Atrium Ljungberg AB (publ)

Welcome to today's quarterly presentation by property company Atrium Ljungberg, presenting the results for the first quarter in 2023. After the presentation, there will be a Q&A session where you can ask your questions to the company in the interface. So with no further ado, let me present to you today's speakers, CEO Annika Ånäs and CFO Ulrika Danielsson. Please go ahead.

Thank you very much. The heading for this report is healthy profit from property management despite these challenging times. I would like to start to summarize and highlight a few things from this report. Our property portfolio looks very similar to last quarter with 80% of the value in Stockholm. The biggest segment office stands for 63% of the total value. Our net letting amounted to 11 million, including termination from our side due to upcoming projects. So the figure was 8 million. Our profit from property management increased by 16%, and the like-for-like figure in operating net was an increase by 15%. We have today ongoing projects with an investment of 7 billion. where 4.7 billion remains to be invested. Of the projects being completed in 2023 and 2024, the pre-letting is 65%. As I mentioned in the beginning, we have a big focus in Stockholm, both in our existing properties and in our upcoming investments. The major areas are Hagastaden, Slussen, Slakthusområdet and Sickla. All areas where we have a subway in Stockholm or where there will be a subway station in the coming years. I think we have a unique position in our locations in Stockholm. Every two years, Fastighetsvärlden, a magazine for the property industry, carries out a survey to characterize the best future location in office segment in Stockholm. Flakthusområdet came out on the top this year and Slussan in third place. And it was 92 experts that would ask and look into the 10-year future time and conclude where the location would be the greatest rental potential in the future, linked to the planned extension of the underground network. And so in that sense, we have a really good position going forward. In the first quarter, we have signed agreements corresponding to 56 million in annual rent, proving that demand remains high for office space in great locations. However, we have also noted that companies are focused heavily on their costs. We have received termination for customers corresponding to an annual rent of approximately 45 million. There is a risk that the trend will move towards smaller office space and greater flexibility in lease contracts. The locations in greater CBD in Stockholm are still generating the most interest, with Slussan and Hagastaden seeing the highest demand in Otram Ljungberg's portfolio. In the middle of March, we announced that Otrim Ljungberg had acquired 50% of the shares in e-house for approximately 20 million. We also intend to invest approximately 50 million in upcoming years for further expansion. Since the start of 2016, e-house has been a hub for many innovative companies worldwide. and is currently planning to expand to a number of locations in Atrium Ljungberg's portfolio in Stockholm. A-House has definitely shown that they can build a strong and profitable company and attract incredible, interesting tenants. This partnership broadens Atrium Ljungberg's offer to existing customers and exciting customers for the future and enables us to target new customers sectors and contexts. Retail comprises approximately 20% of the company's total property portfolio and represents a large, diverse range, where more than 40% of the sales at the retail hubs are for staple goods, such as food, pharmacy products and alcohol. As we know, these segments fare well in both good and bad times. with the majority seeing an increase in sales in the first few months in the year compared to the same period last year. This increase is most probably due to a combination of price adjustments and volumes. We're seeing a return to pre-pandemic levels, with more visitors coming to our hubs than in 2022. Other segments that we have seen an increased turnover are opticians and travel agencies. Although gyms and cinemas had favorable start to the year, it's too early to say whether this is a trend change or just a temporary increase. Sales in clothing and undercustomer durables were similar to the previous year, except for electronics. which lost sales compared to the sales peak in the previous year. I will come back to retail mix in a few minutes. And the Swedish condominium market saw a small positive start to the year. In both February and March, prices for condominiums increased by first 1% and then 2%. The annual price development is currently minus 11%. We are continuing to see low numbers of sales launched for new-built tenant-owned dwellings, far below the average value over the past six years. So far this year, we have signed five binding contracts with new customers, and we have no plans to lower the prices in the apartments that we are currently on sale. It is our assessment that Interest in our location and condominiums will remain strong. In fact, it will increase the closer we get to the completion and occupancy. The sales rate in our project in Uppsala, where completion is in Q2 and Q3 this year, is 57%. The first quarter, we have signed several new contracts. As I already mentioned, net letting ended up at 8 million. Here you can see the three biggest ones. First is an agreement in Hagastaden for more than 1,300 square meters to the property developer Norder, which is moving in in Swedish office in our Mineralvattenfabriken property. Other companies that have chosen to move their headquarters to Hagastaden include the interior design company Granit, Kitchen Time and Smarta Group. In Sikla, we signed an agreement with Nacka municipality to extend the lease contract for its existing upper secondary school and to extend the school premises. This new lease contract comprises a total of more than 10,000 square meters, of which 2,100 square meters new construction, which includes young business creatives whose premises will be expanded. This investment in Campus Sickla is an important step to continue developing Sickla as a new district and with a good mix of workplace, education, residentials, culture and retail. Katarinahuset in Slussen is being filled with more creative mixed tenants. In the final week of the quarter, it was confirmed that a major international media group will move into Sickla. They will move their Swedish headquarter to the property and the agreement comprises approximately 1,900 square meters. We have a well-diversified contract portfolio where our 10 largest customers accounts for 20% of the RenovU. Of this 20%, 8% is RenovU from state and municipalities. Index for 2022 will increase our RenovU 2023 with about 165 million. The average contract period was 4.6 years. Offices is our biggest source of RenovU with 55%. Customer durables, our second largest part of the RenovU, represent 16% of our total RenovU. Let's take a little closer look of our retail portfolio. I know I showed you this image last quarter as well, but I think it's very important to understand the mix in our retail hubs. Somehow, people tend to think that retail is only fashion, but it's not like that in our case. We have, under a long period of time, worked to diversify our retail hubs to have a wide range of different players. Healthcare, for example, has a much bigger part today than just a few years back. Fashion stands for 11% of the turnover in our retail hubs. 11%. I think we have a very attractive retail portfolio and the footfall in our three retail hubs sites is very good. Looking at the turnover in our shopping areas, we have a good performance in comparison to the overall retail market in Sweden. And as I said before, the Christmas shopping was all-time high. And as I commented in the beginning, we are seeing a return to pre-pandemic levels. which are more visitors coming to our hubs than in 2022. And once again, groceries, Systembolaget, a liquor store in Sweden, and pharmacies, goods are the basic in our lives and stands for more than 40% of the turnover in our retail hubs. And by that, I hand over to Ulrika that will comment on our financial performance this quarter.

