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

Welcome to Prisma Properties Q2 2026 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 us today. We are pleased to present another quarter of strong operational and financial performance. Prisma continues to deliver according to plan as we execute our strategy. We are growing through acquisitions and creating value through developments while maintaining a portfolio with a very high occupancy with long and stable cash flows. We continue to build one of the strongest and most modern portfolios in the Nordics within our segment. Our portfolio has now reached almost SEK 11 billion, and we continue to see attractive opportunities across all our markets. With strong tenant demand and growing project portfolio and a solid financial position, Prisma is well positioned to continue delivering profitable growth. Looking at the highlights of the quarter. This has been another active quarter for Prisma. We have strengthened our position in Finland through additional acquisitions where we continue to see attractive opportunities within grocery and discount retail. During the quarter, we have also signed an LOI with a tenant for Segmentet 1 in Kungens Kurva. Segmentet 1 is our largest building rights, and we look forward to providing more detailed information once the lease agreement is in place. What we can say already is that this project will have a positive impact on both our WAULT and the share of grocery and daily goods in our portfolio. With an agreement in place in Kungens Kurva, we would have activated the majority of our building rights and we're making good progress on the few remaining ones. And our ambition remains unchanged. All building rights shall generate cash flows before the end of '28. This quarter, we completed our exit from the Norwegian market, allowing us to focus entirely on Sweden, Finland and Denmark, where we see the strongest long-term growth opportunities. Development continues to be one of important value drivers. During the quarter, we have started projects of almost SEK 300 million. And today, we have 10 ongoing development projects. Financially, we have delivered another strong quarter. Rental income increased by 35% to SEK 159 million. Net operating income increased by 40% to SEK 141 million, and profit from property management increased by 46% to SEK 71 million. The growth continues to be driven by acquisitions, completed projects and CPI indexation. Property yields remained stable compared with the previous quarter. At the same time, we continue to see strong and increasing investor interest in our segments, supported by recent transactions in the market. Demand from tenants also remained strong. Net letting amounted to SEK 18 million during the quarter, while our occupancy rate remained high at 98.6%. Although WAULT declined slightly during the quarter due to calendar effect, it remained strong at 7.7 years. Our announced acquisitions and ongoing projects will have a positive impact on our WAULT going forward. This quarter, we further strengthened our acquisitions capacity by issuing a SEK 500 million bond, followed by a SEK 150 million tap issue after the quarter end. I'm happy to share that investors continue to confirm the confidence in Prisma, our business model and our strategy. And finally, we launched our first share buyback program, reflecting our confidence in the company's long-term value creation. One of Prisma's greatest strength is in the quality of our tenant base. We continue to increase our exposure to the grocery and daily goods segment. And based on announced acquisitions that we have not yet closed, approximately half of our rental income will come from grocery and daily goods. Our 10 largest tenants represent almost 60% of rental income and consists of leading Nordic retailers with strong market positions. Through acquisitions and developments, both Kesko and Axfood are expected to increase the share of rental income in the coming quarters. Perhaps most importantly, around 86% of all leases expires in 2030 or later, providing a very good earnings visibility for many years ahead.

Finland is closing in on Denmark size-wise, and it will pass Denmark in Q3 in terms of property value and Finland is approaching SEK 3 billion, including signed projects and acquisitions in the coming quarters. Project investments are now at the level we have targeted with SEK 573 million invested in the first half year and SEK 294 million started during Q2.

Development remains one of Prisma's core strengths. We currently have 10 ongoing development projects with an average expected yield on cost of approximately 7.3%. As these projects are completed over the coming quarters, they will strengthen our WAULT while contributing to rental income and earnings growth. Development will remain one of Prisma's most important growth engines in the years ahead. This quarter, we have started 4 projects in Umea and Karlskrona, we were developing QSR. And in Tierp and Uppsala, we were developing grocery and discount retail. We have made some small adjustments this quarter. Our battery project in Kungens Kurva has been moved to Q3, as we're still waiting for approval from the grid owner Vattenfall. Sandviken has been moved to Q3. Here, we already have a signed lease agreement and a building permit and construction will now start in August. Our project in Stege, Denmark has been moved to Q4, as we need to wait for the municipality to finalize the access arrangement. Looking ahead, we continue to have a very attractive project pipeline. We will also add many new grocery development projects. During the coming quarters, we expect to start additional projects that will activate our few remaining building rights.

