Catena AB (publ)

Hi, everyone, and warm welcome to this conference call for the Q2 report 2024. Here is the agenda for today, and it's the same as we used to have, short summary, business overview and update, followed by sustainability, finance, and a short takeaway before ending up with a Q&A. Next slide, please. So let's go into the summary by start saying focus and persistence produce results. We report 14% increase in rental income, ended up in 1 billion, 20 million SEC driven by acquisitions projects and the stronger like-to-like numbers driven mostly by our CPI link contracts. Profit from property management increased by 4% in total, And per share, it was down to 11.46 SEK per share. But we do see this is temporarily since we now have acquired a lot and have a much stronger cash flow in the coming quarters. And that we also show very clearly in our earnings capacity report within the report. The balance sheet is very solid with an LTV at 38.8%. And we report an increase in NRV per share up to 396 SEC. With all this in mind, we are comfortable to generate strong performance going forward. Next slide, please. And next slide again for some business overview. In the market, we see more activity in the transactions, and we have witnessed Some transactions with strong demand and aggressive bidding, but still there are concerns in some markets where the yields will end up or trend. And the latest we heard is that in the core money will come back into the market after the summer. It could be a driver for more transactions and stronger demand. It's also due to the first interest cut, which I think David will give some more flavor about later on in this presentation. The numbers for e-commerce for May 2024 shows a positive trend and is up 29% compared to May 2023, according to Svensk Handel's e-commerce indicators. This confirms our long-term bet that e-commerce will keep on growing. Regarding new developments, it is pretty much the same story as last quarter. We have ongoing discussion. It takes longer time than we are used to. We can only keep up the work and do our best. And hopefully, we will sign some agreements after the summer in the coming quarters. That's our strong belief. Lastly, as far as we know, there is the same situation regarding the vacancies around Stockholm Mälardalen region as in previous quarter, where the aggressive developers have started a lot of projects and also finalized them, but still no lease agreements. Next slide, please. Looking into our customer base, there has been a major change regarding the top 10 customers After the transaction in Landskrona with DSV, it's our second biggest customer standing for 8% of our contractual value. Logistics and transport has at the same time increased as a segment by 10%, now standing for 44% of the contractual value. Next slide, please. Some words about the portfolio then. Since the beginning of this year, we report in four different regions called Sweden South, West East, and Denmark. And there has been a huge change in the region South, thanks of course to the DSV transactions during the spring, not only Landskrona, also Helsingborg. So at the moment, region South is actually as big as region East. The fair value in the lettable area has, of course, also increased due to the acquisitions and the projects and amounts now to 35.9 billion SEK and more than 2.6 million of lettable square meters. Next slide, please. Taking a look at the business updates. Next slide. This acquisition, as we mentioned before, expands the property portfolio by just over 180,000 square meters of logistics space. We are not only adding substantial state-of-the-art, well-conceived logistics space to our property portfolio, we're also forging a deeper relationship with DSV, which is becoming one of the biggest tenants, as I said before. The warehouses are located in Landskrona, right beside DSV's head office for Sweden and also close to their cross-stock terminal and the third warehouse. Next slide, please. At our Jönköping project to Norway, we had a speculative part of almost 20,000 square meters when we started this year. In May, we were successful in signing a 10-year lease agreement with Mestorgruppen for that space. Mästergruppen is a leading builders merchants group in Sweden, comprising the brands Excelbygg, Beolist, Happy Homes and Colorama. And Mästergruppen is based from Norway, the group. At the same time, Norway has signed an agreement with Mästergruppen to handle the logistics within the warehouse. Next slide, please. At the 1st of May, El Giganten moving to our biggest project in our history. In totals, almost 87,000 square meters where they will handle and store the Epoch kitchens, which they moved from Czechia. A unique project in its size and in our initiatives together with El Giganten to drive the sustainability agenda for the facility. We aim for wealth certification, which is an international standard which measures factors affecting human health in the property. These factors can include such as thermal comfort, materials and overall well-being. Catena will with this process break new ground within social sustainability, where the well-being of those working in our facilities will be at the center. Furthermore, we are continuing by building energy efficient and sustainable facilities by certifying them in the building process through the BREAM certification process. And we will aim for an excellent grade for this project. Next slide, please. Our ongoing project portfolio totals to around 2.6 billion, where 1.1 billion is remaining investment. When all is completed, we will add approximately 200,000 square meters to the portfolio. The yield on cost is around 6.7%. And for new projects, we are aiming for around 7%. Next slide, please. We have our land bank of 4.6 million square meters. No other updates. around the processing for getting sowing plants. They are ongoing. Next slide, please. Looking at our leasing operations, they are very successful in this report. Our net leasing was plus 51 million in the quarter. Our whale is now at comfortable 5.8 years, and the leasing ratio is back at above 96%. Next slide, please, and handing over to Sofie.

