Catella AB (publ)

Thank you. Good morning, everybody, and welcome to Catella's interim report for the third quarter of 2024. My name is Daniel Gorosh, and I am the interim CEO of Catella Group, and together with Michel Pichet, CFO and Head of Investor Relations, we will walk you through the highlights of the quarter. After the presentation, we will open up for Q&A session, and the material and reports are, as always, available on our website. So I'd like to start the presentation with a brief overview of Catella, starting on page three. Catella operates in three property-focused business areas, investment management, principal investments, and corporate finance. We manage over 150 billion Swedish kronor in our pan-European investment management platform, and a bit more than 70% of the assets under management are managed in property funds and a remaining part in a significant number of asset management mandates across Europe. Principal investments is where we invest our own equity into a broad and diversified portfolio of European investment projects together with partners. Most of our own investments are managed by our own asset management companies across Europe, managing our financial partners investments as well as ours. and then generating additional fee revenue streams besides our targeted returns on our invested capital. Corporate finance is our real estate advisory and brokerage arm with leading positions in our five large European countries. And corporate finance is also an important advisor to our other business areas, investment management and physical investments. Our operations are taking place from 25 different offices in 12 countries within Europe, and we have approximately 500 employees. So with that brief introduction, I'd like to start this quarter's presentation with a short market summary on page four. In the second quarter, where we experienced some transaction volume recovery, mostly due to seasonality effects, the transaction activity decreased slightly now in Q3. with industrial and logistics being the most sought for segment from investors. Looking at valuations of European real estate assets, they seem now to have stabilized after declining over the last two years. And I, together with some European colleagues, recently visited one of the largest real estate fairs in Munich, Expo Real. And our summary of those days were just compared to six months ago. there is now a significantly stronger and well-founded interest in finalizing transactions. We see the cost of capital coming down, pricing meeting buyer and seller expectations, and we optimistically believe that we are in, or very close to at least, the turning point now after two challenging years. Currently, however, overall transaction volumes as well as capital inflows in the European restate market continues to be low. And Catella has taken and continues to take necessary actions throughout this downturn in the industry. We have preserved liquidity and a strong capital position. And furthermore, we have realized material cost efficiency improvements and preserved AUM in existing funds, as well as launching new product initiatives. With these efforts, Catella is now in a better position today than when now the market slowly recovers. So with that brief market backdrop, I'd like to move on to the next page, page five, for a summary of our key operational highlights of the quarter. Even though the market continues to be quiet, we continue to focus on adapting and evolving our business to increase efficiencies, securing existing assets under management, and preserve a solid liquidity and capital position. During the quarter, one of restructuring costs of 13 million impacted the result. Taking this into account, the EBIT was unchanged year on year, despite the 10 million decline in net revenues. As mentioned, we continue to have a strong balance sheet and liquidity position. And during the quarter, we have also issued a new bond under the newly established MTN program and Green Book framework. The issue of 600 million was met with strong investor interest, and in parallel, we tendered over 300 million of the bonds maturing in March next year. And with forthcoming divestments that further will strengthen our liquidity, we will also review the remainder of the bond maturing in March 25 during the next couple of months. Moving on to investment management, the AUM was unchanged compared to last quarter. when taking revaluation and FX effects into consideration. We see this as a sign of strength in the current market where capital inflows in our core property funds business remain limited, but outflows as well are very limited. So this in a market where competition is facing significant redemption requests and where some funds also have closed. The largest growth possibilities we see today is within asset management operations within our investment management business. Here, we have signed new mandates managing underperforming assets and assets which require repositioning. In recent quarters, we have seen growth in these types of mandates in Finland and in the Netherlands and continue to see additional opportunities across Europe. where we see that our investors value our group's know-how as well as our strong local competence. So the growth in AUM through asset management proves the resilience of our business model in a weaker and more hesitant transaction market. So in order to create a stronger, more efficient and larger fund platform in investment management, we continue to work combining our two fund companies, Catella Residential Investment Management, CRIM, and Catella RealSafe AG CREAG. We expect that this merger will be finalized by the year end, resulting in a joint 10 billion euro fund platform, leveraging capital raising, coordinated investor relations and research, as well as a fully focused and efficient back office and fund administration for Catella and external partners. Looking ahead, new product development and sales continue to be a priority, but we are humbled that despite We see strong investor interest. Capital raising takes time, and much longer now in today's markets. If we then turn into principal investments, primary focus there is to remain on completing existing projects and positioning the assets for sale. Our largest project, Cactus, was awarded Europe's best tall building during quarter, and this award further emphasizes the attractiveness of this landmark object in central Copenhagen. Besides winning this award, we continue to make progress in sales discussions with