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

Hello, and welcome to Castellum AB Q4 Report for 2020. [Operator Instructions] I am now pleased to present Henrik Saxborn, CEO; and Ulrika Danielsson, CFO. Please go ahead with your meeting.

Thank you very much. Good morning, everyone. So yes, this is the Q4 for 2020. And if I take the next slide, please. We will go through the 4 parts: the annual reports and -- of course; and then we will go through the markets, the property and rental market; we will also look into our development pipeline and ongoing developments; and finally, of course, comment on the Entra deal and what that is for the Castellum owners as well as the Entra owners. But if you take the next slide, please, we will start with the year-end results for 2020. So we can summarize it very shortly and that it was very strong and good result for Castellum and that we have proven this through following numbers, if you take the next slide, please. So let's start from -- with the income from property management. I mean we have increased the property management with 7%, yes, in spite of the ongoing pandemic and also, the low last quarter isolated, has the growth of 3% even though we suffered from the pandemic in 9 months. So the results shows the efficiency we have handled the ongoing pandemic on both the income as well as the cost side. And we are, of course, very proud that we can do this under these circumstances. On top of that, I mean we -- this is down to 2 or 3 reasons. It's, of course, the quick reaction time we had and adjusted when the pandemic came to our knowledge, so to say. It was also because we have a good portfolio with a good tenant mix but -- that we've shown in the very few bankruptcies and that actually is lower than last year and very limited rental losses. And thirdly, I think this shows that the property and especially the office market in the Nordics is resistant and very strong. Looking at the value. I mean we increased the value with 10%. And that was built up with the cash flow developments and yield compression. And the last quarter, this was, of course, mostly affected by the Blackstone deal that we have partly in the valuation, and we will come back to that. So the NRV, or the N-R-V, more correctly said, in the year-end was SEK 214. But we have already secured another SEK 2 per share because we have not calculated in the portfolio premium in the Blackstone deal. So we are at SEK 216, and we will come back to that. So -- and we will, of course, already -- we can already guarantee that we have a very strong balance sheet coming out of Q1 because we are -- even if we will end -- exit the first part of the Blackstone deal, and then we will be lower than 40% on the LTV side and, shortly, the markets then. This report and also looking at the market at whole, we can conclude that there's no drama in the Nordic office market. The evidence is the stronger lettings for us, of course, in the last quarter compared with last year. So the SEK 239 million net leasing is, of course, very strong, but it's also strong on all lines. We have rented out more in the existing portfolio and more on developments. And on both those is stronger than in isolated Q4 than last year, the same thing. And if you look at the rent levels then, we are offering the same rent levels that we did before the epidemic. Looking at what we can see into the market, that is also what's occurring. So I think this proves that so far, the office market has been very strong, and we can discuss that later. But we'll not -- the office market scenes, that, of course, it will change, but it will develop. And the weakness, I think, is the ones that are already prepared in very strong balance sheet and a good position. And Castellum is definitely one of that. And then to the logistic market. The logistic market is very strong. And that is, of course, driven by the accelerating e-commerce. Then we are now changing with the sales to Blackstone, that we will be even more active in the logistic market under the new developments. And we will show in this presentation that we have the capacity of building approximately 1 million square meters already on already owned land. That will be done with approximately profit in the development of 50%. And we have the capacity of taking 30% of all that are built in Sweden in the next coming years. And this market is strong in rents. And it's also a market with very strong interest, as you can see in the deal with the Blackstone, where we was able of increasing the value with 20% from what was booked in the book value. And then the Entra deal. If we are able of securing the deal, it will be very creative for the Castellum shareholders and Entra shareholders. So this is 2 winners in this game. We are the only one that are positive -- have the possibility to create prime of this real estate company that are the strongest in the future as well as creating a strong logistic company. And Castellum has the strength to now do that with the strength of the balance sheet and not will need any more capital. So we are prepared to go ahead and simply close the deal on Entra. Should the deal go through, the shareholders of Castellum will still be in the golden seat. So the shareholders of Castellum is winner whatever happens, and that's why -- that is what we have created simply with the Blackstone deal and this big structure. Okay. Ulrika, I leave to you to go into the next page, please.

