Welcome to the Catella Q3 2021 Report. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. Today, I'm pleased to present the CEO, Christoffer Abramson, and the CFO, Mattias Brodin. Please begin your meeting.
Thank you. Good morning, everyone, and thank you for joining. Why don't we move to page three to begin our presentation? Most of you know Catella quite well, and that we operate within three property-focused business areas: Property Investment Management, Principal Investments, and Corporate Finance. Catella manages SEK 112 billion in its Pan-European Property Investment Management business and is a leading advisor in Corporate Finance in several large European markets.
Principal Investments, where we invest our equity directly, has close to SEK 800 million of capital invested as of the third quarter, with a growing number of partnership platforms. Let's move to page four for the key operational highlights during the third quarter. From a group perspective, we continue to deliver strong underlying growth and financial performance. As a management team, we have now identified Pan-European growth and capital raising, along with digitalization and talent diversity as key organizational focus areas to strengthen Catella as a company.
This will be the key recruitment and focus areas for the coming year. We have also, after the end of Q3, entered Poland as a new market by establishing a development company. With 40 million people and a lack of affordable residential properties, Catella and our experienced local partners look at Poland as a promising opportunity for Catella's offering. Property Investment Management continued its strong track record of organic growth with inflows of roughly SEK 6 billion. However, we exited a couple of low-margin mandates and also sold a couple of successful mandates, therefore, AUM remains stable at SEK 112 billion.
Inflow into sustainable funds remained very strong with large institutional capital adding close to SEK 3 billion in commitments into a new residential fund classified as dark green, which we're immensely proud of. After the end of Q3, our U.K. platform, APAM, was selected for a significant mandate from the Greater Manchester Pension Fund, which further showcases Catella's growing ability to attract mandates from very large institutional investors.
We still have significant amounts of additional committed capital available for investment in Q4 and beyond, of course, and we feel very positive about the future growth in Property Investment Management. Within Principal Investments, we invested a further roughly SEK 100 million in our ongoing projects and delivered a good return from the sale of one of our logistics properties in France. The Infrahubs property in Norrköping is currently on the market with significant investor interest, and we hope to close this sale hopefully during Q4, if not early in the first quarter. Corporate Finance delivered, let's call it a decent quarter, but the third quarter is always a bit slow.
However, we continue to show strength in large M&A transactions and debt advisory, and I would say the pipeline for Q4 looks very strong. Let's move on to page 5. Before we go into the group financial results, here on page five, just wanna set the stage a little to make the quarterly numbers easier to compare. During the third quarter of 2020 last year, principal investments sold the Grand Central development in Düsseldorf, which generated EBIT of SEK 229 million. Clearly, creating fees and equity gains is part of our normal course of business within principal investments.
From the portfolio we are building up and have built up, this should become more common. Although I wanna stress that we should always look at a long-term profitability and growth rather than individual quarterly gains when assessing Catella's strength and future prospects. However, of course, Grand Central, especially in the context of last year, was very material. Adjusting for the transaction, then we can see that Catella's underlying performance improved significantly from last year. That is primarily driven by fixed fees from our continued AUM growth in property investment management.
Let's go on to page six for a summary of our consolidated group results adjusted for discontinued and divested operations. We delivered a solid financial performance in the third quarter with a revenue of SEK 375 million and operating profit of SEK 48 million at a margin of 13%. Property Investment Management continued to achieve significant inflows to its fund platforms with another almost SEK 6 billion adding to AUM during the third quarter.
AUM is, as said, now at SEK 112 billion after we exited two low-margin mandates in Sweden and France, as well as realized profits as APAM mandates in U.K. were sold and generated exit fees. The pipeline is strong for Q4 and with this sort of change in the portfolio composition, we continue to build a portfolio with significant growth and also with underlying improved underlying profit margins, which I think is very important to highlight. Principal Investments added, as I said, nearly SEK 100 million of invested capital during the third quarter.
That was mainly by continuing to develop our logistics property projects in Norrköping, Örebro, and Ljungby, all in Sweden. Catella's invested capital is now close to SEK 800 million in 11 ongoing projects. We realized profits of SEK 5 million with additional profit recognition coming during the fourth quarter after selling one of our logistics assets in France. Of course, this was not one of our larger assets, but the IRR is very high given our limited equity. Now going forward, we see attractive pricing for the rest of the portfolio, as mentioned, with Norrköping next in line.
