Welcome to the Catena Q4 2021 annual report. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. Just to remind you, this session is being recorded. Today, I'm pleased to present Jörgen Eriksson, the CEO, and Sofie Bennsten, the CFO. Please begin your meeting.
Hi, and very welcome to Catena's audio part for our year-end report 2021. Presenting today is CEO-
Jörgen Eriksson
Myself, CFO Sofie Bennsten. Here again, you're welcome to start with some highlights for the year.
Thank you, Sofie. Moving to slide three. Catena came out very strong for 2021 with a 10% increase in the rental income. Our profit from property management has increased by 15% year-over-year. NAV has increased by 32% to almost 324 SEK per share. Earnings per share came out of 66.63 SEK. The fleet is now five point five years with an occupancy of almost 95%. Worth mentioning that we came out 2021 with a cost of debt only 1.9%. We have started groundwork at some of our new logistics positions at Landvetter, Sunne, Stockholm South, and furthermore, we have acquired 200,000 sq m land in Jönköping, probably the best position in Jönköping at the moment.
Yesterday, Catena announced a bid on the property portfolio of Halmslätten with agreed property value of SEK 1.52 billion. We experienced a very strong demand for new logistics facilities the next 12-24. Moving to slide four. We will do a quick review of 2021 in terms of development, operations, and ESG. We replenished our land bank with approximately 700,000 sq m of attractive lots in the Helsingborg region, adding future potential investment of about SEK 2 million and 1,500,000 sq m of new prime logistics space. Groundworks, as I said before, have started or are about in Landvetter, Gothenburg, Stockholm South, Sunne, Malmö, and Hyltena, Jönköping, all being prime locations for logistics purposes. We have also completed 30,000 sq m of new development at the range of 6%-7% yield on cost.
In terms of operations, we were awarded with a BBB- credit rating following beneficial impact on cost of debt. The SEK 5 billion MTN program were established, and we successfully placed our green bond of SEK 1.4 billion. We raised proceeds of approximately SEK 1 billion in an over-subscribed placement of shares to capitalize and accelerate growth. In the first quarter, we expanded geographically footprint in Denmark by additional acquisitions. Despite the pandemic, we collected close to 100% of rents throughout 2021. In capital value movement due to active management, development, completions, and yield compression amounted to SEK 2.3 billion, corresponding 11% increase. Regarding ESG, we announced commitment of new sustainability targets, targeting to become net zero before 2030.
We became certified as a Great Place to Work member, and we performed and published risk analysis in accordance with the principles of TCFD. Moving to slide five, financial performance, and further on, slide six, Sofie.
Yes. In addition to the 10% increase of rent during the year, we had an increase of property expenses of percent increase is partly due to a normal take in the maintenance since the COVID struck. The turnout ratio came to 79%, a little bit below the ratio for 2020. The increase of income property management was 10% since last year. Unrealized changes in property value amounted to SEK 2.3 billion during the year and corresponds to 11% of the value before adjustment. Value changes of derivatives amounted to SEK 200 million, and we also sold a small piece of land in Jönköping, which amounted to a realized change in property value of SEK 22 million. All in all, the profit for the year amounted to SEK 2.7 billion, resulting to an earnings per of almost 67.
Moving on to slide seven, and Jörgen.
Thank you. As indicated by the diagram, our cash flow has been growing consistently since 2016. For 2021, we have performed another strong cash flow year where we retain almost 60% from revenues in property management income. Cash flow enable us to generate investment capacity, and our target is to maintain the level above 50% of rental income. Our dividend objective is to distribute 50% of profit from property management, less standard tax. Moving to slide eight, and further on to slide nine, Sofie.
Yeah. During the year, we bought five properties in Denmark, two in Sweden, and also five properties of land to develop where we've already built on two of it.
The latest acquisitions of land is in.
Talking a bit more about the customer base. On the left-hand side, we can see the top 10 customers in terms of rental value, and beneath, you can see some of the well-known logos that our customer portfolio consists. On the right-hand side, we have the sector exposure, and logistics and transport represents 23% of the revenues. Going to slide 12. The rental income amounted to almost SEK 1.4 billion for 2021. The total growth in rental income was almost 10% year-over-year. Project developments contributed with 4.5% and net transactions with 4.4%. Like-for-like, the growth contributed 1.4%, which comprises a combination of lease reviews and renewals, as well as indexation and changes in vacancy. There was also a smaller one-off related to prepayment of an early lease expiry amounting to -0.6%.
