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

Welcome to Prisma Properties Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Fredrik Massing, and CFO, Martin Lindqvist. Please go ahead.

Good morning, everyone, and thank you for joining today's presentation of our Q3 report, where Martin and I will take you through the key events and financial highlights. This quarter, we continue to have strong momentum. Our strategy keeps delivering results, and we're growing in both in size and profitability. Let's go through the key highlights. Yesterday, we communicated updated financial targets where we have adjusted our net LTV target to 55%. The decision is part of our strategy to increase investment capacity and create long-term shareholder value, which reflects our transition from a build-up phase to a more capital optimized growth phase. Our goal is to double our portfolio from SEK 8 billion to SEK 16 billion by the end of '28, driven by profitable development projects, acquisitions and asset contribution deals, while still maintaining financial stability. I'm proud to share that our earnings capacity is up 46% compared to last year, a result of strong operational performance and disciplined capital allocation. During and after the quarter, we have communicated several acquisitions in both Sweden and Finland. So far this year, we have signed and closed acquisitions of a total amount of approximately SEK 1.3 billion. I would like to highlight the recent acquisitions of 2 new ICA Maxi stores, properties that will align very well with our modern portfolio and further increase our exposure to the grocery segment. Since the IPO, we've shown that we cannot only deliver profitable development projects, but also identify and execute on attractive acquisitions. In Q3, we continue to see strong rental income growth, up 25% year-over-year. Rental income reached SEK 123 million compared to SEK 98 million last year. This growth was driven by acquisitions, completed projects and CPI adjusted leases. Net operating income increased by 24%, reaching SEK 109 million compared to SEK 88 million in Q3 '24. Profit from property management increased to SEK 61 million, up 32% year-over-year. The property valuation yield remained fairly unchanged, but we're seeing an increased interest and improved sentiment for our segment, which makes us confident that we will see improvements in the coming quarters. This quarter, we continued to sign several new long lease agreements. Net letting this quarter amounted to SEK 19 million, which was driven by many new signed leases in Denmark. Prisma has delivered positive net letting every quarter since the metric was introduced in the beginning of '23. This quarter, our WAULT decreased from 8.3 to 7.8 years, and our occupancy rate declined slightly to 98.3%, an effect of the recent acquisitions we have made in the quarter. Martin, would you like to make a comment on the cash position?

Yes, it is important to note that the cash position is affected by the temporary depositions that we've made. They are booked as a receivable in the balance sheet. They relate to the acquisition we closed on October 1 for Jakobstad and Seinäjoki, but also 2 projects in Aarhus and also Holstebro in Denmark. Aarhus will start in Q4. So adjusted for the depositions, the cash position is SEK 530 million.

This quarter, we have made some adjustments to better highlight the strength and stability of our rental income. Instead of showing all tenants individually, we now present our top 10 tenants at group level. We also refined the category split to make us more comparable to peers and to better reflect our high share of grocery-related income. The previous grocery category is now renamed grocery and daily goods, and this quarter includes income from Tokmanni Oyj across all markets. This provides a more accurate representation of how we view tenants such as Dollarstore, Tokmanni, Big Dollar who in many ways complement or even partly compete with traditional grocery chains. I'm also glad to share that Kesko have entered our top 10 list, a tenant we aim to continue to further expand with in Finland. We continue to have a high WAULT of 7.8 years. But due to the recent acquisitions, we now -- have now more lease agreements expiring in the coming years. We will do our utmost to defend and maximize our WAULT. And our property management team have already started the work of extending leases that added during the quarter.

Property portfolio. The property value now is above SEK 8 billion, continuing to trend up. The yields, as we mentioned, are very stable since Q2, and the assets that we have added now is the NP3 acquisition together with projects in Trosa, Haderslev, Ylivieska and minus a minor divestment in -- of an asset in Randers in Denmark. The unrealized value changes in the quarter amounted to SEK 56 million and mainly related to project profits.

This quarter, we have finalized 3 projects and added 4 new ones. Currently, we have 9 ongoing projects with an expected average yield on cost of 7.7%. We are ramping up our development activity, and we're confident that we will soon reach our target of an annual run rate of SEK 1 billion. New projects that have been added this quarter include 2 projects in Haderslev in Denmark, where we have started the construction of a Netto store, Big Dollar and a QSR restaurant with an expected completion in the end of Q2 '26. In Trosa, Sweden, we have started the construction of Rusta and Jysk with an expected completion in Q2 '26. And lastly, in Ylivieska, Finland, we have started a construction of a K-Citymarket and Rusta with an expected completion in Q3 '26. Our development organization continues to deliver, and all previously announced projects have been started. This quarter, we have added another 4 new projects to the list, projects that is set to start from Q2 '26 and forward. In Tierp, we are planning to develop 10,000 square meters of grocery and discount retail. We have 2 projects in Umeå, where we are planning to develop a grocery store and a QSR restaurant. And in Värnamo, we are planning to develop a QSR restaurant, where we have signed a 20-year lease with KFC. New projects will continue to be added to the pipeline over the coming quarters.

