Castellum AB (publ)

Good morning, everyone, and welcome to this presentation of Castellum's Q2 report. There will be a Q&A session in the end of the webcast. And if you'd like to ask a question by phone, please dial pound key five on your telephone keypad and ask your question. But let's start. Go ahead.

Thank you, Kristoffer. And let's start with some highlights from the second quarter. Divestment to Vilborgs. We sold all our properties in the Öresund region minus Copenhagen to Vilborgs. Sales price was 13.3 billion. We also sold the portfolio here in Stockholm with two buildings and we sold it to Alekta and the sales price was 5 billion. and a sort of common denominator for both of those transactions were that we received a good price and we think that we will not be able to meet our return targets given the price we achieved in those two transactions. We have continued to conduct share buybacks. So for the first six months of 2026, we have purchased 39 million shares for 4.6 billion. And on the leasing side, Ericsson did not use its option to not lease the full Infinity, but they would rather lease the full Infinity. And we also made a leasing contract with Ericsson for two additional buildings in Hagaston, Emerald House and Jubileumshuset. There are some conditions to those two agreements. So these two lease agreements are not a part of our net leasing this year and probably not until the end of next year in 2027. Short introduction of Castellum. We have a property portfolio of 134 billion. We also own 37% of the listed Norwegian company Entra. Currently we have 5.2 million square meters and 650 properties and around 500 employees, but that will reduce as we have the closing on the announced transactions. We are working quite diligently with sustainability and not the least with reducing our energy consumption and this first half year we have reduced our energy consumption with two percentage points. Net leasing obviously very important for a commercial real estate company. And it's very nice to see a positive net leasing for the first six months of 2026, despite quite big terminations in the last quarter. But net leasing is 110 million. and a lot of that is obviously driven by the Ericsson leasing of Infinity which is around 140 million If we move on to the next slide, you can see the net leasing excluding projects. And what you can see here is that it's still negative when we remove the projects we are doing, but perhaps a bit better than it has been for the past three years. and this picture also gives us a nice bridge to the next slide where we can see our vacancy, which is today is 87.5%. So it has increased a bit also in this quarter. But what we can see is that the vacancy rate or the occupancy rate has gone down and this is all due to the net leasing that has been negative for quite a long time actually. And here are some key figures regarding the contracts. Roughly one third in annualized terms, there has been action in the contracts. 9% annualized figures has just been prolonged, no change in rent level. And roughly only 3% has been renegotiated. and those terms have then been 4% lower rent level than before the renegotiation. And quite a big chunk has been terminated, 11% in the annualized terms. And a lot of that is actually driven by A3. It was a pretty big contract that was terminated during the quarter. But if you weigh in on prolonged and renegotiated leases, the change in rent level is minus 1%. and here on the next slide you can see the in-place rent, the contractual value of our rent levels, how that has changed during the past year. We have disposed assets and we have removed assets from the like-for-like where we're making projects and the like-for-like in-place rents have declined with minus declined with 1.3%, and that's mainly driven by an increased vacancy. And of course, with increasing vacancy, you get the negative income growth in the like-for-like portfolio and has been minus 2%, basically the same as we reported in the first quarter. NOI is also negative for the quarter, for the period, full period, minus 4.8% negative income growth, but also a bit higher costs, mainly driven by a pretty cold winter. So more costs for snow removal and heating and so on. Okay, over to you, Christopher.

