Welcome to Prisma Properties Q3 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to CEO Fredrik Mässing and CFO Martin Lindqvist. Please go ahead.
Thank you, and welcome all to our Q3 presentation, where me and Martin will provide an overview of our financial performance and key developments this quarter. In Q3, we saw a strong rental growth with a 16% increase year-over-year. Our net operating income was SEK 88 million, up from SEK 75 million. This growth was mainly driven by acquisitions, completed projects, and CPI-adjusted leases. Currently, we have 124 properties with a valuation of SEK 6.6 billion. We've added one property this quarter, and this is Vänersborg, where we are planning to start the construction of a new Rusta store in Q4. Worth mentioning this quarter is that continuing our tenants and the whole discount segments are performing very well, and all the leading discount retailers continue to show high interest in establishing new stores on new markets and also existing markets.
This quarter, we achieved an adjusted profit from property management of SEK 46 million compared to SEK 29 million previous year. We have also signed our first of many acquisitions as a listed company and a well-performing retail centre in Gothenburg that has potential for future development. This deal has been signed, and we are expected to close the deal on the 22nd of November. Furthermore, we have signed several long lease agreements, strengthening our position both in Sweden and Denmark, which have resulted in a net letting of SEK 12 million this quarter. These lettings help us maintain our occupancy rate of 99%, and we are pleased to sustain a WAULT of 9.1 years. When it comes to the organization, our property management organization is now fully operational, allowing us to manage our assets more efficiently for the future.
The current management agreement with P&E Property Partner terminates by the end of the year, so during Q3 now and Q4, we have double costs for property management, and this has been accounted for in the central administration. Next slide. We can see that we continue to grow with the leading discount retailers. We have done some changes when it comes to the income split. We have included now the income from fast charging into the fast food segment, and this is a normal thing due to the fact that fast food and charging go hand in hand when developing these projects. One of the most important lettings that were done this quarter is that we have signed a 10-year lease with Dollars tore in Växjö, who will now take over the previous XXL store we vacated at the end of September this year.
Dollarstore will move in in March 2025. So, with this letting and some smaller renegotiations, we only have 1% of our contracts expiring now until the end of 2026. So, this gives us the ability now to focus only on growth and identify new projects and new acquisitions together with the tenants and municipalities around Sweden and Denmark.
Looking on the property values of SEK 6.6 billion as per this closing, we actually saw a small uptick in the values, small but sweet. The yield contracted from SEK 6.64 down to SEK 6.62, resulting in an uplift of SEK 31 million. So, small numbers, but those give us comfort in the gut feeling that we also had in Q2 that the valuations should have at least bottomed out, and we are optimistic about the valuations going forward.
Looking at the table to the left there, where we list the rental values, you can look at the property standing assets, where we have a rental value of SEK 394, which is basically flat from Q2. We have had the opening of Rusta late in September and the opening of McDonald's in Holbæk, I think the 1st of October. So, these have come into the rental value, but on the other hand, the XXL asset has come out due to the vacating there or vacating that property, and that is now into a short project until Dollarstore moves in March 2025. We go into the next slide showing some ongoing projects.
Yes, currently we have five ongoing projects. We can start with the first one in Sigtuna, where we signed a 20-year lease with ChopChop. This construction is going to be finalized by the end of November, and the next one, Eksjö, we have signed a 10-year lease with Rusta. Both Rusta in Eksjö and our project in Ljusdal, both of these projects are going to be finalized in March 2025. In Randers, Denmark's fourth biggest city, where we have signed long lease agreements with Big Dollar, Lager 157, and Thansen, that project is ongoing, and we plan to have a finalized project by latest in December 2024 this year.
We can mention that Ljusdal actually has two tenants, one or two projects basically, but we keep them together as they are simultaneously performed. It's Rusta and Jem & Fix.
Yes, and the last ongoing project is in Støvring, where we signed an 11-year lease with Harald Nyborg, and that project is planning to be finalized in May/June next year. Our planned construction starts during the coming quarters. During this quarter, we communicated both that we signed contracts with Rusta in Vänersborg and Dollarstore in Östhammar. We have received building permits of both of these projects, and we're planning to start this in Q4 2024. We've also signed a contract with Lager 157 in Hjørring, which we're planning to start now in Q1 2025. We're currently doing a tendering of that project. We can see that we have several projects with Dollarstore in Denmark.
