Intea Fastigheter (Stockholm:INTEA B) Q2 2025 Earnings Call

0:00 Welcome to the presentation of InteA's interim report for Q2 2025. My name is Charlotta Wallmann-Herlin and I'm the CEO of InteA. Joining me today is our CFO, Magnus Ekströ. Good morning. Together we will present the Q2 report. While the world around us continues to be marked by uncertainty and rapid change, many interesting things are happening within our business. We are reporting a strong second quarter. It is clear that our stable business model with a focus on long-term public sector tenants provides us with a solid foundation even in challenging times.

0:55 The activity within In particular, the judicial sector remains high and we see many business opportunities in this area. In May, we carried out the directed chair issue that brought in just over one billion in new capital to the company. Yesterday, we announced the acquisition of a portfolio of security properties from Special Fastigheter. Through this acquisition, We are expanding our asset portfolio and complementing our project portfolio in a positive way. The acquisition includes seven prisons in security class two and three, as well as four SIS institutions.

1:43 The total lettable area amounts to just over 78,000 square meters with the Swedish Prison and Probation Service and the National Board of institutional care as tenants. The annual rental value amounts to just over 190 million. And the underlying property value in the transaction amounts to 1,390,000,000 Swedish kronor. Intea currently owns and develops five prisons and following the acquisition from Special Fastigheter, the number will increase to 12. Development projects are a central part of our business and we are pleased to report that during the quarter we added nearly 6.5 billion in new projects with an annual rental value of approximately 480 million. The projects are located in Gävle and Linköping for the Swedish Police Authority and in Västerås and Kristianstad for the Swedish Prison and Probation Service.

2:53 Since the beginning of the year We have added approximately 11.3 billion in project volume with an annual rental value of just over 820 million. The new projects will be completed at various times during the years 2026 to 2031. There is also high activity within our local asset management teams. During the quarter, designed a new lease agreement with the Swedish Prison and Probation Service for an expansion of the Ringsjön prison by just over 1,500 square meters of lettable area. The Ringsjön prison is one of Sweden's largest prisons for women in Security Class III, and with this new lease, the number of places will increase to just over 100 by year end.

3:49 As we continue to grow, with new projects and properties, they have also strengthened our organisation, both within asset management and project development. Now, Magnus will talk you through some figures. Thank you Lotta. I will go through the numbers. The first slide is for the first half year and we have a contracted rent of 1.5 billion. and we also have a property value of 25.3 billion with a running yield of 5.5%. We continue to have a high cash flow from our operations with a surplus ratio of 83.8% and our ICR for the last 8%.

4:57 If we go to the Q2 figures, we had a strong performance in Q2 with an increase of rental income of 24%. Life Alike, it was 2.1%. and an increase of profit from property management of 67%. This is mainly due to NOI from completed projects during 2024, the completion of the prison facility in Viskan in January this year, and the optometric clinic in Linköping in Q2. We also had additional rental income from our acquisitions we did in Q4 last year.

5:43 We had a positive impact from changes in value from investment properties of 143 million and negative impact from changes in value from our interest And finally, if we look at the graph, we still have a high surplus In April, the custody unit project in Västerås was taken over and construction is now in full progress. The total investment is estimated at just under 2.8 billion, of which approximately 2 billion remains to be invested. The annual rental value amounts to approximately 225 million.

6:50 In May, it was confirmed that the Kristianstad prison will be expanded by an additional 400 places in the second phase. The first phase includes just under 200 new places. The prison will, following the expansion, be one of the largest prisons in Security Class II in Sweden, with a total capacity of around 700 places. The total investment for both phases is estimated at 2.4 billion, with an annual rental value of 170 million. During the quarter, the Swedish Police Authority awarded InteA projects in both Gävle and Linköping.

