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

Good morning, everyone, and welcome to Public Property Invest presentation of our second quarter and half year report for 2025. My name is Andre Gaden, CEO of the company. And to present the results together with me is our CFO, Ylva Goransson; and our CIO, Ilija Batljan. Let's first have a look at today's agenda. We will start with some highlights from the quarter before we move on to operations. Ylva will go through our financials before we give our summary and concluding remarks. We will end the presentation with a Q&A session. Going into the second quarter of 2025, we marked our first anniversary as a listed company, and it has been another eventful quarter for PPI. We have continued to deliver on our growth ambitions with 19 new properties added to our portfolio, 8 of them through our milestone transaction with Aker. We have maintained solid operations while growing and our occupancy remains high. And we have yet again proven our strong standing in the capital markets by successfully issuing our second Eurobond transaction. In the second quarter, rental income came in at NOK 233 million, an increase of 42% compared to same quarter last year. Looking at our first half year, rental income grew by 39% compared to 2024. Net income from property management increased by 51% to NOK 116 million from same quarter last year. Compared to first half of 2024, the increase was 61% and came in at NOK 208 million. We had positive value changes also this quarter with an increase of NOK 203 million. And we are happy to see that our property management team delivered a strong quarter and signed leases with an annual rent of approximately NOK 40 million. As mentioned, transaction activity has been high, and we have added almost 200,000 new square meters to our portfolio through the acquisition of 19 properties. Through these transactions, we have issued approximately NOK 2.4 billion in new equity, mainly with the transaction with Aker. In June, we successfully placed a NOK 350 million bond with a wide group of international investors. The senior unsecured fixed-rate bond matures in October 2032 and pays a fixed coupon of 4.375%. The average maturity of our long-term debt now stands at 5 years and the average interest rate by end of the quarter has improved to 4.97%. As a result of new bond issues and capital increase, our balance sheet by end of June includes NOK 4.8 billion of cash. So let's move on to portfolio highlights. By end of June, our portfolio includes 96 properties with a total BTA of 613,000 square meters. In terms of rental income, 90% of the assets are mainly social infrastructure properties that house function of essential importance to the society and where approximately 90% of the income is backed by the government. The remaining 10% of our portfolio consists of 8 critical industrial infrastructure properties that was acquired in this quarter from Aker. These properties are characterized by solid counterparts, long lease contracts and stable cash flow, similar to our social infrastructure assets. For the total portfolio, our share of rent backed by government budgets summarized to 80%. The portfolio also includes a substantial development potential. After our screening of the portfolio, looking into existing zoning plans, risk and potential for the properties, we have estimated a total gross development potential of 270,000 square meters. I will come back to that a little later in the presentation. Normalized gross rental income is now slightly above NOK 1 billion, up from NOK 823 million in the first quarter. Average rent per square meter dropped from just above NOK 2,000 to NOK 1,757 per square meter, mainly as a result of the acquisition of the industrial portfolio. Portfolio occupancy has increased to 98% and the WAULT continued to improve. As a result of new properties and reletting, the portfolio WAULT has increased from 5.6 to 6.8 years. The total portfolio value has increased to NOK 14.9 billion, up from NOK 11.7 billion in the end of last quarter, and the portfolio yield is currently at 6.5%. EPRA NRV per share is calculated at NOK 24.5. Then let's go to operations. The second quarter was strong when it comes to our letting activity. Our property management team signed leases with an annual rent of NOK 39.8 million, covering almost 23,000 square meters. Our occupancy rate improved from 97% to 98%, and we improved our WAULT from 5.6 to 6.8 years, mainly due to the new properties and the letting. Our largest signings in this quarter were renewals of the Norwegian welfare and Labor Administration in Bodø, a renewal of the police in Søebergkvartalet in Sandefjord and a renewal with the Norwegian Tax Administration in Skien. We also prolonged one contract with the municipality in Bergen in Damsgårdsveien, a property that we acquired in the first quarter. The remaining expiring contracts for 2025 now mainly consists of the earlier announced expiries in Otervegen, where Statistisk Norway will move out in July, the police in [ Ulafemtesgatte ] in Halden and the courthouse in Anton Jensens gate [ 8 ]. Net letting came in positive with NOK 1.7 million in the quarter, mainly due to new letting in Carl Gulbransons gate in Namsos, which have been vacant for a long time. We also did a new short-term contract in [ Otervegen ]. For the last 12 months, our net letting is positive by NOK 15.3 million. PPI is a full property house with all the necessary functions in-house and has a strong and experienced organization in place that also covers project and development. On this slide, you can see our largest ongoing projects. To the left is our, at the moment, 2 largest projects in the Norwegian portfolio. [ Gyldenløves ] is under refurbishment as a result of the new contract with Norwegian Labor and Welfare Administration. And in Anton Jensens gate 8, we are building new offices for the Norwegian tax agency. Both projects will be completed early 2026, and the tenants have signed new 10-year leases on both properties. To the right, you can see our Finnish projects, Metallum and Maurinkatu, both located in attractive parts of Helsinki. These properties are going through extensive redevelopment, which also includes new square meters. Both projects are without any project risk for PPI, and we pay yield on invested capital under the construction period until they are completed in the end of 2026. We are also working actively with creating value-add potential to our existing portfolio. As you can see to the left, we have close to 30,000 square meters of zoned area that is ready to be utilized. In addition, we have 3 major ongoing zoning processes, which is Otervegen in Kongsvinger, Statens Park in Tønsberg and Vogts gate in Moss. The combined potential for these projects summarized to 57,200 square meters, whereas 25,000 is residential. In this quarter, we have also done substantial work when it comes to screening additional potential within our portfolio. Together with external architects, we have identified a gross potential of approximately 187,000 square meters in connecting with our existing properties. As mentioned, one of the development projects that is ongoing is our earlier mentioned transformation of Otervegen in Kongsvinger. Our tenant, the Statistisk of Norway will, move out of these premises in July this year, and we are working actively with our plans for the existing building, but also to add potential to the surrounding area. Our main target is to transform the existing office building into a nursing home or apartments and add a new generation-friendly neighborhood to the surrounding area. Nursing homes and residentials adapted to elderly is already a demand and a big concern for Norwegian municipalities and a concern that will continue to grow going forward. By transforming an existing office building into a nursing home, we can both address the concern of the municipality, but also contribute to lower CO2 emissions by reusing the building instead of demolition and new construction. The zoning process is ongoing, and we recently submitted our plan program, where we cooperate with the municipality of Kongsvinger as they are our closest neighbor. We are now in the consultation phase, where the local community is invited to provide their comments. Then I will leave the word to Ilija, who will take you through our transactions.

