Catena AB (publ)

Hi everyone and welcome to this report call. In today's presentation we will start off by giving a short summary of the second quarter followed by a short overview of our business. We will then proceed to the business update where we will touch upon our current growth initiatives. Sophie and David will then guide you through the numbers in the financial update and sustainability and we will then end up with the Q&A. Next slide please. Starting off with the summary of the half-year period, we continue to report rental income growth driven by acquisitions, projects, and the stronger like numbers driven by our CPI-linked contracts. We received a confirmed credit rating of BBB- from Fitch Ratings, first from one of the major rating firms. And the rental income for the period is up 17%. The NOI is up 19%. income from property management per share is up six percent and we have a ltv of 36.7 and we have also a whale of 5.3 years further we announced during the second quarter our biggest project yet logistic position ramlasa with the tenant no waste logistics signing an loi for the entire space all of this is in line with what we stated during last year with the equity race And lastly, after the quarter, we announced this week an acquisition of Bokka for a logistic property development company. And I will go deeper into this later in the presentation. So please proceed to slide six. On a similar theme as we saw in Q1 2023, we are going through a trying macro environment with decreasing consumer confidence impacting the majority of the segments. particularly challenging in the e-commerce sector, where the decrease in sales, both nominal and real, is impacting many players. While we are tracking bankruptcies and they are increasing, no material impact has been registered, which we can see in the segment as large. Having a strong customer base has been central to Catena's business and showcases its benefits for their resilience and growth potential. While the e-commerce as a whole is facing a tough market, there are segments that players are growing. Fashion and pharmacy is registering growth, and many of our customers are pre-leased for new space in order to match existing volumes and future growth. We are seeing continued demand for new developments, and these are strong players who want to optimal long-term logistics set up in order to capture future growth. Here, energy, location, and automation is key for the customers. Therefore, we think that these players will end up in a stronger position when the market swings back. Once again, illustrating the importance of having the right type of customer. As mentioned before, all of this showcases the strategic importance of the logistic facilities. Long-term trends such as omnicommerce, circularity, and reshoring are pushing the demand for more space and particularly modern space in right location. As we progress, we will also see the entire logistics segment move past just leasing the facility itself. Future revenue streams will include, for example, electric charging stations of trucks, leasing of standardized equipment such as shelves and automation. And lastly, we are seeing more logistics space being completed this year and the next. While this volume is unprecedented, it doesn't keep up with the customer demand for the long term. Due to the more challenging regulatory environment with regards to zoning, there will be less land loss, particularly in the prime locations. And this will add the pricing power for existing facilities and lead to higher rents. Next slide, please. During the quarter, we acquired a land lot of 47,000 square meters in Gothenburg, which brings the portfolio to a total of 129 properties with a contracted annual rent of about 1.8 billion SEK. Next slide, please. Having a look at our customer base, the ICA acquisition, which took effect in Q1, makes ICA our second biggest customer with regards to the contract value. And furthermore, the top 10 customers now stands for 45% of the contractual value. Next slide, please. And let's take a look at our initiatives for future growth. Next slide. About our current projects. This quarter, we announced the new development of logistic position Ramlösa with the customer on the waste, which I dwell deeper into later. As mentioned in the previous quarter, we are hovering around 6.5% in yield on cost in the current projects. With newer projects, we will be aiming for 7%. And the total investment of all of our ongoing project is 3.8 billion SEK. And that will add about 325,000 square meters to our portfolio when all is finalized. Next slide, please. And now to the fantastic project at logistic position Ramlösa. We mentioned during our equity race in Q4 that we saw potential for new attractive projects going forward and that there is a demand for modern facilities in great locations. And in line with that statement, I'm very happy to announce our latest biggest project to date made official during the quarter in Helsingborg. We will build three new facilities totaling 75,000 square meters. No Waste Logistics has signed an LOI for all of the space. This process we have done previously with the customer and feel comfortable going forward, starting the construction during the summer. Our partnership with fast-growing 3PL players stretches back many years and it's a clear illustration how we grow together with our customers and assist them in their growth journey. Construction will start now, as I said, in the summer this year, and will be completed the latest in Q1, 2026. I can also say that I assume that some of the buildings will be finalized a lot earlier than 2026. Next slide, please. And with regards to our land bank, we have had some progresses in a couple of our processes. although we had to wait for some decisions to gain legal force. And as mentioned before, we acquired a land lot in Gothenburg, which is sown and ready for a project whenever we have a case. Next slide, please. Then this week, we announced the exciting acquisition of Bokafell AB, a leading logistic property developer They have one of the most extensive track record in Sweden, having developed over a million square meters of logistics space in a variety of locations. This experience also extends to the network, having worked with some of the biggest customer in our segments. We purchase Bokasjö through a right issue amounting of 125 million SEK with deal finalizing in October. This is also the net effect of the transaction and the sum that will end up as a goodwill in our balance sheet. And the rationale for the acquisition is to accelerate our initiatives on our land bank with new development and optimize our setup for growth within the area, both through pace and profitability. And we do see a potential for higher deal on cost in future project as a result of Boca first strategy of running and procuring projects. Next slide. Looking at our leasing operations, our letting ratio continues to be high, standing at 96.7, reflecting a strong demand for our segment. It is a small decline compared to Q1, isolated, and it's due to some puddle players that have been struggling. That has resulted in some small vacancy changes but nothing to worry about. It's on the margin. It has nothing to do with our cure logistic business. And we also do have a confidence to fill up those vacancies quite rapidly. And now I would like to hand over to Sophie for sustainability and financial update. Next slide.