Yes. And then to the income statement for 2020. 1 year ago, sitting here, we did not know what was coming. Another good year of delivery, maybe in a more softer market was our belief. But then the black swan came flying with the name COVID-19, and suddenly, the game was another for a couple of months. It was more about acting faster than normal, trying to understand the impact on our tenants, increased liquidity control, working more remote, digital and being more flexible and then be humble. However, when closing 2020, we can say that it was not such a bad year anyway based on delivery of our results. It is even a really good year with a strong result part of line. And I think they could speak for themselves: an increase in income from property management with 7%, and that is the same as the average yearly effective increase the last 10 years; and change in property value of 3.9% or SEK 3.9 billion. And worth mentioning is that Blackstone contributed with SEK 1.6 billion in December. And more is to come during Q1 this year, but I will get back to that. A negative change in derivatives, some taxes, and that lands in a bottom result of SEK 5.6 billion. And based on this, the Board suggests an increased dividend for the 23rd year in a row up to SEK 6.90 per share. And that's an increase with 6%. And if we go to the next slide and look into pure management or, you could say, like-for-like growth. The like-for-like portfolio, you could say, contributes with almost 6% of the growth of 7% that I just mentioned. And the big contributor is, of course, still rental growth but also a good cost control. The average increase in like-for-like rental levels of 2.8% consists of 2 things, to simplify it, the CPI uplift of 1.7 and made renegotiations that hit the P&L. Then we had, of course, some high vacancy and a little bit more incentives, and that mitigated to the net like-for-like growth of 2.2%. But more interesting is to look into the different asset classes because they behave a little bit differently. As you can see, all is doing well regarding rental level increases, except retail that has a negative development. That is, however, not a big part of our portfolio. And I also want to highlight the highly discussed office market that we have strong delivery in. And as you can see, we have rental growth. And what takes that down is mainly a little bit incentive that was a deal done before COVID-19. And worth mentioning is expenses, and that has moved in the right direction. It's down over 6% in like-for-like, and that is based on hard work with our cost in order to be a much more efficient company but, of course, also a milder year compared to 2019. And then let us change picture on slide and talk a little about the COVID-19. I could summarize the last quarter 2020 with it is more of the same. The volume of liquidity help has not moved too much. However, the ones that needed help in the spring needs further help into 2021. And the industry that needs help are, not surprisingly, you could say, fine in the service sector or service providers, such as restaurants, hotels, retail, et cetera. And this is not a big part of our portfolio, but we do have it. The payment pattern is still very bold. Following the earlier quarters, 99% is on the bank. Bankruptcy is still very low. And -- but with that said, this is not over, we say. But up until now, we have not had so much impact, and we keep our humbleness. If we then change slide and go to the balance sheet. The balance sheet of Castellum is strong. The LTV at the first glance is higher versus Q3. But then you have to keep in mind that in our calculation, we are a little bit prudent or cautious, you could say. We don't take into account the Entra stake of SEK 2.7 billion on the asset side. So if that is adjusted for the LTV, it's really -- it's one of the lowest we have had, it's 43%. The NRV at the year-end, which to date, to be honest, is history, it was SEK 214 per share, that is an increase with SEK 19 or 10%. And on top of that, the shareholders has that dividend last year with SEK 6.50 per share. But if we change slide and look at -- goes from the history of the NRV to the future, we already know that when the Blackstone is done deal, is closed, we can take into our NRV the portfolio premium that Henrik just mentioned. And that has a value of roughly SEK 2 per share. On top of that, Castellum has ongoing developments of roughly SEK 5 billion, but we also have a really big pipeline in front of us. And if we only take the pipeline in near term, say the coming 3 years, and on top of that take the ongoing developments, our estimate now is that, that should create another SEK 16 per share in growth in NRV. And this indicates continued value-creating in this company. And when we go from that part and the balance sheet and the NRV, we need also, of course, to address the valuation on the next slide, please. And a good uplift of 3.9% mainly driven by [ year 6 ] project gains but also better cash flow than in our early valuation. And the main contributor in the yield movement has, of course, been the logistic, warehouse and light industry segment. And of course, we have the impact from making our long and hard work visible from a valuation point of view by selling a fully developed and mature portfolio to Blackstone way above our own valuation at Q3. As Henrik said, SEK 1.6 billion is in our numbers at the year-end. And as well, there are roughly SEK 0.6 billion will hit definitely when this deal are closed. As always, we do an external valuation of roughly 50% on the portfolio, more specific, 54%. That's like Infinity shape. And the gap between Castellum's valuation and the external one is 1.4%, where our valuation at Castellum is above the external. And that is a SEK 700 million out of the portfolio of SEK 55 billion. That is the lowest gap since 2017. We have never been so close. But with that said, there is differences between the different asset classes. While we are more positive towards logistic, warehouses, light industry versus external one; but on the other side, we are more cautious or negative to the retail part. On the office, you can say that we are spot on, on a portfolio level. If we go from the asset to the funding side on page -- next slide. You can say that 2020 has been a year where we have proof tested our financial policy and our review on access to liquidity. We stand strong. We have good access to capital. At year-end, we had SEK 18 billion unused. However, SEK 9 billion of that is the back of outstanding CPs. That gives us SEK 9 billion left, so to say, to invest or to use. On top of that, the first is with Blackstone means that another SEK 5 billion will flow into our account in the beginning of February. And this strong liquidity, together with our belief that this company can create more value going forward and increase the NRV further, means that the mandate Castellum has of buying back shares up to 10%, which the Board announced in the spring, is an important tool for Castellum to have the possibility to do a smart investment and invest in Castellum. And then finally about our figures, the next slide to give a perspective. We can probably say that we put another value-creating year to the Castellum history. To give you perspective, we are here for the long play. When this company was listed in '97, the portfolio was around SEK 10 billion, the income from property management was SEK 300 million, and the shareholders' capital was SEK 4 billion. Through financial discipline and hard work, Castellum has increased the shareholders' capital or value to SEK 59 billion and, at the same time, giving dividends back to the owners of SEK 15 billion. The property portfolio, at the same time, has increased to SEK 103 billion while the income from property management is at SEK 3.4 billion. And it's always good to have perspective and just not only look 1 year at a time. But with that said, Henrik, I will give to you to talk about the markets.