Moving to slide 13. The rent levels in our regions are presented here, and as you can see, we have the highest levels in Stockholm, Malmö, and Gothenburg, and the majority of our contracts are linked to inflation measured by CPI, the Consumer Price Index. Moving to slide 14. We have a net leasing for SEK 32 million for 2021. In Q4, we had a negative SEK 22 million due to one customer who moved out, but we have already signed a new contract for a part of the area moving in during 2022, so it looks good for next year. The WALE is now five point five years and the letting
year, as we mentioned before, 95%. Moving to 15 and further on to slide 15. The EPRA NAV has grown by 19% annually since 2016, and we came out 2021 with almost 324 SEK per share. At the same time, a five year average return on equity has been at 20%. Moving to slide 17, Sofie.
Yeah. Our investment properties have grown with the acquisition for SEK 1.5 billion investment projects of SEK 900 million and SEK 2.3 billion were value changes. The equity has grown 48% since last year, and the EPRA NAV, the long-term net asset value, changed to 323 SEK per share. Total assets came to SEK 25.9 billion, an increase of 27% since the beginning of the year. Moving on to slide 18. Investment properties amounted to SEK 20.4 billion. That is an increase since last year with 26%. The unrealized changes of SEK 3 billion are mostly due to the still growing market yield compression in Sweden, but also in Denmark. We also had some projects being finalized during 2021. The fair net initial yield came to 4.9%, which is down 0.6% since last year-ending.
Moving on to slide 19. Cost of debt decreased due to our unsecured green bond, and overall, we have replaced maturities at a lower rate in the year during last year. The average interest rate ended last year at 1.9%. During the year, our interest-bearing liabilities has increased by SEK 1.3 billion. That is an increase of 14%, up to SEK 11.1 billion. The net LTV came to 43.1%, well below our new goal of 50% that we launched in the beginning of April. Equity ratio is reported at 43.5%. Going to slide 20. During 2021, we extended our average debt maturity to two point three years. The average debt maturity stayed at three years.
We keep continuing to work with the sustainability within the company and to certify our building. These efforts have led to that we now have a 25% green financing in our debt portfolio. Debt ratio came down to 63% from last year of 61%. Moving on to slide 21 and further on to 22. Jörgen?
Thank you, Sofie. Our goal is to focus the majority of our investments into development. Although during 2021, we have acquired properties for about SEK 1.5 billion, as well as around SEK 700 million in Denmark. We have also invested around SEK 900 million in projects. Going to slide 23. We have, by the end of 2021, projects in progress where there is SEK 1 billion remaining in investments. The GLA construction is 113,000 sq m. The largest project in this slide we show on the map, 38,000 sq m in Morgongåva were finalized in February 2022. Moving to slide 24. On balance day, we hold the potential of about 5.3 million sq m of land, where almost 1 million sq m are consolidated and with development plans in place.
The rest of the land bank is conditional on various contractual agreements, such as zoning plans having to gain legal force. Moving to 25, sustainability, and further on to 26.
Yes. In addition to our continued work with environmental certifications of our buildings and installation of solar energy, we continue to develop our understanding of climate changes and what potential impact can be. Not only have we made climate risk inventory of our total portfolio, we also developed our own sustainability program, which aims to identify and steer all our larger projects to be incorporated on the impact of the environment. Our net zero target now includes Scope 3, and with that, all emissions from projects, which is a new aspect in our sustainability goals for 2022. Another big step for our company is the work for the goal to be net positive in biodiversity by 2030. This is an inspiring and challenging ambition that we look forward to work with. Going on to slide 27 from outlook and further on to 28 and 30.
Yeah. Some outlook for the next two to three years where we feel very confident with the significant growth. The market conditions speak in favor. The levels of demand are at historic highs and predicted to last given the strong drivers. You can see a supply shortage of new modern spaces and land is becoming scarcer in some areas. We will have the focus on development complemented by a disciplined approach to new acquisitions. We have a clear development opportunities of approximately SEK 3 billion. At the same time, we are also searching for complementing high-quality logistics assets to diversify, especially in the southern part of Sweden and Denmark. A strong reputation is a key to securing land and the discussions with municipalities and other land owners.
We have the financial strength and the long-term management, which are keys to success. Moving to slide 29. I'll be a bit more specific about the near-term development opportunities. We present this slide which summarize to a potential value of SEK 3 billion and includes the locations we have mentioned before and where we have started or is about to start groundwork very soon. This all this groundworks are about to be done just to be in a good position so we are very ready to start with projects the day we have lease agreements in place. Moving to slide 30. Now in the beginning of 2022 the best logistics area in Sweden is Helsingborg. That's now ranked number one by Intelligent Logistik.
