Welcome to Prisma Properties Q2 presentation. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Fredrik Mässing and CFO Martin Lindqvist. Please go ahead.
Hello and welcome to our Q2 presentation. This is our first presentation as a listed company. I would like to first mention the big achievement we did in Q2 with taking the company public to the Stockholm Exchange. This allows us to continue to grow with new developments and acquisitions on our existing markets. We are today the leading developer in Sweden and Denmark, but our goal now is to become the leading developer in the Nordics. If you look at the key figures, we are currently 123 properties with a valuation of SEK 6.5 billion. The current valuation is 6.6%, which is stable compared to Q1, and we believe now the valuation has peaked. We have an occupancy rate of 99%. We never build on speculation, and therefore we can achieve these figures. We are now aiming towards a 100% leased portfolio by the end of this year.
If we look at the performance of the company, the rental income grew 18%, and NOI increased with 15%. Adjusted profit from property management amounted to SEK 37 million, which is in line with our expectation. We continue to grow. We have signed several projects, several lease agreements around Sweden and Denmark. For example, we have signed several lease agreements with Willys, Lidl, and Rusta. The net letting this quarter amounted to SEK 50 million, which we are quite happy with. When it comes to completed projects, we have completed several ones. For example, Big Dollar in Frederikshavn, KFC in Täby, and also Willys in Vagnhärad. We will have several other projects that we are going to finalize in Q3 and Q4, while we are also starting new projects in Q3 and Q4.
What I would like to mention also is the Segmentet 1, one of our biggest projects in Kungens Kurva south of Stockholm. In this report, the operating income is included, but we are planning to evacuate all tenants except one to be able to redevelop the whole scheme for the coming years. We're quite happy that we already have received a positive planning decision from the municipality. So after the summer, we are planning to start the zoning process where we are planning to develop 20,000 square meters of new discount retail and grocery. As I mentioned in the beginning, we're planning to grow with developments, but also acquisitions. Therefore, we have appointed now Tom Hagen as our Head of Transaction. So Tom has been involved helping us build up this company and portfolio the past years in his previous role at Alma.
So we're very happy that he has joined the team at Prisma. The last thing I would like to mention is our property management agreement that we had with P&E Property. That agreement has been terminated during Q2 due to the fact that we have decided that long-term, the best thing for us and our company and the shareholders is to have our own property management organization. So the current management agreement fee is based on square meter. So by having our own organization, we can continue to grow the coming years without increasing the cost for property management. A little bit more about our tenants and lease maturity. Top tenants, largest tenants. This includes also ongoing projects. We continue to grow together with the leading discount retailers, especially with Willys and Rusta.
All of these tenants are performing very well, and all of them have high interest in establishing new stores on existing and new markets. If you look at the rental income split, based on the project pipeline and acquisitions that we have identified, we're going to see that the grocery segment is going to increase up to 30%-40% the coming years. If you look at the WALT, 9.1 years. We're quite happy that we have defended that figure. We had 9.1 years in Q1 also. Due to the fact that we are developers, so 70% of the portfolio is newly developed by us. We have long lease agreements. We are already now focusing on renegotiating all lease agreements that expire before the end of 2027.
So instead of continuously working with renegotiations, we can focus on, together with the tenants, identifying new locations for new stores in Sweden and Denmark and other markets. If you look at the property portfolio, we have a little bit more than SEK 5 billion in Sweden. We pass now SEK 1 billion in Denmark, and we have two properties in Norway. For the coming year, we're going to see that a little bit more focus on projects in Denmark and a little bit more focus on acquisitions in Sweden. Martin, you maybe can take the changes of the property portfolio.
Yeah, we start off the year with a fair value of approximately SEK 6 billion, and we have since made acquisitions of SEK 324 million, of which the majority is, of course, Segmentet 1 in Huddinge and Kungens Kurva. We have invested SEK 243 million in the project portfolio, and that run rate will increase now that we have the liquidity from the IPO to continue to focus on executing on the pipeline. As Fredrik mentioned, the yields are basically stable. We do have an unrealized change in value of SEK -63 million. The majority of that, SEK 50 million, is a write-down from Q1 in the Uppsala project, and the rest is a slight increase from 661 to 664 in average comparable yield from Q1 2024 to Q2 2024.
