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

Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Hi and very welcome to Catena's presentation for the Q2 report. The agenda is, as always, first, a summary then a business overview, some updates from the business, some sustainability numbers, the financial update, a takeaway from today and then we end up with some Q&A, hopefully. First of all, a summary of the Q2 report, we reported a 17% increase in rental income, ended up at SEK 1.510 billion driven mostly by acquisitions, but also by our CPI-linked contracts. Profit from property management increased by 14% in total. And per share, it was up 5.2%. Isolated for the second quarter, the increase per share was up 10.9%. Our NRV came in at SEK 461.20. The balance sheet is still solid with an LTV at 44.5%. And the 1st of July, we disposed the portfolio to [ MSS ], which leads to 43.9% in LTV as we speak. The occupancy rate has dropped to 94.6%. Even though we have some tenants moving out during the quarter, we are positive to come back to the levels at 95% or above in the coming quarters. Our WALE is now at 7.1 years, which means that we have a very strong cash flow secured for many years ahead. After closing the deal with Urban Partners at the 1st of April, we can confirm that we have established a Nordic platform with a strong offering to the market. Next slide, please. the business overview on next slide. The market update. Preliminary figures shows that the transaction volume in the industrial segment amounted to SEK 23.5 billion during the first half of the year. This indicates strong interest in the segment, and the high volume is primarily attributable to the major transaction that Catena carried out with Urban Partners. We have a sense that there will continue to be more transactions opportunities in the second half of the year based on what brokers are currently working on. Regarding e-commerce, there was a clear growth in the first quarter of 2026, up 7%, which speaks in favor for our segment and for more demand in the future. We sense a slightly more positive atmosphere regarding discussions with potential customers and existing customers to start new projects. That said, we still see it as a bonus if we can sign a new contract in the near future regarding our land bank. Next slide, please. Regarding our customer portfolio, we can see some clear changes after the 1st of April. DSV has moved from 18% to 15%, and [ Dahl ] has entered the list with a 2% share. Next slide. The total value of the portfolio is SEK 55.8 billion. This is the first quarter where we have Finland as a new region. The value there is SEK 3.6 billion, and we see more opportunities to grow there going forward. The average lateral square meter has a value of SEK 13,559. The total value will decline with SEK 600 million at the 1st of July due to the divestment to [indiscernible] that I mentioned before. Next slide, a business update. As I said before, now we are in Finland, except from the portfolio we acquired from Urban Partners, we have made 2 additional acquisitions recently. More about them later on. Henrik Eskolin is appointed as a regional manager and commenced in August after the summer. We are, as we speak, looking into more opportunities in Finland and are overall optimistic to grow more there going forward. Next slide, please. At the end of May, we may -- we have acquired a modern logistics property in direct proximity to Helsinki Airport in Aviapolis, Vantaa. The property serves the Cramo Finland's headquarters as well as the company's main logistics and service hub in the region, and the investment amounts to approximately SEK 575 million, with an initial yield estimated to 6%. Next slide, please. At the same week, actually, we also acquired a strategic located logistics property in Vantaa, adjacent to the Helsinki Airport. The property serves as DHL's principal logistics hub in Finland, and the estimate yield is also here around 6%. And next slide, please. As we mentioned before, we have closed the deal with [ MSYS ] at the 1st of July, bringing down the LTV to 43.9%. The agreed price was 8% above our booked values. The properties of all Varla 6:15 in Kungsbacka and Glasblåsaren 14 in Linköping have also been sold during the period, comprising a total lettable area of approximately 35,000 square meters. And the 2 properties have been divested at the combined property value of approximately SEK 430 million. Annual rental value amounts to approximately EUR 33 million, and the agreed purchase price was 9% above booked value. Next slide, please. This table presents Catena earnings capacity on a 12-month basis. Note that the increase in earnings capacity per share at almost SEK 29 per share compared to SEK 26.25 1 year ago, an increase with more than 10%. Next slide, please. Our ongoing project portfolio totals to around SEK 359 million, where SEK 125 million is remaining investments. When all is completed, we will add 18,000 square meters to the portfolio. The next slide, please. Regarding our land bank, we are still waiting for a decision from the Land and Environment Court regarding the plan outside Ängelholm. In Örebro, the municipality decided on the zoning plan during Q2. And the decision was positive, but the minority had the right to postpone the decision for another month or so. So we have to be patient and wait again. In Järna, we have found a lot of challenges regarding nature values, and we expect a delay of 2 to 3 years before we can intensify the zoning job. Next slide, please. Looking at our leasing operations, our net leasing in terms of net moving in and moving out during the quarter came in negative with SEK 42 million. Our WALE has increased to 7.1 years, and the letting ratio is at 94.6%. As I just said, we have had a negative quarter in terms of tenants that moved out, and that has led to a lower letting ratio. This is now dramatic, and we have already signed some new contracts on the vacancies, and we believe that we soon can come up to at least 95% again. And the overall feeling is that there is a higher activity in the letting market as we speak with more ongoing discussions compared to last year. Next slide, some sustainability. The Scope 3 continuing to decrease on a 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 79%. Total installed solar panels output on our roofs is now above 89-megawatt hours. And now over to Magnus for some financial update. And next slide, please.

