Intea Fastigheter (Stockholm:INTEA B) Q1 2025 Earnings Call

0:00 Welcome everybody. My name is Charlotta Wallman-Herlin and I'm the CEO of Intea. With me here today is CFO Magnus Ekström. Hello, good afternoon. Together we will summarize the company's first full quarter as a listed company. We are leaving a strong first quarter behind us. Intea's business model with a focus on long-term public sector tenants is a strength in turbulent times and many positive and exciting things are happening in the business. Development projects are a central part of the company's operations and therefore it is particularly pleasing to note that we so far this year have added over 9 billion Swedish kronor in new projects.

0:56 with a rental value of approximately 660 million. Tenants are the Swedish Police Authority and the Prison and Probation Service. And the projects are located in Kristianstad, Västerås, Gävle and Värnamo, among other places. The figure of 9 billion also includes an investment of 1.6 billion for the new police facility in Gävle, which we were able to announce very recently and where a contractual barrier in the procurement still applies until today. The new projects will be completed at various times during the years 2026 to 2031.

1:42 There is also high activity within our local asset management organisations. And during the quarter, new agreements have been signed with tenants in Linköping, Halmstad and Östersjön for a total of approximately 6,000 square meters. Now Magnus will tell you a bit more about the numbers. Thank you Lotta. If we take the numbers, we have a contracted rent of 1.4 billion We have a property value of 24.1 million with a running yield of 5.2%. As you can see, we have a high cash flow from our operations with a surplus ratio of 82.6%. And our KPIs performed better in ICR last 12 months of 2.7 times. In Q1, it was 3.5 times. And we also have an LTV of 49.8%.

2:48 If we take Q1 in a little more detail, we have a strong performance in Q1 with an increase of rental income of 21.6%. Like for life, it was 1.5%. And then we also have an increase of profit from property management of 57.4%. And this is mainly due to NOI from completed programs. We also had around 9 million in additional rental income from our acquisitions in Q4 2024. And if we look at the cost of tax, it's mainly from changes from deferred tax.

3:36 And finally, if we look at the graph below, we still have a high surplus ratio, which gives us a good cash flow from the operations. Intia has long had a strategy to develop facilities for the Swedish Police Authority and the Prison and Probation Service. The need for premises in the justice area is significant. Last year we acquired the prison in Kristianstad from Special Fastigheter and in February we took over the facility. Here's a good example of how we work together with the Prison and Probation Service to create more prison capacity and in February, we agreed with them to expand the prison by nearly 200 new places, which are expected to be completed already next year.

4:27 The investment is estimated to amount to nearly 600 million and the annual rent to nearly 40 million. InteA currently owns and develops five prisons, with the latest addition being the prison in Värnamo. which NTIA was awarded in a landlord procurement in February. The facility is expected to cover approximately 29,000 square meters lettable area and contain 250 places. The investment is estimated to amount to 2.4 billion and the annual rent to 163 million. In February, NTIA was awarded a custody unit project in Gävle in a landlord procurement and As I mentioned in the beginning, just a week ago, we could announce that we were awarded the police facility project in Gävle.

5:22 These two projects will be the third justice center for InteA along with those in Kristianstad and Helsingborg. The project is perfectly timed as the justice center in Kristianstad has just recently been completed. The new Justice Center will cover 55,000 square meters lettable area and the investment is estimated to amount to just over 3 billion with an annual rent of approximately 200 million. Following an extensive renovation and adjustment of the Viskan prison, we were able to welcome the Swedish prison and probation service to the new premises in January. The prison covers over 14,000 square meters selectable area with an annual rental value of approximately 70 million and is leased until 2045 and accommodates 144 places.