We have two very interesting land plots of about 700,000 sq m and look forward to start project there in the coming two years. As we speak, the supply of land in Helsingborg is very limited. Moving to slide 31. This is the vision picture of how it can look like at the logistic position Ramlösa when the project is finalized in maybe 2023 or 2024. This is one of the spots which we mentioned in the previous slide. Moving to slide 32. Talking about the dividends. For 2021, the board suggests the dividend of 8 SEK per share. The compounded annual growth of dividend is from 2016 to 2021, 20%. Now we move on to the Q&A session.
Our first question comes from the line of Niklas Wetterling of DNB. Please go ahead.
Thank you. Okay, let's start off with the vacancy rate. It increased in the quarter to 5.3%. Can you add any flavor on that one?
No, we had, as we said, there is some tenant in Norrköping and moved out in the last month of 2021, and we have already re-let the lease that some parts of the vacancy is rent out and a project is ongoing. Then during 2022, we will probably fill up all of the area, but not all area is signed today.
Is there any specific-
We can see it like a temporary, but not a huge. Yeah.
Okay. My second question is about the HelloFresh development project in the JV. I can't find it in the project list you have there. What do you believe the JVs will contribute to your profit from property management of the completion of that project?
It should be in the earnings capacity. I assume the project will be finalized in Q3 2022. There will be some smaller digits in the earning capacity, but we'll maybe have to check it further on.
Yeah. You raised it slightly from SEK -5 million to SEK 0 million.
Yes.
It will be more-
That's corrected. During 2022, they move in, I think October or something like that. We only see a small impact in 2022, and the impact is first by 2023. Exactly what amount, what the earnings will be from the JV, I can't answer today, but we can get back to you on that one.
Okay. Okay, thanks. I get back in line.
Yeah. Thank you.
Our next question comes from the line of Jan Ihrfelt of Kepler Cheuvreux. Please go ahead.
Okay. Thanks. Good morning. First question is really your property uplifts in the fourth quarter. Could you give us a split of the impact from cash flow and the impact from yield compression?
We have seen clear signals from the market, completed transactions where we have very good locations, for example, in Solna and Helsingborg also. It's obvious that the yields have been trending downwards the latest month in 2021, without mentioning any digits.
Okay. It's probably 80%-90% is yield compression or?
Well, that's your assumption, but yeah.
Okay.
Uh-huh.
How much did the project contribute to the property uplift in the fourth quarter?
In the fourth quarter, there was not so many projects completed. I cannot mention any exact digits in that case either. As I said, we will have now in the Q1 2022, there will be a larger project finalized. We'll see what happens with that in a value going forward.
Okay, thanks. Second question relates to your like-for-like growth of 1.4%. How much of that was indexation?
An indexation for 2021 was very low digits. CPI was, I think, 0.4, 0.5. Very low digits.
Yeah, also probably impacted by a little bit higher vacancies.
Yeah.
How much did that affect the like-for-like growth?
Well, we have to come back with that. I don't have the exact digits for that one either. Sorry.
Okay.
We had.
Okay. Thanks.
Thank you.
Our next question comes from the line of Markus Henriksson of ABG. Please go ahead.
Good morning, Jörgen and Sofie. Very appreciated here with the development table and outlook for the coming years. Just want to see what's your view on the competition here for tenants? Are you in sharp tenant discussions for the developments with possible start here in 2022 that you list?
Yeah. I mean, the competition is knife sharp, so to speak, but we feel confident that we have the right positions in terms of we hold lands, and that's the strongest trump card in this game. We have a good feeling that we can compete in the market and that, as mentioned, the underlying demand for new spaces is very strong. That's also the good news that it's the first time in Catena's history that we have started so many groundworks without having any kind of lease agreements in place because we feel that we need to be good till the day when we have the lease agreements signed. We don't know when or how much, but we are positive.
That's very clear. Thank you for that. Second question. You are currently bidding on the Halmslätten portfolio, and I just want to see the running NOI is around SEK 60 million in those two properties. Are there any property costs that you can trim? Or is it around the net initial yield of 3.9%? Is that correct? Or do you see any potential for better cash flow than what Halmslätten has performed historically?
Not on the short term. We think this is a very good property. It's a solid property. They are certified by BREEAM. We like the customers a lot. They are at good positions. This is spot on for the Catena portfolio in the long run. Yeah, we have to come back to see what the potential is, trimming the cash flow.
Perfect.
Yeah.
That's very clear. Thank you.
Thank you.
Our next question comes from the line of Niklas Wetterling of DNB. Please go ahead.
