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Premia Properties | Scaling growth, managing leverage

2024 additions boost rental income and further diversify the portfolio – PP delivered a 13% yoy revenue increase in 9M’24 to €15.7mn, with annualized rental income at c€22.7mn (EEe), reflecting a >7% gross yield (income-producing). Surging revenues powered a 36% yoy leap in adjusted EBITDA to €10.4mn. This growth was fueled mainly by CPI indexation and incremental rents by the expanded portfolio which has now reached €351mn (+21% yoy). The portfolio is now strategically weighted across key sectors: Logistics/Industrials (54% of annualized rental income), Offices (20%), Serviced Apartments (9%), Social Infrastructure (14%), and Big Boxes (3%), boasting c99% occupancy, a strong tenant base, and 8-year WAULT on inflation-indexed leases.

Frontloaded CapEx plan of €160mn to drive 26% Rental Income CAGR by 2026 and c11% growth in NAV/share – PP has increased its expansion plan materially vs our initiation report, now targeting €160mn CapEx by 2026. Key investments include the acquisition of two Sunwing hotels for €112.5mn from NLTG (expected to be completed by year end), and a 32% stake in Village Shopping & More for €14.1mn. The remaining investments will target projects for student housing, social infrastructure, offices, hospitality, and commercial properties. These transactions boost our 2023-26 gross rental income CAGR forecast to c26% (up from 15% seen before). Overall, we see GAV growing at c20% CAGR reaching €536mn by 2026e, mainly fueled by CapEx/ development gains, with c16% of the growth stemming from revaluations. This will translate into c11% CAGR in NAV per share, well above the low single digit average for EU REITs, setting PP apart from the rest of the cohort.

Growth accelerates, leverage peaks: a balancing act – Premia is on track to execute its pipeline without significantly surpassing its leverage target of 60% Net LTV, supported by a small capital increase of €10.5mn (covered by NLTG) and an average cost of debt of c4%. The current plan looks well-funded but with leverage at the high end of ratios typically seen for EU peers, we reckon that the current financing structure has reached its limits under the existing expansion framework. As such, any further investment opportunities may require a strategic reassessment of the capital structure to maintain financial flexibility.

Valuation – PP’s shares have had a tepid 2024 performance, in sync with other REICs, as, despite the monetary easing that began in June, the rates setup was, in general, one of a higher-for-longer environment. As such, PP remains at c40% NAV discount (vs c25% for EU peers), a level which leaves limited room for downside, in our view. We argue that the c4% yield spread over the sovereign in logistics & industrials (PP’s core sectors) along with likely positive REIC framework changes and a strong investment pipeline, bode well for NAV growth. We have recalibrated our valuation now basing our PT on a c20% discount to adj. NAV (a tad higher than the cross-cycle 15% for EU REITs). The risk-reward remains titled to the upside, thus we reiterate our Buy.