: 59.72% (Dec 31, 2023: 60.2)
• Earnings per share in business segment Construction: SEK 0.58 per share* (0.37)
• Profit from property management per share: SEK 0.11 per share* (0.14)
• Long-term net asset value (NAV): SEK 5,925.2 million (5,803.5)
• Long-term net asset value (NAV) per share: SEK 24.17 per share* (Dec 31, 2023: 24.25)
• Growth in earnings per share in business segment Construction: +57.7%* (-46.3)
• Growth in profit from property management per share: -26.2%* (17.8)
• Growth in long-term net asset value (NAV) per share: -0.3%* (-3.3)
• Earnings per share*/**: SEK 0.15 per share (-0.91)
  
  * Adjusted for new issue of 24,000,000 Class B shares as of 28 September and 24 October 2023 and 5,820,000 Class B-shares as of 13 March 2024.
  ** There are no potential shares (e.g. convertibles in the company, and accordingly no dilution effect).

A message from the CEO

Market conditions in the construction and property sector remain challenging. This also applies to K-Fastigheter, and we are sensitive to this. Nevertheless, we started construction on 341 apartments in the projects Sävenäs in Gothenburg and Vapenrocken in Västerås during the first quarter. In the final quarter of 2023 and the first quarter of 2024, we started construction of a total of 592 apartments in four different projects.

While the current market conditions remain challenging, we know that there is substantial underlying demand for new housing in Sweden. This means that being active on the market for housing construction and ownership of rental apartments harbors clear promise. The Board has set a new strategy and adopted a new business plan with the aim of optimizing K-Fastigheter’s ability to generate shareholder value in the current market conditions, and in the market conditions expected to prevail over the coming 5-year period. My aim here is to outline the new business plan in more detail.

The overarching goal of the business plan for the 5-year period 2024-2028 is to achieve NAV of SEK 50 per share by the end of 2028. This means that we will more than double NAV of SEK 24.17 per share at the end of the first quarter 2024. This is an ambitious but realistic goal, although growth between years may vary. In order to achieve this, we need to change our strategy. Our focus on construction exclusively for proprietary ownership has served the company’s growth well historically, generating average growth in NAV of 25 percent per annum in the period 2019-2023. However, we also perceive business opportunities for K-Fastigheter to build and divest our concept buildings to external customers. This supports expansion and increases self-financing. Divestments can be made in various ways, ranging from individual properties to entire portfolios, in the form of forward funding or tenant-owned apartments. However, all project starts, unless a customer has already been secured, will be based on rental calculations.

K-Fastigheter is so much more than a property company, but is frequently known, evaluated and valued as a focused property company. The business areas not associated with property management also contribute most to profit, both historically and looking ahead. In order to clarify the values created across all parts of the chain from project development, prefab and construction through to management, the operations will be divided into two operating segments, Property Management and Construction. By organizing the project development, prefab and construction activities under the Construction operating segment and differentiating this from Property Management, we increase organizational clarity. Construction is responsible for selling a proportion of new production, in addition to prefabs frame contracting, to external customers. By collating these operations under the Construction operating segment, we increase clarity for K-Fastigheter’s valuation and evaluation, while simultaneously creating efficient organizational resources for providing an attractive customer offering. This is regardless of whether  this relates to total responsibility for production of properties or delivery of frames. Future segment reporting will be presented under these two operating segments. K-Fastigheter will thus comprise a focused and independent construction company, and a focused and independent residential property company under the same umbrella.

In historical terms, the business areas now organized under the Construction operating segment have provided over 80 percent of the Group’s profit. This applies both to the five-year period up until 2023 encompassed by our previous business plan, and the period 2021-2023 during which prefab has formed part of K-Fastigheter’s operations. Nevertheless, we have frequently been assessed as a focused property company. Against this background, the division into two operating segments should provide clarity that contributes to increased value creation for shareholders.

The Construction operating segment will thus comprise the current business areas Project development, Prefab and Building. The operations will deliver completed housing units based on our concept houses, developed in-house, as well as high-quality frame contracting for all types of building, including housing, offices, school, defense facilities and infrastructure. All types of delivery are made to external customers and for proprietary ownership. The goal is to achieve earnings per share of SEK 4.50 in the Construction operating segment by the end of 2028. The Property Management operating segment includes the activities that are comparable with other property companies, i.e. our property holding which primarily comprises rental apartments with as much as 92 percent of income derived from housing units. Through efficient management and high occupancy rates in our property holding focused on housing, the operating segment will create stable, long-term cash flow. For Property Management, the goal is to achieve profit from property management of SEK 1.50 per share by the end of 2028.