Looking to the left in the table there, the split between standing assets and project properties has been impacted by the fact that we have moved Segmentet 1 and Uppsala properties, SEK 470 million, from standing assets to project properties. We have also made a short-term letting of 8,000 square meters in the Uppsala property, which is a project property, but awaiting the zoning, we have made a short-term lease to a car dealership there. So it's quite a low square meter rent and quite a large number of square meters. So that also impacts the, so it's 8,000 square meters in that deal. So Fredrik, a bit about the.
Yeah, ongoing projects. We have 7 of them. We have 6 dots, but the projects in Hjulsbro involves two properties. But we can start in Sigtuna Municipality, where we have signed a 20-year lease with ChopChop. That project is going to be finalized in Q3. In Höör, we have signed a 10-year lease with Rusta. Previously, we have developed a JYSK, Jem & Fix, and Dollarstore. So we have used our last building right there. So that project is going to be finalized also in Q3. Eksjö, where we also previously have a scheme of discount retail, we have also used the last building right, where we have signed a 10-year lease with Rusta. That project is going to be finalized by the end of Q1 next year.
In Hjulsbro, which we communicated a couple of weeks ago, we have signed long lease agreements with Rusta and Jem & Fix. So we're planning to start construction within a couple of weeks. In Randers, the fourth biggest city in Denmark, where we are currently developing 6,500 square meters, we have signed long lease agreements with Lager 157, T. Hansen, and Dollarstore. The last project in Holbæk, Denmark, where we signed a 15-year lease with McDonald's. All of these projects are fully let. We never build on speculation. With this slide, I want to welcome all shareholders to the company. This is a top 10 list of the investors that have entered the company in IPO. So we're very happy that we've attracted so good investors to the company.
Some words on the finances. As Fredrik mentioned, the year-on-year growth in rental income is 18%, and the growth of the net operating income is 15%. The surplus ratio is going down a bit from 89% to 87%. The majority of the explanation there is the inclusion of Segmentet 1 in Q2 because that facility has not as high a surplus ratio as the rest of the Prisma portfolio. We're also a bit forward-heavy in the early parts of the year due to intense work with the IPO in the admin of the asset administration. Profit from property management, the adjusted with one-off items and currency effects, is SEK 37 million. Looking on the rolling 12-month number versus the full year 2023, we see a negative growth there, and the explanation there is that the organization has been built up during 2023.
Due to the more modest access to capital before the IPO, we have grown the organization to prepare for the IPO at a faster speed than we have grown the revenue. If we look in the rearview mirror, that will change now going forward as we now have built up the organization and we have liquidity to go forward. Capital structure, the balance sheet is super strong now that we have the liquidity from the IPO in. We have a net LTV of 27%. The interest coverage ratio is 2.1, average interest 5.26%, and we're still on just about two years on debt maturity. We have increased interest maturity with a change between we utilized the overvalues in the cap derivatives and changed that and took the opportunity to prolong a number of swaps. So we have increased the duration by one year, basically.
Still the same lenders, no other additions to the debt portfolio. We have Nordea, Swedbank and Niam Credit in Sweden and Spar Nord in Denmark. Of course, we will look into other parts of the capital market now that we are a listed company, and you will see us also working with the debt maturity, increasing that going forward. As we have so long WALTs, we think that the debt maturity could be longer than 2.3. The earning capacity, the rental value has increased with the start of rentals that have come on stream in Q2. We have aligned net property cost and project asset and asset administration to the new volume, so we're sticking to the surplus ratio of 90%. These numbers then exclude the Segmentet 1 temporary income from that project facility. It also excludes the temporary income from the car dealership in Uppsala.
We have increased the central admin. The starting point is a bit higher at the 1st of July, partly because we have the great pleasure to welcome Tom Hagen as CIO in the company. Importantly, the financial net does not include the interest income from the liquidity. We wanted to show the operating performance, so we have chosen to exclude the quite large interest income that we will have from the liquidity, at least initially. We plan to spend those money as soon in line with the project spendings, of course. The interest income is around 3.5% if you want to make your own assumptions here. If we look on the property yield and compare it to the standing assets and we exclude the rent discounts and we exclude the project and assets administration, the adjusted yield is 6.5%.
Of course, the income from property management per share has gone down now with a number of new shares in the share portfolio.
