Welcome to Catena Q2 report 2024. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. This call will be conducted by CEO Jörgen Eriksson, CFO Sofie Bennsten, and Chief Treasury Officer David Silvesjö. Now, I will hand the conference over to CEO Jörgen Eriksson. Please go ahead.
Hi, everyone, and warm welcome to this conference call for the Q2 report 2024. Here is the agenda for today, and it's the same as we used to have. Short summary, business overview and update, followed by sustainability, finance, and a short takeaway before ending up with a Q&A. Next slide, please. So let's go into the summary by start saying focus and persistence produce results. We report 14% increase in rental income, ended up in SEK 1,020 million, driven by acquisitions, projects, and the stronger like-for-like numbers, driven mostly by our CPI-linked contracts. Profit from property management increased by 4% in total, and per share, it was down to SEK 11.46 per share.
But we do see this is temporarily, since we now have acquired a lot and have a much stronger cash flow in the coming quarters, and that we also show very clearly in our earnings capacity report within the report. The balance sheet is very solid, with an LTV at 38.8%, and we report an increase in NRV per share up to SEK 396 . With all this in mind, we are comfortable to generate strong performance going forward. Next slide, please. Next slide again for some business overview. In the market, we see more activity in the transactions, and we have witnessed some transactions with strong demand and aggressive bidding, but still, there are concerns in some markets where the yields will end up or trend.
The latest we heard is that the core money will come back into the market after the summer. It could be a driver for more transactions and stronger demand. It's also due to the first interest cut, which I think David will give some more flavor about later on in this presentation. The numbers for e-commerce for May 2024 shows a positive trend and is up 29% compared to May 2023, according to Svensk Handel's E-commerce Indicator. This confirms our long-term bet that e-commerce will keep on growing. Regarding new developments, it is pretty much the same story as last quarter. We have ongoing discussions. It takes longer time than we are used to. We can only keep up the work and do our best, and hopefully, we will sign some agreements after the summer in the coming quarters.
That, that's our strong belief. Lastly, as far as we know, there is the same situation regarding the vacancies around Stockholm-Mälardalen region as in previous quarter, where the aggressive developers has started a lot of projects and also finalized them, but still no lease agreements. Next slide, please. Looking into our customer base, there has been a major change regarding the top 10 customers. After the transaction in Landskrona with DSV, it's our second biggest customer, standing for 8% of our contractual value. Logistics and transport has, at the same time, increased as a segment by 10%, now standing for 44% of the contractual value. Next slide, please. Some words about the portfolio then. Since the beginning of this year, we report in four different regions: called Sweden South, West, East, and Denmark.
There has been a huge change in the Region South, thanks, of course, to the DSV transactions during the spring. Not only Landskrona, also Helsingborg. So at the moment, Region South is actually as big as Region East. The fair value and the lettable area has, of course, also increased due to the acquisitions and the projects, and amounts now to SEK 35.9 billion and more than 2.6 million lettable sq m . Next slide, please. Taking a look at the business updates. Next slide. This acquisition, as we mentioned before, DSV, expands the property portfolio by just over 180,000 sq m of logistic space.
We are not only adding substantial state-of-the-art, well-conceived logistic space to our property portfolio, we're also forging a deeper relationship with DSV, which is becoming one of the biggest tenants, as I said before. The warehouses are located in Landskrona, right besides DSV's head office for Sweden, and also close to their cross-dock terminal and the third warehouse. Next slide, please. At our Jönköping project to Now aste, we had a speculative part of almost 20,000 sq m when we started this year. In May, we were successful in signing a 10-year lease agreement with Mestergruppen for that space. Mestergruppen is a leading builders merchants group in Sweden, comprising the brands XL-BYGG, Bolist, Happy Homes, and Colorama, and they are. Mestergruppen is based from Norway, the group. At the same time, Now aste has signed an agreement with Mestergruppen to handle the logistics within the warehouse.
