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

Welcome to Prisma Properties Q2 2025 Report Presentation. [Operator Instructions] Now, I will hand the conference over to CEO, Fredrik Massing; and CFO, Martin Lindqvist. Please go ahead.

Hi, everyone, and thank you for joining today's presentation of our Q2. We are pleased to report another good quarter for Prisma. We've continued to deliver on our strategy and strengthen our position in the Nordic market. Let me walk you through some of the key highlights. We closed the quarter by completing our first acquisition in Finland, finalized the 1st of July. This is a key step in our Nordic expansion, and we see great potential to grow further in Finland by acquiring modern properties with long leases on attractive yields. Net letting for the quarter came in at SEK 15 million, which brings us to SEK 32 million year-to-date, a clear sign to continued demand and tenant activity. We also signed several new long lease agreements, further strengthening our presence in both Sweden and Denmark. Rental income grew by 19% year-over-year, driven by acquisitions, completed projects and CPI-adjusted leases. Net operating income landed at SEK 100 million, up from SEK 86 million last year, an increase of 17%. Adjusted profit from property management came in at SEK 48 million. This was not [indiscernible] in higher financials. This included a one-off cost of NOK 6 million related to the restructuring of an old NOK 220 million loan, where we successfully reduced the interest margin by 2/3, from 3.5% to 1.35%. Our valuation yield remained stable compared to Q1, indicating continued stability in the market. We have also divested one property in Uppsala at book value. The property was divested as the potential development was deemed not to align with the company's strategy, both in terms of scale and its focus on discount retail and grocery. WAULT ticked down slightly from 8.4 to 8.3 years, and our occupancy rate remained high at 99%. Looking at our top 10 tenants and the lease maturity, there are no major changes this quarter. Our property management team has done a great job continuing to renegotiate upcoming lease expirations. I'm pleased to share that we have no leases expiring this year, and we are now focusing on the 5% that expires in 2026 and 2027. We continue to have stable and long cash flows. Today, 87% of all leases run to 2030 and beyond.

Looking on the property portfolio and the valuations, the yields are -- the external yields are stable again this quarter, only down 2 basis points from Q1. So very minor adjustments on the external yields. So the value changes are then mainly driven by project profits and upticks in valuation on the performed acquisitions so far. And as Fredrik mentioned, we also have a divestment this quarter where we divested one property in Uppsala at book value.

At the moment, we have 8 ongoing projects with an average yield on cost of 8%. This quarter, we have started 2 new projects, McDonald's in Eksjo and our project in Kiruna. We have also completed our project in Rebild in Denmark, where we have built a [indiscernible]. We have added 2 more projects this quarter. Our first project in Finland starting in Q3 and a battery storage project in Koskenkorva set to begin in Q4 this year. I'll get back to that in a moment. Two previously planned projects has unfortunately been delayed. A small QSR project in Strangnas has been delayed by 1 year, in line with the tenant's time line for opening. And our legal project in Uppsala is delayed due to a prolonged building permit process tied to the city's planning for the 4 track railway expansion between Uppsala and Stockholm. Let's focus more on our charging business and the battery project. When it comes to our chargers, our aim is to build a network of the gas station of the future, located along key roads across the Nordics. In addition to generating rent, the chargers attract more visitors to our locations, supporting tenant performance and strengthening our long-term value of our properties. As of now, we have 260 active charging outlets, and we have signed contracts for another 465, which is a clear momentum for us. These outlets will be installed as soon as the operators receive all necessary permits. Current income from charging amounts to SEK 3 million and combined with signed contracts, the total income will correspond to SEK 9 million when installed. We're seeing a strong demand and the network will continue to grow in the coming years. Importantly, this model is very profitable with 0 CapEx and close to 0 OpEx, which makes it highly scalable. Now to the battery project in Koskenkorva. This is a battery storage facility, which has a capacity of nearly 10 megawatts. We're making this investment as the property has a high-voltage infrastructure and is located in the Stockholm region where demand for energy flexibility is high. That will give us potential for a very profitable project. From a sustainability perspective, this aligns with our long-term ambition to support -- integrate more renewables and support our tenants' climate goals. That said, this is not something we will roll out broadly. We'll only look at these kind of investments where the technical and the commercial conditions are right.

