Operator: Welcome to the Balder Q2 report 2026. For the first part of the conference call, the participants will be in listen-only mode. During the questions-and-answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to IR Jonas Erikson. Please go ahead.
Jonas Erikson: Good morning, everyone. Welcome to this conf call for Balder's Q2 2026 results. With me in the room, I have Sharam and Ewa, our CEO and CFO, who will take you through some slides initially. Then we will open up for questions.
Sharam Rahi: Thanks, Jonas. Most of you have seen this picture before, but I think it's good to show it again. Our portfolio is roughly half residential and half commercial. We have a portfolio value of SEK 241 billion, an occupancy rate of 95%, and a net debt of SEK 50 billion. We have a good liquidity of SEK 23 billion, and NAV per share stands now at SEK 94.3. That's a growth comparing rate of 24% since the start of Balder. Our credit rating from S&P remains at BBB with a stable outlook. If you look at the figures for the second quarter, rental income is up 5%. Profit from property management is down 10%. If you adjust the comparative figures for the effect of distribution of Norion, we instead have an increase of 3%. Our funding cost increased from last year, but at a lower pace than our portfolio has grown. We have also a bit higher central admin expenses. That is partly because of slightly higher activity in new development, and partly because we are investing a bit in digitalization and making our central functions more streamlined. The effect should be that we can scale the business more efficiently in the coming years. On the income side, we also need to work even harder with our occupancy. We have an amazing team, and they always do well, even in the challenging market conditions. In current earning capacity, we see an increase of 10%, adjusted for Norion's contribution in the comparative figures, which means that we see an underlying healthy growth. Like-for-like rental growth 1.2%, and NAV per share is SEK 94.3, as I said before. Looking at the earning capacity, you can see that rental income is up and net operating income is up as well. All in all, this summarized down to SEK 6.1 billion, and the per share SEK 5.21. You can also see that the per share improvement is a bit better than the profit improvement. The reason is that we bought back almost 16 million shares in this quarter. Here is an overview of the portfolio, which is very well-diversified. Helsinki is the single largest region, followed by Gothenburg, Stockholm, and Copenhagen. The residential side of the portfolio represents a little bit more than 50% of the portfolio. Office stands for 16%, retail 11%, industry logistics 7%, and other stands for 13%, and hotel are the majority of that. Looking at the whole portfolio, you can see that 80% is located in capitals and larger cities. We have always had a long-term view on the business, which of course will continue. If you take a longer time horizon, we have a really good improvement over the years. The latest three, four years has been flattish, obviously because of the interest rates going from zero and upwards. Here you can see the development of property values, net debt to total assets and occupancy. We have over time increased the portfolio, and net debt is now at 50% in the longer time period. We would like to come down. Occupancy rate is now 95%, and as you can see, it has been very stable, which is an effect of our diversified portfolio. The explanation for a bit weaker occupancy compared to earlier 96% is primarily due to some weakness in the office segment occupancy. Now I will hand over to you, Ewa, to comment a little bit more about the financing.
Ewa Wassberg: Thank you, Sharam. Looking at the financing, the funding mix is more or less a 50/50 split between bank and bond financing. We have slightly more bond financing as of now compared to last quarter. The level of available liquidity is continuously a bit elevated due to the concentration of large maturities in the beginning of 2027. The interest rate fixing and hedging ratio is stable, and the average interest rate is unchanged compared to last quarter at 2.9%. During the last couple of years, because of the volatility in the rates market, we have had the opportunity to enter hedges with optionality, like an extendable swap at very favorable rates. It's hard to judge whether these opportunities will continue. If they don't, this might present a slight headwind in our financing cost compared to our normal hedging activities. Net debt-to-total assets is up a bit to 50.4% due to the distribution of Norion and to some extent, share buybacks. The ICR is at 2.5%, and rolling 12 months net debt-to-EBITDA is 12.8x. Per quarter-end, net debt-to-EBITDA was down 0.3x compared to last quarter. Here you can see the long-term trend of the portfolio value in relation to net debt-to-total assets. As you can see here, as I mentioned in the previous slide, net debt-to-total assets increased during the quarter related to the distribution of Norion and share buybacks. Current encumbrance level is at 24.5%, and with our current funding mix, we think a level roughly in the 23%-25% range is where we will be. Over to the maturity structure. On the bank side, it has been business as usual, rolling maturities. In the bond market, we have been taking advantage of the favorable conditions and issued bonds in the SEK market amounting to SEK 1.6 billion. Currently, our bond funding is cheaper than the bank funding, looking at like-for-like maturities. This slide we have shown before. It's a structural overview of the funding and capital side. As we have said before, we will continue to have a balanced capital allocation until reaching our target of 11x net debt-to-EBITDA, and that target remains unchanged. We expect net debt-to-EBITDA to gradually come down, but we see no reason to be forceful about it. The direction is more important than the pace of the reduction. Here you can also see an updated calculation on the convertible bond, which when that is converting, assuming that we're above strike price, obviously will have a positive effect on the indebtedness numbers. In terms of funding strategy, there is no change compared to previous quarters. That was all from us, and on that note, I will leave the floor open for questions.
