Kmc Properties ASA

OSE:KMCP

Earnings Call Transcript 2021-Q4

[Liv Malvik, Chief Executive Officer]

Hello. My name is Liv Malvik, and I am the CEO of KMC Properties. Together with me today, I have our CFO, Kristoffer Holmen. And Kristoffer and I wish to welcome you to this KMC Properties Q4 2021 Presentation. Fourth quarter 2021, KMC Properties. This page gives a brief overview of KMC Properties. We have called it KMC Properties at a glance. KMC Properties is a real estate company focused on owning industrial and logistics properties. We have a portfolio of plus 45 assets, primarily in the Nordics with a constitution of approximately 377,000 square meter at the end of 2025 -- 2021. We have long-term lease agreements with solid counterparties. Our 2 largest tenants are BEWI and Insula, majority owned by the Bekken and the Witzøe families, respectively, both large shareholders in KMC Properties. We have a portfolio value of about approximately NOK 4 billion and net yield of 6.4%, a WAULT of 10.4 and our group net LTV is approximately 50%. KMC Properties delivers accretive growth. We have a current portfolio gross yield at approximately 6.8%. We have investment for lessees in our current portfolio of approximately NOK 73 million at an average yield of 7.5%. We have investments in greenfield projects of approximately NOK 100 million at yield-on-cost of approximately 7.5%. And we have completed acquisitions of NOK 537 million in 2021 at yield-on-cost of approximately 7.5%. Our gross asset value grew to approximately NOK 4 billion by year-end 2021. And we have a committed pipeline at year-end 2021 of NOK 1.1 billion -- yes, NOK 1.1 billion. KMC Properties has an ambitious growth strategy, and the company has a strategic target of reaching NOK 8 billion by year-end 2025. And we see this planned growth well within expected possibilities in our sector. We will keep our focus on assets we know well: important infrastructure and business-critical properties for lessees in our core business. And in addition, we will look into businesses we find especially interesting, for instance, renewable energy industry, green industry and affiliated business in this segment. Our committed pipeline for 2022 is NOK approximately to NOK 230 million for greenfield and CapEx projects at weighted average yield of 7%. We also have a pipeline of acquisitions of approximately NOK 230 million, in which NOK 190 million was announced as per today. For 2023 and 2024, committed pipeline amount to NOK 365 million and NOK 260 million, respectively. If you have a closer look at the blocks in light green here up on the presentation, these blocks summarize up to the committed pipeline for 2022 to 2024 you find here in this graph. KMC Properties has a solid customer base of market-leading companies with long track records. And here, you can find some information about our 4 largest tenants. The largest one is the listed company, BEWI ASA, one of the leading packaging and insulation providers in Europe. The second one is the Nordic seafood group, Insula, who is majority owned by Kverva. Our number three is Grøntvedt Pelagic. Grøntvedt Pelagic is one of the world's leading pelagic companies established as far back as in the 1830s. And then we have PSW, PSW is now our tenant in 2 different locations at Mongstad and at Ågotnes, both outside Bergen on the West Coast of Norway. PSW has traditionally been a supplier to the oil industry, but they are now transforming into new green industries. And this sector is expected to have significant growth in the future. Over to our highlights for the fourth quarter. We had an acquisition of an industrial property with a long-term lease at Ågotnes for NOK 128 million. We have acquisition of a production facility in Fredrikstad with long-term lease for NOK 52 million. We went into a new rental agreement with First Seafood in our property in Kongsvinger, initial lease of 10 years. We had a completion of subsequent offering at NOK 8 per share following private placement in September. We listed our senior secured bond at Oslo Børs. We invested approximately NOK 47 million in development of existing properties, and Kristoffer will dig a bit deeper into these numbers later. Subsequent events are as follows: progress to new conditional agreement with Slakteriet, the slaughterhouse, for development of NOK 620 million salmon slaughterhouse facility. M&A pipeline of approximately NOK 230 million at year-end 2021 with a weighted average gross yield of 7.7% where 2 acquisitions announced in January 2022. The first one was a meat processing facility near Narvik in Northern Norway for NOK 100 million at a gross yield of 7.8% and a herring production facility in Sweden for SEK 90 million at gross yield of 7.5%. Here, you can see our property value and yield development and our total appraisal value split by country. As you can see, Norway is by far our largest geographical region. KMC Properties has an ambitious growth strategy, and going forward, we see 3 pillars of value creation and growth. The first one is contract renewals and investment in expansion projects for existing clients. The second one is investments in new facilities for new and existing clients. And the third one is acquisitions in collaboration with both current and new tenants. And KMC Properties will keep on delivering on its strategy in all these 3 segments. And now, Kristoffer, I leave the word to you.

