Good morning, everyone, and welcome to the presentation of Castellum's report for the first quarter of 2018. This report will be presented to you by Castellum CEO, Henrik Saxborn, and CFO, Ulrika Danielsson. The presentation will be followed by a Q&A session.
Hi, everyone. It's Henrik here. Let's start with the first slide then. We can now conclude that this year started off very well. The result from property management increased by 12% compared with last year, ended up in SEK 2.43 per year, despite that we had a very cold and snowy winter. The net leasing delivered also very good. We had a volume of SEK 48 million in net leasing, even though the rent to E.ON their headquarters is not calculated into that figure. The vacancies, because of that, of course, increased as a product out of last year's very strong net leasing and ended up in 93%.
I'm especially pleased that the ongoing portfolio had a good net leasing as well of SEK 27 million on the existing stock. We have also noted that the Swedish real estate sector are very attractive still, both on the core asset as well as if you look into cash flow portfolios. This has had led to a positive value correction, I could say. Along with that, we also see in the market that we still have expectation of increasing cash flows. This together contributed also to the net per share, went up to 151 SEK, despite that we give out a dividend of 2.65 SEK in the quarter.
If you look into the activity level in the company the first three months, we have been able to announce new products for approximately SEK 1.5 billion, and we also closed the sale in Stockholm for a building right for residentials, and that actually been a option for the last five years. Yesterday, we also announced something that we've never done in Castellum's history before. We launched a totally new storage solution that we call Beambox. That's it actually is a on-demand service for private persons and families. They take care of their households and belongings. And we think that that will, of course, give us a positive inflow on a little bit more non-so attractive part of the logistic assets. And with that, I leave the word to Ulrika.
Okay, on the next slide, you have the P&L. And you can summarize so far, a good rental market, a really good net leasing last year, completed projects and cost control together with a stable funding cost, lead to an increase in income from property management of 12%. And then we also have to remember that in 2017's numbers, we still had earnings from the disposal of the big portfolio in the north, since the buyer completed the buildings during Q1 last year. Value changes was up to SEK 184 million. Half of that came from, you could say, increased cash flow on project gains, and the rest from yield changes, mainly in Stockholm. And as Henrik said, we sold one asset this first quarter with a negative value change, so far of roughly SEK 50 million.
However, Castellum sold that asset at book value, but the reason that it's negative now is that the payment is being made in two steps. So in this P&L, you only have the first payment of roughly SEK 240 million, and the rest of SEK 50 million, roughly, we will get when the selling plan is finally made up, and we think that will happen later this year. Regarding taxes, Castellum still has tax loss carryforwards, which means that almost all taxes so far this year is deferred taxes. After some changes in interest derivatives, the result bottom line added on SEK 765 million. What have driven this development? If you look into the next slide, we have the NOI.
The NOI increased with SEK 76 million, of which SEK 48 million came from the income side and SEK 28 million from, you could say, the cost side. The like-for-like portfolio, that is the portfolio that we have owned and managed in management, for two years, had a contribution of roughly SEK 40 million net or a growth of 6%. Then you have projects that contributed SEK 30 million, and the rest is transaction. So if you then look into, you could say, the three different markets that are important for Castellum is the rental market, the property market, and the credit market. And in the two first markets, we also will have deeper insight in the P&L versus the balance sheet. So if we start with the rental market on next slide.
We see that rental market is still strong, and in the Q1 numbers, we now see the impact of the negotiation made last year and the exchange with net leasing that took place 2017. And as you can see, the Castellum rental income growth with was 3.6. However, like for like, it was much better growing, so of which, of course, some part of that growth is made from tenants paying up to leaving. And then, of course, as I said, the net effect also of that we sold assets 2016, that we had in 2017 first quarter, which means that the transactions continued to negative in that aspect.
If we look in which you could say segments are, where is Castellum's tenant basis? You can see that the public sector is still the main, biggest contributor from the income stream, and that gives a rather stable castle to Castellum. Long duration, on the other hand, but a good, stable base for Castellum. Then the next two lines, you can see, you have the consultancy on the commercial services, that mainly is in office spaces. And a much lesser space is the retail part or what you could say the exposure to people buying stuff. And if you go to the next slide, I think we will have some markets.
