Hello, and welcome to the Catena Fastigheter Q4 2019 report. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Benny Thöresson. Please go ahead with your meeting.
Okay. Thank you. Benny Thöresson speaking. I would like to go to slide two, where you see the contents of today's presentation. We will walk our way through this agenda and the topics. Please go to slide three.
Highlights. The year is overall very satisfying, specifically on the backdrop of the several major development projects announced throughout the year. We retain our focus on development projects and acknowledge high demand from existing as well from potential new customers. Profit from property management has increased by 10% year-over-year, and that number translates that the hard work pays off. The board has decided on a proposed dividend of 6.50 SEK per share, and up from 5.75 SEK last year. Despite the forthcoming slow pace in the global economy, we feel comfortable about our business going forward. Several 3PL providers testifies about the strong fundamentals and structural changes happening in the logistics segment.
Throughout the year, it's evident, several major foreign investors and real estate companies have picked up on the Scandinavian market for logistics properties, pushing yields down, and we expect the high activity to continue in 2020. Please move on to slide 4, Peter.
Yeah, and we jump directly to slide five. My name is Peter Andersson. I'm CFO for the company for a couple of months more. So I have some comments on the income statement. If you look at individually for the fourth quarter, we have three separate events that are a little bit of kind of one-off effects. We have two smaller bankruptcies among tenants in Karlstad and Sundsvall, and they have affected the rental income, isolated the fourth quarter. We have also a change in property tax values under property expense, which has resulted in one-off effects. And the third one is our yearly share of Findus for 2019. It's slightly lower than we had planned, but here we have made some investments that we have put in the expense.
Those investments is to enable leasing forward. For the full year, 2019, we landed on an income from property management of approximately SEK 627 million, and it was, as Benny told you before, it's up 10% from last year. Realized change in value amounted to SEK 75 million for 2019, which is the most related to the option solution in Stockholm of SEK 59 million, and we had a reversal of the rental guarantee on previous year sold property of about SEK 60 million. The total change in value of the properties during 2019 amounts to SEK 866 million, which gives us a fantastic net income of around SEK 1,224 million, which is up 49% from last year.
Slide six. The balance, we landed on SEK 17.8 billion. It's up approximately SEK 1.5 billion since last year, and it's most regarding to the property value. Over to Benny, slide seven.
Operational review, and then we move forward to slide eight, rental growth like to like. The rental income amounted to almost SEK 1.2 billion in 2019. The total growth in rental income was 8.5% compared with corresponding year. Project developments contributed with 4.1%, and net transaction contributed with 2.1%. The remaining increase of 2.3% was related to like-to-like, and it's attributable to inflation, up-letting and renegotiations.
Slide nine, please. Cash flow. We have a very sound cash flow, and it's of the utmost importance to us, and I'm happy to know that, for the full year, we retained 53% of all income in the company before value changes. We thereby continue to improve. The same number was 52% in 2018. Slide ten, please.
Yeah. Okay, slide 10, and this slide tells you about the organization, that we're organized in five regions, and you find the detailed figures for the regions on this slide. I'm moving forward to slide 11. And here we have some key figures on the property portfolio. And if you're looking at the middle graph, it shows that the approximate 45% of the income comes from the 10 largest tenants, and that the three largest tenants are still DHL, ICA, and PostNord. And over 25% of those 45% is related to the biggest tenants and are related to third-party logistics service providers, which meaning they in turn have an immense amount of customer, which bring risk down for us. Slide 12.
Here we find that we have an average 8 prime net initial yield of 5.8% in the property portfolio. This had led us to somewhere around SEK 199 million in unrealized change in the value of the property in the fourth quarter. The property value has risen by 11% in one year, by which unrealized value change accounts for 5.3%. Back to Benny and slide thirteen.
The rental market. The rental market indicates a sustainable development, with the local variations. We can expect support for a higher rental growth in parts where there is typically an imbalance in supply and demand of land, and that's in the most urban regions. The continued structural demand for more logistics space in certain key areas supports a sustainable and safer growth rate in those specific areas. With overall letting ratio of 99.5%, somewhat lower than in 2018, makes me comfortable about the occupancy going forward. We continue our focus on raising the quality in our portfolio. In 2020, we look forward to finalize many of our ongoing projects, adding incremental value into our existing portfolio. Slide 14, leasing activity and contract maturity.
