Dive Brief:
- Skanska’s fourth quarter operating profit dropped about 73% year over year on slightly higher revenue, largely due to negative impacts on the Sweden-based developer and builder’s property portfolio, the company announced in an earnings call Friday.
- The contractor reported profits of 957 million Swedish crowns ($91.5 million) for Q4, and 3.2 billion crowns for full year 2023, a 65% drop from the 9.3 billion crowns for its full year 2022.
- Last month, the company announced 2 billion crowns in impairment charges on its commercial property development, residential development and investment properties. Yet, company leadership remained optimistic on the earnings call Friday, pointing to continued strength in the company’s construction work and financial standings.
Dive Insight:
While U.S. construction bolstered Skanska’s end of year balance sheet, the commercial leasing market in the states was a detriment to the company’s performance. Last month, President and CEO Anders Danielsson called the U.S. commercial property sector its “weakest market currently.”
Infrastructure work in the U.S. has especially helped the firm, contributing to a backlog of 229.6 billion crowns, maintaining a historic high of late. In the U.S., Skanska had 27 billion crowns in order bookings for Q4 — over half of bookings for the period — recording about 21 months of production in the pipeline.
“The [construction] markets we have today, both in the civil part and in the building part of our operations, are probably the strongest markets we have in the group,” CFO Magnus Persson told Construction Dive in a call Friday. “There’s a lot of jobs out there, pricing is good, and we also see and expect these markets to be good for quite some time. There’s no signals or indications that this will taper off.”
Property problems
When it comes to the divestment market, Persson said the company will likely need to see lower interest rates to attract investors, and even then, it could take time to heat back up. On the capital market side, sluggishness in leasing has remained, largely due to poor return-to-office rates in the U.S. since the COVID-19 pandemic.
“I don’t think we return to the same market as we had, say, three or five years ago within one or two years. I think that would be way too optimistic. It may take some time,” Persson told Construction Dive.
Most of the company’s assets in the commercial sector are Class A properties, which Persson said is a hard market to read, as the assets are valuable, but finding the right tenants can be challenging.
Nonetheless, last month Skanska inked the largest lease in company history when an undisclosed tenant leased 526,595 square feet at The Eight near Seattle.
“It really proves the value of having these Class A properties in the right location. Then we attract the best tenants and they’re willing to pay very competitive rents for these spaces,” Persson said.
That deal occurred in Q1 2024. But last year, the company had to take several defensive actions in the leasing market, Danielsson said. That included withdrawing from geographies with poor residential development markets and reducing the number of employees in that part of its business.
In spite of the impairments, Skanska started three commercial property development projects last quarter.
“We are in a position where we can start projects when we think it’s right. Where we see we have the right product in the right location and we believe in the market going forward,” Danielsson said during the call. “We’re determined to keep that position.”