Entra ASA. Funding and risk management for real estate, April 2017

Transcription

1 Entra ASA Funding and risk management for real estate, April 2017

2 Agenda About Entra Management of financing mix in volatile and changing financial markets Green bond financing for real estate Financial risk management in a dynamic macro-environment Summary 2

3 Overview of Entra A leading owner, manager and developer of Norwegian office properties Strong, fully integrated real estate platform Biskop Gunnerusgt 14 Oslo Fredrik Selmers vei 4 Oslo National Library Oslo Focused on large, flexible, high-quality assets in centrally-located office markets close to public transportation hubs Solid track record and strong financial and operating profile Key figures as of Number of Properties* 94 Total Area ( 000s)* sqm Occupancy Rate (management portfolio) 96.8% WAULT (management/total portfolio) 7.0 / 7.7 years Public sector tenants (share of rental income) 70% Property Market Value* 35.8 bn Net Interest-Bearing Debt 17.7 bn Loan-to-Value 47.6 % * Total portfolio, incl project portfolio and development sites 3

4 Strong track record of growth and value development Total asset values : 11,6% CAGR Total asset value (NOKm) Established in July 2000 as a spin-off from Statsbygg Develops Høgskolen i Akershus Buys and develops BG14 in Oslo Buys the National Library Buys and develops Munch-kv. in Oslo Buys 1/3 of Oslo S utvikling Buys Havnelageret in Oslo Builds Nonnesetergaten 4 Builds in Bergen Papirbredden In Drammen Rehabilitates Middelthunsgate 29 in Oslo Develops Rockheim i Trondheim Bygger Papirbredden 2 i Drammen Develops Brattørkaia in Trondheim Rehabilitates Powerhouse, Kjørbo Rehabilitates Fr. Selmers vei 4 i n Oslo Buys project Schweigaards gt 16 in Oslo Buys 50% av Hinna Park JV Buys 100% av AS Lilletorget Buys office part of Oslo City Buys Trondheims porten Buys Skøyenportfolio ( sqm) Strømsveien 96 finalised Sundtkvartaletproject finalised 4

5 Strong rental, margin and value development Rental income and EBIT margin Total asset value and EPRA NAV per share NOK mill % NOK bn NOK 2500 CAGR: 5.8 % 100% 50 CAGR 10.4 % % 71% 72% % 81% % 90% 80% 70% ,7 25,7 26,9 30, , , Rental income (lha) EBIT margin (rha) 60% Total asset value (lha) EPRA NAV per share (rha) 50 5

6 Sustainable cash flows supported by premier tenants Primary focus on public tenants Public 30% Private 70 % Staggered lease maturities with 7.0 year WAULT (NOKm) > Rent (NOKm) Solid and diversified tenant structure Tenant In % of rent Sector Norwegian Tax Administration 5.4 % Public Norwegian Public Road Administration 3.8 % Public Norwegian Directorate of Health 3.5 % Public The Norwegian National Rail Administration 3.4 % Public National Library of Norway 3.3 % Public Directorate of Norwegian Customs 3.3 % Public Municipality Undertaking for Defence Buildings 2.3 % Public Norwegian Water Resources and Energy Directorate 2.3 % Public Norway Post 2.1 % Public The Immigration Appeals Board 1.8 % Public Borgarting Court of Appeal 1.7 % Public University College of Southeast Norway 1.7 % Public Circle K AS 1.6 % Private County Governor of Oslo and Akershus 1.6 % Public The Norwegian Public Service Pension Fund 1.4 % Public Norwegian Petroleum Directorate 1.4 % Public Bærum Municipality 1.4 % Public Norwegian Directorate for Education and Training 1.4 % Public Asker and Bærum Police District 1.3 % Public Oslo Municipality for Social Services Buildings 1.3 % Public Total 46.0 % 6

7 Centralised in the four largest cities in Norway Management portfolio by value today Bergen 6 % Stavanger 5 % Trondheim 9 % TRONDHEIM Oslo (incl Sandvika and Drammen) 80 % BERGEN STAVANGER SANDVIKA DRAMMEN OSLO 7