Thank you. As Paul mentioned, we have been quite active on the transaction market the first six months of this year. We have signed the deals totaling 24 billion of value, which the large one being the divestment to AP7 signed in February, 5.6 billion of public properties. The divestment to Alekta, signed a couple of weeks ago, 5 billion of office properties in Stockholm. And the divestment of our assets and our organization in Skåne, south of Sweden, to Wheelboys, 13.3 billion, also signed a couple of weeks ago. In addition to that, we have signed a couple of smaller transactions. totaling close to 400 million in property value. Also, this is a mix, but mostly offices, one small one in Copenhagen, one small one in Malmö, one small one in Stockholm, a couple of ones in Linköping, different categories and different geographies. The total signed divestments has been done at a value just below 500 million or 2% above fair value the quarter before the transaction was signed. We are, of course, more interested in the return we expect from the properties to give us in relation to the price we get rather than price versus fair value, but still worth mentioning, especially given the size totaling 24 billion. And as I said, also a mix of property categories and a mix of geography. Interesting, I would say. In this table, we have also highlighted both the total profit and that is including all effects, including in the income statement. So also value changes in goodwill, tax effects, et cetera. So bottom line results. And we have also one line here, profit included in the report. which is what we have recorded in the income statement up until this report. And the difference of course will come in later reports. Looking at our property value, it's 134 billion as of this report. But in this figure, the Electa and the Wheelboys transactions are included as they have not been closed yet. and if we exclude them we have approximately 116 billion of asset value. Please also notice that we in the balance sheet in this report have reported properties sold to Wilburys as assets held for sale so they are not included in the line investment properties. During the period we have invested 2 billion in our existing properties. Of this 1 billion is new construction. Roughly 600 million is tenant adaptions. Approximately 300 million is maintenance. and some smaller amounts, energy investments and other investments. And this is something new that we have added to the report. A couple of you guys have asked for it, and here you go. Value changes in the period plus 236 million. And if you divide that, it was plus 401 million in the first quarter and minus 165 million in this quarter. It's roughly the value change in this quarter from the signed transactions. But the rest, there is some big positive ones and a couple of minuses. The infinity property is up quite a lot after the signing of the lease agreement with Ericsson. The cap rate in our valuations is 5.7%. It has been quite stable over the last couple of years. And the value decline over those years has rather been lower cash flow expectations. Loan-to-value, 37.3%. Healthy headroom, I would say, against our financial policy, which is not to exceed 40%. We have during the quarter terminated our S&P rating. And the reason for that is that we believe that one credit rating is sufficient to support our new strategy. Debt maturities on average 4.5 years unchanged during the quarter. We have during that quarter refinanced 2.3 billion of secured RCFs. We have issued 3.9 billion of unsecured SEC bonds. A mix of two, three, and five years average credit margin 99 BIPs. and we have also repurchased a number of shorter SEC bonds, 1.7 billion in total value. Stable to decreasing margins, I would say, in both the bond and the banking system during the quarter. Still good financial markets. Interest bearing liabilities 57.3 billion down from 59.5 billion in Q1 and we expect this to come down even further of course when we close the transactions later in the year and that we will reach somewhere 49 to 51 billion. given that we will amortize approximately 40% of the billboards and electa transactions. Average interest rate currently at 3.5%. That one is up from 3.1% in Q1. And that is driven by the redemption of two euro bonds with low fixed coupons. and this was something that we had to do to be able to fully execute on our strategy and including the divestments of properties to Vilbois and Alekta. Those ones would not have been able to do those with the previous bond documentation. and the total increase in running financial net will be approximately 200 million on an annual basis. That's approximately 50 in the shorter bond and approximately 150 in the longer bond. ICR 3.2 times, it's unchanged. Our policy is to have at least three times, to have room there as well. The ICR is stable to slightly decreasing due to the higher interest rates following this redemption of Euro bonds that I just mentioned. In the financial net we can also highlight that we in Q2 had one-offs of 48 million. 31 of those relates to this redemption of euro bonds. Most of that is actually not a cash flow effect but rather only income statement effect. We have during the first six months bought back shares as Paul mentioned for 4.6 billion and with that we concluded the share buybacks relating to both the AP7 transaction and the results for 2025. Average price has been roughly 117 SEC. and as you might have seen this morning the board decided upon a new share buyback program of up to 3 billion and that equals 40% of the proceeds from the elected transaction. and that is 60% of the proceeds from the elected transaction and that is roughly equal to the remaining part of the authorization that the board has from the AGM. Because as of today we hold approximately 5% of our own shares. Income from property management per share increased 7.3% when comparing the first six months of this year with the same period last year. Then we have, of course, bought back shares during this period for proceeds from the AP7 transaction, but that transaction was closed on 15th of June, so almost fully in the income from property management during the period. I'm looking at the last 12 months comparing with 2025 it's instead 3.5 percent. Net asset value per share here measured as EPRA NRV has increased 4.6 percent since year end. Roughly half of it is due to profit and roughly half of it is due to the share buybacks that we have executed below net asset value. As most of you know, our overall financial target is a return on equity over a business cycle above 10%. Taking the first half of 2026 and annualizing that figure, we are at 5.2%. Far from the goal, but at least a step in the right direction. And we will continue to fully focus on this in everything we do. And with that, it's time for questions. And I repeat, if you'd like to ask a question by phone, please dial pound key five. and the first question comes from Staffan Byhlob, SBF Markets.