[Kristoffer Holmen, Chief Financial Officer]

Yes. Thank you, Liv. In the table to the right here, you see our growth initiatives in 2021 and also a bit in late 2020. They add up to approximately NOK 1.8 billion with a weighted average gross yield of 7.3% and a weighted average WAULT of 15.8 years, of which approximately NOK 700 million has been completed in 2021. The initiatives are divided into the 3 investment types that Liv just mentioned. We have investments in the current portfolio, we call it CapEx of approximately NOK 112 million. We have greenfield projects amounting to NOK 936 million. And we have acquisitions of NOK 879 million. Over to the financials and the P&L. We had a rental income increase of 6.9% in Q4 due to new investments. We received rental income from the new properties that we acquired in the quarter at Ågotnes and Fredrikstad. We also received full rental income from our completed greenfield project at Senja. And also, we received the full rental income from the property at Mongstad, which we acquired in Q3. In addition comes income from completed CapEx projects. Property-related expenses are a bit up due to increase in number of properties and some extra maintenance. However, it is still low due to mainly triple net warehouse contracts in the portfolio. The increase in operational expenses is mainly due to provisions for employee bonuses and transaction costs. The fair value adjustment in the quarter was at NOK 106.2 million, which is due to CapEx investments, progressing greenfield projects. We also received a new tenant at our property in Kongsvinger. And also, we had quite large CPI adjustments. The interest expense for the quarter was at NOK 25.1 million. And tax expenses for the whole year 2021 was at NOK 77.4 million, of which NOK 2.9 million is tax payable. And the remaining NOK 74.5 million is change in deferred tax. Yes. Here you see the annual run rate. There's a large increase in the run rate rental income due to new investments and CPI adjustments. Still estimated property-related costs and OpEx are quite stable. There's an increase in financial expenses due to increased interest-bearing debt and increased interest rates. Here you see the run rate bridge from gross rental income to income from property management. And here you see the bridge from the reported rental income in the fourth quarter to its corresponding run rate rental income. And as you can see, the CPI adjustment accounts for NOK 1.7 million per quarter. Yes. This graph shows the contractual gross rental income less estimated interest expenses in the bond loan period. It has a majority date in December 2023. And as you can see, the group will have a solid cash flow going forward to cover OpEx and investments. The balance sheet at the end of the year consists mainly of the property portfolio of about NOK 4 billion. We had cash at NOK 208 million and a fair value of interest and currency rate swaps at approximately NOK 67 million. We had interest-bearing debt at approximately NOK 2.3 billion. Deferred tax liabilities was at NOK 132 million and land lease liabilities of NOK 19 million. Yes. And at the end of the year, the group had NOK 437 million in bank loans and a bond loan of NOK 850 million. And we did not utilize the revolving credit facility this quarter. Okay. To sum things up. We reached the portfolio target of NOK 4 billion at year-end 2021. And our current pipeline and momentum makes our strategic target of reaching NOK 8 billion portfolio by the end of 2025 well within reach. Okay. Thank you so much, and let's go to Q&A.

[Unknown Analyst]

So the first question is, will there be a need for equity issues to maintain the growth towards 2025?

[Kristoffer Holmen, Chief Financial Officer]

Yes. There will. We -- as both me and Liv mentioned, we have an ambitious growth strategy. And along the way, we will need to have equity issues, yes. That might be from both cash equity issues and also by issuing shares as a means of payment for portfolios -- or properties.

[Unknown Analyst]

And one more, how will the rental income from Moscow properties be affected by the current conflict between Russia and Ukraine?

[Kristoffer Holmen, Chief Financial Officer]

Yes. That's quite hard to tell. Obviously, the situation in Ukraine is tragic for both Ukraine and Russia and we'll just have to wait and see how this turns out. But obviously, the situation is serious and the sanctions from the rest of the world will be quite tough. So yes, we expect the Russian economy to be hit quite hard. But for now, we will just wait and see. But that being said, we only have Russian tenants in the building. So yes, so we still believe the occupancy rate to be quite stable for the moment, but we'll see in the long term how the Russian economy evolves.

[Simen Mortensen, Analyst]

Just one question for me, Simen at DNB. In the annual run rate you stated, is that per year-end? And which of the transaction you have announced in January is included in that? And also what kind of impact on FX is based given the current Russian exposure?

[Kristoffer Holmen, Chief Financial Officer]

Yes. The run rate is based on today. So we have included the properties that we acquired in Q1, so that's included. And the fact on the portfolio, the Russian property is valued at year-end at approximately NOK 140 million. And the net operating income from Russia is approximately NOK 10 million.

[Christopher Mo Dege, Analyst]

One question from me. Christopher with Pareto. So you had quite a few transactions that have gone through so far this year, but you've also had one previously announced transaction that fell through. Could you give us some insight into why that is?

[Kristoffer Holmen, Chief Financial Officer]

Yes. First, we -- you're talking about the Limo Labels property in Denmark. We negotiated for quite a long time, but at the end the price was set too high for us. So the negotiation didn't, yes, end up acquiring the property now. Sorry.

[Simen Mortensen, Analyst]

Simen at DNB. In the cash flow statement, you have positive cash inflow in payable tax. Can you just give us a description of what that is? And what did you say about payable tax in the quarter in the P&L, can you please repeat?

[Kristoffer Holmen, Chief Financial Officer]

Yes. For the quarter, we have a payable tax of NOK 2.9 million. So we have a quite large tax loss carried forward in the group that we exploit. That's obviously positive. And the tax payable cash inflow, it's -- yes, I have to get back to you on that one. Yes.Okay. Thank you so much.