Thanks, Andre. As you can see on this slide, PPI is continuing to deliver strong growth in Q2. We started the quarter with acquiring assisting living service portfolio, 16 years average lease term, 100% CPI, also included in the portfolio assets in the central part of Oslo. In this quarter, we also strengthened our position in Helsinki metropolitan area, among others, by acquiring life science property in Aalto University area in Espoo. Espoo is fastest-growing part of Helsinki metropolitan area and fastest-growing part of Finland. But also strengthened our position in Bergen by acquiring Nordnesbodene 3-5 and the Åsane Politistasjon. However, the main, how to say, transaction in the quarter has been the transaction with Aker, where we raised NOK 2.3 billion in new equity from Aker and at the same time, acquiring mission-critical industrial infrastructure assets for NOK 1.5 billion. Those assets are 100% let to solid tenants on triple net lease contracts. Those are 15 years -- leases are 15 years on average. It is full CPI indexation, 7% yield with total rental income of NOK 106.5 million. On top of that, on completion of 2 small planned development projects, we will have additional NOK 12.2 million in yearly rent, totaling yearly rent from Aker transaction to NOK 117.7 million. But quarter was not ended with Aker transaction. Before the end of the quarter, we actually acquired a large asset in Helsinki metropolitan area, EUR 63 million, including, among others, hospital with 12 years WAULT. After -- as you can see on this slide, after quarter ended, we were able to strengthen our position in social infrastructure. And Andre pointed out that based on effect from Aker transaction, our exposure to government income has decreased to 80%. However, with the transactions done after Q2 ended, we have increased our government exposure from 80% to 84%, 85%. The main transaction was announced or was closed 1st of July, including 7 nursing homes for elderly care located in Central Oslo and the Greater Oslo region, 100% let to Skaar Omsorg with annual rent of NOK 30 million and with WAULT of 35 years. This is a clear step from PPI in a market that will be affected heavily by mega trend of aging population and where we are expecting to be able to continue to grow in this core social infrastructure market. And just as illustration, Andre mentioned in the beginning that we, in Q2, increased the WAULT from 5.6 to 6.5 years However, if you add on top of that the leases that we have acquired after the second -- after the end of the second quarter, we are probably now touching average length lease of longer than 8 years. And I think I will stay there on transaction and give the floor to our CFO, Ylva Goransson.

