A strong first quarter despite the current situation
Despite a turbulent start to 2020, marked by covid-19, earnings have been strong during the first quarter. This is partly due to a mild winter but also due to a good development in a comparable portfolio. The quarter gives us a safer starting point ahead of the rest of the year. From mid-March onwards the focus has been on parrying the effects of the current corona situation, among others through a longterm constructive dialogue with tenants in particularly affected industries.
STABLE EARNINGS DEVELOPMENT
Klövern is reporting stable and good earnings for the first quarter. Profit from property management amounted to SEK 324 million, and after positive changes in value of properties of SEK 593 million profit before tax increased to SEK 882 million. The return on equity during the past 12 months amounted to 16 per cent.
UNCERTAIN STATE OF THE ECONOMY
Already during 2019, macro statistics indicated a slowdown in the economy. Accordingly, we have during quite some time been able to prepare the company for weaker demand. But the negative macroeconomic development has been rapidly accelerated by the corona situation.
It remains to be seen how long this exceptional situation will last, but it is very probable that in 2020 unemployment will be considerably higher and the rate of growth in the economy sharply lower. Because of the uncertain state of the economy, Klövern’s board decided at the end of March to adjust the proposed dividend per ordinary share for the 2019 financial year from SEK 0.50 to SEK 0.26.
GOOD GROWTH IN A COMPARABLE PORTFOLIO
Development in a comparable portfolio continued to be very good during the quarter with an increase of income of 4 per cent and of the operating surplus of 8 per cent. The mild winter has contributed to positive effects on the cost side with lower costs than normal for, among other things, heating and snow clearance.
Net moving-in amounted to SEK –41 million during the quarter but to SEK 42 million during the past 12 months. We had known about a number of the quarter’s vacations for a long time and overall net moving-in was in line with our expectations. We are pleased that the goal for net moving-in of at least 1 per cent of the rental value was surpassed by a wide margin in 2019 with an accompanying effect on earnings during 2020.
A STREAMLINED PORTFOLIO AND A FOURTH PROPERTY IN NEW YORK
Work has been in progress for a number of years to streamline our property portfolio, both geographically and in terms of products. We have now substantially achieved our goal of focusing the portfolio.
During the quarter, Klövern has acquired a 14-story residential building in a very attractive location on Park Avenue in New York. This is the fourth project property we have acquired in Manhattan. The international portfolio accounted for 16 per cent of the total property value at the end of the quarter.
FOCUSED PROJECT DEVELOPMENT
Project development is an important part of Klövern’s business model. Due to the state of the economy, we have decided to postpone several planned projects. For example, the start of construction for Klövern’s project at 118 10th Avenue in New York has been preliminarily shifted from the second quarter of 2020 to the first half of 2021.
In all, project development, including development of building rights, contributed to increases in value of properties of SEK 97 million during the first quarter.
STABLE FINANCIAL POSITION
Klövern’s financial position was further strengthened in 2019, both through good development of earnings and strategic net divestment of properties. On 31 March 2020, the adjusted equity ratio was 41.4 per cent, which is above the goal of 40 per cent, at the same time as the leverage was 52 per cent. The average financing rate was 2.4 per cent and 92 per cent of the credit volume was interest rate hedged or at a fixed rate. The interest coverage ratio is satisfactory and amounted to 2.6 per cent during the past 12 months. We have a positive dialogue with our banks with a view to securing continued good and stable long-term financing in a time where the previously stable and liquid capital market has rapidly changed.
The coronavirus creates uncertainty about the development of the economy during 2020. However, with a well-diversified customer base with over 4,000 tenants in a broad spectrum of industries, Klövern is after all, compared to many other companies, well positioned ahead of the rest of the year.
We have a long-term constructive dialogue with tenants in industries that have been particularly affected. In some cases, among others tenants in the hotel industry and restaurant industry, which account for a very limited part of Klövern’s customer base, this has resulted in that rental payments for the second quarter of 2020 is done as a prepayment on a monthly basis instead of on a quarterly basis. Adjusted for tenants that pay on a monthly basis, Klövern’s received rental payments and assessed as secure rental payments as of 22 April 2020 amounted to in total 92 per cent of the invoiced rents for the second quarter. At the corresponding point in time in 2019, 95 per cent of the rents had been received.
Finally, I would like to highlight all of Klövern´s employees who are currently making a fantastic effort to ensure that our customers continue to get the service and commitment they are accustomed to, despite the fact that we are currently living in a world where meetings often have to be digital.
Rutger Arnhult, CEO Klövern