Operator: If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Fredrik Stensved from ABG Sundal Collier. Please go ahead.
Fredrik Stensved: Thank you very much. Good morning. A couple of questions. The first one is, Sharam, you mentioned in the CEO statement that there is some higher central costs and some upfront investments. Are you able to quantify those? Assuming those upfront investments are temporary, anything we should keep in mind in terms of timing?
Sharam Rahi: Yes, I said that. Some of them are only once, but some of them are for the digitalization for coming years. We think that we can make the system to put together the other countries in the same system. Maybe for coming years, it takes two to three years to change the system, and you are not going to see any dramatic changes or higher costs. I just wanted to start that with this quarter to say that we are going to have these costs.
Jonas Erikson: Let me mention, Fredrik, as well, in this quarter, there was a one-off number that was more of a periodization effect between Q1 and Q2. Q1 was some SEK 7 million-SEK 8 million lower than it should have been normally, and Q2 was SEK 7 million-SEK 8 million higher. I think when it comes to the digitization, we haven't made an exact calculation ourselves, but we're talking about a few tens of millions of SEK annualized this year and about as much next year. That's what we know now, but the whole program is not set in stone exactly how it will progress. We'll see a little bit how that goes.
Fredrik Stensved: Yeah. That's great and helpful. Thanks. Secondly, you talk about the commercial market moving in the right direction or in a positive direction. Any specific segment that you would like to call out here?
Sharam Rahi: We see a bit better movement in the office segment in Stockholm, Gothenburg. We see the trend is positive but that's all we see. We see that the trend is positive, and we like that it's in the right direction for now.
Jonas Erikson: We can obviously see the interest from clients in the different segments. When it comes to smaller offices, if you're talking 100-200-300 sq m, there we can see a clear pickup in interest. I think when you look at the total volume, you don't really see that yet in the occupancy numbers. In terms of market activity, incoming calls, and some of those smaller units, is where things usually start when there is a recovery, and that we're starting to see. Let's see how much that translates into larger volumes on the total as well. I think that's a little bit too early to make that call.
Fredrik Stensved: That's clear. Thanks. Final one, maybe a detailed one, the transactions you closed during the quarter, did those contribute in any meaningful way during the quarter, or did they close end of period?
Ewa Wassberg: [audio distortion]
Jonas Erikson: Firstly, they were not as large as in Q1. In Q1.
Fredrik Stensved: Yeah
Jonas Erikson: We had quite a large chunk of transactions that closed really at the end of Q1.
Ewa Wassberg: I would say it's mostly them that contributed.
Jonas Erikson: Yeah
Ewa Wassberg: This quarter.
Jonas Erikson: Yeah. the transaction volume was much smaller in Q2, and it was not as exaggerated impact in terms of the quarterly effect either.
Fredrik Stensved: Understood. Thanks.
Sharam Rahi: Thank you.
Operator: The next question comes from Andres Toome from Green Street. Please go ahead.
Andres Toome: Hi. Good morning. I had a couple of questions. Firstly, maybe just on your thinking around capital allocation in terms of share buybacks and putting that into the context of also deleveraging aspiration. I'm just wondering, how do you see that progressing? I guess from a deleveraging perspective, leverage ratios haven't really moved down a lot and sounds like you are maybe looking to deploy capital. I'm just wondering how we should think about that, how do you see maybe the maths in terms of accretion if you do share buybacks today versus paying back debt or buying back debt?
Jonas Erikson: Yeah. We obviously have several different credit metrics that we track. I think if you look at the last couple of years, the de facto restriction on our balance sheet has been some of the S&P measures that have been Well, we still had some margin to where we need to be for our current rating. Those have been the ones that we need to keep closest track on. If you look at debt through debt plus equity, where S&P requires us to be at 60% at least, we are at 58% currently, or maximum 60%. We're currently at 58% at the end of this quarter. We don't have a huge amount of room to maneuver. At the same time, these measures can fluctuate a little bit from quarter-to-quarter and year-to-year, depending on how the balance sheet develops, obviously. If you look at the last couple of years, we've actually improved our measures quite significantly. Obviously the distribution of Norion set us back a little bit temporarily. I think we feel that we have room to maneuver both on employing CapEx and bringing down the debt level or improving our credit metrics. At the same time, I think the improvement of the credit metrics, we're well in line where we need to be from an S&P perspective. We don't really feel any stress to improve them quickly, so we can be a little bit opportunistic if we feel that we have good investment opportunities. In regards to the question about buybacks versus acquisitions, it's not too difficult to run the maths of the comparative level that we need to be at yield wise for each share price level. Obviously our share price having come down this year makes buybacks more attractive, everything else equal. That's how we look at things. It's always a comparison of where the returns are greatest, we will be rational there when we employ capital.