8 Moderate gearing and strong interest coverage ratio Loan-To-Value Interest coverage ratio 60% 58% 56% 54% 52% 50% 48% 46% 44% 56,6%56,8% 56,0% 56,3% 48,4% 43,7% 45,2% 43,9% 46,1% 45,2% 45,9% 48,7% 47,6% 3,0 2,9 2,8 2,7 2,6 2,5 2,4 2,3 2,2 2,1 2,0 1,9 1,8 1,8 2,1 2,3 2,2 2,0 2,3 2,5 2,9 2,6 2,8 2,7 2,7 2,8 42% 1,7 1,6 40% 1,5 8

9 Agenda About Entra Management of financing mix in volatile and changing financial markets Green bond financing for real estate Financial risk management in a dynamic macro-environment Summary 9

10 Entra ASA - general funding principles Entra s financing is mainly based on negative pledge of the Group s assets, which enables a broad and flexible financing mix Entra s financing structure includes bank loans, bonds and commercial papers, representing a diversified funding structure Bank financing is mainly in the form of revolving credit facilities, which enables a dynamic liquidity management of cash flow from operations and the possibility to quickly absorb repositioning of financing mix as the relative attractiveness of the different funding instruments varies over the credit cycle Refinancing risk Short-term interest-bearing debt (maturities within twelve months) will at all times be backed by undrawn credit facilities in banks 10

11 Diversified funding structure Key debt metrics as of Interest bearing nominal debt Unutilised credit facilities mill mill Composition of interest bearing debt 100% = mill. Commercial paper Loan-to-value 47.6 % 10 % Weighted average maturity 4.4 yrs Interest cover ratio 2.8 Average interest rate 3.48 % Bank 30 % Share at fixed rate 53 % 60 % Bonds Average maturity of interest rate hedges 3.6 yrs 11

12 Balanced debt maturity profile and 117% capital commitment yrs 1-2 yrs 2-3 yrs 3-4 yrs 4+ yrs Unutilised credit facilities (NOKm) yrs 1-2 yrs 2-3 yrs 3-4 yrs 4+ yrs 12 Commercial paper (NOKm) Bonds (NOKm) Bank loans (NOKm) Unutilised credit facilities and cash (NOKm)

13 Funding in a changing and volatile capital market The funding markets is constantly changing as new regulations are imposed on banks and debt-investors like pension funds etc Banks are constantly adapting to new and stricter regulations with regard to risk adjusted capital ratios which is forcing the banks to hold more equity and ultimately making bank funding more expensive for corporate borrowers Bank credit facilities will always be important for Entra, as it ensures flexible financing and represents back-stop facilities for short-term interest-bearing debt Bonds offers highly attractive characteristics compared to bank financing with long tenors, fixed credit margins and significantly lower cost of funding Commercial paper is also deemed as very favorable funding for Entra, even taken in to account the commitment fees charged on back-stop facilities for such short-term funding 13

14 Funding in a changing and volatile capital market With the higher exposure to debt capital market, comes the exposure to volatile and rapidly changing funding markets % 2,25 ENTRA FINANCING % 2,25 2,00 2,00 1,75 1,75 1,50 1,50 1,25 1,25 1,00 1,00 0,75 0,75 0,50 0,50 0,25 0,25 0,00 jan. 15 mar. 15 mai. 15 jul. 15 sep. 15 nov. 15 jan. 16 mar. 16 mai. 16 jul. 16 sep. 16 nov. 16 jan. 17 mar. 17 0,00 19 Credit spread 6M Credit spread 5Y Credit spread 7Y NIBOR 3M SWAP 5Y SWAP 7Y BOND ISSUE CP ISSUE BANK

15 Entra s financing mix in a changing and volatile capital market NOK mill Development in capital markets funding % % % % % % % 0 0% 19 Bonds Commercal paper Bank Capital markets funding % (right) Bond funding % (right)

16 Agenda About Entra Management of financing mix in volatile and changing financial markets Green bond financing for real estate Financial risk management in a dynamic macro-environment Summary 16

17 Environmental leadership is an integrated part of Entra s business model PROFITABLE GROWTH CUSTOMER SATISFACTION ENVIRONMENTAL LEADERSHIP Strategic priority for Entra Green buildings are in demand and green investments add value «Green Stars» drive innovation Systematically used to develop the portfolio Major gains are achieved when environmental commitment underpins the business for the environment, for our customers, for Entra, and for our profitability 17