Shareholder structure as of June, no major changes. I think Case Kapitalforvaltning has climbed a couple of steps in the list, but it's basically the same list as last quarter. We have seen a positive impact from the liquidity provider that we employed in April, but also the share liquidity has clear room for improvement if you ask me. So we are doing our best to increase the interest for the company. The Prisma Properties key employees still holds 2.2% of the total company. Going into financials. As we already talked about, the rental income is up 19% quarter-on-quarter and the NOI is up 17%. But surplus ratio is down 2 percentage points, and the main driver there is some seasonality in the maintenance costs. So those are not exactly linear, so a bit higher in the first part of the year. Looking at profit from property management, up from SEK 37 million to SEK 48 million. However, as we already talked about, with a SEK 6 million one-off for restructuring of a loan where we took away 2/3 of the margin. And thirdly, central administration is a bit front heavy as we talked about last quarter as well. So the run rate is a bit higher this quarter than it will be going forward. Looking on the capital structure, no big changes. We continue to look for new suppliers of capital, and you see the change there in the supplier list in the pie chart. The average interest rate is now down to 4.13%. So we're starting to approach a quite good level. I think, we've talked about maybe reaching 4%. So we're getting close to that. And the main driver between the average interest rate -- for the average interest rate going down from 4.43% to 4.13% from Q1 is, of course, the renegotiation that we talked about. The earnings capacity now includes the NP3 acquisition as that was closed on 1st of July. And I think it's noteworthy that the earnings capacity has increased by 40% since the listing in Q2 2024. And I should also mention that I have adjusted the Q2 2024 number to up to SEK 187 million instead of the reported SEK 145 million to have the same principle as we have in the other quarters with the addition of interest income. So it's comparable numbers, and it's up 40%. And if we allow ourselves to make a calculation example on the income from property management per share, which is now SEK 1.60. If we take the cash position of SEK 800 million as of now, of which a chunk will disappear in the 1st of July when we make the NP3 acquisition. But let's say we have SEK 500 million in cash position, which we can finance at 50% LTV, which makes SEK 1 billion capacity for projects at a current run rate of 8%. And if I add 4% financing on 50% LTV, we add another SEK 60 million in NOI from only that cash position and the project pipeline, which then would take the income from property management per share in the earnings capacity up to -- close to SEK 2. So I think that's a positive note when we go into the Q&A. Thank you.

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

I can start off with a question regarding the charging business. You say that you have SEK 3 million in rental income as of now and signed an additional SEK 6 million in rental income. My question is, will that be yield valued going forward? I mean, SEK 9 million at, let's say, 6.5% yield implies an additional SEK 140 million in property value? Or how do the appraisers view this income?

I think that's the way they view it as a total income on the property.

Okay. And that is the case already today.

Yes, for the 3 years.

Yes, correct.

Great. And another question on that slide. You write that Segment 1 in Huddinge has an existing high-voltage connection, but you also write that, that will not be used by the new tenants on the property. Does that imply that you have signed leases? Or is the type of tenant not using high-voltage connection?

The tenant is going to use high voltage. When you have a high voltage, it's the landlord who has the contract with the grid owner. So they are going to use it. But when it comes to the battery, we earn money to be able to -- towards the Svenska Kraftnat who owns the grid, but also towards the local grid.

But the local tenant, whoever it might be, will not use that type of capacity.

No, correct.

Okay. Great. A question on paid tax. In H1, we've seen only SEK 1 million in paid tax, implying a very low percentage of income from property management. And if I remember correctly, you previously guided for a paid tax rate of some 10%. Is that still a reasonable assumption looking ahead?

We have some loss carryforwards due to the IPO program, et cetera, that we can utilize. We are reviewing the tax situation. I'm quite positive that we can formally come out with some new guidance there, but it's still a bit work in progress. But we do have some possibilities in reassessing what is inventory contract for building. So I will hopefully communicate in Q3 on that. But as of now, it looks positive without making any promises.

So it sounds like the 10% is in the upper end of what you might communicate in Q3?

That's a correct assumption.

Yes. Okay. Great. And a question to Fredrik. You say that you see big potential to grow in Finland. Are you currently in any ongoing processes for additional acquisitions near term or during 2025? Or is that more of a broader comment regarding the market situation in Finland?

We're currently very active there. So when it comes to M&A or acquisitions, our main focus is in Finland at the moment. So we aim to do more acquisitions in Finland during this year.

Yes. And are you prioritizing acquiring yielding properties? Or could we see similar acquisitions to the one you announced a couple of weeks ago?

It's a combination of both through forward fundings. The most important that, it's a matching property compared to our current portfolio. So we want modern buildings, long lease agreements and stable cash flow. So it's a combination. Does it make sense?

Okay, great. That was my questions.

The next question comes from Oscar Lindquist from ABG Sundal Collier.

I have a follow-up question on the acquisition in Finland. How is the structure here with the forward funding? Do you pay the full upfront price? Or is it on a percent of completion or...

It's a gradual phenomenon. It's a gradual payment over the coming quarters.

Okay. And how much is upfront now?

We haven't communicated that, but it's quite evenly split, I would say.

Okay. And then on net financials, would you say that sort of the effect from lower interest rate, did that come quite late in the quarter? Or was it early in the quarter?

It was late in the quarter.

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

Thanks again for joining us today, and we wish you all a great summer.

Have a great summer. Thank you.