Interim Report January – September 2022

“Robust business model with high occupancy rate in a growing management portfolio”
Andreas Morfiadakis, CEO

July - September

• Revenue for the quarter amounted to SEK 123.2 million (112.1), a year-on-year increase of 9.9 per cent.
• The Group’s net operating income amounted to SEK 77.7 million (69.7), up 11.5 per cent year-on-year.
• Profit from property management for the quarter amounted to SEK 37.4 million (35.1), a year-on-year increase of 6.5 per cent.
• Changes in the value of investment properties amounted to SEK -68.7 million (160.2) and changes in the value of derivatives to SEK 24.9 million (1.3).
• Profit for the quarter totalled SEK -5.6 million (159.1), corresponding to SEK -0.04 per share (1.48).
• The loan-to-value ratio was 48.8 per cent as of 30 September.

January - September

• Revenue for the period was SEK 362.2 million (229.2), up 58 per cent year-on-year.
• The Group’s net operating income for the period amounted to SEK 203.5 million (127.1).
• Profit from property management amounted to SEK 88 million (53.7), a year-on-year increase of 63.9 per cent.
• Changes in the value of investment properties amounted to SEK 122 million (433.5) and changes in the value of derivatives to SEK 86.4 million (6.5).
• Profit for the period totalled SEK 221.3 million (389.1), corresponding to SEK 1.68 per share (5.42).
• The net realizable value per share is SEK 35.44 (31.01), a 14.3 per cent increase compared with the preceding year.

Significant events after the end of the period

• Joined LFM30, Malmö’s local roadmap for a climate-neutral construction sector by 2030 at the latest, consisting of six strategic focus areas each with detailed targets.
• Signed a six-year lease comprising 350 square metres with the National Government Service Centre in Västervik, with an annual rental value of approximately SEK 1.7 million, as well as an expanded lease with Praktikertjänst in Malmö comprising an additional just over 130 square metres, with annual rent of approximately SEK 0.2 million.

Comments from CEO Andreas Morfiadakis

During the third quarter, we strengthened our profit from property management as a result of value-enhancing measures, the completion of new construction projects and acquisitions. Our earnings capacity improved 1.7 per cent to SEK 149.2 million. 

Stable property management business – based on our business model

It was business as usual in the property management operations, which delivered a stable performance. We are continuing to see strong demand for renovated apartments since rent levels remain relatively low after renovation compared with newly constructed rental or tenant-owner apartments. Our newly renovated apartments uphold a high standard and feel new even though the exterior is older. By renovating apartments, we not only raise the standard, but also eliminate an all-too-often pre-existing technical debt. In the long term, this also lowers our operating and maintenance costs. The fact that our business model remains strong, with a high occupancy rate, is reassuring in uncertain times.

It is unclear how the ongoing rent negotiations will end, but it should be noted that the Swedish Property Federation (Fastighetsägarna) is demanding a rent increase of about 10 per cent. Exactly what the outcome will be remains to be seen, but I am fairly confident that it will be a good bit higher than last year’s increase of roughly 2 per cent. Looking at a longer perspective, rent increases have always been higher than inflation, which bodes well for our long-term portfolio.

In our commercial operations, we signed a total of three leases, including leases announced shortly after the end of the quarter, mainly with tenants engaged in tax-financed activities, at a combined rental value of just over SEK 7.0 million, which had a positive impact on our earnings capacity.

The interest rate assumptions in our ongoing sensitivity analysis are based on the banks’ forecast (interest rate forward curve FRA Stibor 3m) as of 19 October 2022. Given such an interest rate scenario, we would fulfil our covenants and other financial undertakings. The situation could change and, while we are heedful of this, the analysis is cause for confidence.

New portfolio in Norrland

During the quarter, we acquired a portfolio of nearly 880 apartments in Östersund. The acquisition meets all of KlaraBo’s acquisition criteria: a large, coherent portfolio that warrants its own property management office, low starting rent, ample renovation potential, and a good location with population growth. We received bank financing on highly favourable terms – a fixed interest rate of 1.4 per cent for three years – and the acquisition was completed at an attractive price of SEK 13,850 per square metre. KlaraBo’s loan portfolio exclusively comprises bank financing, and at the end of the quarter, meaning after the acquisition, the loan-to-value ratio was 48.8 per cent.

Lower rate of new construction going forward

We recently decided to reduce our rate of new construction going forward. Conditions have changed, and this is impacting the entire industry. Production costs are higher and more difficult to predict, a situation exacerbated by the weak SEK. Financing costs have increased, and we are seeing adjusted yield requirements in our calculations, which is having a negative impact on our projects.

Our ongoing new construction projects will be completed, which will add approximately 81 apartments around the end of the year. In addition, we have a number of conversion projects that will add some 45 apartments next year. This decision was easier to make given that it will not impact our financial goals or our financial position. Nevertheless, we will not be able to meet our goal of starting construction on 200 apartments this year, but we hope to compensate for this when the market once again normalises.

Outlook

From a short-term perspective, the situation remains uncertain. Looking at the longer term, there are many reasons to be optimistic. Housing construction is declining, which is creating growing demand for our existing portfolio. Lower household purchasing power is contributing to greater interest in rental apartments as a form of housing. We are also seeing stable demand for housing at reasonable rents.

Rent levels and energy prices will eventually find new equilibrium levels, while vacancy risk will remain low as long as the housing shortage continues. Overall, I am convinced that our segment and business model, with rental apartments at its core, will maintain and perhaps even strengthen their positions in the long term.

Andreas Morfiadakis, CEO of KlaraBo

Teleconference
KlaraBo’s CEO Andreas Morfiadakis and CFO Jenny Appenrodt will present the Interim Report through a webcast presentation and teleconference at 9:00 a.m. (CEST) on Wednesday, 26 October. The presentation will be held in English.

To participate in the teleconference, call: +46 8 505 163 86
For a webcast of the conference go to: https://ir.financialhearings.com/klarabo-q3-2022

This information is information that KlaraBo Sverige AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out below, at 08.00 CEST on 26 October 2022.

For more information:
Andreas Morfiadakis, CEO KlaraBo
andreas.morfiadakis@klarabo.se
+46 76 133 16 61

About KlaraBo
KlaraBo is a real estate company that acquires, builds, owns and manages attractive residential properties. The company was founded in 2017 and operates throughout the country. The strategy is to acquire existing residential properties as well as land for new construction in regions with population growth and a strong labour market. Our newly constructed apartments are developed in-house and space efficient, which contribute to reasonable rents. Both apartments and buildings are designed in collaboration with the municipality to fit local needs. With wood as the main building material, the new construction holds a high environmental standard. KlaraBo is a long-term property owner. KlaraBo is listed on Nasdaq Stockholm and is traded under the ticker KLARA B.