Thank you, Jörgen. This slide shows the strength in our underlying earnings with solid year-on-year growth across all key metrics. Rental income is up 17%, mainly driven by acquisitions. Net operating surplus increased by 17%, and profit from property management rose by 14%. Profit from property management per share is up 5.2% to SEK 13.96 million per share, underlining our ability to translate top line growth into shareholder value. The Catena model continues to deliver predictable, resilient earnings with strong profitability. Next slide, please. This slide highlights the composition of our rental income growth in Q2 2026. As just mentioned, total rental income increased by 17% year-over-year. The largest contributor was acquisitions, accounting for 13.2 percentage points of the growth. Our completed development projects added 2.5 percentage points, consisting mainly of new facilities in [ Ramlösa ], Helsingborg, Malmo and Gothenburg, all leased to strong and well-known tenants. Like-for-like rental income rose by 2.1% built up by CPI-linked indexation, renegotiated rental agreements as well as increased property tax and media costs, which are reinvoiced to our tenants. All in all, this underlines our ability to grow through multiple channels, strategic acquisitions, value-adding development and strong day-to-day operations. Next slide, please. Let's turn to our capital structure. The second quarter of 2026 has been characterized by geopolitical uncertainty that has increased the volatility on the financial markets. Despite this, there has been a pickup in real estate transactions and increased activity in the credit markets that are now back at levels seen before the outbreak of the war in Iran. However, global long-term structural uncertainties still remain to some extent, and it's important that we're keeping prepared in case of increased volatility. At the end of Q2, our equity ratio stood at 47%, a balanced level that we consider supports our strategic flexibility. EPRA NAV per share increased to SEK 461, excluding dividends, an increase of 7.7% compared to a year ago. This shows our ability to create shareholder value over time, even as shareholder returns are being realized. Passing on to next slide, let's move on to our financial position. We continue to demonstrate strong financial control with all key metrics within policy levels, even immediately after the large acquisition. This is a sign of that we continue to maintain a prudent leverage profile. Net debt to EBITDA came in at 8.9x, interest coverage at 3.7x and loan-to-value at 44.5%. These figures reflect both a solid capital structure and strong underlying cash flows that ensures continued access to capital on competitive terms if needed, when opportunities arise. Next slide, please. Let's have a look at our debt and liquidity management. We continue to remain focused on maintaining and securing funding on competitive terms. In connection with the acquisition on April 1, we drew down a 12 plus 6 months term loan bridge facility that in combination with the proceeds from the directed equity raise we did in January was utilized for the short-term funding of the acquisition. We immediately started the process of replacing the bridge facility with long-term funding, and the first takeout was done via the issuance of SEK 3.25 billion in unsecured green bonds. The takeout for the remaining part will be done via the bank market. The process is well progressed, and we aim to have the bridge facility closed in the coming days. Our average debt maturity is 3.5 years, currently compressed by the short-term bridge facility. Liquidity is strong and a liquidity ratio above 1, excluding the effect of the short-term bridge facility. Next slide, please. Let's move on to our interest rate management. As said, the first half of the year has been characterized by geopolitical uncertainty, which has led to volatile energy prices and disturbances in the energy distribution system. This has had an effect on the concerns for increased inflation, and interest rates initially rose, particularly at the short end of the curve, but have since then gradually normalized. Today, short-term rates are largely in line with the levels seen at the start of the year, while longer-term rates are slightly lower. Catena closely monitor the rate volatility and continue to navigate in line with the framework set out in our finance policy. As of the balance date, 51% of the outstanding debt carried fixed interest and our current average interest cost is at 3.3%. Next slide, and handing over to you, Jörgen.