investors. Looking ahead, we expect the sale of our logistic development project in France for Luxys in late November, and this investment will further strengthen our liquidity within marginal profits. Total investments in principal investments amounted to 1.85 billion at the end of the quarter, and this is an increase of 350 million since last quarter, mainly as an effect for us deciding to replace expensive junior financing in Cactus with less expensive capital through a shareholder loan. And finally, corporate finance. As I initially discussed, transaction volumes fell quarter on quarter, but market sentiment seems to be recovering. With a bit of optimism, we could see a stronger Q4, and we are currently building up a strong pipeline, which indicates a promising start of 2025. And as I mentioned, my personal reflection from Expo Real is that we've gone from a market where everyone was trying to figure out what everyone else wanted to do to a market with real and initiated discussions with new potential investments at the good entry points. At the same time, most of the larger real estate companies have managed their leverage and with a lower cost of capital going forward, as well as expected increase in rents, we see that valuations have stabilized. yielding an improved fundamentals for transactions now to finally pick up again so let's move on to page six for a summary of the group's consolidated results net revenue decreased by 10 million explained by lower transaction activity affecting all business areas as described one of costs amounted to 30 million in the quarter and taking this into account the ebit was flat year on year despite the lower revenues. Excluding run-offs and depreciations, costs were 16 million lower year-on-year, showing that efficiency improvements also are reflected in our numbers. Investment management, we see that the AUM was flat after taking the FX and revaluation FX into consideration, and AUM in funds remained stable, which is quite an achievement, I must say, in today's markets. But importantly, we continue to gain traction in new asset management mandates. Despite a slower transaction market, the underlying business model continues to perform and we maintain our focus on improving our margins and developing new products. And in principal investments, it was yet another quite Quite quarter, but one divestment is now planned to take place in Q4. We have ongoing dialogues to find the right investors for projects that are finalized or are close to being finalized. In corporate finance, we experienced yet another weak quarter as an effect of the slow transaction markets. We see increased activity, especially here in the Nordics, but continental Europe and especially France continue to be very weak. The repositioned corporate finance at the lower cost states provides good opportunities for growth profitably when the cycle finally now turns. If we then move on to page 8 to discuss investment management more in detail. Having the slower growth of 2023 and 2024 in mind, the business area has since inception delivered a strong average annual growth rate of nearly 20%. During last year, as well as this year, organic growth has been muted. But again, we see this as a strength and a continued investor confidence in the current market backdrop we experienced and continue to experience. In the funds business, we have retained the capital with limited outflows. At the same time as asset management mandates have reached their maturity, we have replaced these with new mandates. New mandates with a new focus where we aid investors to manage underperforming or defaulted assets to reposition them and increase returns. Asset management provides a balance to our business model and provides opportunities to grow in an environment where investor interest in core or core plus investments is limited. In this setting, our pan-European reach coupled with strong on the ground local market competence is something investors and partners value highly. Moving on to page nine, We see here the continued new to transaction volumes, timing effects and revaluations led to slight decrease of top line compared to last year. However, our cost reductions initiatives are shown in the results. And by taking one of costs in the business area amounted to 3 million, we show an EBIT increase despite lower revenues. The merger of our fund platforms with further harmonized operations and increase efficiencies going forward. Besides the continued strong focus on efficiency improvements, we continue our efforts of retaining and growing our assets under management to be well positioned for profitable growth when looking ahead. So that was investment management. If we now turn to page 11 for an overview of principal investments. Our principal investment portfolio continues to comprise of eight active investment projects at quarter end. plus a few smaller seed investments and equity co-investments in larger aggregation mandates. As mentioned, the closing of Polaxis is expected to take place in late November, and we also expect an additional milestone payment in Met's Eurolog. Both events will further strengthen our liquidity, which has been a key priority for Catella to manage during this part of the cycle. We remain committed to our projects, And based on our financial position, we have the opportunity to be patient, to protect value and generate shareholder returns. In parallel, we continue to review smaller investment opportunities as they emerge with the ambition to generate returns on equity and gain new revenues in asset management mandates. So let's focus on corporate finance on page 13. The overall transaction market decreased slightly compared to the second quarter, with Catala transacted volumes within our continental platform decreased sharply, mainly due to a slow market in France, whereas the transacted volumes in Nordics decreased steadily. From a financial perspective, a stable quarter with net revenues and EBIT in line with the same quarter 2023, and to reiterate what we previously communicated, Our corporate finance division holds a strong market position in the fine markets where we have operations. And with a couple of new recruitments and increased cost efficiencies, the business area is in a better position to return to a highly profitable business as the market returns. Furthermore, the pipeline that has been built promises a revenue increase as transactions start to close. So I'll now hand over to Michel, who will share a brief financial summary beginning on page 15.

