Quarterly Report Quartiers Properties – July to September 2021

Quartiers Properties AB (publ) has today published the company’s quarterly report for the period July to September 2021.

Summary of the period

JULY – SEPTEMBER 2021: Record operating cash flow in the quarter

• Net sales for the third quarter amounted to a record SEK 70,574 (17,533) thousand. In comparison, sales for the full year 2020 amounted to SEK 55,800 thousand. Sales are also significantly higher than in the second quarter of 2021, when the total was SEK 25,505 thousand.
• The company's cash flow from operating activities, including residential sales, amounted to SEK 32,680 (-10,654) thousand, which is by far the highest figure for a quarter in the company's history and shows that demand for the company's products has returned. It also signals an important turning point, with the company taking a big step forward and becoming cash flow positive, despite the Covid-19 pandemic.
• Revenue from the operator business, including Boho Club and the apartment rentals in Benahavís, amounted to SEK 28,479 (14,513) thousand, representing an increase of SEK 13,966 thousand, or 96%, compared to the third quarter of 2020. The operating profit from operations before depreciation and amortisation totalled SEK 5,720 thousand, representing an operating margin of 20%.
• Revenue from the divestment of properties during the period amounted to SEK 42,095 (3,020) thousand. Sales consisted mainly of apartments in the company's apartment complex in Benahavís, but also included one of the plots in the Los Flamingos project.
• Operating profit before depreciation, amortisation and value adjustments (EBITDA) totalled SEK 1,837 (-3,844) thousand. Due to previous value adjustments on the company's completed apartments for sale, part of the profit on the apartments sold has already been recognised. This explains the difference of SEK 30,843 thousand between EBITDA and the strong operating cash flow generated by the company during the quarter. The cash flow accrues to the business even if it is not reflected in the earnings. 
• Profit after tax was SEK -12,837 (-16,648) thousand. The result has been negatively impacted by a provision for an additional purchase consideration of SEK 8,147 thousand related to the acquisition of Centro Forestal Sueco. See also events after the balance sheet date.
• Cash flow from financing activities amounted to SEK -1,275 (47,501) thousand, of which cash flow from a new share issue amounted to SEK 11,121 (0) thousand.
   Total cash flow for the period was SEK 28,025 thousand (34,015). 
• Earnings per share before dilution for the period totalled SEK -0.25 (-0.32).

JANUARY – SEPTEMBER 2021

• Net sales amounted to SEK 106,692 (45,669) thousand.
• Revenue from the operator business, including Boho Club and the company's apartment rental business, amounted to SEK 48,630 (25,990) thousand.
• Revenue from the divestment of properties during the period amounted to SEK 58,062 (19,679) thousand. 
• Operating profit before depreciation and amortisation (EBITDA) totalled SEK -5,938 (-21,983) thousand.
• Profit after tax was SEK -44,631 (-43,781) thousand.
• Earnings per share for the period totalled SEK -0.86 (0.85). 
• During the period, a total of 15 apartments in the company's apartment complex in Benahavís were sold, including ten in the third quarter. The recognised profit after tax is SEK -2,578 thousand. SEK 18,738 thousand of this profit after tax was recognised in previous periods as an unrealised change in value after tax. The average pre-tax profit margin is 76%. The reported profit/loss includes sales commission and administrative selling expenses of SEK -2,939 thousand, as well as recovered VAT (expense) of SEK -1,381 thousand. Increased demand allowed for sales at the end of the period to be made at a higher value than at the beginning of the year. During the period, one of two plots of land in Los Flamingos was also sold, resulting in an accounting gain of SEK 341 thousand. 
• Reported equity at 30 September 2021 amounted to SEK 250,489 (323,181) thousand.
• The company’s net asset value on 30 September 2021 was SEK 292,002 (350,279) million, which equates to SEK 5.33 (6.77) per share. The net asset value has been adjusted for the preference shareholders’ share of equity (SEK 81,283 thousand) and accumulated unpaid dividends, as well as default interest on unpaid dividends (SEK 10,528 thousand). 

Significant events in the third quarter

• In August, a new share issue was effected through the exercising of outstanding series TO3 warrants. The take-up rate was 92%, and the company received approximately SEK 11.1 million. 
• In September, Alvaro Fernandez Martin took over as the new general manager of the Boho Club.

EVENTS AFTER THE END OF THE PERIOD

• On 22 October, the Arbitration Institute of the Stockholm Chamber of Commerce issued a judgment in the dispute between the company and the foundation Central Fund for Employees in Forestry and the Forest Industry regarding payment of the outstanding purchase consideration for the Centro Forestal Sueco property (of which the Boho Club is part). According to the judgment, Quartiers must pay the outstanding purchase consideration for Centro Forestal Sueco, EUR 1,350 thousand. The payment was conditional on the adoption of a new zoning plan, which the company considers not to have been met. Including interest and the costs of the arbitration proceedings, the total cost is equivalent to approximately SEK 15,155 thousand, of which a provision of SEK 6,858 thousand was previously made. As of 30 September, provision for the full amount has been made, affecting the profit/loss for the period by SEK -8,297. Quartiers has analysed the judgment and considers that serious errors have been made in the interpretation of the contract, based on the way the judgment and the contract are drafted. Quartiers will therefore use the legal means available for this type of situation and will seek to modify or annul the judgment.
• Villa Amapura has been sold and is now occupied by the new buyers.