The Corporate Finance market was as per usual rather slow in Q3, getting ready for the year-end. Catella delivered a quarter slightly below our expectations with a very solid pipeline of deals in the works in Q4. Most of the shortfall was in traditional commercial brokerage, whereas M&A transactions, debt advisory, and residential transaction continued to deliver sound average margins for Corporate Finance. This is really a trend which we wish to continue as we want to strengthen our profit margins in Corporate Finance while you know, keeping revenues at a decent pace. Again, it's about increasing profitability in the long run.
Let's get to page number eight, where we go into Property Investment Management. Over the last roughly six years, PIM, as we call it, has grown its assets under management by an average of 23% annually. During 2021, we continued to deliver on significant growth with strong underlying profitability. PIM remains the main growth engine of Catella, and we have a clear strategic focus on raising new capital and launching new sustainability-focused funds, which of course can be seen in a very strong 6% quarterly growth in our fund platforms.
While we exited two low-margin mandates and sold successful mandates at a profit, that temporarily reduced our asset management AUM. The overall PIM AUM remains at SEK 112 billion with improved operating margins. The growth of the business has also resulted in increased fixed fee income. That might be our key underlying PIM metric, which we look at. Fixed fees were now at SEK 649 million over the last twelve months, up 9% year-over-year. Variable fees were limited during the third quarter. Again, there will always be quarterly volatility in these particular numbers. Again, the quality of the portfolio keeps strengthening, and there will be variable fees to come.
On page nine, look at the AUM growth of PIM year-over-year and during the last quarter. Year-over-year, on top and the last quarter at the bottom graph. Adjusted for the sale of Catella France, PIM has grown AUM by SEK 10 billion or 10% over the last 12 months. Of course, in the third quarter, we just exited asset management mandates for over SEK 5 billion. During Q4, that, of course, has affected the growth rates quite dramatically. Without those exits, our LTM growth, the underlying growth, would be close to 15%, year-over-year.
The AUM growth continues to be mainly driven by a modern, sustainability-focused residential funds, but it's also supported by a solid and I think, slightly improving growth in our commercial funds. Our total AUM, very excited about this, has now reached SEK 80 billion. Looking ahead, we feel very positive about our growth abilities with over SEK 15 billion of unlevered committed capital in our funds ready for deployment and also with new leadership, ready to take on stewardship and to take our commercial funds to the next level, early in the next year.
On page 10, let's look briefly at the P&L for PIM. Despite the sale of Catella France, we have, if we exclude the Grand Central fees from principal investments, last year, increased the operating profit by SEK 18 million year-over-year. Again, driven by an increase in fixed fees from our growing portfolio. Again, when we look at the overall profitability, let's focus on the sort of full year pictures, to smooth out the variations from the variable fees. We feel very positive about our ability to grow. We have significant new capital to be deployed.
We have a well-diversified and higher-margin portfolio with what we consider a modest risk profile. On page 12, we present an overview of Principal Investments. Over the last year, we have continued to invest and we now have a diversified portfolio of projects in different asset classes across Europe. That diversification and strength in partnerships is something we're very, very proud of. We now have a total long-term development cost plan for these projects shown here of over SEK 8 billion, of which SEK 3.1 billion has been invested to date. Again, that's a total development cost, not Catella's equity share.
Most of our projects come through our development partners, Catella Project Management, Catella Logistics Europe , and Infrahubs, with both Catella Project Management and Logistic Europe generating material management fees on the total investments that we make together with our partners. During the third quarter, if we look at some of the highlights, we began the development of phase I of 250 apartments in the long-term development. We received the necessary permits to proceed with a project, a very important milestone.
While we are well underway with two more projects with Infrahubs, and we began a new logistics development in Metz in France. Additionally, the leasing process for the commercial parts have begun very well with the Cactus Towers in Copenhagen, which are on track for completion in the middle of 2022. As I mentioned, the largest Infrahubs project in Norrköping is being marketed for sale this quarter. I have to say that it's been a very, very strong interest in this very nice sustainable asset. Let's go to page 13 with a little bit more financial details around Principal Investments.
In total, Catella has now invested SEK 784 million of capital in 11 active projects, plus a few smaller projects in the startup phase, which we'll get back to. We added SEK 96 million in the quarter, primarily in Infrahubs continued developments. A number of the current projects are projected to be realized and generate profits, as you can see, during 2021 and 2022. We also see a solid pipeline of potential investments, which we believe will generate attractive new deals, already in 2021 and beyond.
As stated, the ambition of Catella is to invest a large portion of our available capital in these types of developments together with partners, which gives us the ability to both scale up and to generate fees. The coming quarters will be very interesting as we replace some of the upcoming sales with new investments in these regions, in Poland, and beyond. Principal Investments is not, or at least will not be, a list of one-off significant profits. We look at this and we are building a new growth platform for partnerships and continuous investments.