Okay. If we change to the next slide, please, then, we will talk now about the rental and property market. And so please go to the rental market, Picture 14, please. Then back to what I said in the ingress is about the office market, we can now conclude no change in market rents. The normal volume of notices for Castellum are the same for the last 3 years; and for the last quarter, the same. If we are offering anything in the only market that we can see some experience of softer or stressed market, I would say that maybe is in the CBD of Stockholm. We are not exactly in the middle center of Stockholm CBD, so we can't say there is adjustment there. So we simply offer the same rents that we did before. So our rents are going from SEK 6,000 a square meter for offices and downwards in our portfolio. Looking at the net takeup, we've also proven in this page there is no drama in there. With some offices being built right now, we have some colleagues in the market that have larger office developments ongoing under construction, but that has been needed for years because of the growth. So we actually, before the pandemic, had more or less a problem. It was hard to find the space for office tenants in attractive locations. So this conclusion from my side is simply that the market is resistant and that it's in better shape than any analyst that I have seen so far and maybe that we expected. And then looking forward, if we go into the next slide, please. We have done some researches ourselves, and we are going through whatever research that we can find about the office segment in the Nordics as well as in Europe. And we think that you can say that simply one of the most important figures is, of course, approximately 90% of the staff want to go back to the office after the pandemic. The driver of that is, of course, efficiency and meet -- maybe you want to meet your colleagues again. So that's, of course, understandable. But I think in one way also that the Nordic market sticks out because before the pandemic, it was as much as 50% was already used to that, so from time to time, work from home. We also estimate that the larger cities is the ones that are more benefiting from working remote because you don't need to commute to the work, simply. And there are very few places in Nordics with long commuting times. So our conclusion is simply there will not be any drama about spaces used in the new Nordic cities in the office side. And then getting back to the question why not more companies was giving us notice for leaving at the year-end, we also -- our conclusion is that the cost for the space is a very small portion still on the total cost side for its Nordic company. We have experienced that in earlier crisis, and we are back to this conclusion. We also see that is, in some way, too early to take a decision to conclude how will you change in the organization or how will you change your, simply, way of working. So it's still extremely important for us to be prepared and help our customers. And that's what we are doing right now for change for uses of the space, construct structure, of course, offer more than one location as well as using more technical solution and measurements than we're doing earlier. So it's extremely important to be on it too, but there's no drama in the market at all at this point. And if we go to one of our items then and/or our tools, it's the United Spaces, the co-working company. And we can go to the next slide, please. As we said before, we are strong believers in the expansion of using flex space and are, therefore, investing more in our new sites for United Spaces, our co-working company, that we will double it in this year to come. And we have done a lot on it to this 2020 results. But just before the COVID, it was on black figures after 9 months of ownership and have now, of course, experienced some downturn on the income side. It's mostly that we don't have meetings and other services, so we have absolutely the main part of attendance left as members. And we are expecting a huge expansion on this, on the membership. And therefore, we'd double size of the business going forward and has in January opened 2 new sites, 1 in Uppsala and 1 in Stockholm. And then if I jump then from the office market to the logistic market on Page 7 (sic) [ Page 17 ], please. The logistics, here, we have experienced a very strong market because of the expanding e-commerce. That is also a lack of good infrastructure and new efficient sites. This is an interesting market. And therefore, we now change our strategy, even focus more on it than new developments and leave some part of the old stock. We will have SEK 5 billion left in the balance sheet after selling everything that we have said to Blackstone if the -- also the 2 tranches of Blackstone sales go through. And here it's so important to see that the markets can be divided in 2 parts, with large international and national sites and then last-mile locations. We will focus on both. We will have the capacity of building approximately 1 million square meters of logistics on already our existing land bank. And here, we can say that both sides of that is extremely important for investment of the last mile as well as the larger logistic blocks, of course. The rents are different. In the last mile, we see an increase of rents to new maximum levels that we haven't seen before and the last mile -- in the last mile. And the large sector is more stable but positive on rents. And I will come back to why this is so interesting in investment when we're looking at the development side. So if we go to our net leasing then and move to the next slide, please. Then you maybe -- this was maybe one of the most unexpected strong figures. Because we have shown that it looks that it was better than last year for the full year, where we rented out SEK 239 million in net leasing, stronger on existing portfolio than last year and stronger on development side. An isolated quarter, we can also conclude the same thing, it was better on both lines. And also -- and we can also conclude everything is better, and the bankruptcies are, on an annual basis, down to SEK 9 million compared with SEK 16 million for the last year, to just give you an example. And then I think this is an effect of 3 things: the composition of our portfolio; we got good work and excellent work by the team; but also a much, much better-than-expected resistance in the market, as said before. And then moving to something totally different, the real estate market, the property market. How has then the investor acted during this crisis? We can say that we are having a very active Nordic market. If you take the Swedish figure, we are up to a volume of 180 -- in almost SEK 200 billion in sold assets. It's more or less the same figure as last year. The number of larger deals are more or less the same. So extremely interesting that the property market has been so active. Looking at the yields, we have experienced lower yields on offices, especially central and long-leases offices. And we also experienced, of course, then, as said, lower yields on the logistic assets. And that is, of course, reflected in our balance sheet, as Ulrika already said. And our acquisitions then, if you take the next slide, please, with acquisitions 2020. I mean you can't have missed that this has been a special year for us. We have been very active. And I'm not only thinking about the Entra deal. I'm also thinking about other acquisitions we've done and we show in some parts here. But we have truly been benefiting from having local teams everywhere. And one of the examples is, of course, the acquisitions we've done in Finland, in Helsingborg, that we have been able on acquiring new assets in 2 deals. And for the large one of almost SEK 1.5 billion at a 5% yield is, of course, extremely attractive investment we was able of doing when a little bit less competition was in the market. But we also have been acquiring a very good position in the meatpacking district in Stockholm and so will give us the opportunity to invest approximately almost SEK 1 billion in that region or that -- in the meatpacking district going forward. Now we're having a control of more than 1 block in there. And then we have continued to invest in the logistics opportunities, and the last example is the smaller investments we've done in the local market. And we are also planning to soon be able to announce new constructions for -- in this sector for a profit that are very good, as said before. And when we can build for approximately 6.5% yield and a market yield that of 4.2%, something like that, that gives at least 50% profit on the developments. Back then to the sale of Blackstone, Ulrika, should we go into that on the next slide, please?

