Earnings call transcript: Public Property Invest reports strong Q1 2025 growth

Public Property Invest ASA (PUBLI) posted robust growth in Q1 2025, showcasing significant increases in rental income and net operating income, alongside strategic market expansions. The company’s stock rose 2.48% following the earnings call, reflecting investor optimism. According to InvestingPro data, the company maintains an impressive gross profit margin of 89.88% and has demonstrated strong revenue growth of 15.13% over the last twelve months.

Key Takeaways

• Rental income surged by 38.5% year-over-year to $25 million.
• Net income from property management increased by 78% to NOK 92 million.
• The company expanded into Finnish and Swedish markets, acquiring five new properties.
• Occupancy rates remained high at 97%, with a weighted average lease term of 5.6 years.
• A proposed NOK 0.5 dividend per share for 2024 was announced.

Company Performance

Public Property Invest ASA demonstrated strong performance in Q1 2025, driven by significant rental income growth and strategic market expansion. The company capitalized on opportunities in the Finnish and Swedish markets, enhancing its portfolio with new acquisitions. Its robust occupancy rate and long-term leases underscore a stable income stream, bolstered by government-backed contracts.

Financial Highlights

• Rental Income: $25 million, up 38.5% YoY
• Net Income from Property Management: NOK 92 million, up 78%
• Net Operating Income: SEK 189 million, up 48%
• Portfolio Value: SEK 11.7 billion, up 10.9%
• EPRA NRV per Share: NOK 28, up from NOK 27.2

Market Reaction

Following the earnings announcement, Public Property Invest’s stock price increased by 2.48%, reflecting positive investor sentiment. Trading at $1.95, the stock is now just 2.5% below its 52-week high of $2.00, with a remarkable one-year total return of 39.29%. InvestingPro data shows the company maintains a healthy current ratio of 3.44, indicating strong liquidity position. Discover detailed financial health metrics and expert analysis in the exclusive Pro Research Report, available for 1,400+ top stocks.

Outlook & Guidance

Looking ahead, Public Property Invest aims to improve its credit rating and reduce financing costs. The company has postponed its secondary listing to the second half of 2025 and is targeting a net debt to EBITDA ratio below nine times. These steps are expected to enhance financial flexibility and support future growth initiatives.

Executive Commentary

• "We are delivering on the strategy of being a leading consolidator with an opportunistic growth strategy," said CEO Andre Garten, highlighting the company’s strategic focus.
• "PPI is an infrastructure company. We have historically focused on social infrastructure and we now see that there is a large need for critical industrial infrastructure," noted CIO Ilya Batlian, emphasizing diversification efforts.
• "We are taking in dilution of 55% to increase income with 70%," added Batlian, reflecting on the company’s investment strategy.

Risks and Challenges

• Market Volatility: Fluctuations in the Nordic real estate market could impact valuations and rental income.
• Interest Rate Changes: Rising interest rates may affect borrowing costs and investment returns.
• Regulatory Risks: Changes in government policies could influence the company’s operations, particularly in new markets.
• Competition: Increased competition in the Nordic markets may pressure margins and growth opportunities.
• Economic Uncertainty: Broader economic conditions could affect tenant demand and occupancy rates.

Q&A

During the earnings call, analysts questioned the value creation potential of the Aker transaction, which management expects to increase income by 70%. There was also interest in the company’s ability to generate additional earnings and the impact on credit margins post-investment.

Full transcript - Public Property Invest ASA (PUBLI) Q1 2025:

Andre Garten, CEO, PPI: Good morning, everyone, and welcome to PPI’s presentation of our first quarter in ’20 ’20 ’5. My name is Andre Garten, CEO of PPI. And together with me to present the results is our CFO, Ilva Johansson and our CIO, Ilya Batlian. If you first look at today’s agenda, we will go through some highlights for the quarter, then move on to operations and Ilva will go through our financials before we give our summary and concluding remarks. We will end the presentation with a Q and A session.

