Earnings Call: Q2 2021

Jul 6, 2021

Hi, and welcome to Kettenna's AudioCast for the Q2 2021. This is Jorgen Eriksson. And Sophie Bense. And we review today's presentation, and we move over to Slide number 3. It's a quick view of today's content where we will start with some highlights. And as usual, we will end today's session with a Q and A. And Jorgen, you're welcome to start. And we're going to Slide 4. Thank you, Sophie. And here are some highlights. Katina came out strong in the 2nd quarter with an 8% increase in the rental income. And year to date, our profit from property management has increased by 11% Year over year. EPRA NRE has increased by 34% to SEK278 per share and the earnings per share came out with SEK 27.87. New leases of SEK 27,000,000 were reenergated and our net leasing operations summarized to SEK 19,000,000 2nd in the quarter. Worth to mention is that we came out this quarter with net LTV around 45%. The selling was in Q2 approved for additional land in Sonamal next to Malvern. And we also acquired a property in Gothenburg. And we feel that our business are backed by strong occupier demand, especially from segments such as groceries and free PL. Moving to Slide 5, please. COVID-nineteen. The impact from the coronavirus has had a limited effect on Tina in the first half of twenty twenty one summarizing. A rental value of SEK11 1,000,000 Was agreed to change from quarterly to monthly payments, of which they all have been paid for according to the plan. Discounts linked to the government rent Subsidy amounted to just under SEK2.8 million. Moving to Slide 6 and further on to number 7. We are proud to present the history of profitable growth and profits from property management has Paced at 14% compounded annual growth for the last 5 years and the earnings per share has paced at 41%. At the same time, the dividend has compounded annual growth at 20%. Moving to Slide 8. Rental income amounted to SEK673 1,000,000 in the period and the total growth in rental income was 8% year over year. Project developments contributed 5.6% and net transactions 3.3%. Like for like, rent growth contributed 0.5%, which comprises a combination of lease Reviews and renewals as well as indexation and changes in vacancy. There was also a one off effect related to prepayment of an early lease expiry amounting to 1.3%. Moving to Slide 9 And over to Sophie. Yes. We have some comments on the income statement. Our rental growth, due mostly to project developments and acquisitions are 8% higher than same period last year And the increase of income from property management are 11% higher. The surplus ratio is 79.9% compared to last year's 84.4%. But one should still keep in mind the effect of the positive one off in the rental income of EUR 40,000,000 that we had in the Q1 last year. Also, the harsher winter in the beginning of the year and the temporary increased other costs for electricity has affected the surplus ratio. And furthermore, we also seen a normalization of the maintenance. We now see a more normal surplus ratio for the period. And realized changes in property value amounted to EUR 880,000,000 and corresponded to 4.3 percent of our value. And the value changes of derivatives amounted to EUR 110,000,000. All in all, the profit for the period ended at SEK 1,100,000,000, resulting to an earnings per share of SEK 27.87. Moving over to Slide 10. And Yes. As indicated by the diagram, our cash flow has been growing consistently since 2016. For Q2, we have performed another strong cash flow period where we retain 59% from revenues in property management income. And cash flow is a key for stability and enable us to generate investment capacity for continued focus on our profitable development pipeline. Our target is to maintain a level of 50% of rental income and our dividend objective is to distribute 50% of property from property management less than the tax. Moving to Slide 11 and further to Slide 12, Sophie. Catena has now a total of 123 properties, well located along highways and around its 3 major metropolitan areas. Since the year back, the portfolio has grown with €4,000,000,000 corresponding to a growth of 22 sent to a total of SEK 21,200,000,000. The 9 properties in Denmark amount to 7% of the contractual annual rent. The economic letting ratio has gone up since last quarter from 94% to 95%. It's the vacancy in Boeross of 15,000 square meters that has been filled and also it has been a quarter characterized by good rental work. Going to Slide 13. Catena have a diversified asset portfolio, both in term of geography, tenant concentration and asset price. 41% of our rental value is derived from critical logistic and transport providers And €39,000,000 is on Retail and Wholesale with a booming e commerce sector, where a part of it is in form of food distribution. Going to Slide 13. Jorgen? In this slide, we presented part of our customer, whom We talked about in the previous slide, many of them are experiencing a strong growth and we will do Our best to supply them with more spaces when needed. And we can see and we hope that it will be an exciting second half of twenty twenty one, We hope to present some more investments. Moving to Slide 16. Here we show our rent levels in our regions. You can see we have the highest levels in Stockholm, Malmo and Carfenberg. Moving to Slide 16, talking about the letting operations. And we have a net rental of 28,500,000 for the first half of twenty twenty one. The weightless a bit more than 5 years and The lending rate to us is around 95%. Moving to Slide 17, around 2018. And the EPRA LRV has grown by 16% annual since 