Speaker #1: Prisma Properties have published a report for the third quarter of this fiscal year. Joining us here in the studio to present the quarter and answer your questions, along with the analysts' questions who are also joining us, is the company's CEO, Fredrik Messing, as well as the CFO, Martin Lindqvist.
Speaker #1: Welcome.
Speaker #2: Thank you.
Speaker #3: Thank you.
Speaker #1: You will give a presentation, and then we'll come back to ask a few questions. So by all means, go ahead.
Speaker #3: Thank you. Welcome to today's presentation of our Q3 report. My name is Fredrik Messing. I'm the CEO of Prisma Properties.
Speaker #2: And I'm Martin Lindqvist, CFO.
Speaker #3: Q3 has been a very good quarter for Prisma. We continue to grow with both profitable projects, but also very good acquisitions. I'm happy to share this quarter that we have now doubled our earnings capacity since we listed the company in June 2024.
Speaker #3: Almost the same when it comes to the value of our portfolio. From 6.5 at the IPO, up now to 12.5 billion SEK. We also reached one target that we set last year in October, that within a three-year period our portfolio shall include 50% groceries and daily goods.
Speaker #3: Already now, after 12 months, we have achieved that goal. So I'm very pleased with the team and what they are doing with the acquisitions and projects.
Speaker #2: And as of Q3, we see that the EPRA NRV per share compound annual growth rate—if we calculate since the IPO—has increased annually by 14%, which is very close to our target of 15%, which is a quite high ambition.
Speaker #2: So we're proud to be close to that target.
Speaker #3: This quarter we have started four new projects, totaling 200 million SEK. One in Næstved, Denmark, where we are developing this kind of retail and groceries.
Speaker #3: And then three QSR projects: one in Ingast, in Denmark, and then two in Sweden, in Sandviken and Strängnäs. Both Sandviken and Strängnäs is previously a building rise that we have owned for several years.
Speaker #3: So I'm very pleased that we have activated them. Both rental income and NOI increased this quarter. Rental income increased by 48%, and NOI 43% up.
Speaker #3: Profit from property management increased with 28%, up to 78 million SEK. When it comes to property yield, we had a compression of 23 basis points.
Speaker #3: Now we're on 6.25. And this valuation reflects the high interest and even increasing interest from Nordic and international investors within this kind of retail and groceries.
Speaker #3: Our vault, 8 years, we have had an uptick of 0.3 years. This quarter, from 7.7 to 8 years. This is due to the latest acquisitions we made.
Speaker #3: Net letting, this quarter, 11 million. That's excluding the bankruptcy from NRG Pizza. Which are the monster franchise for Pizza Hut in Sweden. The bankruptcy of Pizza Hut has affected both the net letting, which is 0 after the deduction of the Pizza Hut, but also have affected our occupation rate with 1% down to 97.6%.
Speaker #3: This is a short-term effect. We're planning to let all these units during Q4, and they are planning to open up all the restaurants during 2027.
Speaker #2: And as we see a continued rebate in the share price, we have—or the board has—decided to increase the buyback program from 80 million to 140 million SEK.
Speaker #3: Having a look at our top 10 tenants, we are growing together with Kesko and Rusta this quarter. Kesko is now our second largest tenant, and we are planning to continue to grow with them on the Finnish market.
Speaker #3: The same is for Rusta. But both in Sweden and Finland. If we have a look at the rental income split, now groceries and daily goods are 50%.
Speaker #3: And for the coming quarters and the years ahead, you are going to see that this segment is going to increase over time. This is due to several factors.
Speaker #3: First of all, in Sweden, there are high interests from all grocery chains to establish new stores. Both ICA, Lidl, and Willy's. And we are planning to communicate several new products the coming quarters.
Speaker #3: In Denmark, we are planning to go with Netto or Salling Group, with both acquisitions and new development projects. And then also the third factor is our largest building right in segmented one in Kungens Kurva.
Speaker #3: Which we are planning to communicate in Q4, now in November or December. We are have a ongoing zoning process. We have signed an LOI with a tenant.
