Chief Executive Officer, FastPartner
Fastpartner - ABGSC Investor Day May 26
Fastpartner med Christopher Johansson, Deputy CEO presenterar vid ABGSC Investor Day May 26. #Fastpartner #ABGSC ...
About Christopher Johansson
Christopher Johansson, vice CEO of Fastpartner, has appeared at several investor events in 2024 and 2021. In November 2024, he presented the company at Aktiespararnas Stora Aktiedagarna in Stockholm, describing Fastpartner as a real estate company that owns Swedish properties. He discussed market trends, stating that demand for office space in city centers is strong but weaker further out, that there is a shortage of light industrial space in metropolitan areas, and that there is an oversupply of older logistics properties and shopping centers. He also said that Sweden has a growing working-age population, which he described as unique compared to southern Europe. In September 2024, Johansson stated that Fastpartner had begun purchasing interest rate hedges, a shift from its previous strategy of short interest-rate fixation periods. He said the new financial target is for 30% of the loan portfolio to be hedged on maturities over three years, and that this change aligns with expectations from rating agencies. He added that the strategy would lower the company's average interest rate in the short term and provide stability. In March 2024, he noted that the company had extended its interest-rate fixation slightly before year-end and that it was well positioned to improve profitability when interest rates decline. In a 2021 presentation, Johansson said Fastpartner had received an investment-grade rating and issued a green bond, and stated that the company aimed to grow profit from property management by about 10% annually, reaching a rolling profit of 1.5 billion Swedish kronor by 2025.
Transcript (34 segments)
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Moderator0:01
Hello, it's time for FastPartner, the third and last real estate company to present today. I'll leave the word over to the deputy CEO, Christopher Johansson. Christopher, the word is yours. Thank you very much. Welcome to this presentation of FastPartner.
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Christopher Johansson0:22
I'm a vice president at FastPartner. If you would like to dig deeper into what you hear in the presentation today, please visit our website fastpartner.se where you can download our quarterly and annual reports. The beautiful photograph you see here is from the cover of our annual report and was taken from the roof of one of our properties in Solna. This building is part of a concentrated cluster of more than one hundred thousand square meters that we own in Solna. Next slide please.
For a long time, FastPartner has worked to deliver the best risk-adjusted cash flow of any property management company listed on the exchange. Now we're taking the next step in this work. Moody's has rated us investment grade. In conjunction with that, we have issued an unsecured green bond for SEK 1.25 billion for four years with a net interest margin of 112 basis points. Today we have an average interest rate of 1.8% on our loan portfolio, which is worth SEK 14.6 billion. So each basis point reduction of our average interest rate equals SEK 1.5 million in profit from property management. And if we were to refinance our entire portfolio on the terms of the green bond, annual property management profit would increase by more than SEK 100 million. So that's a big deal and it will radically improve our financials in the future. But it doesn't stop there. The investment grade rating also radically lowers our refinancing risk. Next slide please.
FastPartner has been publicly traded for more than 25 years and it's on Nasdaq's large cap list. We own 208 properties with an aggregated area of about 1.5 million square meters. The value of these properties is about 31 billion and the aggregate rental value is about SEK 2 billion per year. Our property portfolio is mainly concentrated in Stockholm but we have a significant presence in Sweden's four biggest cities and also Gävle and Norrköping. Having our property portfolio concentrated in major cities gives us multiple advantages: it makes property management efficient and we do our business where the economy is growing, which also allows us to increase rents. This provides risk diversification while creating superb opportunities for finding growth through prime acquisitions. Next slide please.
As I said, we have a mixed-use portfolio with all kinds of properties. This graph shows how our rental value is divided among different categories. Right now, the fastest growing category is residential, where we recently completed about 200 flats in Märsta. Another steadily growing segment is our share of public service properties, schools and care facilities. This proportion will expand as we refurbish vacant premises and build new properties for this type of use. Our project pipeline also contains, in addition to residential and public services properties, a significant number of development rights for light industry and logistics focused on last mile. Next slide please.
To safeguard our cash flow, it's important to look after our tenants in the best way possible. We have our own property management personnel who interact with tenants daily and can identify their wishes and needs. This means we are close to our customers, and that's important because 50% of new rentals are generated through our existing tenants. Next slide please.
Clear, committed, connected are our watchwords. Being a tenant with FastPartner should be straightforward and effortless. A tenant should feel assured that with us they are getting a best-in-class product in terms of economic efficiency and also sustainability in every aspect. Next slide please.
Our customers appreciate the work we do, which we see in customer service satisfaction surveys where we are continually improving our position year after year. That is one result of employees who are satisfied with their jobs and who find the work they do stimulating. Last year we were certified by Great Place to Work, one of the biggest and most widely recognized employee surveys. In this context, let me take the opportunity to also mention that we are a major sponsor of Fryshuset 36, a non-profit organization for youth. They do fantastic work with young people, especially during school holidays. Next slide please.