Yes, the next slide. Just to dive into that, some of the information already get. But as we have said earlier, the deal with Blackstone shows the value-creating work in Castellum. And as you can see here, it's not only logistics according to our definition and that is sold, 5% is retail, 5% is offices, 12% is light industry and 1% is public sector. And the portfolio is a mixed quality and age, from assets that has been in Castellum from the very, very beginning to, of course, new production. And the deal, as you know, is divided into 2 parts. The first one we sell as Portfolio No. 1 to Blackstone. That will be closed in the beginning of February. And the second one of SEK 13 billion will be closed in the end of March, beginning of April. The SEK 19 billion in property prices was 20% above the Q2 valuation corresponding to SEK 3.1 billion. But after deduction for costs for deferred tax and transaction, the net proceed is SEK 2.2 billion, of which SEK 1.6 billion is in the Q4 numbers. The rest will come during Q1 when the deal are closed. So that is a short summary of that deal. And then, Henrik, let us go to another value-creating part in Castellum, the developments.

Thank you. So we take the next slide, please, the developments. We have created during the year larger and larger pipeline of development. And we can now proudly present that we have SEK 20 billion in front of us to invest with good yield. So if you take the examples that's ongoing, we can take the next slide with a map with the ongoing development. Here you see 17 of the largest investments. And as I said so many times, this is the backbone of Castellum going forward. And it's very important to say it's not 1, it's not 2 developments, it's a large pipeline, they are big. It also means size-wise, they're big and very interesting in leasing forward. But this you see on the map is SEK 4.7 billion and pre-let to 85%; on an average yield of almost 6%, to be more correct, maybe 5.8%; and that are on the yield on market valuation, 4.2%. Please calculate that and come back on the profit because here we're heading for the future, that we haven't released in the balance sheet more than SEK 1 billion in profits coming from this, just as what we're showing here. And some examples then, if you take the next slide, please. Here, you see 4 examples on ongoing developments. If we take on the left-hand-down side, it's the very beauty of the Rådhuset in Uppsala that we bought from a retail asset and now has converted into the new co-working arena in the absolutely center of Uppsala. Good returns, it's going to be a fantastic investment when we're coming out of the COVID. Then you have the 2 courts that are on top line. It's investment together one SEK 1.6 billion and, of course, on a very good profit and return and long contracts. Those ones are just under the beginning of the production and will be finished 2023 will be expected. And then on the right-hand side, we have the headquarter for E.ON, an investment of SEK 1.3 billion. But if we look at the pipeline going forward, we have some examples what will come and that we have announced then. First, if you take the next slide, please. Then in the pipeline, we have Hagastaden in Stockholm on the left-hand side. This is our product in Infinity. It's an investment approximately for SEK 1.7 billion. It's now 100% clear that we can start the production of this, and it will be ongoing to 2025 because it's built on a tunnel. But it will also be 1 of 3 new developments in this area, so we will be one of the biggest owner in the Hagastaden, in the absolutely good CBD of Hagastaden area in Stockholm. And we will continue to invest there. So this is only the first of 3. Then going to the meatpacking district in Stockholm on the right-hand side, as said, we did the last acquisition here to be 100% certain that we can create approximately 25,000 square meters of new offices when the zoning plan and everything is done there. And of course, this is for all the developments you can pencil in between that, a 50% profit in the developments going forward. And if you take the next slide, please. We have chosen to show the 2 parts where we have the volume. The one is -- I mean we have the 1.2 million square meters of logistics capacity already on our own land. The large part is, of course, the airport of Säve, that you see the volume on the left-hand side, what will come there. This is under zoning planning, but we are, of course, running as fast as