Prisma Properties AB (publ) (PRISMA) Earnings Call Transcript & Summary

Welcome, everyone, to today's presentation of our Q1 in '25, where Martin and I will take you through the key events and financial highlights from this quarter. We kicked off '25 with strong momentum. Our strategy continues to deliver results, and we're growing in both scale and quality. If we look at our highlights, after closing the quarter, we've entered into an agreement to acquire 3 properties from NP3 for a total of SEK 463 million, further strengthening our footprint in key regional cities with both grocery and discount retail. In Q1, we continue to see strong rental income growth with 20% increase year-over-year. Our rental income reached SEK 113 million, up from SEK 94 million. This growth was driven by acquisitions, completed projects and CPI-adjusted leases. Net operating income increased with 16%, reaching SEK 94 million compared to SEK 81 million in Q1 '24. Property costs were temporarily high in the quarter due to provision for bad debt, a minor noncore tenant and increased cost in our property in Häggvik in connection with the transition to in-house management. Adjusted profit from property management increased to SEK 45 million, up from SEK 25 million last year, an increase of 80%. Property valuation yield remained unchanged compared to December '24 and unrealized value change amounted to SEK 56 million, reflecting the continuing strength of our portfolio. We have made acquisitions of total SEK 108 million during the quarter, and this involved 5 properties with Dinners as tenants and the acquisition in Lycksele. This quarter, we have continued to sign several new long lease agreements, strengthening our presence in both Sweden and Denmark, and net letting this quarter amounted to SEK 17 million. WAULT decreased slightly from 8.7 to 8.4 years, and our occupancy rate remained strong at 99%. In February, we successfully renegotiated approximately 70% of our loan portfolio, as communicated earlier. This would strengthen our financial position. We have also this morning communicated that ABG has been appointed as our liquidity provider effective as of today. Currently, we have 136 properties with a total valuation of SEK 7.4 billion. We've added 6 properties this quarter, 5 properties strategically located along the highways with Dinners as tenant and a property in Lycksele, where we already started the construction of a new Willys store. There have been no major changes among our top tenants and rental income split, but we continue to grow with Willys, and combined with City Gross, Axfood now represents 15% of our total rental income. Our property management team continues to maximize our WAULT by renegotiating all lease agreements that expire before the end of 2028.

Property values increased with the acquisitions that Fredrik mentioned earlier in Lycksele and the Dinners portfolio, SEK 108 million. We had investments in the portfolio in projects worth SEK 63 million, which is a low number if you compare to the forecast of SEK 1 billion per year or SEK 250 million per quarter. And there's no red flag here. It's just that we finalized a lot of projects in Q4, and we have started up a number of new projects in Q1. So there's no reason for alarm here, but the Q1 number on the investments is on the soft side. Unrealized changes in value, SEK 56 million, with underlying stable market yield. So this is basically all project profits and also partly a positive revaluation of the acquisitions that we made in Q1 -- sorry, Q4 in Gothenburg and Höör. We have quite a substantial currency effect with the SEK strengthening quite dramatically in the end of the quarter, which also affects partly the financial net and the earnings capacity. We'll come back to that.

When it comes to our ongoing projects, this quarter, we have started another 4 projects. Currently, we have 7 ongoing projects with an expected average yield of 7.8%. The new projects that we have added this quarter is Lycksele, where we have an ongoing construction of a Willys, with an estimated completion during 2025. In Gothenburg, we have already started the construction of a Dollarstore with an estimated completion by the end of the year. And in Mora, we have started construction of approximately 5,000 square meters with Lidl, T. Hansen and Jysk as tenants. And lastly, in Hjörring in Denmark, we have started construction of a new store, Lager 157, on 2,500 square meters. When it comes to our upcoming projects, our project development organization continues to perform. All announced projects have been initiated this quarter. We continue to ramp up and added some new projects that we plan to start the coming quarters. We can look at Vagnhärad, where we are planning to start a construction of 3,500 square meters of Discount Retail. In Jönköping, we will start the construction of Fast Food in Torsvik in Q4. In Karlskrona, where we currently are in an ongoing zoning process, we are planning to construct a hub of fast food restaurants on 1,000 square meters. In Laholm, a project with concerning groceries, we're also there in an ongoing zoning process that we plan to start the construction in 2026. We have taken away a fast food project in Värnamo that we mentioned in the Q4 report. We aim to start that project, but the time line has not yet been set. We are planning to start that project sometime in '26. We are going to continue to include new projects to the list in the coming quarters.

