Logistea AB (publ) (LOGIA) Earnings Call Transcript & Summary

[Foreign Language]

[ Tarek ], thank you so much. Good morning to all of you and welcome to the presentation of Logistea's Q3 report. Myself, Niklas Zuckerman, CEO of the company; and sitting next to me is Philip Lofgren, who is the CFO of the company. As said, we'll answer any questions after the call. The merger with KMC Properties is completed, and we are today presenting a full quarter for the new combined company. Before we dig into the numbers in detail, it's worth to highlight the main advantages with the merger and how the company looks today. With the merger, we found a company that is -- or with KMC, we found a company that had very similar types of properties as the former Logistea had. Focus on logistics and industrial properties, and both companies favored long and triple net leases. We see a clear economy of scales when it comes to, first of all, cheaper financing from banks and the debt capital market, broader shareholder base and much better liquidity in the share, better tenant diversification and more potential tenants to do add-on investments with. We saw synergies both on the short and medium-term, and medium-term is much driven by potential lower interest costs, a task we're working hard with at the moment. We have more markets to operate in, meaning that we could take advantages of good investment opportunities in more markets. The property portfolio now amounts to a bit more than SEK 13 billion, a split between 1.4 million square meters of lettable area and 343,000 square meters of building rights. And the NRV today stands at SEK 15 per share. As a result of the merger, we're presenting large improvements in income, NOI, and income from property management. Notable is that the increase in income from property management it is much higher compared to the increase in NOI. And as you can see on this slide, we are presenting SEK 169 million in profit or income from property management for the period. Still long wault meaning long leases at 9.7 years. The net initial yield from income producing properties is at 6.9% and the LTV is slightly lower compared to the last quarter and now at 48.5%. A few words on the property portfolios and here are a couple of examples. And the portfolio comprise a good mix of logistics and light industrial properties. To the far left, we have a few examples of logistics properties, fully leased, long leases and we have bought those at yields of 7% to 8% these 2 examples. In the middle we have 2 examples of light industrial type of properties also fully leased, also long leases in most cases triple net leases meaning that the tenants are paying for the all operating and maintenance costs. And here we're talking yields of 7.4% to 7.7%. Developments is an important factor and we are hoping to do more. And when we say developments, it will be a mix of add-on developments as is the case for the first one in the Alingss, where we bought an existing property at a yield of 7%. We are currently completing an extension for the tenant NKT. The extension is SEK 160 million and we get a yield on cost of 10% on that investment. And at the same time, we are prolonging the lease with NKT for another 22 years, meaning that we increased the wault from previous 7, 8 years to 15 years. And the last one is a greenfield development that we completed the other year, 14-year triple net lease and the yield on cost on that one is 7.4%. As you can see 80% of the properties are located in Sweden and Norway. The properties outside of the Nordics are triple net leased properties with long leases and all of those properties are also leased to Nordic tenants, meaning that we can manage the properties outside of the Nordics. Yields in the portfolio as you can see varies between 6.4% to a bit more than 10% in the various markets. Main tenants in the portfolio are BEWI, Insula, and NKT. And to the far right you can see the split between the different industries and there's a good diversified mix between insulation and construction, industrial and production and some others like e-commerce and the fish industry. More on the property portfolio, 91% of the leases are triple net and as I said meaning that the tenant is responsible for operating and maintenance costs, also obviously meaning that we as a landlord are have less risk when it comes to the increases in operating expenses. The occupancy rate is high and now at 97.4%. If we're looking down to the left, you see the net lettings and we're reporting SEK 3 million of net -- positive net lettings in the quarter, and SEK 4 million for the 1st 3 quarters of this year. Very strong wault as we've said and notable when you look to the right that 88% of all our leases expires in 2029 or later. Talking a bit on the market for our type of properties and starting with the transaction market, where we can see that for the third quarter, the volumes were slightly lower compared to the previous quarter. However, we're 50% higher compared to the same quarter of last year. We foresee higher activity in the coming 6 months, driven by the fact that investors seek high yielding assets with strong underlying demand from tenants. And obviously higher activity in combination with lower interest rates would probably push the yields down over time. And the higher initial yield compared to previous is much driven -- sorry, I'm on -- next slide, please. Here. As you can see, we're reporting much higher net initial yield of 6.9%, as I said much driven by the merger with KMC. And just for -- to give you some background to the 6.9% that should be compared to an all-in financing cost today in Sweden of approximately 4%. The valuation yield is up 0.25% from year end and 0.02% from the last quarter, meaning flat.

