Atrium Ljungberg AB
STO:ATRLJ B
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
182.2
250
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Atrium Ljungberg AB
Earnings Call Analysis
Q2-2024 Analysis
Atrium Ljungberg AB
Atrium Ljungberg showcased its resilience in the second quarter with a 12% increase in operating profit, largely bolstered by rental growth driven by a Key Performance Indicator (KPI) index and strict cost management. The rental income from comparable properties rose by slightly over 5% year-on-year, and overall rental income jumped nearly 8% when accounting for properties like Katarinahuset, which contributed significantly despite some losses related to previous vacancies.
Although the economic occupancy rate dipped by 1.9 percentage points, attributable partly to the recent sale of high-occupancy properties, the company remains optimistic. The economic occupancy rate stands at 94% for projects set to complete in 2024, while an estimated 74% is projected for those finishing in 2025. This positioning suggests a strategic focus on areas poised for growth, especially in Stockholm, where demand for quality office spaces continues despite a more challenging market environment.
Atrium Ljungberg reported a favorable financial position with a loan-to-value ratio of 40.4% and an interest cover ratio of 3.9%, indicating strong liquidity and reduced financial risk following property sales. The company has maintained its average interest rate at 2.5% while expanding its liquidity buffer to SEK 9 billion. Investors can be reassured by the improved metrics, which offer a solid foundation for future growth and project funding.
The company continues to expand its project portfolio, with ongoing investment in properties totaling SEK 8 billion, of which SEK 4.6 billion is yet to be deployed. Notably, the projected project profit has increased from 20% to 27%, now estimated at SEK 2 billion, underscoring significant potential for future revenue generation. Additionally, the anticipated rental income from Katarinahuset is expected to reach around SEK 120 million in 2024, a significant improvement from SEK 44 million in 2023, highlighting potential upside for investors.
The retail segment, accounting for 19% of the company's total property value, demonstrated resilience with higher sales and foot traffic compared to the previous year. Atrium Ljungberg’s diversified tenant mix helps mitigate risks, with strong performance in essential service sectors such as food and pharmacy. As the largest revenue source, office space remains critical, making up approximately 55% of total income, indicating strategic positioning in traditionally stable markets.
Despite facing a potential recession and increasing vacancies, the company remains confident, driven by its prime locations and committed leasing strategies. With several major contracts signed during the quarter, including significant leases in high-demand areas, Atrium Ljungberg is positioned to weather economic fluctuations effectively. Moreover, anticipated interest rate cuts could provide further impetus for growth and recovery in the real estate market.
You don't have any saved screeners yet
Real estate companies are continuing to initiate the report season here for Q2. And today, we are joined by Atrium Ljungberg as I hand over the word to CEO, Annica Anas.
Thank you very much. Headline for this report is a strong net letting and continued stable growth in profit from property management. As always, I would like to begin by summarizing the main content of this report. Our property portfolio looks similar to last quarter with 80% of the value in Stockholm. The largest segment offices accounts for 69% of the total value and only 19% for retail, where sales of our offices in Sundbyberg have reduced the office share by 1 percentage point. Our net letting amounted to a strong figure, SEK 97 million in the second quarter. But in addition to that, we have terminated accounts of SEK 15 million due to upcoming projects. Our profit from property management increased by 13% in the first half of the year. And for a comparable portfolio, net operating income increased by 7%. We have ongoing projects with an investment of SEK 8 billion, of which SEK 4.6 billion remains to be invested. Of the projects completed in 2024, the economic occupancy rate amounts for 94%. And if we also include projects to be completed in 2025, it amounts to 74%.
As I mentioned in the beginning, we have a primary focus on Stockholm, both in our existing properties and in our future investments. The larger areas are Hagastaden, Slussen, Slakthusområdet and Sickla, all areas where we have a metro in Stockholm or where there will be an extended metro in the coming years. I believe that we have a unique position in our locations.
Despite the fact that we are at the bottom of a recession and vacancies are increasing in Stockholm, there is still demand for good quality office space. We see the greatest demand in Slussen and Hagastaden. We have a strong net letting in the quarter, proof of our strong locations. Retail accounts for 19% of the company's total property value and represents a large and diverse range of tenants, which contributes to an important service for our office tenants. We have a positive development in our retail locations and both have higher sales and footfall compared with the previous year. Our mix in retail makes them resilient in tougher times.
The Swedish tenant-owned housing market is heading for brighter times as the market expects increased rate cuts. Prices are now gradually increasing and have risen 5.1% for the country in the last quarter despite the large supply in the market. After an increased number of sales, we are now in line with our own expectations.
As I previously mentioned, the net letting ended up at SEK 97 million, a strong figure. During the second quarter, we have signed several new contracts. The 3 largest are located in Hagastaden and Slussen, the Swedish Economic Crime Authority, 10,000 square meters and Svenska Spel, 2,500 square meters. And as you probably read, the company, [ The Park ] went bankrupt an existing tenant in hours in Hagastaden. The good news is that we saw it coming so we have already managed to rent out the premises to Husqvarna, who will move in, in the beginning of May 2025.
