PPI Public Property Invest AB (publ) (PUBLI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Public Property Invest presentation of our results for the second quarter and half-year report for 2026. My name is André Gaden, I'm CEO of PPI, and presenting the results together with me is our CFO, Ylva Göransson. Looking at today's agenda, we will begin with highlights from the quarter before moving on to operations. Ylva will then take you through financials before we turn to our summary and concluding remarks and end with a Q&A session. So let's move on to highlights. The second quarter was another operationally strong quarter and marks our first quarter as a Swedish domiciled company following the redomiciliation and dual listing in May. We report strong growth in rental income, operating results and cash flows, both compared to last quarter and the same quarter last year. Rental income was up 3% since the first quarter of '26 and 304% since the second quarter of '25. Net income from property management is up 17% since the first quarter of '26 and 255% since the second quarter in 2025. Net income from property management per share is up to SEK 0.41 per share in the second quarter. Net profit in the second quarter was negative with SEK 59 million, affected by one-offs in connection with the SocialCo transaction, redomiciliation to Sweden and negative value changes in the Norwegian portfolio. Letting was strong with gross letting of SEK 122 million. And our main development projects, they are progressing according to our plan. During the quarter, we announced 2 Finnish care property acquisitions, Tampere and our new -- Tampere, a new build project at EUR 23.3 million and a 6.5% yield and Helsinki at EUR 9.2 million and a 6.1% yield. On the strategic side, the redomiciliation to Sweden and primary listing on Nasdaq Stockholm are now complete. And we have a fully integrated, scalable social infrastructure platform in place. Finally, a dividend of SEK 1 per share was approved by the Extraordinary General Meeting in June to be paid quarterly at SEK 0.25 in line with our 60% cash earnings payout policy. Looking at portfolio highlights, the PPI portfolio is a large, diversified portfolio of social infrastructure properties, supported by a strong tenant base and a solid balance sheet. As of end of June, the portfolio comprised 851 properties and 2.2 million square meters of lettable area with a gross asset value of SEK 51.3 billion and annualized run rate rental income of SEK 3.5 billion. Our run rate net operating income was SEK 2.9 billion and run rate EBITDA was SEK 2.6 billion. Government-backed tenants represented 84% of our rental income. Occupancy remained high at 94%, and the portfolio WAULT was 6.9 years, including the project portfolio in Finland. Net yield in the management portfolio was 5.7%, loan-to-value stood at 47.2% and adjusted net debt to EBITDA at 9.9x. Our portfolio is well diversified across the Nordics, both geographically and by tenant category. Elderly care represents around 24% of the lease distribution; LSS, 14%; and health care and municipality, 12% each. So that elderly care, LSS, and health care together make up around 50% of our portfolio. Government infrastructure, such as police stations, courthouses, accounts for further 24%; Education, around 4% and other categories remaining 10%. The portfolio spans Sweden, Norway, Finland and Denmark, with examples on this slide, including elderly care assets in Ängelholm, Gothenburg and Stockholm, a high school in Vänersborg, Sara Kulturhus in Skellefteå, a municipality hall in Haninge, a police station in Lillestrøm, a district court in Lillehammer, and a school and preschool in Helsinki. These are essential long lease government-backed properties that underpin our stable cash flow. So let's move on to operations. As mentioned, our letting activity was strong in the quarter, supported by continued demand for our properties and strong tenant relationships. We signed and renewed leases covering 57,150 square meters, generating annual rent of SEK 122 million. Net letting was slightly negative at minus SEK 2.3 million, mainly due to the downscaling of a courthouse in Hønefoss in Norway. However, we have signed a new 10-year lease on the remaining area with the court administration. For the first half of 2026, net letting was positive with approximately SEK 8.7 million. Occupancy remained high at 94% and WAULT was 6.6% in the management portfolio and 6.9 years, including development projects. Among the largest events, we have negotiated a 5-year lease from 2028 for 7,200 square meters with the police in Lillestrøm in Norway. We renewed a 4.5-year lease for 7,600 square meters with the Wellbeing County Pohde in Finland, a 5-year lease for 4,500 square meters with the regional hospital in Vestfold in Norway and a new 10-year lease for 1,770 square meters with the Wellbeing County Pohde in Kuusamo in Finland. We also continue to invest operational cash flow into development projects at attractive yields. This slide presents our largest ongoing projects, which are in Finland, which are fully let and deliver yields on investable capital paid during the construction period with completion expected late 2026 and early 2027. As shown on the left, net cash flow from operations has grown strongly quarter-over-quarter. And these projects, together with 3 smaller ongoing projects in Finland and Norway are expected to add approximately SEK 130 million of net operating income on completion. In the second quarter, we continued our disciplined growth through the acquisition of long lease government-backed social infrastructure properties. Announced on the 29th of June, the Tampere acquisition was priced at EUR 23.3 million and comprises a new build project with 149 care places, fully let to Esperi Care and Rinnekodit. Project start is expected in the third quarter of 2026, with completion in the fourth quarter of 2027 or early 2028. The asset carries a WAULT of 17 years, an EPC rating of B, annual NOI of around EUR 1.5 million and a net yield of 6.5%, with yield also on invested capital paid during the construction period. Announced on the 1st of June and with closing on the 1st of July, the Helsinki acquisition was priced at EUR 9.2 million and comprises 3,700 square meters and 67 beds fully let to the city of Helsinki for rehabilitation and housing for people with special care. It carries a WAULT of 14.3 years, BREEAM In Use - Very Good rating, annual NOI of around EUR 0.56 million and a net yield of 6.1%. The redomiciliation to Sweden and the dual listing on Nasdaq Stockholm and Oslo Børs are now complete, supporting our strategic positioning and capital market access. The dual listing has been live on Nasdaq Stockholm since the 20th of May and Oslo Børs since the 21st of May, with Stockholm as the company's primary listing. This aligns our footprint with our core market as the majority of our assets now are in Sweden, while giving also access to a deeper investor base and an active transaction market. The primary listing is also expected to trigger index inclusions and passive inflows from index-tracking funds and provides a wider, more relevant peer universe with strong valuation benchmarks than we see in Norway. Our Extraordinary General Meeting in June approved a dividend of SEK 1 per share, which reflects stable government-backed cash flows, CPI-linked rents and our commitment to distributing 60% of cash earnings. The dividend is paid quarterly at SEK 0.25 per share and represents 157% growth from 2025 to 2026. Based on a share price of SEK 20.6 at close on the 10th of July, the dividend yield is 4.8% compared to a net yield of 5.7% and an implied yield of 6%. With the shares trading at around a 20% discount to NRV per share of SEK 25.7, we believe this represents an attractive entry point for investors to PPI. With that, I will now hand over to Ylva, who will take you through the financials.