Next slide, please. At the first of May, Elgiganten move into our biggest project in our history. In total, almost 87,000 sq m , where they will handle and store their Epoq kitchens, which they move from Czechia. A unique project in its size and in our initiatives together with Elgiganten to drive the sustainability agenda for the facility. We aim for WELL certification, which is an international standard, which measures factors affecting human health in the property. These factors can include, such as thermal comfort, materials, and overall well-being. Catena will, with this process, break new ground within social sustainability, where the well-being of those working in our facilities will be at the center. Furthermore, we are continuing by building energy efficient and sustainable facilities by certifying them in the building process through the BREEAM certification process, and we will aim for an excellent grade for this project.
Next slide, please. Our ongoing project portfolio totals to around SEK 2.6 billion, where SEK 1.1 billion is remaining investments. When all is completed, we will add approximately 200,000 sq m to the portfolio. The yield on cost is around 6.7%, and for new projects, we are aiming for around 7%. Next slide, please. We have our land bank of 4.6 million sq m, no other updates around the processing for getting zoning plans. They are ongoing. Next slide, please. Looking at our leasing operations, they are very successful in this report. Our net letting was SEK +51 million in the quarter. Our WALE is now at comfortable 5.8 years, and the letting ratio is back at above 96%. Next slide, please, and handing over to Sofie.
Thank you, Jörgen, and hi, everyone, and go to the next slide. The environmentally certified area went down to 41% from 44% last quarter, and this is due to projects and new acquisitions that are in the process of being certified. When these certifications are done, we will see an increase of certified area again, and during this quarter, we certified 53,000 sq m of the existing portfolio. We continue to maintain a high level of EU taxonomy alignment, for example, our CapEx of 93%. The Scope 3 is at a high level compared to last year, due to finalizing projects during the quarter of 93,000 sq m . We report the Scope 3 when the buildings are completed, which means that the Scope 3 will increase when projects are finalized. And moving on for some financial updates.
The next slide, please, and next slide over to the income. Rental income for the half year came to SEK 1 billion, a growth of 14% since last Q2. The increase was driven primarily by indexation, the acquisitions we made, and projects being finalized. Net operating surplus follows this development and rose 14% to SEK 827 million. Profit from property management grows 4% to SEK 608 million. And over to the next slide, please. Our CPI-linked contract that came to effect in the beginning of this year, gave a like-for-like growth of 6%. Acquisitions contributed with SEK 53 million, with especially the newly acquired properties in Landskrona and Helsingborg, with DSV as tenant, and also the Danish property in Jernholmen, Denmark.
There were no divestments made, and in project development, the finalized project to Elgiganten in Jönköping, Lakejen Malmö, and to Svensk Glasåtervinning in Norrköping were the main contributors during this quarter. Now handing over to David for some comments on financing.
Thank you, Sofie, and, good morning, everyone. During the quarter, we followed up on our targeted share issue from the first quarter with new acquisitions amounting to just over SEK 2.5 billion, and project investments of approximately SEK 700 million. Including paid and reserved dividends in Q2, the EPRA NRV stands at SEK 396 per share, as Jörgen mentioned earlier. When evaluating our capital structure, it aligns with our strategy to maintain financial capacity to continue growing through strategically important acquisitions and value-creating projects going forward. On balance day, the equity ratio adds up to 51%, still leaving room for capitalizing on investment opportunities. Passing on to next slide. We have balanced our investment ambitions with equity injections and thereby managed to maintain critical key figures at comfortable levels, leaving ample room relative to both our own policy requirements and financial covenants.
The loan-to-value ratio stood at just under 39%, and net debt to EBITDA at 8.2x . The interest coverage ratio has improved slightly to 3.8x due to a positive trend of lower capital costs. During the quarter, we received news of an upgraded rating, which has contributed to this positive trend as well. In conjunction with refinancing and taking on new loans, we continue to increase the share of sustainable financing, which on the balance sheet date now amounts to 61% of outstanding loan volume. Next slide, please. It has been an eventful quarter. Central banks, including the ECB and the Swedish and Danish counterparts, have initiated interest rate cuts due to declining inflation and to some degree, poorer economic outlooks. By the end of the year, an additional two to three cuts are expected from the Swedish Riksbank.