Thank you, Ilija. Let's start with the financial highlights for second quarter. Rental income for the second quarter reached NOK 233 million, representing an increase of 42% compared to the same period last year. The increase is mainly driven by CPI and acquisitions. During the second quarter, 19 properties were acquired, contributing with NOK 26 million in additional rental income in the quarter. Net income from property management reached NOK 116 million, up 51% year-on-year, reflecting our strong underlying operational performance. Our EPRA NRV per share has declined to NOK 24.5, but the reduction is due to the increase in the number of outstanding shares used in settlement in transactions, particularly the Aker transaction. The reduction is also connected to allocated dividend of NOK 0.5 per share. On the next page, shows our P&L for the quarter and year-to-date. As mentioned earlier, rental income increased significantly to NOK 233 million in second quarter, up from NOK 164 million in the same period last year. For the first 6 months, rental income was up by 40% to NOK 438 million. Net operating income amounted to NOK 213 million in the quarter, a solid improvement with 41% up from NOK 151 million in the same quarter last year. Our NOI margin was 91.4% in this quarter, still slightly above our guided run rate, but this is mainly due to the timing of maintenance activities so far this year. For the first 6 months, net operating income was up 44% to NOK 402 million compared to the same period last year. Administration expenses amounted to NOK 24 million in the second quarter, reflecting a larger portfolio, higher activity and the establishment of outsourced management for the Finnish portfolio. However, these costs were partially offset by a reimbursed property management fee of NOK 4 million, resulting in a net administration expenses of NOK 20 million. Net realized financials amounted to NOK 77 million in the quarter, and this includes interest income from capital invested in our 2 Finnish projects in Finland, generating 6.2% yield during construction period. Net income from property management was up by 51% to NOK 116 million compared to the same quarter last year and by 61% to NOK 208 million for the first 6 months of 2025. Net unrealized financials amounted to minus NOK 88 million in second quarter, mainly driven by negative exchange rate for the bond loans in euro. Year-to-date, net unrealized financial amounted to minus NOK 41 million. Value changes in investment properties had a positive impact on net profit of NOK 203 million in the quarter and NOK 273 million year-to-date. The positive changes are mainly driven by the progress of the 2 Finnish projects. Profit before tax came in at NOK 221 million in the quarter compared to NOK 13 million in the same quarter last year. Year-to-date profit before tax was NOK 430 million, up from NOK 203 million in the same period last year. And then we can go to the next slide and have a quick look at our balance sheet. By the end of this quarter, the value of our portfolio was NOK 14.9 billion, up from NOK 11.7 billion in last quarter. Change in the like-for-like portfolio from Q2 last year to this quarter is 3.1% and is mainly driven by CPI and extension of leases. The net yield of our management portfolio was 6.5% by the end of the quarter. Investments in our Norwegian properties amounted to NOK 33 million in the quarter and NOK 144 million in the Finnish projects. Total investments year-to-date for the group was NOK 225 million, whereof the Finnish projects constitutes NOK 183 million. On the finance side, we issued another NOK 200 million and SEK 550 million in the 2 bonds originally issued in first quarter this year. In late June, we also issued a new EUR 350 million unsecured bond under our EMTN program, maturing in October 2032. Gross interest-bearing debt at the end of the quarter was NOK 11 billion. And with NOK 4.8 billion in cash end of quarter, net interest-bearing debt was NOK 6.2 billion, giving us an EPRA loan-to-value ratio of 44.1%. The cash holdings by the end of June provides us with the flexibility to both continue our growth journey and to reduce debt. 12-month rolling ICR stands at 2.2 and in the second quarter, isolated ICR was 2.5. Our most important debt metrics, net debt to EBITDA is solid at 7.8x as of end of June. On next page, the chart to the left illustrates maturities of our interest-bearing debt, showing a well-distributed profile. Debt maturing within the 12 coming months is NOK 288 million and will be repaid with cash at maturity. After quarter end, PPI has established a revolving credit facility of NOK 700 million with Nordic banks. This strengthens our liquidity buffer and improves financial flexibility going forward. The weighted average debt maturity has increased to 5 years, up from 4 years by the end of last quarter. Average interest rate has further decreased from 5.05% to 4.97%, reflecting improved terms in our latest financing arrangements. Our share of fixed interest rate remains solid at 70%, providing continued predictability. The decrease from 88% in Q1 is driven by the addition of 3 cross-currency swaps based on NIBOR and [ SIBOR ]. Unencumbered asset ratio is improved to 2.6x from 2.2x. And as mentioned earlier, loan-to-value is reduced to 44.1%, and ICR is improved to 2.2x, and net debt to EBITDA is reduced to 7.8x. All in all, we have strengthened our balance sheet and extended debt maturities with while at the same time, lowering our financing costs. And our key metrics continue to trend positively. PPI remains committed to maintaining our financial policy and most important, keeping net debt to run rate EBITDA below 9x. Next page presents our normalized annual run rate. We expect annualized rental income of NOK 1.033 billion based on current property portfolio as end of June. But to relate what Andre spoke about earlier, the property Otervegen in Kongsvinger will reduce rental income by NOK 20 million from next quarter. But on the positive side, recently announced acquisitions will contribute with an increase of NOK 35 million, resulting in a net rental uplift. Property expenses are expected to be around 10% of rental income, giving us anticipated NOI of NOK 931 million. And normalized administration expenses are increasing as the group grows, particularly due to the growth in the Finnish portfolio and the external management agreement for this portfolio. However, administration is still offset by reimbursed property management fee, resulting in a net administration expenses of NOK 86 million. The run rate EBITDA is, as a result, estimated to NOK 844 million. The net financial expenses are estimated at NOK 279 million. This figure includes interest income from our Finnish properties currently under construction. These will generate a net yield of 6.2% of invested capital and will be reported as interest income until completion. The new EUR 350 million eurobond is not put into work and is therefore not included in the run rate calculation. Based on these assumptions, we expect net income from property management of NOK 565 million, which equates to NOK 1.64 per share. With our strong balance sheet and solid operational performance, net debt to run rate EBITDA ratio is estimated to 7.8x. That was all for the financial part. So now back to Andre for concluding remarks.

