Interim report January-March 2023

• Income increased to SEK 1,172 million (1,099).
• Operating surplus increased to SEK 789 million (727).
• Net financial income amounted to SEK –387 million (–271).
• Profit from property management amounted to SEK 356 million (409).
• Changes in value of properties amounted to SEK –1,505 million (1,082).
• Changes in value of financial assets amounted to SEK –231 million (720).
• Net profit for the period amounted to SEK –911 million (1,736), corresponding to SEK
  –0.95 (1.47) per ordinary share of class A and B.
• Net letting amounted to SEK 33 million.
• The value of investment properties amounted to SEK 75,109 million.
• Net asset value (NAV) per ordinary share of class A and B amounted to SEK 25.52.

IMPORTANT EVENTS DURING THE FIRST QUARTER

• During the quarter, 34 properties were divested for SEK 2,488 million.
• In January, Corem divested its entire holding in Castellum, consisting of 8.7 million shares at avalue of SEK 1,190 millon.
• In February, Corem repaid outstanding bonds of SEK 484 million at maturity.
• In March, Corem raised a green loan of USD 90 million with the German bank PBB Deutsche Pfandbriefbank for financing of the property 1245 Broadway in New York.

EVENTS AFTER THE END OF THE PERIOD

• In April, Corem Property Group, ALM Equity and Broskeppet Bostad, the joint owners of the residential company Klövern, signed a letter of intent with an international investor for the latter’s acquisition of 25 per cent of the shares in Klövern at a value of around SEK 1,350 million. The deal is expected to be finalized during the second quarter of 2023.
• In April, Corem transferred possession of the remaining 40 properties in the previously communicated deal comprising a combined 47 properties for an underlying property value of SEK 5,350 million. The assessed effect on earnings in the second quarter amounts to approximately SEK 275 SEK million and is mainly attributable to the dissolution of deferred tax liability.
• In April, Corem announced the early redemption of a bond amounting to SEK 700 million. The redemption date is 5 May 2023.
• In April, an agreement was signed for the sale of a portfolio of ten properties in Kalmar, for an underlying property value of SEK 425 million, which is in line with the book value of the properties.

 

Comment by the CEO

Continued streamlining and positive net lettings

Our core property management business and lettings operations continue to be stable and generate strong earnings for the business as a whole. Since the year-end we have signed agreements for several larger lettings in Sweden, Denmark and USA. There has been a high level of transactions activity during the first quarter, and this is likely to continue during the year. Divestments and debt repayments have been a priority in order to strengthen the balance sheet, focusing on ensuring long-term, resilient finances in a time of macroeconomic uncertainties.

It is pleasing to see that our core business is robust, in spite of the uncertainties that prevail in the world and on the financial markets. Our net letting was positive in the first quarter, amounting to SEK 33 million, indicating that the core business will stay healthy. Operating profit increased by 9 per cent compared to the same period last year, to SEK 789 million. At the same time, higher interest costs affect the profit from property management, which decreased by 13 per cent, to SEK 356 million.

 

Transactions that strengthen our profile

In these challenging times, we still see that there is a well-functioning transactions market. We will continue on the path we have started on: streamlining the portfolio and strengthening the balance sheet, chiefly through divestments.

 

During the first quarter, we handed over possession of 34 properties with an underlying property property value of approximately SEK 2,490 million. After the end of the quarter, we have also handed over the remaining 40 properties in the transaction agreed at the end of last year, which concerned 47 properties in all. That deal together with our agreed divestment´in Kalmar of 10 properties lowers our loan-to-value ratio from 56 per cent at the end of the first quarter to 53 per cent, at the same time as the equity ratio is strengthened from 35 to approx 38 per cent. The divestment of our remaining holding in Castellum, to a value of SEK 1,190 million, was a further step taken this quarter to strengthen our balance sheet.

