Catena AB (publ)

Hi, and warm welcome, everyone. In today's presentation, we start with a short summary of the report, followed by a short overview of our business. And we will then proceed to the business update, where we will touch upon our current project. Sophie and David will, as always, walk through the numbers in the financial update and sustainability. And then at the end, we will open up for Q&A. Next slide, please. So let us summarize 2023. We report 17% increase in the rental income driven by acquisitions, projects, and stronger like-to-like numbers driven by our CPI-linked contracts. And the profit from property management increased by 16% in total, and per share, the increase is 4%. The balance sheet is very solid with an LTV at 37.1%. in the last quarter we have an increase in our property values much due to two land areas where we now have zoning plan and water judge in place and the value change in combination with our earnings in q4 adds to increase in the nrv per share with 24 sec and ends up at 392 sec per share with all this in mind we are comfortable to grow further and to make some acquisitions and more projects and in that way increase our LTV a bit and at the same time increase our earning capacity. Next slide please. And the business overview now and next slide please. So talking about 2023, it's obvious that it was a trying world from a geopolitical and economic perspective. This has resulted in low transaction volume and a sort of wait and see mode for our customers in general. And we now have started 2024. We can see a bit more positive attitude in the transaction market where buyers and sellers starts to be agreed on values. And at the same time, we have quite many discussions about new projects, both from existing customers as well as with potential new customers. The processes for signing new lease agreements It'll take longer time, but we just have to accept that. All in all, I'm optimistic that we are capable to present some new projects during the coming quarters. And regarding the e-commerce, no one couldn't miss that it has been trending down in terms of value, namely 8% for 2023. The more interesting point to talk about is at the same time, the number of parcels has increased by 8%. That means that people still use internet for shopping, but they consume cheaper items. And even more interesting news that came the other day actually is that for January 2024, the e-commerce turnover increased by 19% compared to January 2023. Another thing that we have talked about during the year is Our possibility within the energy area, we have started to install solar panels and some batteries, but it takes time to solve challenges with energy companies and their connections and infrastructure. A new thing that we see is coming more and more is short stations for electric trucks. It's still early in the process, but we clearly see that we have a role in those solutions in the future. Lastly, We can now ascertain that there are new build vacancies around the Stockholm Maladalen, but we cannot see any impact in our business yet. And the trend speaks for logistic and higher demand for more spaces going forward. The clear trend in January 2024 for e-commerce, as I mentioned before, speaks in favor for that. Next slide, please. Regarding our customer base, there has not been any major changes. The top 10 customers now stands for 44% of the contractual value. And as before, logistics and transport together with food and beverage are now the two big segments in our portfolio. Next slide, please. During the last quarter, we acquired a piece of land in Helsingborg, which brings the portfolio to a total of 132 properties with a rental value of almost 1.9 billion SEK. We also see uplift in the fair value compared to last year, more than 3.5 billion SEC. A major part of this is, of course, the deployment in on our ongoing projects and acquisition, but also the value changes that I talked about before. Next slide, please. Let's have a look at our business update. So next slide again, thank you. Current development and our ongoing project is impressive and totals around 3.8 billion SEK where 1.9 billion is remaining investments. When all is completed we can add approximately 320 000 square meters to the portfolio. The year-long cost is around 6.5 and for new projects we are aiming for 7% as we presented the last one to Rugvista in Malmö. Next slide, please. This is namely the Rugvista in Malmö, where we now have started a project of approximately 14,000 square meters to Rugvista. After completion, we have turned this brownfield project to something very modern and attractive, located really close to the center of Malmö. Next slide, please. And this project in Jönköping is also one of our latest projects and ongoing. The new facility will cover an area of approximately 33,000 square meters, part of which will consist of highway storage of 30 meters high. And this will be the first highway in wood frame construction. And Catena has signed a nine-year lease agreement with third-party logistic company No Waste Logistics for the facility with an option to lease the remaining space And in the facility in the West, Logistik will handle flows of goods for Grandgården, a leading retail company in gardening and agriculture. Next slide, please. And this is Jönköping and Elgiganten, and we are nearing a completion and our tenant Elgiganten is ready to move in in May this year, and they will rent approximately 86,000 square meters. Next slide. And at the logistic position Landvetter in Gothenburg at the airport, as we speak, we have completed the first building to MMM Sports. They move in to a brand new facility of approximately 8,700 square meters. And the construction for Menego as a neighbor to MMM Sport is ongoing and is expected to be completed at the end of this year. Next slide, please. the possibilities in regards to our land bank. We have had success in and in Stockholm South. So now we are ready for more projects on our land banks. And the land bank speaks in our favor to be capable to deliver many new projects going forward. And the potential of new GLA is somewhat 1.7 million square meters. Next slide, please. Looking at our leasing operations, our letting ratio continues to be high, standing at 96.6 compared to 96.4 the last quarter, reflecting the strong demand in the segment. And our net letting was in queue for actually flat. With that said, I would like to hand over to Sofie for the sustainability and financial updates. So next slide, please.

