Genova Property Group Interim report January–September 2020

Quarter July–September 2020

• Rental income amounted to SEK 57.7m (46.6), an increase of 24%.
• Net operating income amounted to SEK 45.3m (36.0), an increase of 26%.
• Income from property management increased 184% to SEK 30.4m (10.7), of which income from property management attributable to ordinary shareholders was SEK 19.9m (0.2), corresponding to SEK 0.50 (0.01) per ordinary share.
• Net income after tax amounted to SEK 78.8m (300.2), corresponding to SEK 1.72 (6.65) per ordinary share.

Period January–September 2020

• Rental income amounted to SEK 168.3m (128.0), an increase of 31%.
• Net operating income amounted to SEK 130.2m (94.4), an increase of 38%.
• Income from property management increased 54% to SEK 51.7m (33.6), of which income from property management attributable to ordinary shareholders was SEK 20.2m (7.4), corresponding to SEK 0.60 (0.15) per ordinary share.
• Net income after tax amounted to SEK 309.8m (420.5), corresponding to SEK 8.26 (7.89) per ordinary share.
• Long-term net asset value attributable to ordinary shareholders increased 70% to SEK 2,299.8m (1,351.6), corresponding to SEK 58.11 (43.99) per ordinary share.

Significant events during and after the end of the period

First quarter

• In February, Genova’s Board of Directors adopted new financial and operational targets and a new dividend policy.
• In March, Genova concluded an agreement to divest 50% of the shares in the property-owning company that owns Stapelbädden 3 in Lidingö at an underlying property value of SEK 400m before deductions for deferred tax. 
• In March, Genova signed a letter of intent with Internationella Engelska Skolan to build an elementary school with a 20-year rental agreement in the Viby 19:3 property in Upplands-Bro, where Genova is planning to build a new district together with recidential company K2A.
• In March, Genova agreed to acquire a ground lease in Nacka at an underlying property value of approximately SEK 40m. Accession took place in May 2020.
• During the quarter, rental agreements for approximately 4,500 sqm in two properties in Lund were extended, with an annual rental value of approximately SEK 6.2m. The agreements have terms of five and eight years, respectively, with National Historical Museums and Friskis & Svettis as tenants. 
• Genova decided to change its accounting policies and will henceforth consolidate the co-operative housing association that owns the Liljegatan 1 project in ­Fålhagen, Uppsala. Under the new policies, the date on which income from newly constructed co-operative apartments is recognised is the point in time when home buyers gain accession to their units and not, as previously, over a period of time as the work is completed. Due to application of the new accounting policies from the first quarter of 2020, items attributable to prior periods have been restated, which is presented in Note 1. As a result of the restatement, equity decreased by SEK 47.0m. When the project is completed, which is scheduled for the fourth quarter of 2020, SEK 47m is expected to be returned to equity.

Second quarter

• In May, Genova agreed to acquire a community service property in Ekeby, Uppsala, at an underlying property value of SEK 350m. The lettable area is approximately 16,500 sqm with a lot size of about 16,700 sqm. The largest tenants are Gluntens Montessori School, Stadsmissionens Skolstiftelse, Friskis & Svettis and Uppsala Municipality. The average remaining rental duration is 2.9 years and the annual rental value approximately SEK 26m. Accession took place in August 2020.
• In June, Genova agreed to acquire a property in Åkersberga at an underlying property value of SEK 20m. The property is located in central Åkersberga adjacent to one of Genova’s existing properties. The lettable area is about 1,100 sqm, with an approximate lot size of 6,000 sqm. The property is fully let to Lidl Sweden, has an annual rental value of approximately SEK 1.3m and a rental term of approximately 3.5 years. Accession took place in July 2020.
• In June, 50% of the shares in the property-owning company that owns Stapelbädden 3 in Lidingö was divested. The shares were acquired by Samhällsbyggnadsbolaget i Norden AB (SBB) in March 2020, and the parties will develop the property jointly with a focus on sustainable, community-oriented homes. The underlying property value of SEK 400m in the transaction exceeded Genova’s book value by approximately SEK 220m, which was recognised as a value change in the first quarter.   
• In June, Genova’s first own-produced rental apartments were completed and occupied. Genova will own and manage the 35 rental apartments, which are located in Alsike in Knivsta.
• As of 12 June, Genova’s preference shares were admitted to trading on ­Nasdaq Stockholm’s Main Market.
• In June, Genova decided on an offering to subscribe for and purchase ordinary shares in the company, and a subsequent listing of the ordinary shares on Nasdaq Stockholm. The offering was oversubscribed and in total, including the over-allotment option that was exercised in July, the company generated proceeds of approximately SEK 576m before listing expenses.
• 30 June was the first day of trading for the ordinary shares on Nasdaq Stockholm’s Main Market.