Speaker #3: And I'm looking forward to present our plans for this asset. If we have a look at our vault, 8 years, as in previous mention, uptick of 0.3 years.
Speaker #3: Now 88% of our leases mature 2030 and beyond. We continue to defend our long vault by trying to renegotiate all lease agreements expiring before the end of 2029, but also sign new long lease agreements 10 years plus with new tenants and in new acquisitions.
Speaker #2: As Fredrik mentioned, the yield compression in the quarter versus Q2 was 23 basis points, representing a value uplift of 465 million. Or 3.8%. The compression, the yield compression, is evenly spread across our different categories and also across our various geographies.
Speaker #2: Looking to the left there, we see that Finland is now actually larger than Denmark. And looking on that table to the—or graph to the right, we see that we have made 1.5 billion in acquisitions.
Speaker #2: We have made 700 millions in investments in held properties. So we are well on track to our 1 billion target for the full year.
Speaker #2: And as of this quarter, quite an uptick in value changes as well. And we have had some tailwind of the currency as well this quarter.
Speaker #2: So we're landing on 12.5 billion as property value.
Speaker #3: Currently we have 11 ongoing projects of an average yield on cost of 7.4%. In this slide I would like to highlight the benefit of being a developer.
Speaker #3: So 70% of our current portfolio is newly developed by us. We had a target that the EPC shall be 90% A to B before the end of 2028.
Speaker #3: So in today's market, in all the discussion, people focus on cash flows. And cash flows are important for Prisma, but also all other real estate companies.
Speaker #3: But the benefit by doing development is that in the end we get a modern portfolio, long cash flows, because we signed 10 to 20-year leases, and we had a very good EPC.
Speaker #3: So in the long run, we will benefit of our good EPCs and very low deferred maintenance compared to our peers. When we have a look at our construction stars, we have started 4 new projects in Q3.
Speaker #3: And for the coming quarters, we are set to start several new projects in total 717 million SEK. And we are quarter by quarter going to add many more new profitable projects to this list.
Speaker #2: On the shareholders, as of September 30th, we see that Per Arvidsson of Arvids Ro has entered the owner list as the second largest owner after Alma Properties.
Speaker #2: Holding 9.1%. Other than that, we can comment that Prisma Properties now holds 1.4 million treasury shares, representing 0.9% of the capital. Rental income, up 48%.
Speaker #2: That is mainly driven by the acquisitions we made in Finland early in the third quarter. But it's also due to the projects that we started in Q2, that will have a full quarter effect now in Q3.
Speaker #2: And also a bit of projects that started during Q3 and also acquisitions. But that's a smaller part. So the main part here is the large acquisitions in Finland in the beginning of Q3.
Speaker #2: Looking at the NOI and surplus ratio, we see that the surplus ratio is on the soft side in Q3, only 86%. That is mainly driven by the fact that we made an investment of roughly 2 million crowns in inspecting all our roofs in all our buildings.
Speaker #2: To make sure that there are tight, weather-tight. And we have also a bad debt provision from the energy pizza bankruptcy. So if we adjust for those two factors and as we usually do also adjust for the NOI in segmented one, we actually are at the 90% surplus ratio that we usually report.
Speaker #2: On the income from property management, CA or Central Administration is on the run rate where it should be. We are a bit front-heavy on the lending or borrowing side as we made a big renegotiation of the debt portfolio in Denmark at good rates.
Speaker #2: In the real credit system. So a bit of uptick on the interest cost. And we also wrote down accrued arrangement fees of 2 million SEK in the renegotiated part in Denmark.
Speaker #2: On the capital structure, 6.8 billion liabilities representing a net LTV of 51%. With the renegotiation and the we entered a 20-year loan in the real credit system, we increased the debt maturity basically to 2 years.
Speaker #2: So now landing on 4.4 years. Average interest stable versus Q2 where it was 4.19, now 4.17. And the interest coverage ratio is stable at 2.3 times.
Speaker #2: Please also note that we have made a correction due to a systematic calculation error. The average interest rate of the swap portfolio was understated from Q4 to 2025 through to Q2 2026.