Good morning and thank you for the presentation. I have a couple of questions starting off with the AP7 divestment. How much did that impact rental income in Q2?

Do I have actually that figure somewhere here? As I said, with almost the full year, the full quarter, as we close it on 15th of June, I think in the press release, it was a preliminary closing date of 29th of April. But as I said, in the end, it was 15th of June, so almost a A full quarter. And if you give me one minute, I can perhaps... I have to come back on that one.

Yeah, no worries. I can move on to the next question a bit more on capital allocation. At what share price level would share buybacks no longer be an attractive use of capital in your view?

We haven't really discussed that in the board. It's quite a big difference still between the share price and the NAV. I think it's around 40 SEC. So it has not been a topic. But of course, when approaching the net asset value, share buybacks won't be as attractive as it is right now. But I think we have some headroom still.

Yeah, okay, thank you. And following the VBOIS divestments, what distribution alternatives are you considering for the excess capital? Could you consider a mix of the dividends, buybacks or like, yeah, what options are you considering?

I think we are considering all options and but also as we have said I think we wrote it in the press release today as well that today we have decided upon the proceeds from the elected transaction and the proceeds from the Wilburys transaction will be at a later stage but then of course we will sort of take all options into the equation and decide what's best at that point in time.

Yes, and since the closing is a couple of months ahead, we don't know where share price is moving and so on. So it would be a bit stupid to make that decision right now. So we have to come back when we actually know where the markets are, when we are receiving the proceeds.

Understood, makes sense. And next question, after the announced divestments that you have made here, what share of the remaining portfolio still fails to meet your return requirements?

It's extremely difficult to answer that. It's much dependent on what prices we may achieve on the transaction market. But if we would look at the fair values we have today, I wouldn't say it's a big proportion, but it's a significant proportion of the portfolio where we probably would be better off if we could sell them at fair value. But as I think I'm right in the letter or in the CEO comment, it's and many others. Remains to be seen how much we will get for different type of properties.

Thank you. And one final question from me. Do you see a broader base of buyers of your assets versus the beginning of the year or is it the same conditions?

I think already in the beginning of the year actually was a very large and broad interest in transaction markets. Perhaps it's increased a little bit since then, but as I said, I think it was very large interest already at that point in time.

Okay, thank you. Those were my questions.

Thank you. Next one, Lars Norby, SCBR.

Well, thank you. Question regarding net leasing, obviously. positive in the quarter but negative excluding previously announced lease with Ericsson. And you're also saying something like conditions in the rental market remains sluggish. So looking ahead at the remaining two quarters of the year, what's your aim in terms of net leasing?

The aim can only be to work as hard as we can to get as many signed contracts as possible. The forecast for the demand is something that we can't do. We don't have that glass ball, so to say. We don't know, but we can only do our best to sign as many lease contracts as possible.

Are conditions pretty much unchanged from a quarter ago in the market?