And over to the financials. Looking at the increase of all these figures on this page, they are huge, though, the property portfolio is up almost 150%, almost entirely linked to completed term transactions to SEK 13.1 billion, where KMC stood for around SEK 6.8 billion. The revenues are up 67% for the period, with a 3.4% increase in the like-for-like portfolio. The net operating income it is up 83% with a better operating margin of 82% on the last 12-month term, compared to 78% a year ago. And the profit for property management, which increased to SEK 91 million in the quarter is up 106% for the period. This result is excluding the transaction costs of SEK 12 million, which is related to the business combination with KMC. And the increase is almost entirely linked to a greater property portfolio. Profit from property management per share increased 44% on a rolling 12-month period, and increase for the quarter was 11%. During the quarter, we have focused a lot on the loan portfolio for optimization and to take advantage of both the current financing market, but also Logistea's new market position. We have seen some changes of bank margins and have completed some new interest rate swap agreements seeing a 5-year Swedish swap rate down to below 2%. The average interest rate is now down to 5.6% from 5.9% in the beginning of the quarter. We have a current hedge ratio of around 74%, which leaves some room for coming expected interest rate decreases. We -- our loan portfolio consists of 85% senior secured bank loans and a 14% mix of secured and unsecured bonds. The Swedish bond of which SEK 75 million were outstanding in the period end was sold on the 7th of October. Having around a minor share of the loan portfolio consisting of bond loans is not an issue for us. We see interesting pricing on the capital markets with peers issuing or tapping on appealing levels. The remaining secured bond of NOK 900 million can be called in January 2025 or even earlier. The best case is to refinance that loan with either 100% new bank loans or a mix with new bond and bank loans resulting in a 40% to 50% drop in the credit margin on that loan amount. Logistea's EPRA NRV, the net reinstatement value increased from SEK 14 to SEK 15 per share during the quarter and is now up 13% this year. Looking at the earnings capacity. New for the quarter is the currency exchange, which have some effects on the numbers. The net operating income in the earnings capacity is down slightly due to the FX-effects. Net finance costs are down with SEK 32 million, which is correlated with the decreased average interest rate going down from, as I said before, 5.9% to 5.6% in the quarter. And altogether, we see a stronger profit from property management per share of 4% for the quarter.

Good. Looking a bit on the outlook, and we'll start with the new financial targets that we presented a few weeks ago. The first 2 ones, increase in NAV per share and income from property management per share is -- the target is 15%. That's higher than the former Logistea have. On this slide, we are presenting as you can see the NAV for the first or the previous 2 quarters to the far left. The second one is from the run rate for the same period. We kept the LTV target or hurdle of 60%. We're today somewhat below 50% and we feel comfortable that at or around 50% is where we'll probably be at for the coming quarters. ICR is moving upwards quarter-over-quarter, we're today at 2x and good headroom towards the 1.8x, which is the target. Good. And to summarize, we have done the merger. It was very good for the both companies. We have now a good stable financial platform to continue to build on from. We got long leases, stable tenants. I would say good support from all our banks, now being a bit more banks than we had in the past. We have a good and proven track record that we can do deals both in good and bad times, both buying single assets portfolios and look at M&A deals. And as Philip said, we'll continue to do a lot of work on the debt portfolio in the coming quarters where we see large cost reductions. And obviously, continue to work on the our ESG commitment.

Good. So any questions from...

There are no telephone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.