possible already into the market and offering it to the e-commerce and other actors on the market. And then of course, we have the capacity of continual, already-prepared land in North Stockholm. And here, we are starting the next phase of development because we are 100% leased out. And then all this we do here, we do it with a 50% profit on all investments, I would say. So we are not leaving the logistics sector. I will say that again, we are investing for -- I mean we are changing our structure and will be a very, very interesting partner for the e-commerce going forward with a strong capacity and a good team. And with that said, Ulrika, I leave to you to go through the Entra deal, I think, on the next page. You have to unmute, please.

Sorry. And then we go to the Entra or the combination with Entra. And to this slide, let's start with disposal proceeds. And let me start with describing the strong financial position Castellum are in and the choices this company has. The net LTV is 44%, as I said earlier, but that is based on our rather conservative definition, which only include profit stake on the asset side, meaning that the Entra stake of SEK 2.7 billion is not included. Adjusted for that, the LTV is 43%. If we take into account the disposal of SEK 5 billion to Blackstone that is closed in the beginning of February, the LTV will be around 39%, everything else equal. Already there, this company is in a very strong position. When the deal #2 is done, it will become even lower, 29%. And what we in Castellum intend to do is to use these proceeds to finance the cash portion of the offer, invest in combined platform, return cash to shareholders up to our target combined leverage level. That allows us to achieve leverage-neutral transaction and target rating of Baa1. So that is our thoughts, strategy and plan. And then if we go to the next slide, please. Let me remind you of some of the great part with this combination. The combination with Entra will provide an excellent platform for creating continued shareholder value, and it is logical from an industrial standpoint. The major Nordic property company with the portfolio value of roughly SEK 140 billion will be created with focus on offices, warehouses, logistics. Active property management of high quality in combination with a shift in the portfolio through both project development and transactions will enable increased income from property management and net asset value. Government authorities and agencies comprise roughly 40% of the massive income and contributes with longer duration in the contract portfolio, providing conditions for stable earnings. And the company will have one of the strongest balance sheets in the Nordic property sector and has the objective of retaining Entra's Baa1 rating. The new larger company will enable synergies of roughly SEK 300 million on a yearly basis, which should be realized within a couple of years from consolidation. And by 2022, which will be the first year as a consolidated -- fully consolidated group, positive growth in income from property management per share as well in net asset value per share is expected while the company will have a strong financial position. And let us show the offer update as it is at the moment on the next slide, please. Based on yesterday's closing price, the offer was NOK 185. But to that, I think we should add the following: another NOK 5 per share, which is part of Castellum's NRV of SEK 214 plus the NOK 2 for the disposal of Blackstone. You could call that Castellum's pro forma NRV. And another NOK 11 per share as part of the synergies in the base case shares and cash. For the ones who own issued shares, there is another NOK 5. This means a total offer value of NOK 206 million. But finally, we can't forget the potential in ongoing development and pipeline in near time, which indicates an NRV for Castellum as a standalone of SEK 232 per share. Converted to NOK and into this offer, it has a value of roughly NOK 10 per share. So all in all, a total offer of NOK 216 based on issued shares only. And then on the next slide, the Entra offer and the timetable. Today, we released our year-end results. The offer period ends the 6th of February at 6 CET in the morning. And the settlement will be done on or around the 16th of February. At the same date, we see this will be the trading date on the OSE, the Oslo Stock Exchange. And that is a summary. So over to you, Henrik, to finally summarize where we are at the moment.