This is a business area where we're creating platform value by creating partnerships and investments. That is an important strategic distinction for Catella rather than a series of one-off gains. Let's move to Corporate Finance on page 15. Q3 was again a relatively quiet quarter for Corporate Finance, as is most often the case. Revenues were SEK 107 million, with the last twelve months still tracking in the sort of SEK 650 million-SEK 700 million range. France, Sweden, and Finland continued to deliver strong performances, particularly in capital market-related services, debt advisory, and residential transactions.
The overall traditional commercial brokerage market was relatively slow, even though we see increasing buy-side activity in France and a very solid pipeline in Q4, I would say across all regions. The operating profit was around zero, which was partly negatively impacted by some restructuring and severance costs as we right-sized a couple of our platforms. Overall, we expect 2021 profits in line with our expectations. I will now hand over to our CFO, Mattias Brodin, to cover the financial summary, beginning on page 17.
Thanks, Christoffer. On page 17, we cover the financial summary, focusing on ongoing operations. As Christoffer already mentioned, during the last year, Principal Investments sold the development project Grand Central in Düsseldorf. A project that realized SEK 262 million in revenue. When taking this into consideration, revenue was in principle unchanged compared to last year. Total OpEx decreased by nearly 20% and is primarily an effect of fewer FTEs, 520 versus 552 compared to the same period last year.
Also, a slower quarter in Corporate Finance led to lower performance-based salaries. As seen, adjusted operating profit increased by 85% or SEK 22 million year-over-year. Once again, taking the sale of Grand Central into consideration, which contributed by SEK 229 million to bottom line EBIT. One key driver behind the positive outcome is Property Investment Management, which continues to grow AUM in real estate funds, which in turn contributes to an increase of fixed fees. Looking at key ratios, and once again adjusting for the sale of Grand Central, we show a healthy margin of 13%, the quarterly EPS of 0.4, and a return on own equity of 5%.
All metrics signaling that our underlying core businesses are performing well through our strategic transformation. Continuing to page 18, we look at the financial and liquidity position. Catella has continued strong balance sheets and equity ratios supporting our future growth plans. Total assets increased by SEK 0.6 billion to over SEK 4.8 billion. The positive development of assets is related to additional investments in our property development projects, mainly Cactus and Infrahubs, and the issuing of our senior bond which increased the group's cash with SEK 480 million net.
Catella has significant available liquidity of SEK 1.3 billion to invest in further business development and projects with further headroom if needed. Some SEK 420 million for now remain in Catella Bank and will be available when the application to return the bank license is approved, which is expected during this year. This was all regarding Catella's financials, and back to you, Christoffer.
Thank you, Mattias. Before opening up the Q&A, I'd like to briefly summarize the quarter from our sort of overall perspective on page 20. Again, let's talk about it in broad terms. I think the underlying business in our core operations is performing well. I think the underlying growth in our largest business area, Property Investment Management, we show the ability to continue to grow profitably and organically with very strong inflows into our funds and increasing committed capital available for the coming quarters.
We see creation of new products and new sustainable products, new segments, and we feel very positive about the outlook. Principal Investments continues to invest in regions and segments supporting the business areas IRR targets. We are interestingly entering the first sort of material harvesting phase for our portfolio over the next, let's say, 12 months -15 months. Positively, I think we look at the growth pipeline even greater, and we will continue to deploy capital here. Again, I want to re-emphasize that we look at this as a growth platform rather than a series of transactions.
In Corporate Finance, Catella remains strong throughout a broadened and attractive service offering with a very promising Q4 pipeline. As you know, we have exited several segments and gone through a pretty substantial strategic transformation over the last 12 months. This progresses well, and all non-core Catella business areas will be exited shortly, if they have not already, which frees up capital and resources to focus on our core businesses, and as you will have seen and as we keep talking about, aggressive continued growth.
We are accelerating the work with our sustainability agenda, which we will cover in more detail in the coming quarters. Already, ESG profile growth is highlighted by attracting the right capital partners and shown by the large inflows into our first-ever dark green fund and other funds, of course. We are very excited to enter Poland as a new market with another very experienced development partner and look forward to making our first investment in this important region.
As a final point, as we are already sort of almost halfway through the fourth quarter, we see a very solid pipeline across our business areas and our markets, which indicates a good remainder for 2021. With that, I would like to thank you all for your time today, and we will now open up for questions. Thank you.
Thank you. If you do wish to ask a question, please press z ero one on your telephone keypads. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Jesper von Koch of Redeye. Please go ahead.
