Castellum AB (publ) (CAST) Earnings Call Transcript & Summary

Hello, everyone. My name is Henrik Saxborn, and I'm the CEO of Castellum. And we just wanted to have this webcast to give you some information about the offer, we this morning, launched on Entra. And we can take the next slide, please. This is not anything else than a marriage. It's a marriage between the strongest 2 companies in the Nordic sector. And we are simply building a platform for the future. We are building a sustainable platform, and we will describe that we are building something that will be unique in the Nordic market. Next slide, please. This entity or this new platform, these companies will be the leader in office and logistics. It will be the main builder of new offices in the Nordic sector. It will have 36% of its tenants' income coming from the government. And we also see the opportunity to unlock the synergies that we see in these 2 company combined, and I will come back to that. It will also have capacity for the future since we are simply having the strongest balance sheet also in the Nordic sector. And we will, already from start, be the largest producer of office space going forward. So I can take the next slide, please. And how do we then create value? This offer is an offer of 85% shares and 15% cash. The bid today stands for 30% over the average -- weighted average per Entra's share price the last 3 months. It's a price that is almost 175 -- NOK 171, sorry, NOK 171 per share. And we think that it's possible to release synergies over the next coming years, approximately for SEK 150 million in synergies on both sides. The new company could have the balance sheet -- a gross balance sheet of approximately SEK 150 billion. This is a company that will be a blue-chip company like they both are from the beginning, and it will be a high-quality, existing new company simply. And we can move to the next slide, please. Going into the bid. This bid will be then 85% in shares, 15% in cash. It means that for 20 shares in Entra, we'll have 13 shares in Castellum. The bid price is NOK 170.86 per share and it's almost 19% over the undisturbed share price. That was the 23rd of November, so it's 19% over that simply. And let's go to the next slide, please. This is a marriage. This is a marriage, where we've bought the ring this night. We bought ring from the government or 8% of the shares and are owners in the Entra portfolio. This is a marriage of 90 assets in Norway and 637 assets in Denmark, Sweden and Finland. The gross asset value is SEK 150 billion, and is the strongest balance sheet in the Nordic sector. This gives us opportunity to continue to create sustainable investments, be a leader in property, sustainability and the largest producer of office space going forward. The next slide, please. As said, the most -- the largest tenant in this is the Swedish and Norway governments, totaling to 36% of the income fee. We already, from beginning, would have SEK 9 billion in development and the strongest pipelines together that you have in the Nordics. It would have 5.6 million square meters of space. I think, honestly, that will be one of the largest companies in Europe. So this is simply an extremely strong match. And looking into our next slide, please. You can see that the occupancy rate is 95%. You can see that the remaining contract period -- of average contract period in the portfolio is combined at 5 years. So it's a strong company of many, many ways. And it's the future to go ahead. It is an opportunity to merge these 2 companies we can't miss. And we do this because we understood that we have the support from the shareholders on both sides. Therefore, we offer the market this today. And then going into the synergies on the next slide, please. How can we then create SEK 150 billion -- SEK 150 million, sorry, in synergies? Of course, it's the first thing is obvious. We don't need 2 of everything. But we also will combine knowledge from these 2 very good companies to make it even better. We will, of course, be more efficient, and we have experience of doing that since we bought Norrporten from the Castellum side. We know there is opportunities on the existing portfolio. But we will be very certain. This is a marriage. This is a marriage, where we will be very positive that we will have the best persons on each role. And we will also -- that will give us in the future the combined possibility of -- in working with existing financing, but we will also directly, of course, look through the portfolio. And maybe then, sell in the Swedish part of the portfolio that is not so efficient going forward. So there is the SEK 150 million in synergies. And the next slide, please. As said, this is a marriage. I said it many times now. But the companies will be together, and we will have the possibility to create something that's unique. And I can take the next slide, please. Going forward on the financing, we can see that we have a buffer of approximately SEK 24 billion. And it's the strongest balance sheet. We have a good liquidity, and it will keep us strong going forward and give us the opportunity. So there is no financing risk in that, it's also the strongest balance sheet we have. Next slide, please. So with this said, we would propose that we can continue with the work we have started, and we hope that we, going forward now, can simply commit the marriage between the 2 companies and continue with the work we have started today, and create one of the strongest balance sheet with the biggest opportunities going forward into the market. The next slide, please. I will take the next slide, please. And I think with this said, I will open for questions. Thank you.

