Castellum AB (publ)

Welcome to the Castellum Q4 Report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to CEO Joachim Schoberg and CFO Jens Andersen. Please go ahead.

Good morning everyone and welcome to this Q4 and full year 2023 presentation from Castellum. I will start by saying that our core business continues to deliver stable results for which we are both proud and happy. Our total income increases by 9.8% mainly due to indexations and completed projects. More on that later. The income from property management increases mainly due to higher interest costs, of course, while the NOI increases by 12.5%. Financial costs increases by approximately 42%. And in addition, the central administration and results from EMTRA negatively affects our results. In total, we have had changes in the property values over the year of minus 9.5%. That corresponds to the amount 14.5 billion. Those changes are for the last quarter 6.3 billion. The average yield requirements is now down up to 5.62% compared to 5.01 at the beginning of the year. So it's an increase of 61 bps over the year. Our net leasing was negative, minus 67 million, mainly due to increased terminations during the last quarter. And for those of you who have heard me predict the positive figure, I can only say that I did not really expect the high number of terminations towards the end of the year. More on leasing trends later on in this presentation. We see a slightly decreased occupancy rate that is negatively affected by divestments of fully let properties. So the statistical effect is already given. So for those of you who are new to us, Castellum is one of the largest listed property companies in the Nordic region. We're a fully integrated company with local hands-on presence where our assets are located. The property portfolio is located in attractive growth regions in the Nordics, and we're exposed to the robust market in Norway via our holding in Entra. On the map you see the locations of our property portfolio and the size of the circles represents somewhat of our property size. Property values as of last December sums up to 160 billion SEK including our share in Entra. Of those 160, 73% are located in the main metropolitan areas, i.e. Stockholm, Oslo, Gothenburg, Malmö and Copenhagen. And Helsinki, of course. 50% of our square meters, that is about five and a half million square meters, are sustainability certified. And that has actually taken us through the goal for 2025, more on that later. And we have a yearly contract value of approximately 9.2 billion. So the income is showing good growth with an 8.9% increase in like-for-like holdings. There's some currency effects on our portfolios in Denmark and Finland. And if we exclude them, those are adding about a percent. So the net is some 7.9%. The completed projects have made a significant contribution boosting the income by 374 million compared to the same period last year. The notable projects include E.ON's new headquarters in Malmö and the new court building next to that also in Malmö. and a police building in Örebro. The completed projects together with the Life4Life portfolio are the key drivers increasing the income. However, growth is weighted down by transaction. We are, as you may know, net sellers throughout 2023. The direct property costs have risen 4.2% and as in the light for light portfolio. The increase is significantly lower for the fourth quarter, mainly due to lower electricity costs in that quarter. The increase in property and central administration is mainly attributable to one offs and more on that later as well. So there's very little changes in our top tenant list and the list represents a cross-section of Nordic business and authorities and our exposure to individual tenants is very low. Our 10 largest tenants represent less than 14% of our total contract value. and no tenant generate more than approximately 2.3% of our rental income. We have a very strong tenant base and some of our larger tenants are publicly funded. Approximately 25% of our total contract value derives from public sector tenants. The largest Individual tenant is the Swedish Police Authority. We have an average lease duration as of the year end of 3.8 years. ABB, our third largest tenant, has indicated that they are leaving some of the assets in our portfolio in Västerås. We have a good dialogue and we expect to prolong some of that. And in addition, ADD continues to be an important tenet for us in the future. I think I'll stop there and hand over to Jens.