Thank you, André. Let's start with our financial highlights for the quarter. We delivered SEK 884 million in rental income in second quarter. This is an increase of 3% compared to Q1 this year. This includes increased recurring income, but also FX effects of approximately SEK 12 million. Net operating income continued to develop in line with our top line. Compared to Q2 last year, rental income has grown roughly 4x. Net income from property management came in at SEK 387 million in the quarter, up from SEK 332 million in first quarter. This is an increase of 17% and is entirely connected to operational performance. Our EPRA NRV per share stands at SEK 25.7 at the end of the quarter. Note that dividend provision of SEK 1 per share is added back in this measure. Underlying NRV per share has grown from SEK 23.6 in the second quarter last year. We are building net asset value per share at the same time as we are providing distributions for our shareholders. And next page, we can look into our income statement in more detail. Total operating income came in at SEK 888 million for the quarter. Property expenses were SEK 145 million, down from SEK 183 million in first quarter. And first quarter was affected by an unusually cold winter with elevating heating costs in both Sweden and Finland. But now Q2 reflects a more normalized cost level. This brought net operating income to SEK 743 million, up from SEK 682 million and lifted the NOI margin to around 84% from 79% in the last quarter. Net administration expenses were SEK 88 million, including one-off items of approximately SEK 5 million. Adjusted for one-off net administration expenses were SEK 83 million. With the merger completed and the new organization now in place, we will continue to work systematically on extracting further scale benefits. Net realized financials amounted to SEK 269 million in the quarter, up somewhat from Q1, reflecting higher debt, but this is, though, partly offset by higher interest income and lower interest rate, which I will come back to later. That brings us to net income from property management of SEK 387 million. Rental income is up, while both property and administration expenses came down from first quarter. And with further improvements on our financing side, this adds up to an operational improvement of around 17% quarter-on-quarter. And below this line, the quarter was impacted by noncash and nonrecurring items. Other financial expenses or unrealized financials was negative SEK 243 million in the quarter. During the quarter, the cross-border merger has created several noncash foreign exchange accounting effects in this line as well as expensing of capitalized borrowing costs related to the early repayment of the bridge loan and old bond loan in Norwegian krone. All these are unrealized financials. Transaction and restructuring costs was SEK 50 million in the quarter and are nonrecurring costs related to the cross-border merger and the Nasdaq listing and the SocialCo acquisition. Value changes on investment properties were negative SEK 222 million. In local currencies, values were relatively stable in Sweden, Finland and Denmark, while Norway saw negative development, mainly driven by the increase in the Norwegian policy rate. These negative noncash elements were partly offset by a positive value changes on interest rate derivatives of SEK 96 million. As a result, profit before tax was negative SEK 27 million. And I want to be clear here that this is entirely driven by unrealized and transaction-related items. The underlying cash earnings of the business as reflected in net income from property management are strong and growing. Then we can move on to our balance sheet. Total assets stood at SEK 55.2 billion at the end of June, up from SEK 53.4 billion in the end of first quarter. The market value of our investment properties were -- was SEK 51.3 billion, and the management portfolio net yield stands at 5.7%. Cash increased to SEK 2.4 billion, giving us a strong liquidity position going into the second half year. On the financing side, gross interest-bearing debt was SEK 28.5 billion or SEK 26.1 billion net of cash. This corresponds to a loan-to-value of 47.2% and the interest coverage ratio was 2.3x on the last 12 months, but on a stand-alone quarterly basis, ICR was 2.4x. Net debt to EBITDA was 9.9x, including projects under construction. Equity stood at SEK 19.3 billion with a reduction in the quarter, primarily relating to the dividend provision of SEK 946 million. And then we can go to the next page and our funding structure. During the quarter, we secured 2 new 5-year bank loans totaling SEK 3.6 billion. The proceeds were used to repay the remaining balance of the bridge facility from the SocialCo acquisition, which is now fully repaid. We also tapped our existing notes by EUR 200 million, taking the total to EUR 500 million. We used part of the proceeds to redeem secured NOK bonds with high interest rates. So we simplified the capital structure and lowered funding costs at the same time. We have a well-diversified maturity structure with a weighted average maturity of debt of 4.9 years. Near-term refinancing needs are very limited. Only around SEK 220 million matures during the remainder of 2026. The average interest rate came down to 4.17% from 4.26% at the end of Q1. This is due to the financing activities in the quarter. The share of debt at fixed rates stands at 67%, which combined with our long maturity profile gives us a good visibility and predictability on financing costs over the coming years. The unencumbered asset ratio remains at 2x. Our liquidity position is strong at SEK 7.5 billion, consisting of SEK 5.1 billion in undrawn facility -- credit facilities and SEK 2.4 billion in cash. Finally, we are rated BBB+ with a stable outlook by Fitch, which remains a cornerstone of our funding strategy and gives us efficient access to Nordic and European capital markets. And to close the financial section, I will present our run rate figures. We believe these figures give the clearest picture of the earnings capacity of the company, how it stands today. These are presented on a 12-month forward basis from period end based on in-place lease end of June with normalized property and administration expenses and the financing structure in place at quarter end. On that basis, annualized rental income is SEK 3.5 billion and net operating income just below SEK 2.9 billion. After normalized administration expenses of SEK 295 million, run rate EBITDA is SEK 2.6 billion. Deducting net financial expenses, run rate net income from property management is just below SEK 1.5 billion or SEK 1.57 per share. However, this does not capture our projects currently under construction, which André presented earlier. Adjusting for the expected EBITDA contribution from these ongoing projects, we show this in the 3 rows in the bottom of the table. Run rate EBITDA increases to SEK 2.7 billion and earnings per share to SEK 1.70 and adjusted net debt to run rate EBITDA comes down to 9.9x. Now back to Andre for concluding remarks.

