Castellum AB (publ)

Welcome to Castellan's webcast and presentation of the half-year report. Joakim Sjöberg, CEO, and Jens Andersson, CFO, will present the results. There will be a Q&A session in the end of this webcast. If you'd like to ask a question by phone, please dial poundkey5 on your telephone keypad and ask your question. It's also possible to ask questions in the chat function on the website. Please keep the questions few and brief so that everyone has a chance. to ask. So let's start. Please go ahead Joakim.

Good morning and thank everyone for being here on this beautiful summer morning. We're here to share our half year report and I'm joined today by, as always, Jens Andersson, our CFO. But if we start with the first slide, we see overall stable results. I'm very proud of the organization. Our strengthening of the balance sheet during last year with the rights issue and divestments of properties and amortization of debt is, of course, the main driver behind the income being up only 1.3%, where the income from property management is up 16.3%. But we will look into these figures in more detail later in the presentation. Our net leasing for the period is positive, not much. And we see that as a huge sign of strength. We have continued to sell non-strategic properties. The proceeds from these will be used for new investments. We will come back also to this, but I want to highlight that this should be seen as streamlining of the portfolio rather than continued strengthening of the balance sheets. Castellum is one of the largest listed real estate companies in the Nordics. We're fully integrated with local hands-on presence where our assets are located. The portfolio is located in attractive regions across the Nordics and we're exposed to the robust market in Norway via our associated company Entra. You can see the location of our properties on this map. As of the 30th of June, it sums to 156 billion, including our share in Entra. And of these 156, over 75% is located in the Nordic metropolitan areas, meaning urban areas with at least 1 million people. And the remaining is in growing regional cities in Sweden. We have a contract value currently of approximately 9.6 billion. The operational focus is to retain existing tenants and lease vacant spaces. That's the most important thing, and that's our top priority. We have more active dialogues on new business than in a long time, but these things take time and they always remain uncertain until the ink is on the paper. We continue to have focus on reducing costs where possible. That means that we have implemented a procurement organization. We have business processes under review and we are streamlining our central administration. We also have eyes open for new investments. So far, we've been investing in existing portfolio, because that's been outperforming new acquisitions. We will keep divesting from our portfolio, but that's for the purpose of trimming it. And we have a very attractive project portfolio of more than 40 billion SEC. that's in new logistics and in refurbishments of existing buildings turning to the most important thing our tenants they represent the cross-section of nordic business and authorities and the exposure to individual tenants is very low our 10 largest tenants represents some 14% of our total contract value with no tenant generating more than 2.4%. The strong tenant base with many of our largest tenants being publicly funded is also a strength. 25% of our total contract value stems from public sector tenants and the largest one being the Swedish police authority. As at last of June, the remaining average length of our contract was 3.7 years. Jens will cover these figures in more detail, but from a helicopter point of view, total income increases, divestments affect income negatively, We have reduced property costs. We have admin costs also being reduced. And we have a lower debt volume, thus lower interest costs. Summing this up, we report income from property management up 16.3% from last year. And Jens will walk you through this on the following slide. So over to you, Jens.