The ownership structure, shareholders as of September 30, basically no changes, same usual suspects in the owner list. I think that Case Kapitalförvaltning has increased somewhat, but otherwise, this is the same list as previous quarters. Financial update. Rental income up 25% year-on-year. NOI up 24% and the surplus ratio is 89% in the quarter if we exclude the segmented property, which is up from 86% in Q2. The increase in the absolute NOI does not fully materialize on the income from property management, and that is due to that we had very high interest income in the comparison period. If you remember the very high cash position after the IPO generated high interest income. And back then, STIBOR was also higher. So the income -- the rate for interest income was much higher. If we look on the rental income sequentially, rental income is up SEK 5 million in the quarter sequentially from Q2. And that is, of course, increased by the inclusion of the NP3 portfolio and some project completions, minor project completions, but reduced also from the sale of the Uppsala asset and a small divestment in Randers and lower income from the segmented property. We also have slightly -- may have been SEK 1 million conservative on the income when we took in the final balances on the acquisitions but should also remember to calculate with the segmental property, et cetera. Capital structure, the net LTV is down -- is up from 35% to 38%, and the presence from new banks in the balance sheet is continuing to increase. The average interest is 4.06% continuing to trade down and is 4.02% with -- assuming that all rates would be fixed as of September 30. So basically, there's no material difference between the 4.06% and 4.02%. So with a stable STIBOR, there's no point in really reporting this difference. And the ICR, we see continuing steadily to climb up to 2.5 this quarter. The earnings capacity includes the acquisition in Jakobstad and Seinäjoki on October 1 as well as completed projects in Vänersborg, Hjörring and Östhammar. Otherwise, no major changes in the assumptions. And Fredrik, with that, we tie back to your initial comment, we are up 46% since 1 year ago in the earnings capacity. And with that, we open for Q&A.

[Operator Instructions] The next question comes from Staffan Bulow from Nordea.

I have a couple of questions, which I will ask one by one. Starting off with the new financial target. One of the targets was to double the property value from SEK 8 billion to SEK 16 billion. I'm just wondering how did you arrive at that target? And should we expect that this target implies that you will significantly increase the acquisition pace going forward?

As a listed company, we need to be much, much bigger. And -- so currently, we're on SEK 8.1 billion. We see a possibility to increase up to SEK 16 billion within 3 years, including if you look at the pipeline we have in both projects and developments, but also in the future, look at asset allocation deals. So that is an assumption we made, and we believe that is achievable, SEK 16 billion.

All right. And in terms of acquisition opportunities, where do you see the best opportunities? And what yields would you like to acquire at for you to evaluate the acquisition?

Currently, we see the best yields in Finland. Now we will enter Finland, but we need to build up a critical mass in the portfolio to be able to grow in that market. So currently, Finland, but we also see some possibilities in Sweden also. When it comes to development, we see the main focus is Denmark and Sweden.

Okay. And in terms of yields in the projects that you have ongoing, you have a yield on cost of 7.7%. And do you think that you can maintain that level going forward in the projects?

Absolutely. We can be transparent and say, okay, if you look at the Q2, we had a yield on cost of 8%. Now we have 7.7%. But this is based on that we have more grocery projects. So we still get our profit margins, but the yield on cost will, in general, be lower when we're developing grocery compared to discount retail.

And on acquisitions, the acquisitions that you have announced so far, they have been on relatively high yields, but reading real estate consultant reports and so on, you sense that yields are coming down and the competition, for example, grocery retail is increasing. Should we expect that the future acquisition that you will do that it will be on slightly lower yields?

I mean the benefit of doing developments and acquisitions that we can do the transition. So we will do acquisitions as long as we find attractive deals. In the future, if the yields are going down, it's good for the company, but then we'll focus more on developments. So market-wise, Sweden is the market with the highest competition within the grocery segment. It's also a high competition in Sweden and Denmark, but -- in Finland and Denmark, but especially in Sweden. So therefore, we have put more focus on the Finnish market at the moment. And if you look at the acquisitions we've made, it's plus 7%. So depending on which category we focus on, if it's grocery or it's discount or QSR. So the yields can spread between 7% up to 9%, but the most important new acquisition is it's -- that it's aligned with our current portfolio. So it's modern long lease agreements and the right tenants.

Perfect. And another question on the financial target, the target to grow NAV 15% annually. Do you still have that target? Or has that been replaced with the new property value target?

It's still in place.

Okay. And when it comes to an acquisition you announced a couple of months ago, the properties in Northern Sweden, which you acquired from NP3. In the press release, you said that you will access those properties in Q3. I'm wondering, could you say which month in Q3 was? Was it October, November -- or sorry, I mean, August or September or something like that?

The NP3 was in July.

In July.

All right. And one final question from me. When it comes to the earnings capacity, if I look at the reported central admin, it's a bit above the level which is indicated by the earnings capacity. Do you think it will continue to be so for a couple of quarters before you reach the central admin in the earnings capacity in the actual reported numbers?

We have 11 in central admin in the quarter, and we have 44 in central admin in the earnings capacity. So I would say that's in line.

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

Thank you for joining today's presentation. We wish you all a great day and a nice weekend ahead. Thank you.

Thank you. Goodbye.