Third quarter

• In July, Genova announced that the over-allotment option had been fully exercised.   
• In July, the zoning plan for Genova’s jointly owned project in central Knivsta came into force. The zoning plan for the Segerdal project grants permission to develop approximately 25,000  of gross lighted floor area, where Genova is planning to construct approximately 300 rental apartments combined with some commercial operations.
• In July, Peter Lövgren resigned from his position as Head of Business Development. In conjunction with this, Head of Properties Henrik Sandström assumed responsibility for Genova’s business development.
• In August, Genova and SBB jointly acquired and gained accession to Nackahusen Holding AB, which owns six properties in Nacka Strand. The properties, which contain building rights of approximately 40,000 sqm of gross lighted floor area, were acquired for SEK 1. The parties assumed the existing bond loan of approximately SEK 360m. Following the settlement of Nackahusen Holding’s previously divested properties, Genova and SBB will jointly control properties and building rights of about 30,000 sqm of gross lighted floor area. The properties are owned through a joint venture, where Genova’s investment commitment amounts initially to SEK 30m, and is financed with own capital. 
• In September, Genova successfully issued senior unsecured bonds in the total amount of SEK 400m under a framework of SEK 750m. The bonds have a tenor of four years and a floating interest rate of Stibor three months plus 450 bps and will mature on 9 September 2024. The first day of trading of the bonds on the corporate bond list of Nasdaq Stockholm was 9 October 2020.
• In September, Genova announced the result of the voluntary tender offer that was announced as of 24 August 2020 to the holders of Genova’s outstanding senior unsecured floating rate bonds 2017/2021 with an outstanding amount of SEK 156m. The offer was accepted by holders of bonds representing a total nominal amount of SEK 106m. Genova intends to exercise its right to voluntary early redemption of all outstanding bonds.
• In September, Genova agreed to acquire three properties in central Enköping. The underlying property value of the acquired properties amounted to SEK 91m. Accession took place as of 23 October 2020. The properties are directly adjacent to a property that Genova owns, where planning is in progress for the future development of residential units. The annual rental value for the commercial space that is currently let is approximately SEK 2.8m. The properties include residential building rights that have gained legal force of approximately 14,000 sqm of gross lighted floor area and an estimated potential to develop a further approximately 12,000 sqm of gross lighted residential floor area. 

Events after the end of the period

• In October, Genova conducted a number of strategic lettings of approximately 6,500 sqm with an annual rental value of approximately SEK 10m in Stockholm and Lund. 
• In October, Genova signed a letter of intent with Axfood pertaining to the development of the Viby 19:3 property in Upplands-Bro, where Genova is planning to build a new district. The parties are to work to construct a supermarket with Hemköp covering a floor area of 1,200-2,000 sqm with a 10-year rental agreement, at a minimum, on market terms. The project in Upplands-Bro is being run together with K2A and is expected to commence in the second quarter of 2021.
• In October, Genova agreed to acquire a project property for warehouse and logistics purposes in Uppsala. The property is strategically located and when completed will contain approximately 21,500 sqm of lettable area and entail a total investment of SEK 275m before deductions for deferred tax. In connection with the accession, Genova paid a consideration of SEK 25m, which was financed by using available funds. The property is expected to be completed in September 2021 and the property value when completed is estimated at approximately SEK 360m with a total rental value of approximately SEK 23.5m and an expected net operating income of approximately SEK 22m. 
• In October, Genova agreed to acquire two properties with a school, retirement home, supermarket and rental apartments in Knivsta at an underlying property value of SEK 246m before deductions for deferred tax. The total lettable area is approximately 8,700 sqm and the properties also include land of approximately 50,000 sqm with the potential for future development of both residential units and community service properties. The annual rental value for the properties is approximately SEK 14m with an expected net operating income of approximately SEK 12m. The average remaining term for the rental agreements exceeds seven years. Accession is scheduled for 1 December 2020.
• In November, properties were exited by Nackahusen Holding AB and payment of almost SEK 50 million was received. The properties were already divested at Genova’s and SBB’s joint acquisition and accession in August 2020. In November, Nackahusen Holding also repaid the bond loan of SEK 360m that was taken over in connection with the acquisition and replaced it with a new bank loan, which means significantly lower financing costs for the jointly owned company.