7:36 In Gävle, the new police facility will form a justice center together with a new custody unit that InteA will be building for the Swedish Prison and Probation Service. In Linköping, the new police building will be constructed in close proximity to Linköping Airport. In May, the new eye clinic at the Garnisonen area in Linköping was completed and the tenant, Region Östergötland, moved into modern premises with surgery rooms, consultation and patient areas, administrative spaces and advanced medical technology installations. The project, which started in 2019, is a good example of how we work to develop our existing properties.

8:29 The building is part of a strategic densification of the area and has been designed in close collaboration with Region Östergötland to ensure that the facilities support efficient and safe healthcare operations. The garnitionen area is located near the University Hospital in Linköping. And this is the first time Region Östergötland has chosen an external landlord for such an advanced healthcare facility. The building comprises approximately 6,900 square meters of lettable area with an annual rent of approximately 20 million. The total project cost amounted to 260 million and the lease term is 15 years. Region Östergötland already leases approximately 9,400 square meters in the Garnisonen area.

9:25 In May, a new zoning plan for the Garnisonen area gained legal force. It enables the development of an additional 66,400 square meters of building rights allowing us to meet the needs of both existing and future tenants in the area for many years to come. During the quarter, we also completed a project within the judicial sector. The project comprises over 7,000 square meters of lettable area with an annual rental value of just over 100 million. The investment totalled approximately 400 million. Here are some examples of ongoing projects.

10:12 In Gothenburg, the development of state-of-the-art educational and training facilities for the Swedish police authority is progressing. The project is expected to be completed during the first half of 2027. At the Viskan prison, which was completed earlier this year, a project to expand the prison with 120 additional places is currently ongoing. And then if we look at our project portfolio, as Lotta mentioned, it has increased a lot during this year. And now we have a total current investment volume of 12.8 billion. And we estimate an additional rental income from our ongoing projects of approximately 59%.

11:06 We have a high average lease period in our projects and an estimated additional NOI of 870 million. The rental value will be around 2.5 billion when completion of all projects and that's an increase with just over 900 million. Intia has a goal that more than 90% of the rental income should come from public sector tenants. At the end of the quarter, the share amounted to 96.5%, an increase from 95.7% at year end. The average lease term with public sector tenants has increased to 8.1 years from 7.8 years at year end.

11:51 If we look at the earning cap, Fastigheter AB Class B If you look at the property value, it has increased with almost 1.7 billion during the first half year.

12:38 The current yield is 5.5% and is based on our NOI in the earning capacity. The increase in yield is mainly due to completion of a project in Q2 in the justice segment with a higher initial yield than the average yield we had in the portfolio. We have a good cash flow from our operations that could be used for our investments. And on the last 12 months basis, we have cash flow from operating activities of approximately 625 million and total investments of approximately 2.5 billion.

13:27 We have a strong financial position with an NLTV of 46.8%. It should be between 50 to 55% and not exceed 60%. Our ICR is 2.9 times for the last 12 months and for the corporate in Q2. The EPRA NRE per Class A and B share increased to 49.96 per share and the profit and it is increasing for the last 12 months.

14:44 We've been active in the interest market during the first half year and did interest swaps of 3.5 billion with an average interest rate of 2.40%. We also extended We have a total of 13.8 billion in swaps and a hedging rate of 113% at the end of the period. We have a debt portfolio of 12.2 billion with a good mix between bank loan bonds and commercial papers. And our interest rate has increased a bit during Q2 and was 2.95% at the end of the period.

15:37 and this is mainly due to the high share of interest hedging. And we have been active in the bond market during Q2 and issued two new green bonds in total of 950 million. The first bond was a five-year green bond with a margin of 133 bps and one two-year bond Thank you. It is clear that our stable business model with a focus on long-term public sector tenants provides us with a solid foundation even in challenging times. With new capital backing us, we are well positioned to continue pursuing new business opportunities in an attractive market while maintaining a flexible and well-balanced capital structure.

16:42 With that said, Magnus and I wish you all a wonderful summer. Thank you.