Andres Toome: Understood. I had another question just relating to, I guess, a little bit follow-up on the previous one in terms of the cost side, and I guess in the CEO review, there was a bit of a mention of perhaps finding cost efficiencies. I'm just wondering how much room do you see there, and should we expect margin improvement to come down the line?
Jonas Erikson: I think there are a couple of moving parts here. The current market environment with pretty slow development on the commercial side also means that we have a like-for-like that is a bit lower than what we would expect to have in a, call it, normal year, whenever that is. We also have a pretty low like-for-like still in Finland, in our resi portfolio, in Sato. There we can see occupancy levels, and the available apartment numbers are improving slowly but surely. The low like-for-like also means that it becomes a little bit more difficult to maintain the same NOI margin as we had last year. You have a margin impact on that firstly, and then on the central administration, and those expenses, we've seen a slight uptick. Part of it is just general inflation and wage inflation. Part of it also, as we flagged in the report, we've taken some investments both to improve our capacity for project development. That has been very slow for a few years now. Also, as Sharam talked about before, some efforts to digitize our main systems that consolidate all our business so that we can hook on more units onto it and more countries onto it and streamline essentially all central functions throughout the Balder group over time. I think some of those expenses will remain elevated for some time. We've also said that cost efficiency has been a very core part of our DNA, and it's obviously something where we cannot be particularly happy about seeing the growth numbers that we're seeing so far this year. That's something that we need to keep closely track on.
Andres Toome: Understood. Thank you. That's it from my side.
Operator: The next question comes from Neeraj Kumar from Barclays. Please go ahead.
Neeraj Kumar: Morning, everyone. Just a quick one from my side. I just wanted to understand how do you plan to refinance the upcoming EUR 1 billion bond maturing in January next year? Do you plan to increase the euro portion of the debt by increasing more debt or just like-for-like replacement of those bonds?
Jonas Erikson: In terms of our funding activities, those are essentially already pre-funded. We're typically 15 months pre-funded. I wouldn't expect the mix between SEK and euro funding to change materially from here. A little bit depends on which market between SEK bonds, euro bonds, and the bank market is more attractive at the time. We're a regular issuer in the euro bond market. We have a liquid curve outstanding, going out seven, eight years, and I would expect that to remain pretty much the same over the coming years.
Neeraj Kumar: Got it. Secondly, on your hedging profile, you mentioned 75% of debt is hedged. With this bit of change in interest rate environment because of the Iran crisis, do you have any change in thoughts on how do you want to hedge the debt profile going forward?
Jonas Erikson: Not really. We have a hedging policy that is designed to be. The way we think of it essentially is to have a hedging that allows us to have a stable cash flow pretty much no matter what happens in the interest rate markets. You can see that pretty clearly, I think, going back to 2022 to 2024. During that period, we have interest rates coming up significantly. Our financial expenses obviously increased, but we maintained a profit from property management that was pretty stable throughout that time, and that tells me that our interest rate hedging is working as it should. That's more how it's designed. We don't really change that very much from year-to-year.
Neeraj Kumar: Got it. Thank you.
Jonas Erikson: I would just note as well that even though there's been obviously a lot of volatility in the rates market, in the curve, there's not a lot of drama in the short rates. We still have the same central bank rates that we did six months ago in spite of this. Let's see how that develops going forward. The short term or variable part of our interest rate expenses hasn't actually moved a lot in the last couple of quarters.
Neeraj Kumar: Got it. Thank you very much.
Operator: As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Jonas Erikson: Thank you very much everyone for listening in. Just get in touch if you have any follow-up questions.
Operator: The next question comes from Lars Norrby from SEB. Please go ahead.
Lars Norrby: Okay. Thank you. Just to follow up on buybacks and how to use capital. You spent some SEK 5 billion on acquisitions in the first quarter, another SEK 1.5 billion in the second quarter. Are you open to do something along the lines of Castellum, for example, that is divesting significant amounts of properties and use that for buybacks, or can that be ruled out?
Jonas Erikson: I wouldn't rule anything out. We don't have a sort of asset disposal plan, if that's what you ask. Everything has a price, and if someone comes along and shows interest in one of our properties, that's always a discussion we should take, whether our share price is at the current level or not. I think in that sense, we've always been rational in how we allocate capital, but we don't have any sort of active plans of going out selling properties as things are today.
Lars Norrby: Okay. Thank you.
Jonas Erikson: Thanks.
Operator: There are no more questions at this time, I hand the conference back to the speakers for any closing comments.
Jonas Erikson: Thanks everyone for listening in. Just get in touch if you have any follow-up questions. We'll be here throughout the day and week. Thanks.
Sharam Rahi: Thank you.