Thank you, Juergen. And hi, everyone. Next slide. Our sustainability work continues. We now have reached 39% of our eligible area as environmentally certified. And we continue to maintain a high level of EU taxonomy alignment for our CAPEX at 74%. And produced energy from our solar cells increased 18% since last year and reached almost 8,000 megawatts. And now for some financial update. And next slide. And over to income. Rental income for the year amounted to 1.8 billion, a growth of 17% since last year. The increase was primarily driven by indexation, acquisitions, and some projects being finalized. The higher rental income increased our net operating surplus with 90% to 1.4 billion. The higher surplus ratio is explained primarily by us divesting older facilities and replacing them with efficient facilities with lower property costs, either through acquisitions or finalized projects. And profit from property management rose 70% to 1.1 billion compared to last year, 954 million. And over to the next slide, please, for some rental development. The largest positive impact on our rent is our CPI-linked contracts that came to effect at the start of the year, giving a like-to-like growth of 11.6%. Acquisitions contributed with 73 million, with, for example, the two properties in Denmark and two properties that we bought from E-Scout during the year. Divestments made a negative contribution of 32 million, and within projects, the main contributors were, same as last quarter, the completion of the post-nord and the no-waste facility, both in Helsingborg. And now over to David for some comments on finance and next slide, please.

Thank you, Sofie, and good morning. On balanced day, the equity ratio of almost 52% signals a resilient financial standpoint. APRA NRV of 3.92 crowns per share signals another strong profit contribution in 2023, as Jörgen and Sophie has pointed out. The fourth quarter of 2023 was characterized by a significant drop in long-term interest rates on back of a combination of lower inflation and from fear of economic recession. With interest rate peak likely behind us, we expect investment sentiment to gradually pick up in 2024. Over the last months, we have witnessed a huge demand from credit investors and credit spreads has compressed quite significantly in comparison to 12 months ago. For investment grade companies, we expect this trend to continue over the year to come, creating a viable and flexible alternative to grow. Given our financial position, we should be able to use both debt and equity alternatives to continue facilitate value accretive investments. Next slide, please. On balance day, our financial KPI screens, there is comfortable headroom to our financial policy and to our existing financial covenants. A net debt to EBITDA of 7.2 times signals operations are doing fine and is well balanced against our net debt position. With an interest coverage ratio of four times, there is plenty of resilience built into the structure. With our loan to value policy limit of 50%, which was implemented already in 2021 before rates took off, combined with our view that markets has turned somewhat more positive over the last months makes us less concerned about using a bit more leverage going forward. With the mind of keeping a safety margin and taking into consideration the uncertainty that still prevails in the market. Next slide, please. During the last quarter, we refinanced 1 billion of bank debt at satisfying terms. Over the next 12 months, approximately 2.5 billion of debt is set to mature, which equals just over 20% of outstanding debt. There is sufficient liquidity to cover for refinancing operations should that seem like the proper choice. With the current trend in mind, with credit margins, sorry, With credit margins getting lower, we expect to make use of a blend of capital market funding and bank debt going forward. Next slide, please. During the quarter, we utilized a window of lower rates in December and acquired interest rate swaps for 500 million with a fixed rate of 2.4% and a maturity of five years. Following this, our consolidated interest maturity structure implies we have currently 68% of total debt fixed with an average term of three years. Our derivatives portfolio and fixed interest loans combined have a mix of maturities up to 10 years from now. The interest sensitivity implies that if short-term market rates would move out another one percentage point momentarily from here, we would still be able to keep interest coverage ratio comfortably well over three times. And walking you through capital deployment and valuations, I hand over to Sophie. Next slide, please.