The first quarter, our P&L presents both good growth and negative result. Income from property management increased by 16% to 326 Swedish million crowns, the best ever in the company's history. But the bottom line result was negative as a result of declines in the value of both properties as well as derivatives. Our strong income from property management is an expression of the fact that the underlying business is doing well, which we can see from the development in our NOI. Growth in like-for-like is 15%. We have had a good traction from the index, but that doesn't explain everything, and I will come back to that, while total growth is 25%. Projects and contracted performances are better, mainly due to two factors. Higher sales combined with more efficient resource utilization mean better gross margin. The gross margin has improved for the group, despite the fact that we have moved roughly 3 million from central administration to the line for cost projects and contracting, as we believe they better belong there. Furthermore, the central administration has improved by 5 million, of which the move of three just mentioned is one explanation. Regarding the administration for 2023 as a whole, we are back heavy, which means that the rolling 12 months in this report is a better guide than Q1 in isolation. Our assessment is that yields will continue upwards in our portfolio about 10 basis points this quarter, while cash flow has strengthened. This means a net write-down of roughly 401 million, equal to roughly minus 1%. After negative changes in the value derivatives and goodwill, the lateral link to the sale of Scotland in January this year And tax profit on bottom line is minus 292 million Swedish crowns. And that means that our NAV, which at the end of the period amounted to 267 Swedish crowns per share, has decreased roughly one Swedish crown per share or 0.5%. Our financial risk means that at the end of the period, we have an LTV of 42%, an ICR of 3.5%, and a net debit of 13%, which is much better than last year's 15.6%. And finally, a liquidity buffer of roughly 9 billion Swedish crown, which well covers credit maturities this year and next. I thought I would dive deep into some parts and start with the revenue side as it has been the big driver of our growth this quarter. In like for like, our rental income increases by roughly 12%, which in addition to the index is a result of hard work within property management as well as leasing. All segments show growth, although RECIS is understandable lower than the commercial segments. And on the other hand, RECIS is a very small part of our portfolio. Of course, we can thank the CPI athletes for this development, but it explains only 6.5% of the 12. Last year's good net leasing and renegotiations mean that our revenue increases. while we charged increased costs to customers and thus generated a further rental income increase of 2%. Another contributor is our completed projects, mainly Life City and Valsparkarby, which increased our revenues by roughly 25 million, while we have emptied Söderhallen and Peverpalatset for ongoing projects, which means six in less revenues. Thus, the project portfolio is a net contributor to rental growth in the first quarter of 19 million Swedish kronor. The third leg is transaction. As you know, we acquired two properties in Q2 last year, which contribute with roughly 50 million in improved rental income, while in January this year we sold Skotten and thus loses 9 million in revenue compared to Q1 last year. So all in all parts of our value chain, property management, leasing projects and transactions contribute to increased rental income by a total of 112 million Swedish crowns or 19%. The management has continued to have good cost control. The increase of 5% is in like for like is roughly, is basically only linked to electricity. And all in all, this means that increased with 98 million Swedish crowns, equal to 25% compared to Q1 last year. The transaction volume in the first quarter was 20 billion and is significantly lower compared to last year and the last five years. Of the 20, we accounted for 10% in a single deal when we sold Skotten. Our assessment is that there is continued upward pressure on yields, which in our portfolio means, as I said earlier, a yield increase of 10 basis points. This entails an impairment of roughly 729 million Swedish crowns. We raised yields for housing and retail more than offices last year, where we broke down housing by 10% on an annual basis, and retail went roughly plus minus zero despite a strong cash flow. which is why we, this quarter, mainly adjust offices. But the yield is not the only thing in valuation. We also have time, but above all, cash flow. The latter is mainly linked to continued positive net lifting, but also that we change the index from 4% to 5% for 2024, as inflation does not seem to be giving way. resulting in a valuation of 318 million Swedish crowns. However, together with a smaller project profit, this entails a total decrease in value of 400 million Swedish crowns, or roughly 1%. Central banks around the world have continued to raise interest rates as inflation has not receded and further hikes are pressed in by the market and communicated to a large extent also by the central banks. Although the turbulence in the international banking sector has to some extent softened the communication. As can be seen from the graph, it should get worse before it gets better. During the first quarters, DIBOR has increased from 2.7% to 3.4%, and further increases are priced in before it is to reverse. However, long-term interest rates have moved in the other direction and decreased by 26 basis points during the quarter, although higher quotations took place during this period. We have not seen any further price increases in banks since we stood here last in connection with the Q4. We experienced a great willingness to lend to us, and we had very good dialogues. When it comes to the Nordic banking system, we do not feel any spillover from the international banking turbulence. We have increased the CP volume from Q4 roughly on the same prices as then. And the bond market is not so active. But up until before the international banking turbulence, we experienced a certain awakening. However, we have chosen to wait. Secure financing is cheaper than unsecured, and that is quite natural and should probably be so. However, unsecured should not be twice as expensive. And here we need to meet somewhere along the way. So from market to us. At the beginning of April, we had our rating confirmed, but with a negative outlook. This should be seen in the light of the fact that rising financing costs and Moody's belief of falling property values of 10% are challenging our credit figures in terms of ICR and LTV. In addition, there is some concern that the turbulence in the international banking sector may increase, which in turn would make bank refinancing more difficult. Our credit KPIs gives us good conditions to deliver in a rather turbulent environment. We are pleased to see that the net debt EBITDA is moving in the right direction from 15.6 years at year-end up to 13 now, largely thanks to better earnings and lower debt volume. Our capital and fixed interests are around four years, but even more important is that at the time of writing we have an exposure only 13%. And after selling a property and adding new credit facilities, our liquidity buffer is as much as 9 billion at the end of the quarter, which more than covers future maturities and can support the business in their needs. For capital, Annika is needed right.

