Catena AB (publ) (CATE) Earnings Call Transcript & Summary

Hi, everyone, and welcome to this Q2 presentation for Catena. And here is the agenda for today, a summary, business overview, update, followed by sustainability, finance and a short takeaway before we're ending up with Q&A. So next slide, please. A summary of the Q2 2025 report, where we report 26% increase in rental income ended up at SEK 1.288 billion, driven by acquisitions and by our CPI-linked contracts. Profit from property management increased by 32% in total and per share, it was up to 16%. And our NRV came in at SEK 428. The balance sheet remains very solid with an LTV at 38.6%. And we expect to generate strong cash flows in the coming quarters. And with that said, in the combination with our robust balance sheet, we are in a favorable condition for more growth. Next slide, please, and a business overview and the next slide, please. We have witnessed more transaction this spring, and we have also noted that in some cases, yields have ended below 5%. We are talking about prime yields, and we were actually involved in one of those transactions when our joint venture together with Platzer disposed a property in Gothenburg with Volvo as a tenant. E-commerce continues to develop in the right direction. In the first quarter of the year, it grew by 9%. In addition, digital trade has a stronger growth than physical, which means that the sales channel is taking market shares in the retail sector as a whole. This growth is the highest since 2021 when e-commerce was at a historical peak. We continue to struggle to find new projects, but the market remains cautious. We have some dialogues going on, but do not expect any major change in the demand for the next 6 months. The Swedish logistics market has continued to see increases in the vacancy rates currently at 9% as of Q1 2025 on a national level. The continued rise in vacancy rates is mainly driven by the extensive development of new logistic assets, of which a high proportion have been built speculative. And of course, there is a weaker demand also. So all in all, it's quite struggling market. Next slide, please. There are no major changes in our customer portfolio, but worth mentioning that Elgiganten will stand for a higher share in the coming quarters. More about Elgiganten later on in this presentation. And next slide, please. There has not been bigger changes in our portfolio compared to Q4 and Q1. We have disposed a smaller asset in Region South and the rental value is up a bit and the surplus ratio is now up to 84%. Next slide, please, and a business update. In May, we acquired a PostNord property in Copenhagen. The location is very strategic, and there is a 10-year lease agreement with PostNord. And we look forward to continuing and deepening the cooperation with PostNord with this transaction and the total GLA is around 25,400 square meters. Next slide, please. During the quarter, we agreed with Boozt to expand the facility by approximately 6,000 square meters. And in connection with that -- this, the lease for all 82,000 square meter was also extended by 5 years and is now valid until 2037. Boozt that has a turnover of more than SEK 8 billion has only this location for all of the outgoing goods. And next slide, please. And the other day or actually yesterday, we signed an agreement to acquire Elgiganten's distribution and central warehouse in Jönköping. The property is located opposite our newly built facility that Elgiganten rent from us. Closing will take place on 1st of September. And after that, we will have about 200,000 square meters of logistics space leased to Elgiganten. And the investment is SEK 1.275 billion before deduction of deferred tax and has an estimated net operating income of approximately SEK 80 million. And this transaction was an off-market and shows that we can act as fast-footed as anyone else, and we really enjoyed doing the transaction together with Niam. Next slide, please. Our ongoing project portfolio totals to around SEK 1.2 billion, where SEK 400 million is remaining investment. When all is completed, we will add another 91,000 square meters to the portfolio and the yield of those projects is around 7%. Next slide. Regarding our land bank and future development, we are approaching the adoption of new zoning plans for 2 of the areas, namely [indiscernible] in Ängelholm, which the municipality will decide on in September and in Örebro, where the municipality is expected to adopt the plan at the end of Q4. So that's positive for us. Next slide, please. Looking at our leasing operations, our net leasing came in with plus SEK 63 million for the first 6 months. And for the second quarter, it was plus SEK 16 million. Our WALE is at 6.6 years and the letting ratio is at 96.5%. Next slide, please. And over to the sustainability. Next slide, again. The environmentally certified area is now 57% and will increase further as projects and new acquisitions will be finalized. The Scope 3 is now decreasing on 12-month rolling basis due to less projects. We continue to maintain a high level of EU taxonomy alignment. For example, our turnover came in at 76%. Produced energy from solar panels reached around 23,000 megawatt hour on rolling 12 months basis. Total installed output on our roofs is now above 71 megawatt. And now over to David for some financial update. Next slide.

