Earnings call transcript: Entra Q2 2025 highlights solid growth

Entra, a major player in the Norwegian real estate market with a market capitalization of $2.12 billion, reported its financial results for the second quarter of 2025, showcasing a stable performance despite a slight dip in rental income. According to InvestingPro analysis, the company maintains an impressive gross profit margin of 91.74% over the last twelve months. The company’s net income from property management increased by 10% compared to the previous quarter, while its net asset value per share rose to 166 Norwegian kroner from 163 NOK in Q1. Entra’s strategic focus on occupancy and rent uplift is evident, with a potential rental income of 188 million NOK annually from vacant spaces.

Key Takeaways

• Net income from property management grew by 10% quarter-over-quarter.
• Occupancy rate improved to 94.6%.
• Entra’s property portfolio is valued at 63.8 billion NOK.
• The company is targeting a 6% rent uplift for its Drammensveien 134 project.
• Entra expects further interest rate cuts, which could benefit its financial position.

Company Performance

Entra’s performance in Q2 2025 reflects its strong market position in the Oslo office segment. Despite a year-over-year decrease in rental income to 770 million NOK from 785 million NOK, the company managed to increase its net income from property management to 352 million NOK, up 10% from the previous quarter. With an EBITDA of $264.33 million and trading at a price-to-book ratio of 0.89, InvestingPro analysis suggests the stock is slightly overvalued at its current price of $11.63. This growth can be attributed to strategic leasing efforts and a focus on enhancing occupancy rates.

Financial Highlights

• Rental Income: 770 million NOK, down from 785 million NOK YoY
• Net Income from Property Management: 352 million NOK, up 10% QoQ
• Profit Before Tax: 534 million NOK
• Cash Earnings Per Share: 7.1 NOK, flat over the past 12 months
• Net Asset Value: 166 NOK per share, up from 163 NOK in Q1

Outlook & Guidance

Entra remains optimistic about its future prospects, projecting an EPS forecast of 0.71 USD for FY2025 and 0.73 USD for FY2026. InvestingPro data reveals a Financial Health Score of 2.26 (FAIR), with analyst consensus showing mixed sentiment. The stock’s beta of 1.6 indicates higher volatility compared to the market, an important consideration for investors. Get access to 12+ additional ProTips and comprehensive analysis with an InvestingPro subscription. The company anticipates revenue growth, with forecasts of 301.96 USD for FY2025 and 305.66 USD for FY2026. Entra’s strategic initiatives, including ongoing development projects and energy efficiency upgrades, are expected to drive future growth.

Executive Commentary

CEO Sonja emphasized the stability of the Norwegian economy, stating, "We are operating in a very solid and stable Norwegian economy." CFO Ola highlighted the company’s financial resilience, saying, "We have created a solid financial platform in the first half of 2025." Sonja also noted the company’s focus on maximizing rent potential: "We are very conscious about chasing the rent uplift potential."

Risks and Challenges

• Potential increase in Oslo office vacancy rates, which could impact rental income.
• Macroeconomic pressures, including interest rate fluctuations.
• Execution risks related to ongoing refurbishment and development projects.
• Market saturation in the Oslo office segment could limit growth opportunities.
• Environmental regulations and sustainability targets may require additional investments.

Q&A

During the earnings call, analysts inquired about Entra’s rent targets and potential adjustments. The company confirmed its commitment to maintaining rent targets without price adjustments and is targeting a 6% rent uplift for the Drammensveien 134 project. Entra also addressed concerns about contract expiration risks, stating that these are limited for 2025-2026.

Full transcript - Entra ASA (ENTRA) Q2 2025:

Sonja, CEO/Presenter, Entra: Good morning and welcome to Entra’s second quarter presentation. Moving right on to the highlights. Rental income of NOK 770 million this quarter, that is NOK 83 million below same quarter last year mainly due to divestments. Net income from property management of NOK 352 million this quarter compared to NOK 348 million same quarter last year and net income from property management is then 10% up compared to same quarter. Sorry, last quarter, first quarter net value changes of NOK 191 million in the quarter and value increases on our investment properties of NOK 289 million, leaving us then with a profit before tax of NOK 534 million.

We were also pleased to see then that our EPRA NRV increased to NOK 166, up with NOK 3 in the quarter, and we have had very strong letting activity with net letting coming out at NOK 22 million, increasing also our occupancy rate then to 94.6% in the quarter. Our climate targets have now also been validated by the Science Based Targets initiative under the Building Sector framework as the first Norwegian company. Moving on to operations, as I said, we had a very high letting activity in the quarter and gross leasing of NOK 203 million in the quarter with also terminations in the quarter of NOK 102 million.