Thank you, Ylva. We will now move on to our summary and concluding remarks. This quarter was another solid quarter for PPI, and the first half of 2026 marked our transition into a fully integrated Nordic real estate company. Starting with the financial results and capital structure. Rental income increased to SEK 1.7 billion in the first half. Operating cash flow rose to SEK 1.1 billion and cash earnings per share improved to SEK 0.76. We maintain a solid balance sheet with a BBB+ rating, a well-diversified debt maturity structure with 67% of debt at fixed rates and an average interest rate that is down 10 basis points since the year-end of 2025. On leasing, development and shareholder returns, we signed leases totaling SEK 122 million of annual rent in the quarter and SEK 168 million in the first half. Our 3 major development projects are on track for completion in 2026 and early 2027. And the SEK 1 per share dividend paid quarterly is in line with our 60% cash earnings payout policy. On growth and platform, we announced 2 Finnish care properties in the quarter, Tampere and Helsinki, underpinning steady long-term cash flows with strong exposure to elderly and health care assets amid the Nordic aging population trend. And we are now one of Europe's largest listed social infrastructure platforms. Finally, the NASDAQ listing is complete. The redomiciliation to Sweden and dual listing went live on NASDAQ Stockholm on the 20th of May and on Oslo on the 21st of May. And our focus now turns to improving operational efficiency across the integrated Nordic platform and further growing our company while maintaining a strong balance sheet. That concludes our presentation. Ylva, please join me on stage. We will now be happy to take your questions.

