Edited Transcript of ATRLJ B.ST earnings conference call or presentation 16-Apr-20 8:00am GMT

We have seen a big drop in our retail for the number of visitors in the recent weeks and the turnover has fallen sharply. Retail, restaurants and cafés have lost up to 70% of their sales; while groceries, pharmacies and the Swedish Systembolaget, where you buy wine and alcohol, have increased their sales.

The government provided a support package to the affected industry in the end of April, which means that if the landlords give a 50% discount on the rent, the state will pay half of that reduction. However, it is still unclear as to which tenants are covered by the package. If we were to give 50% discount on all our retailers, restaurants and café operations and received the state support for all of these relief, it would affect our total rental income by approximately SEK 45 million for the second quarter.

In recent weeks, we have faced several bankruptcies and Chapter 11, primarily of businesses in the field of retail. The most difficult question to answer is during — how long this pandemic will last and what effects this will have on the global and the Swedish economy, both in the short and long-term perspective.

Now I will hand over to our CFO, Martin Lindqvist.

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Martin Lindqvist, Atrium Ljungberg AB (publ) – CFO & Business Area Director of Business support [2]

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Thank you, Annica. Our net letting amounted to SEK 9 million, of which SEK 20 million comes from project properties. The signed contract and the cancellations are relatively well spread across our areas.

Looking on the consolidated income statement, the rental income increased by 2.4%, and property costs increased slightly more than income greatly due to vacated project properties and low initial gross margins in the Slakthusområdet area. In comparable portfolios, rental income increased by 1.6% and costs decreased by 3.4% due to the mild winter.

Central administration was stable compared to the previous year. And in project and construction work, the result was slightly better than the comparison period, partly due to slightly increased distribution of development costs to the project. Net interest rises due to higher borrowings, and we write-down our retail properties by approximately SEK 1.5 billion. More about that later.

If we look on rental income and property costs in comparable portfolios, rental income increased by 1.6%, while costs decreased by 3.4%, much related to the mild winter. The high cost level in project properties is related to the vacancies, mainly Katarinahuset at Slussen, but also low initial operating net in the Slakthusområdet area.

Looking on income growth and surplus margin. The development in comparable portfolios’ revenues is distributed on office properties by plus 4.6% and minus 3.4% on retail properties, quite evenly distributed among our areas. Last year, we had some traction from increased property tax rates that we build out. But even with that in mind, this is a negative development for retail properties.

The surplus ratio increased to 67%, as you see in the chart to the right there. This is stable against the previous quarter 1. And as of this report, this is excluding land leasehold fees in accordance with IFRS 16.

Looking on investments. During the quarter, we investment — we invested SEK 570 million. And there, we have the long-term ambition to be above SEK 2 billion per year over time. We have not yet noted any major disruptions in our projects due to, for example, missing material deliveries or illnesses.

When we look on property values, usually, we do a desktop valuation in Q1, so — in this quarter as well. But because of the increased uncertainty, we have met 4 different external valuation companies to understand and get a feel for the level, partly on the total, of course, and also on the yield requirements. And the uncertainty in these figures is greater than usual. And as you see, we write-down our profit values by SEK 1.5 billion, almost all of it related to retail properties.

And a quick look on the consolidated assets. I just want to point out that our property portfolio now consists of partly investment properties, partly development properties and partly also now assets held for sale, which corresponds to the Farsta Centrum.

If we look on the financing, we see that we now have a new piece in the pie chart. It is a green unsecured bank loan with the Nordic Investment Bank of SEK 920 million, which is linked to the Life City project.

And on the next page, we see that our average interest rate remains at a low 1.6%. The loan-to-value ratio has risen slightly linked to the negative revaluation of our retail properties. However, that figure will improve, as Annica mentioned, when the liquidity for Farsta Centrum enters our books in the second quarter.

Annica?

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Annica Ånäs, Atrium Ljungberg AB (publ) – CEO [3]

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We have a large and interesting project portfolio. And after the agreement with the Stockholm municipality, now enables investment of approximately SEK 32 billion, where SEK 4 billion is for confirmed projects.

If we’re looking at the potential projects of SEK 28 billion, these investments will mostly be in Sickla in Nacka, Slakthusområdet in Stockholm, in Gränbystaden in Uppsala and in Slussen in Stockholm, and where offices represent the biggest kind of investments. And as Martin mentioned, so far, our projects are performing well. We see very little effects on the corona pandemic.

SEK 23 billion worth of our project portfolio are situated near an existing or future underground station in the Stockholm area. It is apparent that office properties with direct underground links have rental levels approximately 30% higher than equivalent office projects just a kilometer further away. Our future investment in municipalities with strong growth are also creating long-term security in our business.

Let’s look closer at our project portfolio, starting with Sickla. Sickla is one of our most prioritized area with a large part of our future project portfolio. The construction of Curanten in Sickla is underway and will become a health care destination with stores, cafés and restaurants on the ground floor. The project comprises 11,700 square meters and most of the area is for health care. Occupancy is planned for the end of this year.

Another project in Sickla is Tapetfabriken. This is a hotel that will be next to Marcusplatsen. The project is fully let to Nordic Choice Hotel, and it will be a total of 240 hotel rooms and a public lobby. And the hotel will be completed in the spring of 2021.

At Nobelberget in Sickla, we will build a total of about 500 condominiums. We have launched sales for 68 apartments in the first phase. And as I mentioned earlier, we have now sold 78% of them. Completion of the project is in the end of this year.

In Gränbystaden in Uppsala, we have decided to continue with rental apartments in the area. Gränbyparken District 1 comprises 44 rental apartments with commercial premises on the ground floor. Schedule for completion is the first half of 2021.

In Mobilia in Malmö, as you know, we’re adding 71 rental apartments and the culture activities to the site. There would be a 4DX cinema, but also a culture center for children, Funnys Aventyr, which is equivalent to Junibacken in Stockholm. It will open this fall.

One of our biggest projects are Life City in Hagastaden. The building is to be the clear choice of meeting place for everyone working in the life science segment in Hagastaden. The major tenant with the Academic Work. The property is in emerging bioscience cluster close to New Karolinska Solna. And the projects going through as planned. And Academic Work will move in December 2021, but the project will be fully completed during the spring 2022.

Our project in was Bas Barkarby in Jarfalla is under construction. The first phase comprises 24,000 square meters and includes an upper secondary school, culture stores and businesses. The major tenant is Jarfalla Municipality of 11,000 square meters. The project will be completed in the spring 2022.

During the first quarter of this year, we decided to renovate the Katarinahuset in Slussen. We took possession of the property in early 2019 and have since then planned for a project. After renovation, the house will feature state-of-the-art offices with a unique view, a hotel and several restaurants. The investment amounts to SEK 980 million, and will be completed 2023.

By that, we close our Q1 presentation. And if you have any questions, you can send an e-mail to me or Martin. Thank you very much. And goodbye.