This has contributed to a gradual decline in capital costs during the quarter. We issued bonds amounting to approximately SEK 1.2 billion during the quarter, and in the most recent transaction of SEK 350 million with a two-year maturity, we paid 90 basis points over three-month STIBOR. We have consistently experienced strong support from banks and feel that there is ample room for new business opportunities. Our liquidity, including debt commitments, totaled SEK 3.1 billion on balance day. This amount is more than adequate to cover upcoming refinancing needs for the next 12 months. Passing on to next slide. The average cost of loans has been maintained at 3.8%, despite increasing debt by just over SEK 1.2 billion during the quarter. And this is, of course, another indication that conditions are improving.
During the first half of the year, we also purchased SEK 1 billion in new swaps at an average fixed rate of 2.5%, with an average maturity of six years. Approximately 65% of the loan portfolio has a fixed rate, and the average interest rate maturity was 2.6 years as of the balance sheet date. We will follow the market and central bank's actions this fall and evaluate when and if we should purchase more interest rate hedges going forward. Now, passing on over to Sofie for the next slide. She will lead us through capital deployment and valuations.
Thank you, David. Our capital deployment divided into acquisitions of SEK 3.7 billion in Denmark, and the two sale-and-leaseback transactions with them were the big ones, and we had some smaller transaction, and it all totaled to seven new properties. No divestments during the quarter. Development CapEx ended at SEK 1.3 billion. These investments, like I said earlier, are related to our large ongoing project with Elgiganten in Jönköping, a project that has been finalized during this quarter, and also with the big project to Menigo in Landvetter, and a project at Stigamo in Jönköping. Total CapEx for the year, rounded off to SEK 5.1 billion so far this year. Going over to next slide, please. Property value was written down with SEK 161 million. This was due to a higher yield requirement.
The value change corresponded to 0.5% of the total value before adjustment. The average weighted valuation yield for the portfolio is 5.9% by the end of the period, and the fair net initial yield came to 5.6%. So far, 45% of our portfolio has been externally valued. Moving to the next slide, some words on credit rating. David?
Yes. Thank you, Sofie. And, as we mentioned, before, one of the highlights of the quarter was that we received an upgraded rating to BBB from Nordic Credit Rating with a stable outlook. We also received a confirmed rating from Fitch Ratings of BBB- with a stable outlook. Both rating agencies confirm our strong market position and our gradual shift towards a more sustainable and a robust financial position. Moving on to Jörgen for some closing remarks.
Thank you, David. The takeaways from us today will be in three points. First of all, we delivered a solid Q2 report on all numbers.
... secondly, we have deployed the proceeds from the equity raise in the Q1, as we told them and guided the market. And the third point is, with this existing portfolio that we have now, we show a clear uplift in our earnings capacity for the coming 12 months. And with that said, we open up for Q&A.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from John Vuong from Van Lanschot Kempen. Please go ahead.
Hi, good morning, team. Thank you for the presentation. Just on occupied demand, Jörgen, you said it, it's taking a longer than expected. Has this changed over the past three months? And as a follow-up on that, you also said that you expect to sign some new agreements after the summer. Is there any particular region where you see stronger demand?
I think, yeah, Gothenburg region and the southern part of Sweden is still the most interesting with the lowest vacancy rates. So it's fair to assume that we will present something in those regions going forward. Could also be something around Stockholm South, in terms of new developments, and regarding the occupier demand and the market, and I, as I said before, about those speculative projects around Stockholm-Mälardalen, there is the same situation. We have not seen or heard anything about new lease agreements in the market. But I would say that, based on intelligence and the discussions we have, we are comfortable that there will be some new projects for the rest of the year. But we had hoped to present it in Q1 or Q2.