Let's begin the Q&A session with a question for you, Ylva. Net operating income is up by 9% since Q1. What is the reason behind this?

Yes. Rental income was up by around 3%, driven by positive letting activity. We have especially a new lease contract with [ Jesseburgstad ]. And we also have some maintenance-related rent. And we also have some FX effects in the quarter. And on the other side, property expenses came down in the second quarter to a more normalized level. In Q1, we had higher expenses due to the cold winter in Sweden and Finland. And the most important thing is that this results in a very strong cash flow from operations, around SEK 1.2 billion. And as André said, cash earnings per share was up to SEK 0.76 per share.

Can you comment on the write-downs in the Norwegian portfolio? Is it any particular asset? Or is it a general yield adjustment?

It's not related to any particular asset. It's a general yield adjustment due to the increasing interest rate levels in Norway.

Do you see any potential to decrease the current portfolio vacancy of 6%?

Yes, we do. And we also work our property management team, they work really hard in order to reduce our vacancy. And we are in several processes, especially in Sweden, on some of the larger vacant areas, and we hope to close some of those in the upcoming quarters.

The run rate model points to quarterly rental income of SEK 877 million versus SEK 884 million reported in Q2. Is the difference negative letting effects during the quarter?

No, it is not. It is actually only FX effects affecting this.

The property cost was very low in the quarter. Is electricity cost the main changes quarter-on-quarter?

Yes. We had, as I said, higher expenses in Q1 due to the cold winter in Sweden and Finland. And now in Q2, we are at a more normalized level.

Is the SEK 17 million in reimbursed property management fee, the new level?

Yes, for now, that is the normalized level, yes.

Is the reimbursed property management fee included in the administration cost of SEK 295 million in the run rate model?

Yes. In our run rate model, we calculate with long-term normalized central administration of SEK 295 million. And yes, it's net of reimbursed property management fee.

When will the unsettled amount of SEK 630 million related to the SocialCo transaction be settled?

Yes. It will be settled now in third quarter.

Are there any upcoming large lease expiries?

No, we do not expect any large expiries now in the upcoming quarters. We do have some smaller terminations in Sweden, though. And in those cases, we are working on reletting the premises. I think it's also worth mentioning that in -- that we have signed many large contracts in this quarter. That is still not reflected in our maturity profile.

Thank you, André and Ylva. That was the last question and concludes the Q&A session for this quarter.

Thank you so much, and thank you so much for listening, and I wish you all a really good summer.

Thank you.