Thank you, Ulrika. So let's update you on our project portfolio. At the end of Q1, we had ongoing construction of 7.1 billion, of which 4.8 billion remain to be invested. Of ongoing projects, 6.3 billion is investing in properties that are developed to own, with an estimated project profit of approximately 37%, corresponding to 2.3 billion. of which 700 million has already been reported. Furthermore, we have ongoing condominium production of 800 million, which assessed market value of 1 billion. The project profit will be realized as the projects are completed. On this image, you can see our 10 ongoing projects and when they will be completed. Of the projects that will be completed in 2023 and 2024, we have pre-let 65%. We have one new decided project in this quarter, the extension of Campus Sickla, where we have renegotiated the lease of 10 years and which 2,100 square meters is an extension. I would also like to comment on the fact that we now have a finalized building permit for the extension on Katarinahuset. It has been a long process, but finally, the Land and Environmental Court of Appeal announced that they would not grant any more leaves to appeal. I am extremely excited to announce the plans for Sickla Trästad, that means Sickla Wooden Town. We have been working with Nacka municipality to produce a detailed development plan for central Sikla with a total of six blocks comprising more than 90,000 square meters GFA on land which is mostly being used for parking at the moment. Atrium Bay has now made a historic strategic decision to build these six blocks out of wood, based on the company's extremely ambitious climate goals, combined with customer demand for attractive and unique urban environments. The detailed development plan will be sent out for examination in the third quarter of 2023. And lastly, a reminder in a longer perspective. The total pipeline to invest is a total of 40 billion, and most of it will be invested in Stockholm. 30 billion, or over 600,000 square meters, will be invested in Sickla, Slakthusområdet, Pagastaden and Svössan. I really think that we have an impressive project portfolio. And with that... We open up for questions.