Now that I briefly presented our operations, I would like to update you on our current performance. We achieved our previously established target of SEK 950 million in rolling profit from property management by a comfortable margin and actually ended the year with management profits of SEK 952 million. Looking forward, we are now currently delivering SEK 990 million in rolling profit from property management. Last year we achieved an impressive surplus ratio of 71.3%. All in all, last year was yet another good year for FastPartner and the dividend was raised to an even SEK 2 per class A ordinary share. Last quarter the average interest rate was 1.8% and our interest coverage ratio increased and is now 4.2. Our loan to value decreased to 43.7% and net asset value increased to SEK 92.9 for each class A ordinary share. Before moving on to tell you about our new targets for 2025, I'm going to briefly look back on the past year. What a year. First everything was running smoothly, the economy was growing. Then a short article about the new corona virus in China. Shouldn't be that awful, just a new variant of a cold virus. But then total shutdown about a year ago. At FastPartner we called the management team to a digital meeting and made sure we could look after our employees and tenants. Then we tried to get a clear picture of our revenues and tighten rein on costs. Last year turned out well for us and the increase in the surplus ratio is partly thanks to better cost control. For me it feels very reassuring that we have such a firm grip on costs. Next slide please.
Here are our business targets for 2025 which the board adopted on the 7th of September 2020. The most important target by far is that we will continue to grow our profit from property management by about 10% each year and by the close of 2025 we will have reached a rolling profit from property management of SEK 1.5 billion annually. We say that we're going to be climate neutral in our operations by 2030, but I think it can happen even earlier. We have actually already reached several of these targets, for example achieving an investment grade rating and markedly reducing our CO2 emissions. So to recap, the targets for 2025 are all based on sustainability and long-term stable growth. Next slide please.
If you use a simple model to extrapolate the impact of reaching the 2025 targets, you'll see FastPartner owning properties worth about 40 to 45 billion. For that we're expecting to reinvest about two-thirds of the profit from property management each year. We're expecting rental income to increase as indexed in agreements but we're not counting on any major changes in valuation yields. We have included the effect of an investment grade rating. Looking at our past performance, you'll see convincing evidence that we will be able to meet these targets. In five years, the annual growth of rental income has been about 10%, property values 15%, long-term net asset value 21% and share price 12%. Looking at the 10-year period, the figures are even more impressive. Next slide please.
Of course growth will not be continuous the way the model indicates, but will advance in stops and starts. This graph shows our history of acquisitions and investments as well as how these two together have boosted our profit from property management. We have an opportunistic acquisition and investment strategy by which we evaluate acquisition opportunities when they emerge. We do not find, if we do not find the long-term return we're looking for in an acquisition, we turn to our portfolio development rights. Next slide please.
One effect of continuously investing in and developing our properties is that we lift the level of brands as this graph shows. This is a process of refinement aimed at achieving prime properties with better offerings as well as a better property portfolio concentrated in Sweden's fastest growing regions. The latter goal in particular is something not reflected in the external property valuations we do twice a year. In my view, it's a good argument for a share price that should include a premium on the net asset value of SEK 92.9. Next slide please. As I said at the start, we are very skilled at generating strong cash flow. That is clear from this graph. Here you can see how FastPartner steadily and evenly delivers higher cash flow than the MSCI property index on average. And why is that important? Next slide please.
We recently won a prize for being a mixed-use portfolio in the MSCI property index that had the highest average total yield for three years in a row. If you look at the total yield on properties shown in this graph of the total number of properties in the MSCI index, that yield derives partly from changes in valuations and investments and partly from current cash flow. What is obvious here is that the first component varies greatly over time while cash flow remains reasonably stable year to year. If a company outperforms in terms of cash flow year after year like we do, it leads to a compounding effect, making the company a winner over time. Next slide please. So currently we are putting in a lot of work to develop our office offering. We think that we will see a high demand for top quality office premises this autumn. The office offering will be a multi-tenant property where tenants can expand or reduce their hiring. They should be conveniently accessible by public transport and by car, include all sorts of services: restaurants, shared conference facilities, spontaneous meeting spaces, etc. So COVID will make everyone think hard about whether they have the right office. As I said, this is our current focus and work is underway on several sites including Kista, Hammarby Sjöstad, Liljeholmen, and especially in central Frösunda, Solna, which this next video will show. So can you please put on the video.
