Earnings Call: Q3 2020

Oct 15, 2020

Welcome to Afternoon Bay Q3 Presentation. The heading for this report is more activity on the market, financial stability and strong residential sales. As a start, I want to update you on our overall key figures. Our property value at the end of the quarter was SEK 46,000,000,000 and the contracted annual rent SEK 2,200,000,000. Offices are our is our largest segment with 64% of the contracted annual rent. Retail stands for 20% and the rest, culture, education, FMCG, restaurants, health care and residentials according to our urban development strategy. And the gearing ratio was 40.5%. So what were the main events for the quarter? The product portfolio increased by €5,000,000,000 to €36,000,000,000 following a major new detailed development plan that has been initiated with the municipality of Masca for Central Sitla. Sales for the 2nd block of residential, which includes 56 apartments in Nobel Bayes in Icla, booking contracts were already being signed for 30% of the apartments. We have had the opening of a new corridor set in Oberlin Alme with rental apartments, a cinema and a new culture building for Chilva. If you look at the market situation for offices, we see a stable trend for rents and more activity on the market. We have lowered our yield requirements in accordance to the transactions made the last week. In our retail segment, we still see an uplift in our shopping centers, but it's a clear difference between different segments where groceries, sports and leisure and goods related to home is doing very well, but fashion and shoes, on the other hand, is struggling. Market prices for residential has increased in all big cities in Sweden with an annual increase of 2% to 5%. Our own sales are performing very well. And then on the financing side, demand in the capital market has strengthened and prices are pretty much on the same level as in the beginning of the year. So a few comments of the pandemic. There are lots of speculation of structural changes due to COVID-nineteen. I think people tend to overreact on the long term effect. There's been a strong trend towards urbanization. People and businesses want to be in a city for a reason. The bigger city, the greater productivity. And I'm convinced that offices will play a central role in our societies in the future. They are needed to encourage businesses, promote creativity and build strong corporate culture. If we look at the turnover in our shopping centers, this has been a small decrease in sales. The positive thing is that we have had very few discussions about discounts. The P and L effect for discounts in the 3rd quarter is €1,000,000 and we see that 97% of rent receivables related to the 3rd quarter has been fully paid. But of course, there still are some uncertainties related to the pandemic. How the development will look and how the effects in the society will turn out is hard to predict. Effects in the society will turn out is hard to predict. SEK 11,000,000 after the SEK 33,000,000 that was booked as a receivable against the government in the 2nd quarter has so far been granted by the Swedish National Board of Housing, Building and Planning. There has only been one case that has been rejected and this was for an insignificant amount. Net listing for the first 9 months amounted to minus SEK 2,000,000, of which SEK 17,000,000 refers to project properties. Newly signed contracts and termination are distributed among most of our areas and includes both retail and office premises. And now I will hand over to our CFO, Martin Lindqvist. Thank you, Annika. Rental income in January to September amounted to SEK 1,789,000,000, which is a decrease of 7.4%, primarily driven by the sale of Harta Centrum and the sale of the residential in Harrowingen. Central administration decreases in line with the savings we have targeted, and project and construction work improved by SEK 18,000,000 driven by improvement in TLBIG's earnings. Net financial items fall due to reduced borrowing following the sale of Fartasentrum. Changes in value in properties are up slightly in Q3 as well as in Q2. And accumulated January September, the change is now minus SEK 742,000,000. We have thus eliminated half of the write down that was made in Q1, which was then related to the retail portfolio. For the like for like portfolio, excluding corona discounts, rental income increased by 0.6% from January to September. At the same time, cost in comparable units decreased by 1.3%. A mild winter and fewer visitors to our properties reduced property costs, and we see a partly corona related increase in anticipated and confirmed customer losses during that period. The EPRA vacancy rate is stable versus the 2nd quarter and amounts to 8%. If we look at the development of rental income in comparable portfolio broken down in our segments, we see a small recovery in retail, however, a continued negative figure. We see a stable figure for office properties compared with the previous quarter, and as I mentioned, the total increase of 0.6% in comparable units. The surplus margin in the isolated Q3 amounts to 70%, which is the same as for the Q3 of 2019. We invested approximately SEK1.8 billion in our properties in January to September. And even if we do not provide any forecast for the full year, we can probably dare to say that we will exceed our