If you look at the market, as Ulrika said, noted, is that it's still strong. Our main market is the office markets and the logistics market, and I will come back to that. But if you start with office market, I can say it's almost the same as it was three months ago. The change maybe is that we have even less vacancies in into the central part of Gothenburg and Stockholm. That will be the driver of the increase in the rents from my view. So looking at our top levels here, we can see SEK 9,000 in the best locations. So somewhere between SEK 9,000 and SEK 8,000 is the best locations for best locations. And for Castellum's part, we are on the closest part to Central Station.
We are now aiming for around SEK 4,600 a square meter. We haven't signed that, but we have that on offer out for several contracts on the street right now. If you go into Gothenburg, we hold still the rent level of SEK 3,400. We see that as the market is so strong, it's more a lack of opportunities for the tenant to find good space. That is the problem right now, and the lack of new productive volumes this year. If you go to the rest of the market, it's more or less the same as we reported in the Q4. It's strong, it's less of production in the office space, and the unique market for us is the Malmö area, to be honest, and what's maybe gonna come up on the in Helsingborg.
If I move to the logistics part of the market, we see a continuing growth on the demand side, and it's all driven by the e-commerce. And we see, we have placed ourselves in the Gothenburg and Stockholm market, and as where we know them the best. But this means that we predict they will see positive trends on small logistics warehouses, that are correctly located. But if you look at the international or national logistics center, that will still be under competition on the rent levels because it's possible to build them on bigger areas of greenfield still. So simply, we see two strong markets, both office and logistics, going forward. If you take the next slide, please. And then going to Castellum. Yes, you can see that we didn't have the same net leasing that we had one year ago.
But if we should have put on in this, to this figure, the E.ON signing of that contract, which is not in here, it would more or less be on the exactly same figure that we was one year ago. So from my point of view, this is a strong figure, and it's extremely positive that we have a strong net leasing on the existing portfolios as well, and not only on the projects. If you go to the next slide, you see the differences between the different markets. And here we have, the best performer this quarter is the Western region, and that's driven by the logistic assets. Actually, then you have also a very strong performance of what we call the central part, that consisting of the six mid-sized towns.
So still the same picture that we saw in the Q4. Strong, positive net leasing, and it's actually the central part of Sweden is performing at the, I think, the most in the part market understands. So-
...So if we leave the income side and go to the cost side, the property cost increased with SEK 28 million, and maybe that is a question mark at first glance, since we know that this quarter was colder compared to last year and compared to normal year. But the reason to this is mainly driven by lower maintenance and administration. Both those can be connected to the transaction part. The lower maintenance is due to assets sold, and the lower administration is due to the consolidation and cost efficiency, regarding the transaction in Norrporten and the promise made to save costs. And if you go to the next slide, you do have another cost slide, so to say, and that is the interest rate cost.
This year, we went in with an average funding of 2.4%, and at the end of this quarter, we are going out with 2.2%, and that is a reduction of roughly 20 basis points. This is mainly driven by, you could say, four actions. Castellum has ending credit sale volumes of roughly SEK 3.5 billion at the end of the quarter, that we did not use, but paid commitment fee for. We have used the loan from European Investment Bank on attractive terms and a duration of five years. We have increased the CP program with SEK 32 billion this quarter, and at the end of March, it was fully used. And a higher STIBOR or a less negative STIBOR contributed also positive to this development.
If you then look on the last cost slide, so to say, you do have on the next page, the taxes. As I see, Castellum has tax losses carry forward. So, that is the reason for Castellum paying little taxes. But when we do speak about taxes, I do want to make a comment about the suggestion regarding the interest rate deductibility that was released during this quarter. As it stands now, it is more in line with the EU directive, and that means that interest rate cost will be deductible of 30% of taxable EBITA. And furthermore, they will lower the tax rate, and this will be made in two steps. You can say that as it stands now, the suggestion, it will not have any bigger impact on Castellum paid taxes.
And so giving you one example, if this new suggestion would have been applied this quarter, Castellum would have paid no more taxes than the one we already accounted for. On the other hand, it would have a positive impact on the deferred taxes due to lower income tax rate. So-
Yes, if you're going then back and going to the real estate market, take the next slide, please. Let's take the next slide. Then we have the balance sheet.
Yes.
Sorry.
The balance sheet of Castellum is strong, with an LTV of 48%, and that is a little bit higher compared to the year end. Then we have to have in mind that at the end of this quarter, we paid out half of the dividend to our shareholders. As you have seen from our report, we have split up the portfolio in more property segments in order to try to be more transparent. This is based on that the assets are different, they have different challenges and opportunities, and they are more a reflection of the tenants or businesses that are in those assets than just bricks and walls.