Thank you, Jörgen, and hi, everyone. I'm going to the next slide. The environmentally certified area went down to 41% from 44% last quarter, and this is due to projects and new acquisitions that are in the process of being certified. When these certifications are done, we will see an increase of certified area again, and during this quarter we certified 53,000 square meters of the existing portfolio. We continue to maintain a high level of EU taxonomy alignment, for example our CAPEX of 93%. The scope 3 is at a high level compared to last year due to finalizing projects during the quarter of 93,000 square meters. We report the scope 3 When the buildings are completed, which means that the scope will increase when projects are finalized. And moving on for some financial advice. Next slide, please. And next slide over to the income. Rental income for the half year came to 1 billion, the growth of 14% since last Q2. The increase was driven primarily by indexation, the acquisitions we made, and projects being finalized. Net operating surplus follows this development and rose 14% to 827 million. Profit from property management grows 4% to 608 million. And over to the next slide, please. Our SeaGuyling contract that came to effect in the beginning of this year gave a like-for-like worth of 6%. Acquisitions contributed with 53 million, with especially the newly acquired properties in Landskrona and Helsingborg, with DSV as tenants, and also the Danish property in Jernholm, Denmark. There were no divestments made, and in project development, the finalized project to Elke Jansen i Jönköping, Leker, Malmö, and to SGD in Norrköping were the main contributors during this quarter. Now handing over to David for some comments on finance.

Thank you, Sophie, and good morning, everyone. During the quarter, we followed up on our targeted share issue from the first quarter with new acquisitions amounting to just over 2.5 billion SEK and project investments of approximately 700 million SEK. Including paid and reserved dividends in Q2, the APRA NRV stands at 396 SEK per share, as Jørgen mentioned earlier. When evaluating our capital structure, it aligns with our strategy to maintain financial capacity to continue growing through strategically important acquisitions and value creating projects going forward. On balance day, the equity ratio adds up to 51%, still leaving room for capitalizing on investment opportunities. Passing on to next slide. We have balanced our investment ambitions with equity injections and thereby managed to maintain critical key figures at comfortable levels, leaving ample room relative to both our own policy requirements and financial covenants. The loan-to-value ratio stood at just under 39% and net debt to EBITDA at 8.2 times. The interest coverage ratio has improved slightly to 3.8 times due to a positive trend of lower capital costs. During the quarter, we received news of an upgraded rating, which has contributed to this positive trend as well. In conjunction with refinancing and taking on new loans, we continue to increase the share of sustainable financing which on the balance sheet date now amounts to 61% of outstanding loan volume. Next slide, please. It has been an eventful quarter. Central banks, including the ECB and the Swedish and Danish counterparts, have initiated interest rate cuts due to declining inflation and to some degree poorer economic outlooks. By the end of the year, an additional two to three cuts are expected from the Swedish Riksbank. This has contributed to a gradual decline in capital costs during the quarter. We issued bonds amounting to approximately 1.2 billion SEK during the quarter. And in the most recent transaction of 350 million SEK with a two-year maturity, we paid 90 basis points over three months. We have consistently experienced strong support from banks and feel that there is ample room for new business opportunities. Our liquidity, including debt commitments, totaled 3.1 billion on balance day. This amount is more than adequate to cover upcoming refinancing needs for the next 12 months. Passing on to next slide. The average cost of loans has been maintained at 3.8%, despite increasing debt by just over 1.2 billion SEK during the quarter. And this is, of course, another indication that conditions are improving. During the first half of the year, we also purchased 1 billion SEK in new swaps at an average fixed rate of 2.5%, with an average maturity of six years. Approximately 65% of the loan portfolio has a fixed rate and the average interest rate maturity was 2.6 years as of the balance sheet date. We will follow the market and central banks actions this fall and evaluate when and if we should purchase more interest rate hedges going forward. Passing on over to Sophie for the next slide. She will lead us through capital deployment and valuations.

Thank you, David. And our capital deployment divided into acquisitions of 3.7 billion. Jan Holman in Denmark and the two Sailor Leaseback transactions today were the big ones. And we had some smaller transactions and it all totaled to seven new properties. no divestments during the quarter. Development capex ended at 1.3 billion. These investments, like I said earlier, are related to our large ongoing projects with Elkiganten i Jönköping, a project that has been finalized during this quarter, and also with the big project to Minego in Landvetter, and a project at Segevo in Jönköping. Total capex for the year rounded off the 5.1 billion so far this year. Going over to the next slide, please. Property value was written down with 161 million. This was due to a higher yield requirement. The value change corresponded to 0.5% of the total value before adjustment. The average weighted valuation yield for the portfolio is 5.9%. by the end of the period, and the EFRA net initial yield came to 5.6. And so far, 45% of our portfolio has been externally evaluated. Moving to the next slide and some words on credit rating, and David.