CEO’s statement

Genova reported a strong third quarter with growing income from property management and a larger property portfolio with clear development potential. During the autumn, we conducted several strategic acquisitions that contributed stable cash flows and potential for future development. At the same time, the pace of our ongoing and planned projects remains high. The new share issue and listing of the ordinary share in June strengthened our balance sheet and liquidity. This provides us with excellent conditions to accelerate the pace of our operations, which we are prepared for in every way.

After listing Genova on Nasdaq Stockholm in June, I am happy that the organisation can now fully focus on developing Genova and do what we are best at: acquiring, developing and managing properties in our prioritised markets and pursuing zoning processes to create building rights at low intrinsic value and thereby enable high profitability in our project development. Always with a focus on sustainable project development.

Several acquisitions with development potential

In line with this business focus, we added several strategic properties to our investment property portfolio during the quarter, which include the potential for new projects, primarily for rental apartments and community service properties.

 In Enköping, we acquired a commercial property next to our upcoming project and a property with a zoning plan that gained legal force for 250 rental apartments. In Knivsta, we acquired a property after the close of the quarter with a school and retirement home and where surrounding land offers potential for future development of both residential units and community service properties.

In October, we signed a letter of intent with Axfood to construct a Hemköp supermarket in the new, sustainable district we are planning to build in Viby, Upplands-Bro, starting in 2021. It is an important signal and creates further interest in this exciting development area of approximately 100,000 sqm, which also contains residential units and a school for Internationella Engelska Skolan. All in all, we now have a building rights portfolio with almost 5,800 residential building rights strongly concentrated in Greater Stockholm and Uppsala, and more are in the pipeline.

We are always on the look out for strategically interesting transactions, even in property categories outside our core areas. In October, we agreed to acquire a project property for warehouse and logistics purposes in an attractive location in Uppsala, where we already own several commercial properties.

Right conditions to achieve our targets

Our strong balance sheet and good liquidity from the completed new share issue has increased opportunities for us to grow through acquisitions and in our project development. Our earnings capacity and rental income are continuing to grow as we acquire and complete projects. Income from property management rose during the period by 54% to SEK 52m, with an annual growth in profit from property management per ordinary share by 51%. The decrease in net income after tax reflects lower value changes compared with the year-on-year period.

We are living in a turbulent world with a pandemic that is creating significant challenges and uncertainty, something we have great respect for. At the same time, we are grateful that most of our tenants have coped well with the situation, which has resulted in a very limited impact on our business. Overall, I believe conditions are favourable to reach our operational targets. During the next six months, we are planning to increase the production rate and already at the end of the first quarter of 2021 we expect to have almost 800 residential units in production, which is just above the target set for next year. Following the acquisitions completed in 2020, the proportion of rental income from residential units and community service properties will exceed 50%, well on track to achieve the target of 60% we have set ourselves to reach by the end of 2024.

Genova’s financial position is strong, liquidity is very high and we have access to additional capital should it be required. This offers us excellent and exciting opportunities as we move forward.

Michael Moschewitz, VD

The interim report in its entirety is available on Genova’s website: www.genova.se.

For further information, please contact:

CEO, Michael Moschewitz, phone +46 70 713 69 39, michael.moschewitz@genova.se

CFO, Edvard Schéele, phone +46 70 399 69 90, edvard.scheele@genova.se

ABOUT GENOVA

Genova Property Group AB (publ) is a modern and personal real estate company that owns, manages and develops properties with a focus on Greater Stockholm and Uppsala. As of September 30, 2020, the company owned properties to a value of approximately SEK 5.2 billion with a lettable area of 187,000 sq.m. and held 5,777 residential building rights. Genova’s preference shares and ordinary shares have been listed on Nasdaq Stockholm since 12 and 30 June 2020, respectively.

This information is inside information that Genova Property Group AB (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 persons set out above, on 13 November 2020 at 08:15 a.m. (CET).