Thank you. And we take the next slide, please. The Castellum enters into 2021. Yes, as the headline says, we are in a very strong position. But that the first with respect -- we can say that the pandemic is not gone, and the effect of the pandemic is not gone. But now we are preparing for going back in coming some time during this year, and the planning has to be done now. And we have also shown the strength of Castellum and the resistance in the market and that we will, of course, benefit from this strong net leasing and the development pipeline. We have prepared the company. We already said -- designed sales and will be in a very sound position whatever happens. I should say the owners in Castellum is already sitting in the gold seat. We have been very interested and we have put a very good bid out for Entra for the benefit of these Castellum shareholders and very attractive for the Entra shareholders. So everything is fine. And we can conclude whatever happens, we have a strong company with the future ahead of us and capacity to invest and create value for our shareholders. And we're also now using the mandate we have in a share buyback program. So actually, with respect for the pandemic, we're looking forward to the 2021 out of a strong position and doing the adjustments we need to do to give Castellum a future after 2021. And that's the work we're doing right now. Thank you very much for listening. And I leave for the next slide and opening up for Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Markus Henriksson from Pareto.

Henrik and Ulrika, I have a question regarding net leasing. In which property segments and industries have you seen the strongest net leasing during Q4?

Okay. We see it in absolutely the office market here. That is giving us a very strong net leasing. And then we are also having benefits from the logistics side. But in the 2020 figures, it's the office market that are strong. And if you look into the office sector, it's actually divided so -- in different regions. So I can't say that it's one number that's much, much better. But if I take something sticking out, it's maybe that our Middle region or Central region is going very well. If you're to combine all this, it's a mixture of everything in this figure. So it's a wide and strong office market, maybe stronger than many expected, that we're showing right now.

Yes. Yes. I could see the Mid and West looks very strong.

Yes.

But also if we look into the industries, do you see any certain industries within the office sector where you see a stronger or weaker demand here in Q4?

I feel good at the way where I'm just saying the weakness is proven to be the ones who are pandemic affected. And the rest is more normal in that respect. So it's not a prime winner, it's the losers that you can see and, because of the pandemic, showing defeat.

All right. And then another one. Supposed the Entra deal does not go through and you choose to divest the second tranche to Blackstone anyways, which is the most likely, or buyback of shares, additional dividends or acquisitions here in 2021?

That's a very good question. And we are so strong, so sitting here today, I should advise the Board to do it all, to be honest, more than anything. But of course, we will take care of the value for the shareholders and do it in an efficient way. But that is in a coming discussion. We are now focused 100% on the Entra deal.

That's clear. My last one, it looks like your target net LTV is 42% here in the short term for 2021, according to the presentation. Is that correct?

Yes, you could say that it's not a target in itself, but we have the same LTV policy as earlier, and we have the same view on the rating that we want. And of course, if the Entra deal is going to be, we -- look, it feels more like we will be, you could say, LTV-neutral. So if it's landing in the end at 42% or 43%, where the real LTV is at the moment, it's not the -- you could say, the most important question. So -- but it's more that we will get back where we are today if everything is going to be done as planned.