So I will read some questions here. I've gotten questions about if it's acceptable to accept less than 90%. As we speak, no, we have the offer out at 90% simply. So that's the answer. And then we'll see if it's coming up, more questions. Henrik, can you publicly please confirm that this is one and only offer on the table for Entra shareholders to consider? Is there 0 possibility of entering into a bid war? Thank you. This is the bid we have out to the market right now, and that's the only thing I can comment so far. And the next one is, so should we expect a combined company to sell assets in Sweden and not in Norway? What do you like to sell in Sweden? We have a large portfolio. We have, over the years, simply worked with a turnover in the portfolio. And for me, personally, it's much, much faster to look at the opportunities in the portfolio in Sweden and react more confident and quickly there. So therefore, the Swedish portfolio is the target if we should sell anything. So that's it. Okay. I got another one. Can you explain the difference in the of SEK 450 million in synergies over 4 years, you mentioned first, and then SEK 150 million synergies? Sorry, it should be -- it's just a mistake from my side. If I said SEK 450 million, the correct figure is SEK 150 million over some years and nothing else. Sorry for that. Many questions here. Interesting. Did you anchor the bid with the main owner? Okay. So the -- yes, we -- what we've done is, like the writing in the press release and nothing else, we have been buying the shares from the government. And we have then also getting the acceptance from the shareholders we write in the press release. Yes. Next one. Okay. I'm getting the question, what has changed between today and yesterday? You pulled away yesterday, and now you are making a bid. What has changed in heart? No, the change is reality. We was yesterday, for 24 hours ago, not giving the support from the Board and -- that we expected, and we hold a lot of our shareholders that couldn't do some activity in the market. Therefore, we was had to reconsider our position. And during that 24 hours, we had a huge amount of positive reflections and no negative from shareholders in the market. And that made up confidence that this is what the shareholders want. And with that, they saw the same thing that we did. And with that, we simply made a deal tonight with the government. And with the deal done to the government, we decided this morning to launch the bid. So that's it. Does the larger company mean you are more willing to take greater development speculations risk? No, no, no. We don't take more speculations risk in this. It's just the figures I'm referring to is the existing figures from the both companies simply, where you can see that this volume is simply the volume that's in pipeline and/or existing ones in the companies. So no more risk. That's not the item here. And I'll take another one. Is the acquisition of Entra shares from Norwegian state complete? Yes. We bought and we are owners of that part simply already. You are -- I got a question. If we are unsuccessful in the approach, if we would continue to hold an 8.2% stake in Entra. And that is to be seen simply. We are not here to do anything else than getting the marriage done. So that's a question for the future that I don't see would come simply. And then I get a question about what's the best part of the portfolios in Entra. And how does your view its development pipeline? I think Entra is one of the strongest companies in the Nordics. It's for me, a golden nugget. And it's for me, something that will be a perfect partner to the ambition we have in Castellum. And in many ways, we share the views and ambition of this company. Therefore, we're talking about marriage and nothing else. What is the dividend strategy going forward, post combination? What we see is that we have the opportunity to keep the same dividend policy as we have and so that's the target. And I have 1 more. Any clear bond risk on the condition external expansion we have in Nordics? Denmark is still a small part. Just wondering where the end game might be for external growth? Yes. That's a large question. Our aim is to build a strong hold in the Nordics on the office and logistics sector. We are creating that, and it's a long way to end game. And I think, honestly, that will be after my leaving the company, when I'm in pension or something like that. This will not end the next coming 5 years, 10 years, something like that, with volume enough in the Nordics. Good creation, that value. And then how is the purchase of the Norwegian government share financed? We have done that by our own cash and with the credits we have, credit line. So that's already financed. How was the -- sorry, how important is a board recommendation to getting the deal done, integration? I think where we are right now, we are in a situation simply where the shareholders' view is the absolutely most important. But we also, of course, would appreciate if we're getting the support from the Board. And I would be very, very clear here, this is not a hostile bid. This is an ask for marriage and nothing else. Okay. What is the approved requirement for Castellum's ETM to approve the shares issue of 50%? Okay. It's 50% that's needed for the EGM in Castellum. And -- okay, we can