Thank you, Ylva. Let's move on to summary and concluding remarks. This timeline highlights significant milestones in PPI's journey since the IPO on the 29th of April 2024. In connection with the IPO, PPI acquired 13 properties from SBB, resulting in a property portfolio of close to NOK 10 [ billion ]. Through the IPO, PPI raised NOK 2.8 billion in equity and the refinancing of the existing debt in the company. In addition, the full Norwegian SBB organization was transferred to PPI, moving the company away from a syndicate structure to a property company with all the necessary functions in-house. In Q4, we did our first transactions after the IPO, adding approximately NOK 59 million to our annual rent. We also reached an important milestone by achieving a BBB IG rating from Fitch and established our EUR 2 billion EMTN program. Shortly after we issued our first NOK 300 million bond. We also added NOK 0.1 billion in new equity through transactions. Our transaction activity continued also into the first quarter of 2025, adding 5 new properties and NOK 68 million to our annual rent. In this quarter, we took our first step outside Norway and acquired properties also in Finland and Sweden. We also issued 2 new unsecured 3-year bonds in NOK and SEK with additional tap issues later on. And as mentioned, in this quarter, we have added another 19 properties to our portfolio through 7 different transactions. We have added close to 200,000 square meters and NOK 270 million in annual rent. We have raised NOK 2.4 billion in new equity that was mainly as a result of the Aker transaction. On the financing side, we successfully issued a NOK 350 million, 7.3 years unsecured eurobond in order to further improve our financial structure. As a result, the run rate rental income has increased by 75% from NOK 590 million pre-IPO to the current level of NOK 1.033 billion. This slide sums up the growth journey that we have been through since the IPO. The run rate rental income has increased by 49% from NOK 692 million to NOK 1.033 billion in 1 year, and the run rate EBITDA has increased by 46% from NOK 575 million to NOK 844 million. Completion of ongoing development projects will add another NOK 80 million in rental income. And with the current balance sheet with NOK 4.8 billion in cash and relatively low LTV, we have an investment capacity to add further growth. So to summarize, we have delivered a strong quarter and first half year and present strong rental income and margin development. Rental income was up by 42% in the second quarter of '25 and by 39% in the first half compared to the same period last year. Net income from property management was up by 51% this quarter and 61% first half of '25. And we have also increased our cash flow from operations from NOK 162 million in first half of 2024 to NOK 384 million in the first half of 2025. Our operations continue to be solid, and we have a stable underlying cash flow. And in the quarter, we have delivered high letting activity by signing leases of NOK 39.8 million in annual rent. Our portfolio occupancy has increased to 98%, and we have increased the WAULT to 6.8 years, up from 5.6 years in last quarter. In the first year as a listed company, we have delivered on our strategy to be an operator, manager and developer of social infrastructure properties. supporting government in the Nordics to fulfill their social mandate. We have taken the role as a leading consolidator in the market by delivering value-accretive transactions. And in our first year, we have acquired 48 properties totaling over 300,000 square meters and established a Nordic presence. We have raised NOK 5.3 billion in new equity over the last 15 months, fully refinanced our balance sheet and obtained a BBB rating. And we have also started to pay dividends for the first time now in July 2025. That was all from our side. Ylva and Ilija, please join me on stage for the Q&A session.