In the last few days, we have continued to sign some great contracts, a total of 5 major lettings of approximately 13,000 square meters that will land in Q3's net letting. These include Menigo who will move into Slakthusområdet and Filmstaden, it's re-leasing in space in Söderhallarna. We have a well diversified contract portfolio where our 10 largest customers account for 20% of revenues. Of this 20%, 9% is revenue from state and municipalities. The average contract period was 4.5 years. Offices are our largest source of revenue with 55%. Consumer durables, our second largest share account for 15% of our total. If we look at the terms of lease, we are now in 2024 maturity structure because usually, we have 9 months notice period, and it amounts to SEK 394 million, 13% of the entire annual contract value. And 34% of the whole annual contract maturity structure has a churn from 2029 onwards. I think it's good that we only have 4 leases, 3 of which are offices of more than 10,000 square meters.
So let's look a bit closer at our retail portfolio. We have a wide range of supply in our retail portfolio. Fashion accounts for 15% of the sales in our shopping centers. We think we have a very attractive retail portfolio. And as I mentioned at the beginning, both visitors and turnover are higher than last year. Food, alcohol and pharmacies accounts for 39% of the sales in our retail locations. The businesses that perform the best in the shopping centers are pharmacies, the discount segment and groceries and those who have the tougher times are electronics, home decoration and furniture.
Atrium Ljungberg's second quarter showed 12% growth in operating profit. The growth is primarily driven by rental growth due to KPI, continued cost control, additional net operating income from Katarinahuset project and a stable net interest income. Rental income from comparable properties increased by just over 5% in Q2 compared to the same quarter last year. Additionally, our one-off compensation increased by SEK 6 million compared to the previous year and rental income related to our projects where Katarinahuset contributes more than we lost due to last year's vacancy in Söderhallarna results in an overall nearly 8% increase in the company's rental income comparing Q2 this year to Q2 last year.
Compared to the year-end, the economic occupancy rate decreased by 1.9 percentage points. Some of this in decrease explained by the sale of properties in Sundbyberg, which had an occupancy rate of nearly 98%. Otherwise, we have slightly increased vacancies in our property portfolio, partly due to planning of upcoming projects and also tenant turnover, especially a few properties in Gothenburg.
Administrative costs are slightly higher in Q2 compared to Q1 this year. But based on what we know today, it does not significantly impact the full year costs. It's more a matter of quarterly timing compared to the previous years.
The net interest income remained stable in the quarter compared to Q1, but interest costs will increase in the second half of the year as new loans will be expensive than the old ones.
Net changes in property value amounted to net loss of SEK 39 million during the quarter. This is divided into 2 components: yield and cash flow. Regarding the first component, yield, our perception is that it has stabilized in the market. Factors such as slowing inflation, expectations of further interest rate cuts and good liquidity access with decreased credit margins have brought buyers and sellers closer together. Our sales of Eken 6 and [ Skotten ] confirm our perception on -- and valuations.
The second component, cash flow is consistently evolving and depends on property-specific factors such as location, tenant composition and asset class. Changes in cash flow can lead to both upward and downward value adjustments. During the second quarter, strong net letting activity in our portfolio resulted in positive value changes. Additionally, the passage of time positively impacts valuation. Overall we made some individual upward corrections to the yield during the quarter but strong leasing and improved cash flow largely mitigated the impact. Our long-term net asset value per share at the end of Q2 was SEK 265.
After the sales of our properties in Sundbyberg, our financial risk has decreased. Our loan-to-value ratio stands at 40.4%, the interest cover ratio is 3.9% and isolated for the quarter, it was 4.3%. The net debt-to-EBITDA ratio has improved and stands at 10, while our liquidity buffer expanded to SEK 9 billion.
If we look at our portfolio like-for-like, we have increased revenues and only marginally increased costs by 0.3%, which is a good mix. The revenue increases of 5% is primarily attributable to the KPI index increases, while the cost change reflects good cost control. In the quarter, we have seen slightly higher costs related to rental resources, which I consider a good prioritization. Overall, net operating income in comparable properties increased by almost 7%, and the surplus ratio stands at 72%. All segments developed positively and Offices segment won in the first -- in the second quarter.
As you know, Katarinahuset contribute positively to our rental growth in the first and second quarters. Katarinahuset generates rental income which is SEK 35 million higher than a year ago. At the same time, we're also aware that we have negotiated with many tenants in Söderhallarna last year. That means that they have SEK 25 million less in rental income related to that property. However, on a net basis, there is an increase in rental income from the project portfolio of SEK 16 million. Katarinahuset tenants have gradually moved in since Q2 2023 based on written leases, agreements and as anticipated move-ins, our assessment is that the rental income for 2024 will amount to approximately SEK 120 million in our income statement, including supplements compared to SEK 44 million for 2023.