With that said, yes, it takes longer time.
Okay, that's fair. That's good color. Thank you. And just on the core money that you mentioned that you expect to move into the market after the summer, does this pose some potential opportunity for you to do some asset rotation?
Perhaps could be a case. We, as you know, are not an active seller in the market, but from time to time, we can consider to recycle something. And we have, as you know, deployed a lot of capital in Q1, Q2. So but we don't need to sell, but there could be some certain geography we want to dispose and to focus more on other parts. But yeah, that's hypothetically speaking.
Okay. That's clear. Thank you.
The next question comes from Niklas Wetterling, from DNB Markets. Please go ahead.
Hi. I got a few questions, and firstly, I noticed that the NOI margin in the earnings capacity guidance has increased quite a lot quarter-over-quarter. Is that fully explained by the acquisitions, or has there been any improvements like to like as well?
I mean, that's correct, Niklas. The new acquisitions we have made has, for sure, a higher margin. The new projects that we have finalized has newer margin, and from time to time, we always try to do our existing portfolio more efficient, but the major drivers are, for sure, new acquisitions and new projects finalized.
Yeah. Is it the same thing with the vacancy rates that how was the like-for-like vacancy rate development in Q2?
The vacancy rate is due to what we told the market in Q1, that there was a step-in clause, right, in Copenhagen for Scan Global. Now they lease that area as well. So now we are back at the 96% level.
Okay, great. And then, the Elgiganten project, did you get, like, full rental income in Q1, or... And is it reflected in their earnings capacity guidance, that project?
Yeah. Yeah, everything is reflected in the, in the capacity. Yes.
Okay. Great. And then just lastly, on the development gains, have you, like, come to any conclusion? What did, for example, the gains from the Elgiganten project end up with, and how much has the development gain been this far this year, if I can separate?
We do adjust the values during the project times at certain stages. So it's fair to assume that in the report, it reflects the market value that we ended up in the Q2. That's the full effect from finalized project, and we also evaluate the ongoing projects depending on what stage they are at, and how comfortable we are with the market yields and where it will end up in the costs as well.
... Yeah, but do you want to share any comments on the margins you are getting on the project?
No, not more than we have in what we said, that the ongoing portfolio now is, we expect to have a yield on cost at 6.7%. And if we are about to start new one, we hope for around seven, but that could be some pips above or below, but in generally speaking.
Okay. Thank you.
The next question comes from Erik Granström from Carnegie. Please go ahead.
Thank you. Good morning, I have a few questions as well. Could you tell us something about the opportunities you see for the second half of the year? Are you looking into perhaps making additional acquisitions, or do you feel that the capital that you have employed so far is enough for this year? Could you give us some guidance as to your thinking for the second half of the year in terms of acquisitions?
Hi, Erik. That's a relevant question. I think the answer will be the same story as we have had the last year, depending on how successful we are in new projects, signing new lease agreements. That's the first choice. But if we, by any reason, shouldn't be successful, we will keep up the growth for sure, and then we have to focus more on acquisition. So it depends. It's a boring answer, but I think you follow me.
Yep, I understand. Perhaps related to that question, you are now established in Denmark. Would you consider moving further south? Meaning, basically what I'm saying is, or asking is, would you consider an expansion south of Denmark?
Not in the short run, but we are looking into when and how to enter new markets, but there is no decision, but we all the time monitoring what is next step for Catena. But as we speak, it's focus to grow more in Denmark before we enter any third market, so to speak.
Okay, thank you. And then my next question is regarding sort of rent level outlook. You've talked about the speculative development in the Stockholm-Mälardalen region. Are you seeing or do you see a risk of this affecting rents in this sort of micro area for you?