Then we will move over to the Q&A session, and I will start with a question for you, Ylva. How much of the ForEx position on the euro-denominated bond debt is now hedged?

That's a good question. By the end of June, EUR 150 million of the new EUR 350 million bond is hedged and EUR 100 million is hedged from the bond issued in December. If you include natural hedge from our Finnish portfolio yielding in euro, the hedge ratio of total euro exposure at maturity is approximately 72%. This is with completed projects in Finland. When it comes to interest payments, more than 70% of our interest payments are hedged, and this includes then natural hedge from our Finnish portfolio.

Andre, the small lease you mentioned in Otervegen, is this for the whole building after SSB is moving out? And what is the duration of the lease?

No, this is a quite small lease of approximately 500 square meters, and it's short term and have the flexibility that we need in order when we are in the process of developing the building that we are right now.

What is your plan for the large amount of cash on balance sheet following the last eurobond issue?

Yes. The large amount of cash will be used to a mix of repaying debt and new investments. And while we are working with this, we will keep net debt-to-EBITDA below 9x. It's our most important key figure. And current net debt to EBITDA is 7.8. So it is further investment capacity within our current capital structure.

You have grown significantly over the last year. What's next? Will we see further growth in the infrastructure segment?

Well, our strategy is to be a sustainable owner, developer and operator of social infrastructure properties with tenants that are backed by the government. And that will also be our main focus growing the company forward. We will also look at opportunities in all the Nordic countries.

On that note, Ilija, how do you see the transaction market and deal pipeline going forward?

We see that there are good opportunity both in Norway, in the syndicate market, but also in Finland, where many mutual funds are struggling with their balance sheet. So we have a decent pipeline and are expecting to announce a few more transactions already after the summer.

Are you focusing on Norway, Sweden and Finland? Or are you evaluating other countries as well?

Norway is our main market. However, we have been very active in Finland. We do see more opportunities in Finland. We are looking at some deals in Sweden. And as we have said before, Nordics is the best market for social infrastructure. However, we have both knowledge and capacity to go outside Nordics.

The new industrial segment, is this also to be considered a pan-Nordic segment of strategy?

It is always difficult. I mean, if you look that we bought Egersund, it is amazing real estate controlling 500,000 square meters of very important mission-critical infrastructure. So if we find that kind of assets outside of Norway, we will be happy to look at that.

Will there be full run rate in rental income for Q1 '27 from the development projects in Finland?

Yes. The Finnish project will be completed by the end of 2026 and will provide full rental income from first quarter of 2027. And during the project period, these projects will provide a yield of 6.2% of capital invested, and this will be reported as interest income.

What is the plan for further dividends? And what is the dividend estimate for the second half of '26?

Well, our general meeting, they determined a dividend of NOK 0.5 per share for 2024. it's too early to predict anything for 2025. But PPI, we have a long-term stated ambition to pay out 60% of cash earnings.

And then the last question, what is the status of the secondary listing process in Sweden?

Well, as you know, we have been quite busy with transactions in this quarter. So that process is postponed.

Thank you very much. That concludes the Q&A.

Thank you.