Prisma Properties AB (publ)

Hello and welcome to our Q2 presentation. This is our first presentation as a listed company. We are, 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 6.5 billion SEK. 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. And we are now aiming towards a 100% left 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 37 million, which are in line with our expectation. We continue to grow. We have signed several projects and several lease agreements around Sweden and Denmark. For example, we have signed several lease agreements with Villus, Lidl and Rusta. So the net lifting this quarter amounted to 50 million SEK, which we are quite happy with. When it comes to completed projects, we have completed several ones. For example, Big Dollar in Fredrikshavn, Cave Sea in Tärby and also Villus 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 that Segmented One, one of our biggest projects in Kungeskurva south of Stockholm. In this report, the operating income are included, but we are planning to evacuate all tenants except one to be able to redevelop the whole scheme for the coming years. And 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 a zoning process where we are after all 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 all except development, but also acquisitions. And 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 and in his previous role at Alma. So we're very happy that he has joined the team at Prisma. The third and the last thing I would like to mention is our property management agreement that we have with P&E properties. 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 of property management. A little bit more about our tenants and lease maturity. Top tenants, larger tenants. This includes also ongoing projects. We continue to grow together with the leading discount retailers, especially with Villis 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 acquisition that we have identified, we're going to see that the grocery segment is going to increase up to 30 to 40 percent the coming years. If you look at the old 9.1 years, we're quite happy that we have defended that figure. We had 9.1 years in Q1 also. And due to the fact that we are developers, so 70 percent of the portfolio is newly developed by us. We have long lease agreements. So we are already now focusing on renegotiating all these 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 five billion seconds in Sweden. We've passed now one billion seconds 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 may be able to

take the changes of the property portfolio. So we start off the year with a fair value of approximately six billion and we have since made acquisitions of 324 million, which the majority is of course segmented one in Hudvigenkungens Kurva. We have invested 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 minus 63. The majority of that 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 to Q2. 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 segmented one and Uppsala properties, 470 million from standing assets to project properties. We have also made a short-term letting of 8000 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 8000 square meters in that deal.

So Fredrik, a bit about... Yeah, ongoing projects. We have seven of them. We have six dots, but the projects in Ljusdal involves two properties. We can start in Sigtuna municipality where we have signed a 20-year lease with ShopShop. That project is going to be finalized in Q3. In Hör, we have signed a 10-year lease with Rusta. Previous we have developed Ljusq, Jemufix and Dollar Store, 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 had a scheme of discount retail, we have also used our 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 Ljusdal, which we communicated a couple of weeks ago, we have signed a long lease agreement with Rusta and Jemufix. So we're planning to start the construction within a couple of weeks. In Randers, the fourth biggest city in Denmark, where we are currently developing 6500 square meters, we have signed long lease agreements with Lagerund 150, 157, Te Hansen and Big Dollar. And the last project in Holbeck, Denmark, where we signed a 15-year lease with McDonald's. All of these projects are fully led, 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 the 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 -on-year growth in rental income is 18% and the growth of the net operating income is 16%. The surplus ratio is going down a bit from 89 to 87. The majority of the explanation there is the inclusion of segmented one 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, adjusted with one of items and currency effects is 37 million. Looking on the rolling 12-month number versus a full year 23, we see a negative growth there. And the explanation there is that the organization has been built up during 2023 and due to the more 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 526 and we are still on just about two years on debt maturity. We have increased interest maturity with a change between, we utilize the over values 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. And still the same lenders, no other additions to the debt portfolio. We have Morias Webbank and Neon Credit in Sweden and Sparnord 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 walls, 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 costs and project asset and asset administration to the new volume. So we're sticking to the surplus ratio of 90%. These numbers then excludes the segmented one 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 in line with the project spending, of course. The interest income is around .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 asset administration, the adjusted yield is 6.5%. And of course, the income from property management per share has gone down now with a number of new shares in the share portfolio.