Speaker #2: So see the official report for details there is no other impact in the financial statements or other key figures other than in this table.
Speaker #2: Earnings capacity, can we in a bit higher than what we promised in the Q2 report? And that is due to that we closed the projects in Ullevieska and we closed the acquisitions in Rasepuri and Vala.
Speaker #2: Earlier than we planned in Q2. So the Q3 number is a bit higher than what we said in Q2. And that is offset by the exclusion of the rental value from energy pizza.
Speaker #2: So that is why we see the Q2 2027 number being at the same level as in the last report. So we have some additions of projects and acquisitions.
Speaker #2: But also the exclusion of the 11 million from energy pizza, which is working the other way.
Speaker #3: To sum up, Prisma is in a good position to create continued to create value for the coming quarters ahead.
Speaker #1: Thank you very much, Fredrik and Martin. We'll soon hear to our analysts. But while they prepare their video scene video feed and sound feed, I thought I could begin with opening up with this question.
Speaker #1: If we look over your portfolio, Grosjean Daily Goods continue to grow, now making up 50% of your rental income. Why do you choose to focus on that segment in particular?
Speaker #1: Is that a defensive profitable or growth exposure?
Speaker #3: I would say it's all of these factors. But mainly we would like to have a better split in the portfolio. Initially when we started Prisma, we were mainly focused on discount retail.
Speaker #3: And now in these days when the grocery chains wants to continue to grow, especially in Sweden and Denmark, it's a good thing that we have increased that exposure.
Speaker #3: So we want to be the preferred partner when they want to establish new stores.
Speaker #1: We turn now to our analyst. And we open up with Oskar Lindqvist from ABG Sundar Collier. Please go ahead and ask your question.
Speaker #4: Hi.
Speaker #2: Hi.
Speaker #4: Just so just to start off, on the energy pizza units, what is your expectations of signing replacement leases here and what sort of timeline can we expect?
Speaker #3: We are planning to do that during Q4 this year. And that all the new stores shall open up the new restaurants shall open up during 2027.
Speaker #4: Okay. Good. And then on the value changes in the quarter, how much of that is sort of derived from yield compression and projects?
Speaker #2: Almost all of it is yield compression. You see it going down by 23 bips in the quarter. So the vast majority of it is the yield compression.
Speaker #2: And that's spread basically in mainly Denmark and Sweden, not so much Finland, but also across the categories. So we're making normal project profits, but that's not the large number here.
Speaker #2: It's the yield compression.
Speaker #4: And also if you could add some comments on what you're seeing in the transaction market and given where rates are at now, what is your sort of how far are you willing to go on LTV?
Speaker #2: Total transaction market.
Speaker #3: When it comes to the direct the market, we see today that the yields are going down, especially in Sweden and Denmark. An increased interest from both Nordic and international investors.
Speaker #3: So I'm happy at this moment that we also have this project development part of our company that we now we when we don't see so many attractive deals, we can focus on project developments on attractive yield and costs.
Speaker #4: Okay. Thanks. That's all from me.
Speaker #2: Yeah. Thank you.
Speaker #1: Thank you very much, Oskar Lindqvist. The next analyst that joins us is Staffan Bülow from SB1 Markets. Go ahead.
Speaker #5: Good morning. Hello. I hope that you can see and hear me.
Speaker #2: Yes.
Speaker #5: So starting off with the target to reach a property value of 16 billion by 2028. So how important is this to reach that target in terms of absolute numbers?
Speaker #5: I'm thinking that you're saying that the market is strong. Could you perhaps be open to sell properties to fund high-yielding acquisitions in Finland and Denmark and high-yielding projects or share buybacks instead of sort of reaching the 16 billion target?
Speaker #2: That's correct. The 16 billion was it's not an ambition in itself to have an absolute asset number. The profitability is the main point. But we wanted to convey our sort of speed forward in when we convey that 16 billion.
Speaker #2: And it was also at that time going from 8 to 16, a doubling of the asset value. And we saw also that we could within the current financial policy if you calculate with the project profits and the value uplift from the inflation, and the 55% LTV target, we should be able to make that 16 billion without going to the market for additional capital.