As I commented on last quarter, we had a large deal affecting the numbers with Jara where we chose to extend their existing lease in their existing headquarter building at Skøyen for a 10-year period and at the same time terminate the lease which they signed with us one year ago for a larger space in a neighboring building. This is a good deal for us as we will have lower CapEx in both these buildings. It may, however, affect our vacancy from the second quarter next year onwards. The cash effects of that deal was already reflected in the rental income bridge and this deal has a negative net letting effect of NOK 24 million which is included then in the quarterly net letting which came out with a positive of NOK 22 million. The high letting activity has also brought our occupancy up with 80 basis points.

As mentioned, we are currently at 94.6% and all in all a very strong quarter for us. Pleased to see that the measures we’ve put in place and also very dedicated and hard work from the entire Entra team is starting to pay off now due to previous terminations which already are reflected in the rental income bridge. We do expect to see more fluctuations in the occupancy rate going forward depending on also when we choose to start future refurbishment projects. We have great locations. We have very attractive products which are in demand in the market. Market rents are increasing, and we expect to see increases going forward. We are very conscious about chasing the rent uplift potential in our management portfolio at the same time as we work to increase the occupancy rate.

We are confident that we will be able to let the vacant space, but also as I’ve said before, realistic that it may take some time as we want to chase the rent uplift in the market at the bottom. Here you can see some of the largest contracts signed in the quarter with IAADA International and in Bergen. TV 2 has prolonged for 9,400 square meters and increasing also activity in our project in Bergen, which I will get back to this quarter. We started the refurbishment project in Drammensveien 134. This is a building of 21,000 square meters located at Skøyen. It’s consisting of office, retail, and parking. We are pleased that we have resigned with 66% of the existing tenants in the building. We will now start the refurbishment as the technical infrastructure is ready for an upgrade as well as some of the office space.

When doing this, we will also increase the energy class from D to C, ensuring that this building will be aligned with the taxonomy requirements and thereby also available for our green pool of financing in the future. The yield on cost on this building will be around 5.8% for the project as compared to then prime yields at Skøyen currently around 5%. Our ongoing development projects are all progressing according to plan on time and cost. A few comments on the arrows you can see here: in Holtermannsveien in Trondheim, we have taken down the cost slightly, seeing that we are now getting closer to or very close to completion. Some of the contingency reserves have been released. In Bergen, at Nonnesetergaten 4, the occupancy rate is up from 55% to 83% in the quarter.

We have signed several leases there, some increasing qualities from tenants and also some extra VAT from public tenants. This is increasing the project cost, but this is fully compensated to higher rental income and the yield on cost remains the same. In total, including Drammensveien 134, the remaining CapEx on these projects now is currently at NOK 640 million. Now we continue to have a disciplined approach to capital allocation, prioritizing project CapEx in relation to the letting activity in the short term. We are also very well positioned to increase the project activity when we get the rents required to provide attractive returns. As mentioned, we were very pleased to see that the climate targets as stated in our annual report now also have been validated by the Science Based Targets initiative.

This is a global initiative that assists companies in setting credible, comparable, and research-based targets for greenhouse gas reduction in line with the Paris Agreement. The framework shows companies how they must reduce their emissions in the short term, meaning five to 10 years, and also in the long term towards 2050 to be climate neutral. To achieve the 2050 targets, the real estate sector, as all other industries, is depending on product innovation, technological development, and also an industrialization of climate-friendly materials. In the short term, we can focus on reducing our emissions from energy and also materials. Now, since electricity in Norway is primarily from renewable resources and also as a significant portion of our property portfolio is highly energy efficient, we have already low emissions from energy consumption in our portfolio.

Consequently, Entra’s largest emissions stem from the production and transportation of materials used in our project activity and operations and maintenance for the buildings. The most important thing for us to do in order to reach our targets is thus to reduce the consumption of materials and transportation going into our portfolio, which also aligns very well with our continuous focus to improve the profitability through reducing costs in project development and operations. A few words on the market situation. First, let me start by saying that the Norwegian economy remains solid and stable despite global market volatility. The direct impacts of American tariffs are minimal for Norway, seeing that we have less than 2% of our GDP as exports to the U.S. Yet, of course, as a small and open economy, Norway is exposed to any growth-dampening indirect effects.