So with this slide, I want to show you our business model. Many others compare us with Cibus, Emilshus, and other ones who own properties within the discount segment. But business model-wise, we compare us more with Catena. But Catena focuses on a completely different segment. But we have a stable and high, we have a high yielding portfolio, but we are growing. So historically-wise, if we look back, we've grown towards 8% per annum. So we are planning to achieve up to 10% in the coming years.
With that, operator, we go to Q&A.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from David Flemmich from Nordea. Please go ahead.
Good morning and congratulations on your first report. I have a couple of questions. I can start with the potential project volume. In Q1, you said you had potential projects at a total value of SEK 1.9 billion to be started within the next years. In Q2, you say that number is SEK 3.5 billion. What's behind this significant increase between Q1 and Q2?
It's mainly because we selected to exclude both Uppsala and Segmentet 1 from that number in Q1, and those have now been included. And also a large project in Denmark has been included.
Great. Also, the yield on cost in ongoing projects increased to 7.4% from 7.2%. Is that due to a change in mix in ongoing projects, or do you see the potential to achieve higher yield on cost in projects you start now versus the ones you had ongoing as of Q1?
I think the ones we're starting now have higher yield on cost, and the change you see now is basically a mixed change because one of the worst performing has been out of the portfolio now. So the answer is both. And yes, we do see higher yield on cost.
Yeah, we see that the building cost has stabilized and gone down a little bit, and we're looking forward to see how the building costs are going in Q3 and Q4. So yes, we aim to have a higher yield on cost for the future projects.
The projects you have announced in Q2 and after Q2, I guess you have ongoing discussions with the builders. What do you see in terms of the construction cost in those discussions versus the ones you had previously?
The project that we have finalized the tender, it's in Rusta in Hjulsbro and Eksjö. We've seen that the building cost has gone down approximately 10% compared to previous years.
Okay, great. Moving to acquisitions, you obviously have a very strong balance sheet with a net loan-to-value of 27%, and you mentioned in the CEO letter that you aim to be active on the transaction market. You mentioned in the presentation that you are looking at acquisitions. Could you please elaborate a bit on what you are looking at in terms of segment geography, etc.?
We're focused on bigger schemes in regional cities in Sweden, both grocery and discount retail. If it's discount retail, we also would like to have that it's a grocery-anchored tenant. But we have identified several acquisitions that we were looking at at the moment.
Yeah. During Q2, we saw a couple of transactions in, yeah, basically the segment you are active in. Were you involved in those processes looking at those acquisitions?
Say again, which property?
The ones you referred to?
I'm talking about two portfolios that Svenska Handelsfastigheter bought.
We looked at them, but we were in an IPO process during that time. At that time, we couldn't have any closed discussions with them.
Okay, great. Just a confirmation, I see that the quarterly rental income according to the earnings capacity is SEK 95.5 million, which is 3.5% lower than the Q2 outcome. I understand that relates to Segmentet 1 and the short-term lease in Uppsala. Is that correct?
Yeah, the Segmentet 1 is included in the majority of the effect is in Q2, as you have the number in the report. It came in March, so the inclusion in Q1 is quite small. And we do have some revenue and operating income in Q2, but that will dilute going forward as we terminate the income, and part of the cost base will be still there, so to say. So Jump is the only tenant still there. And you can estimate that the operating net for the second half of the year will be basically zero for Segmentet 1. But it's not included in the earnings capacity, but it's included in the Q2 numbers correctly.
Okay. Great. And could you give an update on discussions regarding the property in Växjö that XXL will vacate in Q3?
Yeah. We have an ongoing negotiation with several discount retailers. So we're aiming to let that unit out to a new tenant within a couple of months.
Yeah. So you have sharp discussions with replacement.
We have sharp discussions, but it's still a negotiation, so nothing has been signed.
Okay. And on your third-party property agreement that has been terminated, how should we look at that in terms of property management costs ahead? Is it reasonable to assume a similar level, but that it will not grow in line with growth in your portfolio, or what's the most reasonable way to look at it?
You can look at it. It will be, I would say, slightly higher at the starting point versus the current number, but then it will be stable and handle more growth than it would have been able to if that is a good enough answer.
We can continue to grow the coming year or years without increasing the property management cost.
But we will not reduce the current number to a lower level. We will rather increase it slightly and then be stable going forward.