So let’s first look at some highlights. Going into 2025, we have continued to deliver on our growth ambitions. We have closed four transactions in the first quarter and taken our first steps outside Norway by entering the Finnish and the Swedish market. Additionally, we have maintained solid operations and further improved our credit margins. In the quarter, our rental income came in at million, an increase of 38.5% from the same quarter last year.

Our net income from property management amounted to NOK 92,000,000, which is up from NOK 52,000,000 same quarter last year. If you then look at our estimated run rate net income from property management per share, we increased with 9.4% from NOK1.59 to NOK1.74 in the quarter. This is mainly due to transactions and better financing terms. We also see positive portfolio value changes in this quarter with an increase of NOK71 million. And our property management team signed leases with an annual rent of approximately $28,300,000 It’s also been another busy quarter when it comes to our transactions.

Five new properties have been included in our portfolio in the first quarter, adding almost 21,000 square meters to the portfolio. In addition, we have notified six transactions so far in the second quarter, of which one is a large transaction with Aker that includes eight properties. These eight properties will be the beginning of a new segment in PPI, Critical Industrial Infrastructure Properties. So let’s look at some portfolio highlights. By the March, our portfolio includes 77 properties with a total BTA of 415,000 square meters.

Our assets are mainly social infrastructure properties, where 92% of our income is backed by the government. We have maintained a high occupancy of 97% and our vault continued to improve due to new properties and letting, and increased from five point one to five point six years. Our normalized gross rental income is currently NOK $823,000,000, up from NOK $774,000,000 in the fourth quarter. Our average rent per square meter increased slightly to just above NOK 2,000. The portfolio value stands at billion, up from 10.9% and the portfolio yield is currently 6.4%.

Our EEPRA Nrve per share is calculated at NOK 28, which is up from NOK 27.2 in the fourth quarter. So let’s move on to operations. In the first quarter, our property management team signed leases with an annual rent of $28,300,000 covering almost 15,000 square meters. Our occupancy rate remained strong at 97% and we improved our vault to five point six years, mainly due to the new properties and letting. Our largest signing for the quarter is a ten year lease renewal with the Courts of Norway for 5,600 square meters in Sheeran.

We have also signed a new ten year lease with the tax agency in Thansberg. They will temporarily move out of the summer and stay for one year in Ula, Trigas and Skatefjere before they move back in. Another contract that also was signed with the tax agency was in Leikanger, and that was a renewal of 2,000 square meters for five years. Our net letting came in slightly negative as a result of Kristianzankomune has decided to move out of the remaining area in Jjullingorn in Kristiansand. Their contract will expire in February 2026.

For the last twelve months, our net letting is positive by NOK14.1 million. PPI is building a Nordic presence. We have acquired a preschool in Sweden with long hauled and attractive yield in the first quarter and acquired four very centrally located and attractive properties in Finland, which Ilya will get back to shortly. We are as such in process of building Nordic presence. We find the Finnish market very attractive as we are currently closing attractive transactions on very central location with a yield gap of two fifty to 300 bps.

During the last decade, a total of 41 institutional investors have been active within the social infrastructure market in Finland, and the total transaction volume amounted to approximately €8,800,000,000 Special investment funds, who accounted for nearly 25% of the volume during the past decade are still facing divestment pressure due to ongoing redemptions, very similar to the syndicate markets in Norway. More traditional investor groups also continue to be more to be inactive. There is a very limited buyer universe and attractive properties and projects that are available at high yield gap. Then I believe the word to Ilya, who will take you through our transactions.

Ilya Batlian, CIO, PPI: Thanks, Andre. And let us go to the next slide that is describing our growth delivery. As Andre said in the beginning of 2025, we became a real Nordic business by establishing PPI both in Sweden and Finland. Another important point that characterized the first few months of 2025 including first quarter is our strong focus on Bergen, which is second largest city in Norway and Helsinki, which is capital of Finland. If you look at this slide, you will see the transactions that we did in the first quarter.