Previously this quarter, we have communicated that we signed up to 14,000 square meters with this tenant, and we're very happy that we can continue to grow with Dollars tore in Sweden and Big Dollar in Denmark. Worth mentioning also is Lidl Uppsala. This is our second lease agreement that we've signed with Lidl. The first one was in Mellbystrand, where we are now currently changing the zoning. But in Uppsala, this involves a property in central Uppsala where we don't need to change the zoning. So here we have applied for a building permit, and we estimate now that we can start the construction in Q1 2025. The next project, Mora, which we communicated yesterday, is a very good project in a central location in central Mora.
We've already signed a contract with Lidl and Jysk, and this morning we have also signed a 10-year lease with the discount chain Thansen.
The iconic named discount there in this place is actually Thansen.
So we're planning already to start this construction next in Q1 2025. In Aalborg in Denmark, we are planning to develop a hub of fast food restaurants, and that construction start has been set to Q2 2025. With Dollar store in Kiruna, which we previously have communicated, we will start when the winter is over in Kiruna. We are not able to start the project now in Q4. We have to wait until Q2 2025. We mentioned the Dollars tore project in Denmark. We have also Gothenburg, where we're planning to do an extension of the retail centre that we have acquired in Gothenburg. We're now in negotiation with several discount retailers to take over to let up to 3,000 sq m. The last planned project is Netto. We're not growing only with discount stores. We're also growing with food.
So for this quarter, we have signed contracts with both Netto and also Løvbjerg in Silkeborg.
Looking on the shareholder list, the top list, it is basically the same as last of June. So no major changes, just on the decimals here. As you know, we made a small comment down below there if we add the management holding that is seen as a group, the management on Prisma would actually be on the top list with 2.2% ownership. So continued skin in the game for management. Going to the finance update, Fredrik already mentioned that we have a growth of 16% on rental income. That growth comes from three places. It's the store openings that have happened during the last year and the CPI adjustments going into 2024, and also a small and declining effect from mainly the acquisition of Segment 1 in Q1, and there you know that the revenue is declining.
If you look sequential from Q2 2024 to Q3 2024, we are winding down that rental income, but that is specified in the report. The increase of 16% basically filters down to net operating income unchanged, and then we have an even higher change positive in the profit from property management. And the main effects here are one positive and one negative. The positive one is that we are now receiving interest income on the IPO liquidity that we have of approximately SEK 10 million in the quarter, but that is then offset slightly by the increase in size of the group. We have increased the central administration size since last year, but also, as Fredrik mentioned, we are accounting the double cost for the asset management awaiting the termination of the asset management contract with P&E Property Partner.
And for simplicity reasons, we're keeping that accounting in the central administration to keep track of the doubling there, but that should go out once we come to 1st of January. On the balance sheet, no changes there in the structure, basically only calendar effect on the debt maturity and average interest. We're still in the two area on the ICR, and the net LTV has come up slightly and will, of course, continue to come up as we spend the cash we received in the IPO on the projects. Worth mentioning here is you see a small uptick in the interest rate, average interest rate, which might look a bit strange, but we are including in the 5.30 all the interest in the swaps and in the paid variable interest costs as per the date of the closing.
And some of our rate fixings are actually happening a few days into the coming month after the quarter end. So a large portion of the paid variable interest is actually being rate set 15th of July and 15th of October. So the 530 is based on in the declining interest environment, this gives effect that we're not getting the full effect on the paid part. So if I would set all rates to the last of September, the rates at that date, the average interest rate would be 501 instead of 530. But other than that, no changes in the structure of the finance. Other than that, we are, of course, now in negotiations with our current suppliers and new suppliers for coming investments and coming renegotiations of financing.