As you're aware, for those who want to make a calibration to this Q4 report, you can say, on our webpage, you can find, connected to the report, the property portfolio as at the year end last year, and it's transformed into new segments and the moving out of Uppsala from the central part to the Stockholm also. And hopefully, this will help you calibrating from last year to this year.
Then I think we go into the market.
Yes.
So if you're looking at this, the real estate market, we have on the one that was with us the last Q4, more or less the same figures in this slide, but we have notched down Stockholm a little bit to 3.4%. Actually, looking through it, I think we can say that the core assets, the core deals that's been done, has been on the same deals or lower than it was last year. It's a positive trend. It's also a very large interest, as I mentioned, for cash flow portfolios and portfolios on the logistic side. I can't see anything else than extremely strong interest for attractive and dry assets, and generally, still a strong interest for Sweden.
If you look at the next slide, please, we have some of the projects that we haven't bought, but we are investing in because we like products so much. Here you have the slide in showing what we intend to build for E.ON. This is the investment of approximately SEK 1.1 billion, 24,500 square meters, a few hundred meters from the central station of Malmö, and it will be finished the summer of 2021. According to plan, and when it's 100% leased out, it will give a rental income of SEK 68.5 million. This is the work we was able of winning simply because of our sustainability and development on the logistic side, yes, the change on the Beambox, and then integrating new ideas into this asset.
I'm very proud of this project that we're gonna make. If you take something totally different, as next slide, then we have the logistic asset, the first one we're constructing in Brunna, in Stockholm. It's located where the highways of E18 and E4 is dividing, and it's extremely good location. We have here prepared for expansion of the logistic side and are renting this now out for e-commerce warehouse at larger logistic as well. So this is just the first phase where we are investing approximately SEK 140 million. If you look at the next slide, it's also something totally different. It's what earlier was called the Stockholm Quarter assets, and it's then located next door to the central station of Stockholm.
Here we have a total now of 11,500 square meters, and we have started the first phase of investing SEK 300 million into renovating, you can say, in the existing old house. We have also the plans of building two new buildings on this site, and the total investment is approximately SEK 1.5 billion going forward. So this is just some of the pipeline we have. We have still a pipeline, approximately of SEK 4.8 billion ongoing, and the coming up pipeline is more or less the same. So it feels very good. We're in good position here. So let's move to the credit market.
Yes, and if you go to the next slide, as has been the case for a long period of time, Castellum has three funding sources: the banks, the bond market, and the CP market. And regarding the banks, Castellum thinks that we still have good access to funding within the banks, and that they are more, you could say, perceptive, if you say, to different demands. For example, the view on ceiling floor and price with the bond market. And regarding the Swedish bond market, there is a lot of property risk in that market, and we are many actors, both listed, non-listed, both rated, non-rated. And if you look into the price, you could see some upward trends, in the end of the quarter. But however, it was an initial downturn in the beginning of the quarter.
So all in all, if you look, not much has happened. And if you then go to the CP market, it's still very excellent. And the SEK 2 billion increased frame that we did this quarter was, you could say, swallowed up very, very quickly. And today we feel that the demand is more between 3-6 months in that segment. It's where we have most attention, you could say. And then if you look to in our activity on the next slide, this first quarter, it has been a hectic first quarter. We have renegotiated roughly SEK 800 million. We have terminated SEK 3.5 billion. We have used the EIB facility. We have also increased the frame in the bond MTN program with SEK 2 billion.
We have issued 1 bond, and 1 has fallen due. We increased the frame in the CP market that was from 8 to 10, that was fully used, as I said earlier. So all in all, still a very good and good access to funding, and on good prices. Yes.
Exactly. And then we will end up doing this presentation with the Beambox that I mentioned from the beginning. This is simply a storage solution that you order on demand, services. We simply help people to solve the storage on their household belongings responsibly, and that without the need to have any car or truck to transport it, we'll take care of that. It will mean for Castellum that we use this, the non-so attractive part of the logistic and warehouses to store this, and we, we simply create our own tenant. It will also be one extremely competitive into the market of storage, and it will be interesting to follow this.
And so we will end up in saying that we are convinced with all we have said, that in 2008, in the form that Castellum has now, we have actually the possibility to grow the cash flow by 10%, and are looking forward for interesting next coming 9 months of this year.
... If we continue to the next slide, which will be the Q&A slide. Thank you for the presentation, Henrik and Ulrika. So this is the final part, the Q&A session. When asking your questions, please state your name and company. Thank you. Ladies and gentlemen, if you do have a phone question for the speakers, then please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. And our first question comes from the line of Fredric Cyon from Carnegie. Please go ahead. Your line is open.
