Earnings Call: Q2 2021

Jul 7, 2021

Welcome to Atrem Jungberg's Q2 presentation. The heading for this report is strong quarter boosted by earnings from the first tenant owned dwelling project in Sikla. 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 48,000,000,000 and the contracted annual rent SEK 2,200,000,000. Offices is our largest segment with 51% of the contracted annual rent. Retail stands for 20%. We focus on Sweden's 4 biggest cities and Stockholm stands for 67% on the contracted annual rent. Letting rate was 90% 91% and adjusted gearing ratio was 42%. So what are the main events for the quarter? We took the 1st project profit from the 1st tenant owned dwelling project. The project profit was NOK 91,000,000 or 30% and had a positive effect of the parking not being included in the project. We signed a contract to sell the leaseholds Kalding 34, also known as Schistaffrandt. The purchase price amounted to NOK 805,000,000. And we have completed the hotel project in Sikla, Tapia Trabraken, and important piece of the puzzle in the development in Sikla. And we completed the project of 44 rental apartments in Grand Vistaden, a project called Parkusen Block 1. And finally, we started selling the 1st tenant owned dwelling project, Parkelsen, 2 of 98 Apartments in Grenvestaden 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 NOK 964,000,000 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 1st 6 months of 3.9% compared to last year. Market prices for residential are increasing in all big cities in Sweden. Our own sales has performed very well. In Sigla, we have almost sold all apartments in Konstach apartment projects in Sigla. And in Grandi, we have Parkersen 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 Markets. Now I will hand over to our CFO, Martin Lindqvist. Thank you, Annika. If you look at net letting in the quarter, it amounted to SEK 17,000,000 plus despite a tenant exercising an option to reduce 4,000 square meters in one of our projects. The exercise of the option means that damages will be received in the Q4 of this year. We look in the income statement. The total rental income is down by 7.3%, mainly due to the sale of Varta 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 won in the subsidiary Lig during the Q1. Net financial items have improved primarily due to a new principal for allocating interest cost to project, but also partly related to the sale of Forza Centrum in June 2020. Profit before changes in value in the quarter was NOK 3.72,000,000, where after consultation with the 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 1,100,000,000 of which NOK 964,000,000 in the 2nd quarter. Of the quarterly rig year, 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 in January to June and property costs were unchanged. After 1st 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 costs 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 NOK 1,000,000,000 in the period, and we are on track to our annual target of SEK 2,000,000,000. Value changes, As I said, SEK 1,100,000,000 accumulated, of which SEK 964,000,000 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 On the key ratios, we see that loan to value ratio was 42.7% and the adjusted loan to value was 42% 42.0 percent if we take into account the effect of the withdrawal in Colding 34 on the 1st July. Average interest rates remain at 1.6% and interest term and capital commitment remain just under 5 years on average. And now Annika will tell you more about the project portfolio. Yes, we have a big and impressive project portfolio that enables investment of approximately SEK38 billion, where SEK2 billion is confirmed projects. If we're looking at potential projects of SEK36 billion, these investments will mostly be in Sikla in Nakia, in Stockholm, in Gremvestad in Uppsala and in Slussen and Hagastaden in Stockholm. Con and where offices represent approximately 50% and residential is approximately 40%. 80% of our project portfolio are situated near to an existing or future underground station in the Stockholm area. That's why our project profit portfolio is extra interesting. We completed our hotel project in Sikklaatapietfabrikken, which opened in June. This is a hotel next to Markusplatzen 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 Sikla. In Sigla Galarida, we are adding parking spaces that we need for the Health House Kuranten and the coming project, Sakhon Suset, 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 Q3 this year. In Nobelbariat and Sikla, we will build a total of 500 condominiums, the project of Nobelbariat Phase 2 called Konsthech. We have sold nearly all apartments and the occupancy is planned for the summer of 2022. In Grenvestad and in Uppsala, we have completed the project of 44 rental apartments, project we call Grande Park District 1 and the project is fully let. In Grande Park Block 2, the project comprises 98 tenant owned dwellings and the completion is planned during the Q2 2023. We started the selling process in June and we have booking contracts of 8%. The Project Life seat in Hagastaden is performing well. The major tenant will be academic work, who will move in December this year. We have also signed a lease contracted with 10x genomics and the restaurant called Cormarkt. The letting rate is 59% and will be fully completed during the spring 2022. Our project Basparkab in Jarfella is under construction. The first phase comprises 24,000 square meters and includes an upper secondary school, healthcare, sports and businesses. And the major tenant is Jarfella Municipality of 11,000 square meters. During the Q2, we have signed a lease contract with Svea Education and Berumder Technisk Outbuilding, 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 Katarina Housset 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 1100 Square Meters with Eirik Skondolen 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 for an extension to Katarina Housseth with reference to the design. We are now considering how to proceed. The development of Slukto Samrodert area is progressing according to plan. The development of the Sluktu Samirodet area is processing according to plan. We have made an investment decision of SEK1 1,000,000 for the Sluk2's Halana 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 email to me or to Martin. Thank you and goodbye.