2016, and we came out Q2 was SEK278 per share. At the same time, the 5 year average return on equity has been 17%. Slide 19 is the same. During the year, we've done 2 share issues of a total of SEK 1,300,000,000 And Equity has grown with 51% since same period last year and amounts to SEK 9,600,000,000. Since same period last year, the balance has grown with 24% amounting to NOK 23,000,000,000 Moving to Slide number 20. Property value was appraised at SEK 21,200,000,000 and the net EPRA net initial yield came to 5.3%. Unrealized value changes amounted to EUR 680,000,000 during the 1st quarter and another SEK 200,000,000 during the second. The increase in value changes is due to the ongoing market year compression and projects being finalized. Moving on to Slide 21. In May, Catena was awarded an investment grade credit rating of BBB- with stable prospects from credit rating agency, Nordic credit rating. This rating reflects both our fine financial position and our leading market position and also establishes additional conditions for long term financing at favorable terms. Moving on to Slide 22. In addition to launching our new MTN program, we also launched a green financing framework, making it possible to issue green bonds. To ensure that framework meets strict environmental requirements, It has been reviewed by the Independent Climate and Environmental Research Institute, Cicero, which has given the framework derating, Vistero, Medium Green. The first issued bond of €1,400,000,000 was green and Katena's green financing now amounts to 14% of interest bearing liabilities. Our current target is to reach at least 50 2% share of green character rights loans until 2025 or later. Moving over to Slide 23. The Green Finance Framework stipulates 3 subcategories: for new construction and major renovation, for existing buildings and for energy efficiency. The framework will be controlled yearly. Most of our assets qualified for green financing and achieved at least a certificate of Mila Abigna Silva and or an Energy Performance Certificate of A of E. Moving over to Slide 24. Kapteina's new MTN program was established in May amounting to a price of EUR 5,000,000,000 And shortly thereafter, the 1st senior unsecured green bonds was issued with a total volume of 1,400,000,000. Rate terms was set to SEBAR 3 months plus 1.35 percent for a floating rate loan of SEK 950,000,000 And mid swap plus 135 percent for a fixed loan of €460,000,000 both with a tenor of 4 years. On balance day, the LTV amounted to 45.1%, and the average interest rate stayed at the same as in Q1 of 2.3%. Equity ratio was reported at 41.5%. Moving over to Slide number 25. As part of our efforts to favor our credit rating, we have been committed to extend our average debt maturity. With the establishment of our NPM program and issuing our Catena's first green bonds With the full year tenure, the average debt maturity has changed to 3.3 years, which is an extension with 1.1 years since last year's of 2.2 years. Interest maturity went from 2.7 years last quarters to 3 years this quarter. The portfolio has currently a hedge ratio of 71%. Moving over to Slide number 26. And moving over to Slide 27, capital deployment. And Jorgen? Thank you, Sophie. Our goal is to focus the majority of our investments into development. Although during the first Two quarters, we have acquired properties for around SEK1.2 billion, we're only around SEK700 1,000,000 in Denmark. We have also invested SEK 450,000,000 in projects. Looking into the coming years, we see that The amount invested in projects will increase from the figures today. Moving to Slide 28. And here we have a slide of our transactions. I talked about this. You can see the major part has been concentrated in Denmark. Further, next slide please, 29. And here are our large development projects in progress. And the project in Erstad is about to be finalized this month and our tenant, Srivu Nordvik, moved in, in the other week. Next slide, please. Potential future development. And on the Balance day, we hold the potential of about 5,000,000 square meters of land. We're almost 1,000,000 square meters are consolidated and we With development plans in place, rest of the land bank is conditional on various contractual agreements such as detailed development plans having to gain legal And the search of new land continues along with ongoing stonemps plan in progress. Next slide 31, please. And further to 32, Svein. The PML's sustainability work progresses. We are happy that our implementation of green financing through our own green bonds went well and it would give us additional flexibility in our own portfolio. And also this that we can match Catena's sustainability ambition fully by offering Green Bonds as an investment alternative. We are committed to take our responsibility concerning environmental aspects of our operations. And to make sure we follow the Paris Agreement. Right now, we are assessing the implications of the EU taxonomy and how the regulations will impact our future reporting standards. Moving over to Slide 30 3. The work with certification has been intensified and 12 buildings are now certified according to Medias Biedema Ceeson, And another 10 is ongoing. We have added solar cells on February 1st and have now 15 installations ready. The positive news that the government increases the level for tax expense to 500 kilowatts for solar cells installation will give us an opportunity to more cost efficient and larger installations. Moving over to Slide 30 4, for some markets insights and ongoing. Yes, 35, and some interesting signals from our And on