Atrium Ljungberg AB

STO:ATRLJ B

Earnings Call Transcript 2020-Q4

[Annica Ånäs, Chief Executive Officer]

Welcome to Atrium Ljungberg's by Q4 presentation. The heading for this report is financial stability and attractive location creates a sense of security in troubled times. As a start, I want to update you on our overall key figures. The property value at the end of the quarter was SEK 47 billion and the contracted annual rent, SEK 2.3 billion. Offices is still our biggest segment with 54% of the contracted annual rent, retail stands for 20%, and the rest, culture, education, restaurants, health care, residentials is according to our urban development strategy. And the gearing ratio was 39.9%. So what were the main events for the quarter? We acquired 2 properties in Uppsala, 1 called Mejeriet, an office building of 2,500 square meters are fully let and 1 project property with historical buildings called Silon, Kvarnen and Jästfabriken, which are of high culture value. We will convert them into high-quality offices with the ground floors that will bring life to the place. We started the construction of the second block of 56 tenant owned dwellings in Nobelberget. The health care building Curanten was opened. We decided to start construction of 98 tenant-owned dwellings in Gränbystaden, and we also signed a lease contract of 3,100 square meters with XXL in Sickla. A few words on the market situation. For offices, we see stable rents and increased activity on the market, we have lowered our yield requirements in accordance to the transactions made the last weeks. In our retail segment, we still see a big difference in turnover in different segments. Demand for shoes and clothes have decreased but on the other hand, has demand for groceries, home styling and electronics increased. Market prices for the residentials has increased in all big cities in Sweden. Our own sales has performed very well, and we will report the profit from the first project in the second quarter of this year, once we have completed the final handover to the association. On the financing side, we see that demand in the capital market has continued to strengthen, and prices are pretty much on the same level as before the pandemic. A few words about the pandemic then. People work more from home in a greater extent today, but we think offices will continue to play a big central role in the future. Total sales at our 3 largest regional retail hubs during the year decreased by an overall 2.6% in like-for-like portfolio. Sales fell by a total of 4.9%. In the fourth quarter, additional rebates related to the COVID-19 pandemic were given the total of SEK 4 million. These rebates are not to be expected to be paid by the government. SEK 25 million of the SEK 33 million that was booked as a receivable against the government, has so far been granted by the Swedish National Board of Housing, Building and Planning. A total of SEK 5 million was rejected as major change has reached the maximum amount and have then been forward to the tenants. Swedish government are planning for a new rent rebate package for Q1 2021, but our projects are progressing as planned, a very low impact from the COVID-19 pandemic. But of course, there is a continued uncertainty related to the pandemic, but the situation is expected to brighten in 2021 now since we have a vaccine coming. And by that, I hand over to our CFO, Martin Lindqvist.

[Martin Lindqvist, CFO & Business Area Director of Business support]

Thank you, Annica. Let's go to net letting. Net letting in the quarter amounted to minus SEK 14 million (sic) [ minus SEK 16 million ], new leases primarily referred to Stockholm in office and retail and terminations primarily referred to Stockholm and Malmö, also in office and retail. The income statement. Total rental income for the full year decreased by 9% after the sale of Farsta Centrum and the sale of the residentials in Kista and the temporary rental discounts as a result of the COVID-19 pandemic. Property costs decreased in the comparable portfolio, while the surplus ratio in project properties is lower than in the rest of the portfolio. The cost for central administrations are lower than last year due to cost-saving measures during the pandemic. The results of the project and construction operations improved compared to the previous year, mainly due to better results within TL Bygg. Financial expenses are low in the quarter due to increased capitalization of interest costs for land purchases within projects with the current project portfolio, approximately SEK 15 million per quarter is capitalized from financial expenses from this quarter 4 and onwards. A retroactive effect of this change relating to quarter 1 to quarter 3, 2020 has had a positive effect on quarter 4 with an additional approximately SEK 25 million. The value changes in the property portfolio were SEK 623 million plus in the quarter and was primarily related to the office portfolio and projects. This means that Atrium Ljungberg office properties and projects during the second to fourth quarters, have in principle taken in the write-down that was made the first quarter related to the commercial retail properties. Something that is not included in this result, but will have a positive impact on the earnings of more than SEK 20 million during the first quarter of 2021 is an arbitration award in a dispute that now in January fell to TL Bygg's advantage. The growth in rental income. Rental income in comparable portfolios decreased by 0.2% for the year, property costs decreased by 1.7% due to a mild winter and fewer visitors to our properties. The vacancy rate is now 9%, which is 1 percentage point more than in the previous quarter, and it's mainly vacancies due to evacuations for projects that are causing the increase we have seen in 2020. Rental growth in the comparable portfolio was, as I said, minus 0.2% for the year. It's divided into 1.1% positive for office properties and minus 2.5% for retail properties. Rental increases in renegotiations for the fourth quarter in the office segment amount to more than 10%. The surplus ratio in the fourth quarter was 65%. Investments amounted to just over SEK 2.5 billion partly explained by an overhang from 2019 and in the long term, the goal is to invest SEK 2 billion per year. Value changes in the quarter, as I said, amounted to plus SEK 623 million, mainly related to offices and project properties. I look on the assets. I remind you that Atrium Ljungberg's property portfolio is divided into 2 lines in the balance sheet, investment properties and development properties. The book value of the development properties is SEK 1.3 billion and includes Nobelberget, Kyrkviken and Gränbyparken block 2. The estimated fair market value amounts of the development properties amounts to approximately SEK 1.8 billion. A look on the financing. The capital market is now fully recovered from the pandemic for a triple-B company like us. We also see that green financing now is 49% of total liabilities and the secured loans correspond to 14% of total assets. If we look on the key ratios for financing, we see that the average interest rate is 1.6%, and the loan-to-value ratio is now below 40% at 39.9%. The Board proposed a dividend that amounts to SEK 5.05 and Atrium Ljungberg has never lowered its share dividend since the IPO in 1994. Back to you Annica and the projects.