Norway is well positioned to both stimulate and support its economy through fiscal policies and public spending with its sovereign wealth fund. We also have monetary policies which remain available as an effective tool to stimulate the economy if necessary. The first rate cuts came now in June where the central bank reduced the rate to 4% and based on current estimates, they have also communicated that they expect up to two more cuts within the year. The CPI came in at 3% for June which was also in line with Norges Bank’s estimates and the economy is now expected to pick up as lower interest rates and solid wage growth start feeding into the economy. The mainland GDP growth is expected to be around 1.5% going forward in Norway.

The growth has in recent years primarily been driven by public spending in addition to, to a large extent, oil and gas investments which has benefited the west coast of Norway and further rate cuts should also now stimulate the more interest sensitive parts of the economy, which also should benefit the Oslo region going forward. Employment growth is expected to remain slightly positive going forward. In Oslo, the employment growth has primarily been within the public sector the last year, which currently now is also transitioning into different or new workplace solutions and they are therefore not contributing to increase the net absorption for the moment. The letting activity was slowed down in 2H24. The first quarter this year we saw in the market as a whole more or less normal volumes for a first quarter.

The second quarter numbers came out just this week where we could see that the letting activity was in the lower range of what’s normal for a second quarter, also knowing or relative to the volumes expiring for 2025. At the same time, we have also seen that the lease searches, the amount of lease searches coming out into the market, have increased through both first and second quarter, which provides support for more activity in the second half as these tenders typically take six to twelve months to conclude before following after they come out. The vacancy is currently around 6.5% in Oslo and is expected to increase to 7% going forward.

Both in Oslo and Bergen we see that there are variations between the different parts of the city with vacancies between 6% and 8% and also in some parts of the city with older buildings, the stock vacancy is higher than 8%. Most of the vacancy remains in the smaller office segment for below 2,500 square meters. This is also where Entra has the majority of its vacancy and we are experiencing that the competition is still pretty strong here as this also is where you meet the sublease market.

Now there is, as you can see from the bottom right graph, limited new supply coming into the market in the short but now with signs of increasing activity for larger office space or searches and also as I’ll get back to higher market rents in certain areas, more development activity could develop or is likely going forward, which potentially also could expand supply from 2028 and 2029 onwards. A few words on rental growth also now with the continued economic growth as a base case, the letting market fundamentals look very promising for Oslo going forward and we believe that rents should increase more than inflation in the years to come.

As you can see also from our consensus report, top right expectations there are that we will see around 11% rental income growth over the next three years and fresh data which came from IdealStatistikk this week also showed that the top segment, meaning the 25% most expensive leases in Oslo Inner City around the Central Station where we also have the majority of our portfolio, had an income growth of around 10% in the first six months of this year compared to the same period last year. We are now starting to see that market rents are converging towards the rent levels we need to have to get to break even rents for new build projects. A few words on the transaction market.

The financing markets are available and the lending sentiment has been trending positive with also credit margins tightening but still somewhat selective lending market in the banks. The transaction market has remained active and is expected to pick up further in the second half with further rate cuts. In the first half we saw transaction volumes around NOK 35 billion which was more or less in line with the same period last year. Prime yields are currently around 4.5% according to our consensus report. This has also now been verified in transactions both in the first half of this year. We see that the buyers predominantly in the prime segment have been equity buyers. I think that moves us over to Ola and a few words on the finances.

Ola, CFO, Entra: Thank you, Sonja. In Q2 our financial performance improved compared to previous periods. As you all are aware of, in Q2 2024 we divested our Trondheim portfolio. For comparison purposes, we have marked out the Trondheim impact on rental income in the graph to the left. Rental income came in at NOK 770 million, down from NOK 785 million in the same quarter last year. Adjusted for the Trondheim divestment, we had a positive impact in the quarter of NOK 17 million from CPI as well as a net positive impact from the projects of NOK 11 million. However, this was offset by divestments in addition to the Trondheim portfolio of minus NOK 10 million as well as negative like-for-like excluding CPI of minus NOK 8 million due to increased vacancy.

In addition to this, in Q2 last year we had NOK 15 million positive impact from a buyout of a lease agreement. Adjusted for all divestments and the lease buyout, the underlying growth in the quarter is 1.2% compared to the same quarter last year. Compared to the first quarter, the rental income is slightly down from NOK 774 million. This is in line with the bridge that we presented. In the first quarter, net income from property management was solid at NOK 352 million and slightly up from NOK 348 million in the same quarter last year. The loss of revenues from several divestments was offset by increased interest cost savings. I will come back with details on the other items which we also improved in the quarter.