Speaker #2: So that was the basic idea behind that, to show you the way forward and the tempo forward. We are ahead of that plan. We are already at 12.5.
Speaker #2: And but we could if we see a good opportunity we could absolutely sell a low-yielding to replace with high-yielding projects or acquisitions. Any further comments?
Speaker #3: Yeah. We're going to focus on profitability before volume. So yes.
Speaker #5: Okay. Yeah. That makes sense. And in terms of the buyback program, you almost doubled the buyback program. And when you complete the program, do you think that you will renew it or should we view this as a one-off program?
Speaker #2: For now, you should view it as a one-off. And we will come back to any decisions by the annual meeting and the board regarding buybacks going forward.
Speaker #2: But with the share price and the rebate where it is, it's a sound capital allocation. And it's not competing dramatically with projects or acquisitions.
Speaker #2: We can do both the growth part and the buyback part. And that's a wise capital allocation as we see it.
Speaker #5: Okay. Yeah. Thank you. And in the last months, you have made property acquisitions in Denmark, two quite minor but to my understanding, you have sort of described Finland as a prioritized growth area in terms of acquisitions.
Speaker #5: How would you describe Denmark? Would you say that that is a prioritized growth area or are the last two acquisitions more that you have found attractive properties at attractive yields?
Speaker #3: I would say at the moment we see most attractive acquisitions in Denmark at the moment because the spread is better than Denmark compared to Finland at the moment.
Speaker #3: So it was a good thing a good thing that we decided to enter Finland last year that we now have built up a portfolio of around 2.7 billion.
Speaker #3: If we started today, we would not be able to do that. At the moment, we see don't so many potential transaction on the Finnish market.
Speaker #3: We can do some selective acquisitions of discount retail in Finland. Otherwise, we focus to buy build up our portfolio in Denmark. Especially with groceries in combination with our pipeline in Denmark.
Speaker #5: Okay. Thank you. And then a question of the occupancy rate decline is that fully attributable to Pizza Hut or is it something else?
Speaker #2: I think we even if you exclude the effect of Pizza Hut, which is 1.5% in the current in relation to the current volume, it was 1.7 in Q2.
Speaker #2: But we have grown since then. So the decline of 1%. Actually represent an increase if you exclude the effect of Pizza Hut. So I think we would be quite just a tenth above 99 actually if we exclude that one.
Speaker #5: Okay. Yeah. That's very clear. And then finally from me, I just wanted to make sure that I heard it correctly regarding the Kongens Kurva property.
Speaker #5: But I think you said the ambition is to give some more information in Q4. Did I understand it correctly?
Speaker #2: Correct. Yeah.
Speaker #5: Oh, okay. All right. Thank you for answering all my questions.
Speaker #2: Thank you.
Speaker #3: Thank you.
Speaker #1: Thank you, Staffan Bülow. The final analyst joining us here is Emil Ekholm from Pareto. Please go ahead.
Speaker #6: Hi. Hope you can hear and see me.
Speaker #2: Yes.
Speaker #6: Just a follow-up on the NRG properties. Is that one tenant taking all their premises and will that likely be on the same rent level as NRG?
Speaker #3: No, it's going to be a mix between tenants. So we are now we've shown a high interest from all the QSR tenants for these locations.
Speaker #3: So we are currently in a discussion and negotiation with several QSR tenants.
Speaker #2: But there might be one or two that will take more than one entity. But no one will take all of it.
Speaker #6: And in terms of rent levels, would that be similar to NRG or could we expect some improvements?
Speaker #3: Maybe some improvements. But the assumption is that we can at least get the current rent level based on zero capex. So we're going to get maybe an uptick depending on how much capex we need to put into these assets.
Speaker #6: Okay. And would you assume any discounts for the first periods or is it full-on right away?
Speaker #3: We can disclose that during Q4 when we have signed all the lease agreements. But at the moment, we're in a discussion and negotiation. So it's too early to say if or how many discounts going to be the first year.