[Annica Ånäs, Chief Executive Officer]

Thank you. During 2020, we completed several projects for use in Mobilia of 12,000 square meters for a cinema, culture, retail and services. And the letting rate is 96%. We also completed Panncentralen in Sickla of 1,000 square meters for a preschool. The project is fully let. Finally, our Health House in Sickla, Curanten was inaugurated, and all health care units are fully let, only a few small shops in the bottom floor are still available for tenants. We have a big and impressive project portfolio that enables investments of approximately SEK 38 billion, where SEK 2.6 billion is confirmed projects. If we're looking at potential projects of SEK 36 billion, these investments will mostly be in Sickla in Nacka, Slakthusområdet in Stockholm, in Gränbystaden in Uppsala and in Slussen and Hagastaden in Stockholm and where offices represent approximately 50% and residentials approximately 40%. A very big portion of our product portfolio are situated near to existing or future underground station in the Stockholm area, that's why our project portfolio is so interesting. More than 80% of the future investment are related to these places. As I mentioned last quarter, we have initiated a major new detailed development plan for Central Sickla of approximately 150,000 square meters. The area structures from Marcusplatsen in the West to Kyrkviken in the East and contains -- that today contains large car parking and low retail buildings. The detailed development plan will take about 3 years, and the plan is to add 7,000 working places and approximately 500 new apartments. We will soon complete our hotel project in Sickla, Tapetfabriken. This is a hotel that will be next to Marcusplatsen. The project is fully let to Nordic Choice Hotel and will be around 240 hotel rooms and the public lobby, and the hotel will be opened during the second quarter this year. In Sickla Galleria, we are adding parking spaces that we need for the Health House Curanten, but also some more square meters for retail. For the additional space, we have now signed a lease contract with XXL of 3,100 square meters. The project will be completed in the third quarter this year. At Nobelberget in Sickla, we will build a total of 500 condominiums, the first block of 68 apartments in the first phase are now completed, and they're all sold. As I mentioned before, we will report the profit from this project in the second quarter of this year once we have completed our final handover to the association. In Nobelberget Phase II, where the selling has been very successful and by today, we have signed booking contracts for 80% of the apartments. Occupancy is planned for the summer of 2022. In Gränbystaden in Uppsala, we are building rental apartments, Gränby Park District 1 comprises 44 rental apartments with commercial premises on the ground floor and scheduled for completion second quarter 2021. One of our largest projects is Life City in Hagastaden. The building is to be the clear choice of a meeting place for everyone working in the life science segment in Hagastaden. The major tenant will be academic work. They will move in, in December 2021, but the project will be fully completed during the spring 2022. Our project in Bas Barkarby in Järfälla is under construction. The first phase comprises 24,000 square meters and includes an upper secondary school, culture, sports and businesses. The major tenant is the Järfälla Municipality of 11,000 square meters, and the project will be completed in the spring 2022. Refurbishment of Katarinahuset are ongoing and after renovation, the house will feature state of the art offices with unique view, hotel and several restaurants. We have signed the lease contract of 1,100 square meters with Eriks Gondolen, a famous Swedish restaurant. The refurbishment will be completed by summer 2023. And by that, we close our Q4 presentation. And if you have any questions, you can send an e-mail to me or Martin. Thank you, and goodbye.