On the next slide, compared to Q1, we had a significant improvement in income from property management from NOK 320 million to NOK 352 million. In Q1 we did have a one-off of NOK 11 million related to our bank refinancing. In addition to this, we have reduced both our interest expenses as well as our cost level in the quarter. Profit before tax came in at NOK 534 million and this includes NOK 191 million in net positive value changes. Moving to the full P&L, I already have gone through the rental income details but I will give you more flavor on the other cost items. OpEx came in at NOK 58 million or only 7.5% of our rental income. This is in the lower end of our historical range.

The reduction from NOK 68 million in the same quarter last year is mainly due to the divestments we have done, but we also have reduced energy consumption in the quarter. Looking at the other revenue, other cost, this was positively impacted by net gains of NOK 12 million on the forward-sold Holtermannsveien project in Trondheim which is set for completion in the second half of this year. Admin costs came in at NOK 51 million compared to the NOK 48 million we had in the same quarter last year. This is in line with expectation and we have previously highlighted that we target to be around NOK 200 million in admin cost for the full year. Net realized financials came in at NOK 333 million, down NOK 68 million compared to the same quarter last year.

This is mostly due to a reduced debt level with nearly NOK 7 billion following the divestments we have done over the last 12 months. In addition to this, we also have an average interest rate which is lower than the same quarter last year, which represents nearly one third of this improvement. Net value changes from investment properties was positive with NOK 298 million and I will come back with more details on this later on. We had negative value changes in our financial instruments of NOK -98 million. This is split into, first, we have negative adjustments in our financial hedge positions of NOK 181 million caused by lower long and medium term interest rates, which was partly offset by value increase in Entra’s investment in SVG Property of NOK 83 million. This gave then a profit before tax of NOK 534 million.

Moving then to our per share data, cash earnings per share is flat at NOK 7.1 measured over the last 12 months, as you can see in the graph to the left. However, our net asset value had a slight uptick for the fourth quarter in a row and came in at NOK 166 per share, up from NOK 163 per share in the first quarter. In addition to this, we have distributed NOK 37 in dividend since the IPO, which gave a total return per year of 9%. Over then to our rental income development, looking into Q3, the bridge indicates a rental income of NOK 763 million, more or less similar to the bridge that we perceive in the first quarter.

If we look into 2026, we can see that the solid net letting we had in the second quarter is impacting the bridge positively with improved rental income trends compared to what we presented in the first quarter bridge. This graph is not a guidance, it just highlights the rental income based on reported events in existing contracts. There is upside in this bridge, especially in the latter part of the periods which we are changing. First and foremost, we aim to let out existing vacant space which has a rental income potential of NOK 188 million per year. In addition to that, we have available vacant space in our ongoing project which has a rental income potential of NOK 55 million per year. Lastly, we work on reletting space that will feed into vacancy following the terminations we have had in the last quarters.

Moving then over to our property value, which increased to NOK 63.8 billion in the quarter. Total value changes is NOK 372 million of this. These value changes in our investment properties is up with NOK 289 million or 0.5% compared to the first quarter, and we also have value increase in our investment in SVG Property with NOK 83 million, which we have marked out in the graph here to the left. The increase in investment properties is mostly related to reduced discount rates from our appraisers as well as higher market rent expectations, and only to a minor degree related to net letting. The deviation between the appraisals are relatively limited at 2.6%, and this has also come down slightly over the last few quarters. CapEx in the quarter was NOK 335 million, mostly related to the five ongoing reported projects.

We will continue to have a disciplined investment strategy and prioritize CapEx on increasing occupancy on current portfolio and realize then market rent uplift. Portfolio net yield now stands at 4.94%, and adjusted for fully let and market rent, it is at 5.72%. Moving then over to our debt metrics, which continued with a slight improvement in this quarter. The interest coverage ratio has bottomed out and increased from 1.98 to 2.03 in Q2 measured over the last 12 months; isolated in Q2, it came in at 2.1. Leverage ratio was unchanged at 49.1%, and the same with net debt to EBITDA, also unchanged at 11.7. We expect a continued gradual improvement in our credit metrics going forward, supported by our running cash flow as well as continued capital discipline.