18 Introduction to Green Bonds Green bonds are broadly defined as fixed-income securities for projects with specific and defined environmental benefits Green Bonds are designed to encourage sustainable investments Five pillars of the green bond framework: Simplicity Green Bonds are issued under the same documentation as regular bonds Governance/Selection process - projects are selected based on criteria set out in the green bond framework Credibility second opinion of the green bond framework from environmental specialists, i.e. CICERO Traceability the net proceeds will credited to earmarked accounts at the issuers Transparency/reporting the issuer will report to the green bond investors on an annually basis in the form of a Green Bond Report Green Bonds can be used to finance new projects and to refinance existing ones 18

19 Second opinion of Green Bond Framework by CICERO CICERO grades with shades of green Dark green Projects and solutions that realise the long term vision of a low-carbon and climate-resilient future already today. Typically, this will entail zero-emission solutions and governance structures that integrate environment concerns into all activities. Example projects include renewable energy projects such as solar or wind Medium green Projects and solutions that represent steps towards the long-term vision, but are not quite there yet. Example projects include sustainable buildings with good (but not excellent) energy efficiency ratings Light green Projects and solutions that are environmentally friendly but are not by themselves a part of the long-term vision. Example projects include energy efficiency improvements in fossilbased industry that result in short-term reductions of greenhouse gas emissions, and dieselfueled buses 19

20 Entra Green Bond Entra decided to become a Green Bond issuer ultimo 2015, and the process was initiated early 2016 The Green Bond Framework was constructed with the intention of reinforcing the current environmental leadership of Entra In this process, Entra chose to work together with CICERO (Norway s foremost institute for interdisciplinary climate research) Entra Green Bond Framework The Green Bond proceeds will finance existing properties, new projects and major renovation projects with certification from BREEAM-NOR with a minimum certification of excellent 20

21 CICERO Second opinion CICERO Second opinion Based on the overall assessment of the project types that will be financed as well as governance, reporting and transparency considerations, Entra s Green Bond Framework gets a Dark Green shading 21 Strengths: Entra will document the transfers to and from the Special Account, to ensure tracking and simplify review Proceeds from the Green Bond will be used to exclusively to projects that meet the certification criteria under Eligible Projects Solid governance with respect to allocation of funds and investor letter which are verified annually by CCO Weaknesses: We find no weaknesses in Entra s Green Bond framework

22 Entra Green Bond - the transactions The CICERO Dark Green rating proves Entra s exceptional sustainability profile Entra experienced high demand for the green bond issue from domestic and international investors, the latter expanded the regular debt funding base, as a significant share of the bond issues was allocated to international investors Dark green Medium green Light green ENTRA Green Bond The high demand for the Entra Green Bond resulted in an successful placing of both bond issues at very favourable terms. Entra assess that green bond financing attain more attractive pricing than regular bond 22 financing Entra Green Bond I - investors Entra Green Bond II - investors

23 Entra Green Bond - transactions Entra s inaugural green bond was issued medio September 2016 The deal size was NOK 1 bn, with a tenor of 7Y floating rate note (FRN) Earmarked buildings Powerhouse Kjørbo and Circle K-building, Schweigaardsgate 16 BREEAM-NOR: Outstanding BREEAM-NOR: Excellent Powerhouse Kjørbo Circle K-building, Schweigaardsgate 16 Entra s second green bond was issued medio March 2017 The deal size was NOK 750 mill, with a tenor of 7Y floating rate note (FRN) Earmarked development projects Powerhouse Brattørkaia, Powerhouse II Kjørbo and BI Brattørkaia BREEAM-NOR: Outstanding BREEAM-NOR: Excellent Powerhouse Brattørkaia, Trondheim BREEAM-NOR: Excellent BREEAM-NOR: Excellent BI Brattørkaia, Trondheim 23 Powerhouse II, Kjørbo

24 Green project pipeline - Examples Tullinkvartalet, Oslo New university building planned for the University of Oslo, Faculty of Law 21,000 sqm Expected construction period: Zoning status: zoning plan approved Target certification: BREEAM Excellent Oslo Solar, Oslo New office building 30-50,000 sqm Zoning initiated Target certification: BREEAM Outstanding

