Secure positioning despite a first half of the year characterized by uncertainty
The first half of 2020 has been marked in every way by the impact of covid-19 on society and the economy. A limited part of Klövern’s customer base has had a particularly tough spring and we have an on-going, constructive dialogue with those tenants. Despite this, we can note that in the current market conditions we have, in total, a stable long-term business which delivers good results.
CONTINUED STABLE EARNINGS
Klövern is reporting stable and good earnings for the first half of the year. Earnings are in line with our expectations even if the ongoing situation with corona has had a negative effect on the second quarter’s income in the form of SEK 9 million in rent discounts and SEK 5 million lower garage- and parking revenues. During the year’s first six months profit from property management amounted to SEK 617 million and after positive changes of value of properties of SEK 785 million, profit before tax amounted to SEK 1,268 million. The return on equity during the past 12 months amounted to 15 per cent. The development of income in a comparable portfolio was stable with an increase of 1 per cent. In the current situation, we have the benefit of our contracted rental income but also of the composition of tenants where most of them are able to deal with the situation without it having an excessive impact.
UNCERTAIN STATE OF THE ECONOMY
The covid-19 pandemic has rapidly accelerated the already noticeable slackening of the economy and it will probably have major negative effects on both the global and the Swedish economy. It can already be expected that there will be considerably higher unemployment than normal and a markedly lower activity in the economy at least in 2020 and probably a major part of 2021.
NET MOVING-IN REFLECTS THE CURRENT STATE OF THE MARKET
Net moving-in amounted to SEK –14 million during the second quarter. In addition to the vacations already known about, we are now also seeing a slight effect in the form of some bankruptcies related to the current corona situation. The good net moving-in that was achieved during 2019, which was far in excess of our target of at least 1 per cent of the rental value continues to have a positive effect on earnings during 2020.
STRENGTHENED LONG-TERM FINANCING
In May, we completed a major financial manoeuvre which entailed that Klövern refinanced SEK 5 billion in existing bank loans and secured bonds and obtained new loans and credit decisions for new loans totalling over SEK 4 billion. It is gratifying that we were able to achieve this important new financing by working together with our banks. In June, Klövern obtained an investment grade-rating (BBB- with stable outlook) from Scope Ratings which is positive for future financing. On 30 June 2020, the adjusted equity ratio amounted to 39.6 per cent, while leverage was 53 per cent. The average financing rate was 2.6 per cent and 91 per cent of the credit volume was interest rate hedged or at a fixed rate. The interest coverage ratio is satisfactory and amounted to 2.5 during the past 12 months.
A STREAMLINED AND STABLE PORTFOLIO
We can note that the hard work engaged in for a number of years to streamline the property portfolio has given us a portfolio concentrated on growth locations and markets where we want to be long-term owners and which is line with our strategy. The value of the portfolio at the end of the quarter totalled SEK 56 billion; at the same time, the foreign portfolio accounted for 15 per cent of the total property value.
PROJECT DEVELOPMENT CREATES VALUE FOR THE FUTURE
As one of the fundamental parts of Klövern’s business model, our project development aims to position Klövern as a long-term city developer both in Sweden and abroad. We have a large project portfolo, both as regards residential and commercial properties, which will enable both growth and the creation of value over time. Because of the state of the economy, we have decided to postpone the start of construction of some planned projects, but the work of planning and creating the prerequisites for future projects is continuing as usual. In total, project development, including development of building rights, contributed to increases in value of properties of SEK 205 million during the first two quarters of 2020.
AN ONGOING DIALOGUE WITH OUR TENANTS
A limited part of Klövern’s customer base, not least in the hotel and restaurant sectors, has had a particularly tough spring. We make individual assessments, based on each tenant’s needs and prerequisites, and in a number of cases, have agreed upon rent relief in the form of discounts and respite combined with state rental support. A number of tenants have gone over from paying rent quarterly in advance to doing so monthly. Adjusted for tenants that pay on a monthly basis, Klövern’s received rental payments and assessed as secure rental payments as at 10 July 2020 totalled 96 per cent of the invoiced rents for the third quarter. At the corresponding point in time in 2019, 97 per cent of the rents had been received. It is a great privilege to see every day how all of Klövern’s ambitious and committed personnel ensure that the business continues as usual even if we right now are perhaps not able to meet every day and that meetings often take place digitally.
Rutger Arnhult, CEO Klövern