Well back at the office after the summer holiday we can now look back at the first half of 2022. The year kicked off where 2021 left off with all time high transaction activity for most, if not all, real estate segments.

PPI continued its growth by securing the remaining minority stake (4.2%) of Offentlig Eiendom AS in addition to acquiring a portfolio of seven properties (Phase 4) with 97% public tenants for NOK ~2 billion. The PPI portfolio now has a lettable area of ~300 000 square meters, with a total value above NOK 10 billion. Measured by annual rental income, PPI is with its NOK 550 million ranked as Norway’s 28th largest real estate company.

Furthermore, the rental market has continued on its strong path from last year. Although our portfolio is close to fully let, we are continously in the market for new contracts or rent renewals. For example we have re-let almost 5 000 sqm in Gjerpens gate in Skien to Sykehuset Telemark HF on a 9 year contract at competitive levels.

2022 was projected to be the year for the world economy to recover swiftly as restrictions from a two-year pandemic was set to ease, trading pattern to return and the general consumer consumption to normalize. The restrictions have definitely eased and consumers have shifted consumption back from ‘only’ goods to a more normalized mix of travel, goods and services. Then Russia invaded Ukraine in late February. The invasion and subsequent sanctions severely disrupted world markets for sale and transport of a number of strategic goods as well as energy markets. Comingled with lingering Covid-restrictions in Asia and the consequences of expansionary fiscal policies the result has been rapid and increasing inflation for much of the world economy.

As a result, many central banks have, and are expected to continue to, increase interest rates in a record breaking pace to curb the high inflation. So what does this mean for PPI? On the one hand increased interest rates, all else equal, are affecting our property values adversely as present value of cash flows decreases. But, on the other hand, more than 90% of our lease contracts are inflation linked thus functioning as an inflation hedge. The latter, in conjuction with ~5.8 years WAULT, >90% public tenants, several attractive development projects and almost ~80% fixed interest rates gives positive support to the cash flow, and thus value of PPI, in a scenario with continued high or increasing interest rates, inflation and relatively low economic growth.

In relation to the acquisition of Phase 4, PPI was able to obtain bank financing of NOK ~2.7 billion. The terms for the facility are highly attractive with a margin of 181 bps above 3M NIBOR, 2 % annual amortization and three years duration. Said debt is tranched to three tier one debt providers which are supportive of the PPI growth story.

With regards to the corporate side of our business we have developed a detailed strategy for the next years. ESG (Environmental, Social and Governance) is a key topic in the strategy. Regarding the Environmental part we believe that investments in, and documentation of, sustainable and ‘green’ actions are highly likely to increase the value of our portfolio. To address this, and in the end reach our goal of becoming carbon neutral by 2030, we are currently mapping energy- and water consumption as well as waste-sorting across our portfolio to define what and how to invest to become more sustainable, create value for our shareholders while also reducing costs for our tenants. Concerning Social and Governance we are continuously improving and ramping up our organisation and reporting standards to meet future guidelines and requirements. For example, a new legislation, Åpenhetsloven, was put to action 1. July 2022. To be aligned with this regulation, PPI has carried out an overall due diligence and prepared a plan for implementing preventive actions to ensure that there is no risk of human rights violations and violations of working conditions in our value chain.

On that note I would like to say thanks for an evenfult first half and wish for a great second half of 2022. Remember to visit us at www.publicproperty.no

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Morten Kjeldby | CEO

Number of Properties: 15
Property Value: NOK 2 935m

Number of Properties: 10
Property Value: NOK ~2 700m

Number of Properties: 16
Property Value: NOK ~2 020m

Number of Properties: 7
Property Value: Total NOK 1 988m

Number of Properties: TBC
Property Value: NOK ~5 000m

Number of Properties: TBC
Property Value: Total NOK ~15 000m