We have 2 property sales that have an impact on our figures in the quarter. Firstly, Skotten, which we exited in January 31, 2023, and now Eken and Sundbyberg that we exited in June 11 this year. The sales effect in our rental income approximately they're -- approximately equal the first half this year compared to last year.
After a period of turbulence, the financial market has now begun to stabilize. As you can see, the market, different professional forecasters and the central bank anticipate interest rate cuts. However, there are differing opinions on these cuts, when they will occur and how significant they will be. The most aggressive forecast predict a level of 2.75% in the end of the year, while most cautious estimates hover around 3.25%, indicating significant differences. Market pricing at present suggests slightly above 3%. We observe good access to liquidity and decreasing credit margins. We believe that it's highly investor demand in the bond market. In early May, we issued a 3.9-year green bond with a nominal account of SEK 500 million and with a spread of 135 basis points. Towards the end of May, we issued another green bond this time, a 5-year one, also worth SEK 500 million with a spread of 150 basis points. This puts us back to the level from before inflation accelerated. Margin pressure is always evident in the banking system, and it's also clear that our relationship banks wants to increase their business with us.
Due to the property sales during the quarter, we have also reduced short-term debt and decrease the volume of our outstanding commercial papers. The market for commercial papers is also strong, and we've seen margins decrease here as well. In our most recent transactions in May, we paid margins of 50 basis points on 2-month maturities.
Our financial position strengthened during the quarter, partly due to the property sales, but also based on the improved result. The loan-to-value ratio decreased to 40.4% while the ICR strengthened to 3.9% and the net debt-to-EBITDA ratio improved to 10x on an annual basis. Our average interest rate remained stable during the quarter, standing at 2.5% all in. However, there are upcoming interest rate maturities in the second half of the year and an increase of interest-bearing debt, which will all result in rising average interest rate and higher financing costs going forward. Our liquidity buffer amounts to slightly over SEK 9 billion. Naturally, some of this will be refinanced. And as I mentioned earlier, we have very good relations with our banks. Additionally, the bond market has improved. There is no doubt that access to liquidity is -- competitive prices is an advantage for Atrium Ljungberg, especially since the company requires capital giving all project opportunities.
So let me update you on our project portfolio. At the end of Q2, we had ongoing construction with a total investment of SEK 8.4 billion of which SEK 4.9 billion remains to be invested. In terms of ongoing projects, SEK 7.4 billion is contributing to investment in properties that are developed for ownership. The investment in Söderhallarna has increased by SEK 440 million from the reported investment last quarter, driven both by a completed zoning plan that generates an extension, but also increased investments due to the construction in this -- dragging since the investment decision.
At the same time, we have improved net operating income. In the quarter, we increased our estimated project profit from 20% to 27%, corresponding to SEK 2 billion, of which SEK 700 million has already been reported. The increase in property profit is primarily driven by improved net operating income, primarily in Söderhallarna and PV Palatset. Furthermore, we have an ongoing tenant-owned apartment production of SEK 1 billion with an investment market value of SEK 1.2 billion. The project profit will be realized as the profit recognition take place.
In this picture, you can see our 11 ongoing projects and completion dates. As for the project to be completed in 2024. As I said, the economic occupancy rate is 94%. And for 2024 to 2025, the figure is 74%. During the quarter, we have started construction of 2 school projects, 1 is in Slakthusområdet and the other 1 in Sickla. Campus Sickla is a part of Stockholm Wood City, and the school will be built in both wooden frame and wooden facade.
Another thing I want to mention is linked to our project Brf Kulturtrappan, who won Nacka's Urban Planning Award. This is extra fun because of residents in the municipality who voted for us. And then I'm also very proud of our project in Sickla, Sickla Central, which will reach Breeam Outstanding, 1 out of 7 projects in all of Sweden at that level. At the beginning of Q3, we rented out part of Building 43 old and new Magasinet in Slakthusområdet. The lease of 3,800 square meters to Menigo, out of the total of 8,500 means a new project start. The total investment for the renovation and extension amounts to SEK 700 million, including land acquisition. The property will be very close to the future metro entrants and a new park.
And finally, a few words about our project portfolio going forward. We will develop 4 areas in Stockholm, where there is a natural growth of people. The potential investment is about SEK 40 billion. All locations are selected where there is a metro station today or will be 1 by 2030. In Sickla, we have the plan to expand with 250,000 square meters with a total investment of SEK 14 billion. In Slakthusområdet, Stockholm Meatpacking District, we're also planning for offices and apartments totaling 200,000 square meters, which gives us a total investment of SEK 11 billion. And then Hagastaden and Slussen part of Stockholm mini city, where we have projects of more than 150,000 square meters and a total investment of SEK 9 billion.
And by that, I say thank you for listening. And if you have any questions, please send me an e-mail and have a great summer.