And next slide, please. Good morning, and thank you, Jörgen, and good morning, everyone. We continue to work with certification of our property portfolio. At the end of the half year, we have 33% of our electrical area certified, and in pipeline certification later this year is another 18 properties. Since Q2, we have almost doubled our self-produced solar energy. And now, during the warmer season, and as the rain started to come, we continue to work with our biodiversity goal with several ongoing biodiversity projects in all our regions. And we're going over to slide 17 for some financial updates. And slide 18. Thank you. Rental income for the period amounted to 892 million compared to 760 million due to last year. And this was driven primarily by indexation, acquisitions, and some projects being finalized. The higher rental income increased our net operating surplus with 19% to 723 million. The higher surplus ratio is explained primarily by us divesting two older facilities during 2022 while acquiring and completing more efficient facilities with lower property costs. Profit from property management rose 23% to 583 million compared to 474 due to last year. Impacting to profit from property management is the effect from associated company, Fodil Fastighet AB, with 35 million due to change in value for the completed project for HelloFresh in Byd. And next slide, please. The rental development for the half year has been positively impacted by our CPI-linked contracts that came to effect by the start of the year. Acquisitions contributed with 49 million. Divestments made a negative contribution of 20 million. And within projects, the main contributors were the completion of the Postnord facility at Punkagården and the No Waste facility at Plantahuset, both here in Helsingborg. And now handing over to David for some comments on financing. Next slide.

Thank you, Sophie, and good morning to everyone. On balance day, we report an equity ratio of 52.2%, which is well above our minimum target of 40% and offers a flexible way of progress from here. The underlying macroeconomic prospects still screens some uncertainty, which is no surprise to anyone. specifically with regards to difficulties assessing interest rate peaks to combat inflation versus potential downturn impact on economic activities. In the quarter, Fitch Ratings published a long-term issue rating of BBB- with stable outlook and Nordic Credit Rating confirmed their BBB- with a positive outlook. Both signals are strong financial profile along with benign operating fundamentals and our market leading position. Next slide, please. In line with our strategy, we keep a safe distance to our financial policy targets. With market interest rates higher, average cost of debt increased to 3.5% on balance day compared to 3.4% from last quarter. Net debt to EBITDA was reported at 7.9 times, whereas run rate was reported at 7.6 times. Combined with a low leverage of 36.7% and a secured loan-to-value of 32%, we have ample headroom for targets and covenants and expect to be able to capitalize on further opportunities from here. Next slide, please. In the quarter, we have refinanced about 1.6 billion of bank debt, with debt maturities ranging from three to four years. Credit margins are still attractive and moves out only marginally. Additionally, we have signed and borrowed 130 million through the Danish mortgage system. with a 15-year commitment at very attractive levels. Average debt maturity is 4.2 years. After the quarter, we have also signed a new loan agreement with the Nordic Investment Bank of 430 million with an eight-year duration, which also adds to our sources of funds and further extends maturity. Over the next 12 months, about 1.3 billion of debt is about to mature, and including committed investments, we have good control over liquidity. On balance day, liquid funds amounted to 3.1 billion. We continue to assess different strategies, including the bond market, but for now, it still screens unattractive spreads. Next slide, please. Our interest maturity structure implies we have currently 68% of total debt hedged with an average term of almost three years. Our derivatives portfolio and fixed interest loans combined have an average term of about five years. Market rates could move out another one percentage point from here, and we would still be able to keep interest coverage ratio comfortably over 3.5 times. Thanks, and back to you, Sophie.

