Atrium Ljungberg AB

STO:ATRLJ B

Earnings Call Transcript 2020-Q2

[Annica Ånäs, Chief Executive Officer]

Welcome to Atrium Ljungberg's Q2 presentation. The heading for this report is: Our Office Business remains stable, and we're seeing a positive trend in retail.As a start, I want to update you on our overall key figures. Our property value at the end of the quarter, and after the sale of Farsta Centrum, was SEK 45 billion, and the contracted annual rent was SEK 2.2 billion. Offices are still our largest segment with 54% of the contracted annual rent. Retail stands for 20% and the rest, culture/education, FMCG, restaurants, health care and residentials are according to our urban development strategy. The gearing ratio is 41%.So what are the main events for the quarter? The COVID-19 pandemic dominated the second quarter. We focused on tenants that have been affected. We have signed 400 agreements for temporary tenant rebates, in line with the government support ordinance.The Swedish Competition Authority approved the sale of Farsta Centrum, a SEK 4 billion deal, and the transaction was closed the 1st of June. We acquired and took position of the office property, Eken 14, in the center of Sundbyberg, in Stockholm. Eken 14 is right next to the well-known Marabou Park and Chokladfabriken, a property we have owned for some time. The property will supplement the range of premises available at Chokladfabriken, enabling us to manage both properties together in an effective way.We signed a green loan contract worth SEK 1 billion with the European Investment Bank.And finally, we took a decision to start the tenant-owned apartment project in the second phase of Nobelberget. The second phase comprises 56 apartments with an investment amounting to SEK 270 million. The construction work is planned to start in September, which is when we should have the building permit in place. And occupancy is planned for the summer 2022.For the office market, the yield requirements were stable during the quarter. Vacancies and rent levels are basically unchanged, and we see very little effects of COVID-19 in the Office segment.On our retail sites, we have seen a number of visitors and stores sales gradually recover during the quarter and primarily sales figures for June indicate that sales are back on the same level as June last year. Market yield requirements have been stable during the second quarter after a clear increase in the first quarter.Market prices for residentials were stable, but the number of sales decreased. We have sold 82% of the 68 condominiums we are building. And as I mentioned, we are -- we have decided to start Phase 2 on Nobelberget.Demand on capital markets has strengthened after a weak start during the quarter. Increased risk premiums have led to higher prices compared to before COVID-19. We see approximately 100 points increase in price on a 3-year bond.We saw a big loss of visitor numbers and sales at our retail locations in the beginning of the quarter. Now we see a clear recovery in May and June. At the time, approximately 90% of our tenants at our retail location have reported their sale -- their June sales. So far, the preliminary figures show that the sales are at the same level as in June last year.We have signed 400 agreements for temporary rental rebates for the second quarter. The impact for us is SEK 38 million net, following the government support for the tenants. We have not given any rebates for the third quarter. Rental receivables for the second quarter, and which were due for payment but not referred as doubtful, amounted to approximately SEK 30 million per the 9th of July.For revenue amounted -- for the third quarter, the payment pattern from tenants has been normalized. As today, we don't see -- have any information about any further support packages from the government. And of course, there is still uncertainty over the continued development of the COVID-19 pandemic and its consequences.The net letting for the first 6 months amounted to SEK 2 million and which SEK 19 million refer to project properties. Newly signed contracts were distribute among most of our areas, and include both retail and office premises, while terminations relate primarily to office segment in Stockholm.Now I will hand over to our CFO, Martin Lindqvist.