Thank you. Sustainability work is central to us in everything we do. Each year we reduce our CO2 emissions significantly, and most recently we reduced them by about 40% for an equivalent space. By 2030 we aim to be completely carbon neutral in our property management. We are increasing the number of environmentally certified properties and today more than 30% of our properties by value are certified. In addition, we also refinance these properties with green financing. The current share with green financing is just short of 30%. Sustainability has more dimensions than just carbon dioxide emissions, though emissions are very important. Something we are very proud of in our property management operations is how we get involved in communities and make efforts to support small businesses where they are where we own properties. For many of these small businesses, we are honored to provide them with increasingly larger premises. Each year we offer traineeships and many are located in our urban centers. We also have many employees who live where we own properties. Reusing vacant premises and repurposing them are two of the most climate smart things we can do, considering about 60% of a property's emissions during a life cycle of 50 years comes from the construction phase. Next slide please.
Here we have a quick look at the company's sustainability targets. Next slide please. Post Office is our co-working hub offering and here we see a very strong demand at the moment. In Post Office we are trying out new ideas in property management and testing innovation, innovations in our offering to customers such as having access to geographically expanded rental space. Fast Office is also a gateway for new graduates to our property management services. Next slide please.
Nowadays the business world is brimming with great efficiency through digitalization. So it is with the property sector too. We see digitalization as a key to achieving a surplus ratio of 75, but it's also playing a central role in achieving our environmental goals and targets for customer satisfaction. At FastPartner we have a completely digitalized customer journey. It starts with the marketing, measuring results, start targeting advertising. Then we have digital signed lease agreements, electronic invoices, digital signage and digital keys, notice boards. And it continues over into the property management where we can boost quality, increase our availability to customers. So it's great, much efficient. Next slide.
We have a large portfolio of development rights including both residential and commercial. The portfolio is totaling 330,000 square meters. This allows us to find growth in other ways than by means of acquisitions. Next slide please.
The two biggest development rights projects that we are working intensely on right now are in Västberga and Bromma. In Västberga we are developing almost 40,000 square meters of commercial space. In Bromma we are working with a detailed development plan that will consist of a mix of residential and commercial space totaling about 70,000 square meters. We hope this detailed development plan will be ready in 2023. Next slide please.
Also we are working on an interesting project in Gävle that will allow us to build 35,000 square meters of mixed-use properties. Okay, next slide please. So many thanks to everyone who has listened. And in summary, I'll say that when you invest in FastPartner, you invest in a winning team with employees who are deeply committed, knowledgeable and proud of what they do. If you want to keep up to date on the work we are doing, I recommend you to follow us on LinkedIn. Thank you.
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Moderator19:40
Great, Christopher, thank you for your presentation. I'll run a few questions here. Questions here from my side. Well, let's just quick on the development. You mentioned it in the end here, but you have now total investments in development properties at one billion SEK and that's roughly similar to what was in Q4 and Q3, but much more than just in Q4 2018 and before that it was just half and less. So should we expect your development portfolio to shrink, remain, or grow from these levels?
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Christopher Johansson20:27
Yeah, so when we purchase properties, we always look out for the potential of finding building rights. So and but they are also key to our coming expansion of business. So we will, as we see fit, make use of these development rights.
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Moderator20:54
And just in terms of yields, what kind of yields on average do you expect for your development portfolio, both residential and commercial? Yeah.
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Christopher Johansson21:08
Of course I can't give you a particular number, but of course the yields on the development projects we engage in are much higher than the ones you find when you do acquisitions, of course.
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Moderator21:23
And could this indicate, if we're talking around six percent for the commercial portfolio on average, or is it...?
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Christopher Johansson21:31
I could say at least more than 50% higher than acquisitions, the yield on developments. And for us, many times these development rights, as I said, we have them for free, so we haven't purchased them. We find them in our existing portfolio properties.
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Moderator22:00
And the latest two acquisitions this year were in Gävle. Could you explain a bit on your rationale for expanding in Gävle?
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Christopher Johansson22:16
So we have six core cities that we are looking into when we do acquisitions. In each of these cities we know the local market and many of the tenants. These are of course Stockholm, Gothenburg, Malmö, Uppsala, and then Norrköping and Gävle. So for us it's very natural to acquire properties in any of these six cities.
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Moderator22:52
And could you say anything on the yield level in Gävle?
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Christopher Johansson23:04
Of course it's more attractive than in Stockholm.
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Moderator23:11
And has the pandemic changed your view on any segments or geographies, both that you're actively owning now and that you could consider to expand into?
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Christopher Johansson23:20
So we're very confident that if you have a good offering in offices, you will be very competitive in the coming autumn here. And you will even be able to increase your market share, we think. But then COVID has made logistic properties extremely expensive and that's one thing for sure.
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Moderator23:55
Gustaver, time has run out, but great to have you on and thank you for presenting today.
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Christopher Johansson24:01
Yeah, thank you for having me.