Swedish Logistic Property AB (SLPB) Earnings Call Transcript & Summary

I would like to welcome you to the presentation for the First Quarter of 2025 for Swedish Logistic Property. My name is Tommy Astrand, and I'm the CEO of the company. And by my side, I have Matilda Olsson, CFO of the company. She will present the financial development later in the presentation. We have an agenda with some highlights from the period before we deep dive into the property portfolio and the financial development. With risk for repeating myself, we have had yet another very good quarter behind us. We are very pleased with the development of the company, not least considering the challenging macro environment, we are living in with relatively high interest rates and recession. We continue to deliver in the daily work, both within portfolio management, but also within other parts of the company such as financing and sustainability. We can see that in property costs that in principle are on the same level as for the same period last year, even though we have a substantial bigger portfolio now. Central administration is still on the same level. We have even lower margins on our loans. Our green transition delivers in big increases in certifications of our property, going out with 64% certified portfolio at the end of the quarter and also a big increase in the sustainability financing of 93%. We increased our rental income with 42%, of course, explained by acquisitions and the CPI of 1.6%, but also explained by the daily work that we do within property management. We increased our profit from property management with 51%. So we have actually managed to keep big parts of the increase in NOI in our results. Our loan-to-value is 48%, very below -- way below our long-term level of maximum 55%. We have an NAV growth of 4%, which is on track for our yearly goal of 15% per year. And we have a very strong interest coverage ratio of 3.2x, which is an effect of our strong work within property management, good negotiations with our banks and effective processes within the company. We continue to acquire properties with the possibility to create value within. We have taken ownership of 7 properties during the period in 2 separate transactions, keeping our pace of 1 transaction a month in average. We see continued opportunities to grow with new acquisitions of logistic properties with development potential with secured bank financing within our current capital structure. We have successfully grown our portfolio of properties. At the end of the period, we own 118 properties with a property value of approximately SEK 15.5 billion. We see a continued big demand for logistic areas. Our occupancy rate is 97%. We have a long remaining tenancy period of 6.7 years, which, of course, is good when talking financing with the banks. We keep the pace of delivering on our 2 overarching goals of growth of NAV per share with 15% and increased results from property management per share with 15% per year. Matilda will come back to that a little bit later in the presentation. An important part of the strategy is acquisitions of logistic properties with some kind of development potential. We're not focusing so much on the day 1 yield instead of what we can do with the properties to create value, fill up existing vacancy, lowering energy costs, possibility for add-on projects and so on. We have continued to do acquisitions during 2025 and have taken possession of 7 properties during the first quarter in 2 separate transactions. One transaction is the biggest transaction we have done in the company's history, where we bought 5 properties with a property value of approximately SEK 1.4 billion. As I said before, acquisitions of logistic properties with development potential is an important part to fulfill our overarching goals in the longer perspective. We have tried to describe the potential that we have within the portfolio by dividing the portfolio into 2 different parts. We have the property management portfolio containing properties that are fully developed. They have a high cash flows. They generate a higher NOI and it's possible to get a higher LTV on those properties. And in some way, you can say that they finance our development of our development properties. And if you look then into the property development portfolio, there is some kind of potential in those properties to continue to increase the NOI through filling up vacancy, doing energy projects, add-on projects, raising low existing rents, for example. If you look at the difference in the 2 categories, there's a difference of SEK 175 per square meters in higher NOI in the management portfolio. So everything else equal, there would be a potential of driving the value in the development portfolio with SEK 175 per square meters for approximately 50% of the portfolio. The ongoing projects, I will come back to, and then we have also a potential in building rights. We have in many of our transactions that we have done of older properties, got some potential for building rights within the existing portfolio. So it's not something that we have bought separately. If we then look at the ongoing projects, this has been quite a heavy page. During 2024, we have had a lot of new construction projects ongoing, which we have delivered on. And we also have -- during the first quarter delivered on our biggest new construction project of 61,000 square meters Ahlsell. So the largest project currently is an extension of 3,000 square meters. But there is actually quite a lot of good discussions ongoing with existing customers to support them in growing their business in possible new construction projects. The bigger investment projects are, of course, important, but at least as important are all of the minor projects that we are doing on a daily basis. These are an important explanation to how we can deliver positive value changes in our properties quarter after quarter. We are very active in the dialogue with our tenants to identify all of the development projects such as energy investments, conversions, add-on projects and so on. And the return of these investments are significantly higher on the investments that -- on the current energy requirements that we have within the property. Regarding tenants, we have a broad and strong mix of tenants. They represent various categories. Major categories are food, beverage and transportation. And as I said before, we see a continued strong demand from our tenants. We have 2 commercial managers that, on a daily basis, have a discussion with our tenants to try to identify new kind of value creation projects. This is a big part of how we can continue to deliver positive value changes quarter after quarter. We, as our banks love long cash flow. At the end of the period, we have 6.7 years remaining tenancy period. We have been above 6 years, I think, from almost the beginning of the company. An extra stake is that our 10 biggest tenants have more than 9 years in duration left. 100% of the rental contracts are linked to CPI, means that we have got more than 20% rent increases during the last 2 years. We continue to develop our sustainability work. It is a natural part of what we do when we refine older logistic properties. We start from 3 perspectives, the planet, the people and the business, where we have concrete goals that we follow quarterly. In 2024, as we informed about before, we reached a lot of our goals earlier than communicated and have therefore communicated updated and new sustainability goals in the first quarter of 2025, most of them which are aimed at 2027. Among other things, we will reduce the proportion of lettable space with energy class F and G to a maximum of 5% by the end of 2027 and also have net 0 emissions in the value chain by 2040. So having said that, it's time for the financial development. So handing over to you, Matilda.