Thank you very much, David. Next slide, please. During Q2, we acquired a small piece of land in the north of Gothenburg of 42 million that added to acquisitions in Q1 of two weak assets, one Danish property and the land at Stiga in Jönköping. A total investment in acquisitions so far of 1.1 billion. Divestments during Q1 of one small property came to 9 million. And our development capex ended almost at one billion. These investments are mainly related to our large ongoing projects with El Gigante in Jönköping, Minego in Landvetter, and with Letia in Malmö. Going to the next slide. With regard to our property valuation, we registered write downs of 558 million in the first half year, driven by higher yield requirements during Q1 and the stabilization of the yields during the second quarter, where we also added some successful projects. The average weighted valuation yield for the portfolio of 5.6 by the end of the period, same as Q1, And the EFRA net initial yield came to 5.3%. And moving to slide 26 and some closing remarks from Jörgen.

Thank you, Sofie. So the takeaway from Catena's Q2 can be summed up into two points. The first is that Catena has strong fundamentals. Our unique land bank presents us with attractive opportunities, which together with our financial profile, make sure we have the means to realize them. And lastly, with the logistic position Ramlösa, our biggest project to date, we have a best in class pipeline of quality assets being constructed. This will add great value in the coming years. And with that said, I would like to open up for questions.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from John Vong from Kempen. Please go ahead.

Hi, good morning. Thank you for taking my questions. On the Boca-Hoe acquisition, you mentioned that the net effect is 125 million paid, which is related to the equity that you're raising. But from the press release, I was under the impression that you paid roughly 460 million. Could you highlight what exactly the difference here is? Does this relate to the cash inflows from the assets that's going to be sold?

Yeah. Good morning, John. Good question. I mean, in the press release, we mentioned the digits that we have to pay because there is a major part of equity in the company. And so the net effect from it is the 125, so to speak.

So this doesn't necessarily relate to the cash in that you're still getting on the three projects that's still to be sold?

The three projects that are in the company, they will be sold, but that will not impact our result. And we do not pay for them, so to speak.

Okay, that's clear. Thank you. And on the synergies, you mentioned that you expect to be developing a bit more profitable. Does this mean that you're also looking towards higher yield and cost and what target would it be with this acquisition?

It's too early to say but we do see a clear synergies and we also can see from their track record and how they procure and how they handle the projects without going to the big entrepreneur and construction companies makes very good possibilities for us to also save some money and by that reporting higher yield on cost, but too early for us to mention any digits.

Okay, that's clear, thank you. And on the capacity growth, what run rate would be feasible after the acquisition?

It's also too early to mention, of course, there is some ongoing projects that the team from Bokafjall will have to handle during the first period. And then it depends a lot on what dialogues we have on the table right now with existing and potential customers. how the process is in terms of some of the zoning plan processes when they will be finalized and they will gain legal force. So I can just generally speaking say that we will not decrease the tempo.

Okay that's clear and does it change anything in terms of your philosophy with regards to the pre-let ratio you want to achieve on development?

not as we speak okay thank you that's it from my side thank you john the next question comes from frederick cyon from carnegie please go ahead good morning yes thanks for the presentation starting off with value changes in the quarter it was posted positive 152 million. Can you give us some breakdown on it? You mentioned that it's part of Dave and Byron. Is there also a component of projects gained to the net number?

Yeah, there are some finalized projects that have been impacted for that uplift. Also, we have seen in some valuations that there are some different thinking about the market rent going forward. Some had made some changes in some of our property values. So it's a mix up about those two things.

That's clear. And moving over to acquisitions. So first off, you did about 1.1 billion. You're mentioning the new target in terms of new projects, about 7%. would that entail that new acquisitions will have to be done at even higher levels than 7% for you to be interested?

Yeah, in a theory, that's correct. But then there could be other things that we're taking into account about strategy, what kind of customer it is. Is it an existing customer at a very, very good location? We can consider lower yields than 7%, You're thinking right. The most likable scenario is that we will focus on all developments on our own land bank where we can have a fantastic deal on cost.

And in the transaction market, are you seeing more distressed sellers whereby 6.5% is a tangible and realistic assumption on net initial lead on acquisitions?

Nope, not in our segment. We do not see any distressed players. On the contrary, we have seen a lot of transactions made, actually, the last month. You saw the Bokafö disposed to NREP. And we also saw Platzer acquired from Bokafö in Gothenburg. So that confirms that the yields are...

actually below five percent as we speak for prime thanks and moving over to the acquisition so you're mentioning that part of the reason is that you're seeing procurement potential um i guess you have done a full dd on the company you know it's fairly well from the past but when you go through and compare your own projects with there what what kind of cost difference do you see um Is it 10% lower in the project stage or what kind of amplitude is it?