Thank you, Daniel. And good morning, everyone. And as you're well aware of, and as usual, the CEO steals the majority of my show. And to start by repeating what has already been mentioned, lower revenues have been more than offset by a lower cost base. One-off restructuring cost amounted 13 million in the quarter and the current full year estimate is expected to be around 20. Worth to reiterate is that our work to adapt the organization to a market with lower activity continues to be reflected in our numbers and we still expect more to come. Looking below the EBIT line, the negative net financial increased, but this was mainly due to the buyback of the March 17 bond and interest costs on the junior financing of Cactus, which was repaid in late September. Additionally, average interest on the market debt increased compared to the first nine months, as an effect of increased market interest rates, simply. And as the Swedish krona strengthened in the quarter, we also had FX headwinds in the period amounting to 11 million. Altogether, this led to a net loss of 23 million, but when adjusting for one-offs and FX effects, it takes us to a slightly positive net profit for the quarter. which is an improvement year over year. If we then continue to page 16 and look at our balance sheet and financial position, our balance sheet liquidity has remained strong and remained strong in this quarter, enabling patience and continued investments in our current pipeline. And as already mentioned, we issued a green bond of 600 million with strong investor demand and 10 to 308 million of the March 25 bond in parallel. And with the forthcoming divestments that will further strengthen our liquidity, we will also review the remainder of the outstanding bond maturing in March 25 during the next couple of months. As usual, I'd like to spend some time on describing how you should view our balance sheet. The overall majority of our liabilities are related to development projects and principal investments. These projects are in turn valued at cost. So hypothetically, if our projects were to be divested today, At cost, our net debt would be negative after adding cash. In other words, we would hold more cash than our financial obligations. Even though the projects are valued at cost, we continuously review their values on our balance sheet to determine if there is a need for an impairment. And the values we have on each and each individual project are confirmed to be above cost. Since development projects are treated differently depending on Catela's ownership, we have provided the slide you have in front of you to help you in your understanding. Before I move on to the next slide, at the end of the quarter, we had an equity ratio of 34%. and our cash position was 870 million, down from 951 million in the last quarter, but this is mainly an effect of the Cactus Junior Financing repayment. So in summary, we continue to have balance sheet strengths and sound available liquidity going forward. If we then move on to the next slide, number 17, We shared this slide during our investor presentation for the bond issue. And since it was well received, we have updated it and will include it in our quarterly presentations going forward. The slide you see in front of you summarizes how we look at our net debt, or in our case, net cash position. If we start from the left and move to the right, summarizing all our investments valued and costs that amounts to approximately 3 billion. If we then add the current cash position of nearly 900 million, we reach a total of nearly 4 billion. If we then deduct our market debt and the financing of our projects and also make slight adjustments to the cash position, With working capital needs and bonus accruals, this takes us to a cash position of $715 million. And once again, and as I summarized also on the previous page, if all the investments were divested at cost, it would lead to a negative net debt, i.e. excess liquidity after the debt being repaid. Once again, this is a hypothetical scenario, but in this scenario, we would still have investment management and corporate finance as revenue generating businesses going forward. And to state the obvious, it's not our ambition to divest our projects, and we would continue to invest in our existing pipeline, and also continue to review new projects that meet the business area's long-term return requirements of 15 to 20% IRRs. And with that said, I'll hand back over to you, Daniel.

Thank you, Michel. So before we conclude and open up for Q&A, I'd like to summarize briefly the quarter from our perspective on slide 19. And as mentioned, the market environment was still in a waiting mode during Q3. We are starting to see some positive signs, and our house view is that the market will slowly start to recover from this point. This is supported by the current dialogues we have across Europe, the fact that the swap rates and that the capital costs are coming down, and we also see that the rental levels are increasing. But as the famous quote from the Nobel Prize-winning quantum physicist Niels Bohr says, it is difficult to make predictions, especially about the future. And this, of course, applies also to our market as well. So with that being said, the predictions about the future being difficult, all else being equal, the current fundamental support, at least a slow recovery from the muted environment we see now, we have seen over the last two years. So if or if not this materializes, Catala is still in a better position today with a higher efficiency, lower costs, and a continued strong financial position so our key takeaways from this quarter is that we continue to do the right things and we are making progress we have preserved liquidity and we continue to have a strong cash capital position we have made cost reductions and continue that will have a positive effect and we see we show an ebit increase excluding one of costs despite somewhat lower revenues And also the merger of our fund platforms will further harmonize our operations and increase efficiencies going forward. And we expect the closing of some of our planned projects, which will further strengthen our liquidity, which is a key priority for us during this part of the cycle. And also finally, the AUM in funds remains stable, which has been quite an achievement in today's market. And we continue at the same time to see a gain traction in the new asset management mandates. So all in all, we are satisfied and see that we are well positioned to reap the benefits of going into hopefully a more active and interesting cycle of this market. So with that, we would like to thank you all for listening and we now open up for questions.