Yes, thank you, Sofie. And as we mentioned before, one of the highlights of the quarter was that we received an upgraded rating to BBB flat from Nordic Credit Rating with a stable outlook. We also received a confirmed rating from Fitch Ratings of BBB- with a stable outlook. Both rating agencies confirm our strong market position and our gradual shift towards a more sustainable and robust financial position. Moving on to Jørgen for some closing remarks.

Thank you, David. So the takeaways from us today will be in three points. First of all, we delivered a solid Q2 report on all numbers. Secondly, we have deployed the proceeds from the equity race in the Q1 as we told and guided the market. And the third point is with this existing portfolio that we have now, we show a clear uplift in our earnings capacity for the coming 12 months. And with that said, we open up for Q&A.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from John Vong from Van Lanshot Kempen. Please go ahead.

Hi, good morning, team. Thank you for the presentation. Just on Occupy of the Month, Juergen, you said it's taking longer than expected. Has this changed over the past three months? And as a follow-up on that, you also said that you expect to sign some new agreements after the summer. Is there any particular region where you see stronger demand?

I think Gothenburg region and the southern part of Sweden is still the most interesting with the lowest vacancy rates. So it's fair to assume that we will present something in those regions going forward. It could also be something around Stockholm South uh in in terms of new developments uh and regarding the occupying demand and the market as and i as i said before about those speculative uh projects around stockholm maladol and there is the same situation we have not seen or heard anything about new lease agreements in the market but I would say that based on intelligence and the discussions we have, we are comfortable that there will be some new projects for the rest of the year. But we had hoped to present it in Q1 or Q2. So with that said, yes, it takes longer time.

Okay, that's right. That's a good caller. Thank you. And just on the core money that you mentioned, that you expect to move into the market after the summer, does this pose a potential opportunity for you to do some asset rotation?

Perhaps. Could be a case. As you know, we are not an active seller in the market, but from time to time we can consider to recycle something and And we have, as you know, deployed a lot of capital in Q1, Q2. But we don't need to sell, but it could be some certain geography we want to dispose and to focus more on other parts. But yeah, that's hypothetically speaking.

Okay, that's clear. Thank you.

The next question comes from Niklas Wetterling from DNB Markets. Please go ahead.

Hi, I got a few questions. Firstly, I noticed that the NOI margin in the earnings capacity guidance has increased quite a lot quarter over quarter. Is that fully explained by the acquisitions or has it been any improvements like for like as well?

I mean, that's correct, Niklas. The new acquisitions we have made has for sure a higher margin. The new projects that we have finalized has newer margin. From time to time, we always try to do our existing portfolio more efficient, but the major drivers are for sure new acquisitions and new projects finalized.

Is it the same thing with the vacancy rate? How was the like-for-like vacancy rate development in Q2?

The vacancy rate is due to what we told the market in Q1, that there was a step-in clause in Copenhagen for ScanGlobal. Now they leased that area as well. So now we are back at the 96% level.

Okay, great. And then... The El Giganten project, did you get full rental income in Q1? And is it reflected in the earnings capacity guidance?

Yeah, everything is reflected in the capacity. Yes.

Great. And then just lastly on development gains, have you come to any conclusion? What did, for example, the gains from the El Giganten project ended up with and How much has the development gain been this far this year?

We do adjust the values during the project times at certain stages. So it's fair to assume that in the report, it reflects the market value that we ended up in the Q2. That's the fully effect from finalized project. And we also evaluate the ongoing project depending on what stage they are at and how comfortable we are with the market yields and where it will end up in the costs as well.

Yeah, but do you want to share any comments on the margins you are getting on the project?

No, not more than we have in what we said that the ongoing portfolio now is we expect to have a yield on cost at 6.7. And if we are about to start a new one, we hope for around seven, but that could be some pips above or below, but generally speaking.

Okay, thank you.

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

Thank you. Good morning. I have a few questions as well. Could you tell us something about the opportunities you see for the second half of the year? Are you looking into perhaps making additional acquisitions, or do you feel that the capital that you have employed so far is enough for this year? Could you give us some guidance as to your thinking for the second half of the year in terms of acquisitions?