I think when I speak with people within the organization working with leasing every day, I think in Stockholm, they say that there is more activity. We have signed more lease agreements than we did a year ago. and in other markets in Gothenburg, it's still pretty weak, but it's not declining. It's perhaps there's bottom out. And in our regional cities, it seems like it's a bit sluggish still, but it's not declining at least. That's sort of the message I get when I speak with people.

And then regarding, you had A3 affecting the Q2 net leasing figure by negative 95 million, is that correct?

Yes.

And that was, I understand previously, it was known that that was upcoming. Is there anything else, remind us, that you're waiting to come in terms of termination from any other tenant of Sison?

No, not in that size, no.

and then finally jumping to different figure in the report, the 84 million non-recurring item in income in Q2. I think that was related to one of the property divestments, wasn't it? Is there anything more non-recurring that you know now coming up in Q3, Q4 on that line?

No, smaller ones that are often smaller ones, but typically they are so small that we don't mention it and you don't notice them. That one was, of course, quite big. As I said, that one was related to one of the transaction, one of the properties in the AP7 transaction. But in the billboards and the elected transactions, no such effects, or at least not of any size.

Okay, perfect. Thank you.

Next question, Nadir Rahman, UBS.

Yes, good morning. Thanks for taking my question. Briefly, So the first one I'll ask in turn. You mentioned in the report that you see no reinvestment opportunities at suitable yields. So could I ask, where are you looking for these reinvestment opportunities?

In all our markets.

Is that across offices, logistics, other asset classes as well?

It's within the asset classes that we are operating.

and are there any that you're more interested in at this stage that you see are more likely to become suitable in the near term?

To be honest, no, we are looking broadly.

My second question then is, you also mentioned that part of the value changes in the existing portfolio, including the disposals, you see the assumption of lower cash flows for part of these portfolio. Is this due to softer rents or is this due to occupancy declines or any other factors that is worth noticing?

I would say it's a mix of both. You see no actual real growth in rent levels. It's rather flat and then slightly What one could say, pushing forward of the decline in vacancy ratios in the property fair valuation discounted cash flows. So it's a mix of rental levels and occupancy.

And do you see these value changes concentrated in any particular region or asset class again?

No, not really. It's across the line, I would say. Both office and light industry and logistics might be a bit better for retail. We do have a small proportion there, but it's two small differences to say that it's a significant difference between the asset classes.

Right again. And my final question is regarding the hybrid reset date that is upcoming in December. And of course, you've done all the terminals of the S&P ratings due to. So from the 40% of the disposal allocation that you've assigned to debt, can we see any of this being used for the hybrids or is this purely going to be used for more traditional debt?

We have seen it as more traditional debt.

Okay, and what is your thinking on the hybrids, given the current market conditions, given that we are now less than half a year away from the reset dates?

Yeah, as I said, the first call date is in December and the first reset date is March next year, something we are evaluating and will come back with, both how and when.

Okay, very clear. Thank you.

Thank you. Next question, Fredrik Stensved, ABG.

Thank you very much. Two questions, if I may. First on the On the new table that you show in the presentation today of the proportion of leases being renegotiated and terminated and the change in rental levels, etc., it seems like a fairly large change this year versus previous years when it comes to the change in rent level. Would you Would you argue that this is due to a strategy shift, a new management team, etc? Are you more open to the idea of lowering rents to keep the properties occupied than previously? Or is there a change in the market?

It's difficult to answer exactly what proportion you should look on what the council to say. And I would say that the authority is about the market.

understood and then secondly on losing an occupancy you previously stated I think several times that it will get worse before it gets better and occupancy has come down have all the all the major terminations primarily from from last year now Are all of those reflected as of today or are there any significant move outs that still remains for the upcoming quarters and years?

All of the large ones from the beginning of last year is in these figures. Very good, thanks. Thank you, Fredrik. Next question, James Cattell, Green Street.

Good morning. I just had a question on the hybrid bonds, but that's already been answered. Thank you.

Okay. Thank you, James. And I think that was the last question for today. So thank you all for listening and have a great summer.