Atrium Ljungberg AB (publ)

Real estate companies are continuing to initiate the report season here for Q2 and today we are joined by Autrum Ljungberg as I hand over the words to CEO Annika Åhnes. 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 one percentage point. Our net letting amounted to a strong figure, 97 million in the second quarter, But in addition to that, we have terminated contracts of 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 8 billion, of which 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 rates 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 97 million, a strong figure. During the second quarter, we have signed several new contracts. The three 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 ours 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 five 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 a releasing 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 nine months notice period. And it amounts to 394 million, 13% of the entire annual contract value. And 34% of the whole annual contract maturity structure has a term from 2029 onwards. I think it's good that we only have four leases, three 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 toughest times are electronics, home decoration and furniture. Atrium Ljungberg's second quarter showed a 12% growth in operating profit. the growth is primarily driven by rental growth due to KPI, continued cost control, additional net operating income from Katarina Huser 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 of Compensation increased by 6 million compared to the previous year. And rental income related to our projects where Katarina Huset 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 is 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 remains 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 39 million during the quarter. This is divided into two 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 14 confirm our perception on end 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 265 crowns. After the sales of our properties in Zimbabwe, 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 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 develop positively and Offices segment won in the second quarter. As you know, Katarina Huset contribute positively to our rental growth. In the first and second quarters, Katarina Huset generates rental income which is 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 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 16 million. Katarina Husets tenants have gradually moved in since Q2 2023 based on written leases, agreements and anticipated move-ins. Our assessment is that the rental income for 2024 will amount to approximately 120 million in our income statement, including supplements compared to 44 million for 2023. We have two property sales that have an impact on our figures in the quarter. Firstly, Skotten, which we exited in January 31st, 2023, and now Ekana in Sundbyberg that we exited in June 11th this year. The sales effect in our rental income 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 forecasts 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 500 million and with a spread of 135 basis points. Towards the end of May, we issued another green bond, this time a five-year one, also worth 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 decreased 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 two-month maturities. Our financial position strengthened during the quarter, partly due to the property sales, but also based on the improved results. 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 10 times 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 rates and higher financing costs going forward. Our liquidity buffer amounts to slightly over 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 growing, Competitive prices is an advantage for Atrin 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 8.4 billion, of which 4.9 billion remains to be invested. In terms of ongoing projects, 7.4 billion is contributing to investment in properties that are developed for ownership. The investment in Söderhalland has increased by 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 increase our estimated project profit from 20 to 27%, corresponding to 2 billion, of which 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 1 billion, with an investment market value of 1.2 billion. The project profit will be realized as the profit recognition takes 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 constructions of two school projects. One is in Slakthusområdet and the other one in Sickla. Campus Sickla is a part of Stockholm Wood City, and the school will be built in both wooden frame and the wooden facade. Another thing I want to mention is linked to our project, BRF Kulturtrappan, who won Niklas Urban Planning Award. This is extra fun because it's the residents in the municipality who voted for us. And then I'm also very proud of our project in Sikla, Sikla Central, which will reach BREEAM outstanding, one out of seven projects in all of Sweden at that level. At the beginning of Q3, we rented out parts of building 43, old and new magasinet in Slakthusområdet. The lease of 3,800 square meters to Minigo out of the total of 8,500 means a new project start. The total investment for the renovation and extension amounts to 700 million, including land acquisition. The property will be very close to the future metro entrance and a new park. And finally, a few words about our project portfolio going forward. We will develop four areas in Stockholm where there is a natural growth of people. The potential investment is about 40 billion. All locations are selected, whether it's a metro station today or will be one by 2030. In Sikla, we have the plan to expand with 250,000 square meters with a total investment of 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 11 billion. And then Hagastaden and Slussen, part of Stockholm City, where we have projects of more than 150,000 square meters and a total investment of 9 billion. And by that, I say thank you for listening. And if you have any questions, please send me an email. And have a great summer.