So this slide will show you our business model. Many others compare us with Cybers, EMSS, and other ones who own properties within the discount segment. But business model-wise, we compare us more with Katena. Katena focuses on a completely different segment. We have a stable and high yielding portfolio, but we are growing. So historically-wise, if you look back, we've grown towards 8% per annum. So we plan 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 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from David Flemich from Nordea. Please go ahead.

Good morning and congratulations on your first report. I have a couple of questions. And I can start with potential project volume. In Q1, you said you had potential projects at a total value of 1.9 billion to be started within the next few years. In Q2, you said that number is 3.5 billion. What's behind this significant increase between Q1 and Q2?

It's mainly because we selected to exclude both Uppsala and segmented one 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 .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 mix 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. 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.

And 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 Ljusdal 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 launch 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 a grocery anchored tenant. But we have identified several of the acquisitions that we are looking at at the moment.

And during Q2, we saw a couple of transactions in basically the segment you are active in. Were you involved in those processes looking at those acquisitions?

Which ones do you refer 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. So at that time, we couldn't have any closed discussions with them. Okay, great.

And just a confirmation, I see that the quarterly rental income according to the earnings capacity is 95.5 million, which is .5% lower than the Q2 outcome. I understand that relates to segmented one and the short-term lease in Uppsala, is that correct?

Yeah, the segmented one is included in the majority of the effect is in Q2. You have the number in the report. It came in 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 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 segmented one. But it's not included in the earnings capacity, but it's included in the Q2 numbers, correct? Yes, thank you.

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 aim to let the unit out to a new tenant within a couple of months.

Yeah, so you have sharp discussions with replacements. 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 would be, I would say, slightly higher at the starting point versus the current number.

But that

would be stable and handle more growth than it would have been able to. Is that good enough also?

So we can continue to grow the coming year or years, depending on, without increasing the property management costs.

But we will not reduce the current number to another, to a lower level, but we'll rather increase it slightly and then be stable going forward. 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.

Yeah, so I think looking in the rear view does not make so much sense because the cost base and the debt base and the financing costs, etc. has increased faster in the rear view mirror than what we have had the capacity, liquidity wise, to increase the top line. And now it's the other way around. We have established the organization, now we have the liquidity, and we can go forward with execution on the projects in that position.

Yeah, but I guess the earnings capacity is a decent proxy for the run rate as of today. Yes,

of course. Yes. Yeah,

great. And as I mentioned,

the importance on the earnings capacity that the financial income is excluded, the interest income on the liquidity we have opted to exclude and not to confuse anyone.

Yeah, that's clear. Sorry, just back to segment one. You had 7 million in rental income in Q2. Will a majority be vacant 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, 25 basically.

Could be some changes, but the majority of the income will be in Q3 and Q4. Yeah, okay, great. The only income within segment one is caught 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 re-escalation, changing in the property. 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 changes only between 12 to 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.

Hi there. A couple of follow-ups from me as well. Just to understand the kind of project starts that you have press released post the IPO. I'm thinking here aloud, looking at my head in Kiruna, for example. I think that was a Wyssstein, Bannas, Boy and so on. And then I read your comments in the report 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 Bannas, Boy and I, we can start them as soon as possible. The only project that could be the depends on the time that is in Kiruna. Due to the fact it's so north of, it's a special time when you can start a building in Kiruna. Yeah, I don't know what to call it. So it gets so cold so quickly. So we're trying to start the Kiruna project before the wind becomes there in October. But it all depends on the circumstances and the weather and also that we get the building permit.

Yeah, good. And then obviously you're highlighting that out of your central costs around 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 off 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 off. So you should not expect any large one off 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 finalizing.

Yeah, that's good. It would be nice to get that out of the financial net. 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 to 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, see if I round off a bit and use only one decimal, we have basically seen stable exit yields since Q4. There's a value change of basically 10 million from Q4 until Q2. And the rest that you see is a right time in Uppsala. So we feel that the yield expansion has come to a peak. But you never know going forward. But 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.

There are no more questions from the telephone line at this time. So I hand the conference back to the speakers for any closing comments.

Thank you all. Have a good summer and we'll talk again in Q3.