Atrium Ljungberg AB (publ)

Welcome to today's quarterly presentation by real estate company Atrium Ljungberg. They will be presenting the results for the third quarter of 2024. So with no further ado, please let me introduce to you today's speaker, CEO Annika Åhnes. Please go ahead with your presentation.

Thank you. Headline for this report is continued strong net letting in a challenging market. 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 larger segment, offices, accounts for 69% of the total value and only 19% for retail. Our net letting amounted to 51 million in the third quarter but in addition to that we have terminated contracts of 2 million due to upcoming projects. The profit from property management increased by 8% in the first three quarters and for comparable portfolio 5%. We have ongoing projects with a remaining investment of 9 billion, of which 5.2 billion remains to be invested. Of the projects completed in 2024, the economic occupancy rate amounts to 94%, and if we include projects to be completed in 2025, it amounts to 74%. Our primary focus is Stockholm, both in our existing properties and in our future investments. The larger areas are Hagastaden, Slussen, Slakthusområdet, the Meatpacking District and Sickla. All areas where we have a metro in Stockholm or where there will be a metro in the coming years. I believe that we have a unique position in our locations. Despite the fact that we are on the bottom of the 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. After summer, we saw an increase of number of searches for premises, but this has gradually decreased during the fall. 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 location and both have a higher sales and footfall compared to the previous year. Our mix in retail makes them resilient in tougher times. The Swedish tenant-owned welding market is heading for a brighter time as the market expects increased rate cuts. Prices are now gradually increasing and have risen one to two percentage points for the country the last quarter, despite the large supply in the market. We need to see an increase in the number of sales to continue to be in line with our own expectations. As the last day of September, we had 36 unsold apartments, so it's quite a small part of the whole business. As I previously mentioned, the net lending ended up at 52 million, a good figure in this overall challenging market. During the third quarter, we signed several new contracts. The four largest are located in Slakthusområdet and in Slussen. In Slussen we have signed two contracts, Universal Music and Menigo. Two very important lettings that have led to two new investment decisions, but also hand in hand with our vision of the area. In addition, we have signed a contract with Flower and they will move in before the end of the year and also the cinema company Filmstaden who is moving back to Söderhallarna after the refurbishment project. Well, that was a few examples of new lettings that we have completed during the quarter. We have a well-diversified contract portfolio where our 10 largest customers account for 19% of revenues. Of these 19%, 8% is revenue from state and municipalities. The average contract period was 4.5 years. Offices is our largest source of revenue with 55%. Customer durables, our second largest share, account for 15% of the total revenue. If I look at the term of leases, we are now in the 2024 maturity structure because we usually have nine months of notice period and it amounts to about 300 million, 10% of the entire annual contract value. 36% of the whole annual contract maturity structure was in term from 2029 and onwards. And I think it's very good that they only have four leases, which of three are offices that are more than 10,000 square meters. Let's look closer to our retail portfolio. We have a wide range of supply in our retail portfolio. Fashion accounts for only 13% of the sales in our shopping centres. And I think we have a very attractive retail portfolio. As I mentioned in the beginning, both visitors and turnover are higher than last year. Food, alcohol and pharmacies accounts for 40% of our sales in our retail locations. The businesses that perform the best in our shopping centers are pharmacies and groceries and those who have the toughest time, it's home decoration and furniture. Already in the second quarter, I signaled that we would have an increasing financial cost in the second half of this year due to larger loan maturities with a very low average interest rate. And it is starting to show now in Q3. Interest expenses increased by 11% and landed at 147 million in the quarter compared to Q3 last year. The average closing interest rate all in all ended up at 3% in the quarter and is expected to reach 3.2% by the end of the year. This means that net financial cost will increase further in Q4. Net operating income increased by 3%, mainly driven by completed projects. The comparable portfolio amounts to 2.2% and has been affected by the vacanting from some major tenants during the end of 23 and the beginning of 24. We see slightly increased costs in the quarter, among other things, linked to our leasing apartment, preparations for CSRD reporting, and fear customer losses. The well-known reconstruction of eways, the supplier for charging electric cars, for example. On the downside, we also see that we last year receive an electricity subsidy that had a positive impact on us of 13 million. The surplus ratio amounted to 74% in the quarter. Central administration amounted to 17 million in the isolated quarter and is affected by the fact that we currently have several consultants who do not cost any money during the summer. For the full year, we will be slightly above the full year for 2023 as we have some costs linked to, as I said, preparation for CSRD and other system development costs. All in all, profit from property market is stable in Q3 compared to last year. But if we look at nine months, we have grown in profit from property management of 8% and growth in net operating income of 5% in