Thank you, Jorgen, and good morning to everyone. This slide highlights the continued strength in our underlying earnings with solid year-on-year growth across all key metrics. Rental income, as Jorgen mentioned earlier, is up by 26%, mainly driven by acquisitions. Net operating surplus increased by 31% and profit from property management rose by 32%, reflecting both scalability and cost control, which we expect to continue going forward. Earnings per share from property management grew by 16% to SEK 13.27, underlining our ability to translate top line growth into shareholder value. While not shown here, our earnings capacity, we should say, implies SEK 26.3 per share on a full year basis, that's 15% above the level we presented a year ago. The model continues to deliver predictable, resilient earnings with operational leverage. Let's move to the next slide. And this slide breaks down the key drivers behind our rental income growth for the first half of 2025. As I just mentioned, total rental income, which increased by 26% year-over-year. The largest contributor was acquisitions, accounting for more than 22% of that growth. Our completed development projects added 4.5 percentage points, including new facilities in Jönköping and the Gothenburg region, both leased to well-known tenants in retail and foodservice. Like-for-like rental income rose by 2%, mainly reflecting CPI-linked indexation. Altogether, this underlines our ability to grow through multiple channels, strategic acquisitions, value-adding development and strong day-to-day operations. Next slide, please. And then let's turn to the capital structure. The second quarter brought a noticeable pickup in real estate transactions and increased activity in the credit markets as well. Toward the end of the quarter, we saw growing optimism, partly fueled by a reallocation of capital flows from the U.S. to Europe. That said, long-term structural uncertainties remain, and we are prepared for potential renewed volatility. At the end of the second quarter, our equity ratio stood at 52%, which we believe is a balanced level that supports strategic flexibility. EPRA NRV per share increased to SEK 428 calculated after reserving SEK 9 per share for dividends, half of which was paid out in cash during the quarter. And this reflects continued value creation even as shareholder returns are being realized as well. In short, we see a market that's beginning to open up, and we remain our focus on readiness. Passing on to next slide, please. And then let's move on to our financial position. We continue to demonstrate strong financial control with all key metrics well within policy levels. Net debt-to-EBITDA came in at 7.6x, interest coverage at 4x and loan-to-value at 38.6%. These are healthy figures, and they reflect both a solid capital structure and strong underlying cash flow. Importantly, this gives us significant headroom to our financial covenants and the ability to move on new investments without compromising financial resilience. Next slide, please. Let's take a look then at our debt and liquidity management specifically. We remain our focus on maintaining and securing funding on competitive terms. During the quarter, we updated our MTN program and increased the framework to SEK 8 billion, strengthening our platform for both future growth and refinancing opportunities. We issued SEK 450 million in secured bonds during the quarter with a 2-year maturity and pricing at STIBOR 3 months plus 83 basis points. In early July, after the end of the second quarter, we also completed a SEK 1 billion senior unsecured bond transaction split across 3- and 5-year maturities. The terms reflect the market's continued confidence in our credit quality. This issuance is not included in the balance sheet of Q2, but was structured to give us additional flexibility for our upcoming investments or refinancing activities. Our average debt maturity remains solid at 4.8 years. Liquidity is strong with SEK 3.1 billion in cash and liquidity ratio well above 1. We're also generating positive returns from the liquidity with SEK 30 million in interest income during the quarter. Passing on to next slide, please. We entered Q2 with an upward sloping yield curve again. Markets surprising that the Riksbank, the Swedish one is nearing the end of its cutting cycle. The 2-year swap now trades below the policy rate. Meanwhile, loan rates remain a bit more elevated, reflecting more stable expectations on growth and inflation as well as a return of risk premium in longer maturities. As of the balance date, 61% of outstanding debt carried fixed interest. Our current and average interest cost of 3.2% broadly reflects prevailing market conditions for a full refinancing of the portfolio, including derivatives. This reflects a timely and balanced interest management approach, though there still remains headroom for further optimization. Next slide, and back to you, Jorgen.