IKEA, it's 149% growth in Q1 regarding online sales of groceries. Postnoer identified online shopping order by 50 3% in Q1 'twenty one compared to 2020. MTG, who is a large customer in Denmark, Came out in Q1 'twenty one with the best quarterly result ever. So once again, We feel very confident with the market, the very strong market. And we can see that our customers, They are in need of more logistics spaces in the coming years. Moving to Slide 36. And we can show here a large growth in different segments of e commerce on the left side. And on the right picture, we can see that the share of online shopping for groceries has doubled from 2% in 2019 To 4% in 2020 and the trend has continued in 2021. Moving to Slide 47. As I started with highlighting in Q2, we had a new zoning plan approved in So now close to our large area where we have finalized all the projects. And now we have a plot of 110,000 square meters and we can build up to 55,000 square meters. And after the summer, we will intend the work to prepare the farming land, so we can be Good to go when we have finalized discussions with potential customers. Moving to Slide 38. It's a picture of an amusement park. Liseberg is very famous in Sweden. And we acquired a property in the region of Gothenburg. And the property is just over 7 1500 square meter and it's fully leased out to Liseberg Aave for the 10 year contract. Then we move on to the Q and A session, please. Thank The first question comes from the line of Niklas Wettring from DNB. Please go ahead. Your line is open. Hi. I have 2 growth related questions. And the first one is It was no project starts in Q2 and the remaining investment volume is in a declining trend. And what's your near term outlook for project starts? I think and I hope that we can present some new projects after the summer or at least the coming 6 months. So that's my very best guess. And we are fully aware of that. It has been declining figures in that investment trend And that we have instead made some acquisitions. But once again, as I said, we will focus on our own developments in the Coming in years. And I don't know exactly what you know mean by near time, but if we Are talking the second half of this year. I'm sure that we will present some new projects. Okay, great. And do you think the SEK 600,000,000 in investment volume is a fair target? Or Are you likely to overshoot it? It's very tough to mention any figures, but we will step up for sure. Yes. And secondly, a question about transaction activity It was also rather low in Q2. But I noticed your competitor SLP has made 3 acquisitions in Last week in regions where Catena has a strong market position. Why is not Catena the taker, Jose? I think it goes hand in hand with the strategy that we will, for sure, focus on developments. And And so in these cases, we have not been focused on acquiring those facilities. So We will focus on developments in the coming months. Okay. So you have not been bidding for those? No comment on that one. But do you prefer to buy cash flow assets in Denmark Before Sweden. Yes. As the market is right now, I think that we prefer to go Further on in Denmark. Okay, great. Thanks. That was my question. Thank you. Thank you. Your next question comes from the line of Victor Krueger from ABG. Please go ahead. Your line is open. Perfect. Thank you. And I assume you guys can hear me. Yes, we can. Yes. Thanks. Hi. Just I have 2 questions and the first one relates to what Niklas just asked. That To Stockholm Seed and the detailed plan that was described in your QWET Telecom Telco. So I was just wondering if or what the status is there and if you have any updates to give us regards to the detailed plan. It's the same answer as last quarter. We are working with the water Handling all documents and for having the right papers in place and then give it To the environment, to take the decision. So we have no update concerning any dates, But we are working on it. Okay. And the other one was regarding to paid tax That came up or that went down again this quarter. Should we still expect The paid tax rate to be in line with Q1 for the full year? Or has something changed in that regard? Well, we never calculate what we call pay tax in the quarters. We only do that when we come through in the full year. So all the tax that we calculate during the deferred tax, because you can't really do it beforehand. But if you see this figure for the full year or 2020 too. In the annual report, you have a division. It's divided between pay tax and deferred tax. And it's more in line of tax that you can see. But since we're growing and of course, going to grow a little bit with us, but the take cash is going to be around that going forward. But the deferred cash, It's the calculation of both up and down with derivatives and the property values changes. So when you were guiding in Q1 for a higher tax rate, was that only referring to deferred tax? Yes, it is. It is. It's a continuation of the Yes, it is. Perfect. That's all for me. Thank you. Thank you. Thank you. The next question comes from the line of Jan Ehrfeldt from Kepler Cheuvreux. Please go ahead. Your line is open. Okay. Thanks for taking my questions. First one is really on Your financial net and there were SEK 5,000,000 in financial income this quarter. I just wanted to know What that refers to. Yes. That's the it's a one off of Currency, when we bought the denim the practice in Denmark, We hedged the currency at a certain point. And then when we took up loan, We got another currency. And from all this, we came out on the plus side. So we actually had a EUR 4,500,000 