No, not in the short run and in the medium term, we are sure that there will be a take up. I mean, at the same time as there are big vacancies, no new speculative projects will be started for sure. So sooner or later there will be a take up, but I don't think that it will impact us as we speak in our existing portfolio. Our rent levels are for sure below what the other players are asking for, but who knows what is their next step? They, I mean, sooner or later, they need some rental income, right? So we just have to wait and see, but we are not worried or concerned about the situation for us in regards to those developments there are.
Okay, perfect. And then my final question was sort of a short remark and maybe some clarification. I think on slide 26, you mentioned that value changes in Q2 was a negative SEK 161 million, but I believe, isn't that the first half of the year?
Correct.
Q2 was actually quite a small positive. So, the exit yield moved a little bit, I think, in Q2 versus Q1, but in Q2, the effect is still positive. Is this because... Should we interpret that, as you discussed earlier, is this mainly due to project reevaluations having an impact?
That, that's fair to assume. And the positive movement in Q2, isolated, was SEK 38 million.
Yeah.
So not much, but a little movement in the right direction, if you would like to say it so.
Okay, perfect. Those were my questions. Thank you so much.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. The next question comes from Markus Henriksson, from ABG Sundal Collier. Please go ahead. The next question comes from Markus Henriksson, from ABG Sundal Collier. Please go ahead.
Thank you. Good morning, everyone. I'm a bit late into the call, so I'm sorry if any questions I will ask have already been asked. First, the outlook for project starts in your different building rights sites, where are you the closest to start projects, and what type of ongoing discussions are you having potentially for the second half of this year?
... Hello, Markus. Yeah, that's, thanks for the question. I, we had it before. I take it again. It's most likely to be in the southern part of Sweden. Gothenburg is also an interesting area. It may come something around Stockholm south, based on the intelligence we have and discussions with customers. We also said that it takes longer time. We hope to present something before summer. Most likely, for sure, it will be after the summer, but most likely in Q3 we will present something. So we are positive.
Thank you for that. A bit on potential construction costs. What are you seeing there when you are negotiating tenders for upcoming projects?
Yeah, good question. Until up to some weeks ago, I would say, pretty much the same. There hasn't been any declines in the building cost, but just the latest week, we have had signals that, for example, the steel price is going down. So we are optimistic that we could have some cheaper, building costs going forward.
Thank you. A question on the banks. Have you seen improved credit margins recently, or is it more or less the same as previous quarters? Do you have any ongoing discussions now where you can maybe help us out a bit for the second half of 2024, what you're seeing on credit margins?
Hi, Markus. Thanks for the question. Well, as I stated, in the presentation, overall capital costs has come down quite dramatically, I would say, in relation to how things were a year ago, and that goes with banks as well. It differs, so it's always difficult to give a general answer, but the trend is positive from our perspective, both in terms of margins, credit spreads in the bond market, and well, as you know, the market rates as well. So overall, capital costs are coming down.
Very clear. Thank you. Then last question on investment levels. You have previously stated investments of SEK 2 billion-SEK 3 billion. We see a massive uptick here in Q2, and then you will finalize a lot of, a lot of projects, but any update, more generally, on how you're looking at your medium to long-term investment levels, previously, SEK 2 billion-SEK 3 billion, any change there?
No, I also stated before, and there was a question about how we will deploy capital going forward. Is it more acquisitions or development? And it's the same answer as we have told the market some years now, that we will always prefer the developments because they are more profitable, but from time to time, we have to do acquisitions when the development market is a bit sticky. So it depends on how successful we are in the discussions with regarding new projects. If they are taking even longer time, we will keep up the growth, and then by that said, we have to look at more acquisitions.
Thank you for that. Those were my questions. Have a nice weekend.
Thanks. You too, Markus.
Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Well, thank you very much to all listeners for attending at this earnings call. And with that said, we also from the Catena team wish you all a fantastic summer, and see you again after the annual leave. Thanks a lot, and goodbye.
Thank you. Bye-bye.
Bye, everyone.