 

The transactions that we have agreed on and completed have taken place at values near the book values, which we regard as an indication that our valuation process is working well. Given the external circumstances we currently operate in, with higher interest rates and high inflation, we have during the first quarter written down the property values by almost 2 per cent.

 

Higher financing expenses

The real estate sector is in a period of increasingly high financial expenses as a result of higher interest rates. We are continuously working to secure stable, long-term financing and reduce interest rate risk, by using interest rate swaps and caps. We are gradually increasing the proportion of bank financing, which offers greater stability. We have strong relationships with banks which we value highly. During the quarter we closed a new green loan of totally USD 90 million to finance the development property 1245 Broadway in New York, where part of the loan refers construction credit for the completion of the project.

 

At the beginning of the year, our bond maturities in 2023 amounted to SEK 2,934 million, of which SEK 484 million was repaid during the quarter. Thanks to the transactions that we have completed, we will be able to redeem the remaining non-secured bonds that mature this year. The next maturity, which falls in June, will be redeemed early.

 

Increased income and continued energy savings

High inflation affects us in several ways. It increases the costs of our projects as well as of our ongoing property operations, but at the same time, there is a positive impact on rental income as Swedish lease agreements are mostly indexed against the consumer price index (KPI). We estimate that the impact of KPI indexation, after adjustment for known transfer of possessions, will increase rental income by around SEK 290 million in 2023.

 

Energy costs in the Swedish portfolio increased by around SEK 13 million during in comparable portfolio the first quarter, compared to the same quarter last year. This increase in costs was, however, materially lower than expected, as energy prices did not rise as high as projected. We are actively working to reduce the energy consumption in our properties, partly for our own sake but also to support our tenants in this work.

 

Our goal is to reduce energy consumption to 75 kWh per square metres by 2025. In 2022, we reduced our energy consumption by 10 per cent, from 88 kWh per square meter to 78 kWh per square meter.

 

Restraint with new projects

Project development and investments in our properties are meant to improve cash flows, which also contributes to increasing the value of our portfolio. Given the market conditions that now prevail, however, we have chosen to primarily finish and conclude ongoing projects, and to prioritize starting only the most profitable projects.

 

Our largest ongoing construction project is the construction of two high-quality office buildings with high sustainability ratings in attractive locations in Manhattan. The exteriors of these buildings are now complete, and as leases are signed tenant adaptations are also completed. The total annual contract value for all lease agreements signed thus far for properties in New York amount right now to around SEK 120 million, and the average rent amounts to the equivalent of around SEK 11,000 per square meter.

 

Several of our larger projects are now nearing completion, and lettings efforts for multiple development properties are now entering the final phase. So far this year, we have signed agreements for several larger lettings. Among others, we have let around 3,500 sq.m. in central Stockholm to the Riksbank, the Swedish central bank; total around 2,200 square meters in New York to the marketing agency R/GA and to the skincare company Peachy; and around 1,500 square meters to the consultancy WSP in the project Örebro Entré. We have also agreed on a lease of 2,180 square meters in Copenhagen.

 

In summary, I can say that these are new times for all of us in the real estate industry. Although our underlying business is stable rising interest rates and an unbalanced capital market leave their mark. The quarter that we now leave behind us has been work-intensive and thick with transactions, and we intend to keep that momentum up as we enter the next quarter.

 

Eva Landén, CEO

Stockholm 28 April 2023

Corem Property Group AB (publ)


FOR FURTHER INFORMATION, PLEASE CONTACT
Eva Landén, CEO, +46 10 482 76 50, [email protected]

Corem Property Group AB (publ)
Address: P.O. Box 56085, SE-102 17 Stockholm
Visitors: Riddargatan 13 C
Reg.no: 556463-9440
www.corem.se
 

This information is such that Corem Property Group  (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 person set out in this press release, at 08:00 CEST on 28 April 2023.
 
This press release is in all respects a translation of the Swedish original press release. In the event of any discrepancies between this translation and the Swedish original, the latter shall prevail.