currency win. But this is a one off, so it won't come another one. But we will see it's there. So that's the reason. Okay. And looking at the financial costs, I mean, if I look to the earnings capacity for the Q1, they've indicated a Cost of almost SEK 56,000,000 and it actually came in at SEK 60,000,000. So I just wonder if there were any extra items also in the costs. No, I think it's more a thing that we are growing. We have a bigger You compare it to last year? The earnings capacity. No, the earnings capacity in the Q1 indicated a run rate of SEK 56,000,000 per quarter. And it came into at SEK 60,000,000 this quarter. So I just wonder if there were any. Yes. Well, I think that when that in the earnings capacity, it's for 4 quarters and it's divided by 4. And then I think we can see some lower costs in the coming quarters. Regarding to, For example, the MTN program and so on. Okay. So You think your average interest rate will come down in 2021 compared to 2020? Yes. Yes. Absolutely what we hope for. Okay. To what extent? Is it 10, 15 basis points to Okay. Moving on to your property uplifts. It's a little bit lower this quarter. I just wonder how much of the property uplift this quarter referred to the finalization of the Sunanor project? That's another project in terms of the buildings or I mean just looking at the Property uplift, I suppose there was some of it that will refer to finalization of projects. I just wonder if it's How much of over €200,000,000 we're actually referring to projects? We don't have the exact Here we go. Look at it like that. But I would I don't know. But maybe half of it, give and take, I don't know. But it's It can come in different sometimes. It's not only the big projects that's going to give this effect. There can also be smaller projects that we do investments in that we've given uplift when the tenants moved in. We made an investment in the property. Very mixed of things. We cannot describe exactly how much it was regarding Sunnano. That's for sure, SonaNeo and Tostad, they have been some of the best cases where we have made a lot of uplifts during the past quarters. Okay. And just also on the property uplift and your property values. Do you see that your current property values reflect what is happening on in the market right now? Or is there Kind like that the current transactions are not into your books, so to say. I mean, we have now made a lot of external valuations and we feel very confident with the values. But for sure, there is a lagging in time between The brokers' view of the market and the valuators. So we'll I think We can see that maybe the yields are going down also in the evaluators Perspective in the coming 6, 12 months, but who knows. But today, we feel confident with the values. I just saw that the Treetax Eurobox bought a property in Gothenburg port of 3.6% yield. Is that an indication of lower yields going forward? Yes, it could be. But it's also very, very difficult to just relate to one Very low yield transaction. There could be some other reasons why they really wanted that one So badly, so to speak. But of course, when the market presents A lot of transactions when the where the yield is below 4. Then I think we can see also some changes In the value it is the external value it is reports, so to speak. Okay. My final question really regards your CapEx level for this year. Do you have any, I mean, some kind of Soft guidance, what you expect it to be? No. As I said before, it's very tough to mention any Figures, but we feel very confident with that we can present some more projects after the summer and the coming 6 months. We have exciting discussions on the table. And yes, we know The pace hasn't been that high in the last 12 months, but we feel that we are very eager to increase The figures again. Okay. Thanks very much. Thank you, Jan. Thank you. Thank you. There will now be a further pause while any further questions are registered. We have a question from John Young from Kempen. Please go ahead. Your line is open. Hi, good morning. Thank you for taking my questions. I was wondering whether you had a bit more color on the relapping spreads, given that your like for like is still at 0.5%. Yes. I mean, I would have indicated before it is something between that 1% and one Percent like for like over the years and it could also vary a bit between quarters. And You know we have a very long contract and it's not that often that we renegotiate the contracts. And if we, for example, had a renegotiation in a smaller city and then compared to Stockholm From Mangotfenberg. That would show in those figure of 0.5%. Next quarter or next year, maybe we renegotiate somewhere else and then maybe the figure is a bit higher. So that's just a bit more flavor on that FIGR. Okay. Thanks. I suppose it's fair to say that the green negotiations you had in the first half Mostly in the smaller cities essentially. Okay. Yes, good visual way to interpret, yes. Okay. Thank you. And perhaps then as a follow-up on that, what are you expecting for the coming 6 to 12 months In terms of like for like. That is very tough to indicate. But As we have said before, it's hovering around this 0.5% up To 1%, maybe in some good cases, it could be up to 1.5%, but it's hovering around 1%. That's a bit Yes, forecast. All right. Thank you very much. Thank you, Jan. Thank you. We have no further questions. So I will pass back for any closing comments. Now then we would like to thank you all for listening and wish you all a wonderful summer and see you soon again after the summer. Take care, everybody. Yes. Take care and have a wonderful time.