K-Fast Holding AB (Publ): Year end report January-December 2022

Financial ratios for the period 1 January–31 December 2022
(corresponding period in 2021)

• Rental income: SEK 384.2 million (265.9)
• Profit from property management: SEK 130.7 million (101.4)
• Profit for the period: SEK 907.4 million (1 044.4)
• Net investments in investment properties: SEK 2,707.0 million (1,608.1)
• Investment properties: SEK 13,094.6 million (9,603.7)
• Long-term net asset value (NAV): SEK 5,768.3 million (4,976.1)
• Number of apartments under management: 3,708 (2,723)
• Number of construction starts, apartments: 1,012 (996)
• Number of apartments under construction: 2,058 (1,820)
• Number of apartments under project development: 4,046 (5,869)
• Interest coverage ratio, R12m: 2.2 multiple (3.4)
• Equity/assets ratio: 33.9% (31 Dec 2021: 36.9)
• Debt-to-equity ratio: 55,4% (31 Dec 2021: 51.8)
• Profit from property management per share: SEK 0.61 per share (0.47)
• Long-term net asset value (NAV) per share: SEK 26.79 per share (23.11)
• Growth in profit from property management per share: 28.9% (29.8)
• Growth in long-term net asset value (NAV) per share: 15.9% (35.9)
• Earnings per share*: SEK 4.13 per share (4.85)
  
  * There are no potential shares (e.g. convertibles in the company, and accordingly no dilution effect).

A message from the CEO

In many respects, 2022 has been a challenging year amid soaring inflation, the war in the neighboring region, and rising interest rates. Society as a whole is facing harder economic times, as households grapple with rising food prices and volatile energy prices with high peaks, among other issues. Companies are also coping with higher prices of energy and other input goods. In the construction and real estate industry, the number of construction starts is now clearly down from the high levels that prevailed when economic conditions were different.

We are sensitive to the current market situation, but we are also very confident in our business model. I dare say that by controlling the entire chain from project development through prefab and construction, to management, we are better equipped than most in the industry to continue to launch rental housing projects. This is, of course, provided that the construction starts meet our internal requirements on acquisition cost in relation to market value, what we have come to call PTV (production-to-value), and yield on cost. The internal efficiency, collaboration between, and integration of our business areas have played an important role in enabling us to face increased costs in 2022. I can't thank enough all the people in the entire Group who have made this possible through hard work and innovative thinking. In this regard, the acquisition of K-Prefab has been important for the Group as well as for K-Prefab, where there have been investments in efficiency, personnel, and climate since the acquisition.

K-Prefab has achieved record sales in 2022, but gross profit has declined due to increased costs for material and lower margins on internal projects. The company has successfully handled the tougher market environment, despite a decline in profit, and K-Prefab has secured order books of over SEK 1 billion for 2023. Along with the investments made since the acquisition, I am positive that K-Prefab will continue to deliver attractive frame solutions to external customers as well as within the Group. We are closely monitoring developments for the coming years, where the business will be affected by cost developments as well as the number of new construction projects in Sweden.

I strongly believe in rental property as a form of housing and am convinced that rental property is a wise long-term investment that can generate solid and stable cash flows. In difficult times, rental property tends to be a more attractive form of housing than owned property. Our new constructions compete in many ways with tenant-owned apartments. Given the interest rate fluctuation for both individuals and housing associations, rental property should strengthen its competitiveness, something that benefits a company like K-Fastigheter, which has a large proportion of newer properties and which completes and starts construction of rental apartments at a high pace. We hope that the decline in construction can result in faster planning and building permit processes for municipalities as the pressure on them eases. Shorter planning and building permit processes are vital components in maintaining sufficient levels of construction in Sweden to meet ongoing demand.

K-Fastigheter is constantly evaluating the acquisition of building rights to expand our land bank. At the end of 2022, we completed two acquisitions of building rights in attractive cities. We acquired 180 building rights in Västerås from Balder in an exchange deal where K-Fastigheter divested an investment property in Helsingborg consisting mostly of commercial premises. In Örebro, K-Fast Kilen, a company in which K-Fastigheter holds 51 percent and Kilenkrysset holds 49 percent, acquired 300 building rights. I am hopeful to be able to make more acquisitions in 2023 if the right opportunities arise. At the end of the year, the Project Development business area was working on a portfolio equivalent to 4,046 apartments in various stages.