Okay. And is it fair to assume also, say that the deal does not go through, you sell your shares in Entra and the first tranche in Blackstone, then you still deleverage quite significantly? And then you still want to go back up to 42%? So is that a fair assessment of the distribution to shareholders that we might see during 2021?

Yes, I think you could say it. In that position, Castellum would have a lot of possibilities. We could accelerate our investments, to be honest. We could decide to give a return to our shareholders by different ways. And of course, we could decrease the LTV. But at the moment, as we see it, we are rather comfortable with the financial risk this company has. So I would say that flexibility is my favorite word. We have many tools in order to create value, and we will have all those tools on the table.

[Operator Instructions] Our next question comes from the line of Tobias Kaj from ABG.

I would like to start with some questions regarding your top line, starting with the vacancy rate, which increased some 30 basis points in the quarter and 80 basis points in 2 quarters. Can you give some more explanations to this? And also, can you see something what you expect for the first half of '21? Do you expect a continued increase in vacancy rate?

I think if we look 1 year back, we could see this coming into the numbers because report for 2019 showed negative net leasing in existing portfolio. And that, of course, will hit the P&L and the vacancy rate during 2020. And that's the time. Now we have a little bit net letting this year, and that is an indication of the opposite, of course, but that is a time lag. So maybe you will see some further decrease during Q1 but then a catch-up the further you go into 2021.

Okay. And also regarding the outlook for like-for-like growth, I think you had 1.7% CPI revisions for 2020, but the October CPI was only 0.2%. Then I think you have a relatively high share of the minimum uplift of some 2%. But can you give an indication of what your average uplift will be from Q1?

Yes, you could say we have -- I think that based on what we can see now, as you say, that CPI is very modest in general because the October CPI was modest. And the floor gives us some more increase, but that is only part of the portfolio. So if you do that combination, I would say the CPI, everything else equal, could give you around 0.6%, 0.7% all-in during next year, everything else equal.

Okay. You also gave rental discounts of SEK 31 million in Q4. How much of that is related to co-working? And what is the rest referring to?

The incentives you mean? It's not in the...

Yes.

Yes, it's not -- nothing in that number is to co-working because if you refer to United Spaces, it's on a separate line. So that is only into our, you could say, other tenant base. And that is, as said earlier, deal done and that hits the P&L now, but it's deal and discussions that has taken place earlier, much earlier, but hits the P&L at the moment. And it's in a different part of the portfolio, but a big part is in the office side. And some of it is in the new constructions. But it's just temporary, you could say. When we go into 2021, that take another term. So there is no co-working. It's no impact of what you could say COVID-19 into those numbers, isolated the last quarter.

Okay. And if I move from the top to the bottom of the P&L and look at the paid tax, which obviously is very volatile on the quarterly basis.

Yes.

But also on the full year, it was a quite significant increase compared to last year or compared to '19, which also was quite much higher than previous years. And I think you had around 7.5% paid tax for the full year. Should we expect that to continue on that level? Or can it even increase further? Or what do you expect from that?

Yes, the tax losses we do have now is locked in another couple of years and that the tricky part that makes this volatile is the changes in derivatives since they are part of the interest rate deductibility restrictions. But if we make the assumption that they are, you could say, the same, then an efficient paid tax going forward, I would say, would be a little bit higher, maybe somewhere between 8% to 10%. And to make it simple, say 9% in average based on what we can see now.

Okay. And also, you had a slide where you show that you expect SEK 12 per share in gains from your ongoing development pipeline. And you have SEK 3.1 billion left to invest in that portfolio and the SEK 12 per share is SEK 3.3 billion. Is that a correct conclusion that you expect SEK 3.3 billion in value uplifts from the remaining SEK 3.1 billion in investments in your ongoing portfolio? Or is -- does that include anything else as well?

Yes, it include -- I think we mentioned that it includes both the ongoing because it's a little bit cautiousness in our balance sheet, but also the coming pipeline that we see that we can start the coming 3 years. So it's in 2 different buckets, you could say. It consists of 2 different things.

Okay. And regarding the bid on Entra, have you had any discussions with Balder regarding their position and whether they have any interest to sell their 20% stake to you?

We have discussed the Entra deal with all the large shareholders in Entra and discussed the same question and giving them the same offer as everyone else.

And based on that discussions, do you think it's likely that they will sell the shares to you and accept your bid?

I expect 7,000 people -- shareholders to sell to us. So that's my expectation with the bid we have in the market.

