Atrium Ljungberg AB

STO:ATRLJ B

Earnings Call Transcript 2021-Q2

[Annica Ånäs, Chief Executive Officer]

Welcome to Atrium Ljungberg Q2 presentation. The heading for this report is strong quarter boosted by earnings from the first tenant-owned dwelling project in Sickla. As a start, I would like to update you on our overall key figures. The property value of the end of the quarter was SEK 48 billion and the contracted annual rent SEK 2.2 billion. Offices is our largest segment with 51% of the contracted annual rents. Retail stands for 20%. We focus on Sweden's 4 bigger cities and Stockholm stands for 67% of the contracted annual rent. Letting rate was 91%, and the adjusted gearing ratio was 42%. So what are the main events for the quarter? We took the first project profit from the first tenant-owned dwelling project. The project profit was SEK 91 million or 30% and had a positive effect of the parking not being included in the project. We signed a contract to sell the leasehold Kolding 3 and 4, also known as Kista Front. The purchase price amounted to SEK 805 million. And we have completed the hotel project in Sickla, Tapetfabriken, an important piece of the puzzle in the development in Sickla. And we completed the project of 44 rental apartments in Gränbystaden, a project called Parkhusen Block 1. .And finally, we started selling the first tenant-owned dwelling project, Parkhusen 2 of 98 apartments in Gränbystaden in Uppsala. A few words about the market situation. For Offices, we see increased activity in the market, and the yield requirements were stable. We have increased our property value of SEK 964 million in the quarter, where 70% is related to stronger cash flow and project profits. 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, we have demand for groceries, home styling and sports and leisure and electronics, and they are performing well. In our 3 big shopping centers, we see an uplift of sales the first 6 months of 3.9% compared to last year. Market prices for residentials are increasing in all big cities in Sweden. Our home sales has performed very well. And Sickla, we have almost sold all apartments in Konstharts project in Sickla. And in Gränby, we have Parkhusen Block 2, where we started selling process in June, and we have booking contracts of 8%. And on the financing side, we still see favorable conditions on the capital market. Now I will hand over to our CFO, Martin Lindqvist.

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

Thank you, Annica. If we look at net letting in the quarter, it amounted to 17 million plus despite a tenant exercising an option to reduce 4,000 square meters in 1 of our projects. The exercise of the option means that damages will be received in the fourth quarter of this year. If we look into income statement, the total rental income is down by 7.3%, mainly due to the sale of Farsta Centrum last year. In like-for-like portfolios, rental income in the quarter is up by 1.3%. I will come back to that later. Central administration is in line with the previous year. The project and construction operations contain both the effect from our first result from our condominium development in the second quarter and the effect of a dispute one in the subsidiary, TL Bygg during the first quarter. Net financial items have improved primarily due to a new principle for allocating interest cost to project, but also partly related to the sale of Farsta Centrum in June 2020. Profit before changes in value in the quarter was SEK 372 million, whereafter consultation with stock exchange, we went out and made a reverse profit warning because the market estimate deviated sharply from that particular line. And even though we guessed that the analyst group had the profit from the condominium settlement on other profit lines, it was seen as necessary to communicate just to be sure. The unrealized changes in value of properties from January to June amount to just over SEK 1.1 billion, of which SEK 964 million in the second quarter. Of the quarterly figure, 70% is generated by own cash flow and project profits and only 30% by changes in yield. Looking on rental income and property costs. In like-for-like portfolios, rental income increased by 0.1% in the period January to June and property costs were unchanged. After a first quarter with negative figures, this means that the operating net like-for-like in the isolated quarter, quarter 2 is up by 2.9%. The vacancy rate remains at 9% and cost have a positive effect of lower debt provisions compared with the previous year. Looking on rental growth and surplus ratio. We break down the rental cost in like-for-like portfolios in the office and retail segments. We see that for the period January to June, office properties continue to show a positive figure that is weighed down by a negative figure in retail properties. The surplus margin in the quarter was 69%. Investments amounted to just over SEK 1 billion in the period, and we are on track to our annual target of SEK 2 billion. Value changes, as I said, SEK 1.1 billion accumulated, of which SEK 964 million in the quarter, where the absolute majority is self-generated and only about 30% comes from changes in yields. Looking on the assets in summary. We remind you that our property portfolio consists partly of investment properties within fixed assets and partly of development properties within current assets. On the financing sources, not much has happened in the debt portfolio during the quarter. Secured loans correspond to 14% of assets and green financing is now up to 53% of liabilities. On the key ratios, we see that loan-to-value ratio was 42.7% and the adjusted loan-to-value was 42%, -- 42.0%, if we take into account the effect of the withdrawal in Kolding 3, 4 in the -- on the 1st of July. Average interest rates remain at 1.6% and interest term and capital commitment remained just under 5 years on average. And now Annica will tell you more about the project portfolio.