The earnings capacity, as we mentioned in the property slide, the rental value is basically unchanged with Rusta being added and McDonald's Holbæk being added, but also XXL being deducted as that now is gone into project mode awaiting the store opening of Dollarstore later in 2025 or early 2025. No other updates to the earnings capacity other than that we have now included, and this is important to take note of, we have included the interest income in the financial net and just simply putting the SEK 1.113 billion times 3.3% in the financial net, assuming that that cash is stable. That's the only way to make the calculation without making some sort of forecasts here, so last quarter we had not included it, now we have included it, and it's basically the cash balance times the interest, and it's included in the financial net.
The reasoning behind it, it was if we're not including it, it becomes a bit skewed on the earnings per share, on the income from property management per share. As the shares have come in in the IPO, we should also calculate the cash. That's the reasoning behind, but as long as we tell you how we calculate, it's not a problem, I think. That concludes what we intended to say, and we can now go into Q&A already.
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Albin Sandberg from Kepler Cheuvreux. Please go ahead.
Yes, hello, Albin from Kepler.
Hello, Albin.
Three questions. If we start on slide eight on your potential construction starts, I know we discussed the Kiruna project and the impact on winter, so I understand that. But looking already in last call, would you say what are the, let's say, are there any uncertainties around the rest of the projects for these to eventually end up at slide seven, sort of the ongoing developments?
Yeah, this is our best expectation at the moment based on the tendering and the talks that we have in municipalities, how the building permits are going, how the zoning process is going. So this is the current timeline, and we believe that we can manage these timelines.
So just taking the two maybe first ones since it's consensus Q4, have you actually already put the shovel in the ground or because, I mean, now we're already one month into Q4?
First, Vänersborg and Östhammar, the first two projects, which is in the southern parts of Sweden, we feel very confident that we're going to start the construction within a couple of weeks.
Perfect. That's what we're there.
So the only project that we have is in Kiruna. The open window to start a project is by the end of Q2 and during summertime. You can't start the construction of the concrete slab and the groundworks in Q4 and Q1. So that's the only project that we have to wait with construction start.
Yeah, no, that's fair.
And I also very much appreciate that you have put your estimate of the investment there in terms of CapEx again on slide eight. I know in your slide seven you also provide the rental value, but should one assume maybe 7.5% yield on cost on these 7.55, is that a fair assumption?
Yeah, I think we mentioned that number in the report, 7.5 is the average for CapEx.
Yeah. But I guess eventually, as these projects move into the current, you might disclose the actual rental value as well, or?
Yes. Correct. Yes.
Good, and then I just wonder, any recent update on the Kungens Kurva project or expectations of timeline there?
Yeah, we are waiting for this decision to start the zoning process with the municipality, and we are in negotiation with several tenants for the project, so our aim is to communicate our plans in the Q4 report.
Good. Thank you. And my final question was just, so I understood the reletting in Växjö. Would it mean any, do you lose any rental income? I mean.
Compared to the.
When Dollarstore moves in, yeah.
We will maintain almost the same base rent, but we need to give rental discounts to Dollarstore due to the fact that they have a couple of time left in their current store with MSS. So we need to make sure that we long-term attract Dollarstore to this location. So the tenant has been very clear that this is a better location. So we achieve the same, almost the same base rent, but we are going to need to give them some rental discount as long as they have their other store in place.
Okay. And sorry, one more question then also to Martin on the 5.01, the average interest rate as of maybe start of October 1st. Should I read you that when we started on October 1st, then that is the relevant figure to look at? I mean, the base rates have been reset at this lower rate.
Exactly. So the 530 is handicapped by the fact that the rate sets from July 15th are not yet reset in that number. But if I would use the rates for 30th of September and assume that the rate resetting on the 15th of October would be that number, it's 501 rather than 530.
Yeah. Great. Okay. Thank you very much.
Thank you.
All for me.
The next question comes from David Flemmich from Nordea. Please go ahead.
Hi. Thank you for taking my questions.
Hi, David.
Hi, morning, David.
Hi.
I think my questions are fairly similar to Albin's, but I have a follow-up on the yield on cost on the planned projects. You referred to the 7.5%. The way I interpreted it in the report is that that is for the ongoing projects. Is that correct?
Yes, that's how we interpreted the question. So sorry if we misunderstood. The 7.5 is for the ongoing. Sorry that I misunderstood.