Thank you very much, David. And during 2023, we made acquisitions of 1.2 billion, whereas the biggest were the Danish property in Holsten and the two assets we bought from ICA as a sale and leaseback. They are placed in Stockholm and Gothenburg. We've made one small divestment during Q1, which came to 9 million. Our development capex ended at 521 million during the quarter. These investments are mainly related to our large ongoing project with Elke Gansen in Jönköping, with Minigo and MM Sports in Landvetter, and the now finished project with Leka in Malmö. Total development capex for the year came to 1.9 billion. And we go to the next slide, please. With regard to the property valuation, we registered a write-up of 1.1 billion in the fourth quarter. The write-up was mainly due to the zoning plan gained legal force in the logistics position further after, and a water judge that was decided at Stockholm South giving a value increase of 1 billion. Otherwise, the value changes were driven by higher yield requirements, which were partially offset by CPI and renegotiated leases, and also some successful projects. The average weighted valuation yield for the portfolio came to 5.8 by the end of the period, and the FBRNS initial yield came to 5.4. of our portfolio has been externally evaluated. And moving to next slide and some closing remarks from Jörgen.

Thank you, Sofie and David. So the takeaway from Catena's Q4 can be summed up into two points. First one is that Catena delivered a record-breaking 2023. And secondly, we have very good opportunities to continue growing through acquisitions and new projects. And with that said, we would like to open up for a Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 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 that last bullet point that you just mentioned on new projects, you expect that you're going to present new projects in the coming quarters. How should I think about the size of the pipeline by year end, given that you have quite some development completions over this year?

Sorry, I didn't get you. Can you take the question one more time, Jan? Was it the size of new projects?

Yeah, so exactly. How should we think about the overall size of the total pipeline by the end of the year, given that you've got quite some development completions?

Yeah, that's very good question. So based on what I said, the discussions we have with customers and potential customers, we feel that we can present projects. But the size of those, it's very tough to guide you on. And of course, some of our ongoing projects will be completed during the year. So tough question to give you any precise numbers.

Right, fair. And I suppose that's also driven by the fact that you're also saying that negotiations are taking a bit longer. So how should I read into that? Does that mean that you're seeing slowing demand for new stock? Or is that more on the renegotiations on your current stock?

No, I would say everything takes longer time and customers need more board meetings before they feel confident to sign new agreements. We see a demand, but I would also say that a lot of players, they prefer the profitability before growth today. So if they can stay in their existing facilities a bit longer, many of them are happy with that. But at the same time, they say, we see that we need more space. So it's a balanced walk, actually. If we go back a couple of years, the processes were much shorter, so to speak.

All right, that's clear. And when you're saying that they prefer to stay in existing facilities, I suppose that also offers opportunities for extension of facilities, or is that not the case at all?

Office expansions.

No, sorry, extension of space.

just adding more space to the current property yeah it could be a case where we if we have the building right next to to the existing building that's also discussions we have of course so yeah with that said we are quite positive that there will be some projects but how and how big and when it's tougher to say

Okay, that's clear. And just on to the revaluation gain, how much of that one billion is driven by zoning approval and how much is driven by development gains?

No, that's only from the land. We, as you know, buy farming land and we do the process in-house. And once there is a zoning plan, so you can start constructions, there is a totally different value of the land. And this is, of course, confirmed by the external valuators. And we also are totally safe compared to transactions in the market of buying land. So the billion has nothing to do with projects.

OK. Then just to understand, the standing portfolio didn't see any write downs or value gains. It's really just the land.

The uplift of one billion in this quarter is for the land. But all in all, we came to a positive of 500 million. So therefore, you will have a 500 million write down on the rest of the properties.

Okay, that's fair. Thank you.

The next question comes from Erik Granström from Carnegie. Please go ahead.

Thank you. Good morning, everyone. I would just like to start off with a question on your capex investment expectations for 2024. It came to 1.9 billion for 2023. What do you think you will end up for 2024?

As I said before to Jon at Kempen, it's very tough to guide. I can't at this moment disclose any numbers because the only thing we know is that it won't be that number. It's very tough. It depends on how our ongoing discussions with new projects turns out and when they are finalized.

Okay, but assuming the ongoing portfolio that you have, you have an additional 1.9 billion that needs to be invested in that up until early 2026, I believe. Is there a major reason for us to believe that investment capex will come down substantially, even if you don't find that many new projects to do?