The list of owners as of March 31, basically unchanged, both in terms of large owners and the rate that the Prisma key employees holds. Some financial numbers. Sorry, I need to back up one. There we go. Healthy growth continues, as we talked about in the beginning, 20% growth year-over-year in the quarter. Surplus ratio is on the soft side in the quarter. We do stand by our ambition to have 90% surplus ratio in standing assets if we exclude the Huddinge property Segmentet where we provide the numbers separately in the report. But even with that, the number is soft in this quarter, and that is due to the temporary effects that Fredrik mentioned in the beginning, mainly coming from a bad debt provision from a noncore tenant and also some maintenance repair connected to the takeover of Häggvik property in own management. So this is not a cost that should be extrapolated into the future. Looking on the profit from property management, we are up from SEK 25 million to SEK 45 million. The central administration is front heavy in the year. So it's SEK 12 million in the quarter versus the SEK 40 million provided in the earnings capacity of 1st of January in our previous report. Again, that number is the current state of the central administration organization that has been built up at that date. So it's not really a budget, but you should not assume any huge increases in that number either. So the fact that it's SEK 12 million in the quarter is more due to the fact that the SEK 40 million is front heavy. And as you see in the earnings capacity later, we have increased it by SEK 2 million, and that is a strengthening of the organization in the M&A function. Looking on the financial net, we have 2 small items that are on the burdening side. It's the Danish krone weakening or SEK strengthening, that we have assets that are revalued at approximately SEK 1 million hitting the financial net. And with the low investments in the quarter, we are not able to allocate linearly the number that we plan for the full year for the allocation to the project. So that hits the P&L instead. But those are not large numbers, and it's rather temporary. On the capital structure, this is basically exactly in line with what we have already provided in the statements surrounding the renegotiation about Nordea, Swedbank. So the average interest rate is 4.43%, but it will also include the reset of the variable rates. As per 31st of March, it's also down to 4.35%. The debt maturity has now been increased as previously communicated to 3.2 years, and we're happy to see the ICR or the interest coverage coming up and it should continue to go up going forward. The earnings capacity. If we look sequentially from Q4, the rental value has come up with the inclusion of Dinners with the inclusion of the Rusta project in Eksjö and the inclusion of the project in Ljusdal and the Dollarstore project in Växjö, but we also have a negative component with the Danish krone weakening or the SEK strengthening that hits the rental value from the Danish part of the portfolio with quite a substantial amount, it's 5.5% difference versus the Q4 number. And as I mentioned, the central admin is up slightly due to that we're strengthening the organization on the M&A part. And with that, operator, we go into Q&A.

[Operator Instructions] The next question comes from David Flemmich from Nordea.

I have a couple of questions. I can start off with just to confirm, do you expect any of the temporary costs we saw in Q1 to spill over into Q2, for example, the increased costs in Häggvik?

No.

That's clear. And do you have an update on the Segmentet 1 project? If I remember correctly, you said in conjunction with the Q4 conference call that your aim was to communicate additional news before the summer. Do you still believe you will be able to do so?

We aim to do that. But we're currently -- we're starting the zoning process together with the municipality, and we aim to communicate this before the summer, or it could be also in Q3, but we aim to do it before the summer.

Okay. That's great. And in terms of the value changes, I think you mentioned in the report, it's a split between projects, acquisitions, et cetera. Could you elaborate on the split, how much of the value change attributes to projects, so we can get a sense of the return on investment on your project investments?

The majority is the project profit, but it's quite a slice of the investments or the acquisitions made in -- so let's say, 60-40. From the acquisitions, 40, and project profits 60, or 70-30, somewhere there.

Okay. Great. And on that note, I calculated the yield on cost on the project in Mora to 6.5%. It is a split between discount retail and grocery retail, but is that sufficient to achieve above 15% return on investment?

Did you go for the yield on cost?

Yes.

Yes. We will follow our requirements when it comes to profit from projects, yes.