a comparable portfolio. And we had a very strong first half of the year. Changes in property value landed at 75 million net during the quarter. it is divided into two components, yield and cash flow. If we take the first, the yield, the view is that it has stabilized in the market. A slowdown in the inflation rate, interest cuts have begun and good access to quality with falling credit margins as a result means that buyers and sellers are moving closer together. The second component, cash flow, is in constant motion. How it develops is more property specific, depending on the type of location, tenant composition, asset class, etc. During the second quarter, we had a good net letting in our portfolio, which means positive changes in value. In addition, time has passed, which is also positive in our valuation. During the quarter, we made very small adjustments and increased the required rate of return in our retail rental apartment business and one inner city property. But good lettings and improved cash flow had mitigated that impact. Our long-term net asset value per share at the end of Q3 landed at 269. We have a low financial risk and ended up with the LTV ratio of 40.1%. The interest cover ratio landed rolling 12 months at 3.9% and in the isolated quarter, 4.3%. Net depth to EBITDA came in at 11, while the liquidity buffer has increased to 10 billion. If we look at our like-for-like portfolio, we have increased income by 4.3%, which is an increase mainly by CPI, while property cost amounted to 1.7%, slightly higher than the previous quarters. In the quarter, we have slightly increased costs. for our leasing resources which i think is a good priority but overall net operating income in the like for like portfolio increased by 5.3 percent and the surplus ratio landed in the quarter at 74 percent As you know, we have Katarina Huset, which contributes positively to our net growth. In the first three quarters, Katarina Huset generated rental income of 59 million more than the year before. At the same time, you also know that we terminated several agreements in Söderhallarna last year, which means that we have 33 million lower in rental income linked to that property. On a net basis, however, we are increasing in rental income and the project portfolio of 39 million and the current net operating income of 41 million. We have two divestments that affect our figures in the quarter, both Skotten at Drottninggatan, which we vacated in January 31st, 2023, and Eken 14 and Eken 6, which we vacated on June 11 this year. The sales affect our rental income by 61 million and 86 million in the first nine months of this year and last year respectively. In September, the Riksbank cut the policy rate by 25 basis points to 3.25 and at the same time opened the way for possible double cuts in November. The market's forecast in the policy rate will come down to 2% by the end of 2025. We see good access to liquidity and declining credit margins. Credit margins had gradually come down and the last bond we executed was a five-year green bond of 300 million with a margin of 130 basis points. On the commercial bond side, the margin is currently 45 basis points for maturities of three months. Our financial position remains strong. The loan-to-value ratio was 40.1% and the ICR was stable at 3.9%, and net debt to EBITDA increased slightly to 11 times year-on-year. Just as I signalled last quarter, our average interest rate is increasing and amounted to 3%. but we see a further increase in the fourth quarter, and I estimate that our closing average interest rate year-end will land at about 3.2%. Our liquidity buffer amounts to 10 billion, and at the same time, our largest refinancing, apart from undrawn RCFs, is at mid-year 25. We had our annual review with Moody's in September, and they once again confirmed our rating, a BAA2 with a negative outlook. So let me update you on our project portfolio. At the end of Q2, we had ongoing construction with a total investment of 9.4 billion, of which 5.2 billion remains to be invested. In terms of ongoing projects, 8.2 billion is constructed to be investment in properties that are developed for ownership. The project profit amounts to 25%, corresponding to 2 billion, of which 800 million has already been reported. Furthermore, we have ongoing tenant-owned apartments production of 1 billion with an estimated market value of 1.2 billion. The project profit will be realized as profit recognition takes place. In the picture you can see our 11 ongoing projects and completion dates. As for the project to be completed in 2024, the economic occupancy rate is 94%. And if we include 2024, the figure is 74%. At the beginning of Q3, we rented out parts of building 43, old and new Magasinet in the Slakthusområdet area. The lease of 3,800 square meters to Minigo out of the total of 9,000 means a new project start. The total investment for the renovation and extension amounts to 700 million, including land acquisition. The properties just by future metro entrance and a new park. The other lease is for Universal Music Group, which rents the entire building. The agreement covers 3,800 square meters and the investment amounts to 290 million. The great thing about these rentals is that they are completely in line with our vision for the area. And finally, a few words about the 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. The locations are selected where there is a metro station today or will be by 2030. In Sickla, we plan to expand 250,000 square meters with a total investment of 14 billion. In Slakthusområdet, the Stockholm Meatpacking District, we're also planning for offices and apartments of a total of 200,000 square meters and a total investment of 11 billion. And also Slussen and Hagastaden, they are big areas. And that's all from me.

Thank you for that presentation, Annika Ånes, CEO of Atrium Ljungberg. And remember to write your questions to the appointed email presented earlier. Thank you so much for watching and welcome back in approximately three months for the next presentation.