Good morning, everyone. Jumping straight into rental income and how it relates to net leasing. In our opinion, a relatively weak correlation. Stable increase in rental income despite the quarterly net leasing figures being volatile over the quarters. Net leasing minus 51 million for the fourth quarter standalone and for the full year minus 67 million SEK. Bankruptcies higher than previous year, however, remains on low levels. Tenant quality is being very stable and outstanding receivables are insignificant. Continued stable demand from tenants. Contracts, however, take longer to negotiate, and economic vacancy is down somewhat compared to last year. No clear trend on tenants taking smaller spaces, rather a combination where some expand and some decrease space. Coming quarters will give better guidance. Examples of good leases signed during the fourth quarter are a six-year lease with the Swedish Police Authority in Norrköping, 6,400 square meters, and also a 14-year lease with a non-disclosed healthcare tenant in Stockholm, 2,100 square meters. Over to valuations. On an annual basis, Castellum has written down property values with approximately 14 billion, equivalent to 9.5%. since the peak in 2022, down with close to 21 billion. Approximately 85% of the write-down this year relates to higher yield requirements in our valuations. The rest is related to building rights, projects, and a negative cash flow change, especially due to low rent expectations on vacant premises. The valuation yield has been raised As already mentioned by Joakim, with 62 bits during the year and 97 bits since the peak in 2022. All properties have been externally valued in Q1 and approximately 45% in Q4. The majority was done by Cushman and Wakefield and approximately 10% double assessed with the help from CBRE. In addition, we have also divested properties during the year for approximately 5.4 billion, which is in line with book value and hopefully gives extra credibility for our valuation process. Nominal valuations are down to 2019 levels. However, looking at the yield shift isolated, we're back at the levels we had 2017. The difference is explained by high cash flow mitigating some of the negative effects from the yield expansion. With falling inflation end of 2023, we have also seen a sharp decline in underlying interest rates. However, something that do not present itself in lower yields yet, but rather the opposite. However, all normal considering well-known lag effects in property valuations. Inflation, however, seems to be going up and down and now up again however long-term interest rates are still well below the peak levels of last year and perhaps an early indicator that valuation yields are stabilizing however too early to say for sure is the fact that the yield gap between underlying interest rates and valuation yields are now at around 3.6% compared to just around 2% not too long ago, which starts to resemble the situation before the zero interest regime, especially if also taking into account the quality transition of Castellum's property portfolio during recent years. And now into some financial key figures. Loan to value is probably the lowest we've seen in Castellum since we started operating our business, which is very comforting. But starting with ICR, that is still stable at three times in line with our financial policy. Rights issue lower interest rates will most likely strengthen the ICR already during this year. liabilities amounts to 62 billion down from 77 billion at the beginning of the year average debt maturity has also improved quite a lot to 4.2 years thanks to repayment of short-term bonds and refinancing bank loans on longer tenure during the year and mood this has confirmed our baa3 credit rating with stable outlook during the fourth quarter Also looking at the loan-to-value again, that I couldn't resist to mention already on the previous slide, has improved over the year. The rights issue has been the main contributing factor, followed by funds from operation and divestments. Changes in property values of minus 14 billion have, on the other hand, put upward pressure on the loan-to-value. However, only with 3.7 percentage points. Erik Sundell, Average Interest 3% up from 2.6% at the end of 2022 despite increasing underlying interest rates during the year by almost 140 bits, excluding cross currency swaps, average interest rates amounts to 2.6%. Erik Sundell, Backed by strong Nordic banks, we have successfully increased our secured borrowing during the year at reasonable prices well below the bond curve. In addition, we see continued good interest from the banks and even start seeing a downward shift in pricing. In addition to positive science and secured financing, domestic bond market is also more liquid with new bond issues during the quarter. In Q1, we issued another bond of CEC 1 billion with a five-year tenure at 230-bit spread. Bonds spreads have tightened gradually during the fourth quarter and have continued to tighten in 2024. Easy to forget, but as late as in July 2023, our two-year SEC bond was trading at a spread of 300 bits, and now we see our bonds being traded at around 120 bits in the secondary market for the equivalent term. Our expectation is that the debt capital market continues to recover and hope to return to the euro bond market during 2024. Spreads are still wider than in the CRF market. However, with continued repayment of euro bonds by us and other Nordic names, resulting in decreasing supply, we expect the gap to close. available cash and unutilized revolving credit facilities amounts to to amazing sick 27.3 billion uh reduced project investment and no dividend this year will free up further funds in 24 till 26 we have bonds maturing totaling 25 billion of which we expect the majority to be refinanced with new bonds over to you again