take the next question, please. Is this the final and best offer for Entra? And from my side, this is the offer for Entra. And that's it. Next question, please. You have many questions. It's really interesting, actually. Did you try and buy the 11.8% stake from [indiscernible] from them, too? Any discussion with any other shareholders is, of course, nothing we can discuss openly. So I can't answer that. I'm sorry. And the next one, please. Are you expecting the transaction to be accretive on earnings perspective? And by when? I mean, from us, as we said, the first part is going to be that we directly look into the efficiency we can create on cash flow. And that's, of course, going through organization. And to be clear, it's nothing -- I mean, simply than saying that we don't need double of everything. That's the first part. Then we will, like in Norrporten, look into the portfolio and the property management there, and see if we can be more clever together and learning from each other. And we're expecting that will be part of it. We will also then look through the portfolio and the ineffective part we have, and definitely, focus being on the Swedish side. And after that, of course, we look at the balance sheet and what we can receive on financing in the combined new entity. And all this together, we think there is SEK 150 million to achieve. So that's the plan. And the next one, please. Okay. I'm getting a question about the current bid is 85% shares and 15% cash. What are the terms for the mix and match? And simply, I mean, we are stating that in the press release, on the mix and match. So I -- please read it in the press release. Okay. I got a question about, did we receive any feedback from the Board of Entra, on their view? And we have not received anything from the Entra Board at this morning. During your discussions with the Entra management, have you had any sight of updating NAV? We have conducted a [ data ] process and we are very, let's say -- we are very -- thinking the values. We can't see anything problem there. If we have seen any problems on the data process, we would not have gone through with this bid. And on values, I assume that Entra, what we can see has quality in the valuations like we have. So my answer is, I assume that the valuation is correct for the Q3. Okay. I got the next question. Did you envisage getting shareholder support from Entra? Is [ irrevocables ] from Entra shareholders possible to giving their overwhelming support? I think, absolutely, it could be irrevocables coming from the shareholders. And that is mainly to be seen now when we are out with this. And then the next one, can you please elaborate on a bit more on potential financing synergies? Now it's too early stage for simply doing this. But of course, we know that it's appreciated in the financing sector, with more stability, large capacity, longer WAULT. And we are bringing that to both sides. We're also knowing that the total quality of the group will be larger when combined. And therefore, we think that it will be appreciated by the financing sector and the banks and to the market and that we can benefit from that, simple as that. And then we get the next one. Now we're going through the last 5 questions. So let's see. This is #5. Following up on question to another one. This SEK 5 million synergy, when only for the reduction of costs? Or does that also include assumption of potential lost debt, lost financing? No. This is what we're talking about now. It's simply the SEK 150 million is not taking into account any financing items. And this is -- will Castellum need to make any additional share issue to finance the cash bid? No, the good part of this is we are ready to go, and we don't need that, simply. Okay. We have 3 more to go, they're saying to me here. So let's see. Given the complementary nature of this transaction and great job that Entra management and the Board has done, we are expecting the Entra Board and management to join the Castellum Board and management. This is 2 different items then. I can answer for the management side. First of all, we will, in the marriage, get married and combine the management. On the Board sector, we have -- it's, of course, regulated. How that will be done, and we will follow the rules from Castellum in this case. And then, how important is Entra Board recommendation for Castellum given this merger? And I think I asked that -- I answered that earlier. And that is, of course, something we would like to see and hope to see. And that's why we're proposing, but the most important part is getting the acceptance from the shareholders, of course. And now the last question. What are your assumptions behind refinancing savings amount and all interest rates? And would you consider SEK financing to reduce cost and bear some slight FX exposures? If we're getting the same rating as Entra, Board calculation or assumption is that we will go down on the Castellum part, approximately 10 to 15 bps. And that would mean that we could save, theoretically, approximately SEK 50 million to SEK 70 million, something like that. Okay, everyone. I'm very pleased that you had -- was able to listen to this for almost an hour. And I'm very pleased with all the questions, and I hope we answered it. And I want to thank you. Thank you very much for listening.