Earnings Call: Q2 2020

Jul 10, 2020

Welcome to Atrium Numerai'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 Scharzta Centrum was 45,000,000,000, and the contracted annual rent was EUR 2,200,000,000.0. Offices are still our largest segment with 54% of the contracted annual rent. Retail stands for 20% and the rest, culture education, FMCG, restaurants, healthcare 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-nineteen 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 Fausta Centrum, a SEK 4,000,000,000 deal, and the transaction was closed the June 1. We acquired and took position of the office property EKKEN Sjotkan in the center of Sundberg in Stockholm. EKKEN Sjotkan is right next to the well known Marabog Park and Fuklaafabirken, a property we have owned for some time. The property will supplement the range of premises available at Fuklaafabirken, enabling us to manage both properties together in an effective way. We signed a green loan contract worth EUR 1,000,000,000 with the European Investment Bank. And finally, we took a decision to start the tenant owned apartments project in the second phase of Nobel Bayet. The second phase comprises 56 apartments with an investment amounting to $270,000,000. 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 twenty twenty two. 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-nineteen 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 label as June. 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 two on Novella yet. Demand on the capital markets strengthened after a weak start during the quarter. Increased risk premiums have led to higher prices compared to before COVID-nineteen. We see approximately 100 points increase in price on a three 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. We have signed 400 agreements for temporary rental rebates for the second quarter. The impact for us is €8,000,000 net following the government support for the tenants. We have not given any rebates for the third quarter. Rental receivables for the second quarter, which were due for payment but not referred as doubtful, amounted to approximately 30,000,000 for the July 9. For revenue amounted for the third quarter, the payment pattern from the 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-nineteen pandemic and its consequences. The net letting for the first six months amounted to SEK 2,000,000, and which SEK 19,000,000 refers to project properties. Newly signed contracts were distributed among most of our areas and include both retail and office chemises, while terminations relate primarily to office segment in Stockholm. Now I will hand over to our CFO, Martin Linkliszt. Thank you, Annika. Rental income decreased by million compared with the previous year. The difference is primarily attributable to the sale of the residential in Chista and the sale of Tafka Centre as well as rental rebates related to COVID-nineteen. We had a mild winter, and due to COVID-nineteen, 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, Catalina Huset 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 June June, thanks to the faster 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 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 Valtter Centre. 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 costs linked to the mild winter and a reduction in property costs 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 Hagerstaden and at Mjerdbauer Platze. If we break down the development of rental income in comparable portfolios in our two 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-nineteen 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 $1,200,000,000 in our own properties. Our long term goal is to invest $2,000,000,000 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 79,000,000 mainly related to reduced uncertainty compared with the Q1 valuations, which means that we have increased the value somewhat of mainly our office properties. In the balance sheet, we see the effects of the sale of Fortasentrum on investment properties, on the line leaseholds and on the line goodwill. And I remind you that our co op properties are on the line development properties. Arthur Mewenberry 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 Tata Centrum, and the volume of outstanding commercial papers were decreased during the quarter. Interest bearing liabilities amounted to $500,000,000 at the June, and the gearing ratio has come down to 41.2% linked primarily to the sale of Fostra. Average interest rose slightly to 1.8%, and we have paid down some of short term debt from the Fosta 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 €1,000,000,000 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, Anika. Yes. We have a large and interesting project portfolio. And after the agreement with Stockholm municipality, now enables investment of approximately SEK31 billion, where SEK3.5 billion is for confirmed projects. If we're looking at potential projects of SEK28 billion, these investments will mostly be in Sikla in Nakka, Slacktus and Robert in Stockholm, in Grenlestaden in Uppsala and in Slussen in Stockholm and where office represent the biggest kind of investment. Our projects are performing well, as Martin mentioned, and we have very little effects from the COVID-nineteen pandemic. About 80% or 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 investment. Let's look closer at our project portfolio, starting with Sikla. Sikla is one of our most prioritized area with a large part of our future project portfolio. The construction of Kyranten in Sikla is underway, and we've become a health care destination with stores, cafes, and restaurants on the Ground Floor. The project comprises 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 Sikhla is Tapietravilken. This is a hotel that will be next to Markus Platzen. The project is fully let to Nordic Choice Hotel and will accommodate a total of two forty hotel rooms and a public lobby, and the hotel would be completed in the spring of twenty twenty one. At Nubelbaitre Sikla, we will build a total of 500 condominiums. We have launched sales for 68 apartments in the first phase. The investment amounts to $70,000,000 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 Nobel Gayet. The second phase comprises 56 apartments with an investment amounting to $70,000,000 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 twenty twenty two. In Grandestad in Uppsala, we are building rental apartments. Grandeparik District 1 comprises 44 rental apartments with commercial leases on the Ground Floor. Scheduled for completion is the second quarter twenty twenty one. As you know, we're also adding 71 rental apartments and culture activities on the site in Mobileye in Malmo. There will be a 4DX cinema, but also a culture center for children, Vannes Erven two, which is equivalent of Joenwaken in Stockholm. It will open this fall and the lifting rate is 94%. One of our biggest projects is Live City in Hagastaden. This building is to be the clear choice of meeting place for everyone working in the life science segment in Hagastaden. The major tenant will be academic work. The property is in the emerging life science cluster close to Karelinska Solna. 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 twenty twenty two. Our project in Vaasparka Ben Jarefella 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 Zaerfella 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 twenty twenty two. During the first quarter, we took the decision to renovate the Katarina Huset in Slussen. We took possession of the property in early twenty nineteen and have since planned for a project. After renovation, the house will feature state of the art office with a unique view, a hotel and several restaurants. We have signed a lease contract of 1,100 square meters with Eirix Gondolen, a famous Swedish restaurant. The investment amounts to SEK $980,000,000 and will be completed by 2023. And by that, we close our Q2 presentation. And if you have any questions, you can send an e mail to me or Martin Linklisz. Thank you very much, and goodbye.