[Annica Ånäs, Chief Executive Officer]

Yes. We have a big and impressive project portfolio that enables investment of approximately SEK 38 billion, where SEK 2 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%. And 80% of our project portfolio are situated near to an existing or future underground station in the Stockholm area. That's why our project portfolio is extra interesting. We completed our hotel project in Sickla, Tapetfabriken, which opened in June. This is a hotel next to Marcusplatsen and the hotel accommodate a total of 236 hotel rooms and a public lobby. And the hotel is an important piece of the puzzle in the future development of Sickla. In Sickla Galleria, we are adding parking spaces that we need for the Health House Curanten and the coming projects, Sationshuset, but also some more square meters retail. For the additional space, we have signed a lease contract with the sports operator, XXL, of 3,100 square meters, and the project will be completed the third quarter this year. In Nobelberget in Sickla, we will build a total of 500 condominiums. The project of Nobelberget Phase 2 called Konstharts, we have sold nearly all apartments and the occupancy is planned for the summer of 2022. In Gränbystaden in Uppsala, we have completed a project of 44 rental apartments, a project we call Gränbyparken District 1 and the project is fully let. In Gränbyparken Block 2, the project comprises 98 tenant-owned dwellings and the completion is planned during the second quarter 2023. We started the selling process in June, and we have booking contracts of 8%. The project Life City in Hagastaden is performing well. The major tenant will be academic work, who will move in, in December this year. We have also signed a lease contracted with 10x Genomics and the restaurant called [indiscernible]. The letting rate is 59% and will be fully completed during the spring 2022. Our project Bas Barkarby in Järfälla is under construction. The first phase comprises 24,000 square meters and includes an upper secondary school, health care, sports and businesses. And the major tenant is Järfälla municipality of 11,000 square meters. During the second quarter, we have signed a lease contract with SIA Education and [indiscernible] building, a total of 4,800 square meters. Both lettings are conditional on the approval of the Swedish school inspectorate. Letting rate is 80%, and the project will be completed in the spring 2022. Refurbishment of Katarinahuset is ongoing. And after renovation, the house will future state-of-the-art offices with a unique view, hotel and several restaurants. We have signed this contract of 1,100 square meters with Eriks Gondolen and the famous Swedish restaurant. The refurbishment is planned to be completed by the summer 2023. The County Administrative Board has revoked the building permit or an extension of Katarinahuset with reference to the design. We are now considering how to proceed. The development of Slakthusområdet area is progressing according to plan and we are own. The development of the Slakthusområdet area is processing according to plan. We have made an investment decision of SEK 160 million for the Slakthushallarna project which will be the heart of the destination for food, culture and experiences that we create in the area, and that is so important for attracting companies to the site. The project is expected to start construction in the autumn and be completed in the summer of 2022. And by that, we close our Q2 presentation. And if you have any questions, you can send an e-mail to me or to Martin. Thank you, and goodbye.