Thank you Joakim and good morning everyone. Total income increased by 64 million. One isolated explanation of the increase is the expected insurance compensation in Finland relating to a significant water leak. Excluding this one off, the income is in line with previous year. Divestments has reduced income by 188 million, while completed projects contributed positively with 44 million. Direct property costs decreased 105 million, equivalent to 8%, mainly driven by lower electricity costs compared to the same period last year. Lease and property administration, together with central administration, decreased by 73 million, of which 63 million is explained by one-off effects recorded in the second quarter last year. Remaining part of the cost saving of 10 million is explained by reduction of full-time employees and a strategic decision to discontinue Castellum's innovation company. The loan volume is significantly lower due to divestments and the concluded rights issue last year. As a result, our interest expense are also lower compared with last year. Looking at development of operating income and excluding the insurance compensation in Finland, the like-for-like portfolio income increased by 112 million. equivalent to 2.6%. The change in the Like for Life portfolio is mainly driven by indexation amounting to 202 million or 5.3%, though partially offset by higher vacancies of CIEC 184 million. For the like-for-like portfolio, the direct property cost decreased by 54 million, equivalent to minus 4.7%, of which electricity costs decreased by 113 million due to unusually high electricity costs in the first quarter of last year. In extent, no further positive effect to be expected. Excluding one-off effect of electricity costs, like-for-like increased by 7%, equivalent to 59 million. This is primarily explained by more frequent snow removal and extra heating due to a cold and snowy winter compared to previous year. Looking at renegotiations. Renegotiations corresponding to an annual rent of 229 million were concluded during the period with an average positive change in rent of 1% compared with minus 1% the first quarter. Additionally, contracts with an annual rent of 702 million were extended with no changes in terms, equivalent to 60% of all contracts coming up for negotiation during the period, which we see as a positive sign indicating that most of our tenants are comfortable continuing paying the rent also after two years of strong CPI indexation. Net leasing positive, plus 6 million as Joakim mentioned earlier. Bankruptcy is significantly lower compared to the same period last year. Tenant quality is also deemed very stable and outstanding receivables are low and decreasing compared to the same period last year. Looking at rental income and net leasing. When we look at net leasing over a longer period, it continues to be volatile on a quarterly basis. Income, on the other hand, is much more stable and increasing over time, however, affected negatively over the last few years by divestments. What is also clear is that we have been holding back on new projects since 2022. Hence, net leasing mainly derives from existing properties rather than new projects, which has been a strong driver of net leasing in the past. Joakim will tell you more about our expectations to start more projects going forward later in the presentation. Looking at property values. During the period, Castellum has written down property values with approximately 1.6 billion equivalent to minus 1.1%. Since the peak 2022, down with close to 23 billion. The value change during the period is mainly driven by negative cash flow as a result of more cautious view on vacancies and future rent levels. Perhaps too cautious, but remains to be seen. Valuation yields is in line with year end. However, almost 46 bits upward shift since the same period last year. Currently at 5.62% and seems to have stabilized. Approximately 14% of the property value has been externally valued during the second quarter by Cushman Wakefield, confirming internal values and our valuation process. Property sales communicated during the period of approximately 1.5 billion SEK further confirm our book values. Jumping to financial highlights, loan-to-value still on a historically low level of 37.5% in line with year M23, despite the continued slight downward pressure on property values during the year. ICR currently at 3.3. Expiring interest rate derivative will increase financial costs, resulting in a downward pressure on the ICR. Rate cuts, however, is expected to have a mitigating effect keeping ICR on a comfortable level around three. Average interest currently at 3% unchanged during the year. Please note that average interest refers to a point in time at the end of the quarter and not an average input cost for the second quarter. The increase in financial net quarter on quarter is partially explained by one of the effects relating to financing of loans. 14 million and expiring interest rate swaps at the end of the first quarter, plus 15 million per quarter. Rating is stable and we feel that we have a reasonable headroom to move these requirements. Looking at debt maturity structure, we have issued half a billion of SEK bonds during the quarter. 3.5 billion during the period. Our domestic bond curve has tightened by 80 bps since the beginning of the year. Indications for a CFK benchmark is around 155 bps on five years and 175 bps on a similar euro bond. Euro market is still wider as you understand. However, now open for good Nordic real estate names. Correct timing for re-entering the euro bond market is continuously being evaluated. We also see continued good interest from Nordic banks and have refinanced term loans and revolving credit facilities with a total loan volume close to 14 billion SEK during the quarter. Terms in line with previous agreements and with spread significantly lower than the peak in 2023. Almost 28 billion also in cash and unutilized credit facilities available at the end of the quarter. We will gradually reduce the rolling credit facility volume if access to the Eurobond market remains open. The market for commercial papers is also back on favorable terms for us, which is good. All in all, a very good financial position for Castellum. Over to you, Joachim.