In addition, there is potential for value increases as well as lower interest costs from further rate cuts, which also feed into improved credit ratios. We have created a solid financial platform in the first half of 2025, and the average time to maturity for our total debt now stands at 3.8 years. The debt capital market was open during the quarter with tightening credit spreads. During the period, we issued NOK 1.0 billion in new unsecured bonds with 6-year tenure at 140 basis points down to 135 basis points credit spreads. After the quarter end, we reopened the 6-year bond and issued another NOK 700 million at 128.8 basis point credit spread. As you can see in this graph to the right, we have undrawn credit bank lines of NOK 8.2 billion, which is committed until 2028.

With that, we have ample available liquidity for more than the next 24 months. We will continue to work to optimize our total funding cost going forward. 62% of our debt financing is green, and we have capacity to issue more green debt if required due to our existing environmentally friendly asset portfolio. We will continue going forward to have a conservative approach when it comes to both leverage and interest risk. With the gradual improvement in credit metrics, we believe that we have set the path for a rating upgrade in the future. Moving to our cost of debt development, the all-in net financial cost is down from 4.44% in Q1 to 4.23%, as you can see in this graph.

While the interest rate on interest-bearing debt was at 4.0% in the quarter, the interest rate cut from the Norwegian Central Bank of 25 basis points in June will first impact our Q3 numbers, which is why the forecast is down in Q3. As you can see in this graph, over the next 18 months we expect a relatively stable interest rate due to the NIBOR forward curve and considering our fixed credit margin as well as our existing interest hedges. Sonja, I leave it over to you.

Sonja, CEO/Presenter, Entra: Thank you. Ola. A few closing remarks. First of all, summarizing the second quarter, it’s been a positive one. Strong letting from the Entra team with positive net letting, also then increasing our occupancy with 80 basis points. Pleased to see that lower NOK interest rates and also bond credit margins tightening, reducing our all-in financial costs. The growth in net income from property management, as mentioned, has been 10% since first quarter, and we continue to see increases in our property values this quarter. We are operating in a very solid and stable Norwegian economy, and the lower interest rates and real wage growth, which we have seen now for some years, should start feeding into the economy going forward. There are expectations of further up to two rate cuts during this year. Employment growth remains slightly positive going forward, expectations of that.

We have very promising long-term letting market fundamentals and now also seeing increased tenant search activity, which is a positive. The first signs that market rents also are converging towards break-even rents for new projects. Entra is well set to provide growth going forward both through CPI, rent uplift potential letting, the vacant space, and the project portfolio. I think that sums it up for now, and I don’t know if we have any questions. Isabel.

Isabel, Moderator/Analyst, Unknown: Thank you, Sonja and Ola. We will then transition to the Q and A session with the first question: Having secured several contracts this quarter, have you had to adjust the price in the negotiations you’ve had?

Ola, CFO, Entra: Had?

Sonja, CEO/Presenter, Entra: No, I wouldn’t say that. We are very conscious, as I said, on chasing the rent uplift potential, and on every contract we set targets and follow up on our targets. What I’m seeing so far is that we are delivering well on our rent targets. Very happy to see that we are actually managing to take out the rent uplift which we’re seeing in the market.

Isabel, Moderator/Analyst, Unknown: Can you provide some flavor to the net letting going forward?

Sonja, CEO/Presenter, Entra: Yes, I can. We have put in place some extra measures in respect of increased resources, strengthening our team, which also should benefit us more actually going forward, and increased focus on market. Based on also the pipeline which I see now, we have quite a lot of activity coming into the second half, which we should benefit from. Positive in respect of gross letting. When you look at risk of terminations or contracts at risk, we have limited volumes in 2025 and 2026, or with expiry in 2025 and 2026. As I said last quarter, around NOK 30 million contracts which are not yet concluded in 2025 and NOK 80 million in 2026, and that’s quite well diversified on around 20 contracts in both of these years.

There is always, of course, a risk that the net letting will be affected by terminations coming further out in the rental income bridge. We still have quite some time to work on letting, so positive momentum on letting, and we don’t control the potential terminations.

Isabel, Moderator/Analyst, Unknown: This will be the last question for today. What is the expected rent uplift for Drammensveien 134 when the refurbishment is completed?

Sonja, CEO/Presenter, Entra: First of all, good thing I probably didn’t mention that. We will have cash flow through the entire project phase, which of course is an extra plus for that project. I believe that we on that project are targeting an uplift should be around 6% in that project.

Isabel, Moderator/Analyst, Unknown: Thank you, Sonja. With that, we’ll conclude the Q and A session.

Sonja, CEO/Presenter, Entra: Thank you very much for joining us today. We see you again next quarter.

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