6:21 Given the facility's good expansion possibilities, we agreed with the Prison and Probation Service in March to expand the prison by 120 places. The investment amounts to just under 250 million with an annual rent of just under 30 million The lease period will follow that of the rest of the facility and is estimated to be approximately 18 years from completion. This is another good example of how we create more places for the Swedish Prison and Probation Service. Intea took over the custody unit project in Västerås in the beginning of April. The custody unit is under construction and is expected to be completed in the third quarter of 2028. The lease term is 20 years from completion and the annual rent is estimated at approximately 225 million.

7:19 The optometry and audiology clinic in Linköping will be completed this quarter and will add a rental value of 17 million. In Gothenburg, the project to develop state-of-the-art training and practice facilities for the police authority is progressing. The project is expected to be completed in the first half of 2027. This slide summarizes our strong project portfolios of Q1 2025. I must mention that the new awarded police facility project in Gävle is not included in these figures. We estimate an additional rental income from ongoing projects of approximately INTEA has a goal that more than 90% of the rental income should come from public sector tenants.

8:40 At the end of the quarter, the proportion amounted to 96.2%, an increase from 95.7% at the turn of the year. Long-term tenant relationships are an important part of InteA's business model, and we constantly work to extend the average lease term. Since the turn of the year, the average length on our leases with public sector tenants has increased to 8.3 years from 7.1%. The main reason for this is that the Viskan prison has been completed with a 20 year lease agreement. We have an increased earning capacity with an increase of rental income of 23%. We also have an increase of profit from property management of 50%. And this is mainly due to acquisitions and completed also a bit of indexation.

9:46 And if we look at the property value, as I mentioned in the first slide, it has increased with 500 million during Q1. It's up to 24.1 billion as of Q1 2025. The yield is 5.2 And then, if we look at our cash flow, we have a good cash flow from our operations that could be used for our investments. In Q1, we had a cash flow before changes in working capital of 165 million. Total investments amounted to 384 million, of which investments in projects amounted to 257 million.

10:39 and on the last 12 months basis, we have a cash flow from operating activities of approximately 500 million and total investments of approximately 2 billion. We have a strong financial position with an LTV of 49.8%. We have a policy that the range could be between 50 to 55% and not exceed 60%. So we have some leverage in the LTV. Our ICR, as I said in the beginning, is 2.7 times for the last 12 months, and for the quarter it was 3.5 times.

11:24 And if we look at the adjusted net debt EBITDA, where we exclude debt from projects, it has decreased from Q4 and it's up to 9.7. And if we look at the EPRA NRV for the Class A and B share, it has increased to 47.47 SEK per share in Q1. And also the profit from property management per Class A and B share, it has increased to 3.18 SEK per share for the last one month. And if you look at the growth in APRA NRV and profit from property management since 2018, the average growth was around 15% for the NRV and around 18% for the profit from property management.

12:26 So we have a strong track record for growth. Look at the financing. In Q1, we did interest swaps of 2.5 billion with an average interest rate of 2.2%. And our fixed rate period increased to 4.6 years after that. We now have a total of 12.8 billion in interest swaps and a hedging rate of 110% at the end of Q1. We have a debt portfolio of 12.3 billion with a good mix between bank loan, bonds and commercial papers.

13:12 Our interest rate has decreased during the quarter and was 2.8% at the end of the period. And importantly, we have 7.1 billion in unutilized credit facilities. The spreads came down during 2024. However, the spreads have increased a bit during March and April this year. However, the last few weeks, it has come down a little, some basis points. We haven't been active during the period, so we don't have an actual spreads in our credit margins are still attractive.

14:00 And hopefully we could do something in Q2 or Q3. And we have a BBB rating with stable outlook that should be maintained. And then I hand over to you, Lotta. Thank you. As I mentioned in the beginning, Intea's business model with a focus on long-term public sector tenants is a strength in turbulent times. The significant activity, especially within the justice category, creates a need for new and customized premises, which leads to interesting growth opportunities, both within the existing portfolio and through new business opportunities, both acquisitions and projects.

14:45 The company's first full quarter in a listed environment was eventful, and we look forward to an equally exciting and dynamic continuation of the year. Thank you very much.