During the year, the Construction business area completed and handed over 840 apartments spread over 15 projects to our management organization. Six of these projects are equipped with photovoltaic panels. This is in line with the direction we have taken to ensure that from 2021 onwards, construction starts of Apartment Blocks and Lateral Low-Rise apartments will include photovoltaic panels. At the end of the year, the Construction business area recorded 2,058 apartments under construction.

In the full-year 2022, the number of apartments under management increased by 36 percent to a total of 3,708. The rental value of our portfolio has increased to nearly SEK 490 million, which represents a growth of 49 percent in 2022. In addition, ongoing construction at the end of the year will increase our rental value by 61 percent. The proportion of our property portfolio completed after 2010 continues to increase and accounts for 85 percent, with the majority of the properties completed in the last three years.

Over the year, the financial occupancy rate has increased and was 97. 3 percent at the end of the year, helping our profit from property management, which was pressured at the year-end by increased operating costs related to electricity and heating and higher financing costs due to rising interest rates. This will be partially offset in the coming year by rent increases. However, the rent hikes for the coming year will not fully compensate for the cost increases, which will have to be compensated for gradually over time. There is a continuous effort to optimize the operation of our properties.

Given the current market conditions, the return requirements on our properties have increased, leading to lower valuations. Despite this, we manage to report positive value growth, which is a sign of strength. Once again, I would like to emphasize that this is due to our unique business model in which project development and construction at a production-to-value of 72 percent allows us to meet declining values in our management portfolio. How this develops in the future will depend on whether inflation can be pushed down and how much the Riksbank (Swedish central bank) needs to raise interest rates in the future. It is reasonable to assume that valuations will fall further in the short term for the industry. In the long term, as I previously mentioned, I believe that investing in rental property is a wise move. Especially for a company like K-Fastigheter, which builds at costs that are below market value.

K-Fastigheter aims to have an average growth in long-term net asset value per share of 20 percent over a business cycle. On a year-on-year basis for 2022, we reached 16 percent compared to 36 percent for both 2020 and 2021. In the current market, I consider 16 percent to be a strong figure and can confirm that we are able to adapt in response to changing market conditions.

As I highlighted in the previous CEO comments, it is incredibly important to actively work on the credit and derivatives portfolio. Our credit portfolio comprises traditional bank loans spread across dozens of Nordic banks. Successful and long-term partnerships with many banks are crucial in times of market unrest.

Since 2019, a large proportion of our credit portfolio has been hedged with interest rate derivatives. At the end of the year, these interest rate derivatives had a market value of slightly more than SEK 400 million. As a result, we can continue to restructure the derivatives portfolio and increase the degree of hedging at interest rates below current market interest rates. At the end of the year, our interest rate hedge stood at 73 percent, against 70 percent on 30 September 2022. The average interest rate at the end of the year was 2.72 percent, against 2.29 percent at the end of the third quarter. Our active work on the credit and derivatives portfolio and the fact that K-Fastigheter has no bond financing, with the associated refinancing risk, gives us a sense of security and confidence.

Even though market conditions have deteriorated over the past year, I strongly believe that K-Fastigheter, with its unique business model, will be able to continue to launch construction projects and generate good business even in the current market situation. There is an underlying need for new housing, and K-Fastigheter wishes to contribute to social progress by offering attractive rental housing in Sweden and Denmark.

- Jacob Karlsson, February 2023

A complete Year end report January–December 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 February 16^th, 2023, 9 AM CET.
 

As a property company, K-Fastigheter’s objective is to add value for tenants by creating attractive homes with superior comfort. The Group’s operations encompass active property management, project development and proprietary construction operations. To enhance cost efficiency and cut construction times, K-Fastigheter has chosen to work with three concept buildings, developed in-house and constructed for proprietary management. K-Fastigheter provides some 3,700 homes in several locations in the Öresund region, in the province of Småland and in western Sweden, and is assessing new markets as production capacity increases. The Group’s property portfolio has a book value SEK 13.1 billion, with an annual rental value of about SEK 490 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