So that means about 5.5%, 5.6% yield upon completion in Mora and Lycksele?

It's higher than that. We achieved the profit margins that we require. So 50% grocery and 20% discount retail.

Okay. And all of your ongoing projects fit that return requirement?

Yes.

And 2 more questions. The provision for a potential rental loss that you took in Q1, what was that attributable to?

That was Lulu Sushi in Mjölby, a tenant that is not a core tenant for us, and we aim to find a new tenant in Mjölby. And it's also a Mangal in Häggvik. They have vacated, and we have also communicated that we have signed a new long lease agreement with Mister York there. And we have set up a payment plan for the loss of revenues for Mangal. So we're planning to pay it back within 6 months.

Potential upside there.

Okay. And was that included in the net letting in Q1 as well?

Yes, Mister York was included, yes.

Mister York was included, yes.

Okay. And last question. We've seen more acquisitions lately. What do you see on the transaction market in terms of opportunities to grow via acquisitions?

All the discussions that we have currently in Sweden is off market. There are some opportunities out there within all categories, both in grocery and discount retail. But we're in a moment where the sellers and the buyers are not -- we can't agree on a certain figure. But we estimate that we will continue to do acquisitions in the coming quarters. But we need to make sure that it's a perfect match with our current portfolio. So we want development projects or standing assets which are modern long lease agreements and have the right tenant within discount retail.

Okay. Fair enough. I can just add one question on that topic. I saw in Gothenburg, the project you started there implied a yield on cost of almost 12%. Is that the type of returns you see when developing on your acquisitions or on fill-in investments, so to say?

Absolutely.

[indiscernible] extraordinary.

It's quite high. We've done even higher, if you look back. But hopefully, we can do even higher. But normally, it's between 8 to 12. In this case, it was a good tenant, so signed a 12-year lease agreement with Dollarstore, 3,000 square meters. We achieved good rent levels due to it is Gothenburg. So yes, it's a very good project.

The next question comes from Albin Sandberg from Kepler.

Three questions for me. I just wondered if you could say in absolute terms, how much higher were your property costs compared to your normalized view in Q1?

If you exclude the Segmentet property, you get to 85% surplus ratio. And without the sort of one-off effect, you should be able to assume 90%, so the rest from 85% up to 90%. So it's between SEK 5 million and SEK 6 million.

Okay. Perfect.

It looks a bit dramatic on the key numbers. But in absolute terms, it's -- I mean, we're a small company and it's 1 quarter. So a few millions can make quite a dramatic impact on the numbers, but we're not worried for it.

And the Segmentet sort of situation, that will continue until you come up with any news on that or....

Yes. I would say that the Segmentet will continue as of now as we communicate with basically a breakeven on the NOI with income and costs basically the same, but it hits the key numbers and it hits the margins, of course. So we have SEK 4 million in Q1. But we also have revenue. And that, again, just to be clear, the Segmentet is not included in the earnings capacity projections.

Okay. Perfect. And then just trying to follow the ongoing projects. And I guess that during the quarter then, if I just compare Q4 to Q1, Bykvarn and Kläppa in Eksjö and Ljusdal, respectively. So they were basically completed. I just wondered how much of rent they contributed to in Q1. It doesn't have to be exact, but is it just like half or was it moving end of quarter or early quarter?

The larger effect is -- Dinners is the largest, and then you have [indiscernible] if we look on the earnings capacity -- was it earnings capacity or it was ongoing project...

Do you mean revenue or earnings capacity?

Yes. No, I was thinking on the actual rental value or rental income that maybe came in from Bykvarn and Kläppa, because I guess they were completed during Q1. They are not no longer in the ongoing projects.

So the effect of Eksjö and Ljusdal, the effect is SEK 6 million.

SEK 6 million in Q1?

No, in the earnings capacity.

Okay. And if I would just -- what I'm trying to ask, Martin, is just that the combined rental value of these 2 as per Q4 was around SEK 6 million, as you mentioned. The question was just how much of those SEK 6 million were recorded in Q1? I mean, I guess, did the tenant move in early during the quarter or late in the quarter?

Eksjö and Ljusdal, they were moved in, in Q1.

In Q1, let's see which dates.

If you look at the revenue, it's SEK 1 million basically from them.