The portfolio provides for a stable net letting. SEK 39 million worth of new leases were contracted in Q4 and net SEK 4 million. Year to date, the same number adds to SEK 86 million worth of new leases and net SEK 23 million. The maturity of our contracts remains well distributed over time, averaging approximately 5 years. Slide 15, a history of growth. A brief glance of our historical performance, and let's start with profit from property management. That came in at 166.3 SEK per share, up 9% year-on-year. Annually, the compounded growth rate has paced at 16% for the last 5 years. EPRA NAV per share came in at 203 SEK, up 20% year-on-year.
The return on equity came in at 21%, up for 450 basis points a year ago. The five-year annual average is 18%. Slide 16, Peter, capital allocation.
Yes, and then we're moving forward directly to slide 17, where you find a graph. We have an average LTV level of 54, and it's down from the last quarter of 56.5. And the whole of our finance is still secure through mortgage. We're moving forward to slide 18. And here you can find that we have a debt maturity of 1.3 year on the balance sheet date, but we are aiming to extend the debt maturity at least two years. After the balance date, in the beginning of 2020, we have signed new loan agreements of approximately SEK 800 million, and we have increased our backup facility from SEK 1 billion to SEK 2 billion, and the work of expansion will continue. Back to Benny, and slide... I think we're going forward to slide 20.
Thank you, Peter. Capital deployment year to date. During the year, we have acquired new assets totaling SEK 82 million, and in the final quarter, we sold Mölndal for SEK 24.83 million krona. The acquisition of the Mätaren 6 in Kungälv, Gothenburg is a great example of our integrated business management. Upon acquisition date, the property had no tenant, and just some months later, we have found partnership with a new customer signing up for the entire space. But the main part, however, have been allocated towards our development portfolio, totaling to SEK 753 million krona. Please move forward to slide 21. Development projects in progress. On balance date, we have invested SEK 680 million in our ongoing project portfolio, with almost SEK 760 million still remaining.
The most recent added project comprises a third logistics facility directed towards our tenant, Now aste, in Helsingborg, as well as an extension directed towards DHL in Sunnanå Logistics Park, close to Malmö city center. In 2020, we expect most of our projects in progress to be finalized, adding almost 115,000 square meters to our existing stock. More importantly, a deeper relationship established with many of our customers. This will of course have a positive effect on our earnings capacity going forward. We have finalized two projects during the fourth quarter, and that's part of the multi-tenant facility in Malmö with the toy retailer, Lekia, as a new tenant, and the hybrid warehouse in Helsingborg, with the tenant, Now aste. Please move on to slide 23, sustainability trends in Catena.
Our business is dependent upon our responsibility towards sustainable progress and the disclosure necessary to prove our efforts. I'm happy to announce that in 2019, we have decided on certifying 11 buildings to Miljöbyggnad, representing 165,000 square meter of lettable area. We have also made commitment to increase investments towards installing photovoltaic cells. Six new buildings are on the way to have the solar cells installed. For 2020, we target to have increased focus on the disclosure and transparency related to ESG reporting. The TCFD recommendation will be implemented together with improved air sustainability, disclosure. Please move on to slide 24. A few voices from the market. Third-party logistics is experiencing high growth, and PostNord, one of our customers, are expecting they would need to grow and buy another 25,000 square meter in Sweden every second year.
DHL, the world-leading logistics company, where they're researching or reading about the evolution of globalization. Though the global economy is likely to pace slow over the coming year, the globalization has just begun. Please move on to slide 25. Case Södertälje. In the last quarter of 2019, we announced an extension to one of our existing facilities with DHL as customer. The demand for more logistics space has led to a mutual understanding of adding some 1,850 square meters with a contract extension of 10 years. We have several proposals on the remaining parts of the multi-tenant warehouse. Please move on to slide 26. Case Tostarp. In October, we announced the third commitment directed towards Now aste to commence the construction of a new e-com warehouse in Tostarp, Helsingborg.
It comprises the 18,000 square meters of lettable area and offers a rental value of SEK 10 million for 5 years. Helsingborg has really proved to be one of the most popular and interesting spots for logistics purposes. According to the journal Intelligent Logistik, it's considered the second-best graded area in Sweden for logistics. Please move on to slide 27. Case Järna. In the final quarter, we announced an acquisition of land south of Stockholm, and the plot, the plot comprises 1 million square meters of land and expected exploitation rate of 40%. The deal is a joint venture, venture arrangement with our, with our part being 50% initially, but with ambition of taking ownership of the entire land piece as soon as the detailed planning process is becoming final.
I'm particularly glad about this deal since we strongly believe the south part into Stockholm will serve as an excellent logistics community. Please move on to slide 28. Case Denmark. With three new facilities at three different locations in Denmark, facilitating the distribution of goods to populated areas, I'm particularly glad to acknowledge that, the acquisition we announced in January. Through this very important transaction, we confirm our vision to link the cargo flows of Scandinavia. The three terminals comprises a total of 12,700 square meters of level area, and they are fully let to PostNord, and are proud we can continue to contribute to their business even outside of Sweden. One of the properties is under construction, and in the total, the transaction also includes building rights of almost 20,000 square meters, for future development.
Please go to slide 29. Potential future development. We are always keen on getting hold of strategic land that could serve as a future logistics hubs. Adding our most recent piece of land to our land bank, we hold 3.8 million square meters. However, in total, including all options, joint venture agreements, and land allocation option from municipalities, we have access to potential of almost 4.8 million square meters of land. Contract agreements of land, not yet owned and dependent on various action, comprises around 2 million square meters. In upcoming year-end report, we will present our land bank in more detail.
...Thereby, we have finished it, this part, and we're moving forward to the question and answer session, please.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad. Once again, for any questions you would like to ask the speakers, it's zero one on your telephone keypad. If you would like to withdraw your question, it's zero two, and there will be a brief pause while any questions are being registered. Our first question comes from the line of Staffan Bülow from ABG. Please go ahead. Your line is now open.
Staffan Bülow, ABG. A couple of questions. First of all, you mentioned some one-off events in the presentations, three bankruptcies and change of property tax. So I wonder if you could provide some numbers of on how much rental income and NOI was affected from this one-off?
Yeah, if you're talking of it was two bankruptcies, and in isolated quarter, it was almost SEK 2 million. And if you're talking about the property tax, we have changed in our tax valuations for the whole 2019, but it's coming in the late of 2019. So the one-off in Q3 and Q4 is SEK 5 million. So it's around SEK 5 million. We had some minor change in the rental income as well, but it's very low, and it's 7, 8 different. That's totally it's combined to somewhere around SEK 1-1.5 million.
And we had also—if you're looking at the rental income, we had, if we're talking about the mild winter, we had a lower cost on the mild winter to the media, but then we also have a lower invoice to our customers. So the rental income is decreasing because of the mild winter. If you follow me there?
Yes. Yes, I follow you.
Yeah.
Okay. Thank you. And as you mentioned in your presentations, you have acquired three properties in Denmark last month, and you previously had one property in Denmark. So should we see the latest acquisitions as a sign of that you want to expand into Denmark? And why are you doing it? Are you doing it because you think the prices are too high in Sweden, or because you think it's more of a strategic fit to include Denmark in the property portfolio?
First question, I'm just saying yes. Secondly, I'm saying it's strategic. We see the Greater Copenhagen area, including Denmark, as, like, very natural to operate our business and our business model, and also knowing that the Fehmarn Belt connection planned to be up and running by 2020. So we think it's quite strategically wise to make that move now.
Okay. Concerning the potential Coop warehouse development in Eskilstuna, could you give us some flavor on what yield on cost or rent levels you find reasonable for that warehouse?
Not for the time being, we are still negotiating, so we could not comment at this time.
All right. Could you comment on what financing options you are considering to finance the development?
No.
All right. And you are establishing a logistics position in the southern part of Stockholm, and you most recently acquired a property in Södertälje. Could you elaborate the strategic rationale behind establishing a position in the south rather in the north, for example?
I think the logic from a logistic point of view is that I think somewhere around 80% of the road traffic passes by those two locations. And then it makes sense to have the last piece of distribution could be coming from those position. And they are also good for national-wide distribution. So I foresee a similar development as for the northern areas of Stockholm.
Okay. Thank you for taking my questions.
Thank you.
Thank you. Our next question comes from the line of Philip Hallberg from Danske Bank. Please go ahead. Your line is now open.
Yes, hello. So my first question is regarding your like-for-like rental income growth. You stated that it was 2.3% in 2019. So it's driven by CPI, of course, on net leases and renegotiations. So I'm questioning, what kind of rent uplift are you getting in your renegotiated contracts on average, so to speak?
I don't have the figures right now for that one, sorry. But what we could see is that depending on where we are geographically in the areas where more people live and scarce of land, there is potential that it's quite high. When coming out to the more rural areas, it's more like flat.
Okay. So but in those areas which you're mentioning that are more populated, so to speak, are you getting like, is it 10, 20, 30% on rent uplifts or what could we expect there?
Not really. It's a combination of what we're doing for the rent uplift also. It could typically go with some project developments within the facility and so on. But not that high levels, I would say.
Okay. So you had, I think you mentioned here in the presentation, you had SEK 680 million in project development CapEx in 2019, and you have roughly SEK 760 million left to invest in your remaining projects. Are you targeting a lot of starts during 2020 to secure the project CapEx for 2021 and 2022? What are the most recent projects that you can start right now?
I don't think I could comment on what we could start now, but we expect to go forward with the same level, SEK 600 million-SEK 800 million. We could, by our own cash flow earnings, start up for SEK 1 billion. And don't forget, we need to consider the Coop project as well.
Yeah, of course. And maybe regarding the Coop project, I know that you can't comment a lot, but right now, when I look at your balance sheet, you have roughly 53% in net loan to value. What sort of net loan to value would you be comfortable going up to? Would it be like 60%, considering that you have quite high-yielding properties and you have a strong cash flow generation? Or what sort of level are you comfortable at right now?
Well, when we deal with the bank agreement, we are on levels of 60%-65%. So it's possible to go towards the 60%, as I should say. Yeah, yes. But it depend on the volume of the investments, of course, and how we use the share as well.
Yeah, of course. Has that been, like, an ongoing discussion, whether to use your share? Obviously, you're trading at a quite hefty premium right now. So it would be a NAV accretive. But is that a financing option which you think is viable, to use your share, I mean?
Yes, when we are talking of acquisitions, it's a possibility, but I can't speculate in.
No, of course.
Special price. But yes, no, I cannot do that. So, but it's—we have done it plenty of time in the history when we bought, last time we did in 2018, we did an acquisition of, the Morgongåva facility. So, so-
Yeah.
We are doing it.
Yeah. And also, just a final question regarding your acquisitions in Denmark. How do you view the different markets if compare Sweden and the competition here? Obviously, it's extremely fierce on logistics right now in terms of acquisitions. Do you see the same level of competition in Denmark, or is it more convenient to find properties to acquire there?
I think the market looks a little bit different, a different type of ownership and so forth, which make it different. I don't see it as scarce as it is in Sweden, for that being.
Okay. Thank you.
Okay.
Thank you. Our next question comes from the line of Niklas Wetterling from DNB. Please go ahead, your line is now open.
Hi. I have a couple of question as well. You showed a strong value uplifts and has lowered your initial yield. Would you like to elaborate a little about where the contribution comes from? Is it from the older assets, newly built ones, or the ongoing developments?
Well, it's came from everywhere, I should say, but the most part is obviously from the investment that we are doing in especially in southern Sweden. We're talking about the Copenhagen area, we have Sunnanå and Tostarp and so on. So there, there we have some uplift, but it... I think it's for a full year, I think it's 80 properties that is involved in its different valuation for the year. So it's come from a very, very different type of uplift in the portfolio.
Okay. So no stronger contributions on any different part of the, the assets?
Yeah, well, I should say, if you take the investment in Sunnanå, Tostarp, and as well in Stockholm region, there have been some uplift, especially in the facilities in the center of Stockholm.
Okay. Yeah, thanks. And if I understood your LOI with Coop correctly, then will Catena take the investment for the optimization? And is this a new strategy and a potential new trend in the market?
... I think you are kind of spot on here. We do see further developments. We do see that I often say that we must see our customers' profit and loss sheet as a part of our business and understanding it in a more detailed way. We also see more and more requests towards this, and you see that trend out in Europe as well.
Okay. And can you elaborate about the expected return of the investment in optimization compared with ordinary property development?
Not now.
Okay. And, my last question is, this kind of optimization, does they have any, terminal value in case of, a tenant, if a tenant defaults?
I could say from a very generic perspective, automation has become much more generic in a way, and also lasting for quite a long time. It's nothing new. It has been around for 20-25 years, and from a very high level, I have a lot of confidence in this.
It's possible to sell old optimization on the market?
Or to use or to rent out.
Okay. Yeah. Great. That's all my questions. Thank you.
Thank you.
Thank you. Once again, ladies and gentlemen, if there are any remaining questions for our speakers, it's zero one on your telephone keypad to register. I think we have no-
We have a question from an anonymous investor here. So Peter Andersson, could you please explain what the Food Hills joint venture is and why it generated a loss?
Food Hills AB, it's taking part in something called Food Valley out in Bjuv, where the idea is to development the circular food companies. And there we have this estate, where we are facilitating the estates for doing this as possible. And the growth pace out there has been solid, but not at the pace that we expected. What we do see is that we have a good trend, and we expect the figures to become black within some years, as I have stated in my words in the report.
Right. The second question then, a lot of refinancing to be done in the future. Leverage duration remains short. When can we expect some movement here?
Yeah, we are doing movements all the time. So we are, we had a lot of discussion with the banks today, and we're doing some refinancing within the SFF construction as well by the bonds. So, I should say that we are going to move upwards the two years rather quickly in this year, I should say, but I can't give exactly the time, timeframe because we are in discussion. So it depend on what the outcome of that discussion with the bank and with the investments, investors.
Okay. Thank you. That would be all.
Okay. Thank you. We do have one more question registered from the telephone. So our next question comes from the line of Markus Henriksson from Pareto Securities. Please go ahead. Your line is now open.
Hi, guys. I came in a bit late into the call, so you might already have touched upon this. But looking at operating expenses, it looks quite high in the quarter compared to... And especially if you look at the nice winter we've had in southern Sweden or all of Sweden. Could you touch a bit upon if it's property tax related or if you have any maintenance costs in the quarter that are a bit higher than usual?
Yeah, it's a little bit higher, but not so much. I should say that it, property tax, as I told you before, but we have also done some maintenance and some investment in our properties. I should say we are in 10 different investments. So we are doing some new turnkey investments. We are changing LED to LED lights and so on. So we are well investing in the future, so to say, and then we have taking a little bit more maintenance costs, I should say, for the isolated quarter.
Okay. And a follow-up on that, how do you view that into 2020, if we look and compare to 2019, for maintenance costs, mainly?
It's hard to say because we will never know what's happened on, on, if it's coming a storm, then we have to rebuild a roof or something. It's always difficult to forecast this type of. But I should say if you're looking for the full year, I think it's normal. We often landed around SEK 20 per sq m of maintenance cost. That's normal in our business.
It was very strong in Q2, and then a bit softer now in Q3 and Q4. So if you look a bit over time, you would say that the full year is normal? So that's something we should account for, for twenty-something.
Yeah, I should say so. Something around that, that's yes.
Okay. And then, I heard you talked a bit about Food Hills, a bit higher in the quarter. You might have touched upon this as well, but you have guided around SEK 5 million in negative contribution there for that joint venture, and a bit higher now in the quarter. Is it something special here, or is it going a bit slower than anticipated? Or can you elaborate a bit on the joint venture?
Yeah, we could say the investment we have done in Food Hills is to enable heating. We have changed some of the heating system, so I want to get down the maintenance, the media cost. So there has been done, we have done some investment that cost something in our property expense.
And on the tenant side, we do have a nice funnel going forward for new tenants coming there. So we are confident that it will become better. But as you said, big development project like that, it takes some time to get up running really nice.
Yeah. Yeah, you stated before that it's going a bit ahead of plan, so that's still what you're seeing? If what you say, it sounds quite positive for the joint venture going forward.
Absolutely.
Then the last question around central administration, a bit higher here as well, compared to past quarters. Anything in particular here in Q4?
No, I could say we have increased our ESG staff. So today, we have two person that is working with the certification of the property. And.
As we stated, we are driving the full ESG and the, what you call it,
Maintenance.
Sustainability part, where we are investing a little bit in solar panels and geothermal and so forth, and also investing in lifting our buildings to minimum Silver and so forth. So, that is the way of doing that. And what we are changing things a little bit is that we need to be less dependent on the external people doing that, that we prefer to do it in-house.
Okay. And, and my last question is about SFF. It seems like now with Fabege amortizing with, with the sales they've been doing, so there might be more room for you to increase your share of the MTN program. Are you looking into that in order to get down your interest rate? Could you talk a bit about that and your generally quite high interest rate still in your, in your financing portfolio?
Yeah, well, the high interest rate is coming from the swap contracts. And we did an acquisition in 2015-16, that we acquired Tribona, and there was a very high-yield swap contract in that portfolio. So we are working with that one. And if you are looking at SFF, we have some renegotiation ongoing in that part. We have done a small one already this year, and we are going for a little bit more during this quarter. So we are coming back with reporting that in Q1, what the outcome is from that bond market.
But we are seeing SFF is today, we have a new rating from Moody's, that's triple B plus and with stable outlook. So we are confident that we are going downwards within the bond market as well.
So pretty reasonable to assume that you would increase your bond financing going forward?
Yeah, a little bit, I should say.
Okay. Thank you. That was my questions.
Thank you. And since we have no more questions registered, I now hand back to our speakers for any closing comments.
I just would like to say thank you for your time and your attention, and we are confident about the future. Looks good.
This now concludes our conference. Thank you for attending, and you may now disconnect.