Can you give an aggregated estimated yield on cost for the planned projects? Because I see the projects you disclose in Eksjö and Ljusdal, they look to be well above 8% yield on cost, rather 8.5%. What's your estimate for the planned projects?
We have a positive. We don't have an exact number for you here and now, but we do see positive signs on the yield on cost in the project portfolio.
Yeah.
We follow our profit requirements, so 20% profit margin for discount stores and fast food and 50% off.
So that is a hard limit for you to start a project. Is that correct?
Yes.
Yeah.
Okay, so it's not unreasonable to assume that the yield on cost in future projects will be higher than the average for ongoing projects because in ongoing projects, you have the Valsta project running at 5.8.
I would say that's a correct observation.
Yeah. Great. And then in terms of the property management organization that has been taken in-house, can you give an update on estimated cost savings of taking the property management in-house in the earnings capacity you guide for property admin on an annualized basis of SEK 20 million? And you write in the Q3 report that central admin is burdened by SEK 4 million. Is it correct to annualize the SEK 4 million up to SEK 16 million and that the cost savings will be SEK 4 million per annum as of 2025?
No, the 40 in central administration in the earnings capacity, that is the current status of the central administration excluding one-time items. So the double cost for the property administration is not included in that 40. So you see the number for Q3 isolated is 14, so that is burdened by that double cost. So you should not extrapolate those 14 in the quarter into a full year number. So the 40 is sort of a clean run rate for the central administration going forward. And then the property administration of 20 per annum, that is where we're aiming with the new organization. We will not save any money initially, but we will be able to take on further volume with a constant organization rather than having to pay by square meter to an external supplier. So you should not expect that number to go down further.
No, but for the future, the current organization, if you look at the agreement that we have with P&E Property Partner, that fee was based per square meter, so when we bought a property, the property management cost went up. Now we can continue to grow, especially in Sweden the coming year with tens of thousands of new square meters without increasing the central administration, the cost for property management in the same way as before.
Yeah.
Okay.
The guys are working intensely now with. It's a slight difference or a difference, to be polite. If you have an in-house organization or if you have an external organization in terms of being on top of each and every crown, and the guys that have come in, they are now looking into every little pocket everywhere to make sure that we invoice out everything that we are allowed to invoice, that the charge-out rate is perfect, etc. So these guys will find productivity, they will find savings going forward, but you should not expect a cost cut. It's rather that we establish our organization to take care of further growth.
Okay. That's great. And my final question regarding refinancing. You have almost SEK 800 million maturing in one year. I guess you started the discussion with banks regarding that. And can you give an update on expected or indicated margins in those discussions compared with current margins for secured bank loans?
Current margins on average right now are 2.2, 3.0, in the 2.20 area, and we will be below 2 with the margin, I would say, in these. So we are looking at, of course, lower margins in the negotiations. I don't want to be too exact, but we have high expectations and we do have high interest from.
All banks.
Banks are calling us now instead of we calling them as we did in 2022 and 2023. So we are looking forward to constructive discussions with not only existing banks, but also new relationships.
That's great. Final question, sorry. I guess you touched upon it in the report, but the project in Randers is quite large and is due for completion in 2024. Do you expect any rent contribution already in the Q4, or should we expect that to mainly be in Q1?
There will be a rent contribution. The date is 28th of November, I think, the opening. So it's that Black Friday
Maybe.
Yeah, I think so.
I think that's synced well. So there will be a slight contribution from that, but not the full quarter, of course.
Okay. Sorry, are you able to give an update also on the Sigtuna-Valsta? You said 28th of November for Randers, and the Valsta project also expected to be completed in 2024. When's the date for that?
It's in the ongoing and it will be opened. I think the contract starts at 1st of November.
Yeah. I think they have a plan opening the 27th of November.
Yeah.
Okay. That's great.
One month.
Yeah. That's all from me. Thank you very much.
And then I can mention also on that note, David, we had the Rusta Höör opening in the very end of Q2, so you will see a full quarter effect from that one, which you didn't see in Q3. We had it as a completed project, but there were only a few days rent contribution in Q3. So that will be a full quarter for Rusta H ö ör also.
Okay. Super. Thank you.
Thank you.
Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Thank you all for this presentation, and we can end with "Make this country great again." Thank you all.
Thank you.