In total, we increased our income our rental income with million on twelve months running basis through transactions in Q1. If you look then at the next slide showing the transaction that have been executing after the end of Q1, you transactions will deliver an increase in rental income of €108,500,000 So that means €68,000,000 in Q1, hundred and ’8 point ’5 million in Q2. And let me now on the next slide describe the milestone transaction that has been announced a few days ago, where Aker makes strategic investment in PPI and where also the same time PPI acquires €1,500,000,000 portfolio of critical industrial infrastructure assets. Aker is investing in PPI SEK two point three billion and for that PPI is issuing 124,400,000.0 new shares in PPI. Price per share was set at SEK 18.69 per share.

Of those 124,400,000.0 shares, Aker has agreed to transfer the right to those shares to SPB. So that means after the transactions, if

Moderator/Questioner, PPI: you look at our capital structure, SPB will have 33.5 percent of the shares in PPI and Aker Property Group becomes PPI’s second largest shareholder with approximately 24.6% of the outstanding PPI shares. But for those of you that are not from Norway, let me just say a few words about Aker before I go to describing the property portfolio that PPI is buying. Aker ASSA is one of the Norwegian blue chip

Ilya Batlian, CIO, PPI: companies. This is industrial investment company that develops robust businesses and exercises active ownership to create value for shareholders and society at large. Has been founded in 1841. The company combines in-depth industrial competence with capital market expertise and financial strength. I can invest actively along key global megatrends with significant potential for growth and profitability and we think that PPI is a very good match for this focus.

PPI’s focus on among others trends in aging society and long leases for social infrastructure combined with this new segment of critical industrial infrastructure assets are in line with global megatrends. If I go to the next slide and look at the portfolio, you will see that we are buying 150,000 square meter real estate and 870,000 square meter land in strategic location coupled with mission critical infrastructure. You will also see that those assets are 100% led to solid tenants. The leases are triple net contracts. We have fifteen years old NOI yield of 7%.

The total increase in income will be million and on top of that we will acquire potential for two small planned development projects with additional SEK11.2 million in income. Just to sum it up, in Q1, we increased income on twelve months rolling basis with EUR68 million from transactions in Q2. In the beginning of Q2, we continue to increase income with million. Some of those properties will be finished in 2026. However, the rental income on twelve months rolling basis is EUR108.5 million.

And on top of that, we are through the Aker transaction increasing our rental income with EUR106.5 million plus development potential with increased income of 11,200,000.0 on yearly basis. All in all, we are continuing to deliver very strong growth through transactions. I will stay there and I will give the floor to our CFO, Ilva Johrenson. Ilva, please.

Ilva Johansson, CFO, PPI: Thank you, Ilya. As you can see on this page, our rental income was $2.00 $5,000,000 in the first quarter, representing an increase of 38% compared to the same quarter last year. This growth reflects strong occupancy rate, index linked rent increases and a contribution from acquired properties. The five properties acquired in first quarter contributed to an increase in rental income with approximately $11,000,000 Net income from property management was $92,000,000 an increase of 78% compared to the same quarter last year, showing a strong underlying operational performance for PPI. Our EPRA NRV per share is increased to NOK28, reflecting a continued improvement of the underlying retained earnings.

And the next page shows our P and L and I jump down to the net operating income, which came in at SEK189 million compared to SEK128 million in the same quarter last year, 48 percent increase. Our NOI margin was 92%, slightly above our guidance, but this is mainly due to the rate of maintenance performed in the first quarter. Administration expenses amounted to SEK26 million in the first quarter. These administrative expenses include some one offs associated with PPIs adoption to with the structure and systems. However, these expenses were offset by reimbursed property management of $5,000,000 giving us a net administration cost of 21,000,000 Net realized financials were $76,000,000 in the quarter.

And as I mentioned, net income from property management increased significantly to $92,000,000 from $52,000,000 in the first quarter last year. This is an improvement of 78%.