Thank you so much for that presentation, Ulrika and Annika. Let's start off the Q&A session with this question. Your income from property management came in higher than market expectations. What was your forecast?

It was according to the business plan that we have done in the group for 2023, so we are not surprised. It's according to our plan.

And hard work. Yes.

A lot of hard work. Yes. Okay, another question. One year ago, when you were doing this presentation for Q1, you had 8 billion Swedish kronas in cash. Now it's 9 billion Swedish kronas as a buffer. What is your view on that amount going forward?

I think it's a good amount. It's a high number, but it's good to have in these turbulent times. We have bonds and CPs falling due in the maturity structure this year of 2.6 billion, so it will cover that at the same time as the business and operations need more funding. If it will be a 9 or 10 or 8 to 7 in the end of this year, I really don't know, but it's good to have in these times.

Thank you. Now we have from Kepler Sjöbro, Jan Irfelt, equity analyst. Please go ahead with your questions.

Okay. Thanks for that. I will start with... If we look at the financial net, were there any extraordinary items in it? I don't mean the cost you have put on the balance sheet, but any other wafts in the financial net?

Nope, it was not.

Okay, thanks. And also... you are taking down the your value property values by 0.7 percent and there were internal audit of that have you have discussions with the way upraisers during this process or are you going to leave that for for another quarter well we always have discusses with several external values each quarter

trying to understand how they look at the market for different segments and we have had that this time also and that is important input to our own valuations okay and one example so the index that was in the quarter last quarter was four percent for going forward and now it's

increase to 5%.

And that is according to what external value will do since the inflation is not going downwards yet.

Yeah, I heard of that earlier. Okay, final question then. Katarina Huset, your building rights to extend that finally came through. Could you just give us a picture of the size of the floor space size and when you will be able to start that project?

Actually, we started that project as we started the refurbishment of Katarinahuset. That's why it's been so important to have this building permit in place. So it's almost completed now. And we are doing the letting work now since the building right is in place. So it's not that many square meters, but you still have it in the numbers in the quarterly report. So it will not be an add-on. Because that's something that we have thought that we would get the permit.

Okay. Okay. Thanks for taking my questions.

Thank you. Thank you. Another question due to the financial situation. How have your project pipeline changed in the long term?

In the long term, not at all, I would say. It's more in the maybe shorter perspective. We talked in the beginning of February last year that we would invest 30 billion by the end of 2030. Maybe that timeline extended somewhat, but I mean, in the long run, we will do the 40 billion investment that we have. plans to do. And as we speak, I think it's more the co-op, starting to build the co-ops will be more difficult depending on how we're doing the selling process in the projects that we are running right now.

Okay. That was all the questions that we had for you today. Thank you so much, Annika and Ulrika, for your time.

Thank you. Thank you very much. Thank you.