Well, you should take those 1.9 and you should have them for 20... 24, 25, and a bit in in 26 at one of the projects. You can sort of divide it in two pieces, 24, 25. And then on top of that, if we are negotiating good and we present new contracts in Q1, Q2, it's fair to believe that they will kick in after the summer But the substantial values will then be in first of 25 and going forward without giving any numbers.

Okay, thank you. And then moving on to the market and yield requirements. What have you seen in terms of transactions and what do you think will happen to yield requirements this year? You mentioned a bit that you saw some new vacant space in the Stockholm-Maladoran region. Do you think that there will be a substantial move in terms of yield requirements in the market for this year?

Depending 100% on where the interest rates will, if they will drop or not. What we can see in the market for Prime Prime and with Prime Prime said it's now the buyers are more keen that it should really be prime with sort of location, customers and so on. And then they are willing to pay low five or five maybe. But two years ago, the players were not that picky about what is prime or not. Talking about the vacancies that are out in the market, what we can see is that expectations of the rent levels are the same as a year and a year ago. So there hasn't been any drops in the rental value or their expectations of the rent.

Okay. And then with regards to that, you also mentioned that yield on cost for new projects you're starting is targeted at 7%. And we can see that that is the case for the new projects in the report. Do you think that that's still doable for this year, that the projects that you are in discussions with, are those targeted to be at 7% as well?

Around 7%. Of course, we need to be comfortable with what is the market rent in those areas we are discussing, but around 7%. And of course, we also have to to see where are the interest rates and so on and what can the customer stand and what are our requirements. But yeah, it's fair to assume around seven.

Okay, thank you. And my final question is regarding the net letting that you mentioned. For the year it came in, I believe, flat or basically zero. Assuming that you are filling up projects, what does the terminations come from? Because I would assume that you normally have positive net letting, not the least because of your project portfolio, which then adds to new leases. So what has anything specifically happened in the management portfolio during the year?

What we have told the market before is that we have had some puddle players, not the player that plays puddle, but the ones who have the lease agreements that they have been struggling. So some of those have been shut down. It takes some time to find new tenants. And the net lifting for the Q4 was flat.

Okay, but do you expect to have that same sort of headwind in this year when it comes to those kind of tenants needing to leave their space?

I think we should be humble for 2024 that maybe some tenants can have a struggling time, but I think also we are pretty confident that our letting ratio is around those 96.5 to 97%. That's somewhere worth I think it's fair to believe that we are.

Okay, thank you. Those were my questions.

Thank you.

The next question comes from Jan Eifelt from Kepler-Tuvriax. Please go ahead.

Okay, good morning. I actually have two questions. First one regards loan-to-value, LTV. You're currently at 37%, and you were talking about the expansion of the company using both debt and equity. So my question is really, what kind of LTV level are you happy with? Is it like 40% or could you just give us some kind of flavor on that matter?

Yeah, thank you, John, for the question. Well, it's also in that will be a decision from our part in combination with the opportunity that we will assess at the time. But I think it's fair to assume that if we end up somewhere over 40 percent, we feel still great comfort take on interest rates even though even though we two months ago we expected a lot of cuts from from the central bank now obviously there is a pushback on those expectations but we still expect interest rates to be lower and 2024 and that's that's one of the reasons also that we feel comfort in in raising loans. Sorry, my voice is a bit bad today. So that's the reason, basically, we feel loan-to-value can be raised. And if it ends up just over 40%, that's fine. Still great comfort, great resilience.

Okay. And second question regards your projects on page 10 in the report, the Swedish version. You have larger possible projects and some of them could be started quite soon, I suppose. But could you just elaborate a little bit which project is the closest to start here?

Well, we cannot disclose any specific projects. It's fair to assume that we discuss with existing customers and new potential customers and as we now have the zoning plan in place at Södra Rehåsen close to Helsingborg and we have the water judge in Stockholm South. Those two areas looks very promising from our perspective.

Okay, thanks for taking my questions. Thank you.

The next question comes from Paul May from Barclays. Please go ahead.

Hi, Ron. Thanks for taking the questions. A few of them are a couple of clarifying points, which should be quite quick. Just on the earnings capacity, just wanted to check, that excludes developments that are completing this year. And does it include or exclude the 6.5% inflation rate that should come through?