Thank you, Magnus. Our capital deployment is for the period divided into acquisitions, SEK 10.175 billion, Development, SEK 698 million and divestments of SEK 403 million. Next slide, please. property value stayed stable ended up the period with a positive value change of SEK 612 million, which correlates to 1.1% of the total portfolio before adjustments. The average weighted valuation yield, so-called exit yield, for the portfolio is at 5.8% by the end of the period. The EPRA NRV net initial yield came in to 5.4%. And next slide, and then we have some takeaways from today, and they can be summed up into three points: For the first Catena has now established a Nordic platform. Secondly, we have a positive view on the second half of 2026, where we hope to sign some new leases to increase the letting ratio and also good opportunities, especially in the Finnish market to keep up growing. And the third, with a WALE of more than 7 years, the long-term financing in place, as Magnus said, we expect to have it in a couple of days at very attractive conditions. We have absolutely the fundamental to deliver strong earnings going forward and to keep up the growth journey. And with that said, we will open up for Q&A.

[Operator Instructions] The next question comes from Oscar Lindquist from ABG Sundal Collier.

So just if you could go into some more detail on the increased vacancy in the quarter, is it linked to anything specific? Or is it just a smaller general terminations? And you also mentioned on move-ins that you -- I think you can reach 95% or above in the short term and that you have signed leases. Could you give us an indication of timing on those move-ins, please?

Yes. Oscar, I mean, first of all, there were some terminated lease agreements, which led to the tenants moved out at the 1st of April, and that was on various places in Sweden. So there is no structural pattern, I would say. We had, during the notice period, been successful to find new tenants. But the net moving out, as I said, was 42 million. And of course, that has an impact in the earnings for Q2, which we had included in the earnings capacity in the last report. Now we have signed some lease agreements that will kick in during Q3 and Q4, and that's included in the earnings capacity that we report today. We don't -- we cannot be more detailed than that. But we can also add and just confirm once again that we sense more activity. We have more positive discussions ongoing. And hopefully, what we hear within the teams hopefully, we signed some more square meters before we go for the summer break. So all in all, we are positive to report higher numbers going forward than we have in this report.

Okay. And then on [ CAG ] completed last quarter, we haven't heard anything on letting. Can you give us any indication of how discussions are going?

Yes. We can sense that, that's also one of the buildings that we have positive discussions. Hopefully, we can sign something in this quarter or the latest in Q4, we hope to sign. But we'll have come back with that one when once it's done, but positive on that one.

Perfect. And then on -- you mentioned a slight improvement in tenant discussions. Is that mainly for sort of existing properties? Or do you see increased propensity to sign leases for new space as well?

I think, first of all, mostly the positive discussions has been to find new tenants on the vacated premises but also a bit more positive on looking into new projects as well. But that takes more time than to achieve some new signed square meters on the existing vacancies. So still a bonus if we can sign a new project in near time.

The next question comes from Keivan Shirvanpour from SEB.

I could maybe start with our follow-up question on the leasing figures. You had minus SEK 42 million in the quarter. And also you mentioned that you have signed some new agreements since. Could you maybe give some type of indication of how much of this SEK 42 million has already been relet?

Well, no specific details. But as I said before, we are positive. And there were -- some of the square meters will kick in during the second half year. But we will not guide specifically on how many of the millions or square meters, but more on the positive note.

Okay. And then my second question is related to the central administration. So in the earnings capacity, have SEK 56 million and then annualized based on Q2 is about SEK 60 million. And then you also hired a new regional manager in Finland since then. So what would you say that's sort of a annualized run rate in central administration would be onwards given that?

Well, I think that what we guided the earnings capacity is most likely, we have had some quarters with some higher cost. That's due to some structural changes and also some higher costs related to the huge transaction we have made. We have also had some IT costs and investments. So our goal is absolutely to come back to what we say in the earnings capacity going forward. .

Okay. Good. And then also, I guess a final question, and that is related to the transactions you have made quite a few divestments recently. And would you say that there is anything that remains to be divested in the current portfolio?