Morning, gentlemen, and congrats on another strong quarter. Let's start with some general questions before going into the different segments. As you mentioned, you already have a very strong balance sheet, which is also expected to further strengthen as the money from the bank becomes available and some projects are divested. You say that you plan to invest mainly in principal investment, but could you elaborate on your plans?
Thank you, Jesper, first for the comment and for continuing to cover us with great speed and insights. Yeah, our plans, again, it is about building partnerships within Principal Investments, which is what drives our main pipeline of deals. As we talk about, Poland is a large residential market. It's an interesting dynamic where there's a real shortfall of affordable rental properties. It's pretty high ownership in Poland, but that clearly is not affordable for everyone. The rental stock available is pretty outdated. So we see some big opportunities. Again, that will be a bit chunky if there's a big deal, that'll be a large number.
If that's gonna be in the next three months or 12 months, it's hard to predict. We anticipate putting a decent amount of capital into that region with our new partner. Infrahubs, as you know, has a pretty strong pipeline. We continue to invest, and we have a few interesting deals in the making with a couple of deals that we've already done on the land side, where we continue to look into the opportunity of finding tenants and developing those areas. I think those are the two areas where we have the greatest insight.
CPM in Düsseldorf, where we have several developments, that's ongoing. As you know, we're starting phase I in Düsseldorf. We're just beginning in Düsseldorf. We didn't talk about Königsallee today on the call, but as you know, that's a pretty large office redevelopment. That will take up quite a bit of capital. Again, we have more available. I can't talk about deals that we're working on, but we are working on some deals in the short term with great prospects. Beyond Principal Investments, we never shut the door on M&A activities if it's the right opportunity.
Let's say we have a couple of views on some ideas that could help us strategically. Those will never. I shouldn't say never, but unlikely to be very significant amounts. That's not how we grow. We have our eye on a couple of partnerships that might be of interest. Again, that may or may not happen.
All right. What is the status of the divestment of Catella Bank? Is that still expected to be completed before the end of the year?
It is, and it isn't. I mean, it's unfortunately we're at the mercy of some regulatory entities in Luxembourg and Brussels. I guess we've had some positive progress over the last few weeks, actually, where I think we've got pretty much full clearance from CSSF, and it now sits with ECB. The latest intelligence that we have is that it's on track for this year. Again, dealing with regulatory bodies, it's hard to predict. Everything's going according to plan. We had a small challenge with some assets that remain, but that has been resolved, and it just needs to be approved, and that should be the end of it.
All right. Thanks. Let's move into principal investment. Regarding Cactus, you state that the first commercial lease agreement is signed. Is that for the culture area or commercial part?
Well, that's kind of a mixed area, but we have signed a commercial lease. We have another commercial LOI in the works. The cultural area is a little bit more complex, but we have interesting prospects there as well. I'd say that the commercial and cultural areas are doing better than we hoped. It was, you know, a pretty slow COVID 2021 in through the summer, and we now see better activity and are progressing with our negotiations.
From a residential leasing perspective, that asset is being prepared for marketing. It's not quite yet on the market, but will be very, very soon. You can check out, which I'm sure you have, the website and how that looks. Our indications on the residential side are very strong. It's a good product in a great location, in a strong market.
All right. How much of the commercial space and the residential space do you expect to sign before you actually sell the project?
I don't think I can answer that question, exactly.
All right.
You know, that depends on a lot of factors, and depends on any buyer's preference as well. We shouldn't speculate.
All right. Let's move into the German projects, Düsseldorf. I appreciate the more information about the phase I of those projects. Do you have an estimated time of completion of the phase I?
We hope and our plans are that phase I of Düsseldorf should be completed by the end of 2022.
All right. If we talk about properties in general, they've taken, like, quite an uptick the last, say 1.5 years. How has this affected investors' yield requirements and also your projections on IRR for your projects in Principal Investments in the near future?
Well, I think if I start with the second question, it has not changed our IRR requirements and outlook. Look, with yields compressing, you know, it's good when you sell, but it's hard when you buy. You know, we have the same running average return requirements or targets, I should say. You know, it's not a fixed requirement, but it's our portfolio target. So far, we've done well in relation to that target. As it relates to yields, yes, it's been, you know, as with everyone else, each of our partners and competitors and everyone else in the market, it continues to be a strong market.
I think we have obviously benefited from market movement in some of our existing assets. You know, if I say that I don't feel more confident than I did last quarter, I'd be lying. Again, it's not realized until you have signed and gotten the money. For now, I think the portfolio looks strong.