So I guess what I'm after is that there will be a sort of a catch-up effect in Q2 when we have the full annualized impact of these 2 projects?

Yes.

All of them were quite late. Ljusdal and Eksjö were quite late.

Yes, we opened up in Eksjö 3 weeks ago. And in Ljusdal, we opened up the same day -- same time line with Ljusdal. Approximately 3 weeks ago, we opened up both [indiscernible] also.

Okay. And the final question I have just on the numbers. If I look at your actual tax during the quarter, it's basically nil. And I just wonder whether -- does that reflect an estimate for the full year? Or is it a specific thing happening for Q1? And maybe if it is not an estimate for the full year, what is actual pay tax rate?

Best guess for now, but you should expect some tax.

But quite low for the full year as far as we can see now?

Yes.

The next question comes from Markus Henriksson from ABG Sundal Collier.

First, the question on M&A. Has something happened with your ongoing M&A discussions given the last 3 weeks macro turmoil?

No, it's -- do you have?

Yes, we will continue.

Okay. Then a bit on the rental losses. I heard SEK 5 million to SEK 6 million in taken cost here. Did that include Segmentet as well? Or was that only the rental losses? What was the amount?

The SEK 5 million to SEK 6 million is excluding Segmentet and not all of it is the rental -- a small part of it is a rental loss and it's maintenance and repairs in the connection with the takeover in Ljungby, but it's not something that will be extrapolated into the coming quarters.

Okay. Then if we look at your project time line, which I really appreciate, you have a lot of project starts here in Q2 and Q3. How certain are you about those upcoming project starts?

Q2 and Q3 will be...

Yes, we're quite certain, but still, it's projects. Sometimes our projects will start earlier than expected and sometimes some projects will be started maybe a couple of -- some time after expected. So it depends on if a project -- are we included in a zoning process or do we already have a zoning process and it takes time about doing the tendering of the construction. But based on the presentation, this is the best guess today, and we're quite certain in the coming 2 quarters, in Q2 and Q3, that we can start these projects. And also like we want to mention that we are going to add up new projects to this list also.

All right. Then have you seen any change in tenant behavior? Anyone that is new? And in terms of growth ambitions for this year and next year, you mentioned Mister York, for example. Do you have further ongoing negotiations with them? Any other one that stands out positively or negatively?

No, but we can discuss Mister York. We have decided that at this moment, we can do Mister York if we have a vacancy. We're not planning to do any developments from scratch with Mister York at the moment. There, we focus on the strongest retail tenants as McDonald's, KFC, and other ones. But all discount retailers, all grocery tenants, especially Willys and Lidl are extremely interested in identifying new locations in Sweden. And that concerns all tenants in all categories.

Okay. Then last question a bit on net interest. You have, in the earnings capacity, it's SEK 125 million. You had SEK 140 million in Q4. The run rate here was SEK 35 million. So we're at SEK 140 million in run rate in Q1. If you could just help me out a bit with the discrepancy here between the Q1 actual figure, the earnings capacity you show here of SEK 125 million, and the press release you sent out in February, where you announced savings annually of SEK 15 million. And also, you highlighted an interest rate of 4.7% and now it's 4.43%. So just if you could share any details on financing that could help us going forward?

Yes. The communicated, the higher number, SEK 468 million, if I remember correctly. You should look on the forward number, where we have also reset our paid variable interest cost, which has been set in the 15s in the month after the quarter closed. So if we look in the Q4 presentation, we actually include that number with smaller digits below the correct or the formal number, so to say. So if you're looking forward, that SEK 440 million that we communicated in Q4 or in connection with the refinancing is what you should go for in forward-looking. And that is the SEK 443 million we are reporting right now. And this discrepancy versus the Q4 earnings capacity is partly a small chunk of FX effects from the Danish weakening or the SEK strengthening, but also that we cannot allocate as much interest cost to the projects with the lower investments that we have had in Q1. So that is -- in the earnings capacity, it's an annual number and it's not fully linear over the year.

Could you help us a bit on the project, what is the drop there Q-on-Q? Or I guess that will start to increase again as you start with more and more investment...

A couple of million coming back positively into the financial net, all other things alike.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thanks for joining today's presentation, and we wish you all a nice day. Thank you.

Thank you.