Hi, Erik. That's a relevant question. I think the answer will be the same story as we have had the last year, depending on how successful we are in new projects, signing new lease agreements. That's the first choice. But if we, by any reason, shouldn't be successful, we will keep up the growth for sure. And then we have to focus more on acquisition. It depends. It's a boring answer, but I think you follow me.

Yep, I understand. Perhaps related to that question, you are now established in Denmark. Would you consider moving further south? Meaning, basically what I'm saying or asking is, would you consider an expansion south of Denmark?

Not in the short but we are looking into when and how to enter new markets, but there is no decision, but we're all the time monitoring what is next step for Catena. But as we speak, it's focused to grow more in Denmark before we enter any third market, so to speak.

Okay, thank you. And then my next question is regarding sort of rent level outlook. You've talked about the speculative development in the Stockholm-Maladalen region. Are you seeing or do you see a risk of this affecting rents in this sort of micro area for you?

No, not in the short run. And in the medium term, we are sure that there will be a take-up. I mean, at the same time as there are big vacancies no new speculative projects will be started for sure so sooner or later there will be a take up but I don't think that it will impact us as we speak in our existing portfolio our rent levels are for sure below what the other players are asking for but who knows what is their next step. I mean, sooner or later they need some rental income, right? So we just have to wait and see, but we are not worried or concerned about the situation for us in regards to those developments there are.

Okay, perfect. And then my final question was sort of a short remark and maybe some clarification. I think on On slide 26, you mentioned that value changes in Q2 was a negative 161 million, but I believe isn't that the first half of the year? Q2 was actually quite a small positive. So the exit yield moved a little bit, I think, in Q2 versus Q1, but in Q2, the effect is still positive. Is this because, should we interpret that as you discussed earlier, is this mainly due to project re-evaluations having an impact?

That's fair to assume, and the positive movement in Q2 isolated was 38 million. So not much, but a little movement in the right direction, if you would like to say so.

Okay, perfect. Those were my questions. Thank you so much.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. The next question comes from Marcus Henriksen from ABG Sundal Collier. Please go ahead. The next question comes from Marcus Henriksen from ABG Sundal Collier. Please go ahead.

Thank you. Good morning everyone. I'm a bit late into the call, so I'm sorry if any questions I will ask have already been asked. First, the outlook for project starts in your different building rights sites. Where are you the closest to start projects and what type of ongoing discussions are you having potentially for the second half of this year?

Hello, Marcus. Thanks for the question. We had it before. I take it again. It's most likely to be in the southern part of Sweden. Kappenberg is also... an interesting area. It may come something around Stockholm South based on the intelligence we have and discussions with customers. We also said that it takes longer time. We hope to present something before summer. Most likely, for sure, it will be after the summer, but most likely in Q3, we will present something. So we are positive.

Thank you for that. Dan, a bit on potential construction costs. What are you seeing there when you are negotiating tenders for upcoming projects?

Good question. Until up to some weeks ago, I would say pretty much the same. There hasn't been any declines in the building cost. Just the latest week, we have had signals that, for example, the steel price is going down. So we are optimistic that we could have some cheaper building costs going forward.

Thank you. Then a question on the banks. Have you seen improved credit margins recently, or is it more or less the same as previous quarters? And do you have any ongoing discussions now where you can maybe help us out a bit for the second half of 2024, what you're seeing on credit margins?

Hi, Marcus. Thanks for the question. Well, as I stated in the presentation, overall capital costs has come down quite dramatically, I would say, in relation to how things were a year ago. And that goes with banks as well. It differs, so it's always difficult to give a general answer. But the trend is positive from our perspective, both in terms of margins, credit spreads in the bond market, and as you know, the market rates as well. So overall, capital costs are coming down.

Very clear, thank you. And then last question on investment levels. You have previously stated investments of 2 to 3 billion. We see a massive uptick here in Q2 and then you will finalize a lot of projects. But any update more generally on how you're looking at your medium to long-term investment levels previously 2 to 3? Any change there?

No, I also stated before and there was a question about how we will deploy capital going forward is it more acquisitions or development and it's the same answer as as we have told the market some years now that we will always prefer the developments because they are more profitable but from time to time we have to to do acquisitions when when the development market is a bit sticky so it depends on on how successful we are in in the discussions regarding new projects. If they are taking even longer time, we will keep up the growth. And then, by that said, we have to look at more acquisitions.

Thank you for that. Those were my questions. Have a nice weekend.

Thanks, you too, Marcus.

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 to all listeners for attending at this earning call. And with that said, we also from the Catena team wish you all a fantastic summer and see you again after the annual leave. Thanks a lot and goodbye.

Thank you. Bye bye.

Bye everyone.