Shareholders as of June 30, no major changes apart from that AP3 exited since 31st of March. Capital Group is slightly up and Case is slightly down. Rental income, as Fredrik mentioned, up 35% versus last year. We look sequentially versus quarter 1. We see an increase of SEK 8 million. Approximately half of that is full Q2 effect from projects and acquisitions that were finalized in Q1 and half of it is an effect from projects and acquisitions that are made during Q2. NOI is up 40% versus last year. And here, we show a 90% surplus ratio in line with our targets in Q2, if adjusting for the property Segmentet 1 in Huddinge, but the reported figure is 89%. Profit from property management is up 46%. Central administration with a slight uptick, mainly from variable compensation, but also a minor effect from legal fees of onetime nature. Interest cost is up with an increased borrowing of SEK 672 million, of which SEK 500 million is the bond issued which we see here on the capital structure. The bonds are now 22% of the debt. Net LTV is still below 50% and the average interest is up slightly and that's due to the higher margins in the bond volumes. Interest coverage still at a comfortable 2.4x. Earnings capacity is now -- the 1st of July number now is including the 9 acquisitions in Finland that were closed on the day after the quarter end, but not -- those are not included in the balance sheet, of course, but in the earnings capacity. The forward-looking earnings capacity has increased in Q1 with -- in line with started projects in Umea and Karlskrona and the Finnish acquisitions that we have communicated during Q2. As we are growing, we're also growing the base for index adjustments in Q4, so that is slightly higher now. And this is offset by the higher average interest assumption. Tierp and Uppsala were also started during the quarter, but those will be visible in the Q3 2027 bar, in the next quarter to say. So they are outside the picture. With that, I hand back to you, Fredrik, so we'll head to Q&A, sorry.

[Operator Instructions] The next question comes from Oscar Lindquist from ABG Sundal Collier.

I have a question on the forward-looking earnings capacity. So if we look at the Q4 figure for '26, it's SEK 2.5, it was SEK 2.40 in the last quarter, in sort of relative and absolute terms, that increase is larger than what we see for the following quarter. Is there a delay of any project? Or has any projects been moved up? Or what is the driver behind this?

Raasepori has been put forward 1 quarter, but the major effect there is the index effect.

Okay. How has that changed?

The volume -- the base of the -- with the acquisitions in Finland, mainly that we've communicated since the previous quarter report, where the large acquisitions in Finland now are included.

Okay. And then with sort of the all transactions -- all announced transactions taken into consideration, what sort of investment headroom do you see going ahead near term?

We have 49% LTV, and we can go up to 60% short term. So that's where we're targeting. We can if the project profits are there according to plan and if the standing basis is increasing with the inflation as it should, we see sort of opportunity to land on the SEK 16 billion property value within the 60% LTV sort of policy.

And that's going to be mix of developments and acquisitions on all markets.

And looking at acquisitions? Has there been increased competition during the quarter or where do you see net initial yields in acquisitions going ahead?

We see a very high competition on the Swedish market, and that's the benefit of us being a developer that we can continue to -- based on the competition we can -- some markets we can put in more acquisitions, some other markets we can do more development. So in this case, the biggest competition today is in the Swedish market.

So with that, do you see increased focus on projects going ahead?

It depends, it's going to be a mix. We're going to see continued good acquisitions in Finland, where we can buy modern buildings, loan cash flows in combination with developments, mainly grocery and grocery-anchored retail in Sweden and Denmark.

[Operator Instructions] The next question comes from Albin Sandberg from SB1 Markets.

A few questions from me. I wonder if you could elaborate a little bit on the exit yield changes that's happening during the quarter? Is it more general? Or is it driven by any specific asset region?

Could you repeat, Albin?

Albin, we have difficulty to hear you.

Do you hear me now?