Our next question comes from the line of Erik Granström from Carnegie.

I would like to start just to ask a question about your expectations for investments in projects going forward. I believe you landed at SEK 2.5 billion for 2020. But you also seem quite confident in your project pipeline. Should we expect something like SEK 3 billion for 2021 or more than that? Or could you give us some sort of indication of what you expect in terms of investments?

Yes, in the development pipeline, we have a good position, so you could expect more than this year's outcome. And the only thing that could have a tricky part is more that we are awaiting building permission for some of them or signing a tenant. It's more question do that start 2020 or 2021. But if everything goes as planned, the development will be a much bigger volume of our yearly investment in the coming years than in 2020.

Okay. That's clear enough. And also something you said during the Q&A, obviously, your balance sheet is rock solid. But you also stated that as it strengthens with these divestments, you could consider accelerating your project investment pipeline. And I was just wondering why would you need to wait for something like that to happen. I mean if you do have the project pipeline and you do obviously have the means for it, why not accelerate it already now?

Yes, yes, yes. Well, no, I think it's very simple. I mean on the product pipeline, we will push as much as possible, and we're doing that already now. So if that's taken wrongly, then that's something, of course, we're doing. And we are also keeping logistic team, for example, selling to Blackstone. And we increased the team with more developer knowledge there. But what we're talking about is transactions, the capacity of doing more transactions and looking at the opportunity. So that is what we mean in actually saying that.

Okay. I get it. And speaking of the transactions market and the ability to make perhaps acquisitions, what -- how do you consider it right now? I mean you were mentioning that there seems to be a rather strong property market in general. What kind of interesting areas are you looking at? Is liquidity back in the market and you're basically looking at it as you did in 2019? Or has anything changed?

No, I think actually, the positive for us who is local, like the rest of the world, is that it's very tough to fly in teams, and we're trying to benefit from that. As you know, the Swedish transaction or the real estate market is 100% international right now with United Spaces, where that's extremely confident. But we will try to find bits and pieces that we benefit from buying neighbor properties and so on. And it's a lot of groundwork done there. And in Finland, we experienced that it was a lot of flying in the Nordics earlier and a lot of foreign investors that has so much teams, and we benefited from that doing the Entra deal as I see it. So we really focus on trying to pick bits and pieces, smaller ones then from the market and giving that value to shareholders. And then as known, we're looking at everything big as well. So if I place it in 2 tranches, that's what are ongoing. But we're extremely active on the transaction market.

Okay. And then a final question was perhaps just a clarification of what you said during the Q&A. It seems like you almost stated that even if the ongoing bid for Entra fail, you will go ahead and sell the second tranche of the Blackstone portfolio anyway. Is this -- did you consider the loss of running cash flow in such a situation and issue? Or is this simply a deal that you will have done no matter what happens in terms of Entra?

I see it as we have done a very good negotiation. We created SEK 3 billion in value during that and -- but we are sitting in the gold seat. We have a buyer that want to buy for that price. We know that we have a floor on that deal. We will use that, of course, too. If the Entra deal doesn't go through, we'll look into the opportunities we have and the options we have. But we know that someone will buy -- would like to buy for that price. And we will go into the market if we decide to sell and, of course, make a competition in there. So our view is that we are -- have given SEK 3 billion to the shareholders, and we have the capacity to already state that and option going forward. But now is focused on Entra, continue to do that deal.

There are no further questions registered, so I hand back to the speakers for any closing remarks.

We have...

Yes, go ahead, Ulrika.

We have one question on the web as I see it, Henrik. Should you ask maybe? And it's the 90% acceptance level. What possibilities do we have there?

We -- the answer is we have the 90% in the market. And that is -- as the rest of the -- everything stated in the bid into the market, that's what's in the market simply. And then I think we have a question about if we -- I can read the question. If the second part of the Blackstone deal would not happen, will there be a need to take back some of the value lift in this report? Or would you feel comfortable to keep them at a higher level? And I think, Ulrika, we are 100% clear on that we will -- this is a market valuation that we have done with cautiousness. And we'll, of course, keep that valuation and continue to follow the valuation like it is in the market. So that will not be anything that goes away because Blackstone goes away. As said earlier, I just see it as an option. Maybe we will find someone who would like to pay even more if the Entra deal doesn't go through. Let's see if that's possible. But the value will definitely hold in the balance sheet.

Yes.

And I think we then are finished, and we can't find any other questions on the web either. So we thank everyone for listening. And we will be back in 3 months' time then, if not before. So thank you very much, everyone.

Thank you.