Moderator/Questioner, PPI: Net

Ilva Johansson, CFO, PPI: unrealized financial expenses amounted to 47,000,000 in first quarter, mainly positive effect due to exchange rate effects for our bond loan in euro. Value changes in investment properties had a positive impact on net profit of SEK71 million compared to a negative effect of SEK273 million in the same quarter last year. Net profit for the quarter was SEK161 million compared to a net loss of SEK219 million in the same quarter last year. And then we can go to the next slide and have a quick look at our balance sheet. By the end of first quarter, the value of our portfolio was SEK11.7 billion, up from 10,900,000,000.0 in last quarter.

This change is mainly a result of acquired properties, which had a book value of approximately $736,000,000 by end of this quarter. Notice that one of the acquired properties in Finland is under construction and will be finished by end of twenty twenty six. And the value of this building is based on completion stage and amounts to NOK58 million. Like for like change from last first quarter last year to this quarter is 2.2%. And as earlier, all our properties are evaluated by an external appraiser.

The net yield of our management portfolio was 6.4% by end of this quarter. Investments in our properties amounted to SEK9 million in the quarter for our Norwegian properties. And in this quarter, we issued two new bonds under our EMTN program with three year maturity. The first was SEK250 million bond priced at three month SIBAR plus a margin of 174,000,000 and the second was a SEK200 million NOK bond priced at three months NIBAR plus a margin of 175. And these placements demonstrate continued access to the Nordic capital markets and a strong investor demand in both Sweden and Norway.

In the quarter, we have also prepaid $485,000,000 of bank loan releasing pledged assets. Our gross interest bearing debt at the end of the quarter was 6,000,000,000 and net interest bearing debt was SEK5.7 billion, giving us a loan to value ratio of 46.6. Our interest coverage ratio was 2.1 and our net debt to run rate EBITDA is 8.6 times. And I will come back to this later in this presentation. On the next page and on the chart to the left, our maturities of our interest bearing debt is illustrated.

And debt maturing in 2025 in totals approximately SEK288 million and will be repaid with cash on maturity. Our average debt maturity is slightly reduced from four point four to four years, mainly due to the issue of the two new bonds with a three years maturity. As the company and our asset portfolio continue to grow and assisting debt facilities reach maturity, we will actively persuade funding with longer tenures. And our long term objective is to maintain weighted average debt of more than five years. Our average interest rate has decreased from 5.18% to 5.05%.

It continues to trend downwards and reflecting improved financing terms. The share of fixed rate debt remains high at 88%, slightly down from 90%, but still ensuring stability in interest payments. Unencumbered asset ratio has declined from 2.45 to 2.21 times, but remains at a strong level supporting our financial flexibility. Looking ahead, we will continue our efforts on lowering our margin curve. And given our solid financial position and BBB credit rating, we see significant potential for further lowering our financing costs.

NPPI remains a focus on pursuing growth while maintaining our financial policy targets, including low leverage and net debt to EBITDA ratio below nine times. And we can go to the next page and have a look at our normalized annual run rate. All this figure refers to the property and debt portfolio by the end of the first quarter. We expect rental income of SEK823 million based on the properties owned by March. And our property expenses are expected to be approximately 10% of rental income, resulting in NOI of million.

Our normalized administration expenses increased slightly with the growth of the group, mostly due to the management agreement for Finnish properties. Reimbursed property management fee is reduced due to a termination of the management agreement with Nordikus. After deducting expected net administration expenses of million, the run rate EBITDA is expected to be SEK663 million. Net financial expenses for the existing debt portfolio at the March are calculated at SEK290 million, leading to a net income from property management of million. This corresponds to a net income from property management of SEK1.74 per share, representing an increase of approximately 9% since last quarter.

With a strong balance sheet, we expect a net debt to run rate EBITDA ratio of 8.6 times. And now I will hand over to Andrea, who will give you show you effects of our transactions after the quarter.

Andre Garten, CEO, PPI: Thank you, Ilva. Let’s move on to summary and concluding remarks. We believe that we so far can say that we are delivering on the strategy of being a leading consolidator with an opportunistic growth strategy. The graph to the left, it sums up our reported annualized run rate rental income that we have reported since the second quarter in twenty twenty four, meaning after the IPO. As you can see from the graph, we have grown the run rate with 19% since the second quarter in twenty twenty four.