I am firmly convinced that K-Fastigheter’s efficient chain that we call “from foundation to finished home” can also serve the Group well, not only by building for proprietary management, but also by delivering high-quality housing units based on our concept buildings to external customers.

The Property Management organization continues to work hard to reduce vacancies. We continue to see vacancies on moving in for some completed projects, but overall the trend is heading in the right direction. The Property Management organization has started addressing the vacancies that arose following completion of a number of projects with a total of 806 apartments in the final quarter of 2023. The financial occupancy rate was 93.3 percent at the end of the quarter, against 91.9 percent at the end of 2023. As previously outlined, efforts to reduce vacancies is a priority although it will take some time to address this. In the first quarter, we experienced positive net letting of 144 residential agreements, although there is some delay between signing a contract and moving in.

We have previously announced that the order situation in the prefab business area is unbalanced during the year with lower occupancy in the first half of 2024 while the second half has production levels similar to those prevailing before the market faltered. The trend of a shift in production levels is clear with two large orders signed during the quarter for housing in Nacka and for training and storage premises on LV6 in Halmstad. The future looks positive for prefab once we get through the first half of the year’s lower occupancy. I am proud of everyone in the organization who managed to fill up in a short time the order books when the housing market stopped, to today consisting of many exciting projects in defence, infrastructure and community properties.

After the end of the period, a transfer agreement concerning a portfolio of 311 apartments in the Copenhagen area was signed. The agreement is conditional and underlying conditions are expected to be met during the first half of May. The buyer is an institutional investor and K-Fastigheter is ceding the properties during the month of June. I am very pleased that we were able to bring this deal one step closer to completion. The deal is based on an underlying property value of SEK 1,099 million. For us, it is a strategic choice to prioritize new construction of our own concept houses over the management of commercial properties and residential properties that are not built according to our own concepts. Against this background, sales processes concerning a number of commercial objects and some residential properties in our portfolio are also ongoing.

As a step towards further strengthening the Balance Sheet, during the quarter we completed a directed new issue utilizing the remaining mandate from the AGM 2023 of 5,820,0000 Class B shares, plus the Extraordinary General Meeting’s decision in April to issue a further 842,000 Class B shares. It is worth noting that the issue was completed without a discount at the closing price on the day of the Board resolution that authorized the share issue.

Alongside all my colleagues throughout the Group, I look forward to continuing to develop K-Fastigheter on the basis of our strategy and business plan, thereby contributing to social progress.

- Jacob Karlsson, April 2024

A complete Interim report for January-March 2024 is attached and published on: k-fastigheter.com/en/investors/financial-reports

A presentation of the earnings and operations will be published on:
k-fastigheter.com/en/investors/presentations

For more information, please contact:
Johan Hammarqvist, Head of Investor Relations and Communications
e-mail: johan.hammarqvist@k-fastigheter.se, telephone: +46 (0)10-167 60 99
 

This disclosure contains information that K-Fast Holding AB is obliged to make public pursuant to the EU Market Abuse Regulation (EU nr 596/2014). The information was submitted for publication, through the agency of the contact person, on April 25^th, 2024, 9 AM CET.

K-Fastigheter is much more than a property company. Through an integrated process, we build our business in the two business segments Construction and Property Management. In business segment Construction the objective is to deliver completed housing units based on the Group’s concept houses, developed in-house, as well as high-quality frame solutions. Our prefab operations is organized in the subsidiary K-Prefab. To enhance cost efficiency and cut construction times, K-Fastigheter has chosen to work with three concept houses for housing, developed in-house. Business segment Property Management manages the Groups property portfolio with focus on housing. K-Fastigheter offers more than 5,000 homes from Copenhagen in the south to Gävle in the north and is continuously assessing new markets. K-Fastigheter strive to create attractive homes with a high comfort factor. The Group’s property portfolio has a book value SEK 15,3 billion. Annual rental value in invest properties under management amounts to SEK 686 million. Since November 2019, the company’s Class B shares have been traded on Nasdaq Stockholm under the (ticker: KFAST B). Read more at k-fastigheter.com