Hi, Paul. Good question. It includes the CPI for 2024. It also includes those projects that we see will be completed during the year. So, the signed lease agreements that we have, they are in the earnings capacity.

Cool. Thank you. And then also, just another clarifying point, what is the operating surplus ratio that you use in your developments?

I mean, compared to those 80% we have in the report?

Yeah, is it broadly what you have or is it a higher operating surplus?

In the new projects, it's fair to assume that we have much higher without mentioning any specific numbers. But I mean, the first 10 years in a new building, there are practically no maintenance and things like that. Then there could be like, If the customers don't can have the subscription with the energy companies, it has to go through us, then there will of course be a lower margin. So some could be some of those cases.

Okay, that makes sense. Just on rates, obviously you mentioned about potential rate cuts and that being pushed out, pushed back, obviously that's just on the central bank policy rate, the Riksbank rate. Obviously, five-year swaps are already significantly lower, so the inversion of the yield curve. Why are you not looking to fix more of your debt today and immediately take advantage of lower rates, rather than waiting for the central bank to maybe or maybe not cut rates?

Thank you, Paul. That's obviously a very good question and one of the questions that any real estate company with debt are thinking about. Will the STIBOR basically, will it get more expensive to stay with STIBOR over the next five years or should you do a swap for five years? Well, that's a good question. We have been very consistent in how we deal historically with interest rate management, which has been quite successful from our perspective. We're at 68% of fixed interest and we are quite happy with that. So that's how we think about it, but obviously the question is good and it's something we always think about, but right now we feel happy with the situation we have.

Cool, thank you. And then just final question on acquisitions. I think you've sort of highlighted those as being a potential moving forwards. Is there a slight shift in your thought process? Because obviously it was very much expansion through development with a bit of acquisitions. It seems you're sort of pushing the acquisitions a little bit more as an opportunity now. Is that because you do see or expect to see some, shall we say, motivated sellers in the market and some quite attractive opportunities emerging? Or is it still more of the same? Is there a subtle change in your expansion aspirations.

Thank you. Well, the main expansion strategy is new projects. That's the same as it has been. But from time to time, we can consider to do some acquisitions if we find the opportunities. That could be some motivated sellers or that could be some really good assets out for sale. And in combination with our financial capacity and the low LTV that we have, we see that we can look into some acquisitions going forward.

And just on the leverage that you consider, obviously, everyone talks LTV still. There has been an increasing focus on net debt to EBITDA, which I see has moved positively for your business. Do you also consider that as a metric on financing, or is it still very much RLTV as a sort of main focus?

It's both. It's both. And when we do these assessments, obviously, we have a forecast in mind of the next five to ten years, basically. And the net debt EBITDA is extremely important to keep track on. So it's a combination when we do these assessments. We want to make sure that we stay below nine times, as you know. So yeah.

And is nine times an appropriate level moving forward, just considering the change that we've seen in the rate environment and rates are going to be higher moving forward, is that still considered to be the right policy or would you look to bring that lower, more akin to where US companies are?

I think you have to look at the market you're at and nine times the assessments we have made, it's a good number for us. We have no intention to change that right now, but obviously, as you point out yourself, you should always value these things, and that's something we do continuously. But right now, nine times is a good number. It facilitates a lot of good things. The rating agencies would like to see us stay below nine times, and so we are happy with that. Thank you very much.

There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Yes, thank you. We have one written question, and it's, what are your observations on the 2023 acquisition of Bokafö and its impact on Catena's expected 2024 operational performance? Well, we closed the deal with Boca in October and the development and business development team is now in place and working with some of our existing projects. They also have some of the joint venture projects that we now have with Platzer and Platzer will be the final 100% owner of them. We think that this is very promising for 2024. And with the old Boca Fuerza network and the business developer and the project team in place, I think that the process for having new customers and having even more efficient projects is very promising. And now another written question. Is the higher market supply of new developments a potential headwind to new development starts for you in 2024? Good question. Let's put it this way. We will not kick off a new project in speculation terms in the area where there are existing vacancies. Then it should be a pre-let version. So, of course, we sense the market and assess carefully where to start new projects. But it's fair to assume that the new projects we hopefully present, they are pre-let more or less 200%. And with that, question answered I think that that was the last one so from the Catena team I said thank you very much and have a nice day thank you goodbye thank you