K-Fast Holding AB (publ): Interim report January-September 2023

*New issue has raised SEK 331 million to the company.
*SEK 554 million in profit settlement in ongoing construction, shown as unrealized values, since Q2 2022 when property values peaked which meets decreased values due to falling valuations of completed properties.
*Positive net letting since internal rental organization for all succession letting as well as project letting was established in mid May.

Financial ratios for the period 1 January–30 September 2023
(corresponding period in 2022 unless other stated)

• Rental income: SEK 351.5 million (275.1)
• Profit from property management: SEK 94.0 million (103.6)
• Profit for the period: SEK -238.7 million (813.2)
• Net investments in investment properties: SEK 1,764.5 million (1,874.4)
• Investment properties: SEK 14,534.8 million (31 Dec 2022: 13,094.6)
• Long-term net asset value (NAV): SEK 5,702.7 million (31 Dec 2022: 5,768.3)
• Number of apartments under management: 4,078 (3,452)
• Number of construction starts, apartments: 199 (706)
• Number of apartments under construction: 1,886 (1,976)
• Number of apartments under project development: 4,290 (4,785)
• Interest coverage ratio, R12m: 1.9 multiple (2.6)
• Equity/assets ratio: 30.8% (31 Dec 2022: 33.9)
• Debt-to-equity ratio: 59.5% (31 Dec: 55.4)
• Profit from property management per share: SEK 0.44 per share* (0.48)
• Long-term net asset value (NAV) per share: SEK 24.42 per share* (31 Dec 2022: 26.79)
• Growth in profit from property management per share: -9.3%* (39.2)
• Growth in long-term net asset value (NAV) per share: -8.8%* (13.9)
• Earnings per share*/**: SEK -1.25 per share (3.78)
  
  * Adjusted for new issue of 18,180,000 Class B shares as of 28 September 2023.
  ** There are no potential shares (e.g. convertibles in the company, and accordingly no dilution effect).

A message from the CEO

The market conditions remain challenging. Uncertainty relating to inflationary trends and the Riksbank’s outlook for the base rate are hampering the prospects of the property sector, and construction starts are down sharply. Naturally, K-Fastigheter is also affected by these developments, although our ambition is to retain our position as an aggressive operator and to continue to capitalize on the opportunities that arise on a more challenging market.

Towards the end of the quarter, K-Fastigheter completed a directed new issue. The issue raised a total of approximately SEK 331 million for the company. The issue was fully subscribed, which meant that 24,000,000 Class B shares were issued. I would like to thank our existing shareholders who subscribed to the new issue, and welcome our new shareholders to K-Fastigheter. The new issue means that K-Fastigheter is well-equipped for the future and we promise to live up to the confidence shown in us. The new capital supports K-Fastigheter’s continued expansion and our intention to remain an aggressive operator. We are currently in the process of divesting a portfolio of four properties in the Copenhagen region to generate additional capital for continued growth, given the more challenging market conditions as banks are becoming more cautious and more equity is required in projects. Divesting properties not constructed according to our concepts, and using the capital raised for new construction of projects with our proprietary concept buildings generates value for our shareholders. At the same time, we review each specific project carefully, and any decision to start construction is determined by our liquidity, access to funding and, especially, whether we are able to meet our internal targets relating to direct returns in relation to total investment.

In the third quarter our construction organization completed and handed over 76 apartments to the management organization. Our housing portfolio comprised a total of 4,078 apartments at the end of the quarter, and 1,886 apartments are currently in production. Our land bank includes 4,290 apartments in various stages of development through the Project Development business area. As previously announced, a majority of construction starts will take place in the fourth quarter. This coincides with many projects being completed in the fourth quarter, which frees up capacity in our organization for starting new construction. However, because the planning application process tends to be lenghty, some planned projects may shift into next year, meaning that we will not quite reach 1,000 construction starts for 2023 and that these projects will be started in 2024 instead. At a time of reduced construction, my hope is that municipalities can work to speed up planning and approvals processes. This is because long processing periods have delayed construction of new housing in Sweden.

In the Prefab operations, we are gradually adjusting headcount to match demand based on our order book and activity levels. We are also capitalizing on opportunities for collaboration between our production plants in order to optimize capacity. I believe that our operations are maintaining positive volume levels given the economic conditions, not least due to internal sales. In addition, volumes from external customers continue to increase, and it is pleasing to see new external housing projects.

Our rental value amounted to approximately SEK 524 million at the end of the third quarter. In one year, rental values increased by over SEK 90 million. By the end of the year, apartments completed in the fourth quarter will have added a further SEK 132 million to to rental values, bringing the figure to SEK 656 million.

This is excellent progress, with growth in the rental value of 25 percent in the coming quarter alone. Our organization continues to work hard to reduce vacancies. We have done this successfully for succession letting, where more contracts were signed than were terminated in the quarter. The occupancy rate was 95.2 percent at the end of the quarter. In some locations, some vacancies remain when tenants move in; this is due to demand not quite matching the strong construction activity seen in recent years. In the short term, this has had a negative impact on vacancy levels and profit from property management. Reducing the number of vacancies is a priority, and will take some time to resolve fully. In the long term, I am convinced that we can improve the numbers through hard work.

Our properties are valued quarterly by an external valuer. The challenging market conditions and the return requirement on properties are having a negative impact on market values. The market value of completed properties and properties under construction decreased by 1.2 percent in the quarter. From the end of the second quarter 2022, when values were at their peak, we have seen a decline of just over 6 percent. However, our property values are increasing in overall terms as we are continuously completing properties, starting construction projects and acquiring new building rights. At the end of the quarter, the total property value amounted to just over SEK 14.5 billion. Our business model stands strong in the current market conditions, where we are creating significant unrealized value in new construction projects. This helps to offset lower values on completed investment properties. From the peak in property values in Q2 2022 to the end of Q3 2023, we created unrealized values in new construction of approximately SEK 554 million, providing us with a stable foundation. This evidences the unique qualities of our business model compared to other sector operators. Although the market value of our properties remains under pressure while interest rates on building credits are rising, we are still managing to maintain an acceptable production to value ratio (PtV). At the end of the period, PtV was 75%, explaining why K-Fastigheter is able to maintain a more aggressive stance compared to other operators.

Interest rates affect the entire property sector negatively and remain a key focus in the debate about Swedish property companies’ performance. K-Fastigheter currently partners with around a dozen banks and has no bond financing, unlike many other sector operators. At the end of the quarter, 81 percent of our interest-bearing liabilities related to acquisition financing, and completed investment and business properties were hedged at an average interest rate of 3.29 percent. A period of fixed interest of 2.6 years provides room to maneuver until interest rates stabilize and become more predictable.

Our business model with symbiotic business areas that benefit each other represents a strength in the current market climate. This, combined with a structural need for new housing in the form of attractive new rental apartments, means that I take a positive view of the future despite the current market conditions.  

- Jacob Karlsson, November 2023

A complete Interim report January–September 2023 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 November 9^th, 2023, 9 AM CET.

K-Fastigheter is much more than a property company. Through an integrated process, we build our business in the four business areas project development, prefab, construction and property management. To enhance cost efficiency and cut construction times, K-Fastigheter has chosen to work with three concept houses, developed in-house and constructed for own management. K-Fastigheter offers close to 4,100 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 14,5 billion, with an annual rental value of about SEK 524 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