target of SEK 2,000,000,000 for the full year. Unrealized changes in value amounted to SEK 467,000,000 in the 3rd quarter, entirely attributable to our office portfolio and includes both changed yield requirements as well as changed operating net. Since I get some questions on the subject, I would like to remind again that our property portfolio is divided into investment properties under fixed assets and development properties under current assets, and we do not include the leasehold rights in our property value. Our loan portfolio is very similar to the one we presented in Q2 report. Very small changes have taken place. If we look on the capital market, which has been a little stressed before the summer, prices have basically returned to the levels that prevailed before the corona pandemic. Interest bearing liabilities as of September 30 amounts to SEK 18,600,000,000 and the gearing ratio to 40.5 percent. If we adjust for the SEK 651,000,000 we have in cash and look at the net gearing ratio, it amounts to 39.1%. The average interest rate is 1.7% with a fixed interest term of 5.2 years. With that, I leave the product portfolio. As I mentioned in the beginning, we have initiated a major new detailed development plan that with, together with NAKA municipality for Central Sichla, approximately 150,000 square meters. The area stretches from Markus Blassen in the west to Schulken in the east and contains large car parks and low retail buildings today. The detailed development plan will take about 3 years, and the plan is to add 7,000 working places and approximately 500 new apartments. Due to the addition of SENSOR Nicola, we have increased our project portfolio by SEK 5,000,000,000 and the project portfolio now enables investments of approximately SEK 36,000,000,000 where SEK 2,800,000,000 is for confirmed projects. If we're looking at potential projects of SEK 34,000,000,000, these investments will mostly be in SIKLAINAKKA, Laksusamrodet in Stockholm, in Grandesavn in Uppsala and in Solusen and Hagastraven in Stockholm, where offices represent approximately 50% and residential approximately 40%. Our projects are performing well and we see very little effects from the pandemic. A very big portion of our project portfolio are situated near to existing or future underground station in the Stockholm area. That's why our project portfolio is so interesting. Let's look closer at our project portfolio, starting with Zikla. Zikla is one of our most prioritized area with a large part of our future project portfolio with a plan to invest SEK 13,000,000,000 in the future. The construction of Kramtsen in Sichla is underway and will become a health care destination with stores, cafes, restaurants on the ground floor, and the first tenants are starting to move in. The project comprises almost 12,000 square meters and includes around 8,000 square meters for health care. The netting rate is now 80%. Another project in Sichla is Papia Fabrizjan. This is a hotel that will be next to Marcus Vazan. The project is fully met by Nordic Choice Hotel and will be around 240 hotel rooms and the public lobby, and the hotel will be completed in the spring of 2021. At Nobel Bayes in Zikla, we will build a total of about 500 condominiums, The first block of 68 apartments in the 1st phase are now completed, and we have sold 93% of the apartments, and we see a big interest in the last apartment. We started selling apartments in the second block a few weeks ago. The sales start was very successful, and we have already signed booking contracts for 30% of the apartments. Occupancy is planned for the summer of 2022. In Grande Saaden in Uppsala, we're building rental apartments. Grand Park District 1 comprises 44 rental apartments with commercial premises in the ground source. Scheduled for completion is Q2 2021. For instance, in Mobileia, it's well completed, and we just had the opening of a 4 d X cinema, but also a culture center for children called Amis Ebenpus. And it was a very successful opening. 1 of our biggest projects is Slide 50 in Hagafstraden. The building is to be a clear choice of meeting place for everyone working in the life science segment in Hagafstraden. The major tenant will be academic work. The property is in the emerging life science cluster close to Nudjaktardinska Volna, And the project is going as planned and academic work will move in, in December 2021, but the project will be fully completed during the spring of 2022. Our project in Bostparkkabu in Gjerstela is under construction. The first space comprises 24,000 square meters and includes an upper secondary school, cultures, schools and businesses. The major tenant is Neursela municipality of 11,000 square meters, and the project will be completed in the spring of 2022. During the Q1, we took the decision to renovate the Caparune Hilsen in Suezan. We took possession of the property in early 2019 and have since then planned for a project. After renovations, the house will be the future state of art offices with a unique view for a hotel and several restaurants. We have signed a lease contract of 1100 square meters with a famous restaurant called Jirik's Gondoren, and the investment amounts to €980,000,000 and will be completed by 2023. And by that, we close our Q3 presentation. And if you have any questions, you can e mail me or Martin. Thank you, and goodbye.