Thank you, David. Our capital deployment is for the first half year divided into acquisitions, SEK 414 million and development, SEK 570 million, and we have, at the same time, divested properties for SEK 98 million. And next slide, please. Property values stayed stable and ended up the period with a positive value change of SEK 174 million, which correlates to 0.4% of the total portfolio before adjustments. The average weighted valuation yield -- exit yield for the portfolio is at 5.9% by the end of the period, and the EPRA net initial yield came in at 5.6%. And next slide, please. So a couple of takeaways from today. And for the first, Catena closes the half year with solid numbers in a somewhat cautious market. And second, we have presented new acquisitions for almost SEK 2 billion during 2025 so far. So our growth journey continues. And with that said, we would like to open up for Q&A.

[Operator Instructions]

Firstly, I have a question on the net letting. So it was SEK 16 million in the quarter. And first of all, what was the net effect from the renewed Boozt agreement? And also secondly, how is the speed agreement which is together with Platzer treated in the net letting figures in the quarter?

Keivan, first of all, Boozt is a prolongation. So it's no net letting. The joint venture, it has no impact in our net leasing. It's a joint venture. So it's not in our numbers. And what...

Because I think that the Boozt, it was also an extension, which I would assume...

Yes. I mean, yes, those 6,000 square meters, yes, they are there. I thought you meant the renegotiation or the prolongation of another 5 year, sorry.

Yes. Okay. And how much is that in million SEK?

Yes. I mean we don't guide exactly about the rent in that case, but it's fair to assume it's the rent is like the other one, around SEK 800, something SEK 800, SEK 900 per square meter.

And also another question on the share of profit loss from associates at negative SEK 2 million. Could you maybe elaborate on what that includes?

It's from the joint venture, Foodhills, where we have had struggling with keeping all the tenants. So it's basically that joint venture.

Okay. Because I noticed in the earnings capacity that you have included SEK 2 million there. So is this a recurring item going forward as well?

We hope to find some new tenants, which can balance it. It's tough to say, but we hope that there will be no more negative impact during this year.

Okay. And then I also have a question on the SEK 385 million divestment that you made also with Platzer. Could you maybe say something about the yield on this transaction?

The yield was definitely below 5%.

And is this below our book value?

Well, this joint venture -- we don't disclose that. We don't have that as a book value. It doesn't have any impact on the P&L for Catena. It's within this M&A we did with Bockasjö a couple of years ago. So there is no impact for Catena in the P&L.

Okay. And then I have a last question. Do you have any type of indicative volume on the current acquisition pipeline?

No. We are, as you know, all the time looking into new opportunities, but we cannot disclose any numbers.

The next question comes from John Vuong from Van Lanschot Kempen.

You mentioned that the market vacancy continues to grow. It's now at 9%, driven by weak tenant demand and supply still being added. Just looking at the current developments being added and your own discussions with tenants, what's your take on the trend in vacancy in the next 12 months? And maybe as a follow-up on this. How much of this vacancy [Technical Difficulty] is the region? Or let's say, what's the vacancy without this vacancy here?

John, it was very hard to hear you. It's a bad line. I heard something about the vacancy, and we said 9% in total. Can you try to repeat the question? Sorry, we don't hear you, John. Maybe you have to e-mail the question or call us later.

Sorry, can you hear me better like this? Otherwise, I'll take it offline.

Not good enough. Sorry. Try to call me after.

The next question comes from Pierre-Emmanuel Clouard from Jefferies.