25 Agenda About Entra Management of financing mix in volatile and changing financial markets Green bond financing for real estate Financial risk management in a dynamic macro-environment Summary 25

26 Financial risk management Capital structure is a central topic within real estate as leverage is important for the equity return and the perceived risk of the business Assessments regarding financial risk capacity and limits to financial risk exposure is thus of high importance The Group manages financial risk in accordance with a framework included in the financial policy The main financial risks are financial leverage, financing risk, interest rate risk and credit risk Financial risk Financial policy Financial leverage Loan-to-value (LTV) 47,6% approx. 50 % Financing risk Financing commitments next 12m 117% Min. 100% Average time to maturity (debt) 4,4 Min. 3 years Debt maturities <12 months 19% Max. 30% Interest rate risk Interest coverage ratio (ICR) 2,8 Min. 1.65x Average time to maturity (hedges) 3,6 2-6 years Maturity of hedges <12 months 47% Max 50% Credit risk / currency exposure Counterpart's credit rating Fulfilled Min. A-/A3 Share of debt per counterparty 11% Max. 40 % Currency exposure Fulfilled 0 26

27 Financial risk management Entra, with its high ICR, moderate leverage and solid operational metrics, has capacity to maintain a high floating rate exposure in a situation with record low short-term interest rates Entra intends to maintain close to maximum floating position for the next two years; future interest rate risk will be managed through forward-starting swaps and fixed rate bonds 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 27 Floating rate exposure on nominal interest-bearing debt Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q ,00% 5,50% 5,00% 4,50% 4,00% 3,50% 3,00% 2,50% 2,00% 1,50% 1,00% 0,50% 0,00% Floating rate exposure Limit to exposure Average interest rate (right) NIBOR3M (right) NOKSWAP5Y (right) Years Interest rate hedge position Weighted average maturity of interest rate hedge position Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q Maturity of interest rate hedges Lower limit Upper limit NOKSWAP5Y (right) 7,00% 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00%

28 Financial risk management Projecting the future hedge ratio for Entra and planning for higher interest rates in the years to come Projected interest rate hedge position as of NOK 3m fwd rates as of medio April % Millioner % % % % % % % % % 0 0% Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Expected debt Interest rate hedging instruments Expected hedge ratio (right) 28

29 Financial risk management and reporting of interest rate exposure Entra ASA, as a public company, has chosen to communicate its full hedge position to the market, as a more limited reporting would be a source of misunderstanding of an very important cost and risk item for levered companies (like real estate) 29

30 Projected development in average interest rate Development in average interest rate e 5,50% 5,25% 5,00% 4,75% 4,50% 4,25% 4,00% 3,75% 3,50% 3,25% 3,00% 2,75% 2,50% Q4-12 Q4-13 Q4-14 Q4 15 Q4 16 Q4 17 Q4 18 Q Average interest rate Estimated interest rate using swap forward curve Development in average interest rate (e) as reported per Changes in average interest rate is caused by expiration of interest rate swaps and start of forward swaps already entered into. Assumptions ( ): Stable debt level All debt re-financed at existing terms NIBOR forward curve

31 Agenda About Entra Management of financing mix in volatile and changing financial markets Green bond financing for real estate Financial risk management in a dynamic macro-environment Summary 31

32 Summary Entra is one of Norway s leading real estate companies with a solid track record and strong financial and operating profile Solid tenant structure with approximately 70% public tenants WAULT of 7.0 years High quality buildings at attractive locations Assessments regarding financial risk capacity and limits to financial risk exposure is of high importance within real estate, as leverage is needed to produce sufficient equity return The levered capital structure demands an effective financing operation and diversified funding structure in combination with a hands-on risk management approach Strømsveien 96, Oslo Environmental leadership is a strategic priority for Entra Entra is now established as a high quality green bond issuer Entra will pursue Green Bond financing going forward, as it expands the funding base, provides attractive financing costs, and reinforces the environmental leadership 32 Sundtkvartalet, Oslo

33 33 Tore Lia Head of Finance & Treasury Entra ASA Mobile: