Good morning and welcome to the Catena Q3 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Jörgen Eriksson. Please go ahead.
Hi, everyone, and welcome to this earnings call. Operator, please proceed to next slide. In today's presentation, we will start off by giving a short summary of the latest quarter, followed by a short overview of our customers and our property portfolio. We will then proceed to the business update, where we will touch on our current growth initiatives.
Sofie and David will then walk through the numbers in the financial update, and we will then open up for a Q&A. Next slide, please. First of all, it's a changing world, but we are standing very, very strong. I'm happy to report continued growth and a very strong financial position with record low LTV as we are passing the nine-month mark for 2022. We registered continued rental income growth driven by our acquisition projects and a stronger like-for-like number.
In the month of September, the CPI index reached 10.6%, which, if this continues into October, would mean a significant increase in the rental income for next year, driven by our majority CPI-linked contracts. The rental increases will help us to mitigate the effects of higher inflation and cost of debt.
Furthermore, we continued our strategy of increasing the exposure toward modern logistics properties by making a divestment of a non-strategic asset in Kista. After the quarter, we announced a new project in Ängelholm for Carrier and a new lease for the newly built facility at Logistikposition Tostarp in Helsingborg. All in all, a good quarter. Next slide, please. Overview, so please proceed to the next slide. During the quarter, we conducted a number of divestments that resulted in a lower number of properties and lettable area compared to last year.
These divestments are in line with our strategy and will on a per square meter basis increase the quality of the entire portfolio. Next slide, please. Taking a look at our customer base, no significant changes were made in the top 10% customers with regards to rental value. We continue to work closely with our customer and support them in their growth journey.
One example of that is the new lease agreement with Nowaste at Tostarp. Next slide, please. Here in the market update, I would like to comment on some of the trends we are seeing at the moment on the customer side. We are seeing a decrease in the share of take up for new logistics space for e-commerce companies compared to the record year 2021.
Driven by a need for these companies to lower CapEx and OpEx and thereby improve their cost structure, 3PL companies are increasingly taking up the majority of the take up for logistics. Furthermore, the recent events during the last two years have led to strategic decisions within companies to make supply chains more resilient and decrease carbon emissions. This has led to an increased demand for new logistics space closer to the home market.
This trend we expect it to continue for the long term. Furthermore, since costs are rising for many e-commerce players, improving logistical efficiency and continued investment in automations will be paramount in order to stay competitive in the future, both when it comes to the customer experience and on a cost level. Thereby, the logistics facility is growing in importance for these companies. Next slide, please.
In the business update, we will take a look at our initiatives for future growth. Next slide, please. Taking a look at our current projects, we are progressing very well with a good cost control. As we announced after the quarter ended, the new facility in at Tostarp in Helsingborg was completed and the fast-growing 3PL player, Nowaste, has signed a seven-year lease agreement for the facility.
Furthermore, we announced a new project in Ängelholm after the quarter with the Carrier company. The facility will be at 7,000 square meters and the investment will total SEK 83 million. Carrier will sign an eight-year lease agreement and the facility will be completed next year in Q3. With our current projects, we are seeing a smaller delay with our project at Logistikposition Landvetter due to a now solved issue with the Swedish Transport Administration.
Completion is now set to Q4 2024, and we are now moving on with full speed. Next slide, please. With regards to our land bank, about 300,000 square meters is now allocated to a new project. Otherwise, we are working with our ongoing zoning plan processes. Just to mention also in this slide is that we have seen some very interesting transactions regarding land transactions and the price levels.
For example, in Panattoni was on average SEK 2,600 compared to the very low values that we have in our books. It's really an upside for Catena. Next slide, please. Taking a look at our acquisitions and divestments, we are continuing with our strategy to optimize our portfolio, increasing the share of modern properties in great logistic locations and divest non-strategic assets.
During the quarter, we sold a larger property in Kista, close to Stockholm. The property, Vanda 1, was originally a newspaper printer, and has over the years been redeveloped to a data center, which today houses the leading data center player, Interxion. We sold during the quarter the property to Interxion since it's not a strategic asset and the price was sensational.
We registered significant profit, which highlights the value we generate by working close with the tenants and act upon interesting development opportunities over time. As a strategy, we're prioritizing our own project development, where we're currently finding an attractive yield on cost and therefore being selective with regards to acquisitions. However, we do stand ready if great properties will be available at attractive prices in the now turbulent times.
As for the ninth-month period, we have now acquired 72 square meters of lettable area, which the majority is related to the Handslangen acquisition. We have, at the same time, sold a number of properties which led to SEK 100 million in profit. Next slide, please. Looking at our leasing operations, we continue to register a strong net leasing of SEK 27 million in the Q3. The WALE continues to increase slightly due to a stronger customer interest for longer leases. Our letting ratio continues to be high, standing at approximately 97%, also reflecting the strong demand for our segment. Now I would like to hand over to Sofie for the sustainability and financial update. Next slide, please.
Thank you, Jörgen, and hello, everyone. Taking a look at sustainability, we are increasing the pace of certification of our property portfolio. This is showcased in Q3, where we certified 5% of our entire portfolio. It was a great achievement by the team. We also upgraded our EPRA sustainability rating from Silver to Gold.
With regards to our coworkers, we are very proud to report that we maintain our high rating of 88% in the employer rating, Great Place to Work. We are above the industry standard, and our goal for 2025 is to maintain and stay over 85%. We will continue to work to improve all parameters and, through the process, maintain and recruit the best talent for Catena. Over to slide 15. For some financial updates, we're going to slide 16.
Our income for the period was driven by our main acquisitions, completed projects, and indexation, driven by our CPI-linked rent agreement. Rental income for the three quarters amounted to SEK 1.2 billion, compared to SEK 1 billion during 2021. This also increased our net operating surplus with 11% to SEK 900 million, compared to eight hundred and twenty-one million last year.
Property cost per square meter amounts to SEK 148 compared with SEK 132 last year. The increase is driven by higher electricity prices, which in turn is reinvoiced to our tenants. Our profit from property management rose 18% to SEK 723 million since Q3 2021. Lower financial costs, driven by our financing mix, lower LTV, and together with higher rental income, are the main reasons for the increase. Next slide, please.
Rental development for the quarter continued to develop as the previous quarter with a strong like-for-like, driven mainly by indexation and a higher occupancy rate. Divestments had a bigger impact of 2% this quarter due to sizable sale of Fredsstaden in the end of Q2 and Vanda in Q3. As earlier mentioned, this is two non-strategic assets where we saw low potential for future development.
As mentioned in previous presentations, we have a favorable position with regards to conversion of higher CPI to rent increase. We estimate that 90% of the CPI increase will translate to rental income going into next year. Now, I would like to hand over to David, who will talk you through our financial standing. David?
Thank you, Sofie, and good morning to everyone. So far during 2022, we have witnessed a dramatic shift in capital markets. Capital has become more and more scarce, and credit yield spreads have widened, specifically related to real estate and the bond market. Inflation has elevated, and interest rates has followed suit. While we continue to keep a close eye on the economic and financial developments, it's our general perception that our strong balance sheet.
Combined with our long-term commitment of owning high quality cash generating properties offers us a sound safety margin, but also flexibility and opportunities ahead. On balance day, our loan to value was reported at 35% and our secured loan to value was 29% with an average cost of debt of 2.7%, which constitutes an increase of about 40 basis points from last quarter.
Interest cover of 5.2 times signals strong cash flow and the equity ratio of 51% is record high. Next slide, please. Our debt maturity structure implies we have about SEK 4 billion of refinancing to do the upcoming 12 months, whereof we have already signed and negotiated for about SEK 1 billion. The rest of SEK 3 billion is related to bank loans for most part.
Credit margins have been stable, and we expect only a small price concession over coming 12 months compared to one year ago. Almost 60% of our outstanding loan portfolio consists of bilateral bank loans, and about 30% is related to capital market funding, and the rest is Danish mortgage bonds. Over the coming 12 months, only SEK 400 million are maturing bonds.
Through a strong cash holding position of SEK 1.4 billion, along with unutilized and confirmed credit facilities in the amount of SEK 2.3 billion, in combination with the resilient cash flow from operations, we feel comfortable to handle upcoming refinancing activities in combination with deploying capital to our development pipeline. Next slide, please. Our interest maturity structure implies we have currently 68% of total debt hedged with an average term of 3.3 years.
Our derivatives portfolio and fixed interest loans combined have an average term of about five years. Within the next 12 months, around 40% of our interest exposure is potentially changing. This strategy offers, in part, a protective shield to increasing market rates and the impact it entails on our cost of debt. In the current context, it makes perfect sense since it offers us time to benefit from a high degree of CPI protection.
For a strategic reason, we could also make use of the value of our existing derivatives portfolio to either lower our cost of debt and/or expand our hedge ratio. That would, however, come with the cost of shorter overall interest maturity. Next slide, please. While logistics yields have moved out somewhat over the last quarter, sustainable rental growth and occupier demand in the sector will play an important role in cushioning the impact on values.
We have run a number of stress test scenarios to assess the impact of higher property yields and rental growth on valuations. In this slide specifically, we present two different scenarios. They are based on Q3 numbers and serve only as an illustrative assumption, not as a forecast of any kind. The first scenario assumes all else being equal, that yield requirements expand by 2% points.
That suggests a corresponding drop in market value of about 40%, which would lead Catena's loan to value to around 60%, which is the lowest covenant threshold the group has to maintain. The second scenario assumes all else being equal, that yield requirements expand by 2% points and that rental income increase permanently by 5%. That suggests a drop in market value as well, but only to the extent loan to value is capped below 55%. Given the market situation, we feel there is satisfying headroom to our covenants supported by a strong balance sheet. Next slide, and over to Sofie.