Yeah. So everything within the company now is looking forward. So now we have gone public. We've set up an organization for the coming years for the future growth, and we have the capital. So.
Yeah. So I think looking in the rearview does not make so much sense because the cost base and the debt base and the financing cost, etc., has increased faster in the rearview mirror than what we have had the capacity liquidity-wise to increase the top line. And now we start the way around. We have established the organization. Now we have the liquidity, and we can go forward with execution on the projects and acquisitions.
Yeah.
Yeah. But I guess the earnings capacity is a decent proxy for the run rate as of today.
Yes, of course. Yes.
Yeah. Yeah. Great.
As I mentioned, important on the earnings capacity that the financial income is excluded, the rent or the interest income on the liquidity we have opted to exclude and not to confuse anyone.
Yeah, that's clear. Sorry, just back to Segmentet 1. You had SEK 7 million in rental income in Q2. Will a majority be vacated already in Q3, or will it happen gradually in Q3 and Q4?
It's going to be by the end of Q4.
By the end of Q4?
Yes. We have several lease agreements that expire by the end of Q4.
Okay. So full quarterly impact as of Q1 2025 basically.
Could be some changes, but the majority of the income will be in Q3 and Q4.
Yeah. Okay. Great. And.
The only income within Segmentet 1 is core out that expires by the end of June. But all other tenants have lease agreements to the end of 2024.
Great. And in terms of potential project start, you enter the zoning process now. What's your best guess on when you could start the project?
Due to the fact that we're not going to do any bigger changing in the property. It's only at the moment we can convert the whole building to discount retail, but now we're also going to include grocery. So it's just more about changing that one. So in the discussion with the municipality, the estimate to change the zoning between 12-18 months.
Okay. Great. I think that was all from me.
Okay. Thank you so much.
Thank you.
Thank you very much. Thanks.
The next question comes from Albin Sandberg from Kepler. Please go ahead.
Yeah. Hi there.
Morning, Albert.
So, a question from me as well. Just to understand the kind of projects that you have press releases post the IPO, I'm thinking here aloud, looking ahead in Kiruna, for example. I think that was Rusta in Vänersborg, and so on. And then I read your comments in the report and saying that you include, I guess, it in your project portfolio overview once you have the contract with the builder signed. But you have also sort of indicated when you plan to start the project. So compared to those press releases, are there any major changes in timing, or could we expect once we get the Q3 report that these projects are then included in these ongoing project tables?
When it comes to Vänersborg, we can start as soon as possible. The only project that could be that depends on the timeline is Kiruna. Due to the fact it's just so north of it, it's a special time when you can start a building in Kiruna.
Sell in the market.
Yeah. I don't know what we call it, but so it gets so cold so quickly. So we're trying to start the Kiruna project before the winter comes there in October. But it all depends on the circumstances and the weather and also that we get a building permit.
Yeah. Okay. Good. And then obviously you're highlighting that out of your central costs, around SEK 19 is one-off. And looking at the earnings capacity and the estimated central cost run rate, do you think we're getting to that run rate already in Q3, or are there additional one-offs to be expected also for H2?
No. I would say that the IPO costs have been handled as of Q1. So the number in the earnings capacity is net of one-offs, so to say. So you should not expect any large one-offs going forward because apart from the we're hoping to be able to change the accounting standards on the financial net and the exchange rates for Q3. So that one should hopefully be out. And then on the central administration, we have done what we should have done on the IPO, which was the majority there. And the organization is getting close to finalized.
Yeah. Yeah. No, that's good. Yeah. It would be nice to get that XXL to the financial net, so that's great. But also then my final question, and maybe you talked about that before. I didn't quite really follow, but I guess average exit yield up 10 basis points quarter-on-quarter. It seems like it's across the geographies. And I think you also mentioned that you thought maybe now we're at, let's say, the highest exit yields that we would need to see. So just if you just could clarify that a little bit, whether I understood that right and what was driving that sort of yield expansion during the quarter.
Yeah. We have basically seen if I round off a bit and use only one decimal, we have basically seen stable exit yields since Q4. There's an unrealized value change of basically SEK 10 million from Q4 until Q2. The rest that you see is a write-down in Uppsala. We feel that the yield expansion has come to a peak. You never know going forward. Here and now, I would say that we see a plateau at least.
Great. Yeah. Thank you. That's all my questions.
Thank you, Albin.