And if you include the transactions that has been done in the second quarter this year that Elia just presented, the top line has grown by 55% when the development projects are completed. We are also working continuously to improve our financing structure and finance margins. We have obtained a BBB flat rating from Fitch and we aim for key figures that will be strong enough to potentially defend and upgrade. Our average interest rate at the quarter end was 5.05% and we see potential to continue to improve our credit margins and average interest cost. So to summarize, we have delivered a strong quarter and present strong rental income and margin development.

Our rental income increased by 38.5% and our net income from property management increased by 76% since first quarter in ’20 ’20 ’4. The transaction activity in the first quarter and so far in the second quarter has been very high. We have acquired five properties in the first quarter and in the second quarter acquired four properties Assisted Living Services portfolio. We have signed a milestone transaction adding portfolio of $1,500,000,000 in infrastructure assets, 800,000,000 in cash and Aker as a new blue chip cornerstone investor. As a consequence, we have established a Nordic presence and will establish a new critical industrial infrastructure segment.

Our operations continue to be solid and we have a stable underlying cash flow. We have signed leases for a total of $28,000,000 in the quarter and covering approximately 15,000 square meters. And our portfolio occupancy stands at 97% and we have increased our WALT to five point six years. Going forward, we will continue to deliver on our strategy of being a leading consolidator with an opportunistic growth strategy. We still consider the current timing to be very attractive and we look at attractive market opportunities in all the Nordic countries.

We will continue chasing potential for improved credit rating, financing structure and margins. And we are becoming a dividend company. As earlier informed, the Board is proposing a dividend of NOK0.5 per share for 2024, split in four quarterly payments to the general meeting to be held later on today. And because of everything that has happened over the last weeks, we have decided to postpone the secondary listing process until the second half of twenty twenty five. That was all from our side and we will move on to the Q and A session.

So Ilya and Ilva, please join me on stage.

Moderator/Questioner, PPI: So we have received quite a few questions. And Ilva, I will start with one for you. The NOI margin in Q1 is higher than the guided run rate NOI margin. Can you give some comments on this? And how it will be affected also considering the properties to be included post Q1?

Ilva Johansson, CFO, PPI: Yes. Our NOI margin is higher in Q1 than our guidance and mainly because of the maintenance that hasn’t started up this so far this year. And post Q1 transaction will have a positive effect on our NOI margin because the big Aker transaction is assets with triple net leases.

Moderator/Questioner, PPI: How will the occupancy rate be affected by the property Ottowaen going out after Q2? And is this included in the year run rate figures?

Andre Garten, CEO, PPI: Ottowaen constitutes for approximately 17,000,000 in annual rent. It is included in our annual run rate based for this quarter based on how we have defined the annual run rate.

Moderator/Questioner, PPI: Can you say something about the risk profile of near to medium term lease expiries ’25 to ’27? Are there any other significant contracts expiring?

Andre Garten, CEO, PPI: Well, as mentioned in IPO, we have three expiries in 2025, which is Uttarvijn, which I just mentioned. We also have the police station in Halden and also a courthouse in Thunspar that will expire by year end. Apart from that, we have good progress on all renegotiations in 2025. We also have the same picture in ’26. However, as mentioned in the report, Kristian St.

Kommunne will leave a part of Yilngorn in February 26. In ’27, some contracts we have already started to renegotiate and good progress on that. We have a couple of competitions coming up with the police station in Fredrikstad and also the police station in Sashbord. But apart from that, no don’t think we have good progress on the leasing part.

Moderator/Questioner, PPI: When will the Aker properties be consolidated? And when will the development projects here be completed?

Ilva Johansson, CFO, PPI: Arkatan transaction will be consolidated in second quarter. And the development potential we will continue to work on and probably be finalized in 2026.

Moderator/Questioner, PPI: The reimbursed property management fee is a bit lower than after Q4 going from 16 to 11. Can you give some comments on this?

Ilva Johansson, CFO, PPI: Yes, this income is reduced due to a termination of the management agreement regarding the Norwegian Nordica’s properties.