Thank you, slide 22. Some more words on capital deployment. Acquisitions during the first three quarters came to SEK 1.9 billion, mostly due to the Handslangen acquisition. Divestments for the period amounted to around SEK 900 million, which increased this quarter due to the Vanda divestment. Current development CapEx amounts to almost SEK 1 billion, as mentioned earlier. We are comfortable with our financial position, which allow us to continue to invest in our projects and acquisitions.
Next slide, please. For the period, we added SEK 2.8 billion as a result of net acquisitions and development CapEx. For the quarter, we made a minor write-down to our property value as a result of increasing yields. As David mentioned in earlier slides, we are well positioned to parry the impact from increasing yields with our CPI-linked contracts and also high yield on cost on our projects. Going to slide 24, and it is time for the takeaway from today. I'm handing over to Jörgen on slide 25.
Thank you, Sofie. Well, the takeaway from Catena's Q3 can be summed up into three points. The first is that Catena is in a very strong position with strong underlying long-term trends. The market for logistics property is driven by sound fundamentals, and we are in a leading position in that market. Second, Catena has a resilient financial position driven by our strong cash flows and low loan to value, which give us significant headroom going forward. Lastly, we have a unique growth opportunities through our land bank and acquisition strategy. With that said, I would like to open up for questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. Your first question comes from John Wong from Kempen. Please go ahead.
Hi. Yes, good morning. Thank you for taking my questions. I think you mentioned you are expecting to be able to capture 90% of CPI. What's the actual reason for not, say, 100%? Is this due to the nature of some contracts, or do you expect pushback from some tenants?
No, that's from the contracts. For example, in Denmark, the normal case is there is a floor and there is a cap. That's. Also we have some contracts in Sweden where there is not 100%, it could be 85% of the indexation. All in all, we are at the level of 90% of impact.
Okay, that's clear. On the floor and caps, could you perhaps give some color on what these levels are?
It's up and down. I don't have the exact digits. It's easy to get it wrong if I say a digit. It differs. For sure, most of the contracts in Denmark, there is a cap, and that's also the reason because it's another situation in Denmark. You have the right to, in an existing contract, renegotiate it if it's not in line with the market rents. That's why also the parties want to have a cap. In Sweden, we have a contract, and then we have to follow it all the time as long as the contract lasts. That's why we, in the normal case, have uncapped CPI in Sweden.
Okay, that's clear. Just onto market rental growth. Do you think it's able to keep up with this indexation, or do you expect that the real rental growth is a bit lower?
No, I think it's with all the things on the table today with the higher construction costs, higher cost of debt, I think that this CPI adjustment of about, if it's not 10%, it's no problem to justify that new level.
Okay, that's clear. Because I remember in previous calls, you mentioned that there's also some areas in your portfolio where it's easy to add supply, and essentially you're looking at inflation minus. Is this still the case, or is that also going to be just inflation given higher construction cost?
I mean, with the higher construction cost, the higher price of the land and also, as I said before, the higher finance costs, there is no chance at the moment that the developers can offer low rent levels. We feel very safe at the moment.
Okay, that's very clear. Just one last question from my side. You mentioned that third-party logistics is a large taker of demand. I think they're experiencing some pressures from margins due to wage inflation and higher fuel costs. Also with consumer demand likely slowing, do you still expect them to be a large taker of space in, say, the coming 12 months?
Yeah, I think so. We have tight dialogues with our customers, and that's really the feeling we have. I think that the market is thinking that it's right now it's dead. There are no transactions or no projects on the table. We still feel that there is a demand from, especially from 3PL players. As an e-commerce, you want to split the heavy investments from, for example, an automation. You get together with other e-commercers and you will go and negotiate with a 3PL player.
Okay, that's clear. Thank you.
Thank you. Once again, to ask a question, please press star, then one. Your next question comes from Niclas Wetterling from DNB. Please go ahead.
Thank you. Yeah, I just got one question regarding capitalized interest rate. Historically, that has been quite a small figure, but now when your project pipeline is growing quite much, can you give us some guidance on how much interest rate cost you can capitalize next year?
We have never announced that kind of number, but you are right in the fact that it is increasing and in that sense will help us in terms of next year's total cost of debt in profit and loss.
Okay. Just to grow in line with the historical figure?
Yeah.
Okay, thanks.
Thank you. Once again, please press Star then one to ask a question. There are no further questions at this time. That does conclude our question-and-answer session. I would now like to turn the conference back over to Mr. Eriksson for any closing remarks.
Well, thank you very much all of you for listening, and we from Catena's side, we wish you all a very nice weekend when it comes. Thank you for this time.
Thank you very much.
Thank you. Thank you, guys. Bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.