So the first one is actually, I think, a follow-up of John's questions. As you will have to renegotiate 9% of your tenant base next year, I was wondering if you already received any early redemption from tenants where you will -- where do you see landing the vacancy by the end of this year and the end of next year?

We don't have any guidance of what we see next year. What we disclosed in the report is our earnings capacity for the coming 12 months. And that one is included all the lease agreements that is valid for the coming 12 months. We are humble for the future with those kind of dynamics that are in the market. So we are doing all we can to keep our customers, but you never know. We can lose some, but that's also a part of the game, where tenants are moving in and moving out. But yes, it's a bit struggling in the market right now.

But just to quantify, how many early redemption requests did you receive so far since the beginning of the year?

We have no redemptions to disclose at this point. And when we have, we will disclose that.

Okay. And my second question is on your like-for-like growth. It will be very useful if you can give us a more precise breakdown on your like-for-like rental growth with the contribution of indexation, but also the contribution of the reversion. And a quick addendum on that is what is the reversionary potential today on the portfolio? And given the fact that the inflation is decelerating rapidly in Sweden, where do you see the like-for-like growth landing by the end of the year?

Yes. Again, Pierre, that's obviously a very relevant question. But from our standpoint, first of all, most of the 2% is index-based. We have some cases where we have been able to raise the rent levels. Going forward, what we have said before and that is the same story going forward is that we expect rent levels to stay stable. And that goes then I'm counting in our portfolio to begin with. We expect a stable level going forward. We know that there are some cases where we can lift rents, of course. But overall, it's in line with market rents. That's basically the story that you should take into account. Yes. But there is clearly -- what we have seen over the last 12 months is clearly there is a bigger difference between the quality -- overall quality in the market. And that's what we expect will continue to show. We have no specific numbers to end.

Okay. And just to fully understand that maybe you have a better view than I do on the quality of vacancy that is in the market today. But from what I understood, we had -- you had a lot of new deliveries with a brand-new platform that has been delivered over the past 12 months. So the quality of the vacancy is pretty decent, no?

The quality of what has been built is of high quality, yes. I think one of the relevant things to think about going forward is where has it been -- where is it built in what locations? So I think a lot of the things that have been built over the last 3 or 4 years is perhaps not because you expect the demand in that particular location is where the demand is highest. It's probably because that's where you have been able to source land. So I think what we will see is different supply-demand dynamics for different regions. So some regions will structurally have difficulties going forward, whereas other regions will still where you will still have undersupply basically. So you have to dig deep, you have to know the regions because there will be big varieties in different regions basically.

The next question comes from Fredrik Stensved from ABG Sundal Collier.

I would like to ask a couple of questions on financing costs, if I may. Firstly, can you say anything about sort of where bank margins are either in absolute terms or in change this year or year-over-year?

Yes. Thank you for the question. Well, the bank margins, I would say, is between a 5-year, I would expect to be somewhere between 125% and 140%. And the bond market, as I mentioned and what we disclosed in this report was 135% for 5 years right now.

Yes. That's clear. And on that second point, sort of bond margins currently looking a bit lower than bank margins. You currently have 42% in bank debt. How how much or how high share of bonds would you be comfortable with having?

Yes, that's also a relevant question. Right now, if we isolate to the Swedish market because historically, we have so far used Danish mortgage bonds for our Danish properties. So we are at around 50% if we isolate looking at the Swedish portfolio, and that's where we are pretty comfortable with. But with that said, we are not religious about this. It's always something that we are assessing basically. What's important at the end of the day is that we have a good control over the spread of maturities that's, first of all, and the most important thing and also in combination with always knowing that we have many options available because at the end of the day, when we have to refinance, it's all about making sure that we have options available. So it's all about financial control, then how many percentage points you have in the capital market or in the bank market is perhaps not the most important question.

There are no more questions from the telco at this time. So I hand the word back to Jorgen and David.

Thank you very much for listening. We wish you all a very nice weekend and a very nice summer and stay in touch. Thank you. Goodbye.

Thank you. Bye.