I will just generally speaking say that in the normal case, we go with the general contractor, right? And Bokafö is not doing that way. I would say that the general contractor and Bokafö is as good to procure from the subcontractors. And then you can also know yourself what is the percentage that the general contractor puts on the bill to us. And then you take that one and take off some millions for the Boca Fuer team, and then you have the result.

That's clear. Final question on leasing activity. When I look at the chart moving in, moving out, it looks like activity has been rather slow. Why do you think that is the case? Is it the temporary nature? Is it economical slow down impacting activity in general?

How do you mean that we have a bit lower vacancy?

No, I just looked at the net leasing chart you showed with moving in, moving out. Those shorts, it's quite minuscule impact versus a normal year.

Yeah, I think it's more temporary. But of course, I don't think that it's highest on the agenda in a lot of boardrooms to see if they should move out or move into a new other facility. There are other matters to focus on this period. But I think that there will be more activity going forward. But if it's during Q3, Q4, or we have to wait and see to 2024.

We look forward to that. My final, final question. I have one more for you. So it looks like what I'm hearing from external evaluators is that they assume about CPI impact moving into 2024 of about 6%. Is that similar to what you have in your model and do you think you can actually pass that on to tenants as successfully as you have so far in 2023?

First of all we have a 50% lower with that said 4% in our models. whether it will be six or not we have to wait and see we also have to wait and see what the dialogues with the customer will turn up turn out when we are there in October November it I think it we will not foresee any discussions okay those were more questions thank you thank you please state your name and company please go ahead

Hi there, it's Paul May from Barclays. Just a couple of questions for me. You mentioned, obviously, a couple of new debt facilities that you've signed. Are you able to give the all-in cost on those just to get a sense? And obviously, given most recent moves in swap rates, I imagine if you were refinancing today, that would be higher if you could give some indication as to what you think your all-in cost of debt costs would be at the moment.

Thank you, Paul, David there. Well, there's a lot of factors, obviously, impacting the cost of debt. But let's say you start by looking at this DIBOR, which is close to 4%, and then add a margin of somewhere between 1.3 and up to 1.8. Then you have the initial cost. But usually we hedge at least 60% and a five-year hedge today is around 3%. So I think you could look at the 3% swap plus a margin of 1.3 to 1.8. Okay.

I think swap rates have moved to 3.5 now just in the last couple of days. answer the question um so yeah fun times indeed um on the the net leasing just coming back on on that uh you mentioned a couple of tenants faced difficulties and and vacated was that a result of higher rents post the cpi change or was it just poor business models um and having to vacate just did you get a sense as to what are the drivers behind those vacates would be would be great yeah yeah of course i i uh

try to give that message, but I'll try to explain it again. We have had in some of the vacancy historically logistic space. Then we had some paddle tennis players who want to rent the surface. It was a hype around paddle tennis during the pandemic and they paid very good. So we signed an agreement. After the pandemic, they are struggling. There was an oversupply of paddle tennis courts, and now they are facing a very poor business model. So that's temporary, has nothing to do with our core business. We cannot see any signals from the logistic players that they are, of course, they are struggling, but they are not distressed and they are not going bankrupt. So this is just on the margin. It has nothing to do with our core business.

And you're confident of leasing those spaces out at higher levels or at similar levels to what the... Similar levels, give or take. Okay, cool. And then just quickly on the notice the earnings capacity slight decline on the higher financing costs quarter on quarter, offsetting higher rents, just a couple of things on this. Do you expect to offset that through rental growth? moving forwards or is there a period of time where you would expect earnings to come under pressure from higher financing costs given timing of developments and so on?

It's difficult to foresee how much the interest rates will increase and what will be the result of the CPI indexation for next year. In the earnings capacity, we do not have any assumption of indexation. assuming four or to six percent on the top line excluded the re-invoiced energy I think you can do your own models in that one.

Yeah and also just adding to that I mean obviously as you mentioned there's a bit of timing here we do know that interest rate costs will move up but then again we are financing a lot of developments right now when we also know that revenues will be raised quite dramatically over the next two years. So there's a timing issue when looking at earnings capacity.

Just one more. Is there a reason why you exclude your profit from associates in the earnings capacity versus the income from property management? Just wondering if there's some reason like this as to why you include it in one and not in the other.

This one for this quarter was a one-off because we made an uplift in the valuation in this joint venture. Okay. Thank you. Thank you.

The next question comes from Marcus Henriksen from ABG Sundal Collier. Please go ahead. Please state your name and company. Please go ahead. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Well, thank you very much for participating in this earnings call from the Catena team. We want to wish you all a fantastic summer and see you again after this break. Thank you and goodbye.

Thank you.

Goodbye, everyone.