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

Thank you, Annica. Rental income decreased by SEK 53 million compared with the previous year. The difference is primarily attributed to the sale of the residentials in Kista and the sale of Farsta Centrum, as well as rental rebates related to COVID-19. We had a mild winter, and due to COVID-19, we have had fewer people in the properties we manage, so the cost in the management has decreased but it's offset by the fact that we have increased the provisions for bad debt, which means that the effect is still an increase of costs.In total, therefore, a decrease in operating surplus compared with the previous year by 7.7%, in addition to the effect of sales and -- sales of properties and corona. We also see an effect of us emptying certain houses in order to start projects in these properties, for example, Katarinahuset at Slussen.Central administration costs is declining compared to the previous year and also projects, and constructions operations show an improved results primarily related to increased allocation of costs to our projects.Net financial items increased slightly, mainly due to the increased average indebtedness during the first half of the year. The debt has come down markedly as of last of June, thanks to the Farsta sales, but the closing of the deal took place quite near the balance sheet date. So the effect on the half year's net financials items is not very significant.With regard to unrealized changes in value of the properties, we write up our value somewhat in the quarter to be exact by SEK 279 million. Of course, the uncertainty is still great, but has decreased somewhat since the Q1 valuation. And the cost of deferred tax is positively affected in the half year from the sale of Farsta Centrum.Rental income in comparable portfolios was unchanged from the previous year if we adjust for the corona rebates that we granted during the second quarter. The costs in the comparable portfolios were basically unchanged as well. There, we saw a reduction in cost linked to the mild winter and a reduction in property cost linked to fewer people visiting our properties during the corona pandemic. However, this is offset by the fact that we have increased the provisions for bad debt.The vacancy rate has increased slightly in the quarter, mainly related to a couple of bankruptcies and relocations within retail. Compared with the previous year, the figure has also been affected by a couple of moves within the office segment at Hagastaden and at Medborgarplatsen.If we break down the development of rental income in comparable portfolios in our 2 main segments, we see that the office properties still have a continued positive development, and that retail properties have a negative development during the first half of the year. As stated, operating surplus for the half year is affected by sales of properties, discounts related to COVID-19 as well as provisions for bad debt and vacating of project properties.To date, our investment projects are virtually unaffected by the corona pandemic. During the first half of the year, we invested close to SEK 1.2 billion in our own properties. Our long-term goal is to invest SEK 2 billion per year.We have seen some minor disruptions in the supply chains during -- regarding the projects, but nothing that has been more serious than that we have been able to work around the problem.Unrealized changes in value in the quarter were plus SEK 279 million, mainly related to reduced uncertainty compared with the Q1 valuations, which means that we have increased the value somewhat of -- mainly of our office properties.In the balance sheet, we see the effect of the sale of Farsta Centrum on investment properties, underlying leaseholds and underlying goodwill. And I remind you that our co-op properties are underlying development properties.Atrium Ljungberg has a well-diversified financing portfolio. At present, secured loans correspond to 17% of assets and green financing now accounts for 47% of liabilities. Liabilities were reduced in the quarter in connection with the sale of Farsta Centrum, and the volume of outstanding commercial papers were decreased during the quarter.Interest-bearing liabilities amounted to SEK 18.5 billion at the end of June. And the gearing ratio has come down to 41.2%, linked primarily to the sale of Farsta. Average interest rose slightly to 1.8%, and we have paid down some of short-term debt from the Farsta sale. And thus, our average capital term has come up somewhat.We continue to work on the diversification of our financing portfolio. And the latest addition there is that we have made a loan agreement with the European Investment Bank of SEK 1 billion. This loan has, however, not been drawn yet.And finally, our credit rating, Baa2, with a stable outlook was confirmed by Moody's shortly after we released our Q1 report in April.And from here, we move on to the project portfolio, Annica.

[Annica Ånäs, Chief Executive Officer]

Yes, we have a large and interesting project portfolio. And after the agreement with Stockholm municipality, now enables investment of approximately SEK 31 billion, where SEK 3.5 billion is for confirmed projects. If we're looking at potential projects of SEK 28 billion, these investments will mostly be in Sickla, in Nacka, Slakthusområdet in Stockholm, in Gränbystaden in Uppsala, and Slussen in Stockholm, and where office represent the biggest kind of investments.Our projects are performing well, as Martin mentioned, and we have very little effects from the COVID-19 pandemic. About 80% or SEK 23 billion worth of our project portfolio are situated near an existing or future underground station in the Stockholm area. The project portfolio varies in different segments, according to our urban development strategy, where offices and residential stands for the biggest kind of investments.Let's look closer at our project portfolio, starting with Sickla. Sickla is one of our most prioritized area with a large part of our future project portfolio. The construction of Curanten in Sickla is underway, and will become a health care destination with stores, cafés and restaurants on the ground floor. The project comprises a total of 11,700 square meters, which includes 8,100 square meters for health care. Occupancy is planned for the end of this year and the letting rate is now 59%.Another project in Sickla is Tapetfabriken. This is a hotel that will be next to Marcusplatsen. The project is fully let to Nordic Choice Hotels and will accommodate a total of 240 hotel rooms and the public lobby. And the hotel would be completed in the spring of 2021.And at Nobelberget in Sickla, we will build a total of 500 condominiums. We have launched sales for 68 apartments in the first phase. The investment amounts to SEK 370 million, and we have sold 82% of the apartments. Completion of the project is in the end of this year.As I mentioned before, we have decided to take the next step in our condominium investment in Nobelberget. The second phase comprises 56 apartments with an investment amounting to SEK 270 million. The construction work is planned to start this September, which is when we should have the building permit in place. And occupancy is planned for the summer 2022.In Gränbystaden, in Uppsala, we are building rental apartments. Gränbyparken District 1 comprises 44 rental apartments with commercial premises on the ground floor, scheduled for completion is the second quarter 2021.As you know, we're also adding 71 rental apartments and cultural activities on the site in Mobilia in Malmö. There will be a 4DX cinema, but also a culture center for children, Funnys Äventyr, which is equivalent of Junibacken in Stockholm. It will open this fall, and the letting rate is 94%.One of our biggest projects is Life City in Hagastaden. This building is to be the clear choice of meeting place for everyone working in the life science segments in Hagastaden. The major tenant will be academic work. The property is in the emerging life science cluster close to New Karolinska Solna. The product is going as planned and academic work 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 Järfälla municipality of 11,000 square meters. We have also signed the first office contract in the building now and the project will be completed in spring 2022.During the first quarter, we took the decision to renovate the Katarinahuset in Slussen. We took possession of the property in early 2019 and have since planned for a project. After renovation, the house will feature state-of-the-art office with a unique view, hotel and several restaurants. We have signed a lease contract of 1,100 square meters with Eriks Gondolen, the famous Swedish restaurant. The investment amounts to SEK 980 million and will be completed by 2023.And by that, we close our Q2 presentation. And if you have any questions, you can send to me or Martin Lindqvist.Thank you very much, and goodbye.