Message from the CEO

This has been an important quarter for us, in that we took a major step in emerging from the stifling effect of Covid-19 on our business, following the order to shut down completely and quarantine in March 2020. Cash flow improved strongly during the quarter, and is expected to continue to improve if we are spared another strong wave of the pandemic. Demand has thus re-emerged, and the positive effects of the wave of digitalisation that followed from the pandemic are now beginning to have a serious impact in the region. Many of us have been surprised by the number of people who are now in the Marbella region, and interest in vacationing and settling here has probably never been greater.

The summer, and the autumn so far, have demonstrated the strength of the Boho Club brand and concept, which was created as part of the enhancement of the Centro Forestal Sueco property on the Golden Mile in Marbella, which we acquired in 2017. Both average prices and occupancy rates at the hotel have exceeded our wildest dreams and illustrate that we are well on our way to building a first-class hotel concept. We hired a new general manager for Boho Club during the quarter and will use Alvaro's experience and expertise to fine-tune the details to raise the concept to world-class status and prepare it for a possible scale-up in other destinations. The value to a real estate company of having in-house operational knowledge in the hotel and tourism sector should not be underestimated. The knowledge we possess from this will be valuable in future business, whether we act solely as a property owner or both operate and own the property. The enhancement we have provided has not only created value in the specific property where the Boho Club is today, but also in the brand and the remaining approximately 17,500 square meters of land that we own right next to the Boho Club and that is included in our development plans for future projects.

When the time comes to expand, we will have in-house operational expertise and a brand in place. This will allow us to reverse the analysis process when looking for properties for expansion. Instead of finding a property and creating a project for enhancement, we can instead focus on finding properties where we can quickly and efficiently establish the Boho Club and thereby also enhance the property. Thiis creates opportunities that we didn't have before.

With a stronger market for hotels and residential sales, the domestic Spanish capital market is also waking up, which is important to us when we need to borrow money. We are now working with both banks and low-interest funds to restructure the balance sheet in the first half of 2022, in order to achieve lower borrowing costs.

I would like to conclude by mentioning the fantastic work that our sales team – consisting of salespeople, receptionists, project managers and property managers – have done in selling our residential projects. We have a small, close-knit team that manages our sales, residential buyer support and follow-up, to ensure a positive experience for anyone who buys a home from Quartiers. We have been very successful during the quarter, with ten apartment sales and one land sale, which together brought in net cash of SEK 38.7 million after amortisation. Continued sales in the Hacienda Collection and commercialisation of the Ocean View project will generate further liquidity, which we intend to allocate to restructuring our debt and expanding the business.

Let's now keep our fingers crossed that we don’t experience another serious wave of Covid-19 and that we can return to our normal lives, but with an even higher quality of life for many, when commuting time to work can instead become time spent with friends and family. The digitalisation trend that I have mentioned so many times is expected to contribute exponentially to accelerating this trend and all indications are that Marbella and its surroundings are one of the most well-positioned markets in Europe to capitalise on the structural change in society that this actually represents.

Quartiers Properties AB (publ) is required to disclose this information under the EU Market Abuse Regulation. This information was provided for publication through the agency of the contact person above at 9.45 a.m. on 4 November 2021.

Marcus Johansson Prakt, Chief Executive Officer
E-mail: marcus.prakt@quartiersproperties.se
Phone: +46 72 018 59 98

Quartiers Properties is a Swedish property development company that provides top-class design and quality, with operations on the Spanish Costa del Sol. The company was founded in 2014 and has since built up a portfolio of investment properties and project properties. The company develops, sells and rents out properties.

Quartiers Properties owns and manages Boho Club, which is a boutique resort in Marbella’s Golden Mile district with a restaurant and 30 hotel rooms. The project has won awards for its design and architecture, and since its launch in 2019, both the hotel and the restaurant have established themselves as leading venues in Marbella. Visit Boho Club’s website www.bohoclub.com to book a hotel room or reserve a table at the restaurant. The restaurant is open daily, serving breakfast, lunch and dinner.

Quartiers Marbella Apartments is an apartment complex in Marbella’s neighbouring municipality of Benahavís, where Quartiers runs apartment rental operations. The apartments are perfectly suited as short-term and long-term accommodation and are popular among families, as well as groups visiting Marbella for leisure purposes, fitness holidays or to play golf. Visit our website www.quartiersmarbella.com to book your apartment.

Hacienda Collection is an apartment project in Benahavís just outside Marbella, where Quartiers Properties is selling apartments that are ready for immediate occupancy. The apartments are located in a gated community boasting views of the Mediterranean. These apartments feature a large, open floorplan with big windows, high-end kitchen, separate laundry room and 2–3 bedrooms. The spacious terraces offer plenty of scope for spending time with family and friends. Visit the website for further information and to book an online or in-person viewing:  www.haciendacollection.es.

Mangold is the company’s Certified Adviser. Mangold can be contacted on +46 (0)8 503 015 50 or by emailing ca@mangold.se.