Speaker #6: Makes sense. You've also been quite active on the transaction market so far this year. What's your expected investment capacity over the next 12 months?
Speaker #3: Yeah. At the moment, we see few possible acquisitions that we can do in especially in Sweden and Finland. We see some also some selective acquisitions that we can do on the Danish market.
Speaker #3: But at the moment, we have put a little bit more focus on the project development, especially when we have a very attractive pipeline with a high yield on cost.
Speaker #3: So the main focus the coming quarter is going to be profitability before volume and focus on the right projects and the right acquisitions.
Speaker #2: And the net LTV as of Q3 is 51%. We have a policy of 55 with temporary deviation up to 60. So within that, we are able to reach the 16 billion all things else alike.
Speaker #2: So that gives an indication of where we can go.
Speaker #6: Perfect. Yeah. That's all from me. Thank you.
Speaker #2: Thank you.
Speaker #1: Thank you, Emil. And building on Emil's questions about the NRG, I'm curious because you mentioned that you're currently in discussions and negotiations with potential new tenants.
Speaker #1: You're expecting to sign Q4 given that that timeframe holds. When do they enter the property?
Speaker #3: During 2007, it depends on which tenant it is. If they can but our aim is that they open up as soon as possible. But what we can say today is during 2027 and in our point of view as soon as possible.
Speaker #1: I know you also talked about this with the analysts as well, the share buyback program that you're increasing. You're almost doubling it from 80 million to 140 million SEC.
Speaker #1: Why is the increase the right move for Prisma considering the pace that you want to grow in?
Speaker #2: On top of what I mentioned in the analyst session, with the wise capital allocation, there's also an element of taking care of the liquidity in the share.
Speaker #2: Both now and going forward because we see that the uptick since we started the buyback program is important. So that's a factor as well.
Speaker #2: But the main part is that it's a we can buy nice assets at 30% rebate.
Speaker #3: Yeah. Precisely. And you mentioned in the presentation as well selective acquisitions. Can you elaborate on that? But it's supportive for us that when we buy something, it's going to hold for a very long time.
Speaker #3: So we want modern buildings with long stable cash flows. So at the moment, we believe that we have the most Nordic most modern portfolio.
Speaker #3: And we can't see any bigger acquisitions that a portfolio that suits Prisma. So for us, the best strategy is continue with developments but also do these selective acquisitions across all the markets.
Speaker #1: In the report, we can read that the LTV, the net LTV now exceeds 50%. And considering your long-term ambition to stay below 55%, how much do you feel that you can you're able to grow in this pace without straining your balance sheet too much?
Speaker #2: I think up to the 16 billion that we talked about earlier in the analyst session is the same answer there. Yeah. So we have further capacity with the 51%.
Speaker #1: We'll talk about interest rates in just a moment. But before we do that, I would like also to remind our viewers that if you have any questions now, it's the opportune moment to ask them in the chat.
Speaker #1: So Swedish Central Bank, in the last debate meeting, they left the rates unadjusted. And but they guided for higher rates in the future. How well prepared is Prisma Properties to handle another rate cycle?
Speaker #2: We have a high share of the debt is secured by interest hedging. And of course, we take the interest into consideration as everyone else when we make decisions about our growth.
Speaker #2: But here and now, our portfolio is delivering high cash flows. It's high yielding. Back in the day when we formed Prisma, we had an average interest of 5.3 versus the current 4.2.
Speaker #2: So we are equipped to handle a higher interest climate but we will not make any foolish decisions on too high rates, of course.
Speaker #1: And of course, you can sort of control how that impacts you, of course. But how well prepared are your tenants? Should investors expect any impact on those reflected in occupancy rates, for instance?
Speaker #2: I bet they're the opposite.
Speaker #3: Yeah. Yeah. This is the asset class you want to own in these times. So our tenants are robust and they're performing very well in good times but also in bad times.
Speaker #3: So I think with high interest
Speaker #2: rates, you also see high inflation and there you see an inflow more customers to these discount stores.
Speaker #1: Martin Lindqvist and Fredrik Messling, thank you very much for being here and answering our questions. Thank you.