All right. Good. Let's move into PIM. You continue to show very strong growth in property funds, especially during quarter. But just like regarding the yield requirements, how does that affect your ability to buy attractive properties for the property funds, and how would that affect the future AUM growth?
Again, speculating is hard. What I can say, it's a competitive market, for sure. You know, when you have the ability to show a strong track record, and you have the ability to show a speed and certainty when it comes to transactions, you're in a good position. We of course compete with very strong players in the market. You know, the time to capital deployment is slowly creeping up a little bit in the market, I would say.
Again, you know, we can only do what we set out to do, which is raise a lot of capital because of our trusted investors and partners and deploy it with the right investment, not necessarily as fast as possible, even though, you know, it benefits IRR, but it's the right investments. Right now it's about positioning ourselves with the right sustainable assets primarily. I you know I'd say it's a good problem to have. It's a very strong and competitive market, but we have a great track record and a growing pipeline on investments. Again, it's competitive. You know, we have not seen, I would say, an inability to transact, but it's competitive. It's a good question, and it's an interesting and fun challenge.
All right. Regarding your tax rate, I know that you're working on reducing this. How far have you come, and how much more improvements can be made?
Yeah, I think third quarter, I'll leave this to Mattias as well. I think the third quarter is too early to talk about the tax rate because you know, the completion and all the true ups and everything happens at you know, in detail after the fourth quarter. What I would say is that the work that we did last year and early this year especially in Germany has had an impact this year, will have an impact this year, positive. The more contributions we get from our continued partnerships and Principal Investments by way of capital gains will automatically reduce our tax rate.
But the overall restructuring of the group is not a simple matter. That's gonna take some time. You know, Mattias is in the depths of this and spends a lot of time on it. You know, the goal has never been to clear all these hurdles in 2021, but it's really you know, delivering a bigger impact in 2022. I would say, you know, we made some big strides at the end of last year and early this year that's gonna have one impact, you know, not immaterial this year, but the bigger impact will come 2022 and beyond. I don't know if you wanna add.
I just want to add, it's an ongoing project, and as we do improvements, not day by day, but week by week, and as Christoffer said, it will take some time to implement them and then also that we can actually see the effects of it. 2021 should be some improvement, of course, especially what we did last year in Germany, the restructuring. 2022, it will be larger improvements. It's one of our highest priorities to work on and sort of from the finance point of view.
All right. Do you have any, like, target for your tax rates or just to improve it?
To improve it. As you know, we don't issue targets. Even if we had them, we couldn't talk about them. Hey, look, we have our improvement targets in how we are structured, and we have our targets in specific actions. Then again, if we have, as we did last year in the third quarter, and we anticipate, you know, in the coming quarters, significant capital gains, then that automatically changes it. To put an underlying target is maybe not so helpful. Clearly we have an improvement target internally, but that really relates to a structural efficiency rather than a particular rate.
All right. Great. My last question regarding profitability in Corporate Finance. Could you just elaborate on your work here and how it's progressing?
Sure. We were trying to do, I would say, three things within Corporate Finance to increase profitability. Number one is obviously to continue to offer great products, and I think with a better product mix. The traditional sell-side brokerage market is under pressure from a margin perspective. It's a very competitive landscape, and we're working to position ourselves in higher margin products, which I think we have succeeded with in several of our countries.
Number two, we have a couple or you know two or three platforms where I think we're not right-sized operationally for the revenue that we have been able to generate. So we're working continuously with right-sizing our operations, both from a staff and an office standpoint. That has come at a slight cost in the third quarter, but will, you know, give us higher profitability going forward. The last part is really looking at new products. We have started taking some steps. You know, we have a few people across Europe in debt advisory, for example, and I think that's an area where we'll put maybe increased focus in the future.
You know, we've been pretty constant from Corporate Finance for a long time. I think that we need to be really good at what we do and really well-positioned in niche markets to stay at that level and increase that level. Otherwise, you sort of disappear among the crowd. I think we have the right people and we have the right competence to be really good in certain market and certain niches, and we shouldn't try to be everything. That's the journey we're on, and it takes a little bit of time, of course, as with everything. The signs are very promising, and you know, we feel good about the fourth quarter and beyond, of course.
Great. Thanks so much for all the answers, and good luck going forward.
Well, thank you so much for very good questions, Jesper.
Thanks.
Just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypads. And there are no further questions. Please go ahead, speakers.
Well, with that, myself and the rest of the leadership team.
Christoffer
Thank you all for listening, and we look forward to speaking with you soon and in the new year. Thank you very much. Have a great day.