Thank you, Tommy. As Tommy mentioned, we have a solid first quarter behind us and a good start to the new year. Looking at our 2 overarching goals, we're delivering 4% growth in net asset value per share in 1 quarter, which is well in line with the goal of 15% for the full year. The growth in profit in -- from property management per share is 32% compared to the first quarter in 2024. This growth is largely driven by move-ins in completed new construction projects and of course, acquisitions. We also continue to stay well within our financial risk limitations. At the end of the quarter, the loan-to-value was 48%. The equity to asset ratio was 48% -- sorry. The equity asset ratio was 45%, and our interest coverage ratio was 3.2x. So overall, a stable financial situation. Our current earnings ability is a snapshot on a 12-month basis as of April 1. The earnings ability increased significantly during the quarter. The increase is driven by acquisitions of 7 new properties and the completion of our major new construction project in Hallsberg. The administrative costs are at roughly the same level as 1 year ago, and this, we believe, demonstrates the scalability of our processes as we grow the property portfolio. Looking at the income statement, the rental income for the quarter amounts to SEK 236 million. This is an increase by 42% compared to the first quarter last year. The NOI increased by 48% and the increase is due to the larger property portfolio, but also the development that takes place on a daily basis in the properties. And property costs only increases marginally by SEK 3 million, despite the significantly larger property portfolio. This is -- we have been able to reduce the cost in the existing portfolio through among other things, the energy projects. Something to highlight that we're extra happy about is the NOI for the comparable holdings that increases by 5% compared to previous year. This is partly related to the CPI adjustment of 1.6%, but mainly linked to development of the portfolio. Looking at the profit from property management, it increases even more by 51% and amounts to SEK 134 million. The large increase is -- the large increase compared to the NOI is, among other things, an effect of keeping the administrative cost at a comparable level to last year, despite the bigger portfolio. The higher financial costs are primarily related to new lending because we have a larger property portfolio, but it's partly offset because we have a lower average interest rate compared to last year. We continue to deliver positive value changes this quarter too and the unrealized value changes this quarter amounts to SEK 137 million. They come from new leases, renegotiations, profits from new construction projects, energy projects and deduction for deferred tax on acquisitions. And at the end of March, we exceeded SEK 15.5 billion in property value. The increase during this quarter consists of acquisitions of about SEK 1.8 billion, investments in the portfolio of about SEK 140 million and the value changes of SEK 137 million. The LTV amounts to 48% and the increase during the quarter is a result of our increased lending in connection with acquisitions. And at the end of the quarter, the net asset value per share amounted to SEK 30.44, which corresponds to an increase of 4% in these 3 months. We continue to work with secured bank financing with Nordic banks, and we continue to have a good dialogue with the banks and a very high interest from our existing banks, and this enabled us to continue to grow with bank financing going forward as well. During the first quarter, we increased the loan volume by approximately SEK 1.7 billion. This was in connection with the acquisition of new properties. At the same time, we have reduced our average credit margin to 1.43%. Our average interest rate was 3.7% at the end of the quarter compared to 3.8% at the year-end. And we had about 60% of the loan volume hedged through derivatives. And we continue to increase the share of sustainable financing, which is now 93%. This is a result of renegotiating traditional loans to sustainable loans as we improved energy performance in the properties and environmentally certified properties. At the end of the quarter, we had additional available funds in the form of property credits of approximately SEK 1.3 billion and acquisition credits and overdraft facilities of SEK 300 million in addition to our cash holdings of approximately SEK 100 [ million ]. So overall, we continue to have a strong financial position, not least given the significant cash flow that the property generates. So this gives us a good opportunity to continue growing through investments in existing properties and more acquisitions with development potential going forward. Let's take a quick look at the shareholders' list at the end of March. During the quarter, we carried out a new share issue of 1.1 million B shares since this was a part of the payment during one-off acquisitions during the quarter. And with that, I'll hand over to you again, Tommy, for that quick summary.

Thanks for that, Matilda. So summarize, SLP is in a very strong position. We have had a very good development where we deliver both on our NAV growth and growth in our management profit per share. This proves that our daily work within operating net improvements and our investments in the properties are fruitful. We continue to see high demand for logistics space, which is driven by a high economic occupancy rate of 97%. We have a strong financial position, as Matilda mentioned, with a 48% loan-to-value ratio and banks that want to grow with us. So we can continue to grow significantly within the existing capital structure. That was all for us for this time. Feel free to ask questions via our info e-mail.