Good morning, Henrik and Ulrika. A few questions from my side. Starting off with the like-for-like, obviously very strong at above 5% for the first quarter. If I look at occupancy, it seems like it's improved some 200 basis points approximately year-over-year. It does look like you should be able to maintain this level throughout the year. Anything we should be mindful of about before putting in 5% for the full year?
The only thing is that we have written in the report that we had SEK 9 million in income from tenants leaving. Of course, SEK 9 million on 3 months earning is more value than SEK 9 million on 12 months earning. That is the only thing that I think that you should have in your mind.
Perfect. And then on investments, last year you invested some SEK 2.9 million in projects and maintenance. Given your positive outlook on the market, should we expect that to increase during 2018?
I think we will have on then, MPU market, I think, part. I think you will see more or less the same figures, actually.
Okay. And then my final question. There has been a couple of deals in Stockholm during the last few months at very elevated levels. What's the highest value per square meter you have in Stockholm at the moment?
That's a good question. I think we would come back, and we can come back to that during the presentation. We take some question, we put in the answer that question. It's about 100,000 pounds a square meter. How much higher we can answer in 5-10 minutes, something like that.
Excellent. Okay. Thank you.
Thank you. And our next question comes from the line of Niclas Höglund from Nordea. Please go ahead, your line is open.
Yes, good morning, Niclas Höglund here. A couple of questions. First, if we start out with a very strong NOI development, the NOI margins then, which mainly relates to the like, like properties. Of course, we have these SEK 9 million in, in, well, tenants leaving, as you say. Something else that is worth highlighting, especially in a first quarter, this seems to be a very strong number, with a slightly higher exposure to the north of Sweden. And any more lights to the very strong NOI development?
No, no, no, nothing of course, but that will not have any big impact. But of course, as I said in the Q4 report, maintenance is not always equal each quarter, but that is the only stuff in that case.
Okay. Yep. And then moving over to the financing side. And you, your average funding or financing cost is coming down with 20 basis point. You're still operating without the public rating. Could you elaborate a little bit of the opportunities? What would the financial costs come down in an event of a public rating? And do you... We're also seeing that some of your competitors are really embracing the Danish market and the Eurobond market. What's your perspective of rating in Eurobond, and how would that have what kind of impact would it be on the funding cost?
This is a long discussion, but if I should make it a rather short answer, we could first go into the Swedish bond market. So if you look into the curves, you can see here, you read the prices on the screen, of course, that there is a gap between the one who has the AA2 rating and the one who has the AA3, or rather 10-15 basis points, depending, of course, which day you read on the screen. Then the gap is much wider down to non-investment grade. It's 150 basis points. So depending on which type of rating Castellum gets, the answer is different.
But of course, if we compare to the AA2 and the AA3, Castellum without rating pays a little bit more on the margin, of course. And I think now it's like 20-30 basis points, everything else equal, compared to which of the one you are looking into. If you then move to the European bond market, it could be a question, because if our company with exposure to countries with euro flow, for example, Finland, then it's rather cheap money. But if Castellum would go out there, then we also have to take into account swapping to SEK, that cost a little bit.
So everything else equal, maybe a little, maybe a little bit cheaper, but it depends on the swap price at every given moment in time. So that is a very short answer.
But could you elaborate on the, well, I mean, 20%-30% for the basis point is quite an interesting opportunity, I would say. What, how do you view that market, and do you need this sort of investment capacity to sort of stay away from a public rating? Or are you quite fine with very strong cash earnings that you're generating?
I think that when a company becomes bigger and being bigger, it's important to have different tools in the funding sources. And if you became a bigger and bigger actor in the bond market, sooner or later, I think that you are needed to have the rating. So, with that said, it's more a question of timing and what type of rating you are satisfied with.
Okay, with all else equal, is it likely an event for Castellum in 2018? Or is it more of a delayed process as you look at the refinance opportunities?
I don't want to comment that.
Okay, thank you. Those were my questions. Thank you.
Thank you. Ladies and gentlemen, once again, if you do wish to ask a question, please press zero one on your telephone keypad now. There will be a further pause while questions are being registered. As we have no further questions from the telephone lines, I'll hand back the conference to our speakers.
Okay, that seems to be all for today. So thank you for listening in, and we wish everyone a great Tuesday. Thank you, and bye.