Moderator/Questioner, PPI: So long one on the Aker transaction. You issued 55% more shares for about 13% growth in rental income in addition to €800,000,000 in cash. It is a strong dilution to short term earnings per share and value per share. How do you expect to deploy your balance sheet in a value creative manner?

Ilya Batlian, CIO, PPI: This is a central question for the transaction. If you think that we have a pure triple net warehouse leases that will deliver clean earnings of like $105,500,000 On top of that, 11,200,000.0 in NOI from the projects that is 116,700,000.0 And at the same time, we are taking in $800,000,000 in cash. With those, we should be able to increase NOI with additional $50,000,000 to $56,000,000 which in total sum it up to $172,000,000 And at the same time, this is improving our CLI ratios and giving us opportunity to also leverage this strong equity issue. And from that part of the transaction, we are expected to deliver additional $70,000,000 in profit. So all in all, we are expecting $230,000,000 to $242,000,000, which is if you look at our earnings capacity from Q4 that was $342,000,000, 2 40 2 million increase is corresponding to 70%.

So we are taking in dilution of 55% to increase income with 70%. So that means this is very good transaction for PPI shareholders.

Moderator/Questioner, PPI: And how do you think that Aker’s investment will affect your funding costs?

Ilya Batlian, CIO, PPI: We saw already the first day or two that our credit margins improved and the improvement, which means decreasing credit margins was directly with 12 basis points. We are also expecting that our credit rating will improve and this will continue to be to large benefit to all shareholders.

Moderator/Questioner, PPI: The administration cost is 26,000,000 in the quarter and annualized run rate of 104,000,000 versus your annual run rate level of 84,000,000 or annualized run rate this gives 104,000,000 versus your reported annual run rate level of EUR 84,000,000. Please explain the high level and is this the actual run rate going forward?

Ilva Johansson, CFO, PPI: Yes. It’s we have some in first quarter, we have some extra one offs due to adapting the company to all new structure and systems and so on. And we don’t expect that to be coming in going forward. So $84,000,000 is our best guess for annualized expenses.

Moderator/Questioner, PPI: Can you elaborate a bit more on Gildungorn? When will the municipality move out? And what is the effect of on vacancy?

Andre Garten, CEO, PPI: Yes, we can do that. The municipality, they will move out in February 2026. However, as reported last quarter, we have already signed a new lease with NOB of approximately 6,000 square meters. So the remaining vacancy in Gjilngorn will be approximately just 4,400 square meters.

Moderator/Questioner, PPI: You report property value changes of positive $71,000,000 Can you give some flavor as to where they come from?

Ilva Johansson, CFO, PPI: Yes. Change from the fourth quarter last year until this quarter for the like for like portfolio is approximately NOK66 million, mostly coming from letting activities. We have in the first quarter a couple of new lease contracts with the Norwegian Tax Administration and the Courts of Norway giving effect.

Moderator/Questioner, PPI: You have stated that the Finnish development projects will yield 6.2% through the development phase. Can you comment?

Ilva Johansson, CFO, PPI: Yes. It is agreed a yield of point 2% of invested capital to be paid monthly. But for Q1, we have just a smaller amount of 300,000 because we acquired this school late in March. And we are in a dialogue how this will affect our P and L or the balance sheet and we will come back to that in next quarter.

Moderator/Questioner, PPI: How are the Finnish properties included in the estimated annual run rate estimates?

Ilva Johansson, CFO, PPI: Okay. The first acquisition of two schools in Espoo, they are included in our annual run rate and the Finnish project is not included.

Moderator/Questioner, PPI: And then the final question, can you give some more flavor on why you choose to enter this new segment, the industrial infrastructure the industrial infrastructure properties?

Ilya Batlian, CIO, PPI: PPI is an infrastructure company. We have historically focused on social infrastructure and we now see that there is a large need for critical industrial infrastructure. So this is our first step. We also are looking at data centers and other types of mission critical industrial infrastructure.

Moderator/Questioner, PPI: Thank you very much. That concludes the presentation.

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