Yes, thank you. I also had a question about the page 13 in the presentation where you indicate that the prime re-rent for distribution centers in regional cities has started to decline. Is that for asset in place or in a new development? Jack, can you comment a bit about that one?
If we can see, it's also a discussion we have a lot. If there are a competition and if there is, or are land available, for many actors, it's pretty tough to keep the rent levels up, because there are a lot of developers chasing for this sugar bowl. That's quite easy to follow that argument. I mean, the developers, they can produce, they can sell off for a very low yield at the moment. We as a long-term player, we are not willing to go that low in yields when we are discussing with new tenants. Yeah, that's our take on this.
Do you see the same pattern for assets in place or just new construction?
Now that the question is on the table, the day when we have to renegotiate and if we are in a city outside the biggest areas of Stockholm and Gothenburg, for example, south of Jönköping, there are land available, and the developers are pushing down the rent levels very low. It's at the same time quite challenging for us to with an uplift in the rent levels.
Okay, thanks. My second question there is about investment volumes. You've invested SEK 900 million two consecutive years. You have a target of SEK 600 million, and you have quite a lot of land. What do you expect about investment volumes for the next two years? Is it-
Yeah, we
on plan to meet the target?
Yeah, we have to come back with that and if that will be on the table. As we said in the presentation, we have a good feeling there is a potential of higher digits. We don't know, and we are not finished by the internal strategy of what kind of digits we would come to the market regarding projects. There clearly is a potential there coming for 24 months.
Yes, thanks.
Okay.
Thank you.
Our next question comes from the line of Jan Ihrfelt of Kepler Cheuvreux. Please go ahead.
Okay, thanks. Two more questions from my side. First one is your other operating income of SEK 5 million in the quarter, what was that related to?
In, uh-
This was an insurance income, wasn't it?
Yeah.
Yeah.
It was a one-time insurance. It's been a long discussion, a long process we had, and
Right
it came out in our favor.
Yeah
Some back from the insurance that comes from there. It's just a one-off.
Okay. On the financing side, your average interest rate came down to 1.9% here in the fourth quarter.
When you looked at the financial market and so on, do you think you could keep that 1%, 1.9% throughout 2022?
Well, it's hard to say. We have some equipment maturities to refinance during late this year. We've been a bit in a huge week. Of course we see like everyone else that we've seen the zero-interest rate environment. We have to see how the world develops on that like everybody else. But hopefully, if we go long-term or short-term, we going to try to keep it down as much as we can. I don't know. Don, we have David here as well. I would agree that especially, I don't know if you want to add to Jack something.
No, I think that's a good way to put it. I think for 2022 we feel quite comfortable that we stay on these kind of levels, but I think it's.
Sorry. It's hard to hear what you say.
Sorry.
Okay.
Overdone. What I was saying was for 2022, I think we feel quite comfortable at these levels. At the same time, I think, you know, he has a good point in the zero interest rate environment we feel is gone. It's logical to think that interest rates in future will be higher. For 2022 we feel comfortable to stay at these levels. Discussions with banks indicate that we stay at the same credit levels as before, whereas the bond market is definitely much more volatile as you're, I guess, aware of. Let us see where the credit spreads will stay at once the Ukraine conflict is over and the idea of whether inflation will also end.
Okay. Thanks for taking my questions.
Thank you.
Our next question comes from the line of John Vuong of Kempen. Please go ahead.
Hi, good morning. Just follow up on the reletting you've done. I appreciate that reversion is highly location dependent, like you mentioned. But is it possible for you to quantify what the exact reversion was or perhaps ballpark figure that you've seen in the reletting you've done this year? Did it require any specific CapEx to relet these assets?
Of course, there have been some smaller CapEx in some cases we will not go into any details about that. We do feel in some renegotiations now going forward that there is in locations could be some potential to the rent levels if we are around the Stockholm area, Gothenburg and Malmö. We also can see that we do not have so many contracts for the next few years to renegotiate. We do feel that there is a strong demand, we feel confident by 95%-96% that we have reported the last years. That's what I can say.
It feels good concerning the vacancy rate that we have.
Okay, thanks. Perhaps on the reletting to be done this year or in 2022, are there more contracts to be relet in the major cities or in the regional cities you'd say?
We have some now in the Stockholm area, and then everyone knows that it's easier to try to push up the rent levels in that area compared to if you are outside the cities than if you are in for example Jönköping or Borås. We have a mix. It differs if we can maintain the levels around Jönköping, Borås area. It's good. In some cases, as I said, I think we can raise in the short-term and definitely from the mid-term if we are in the Stockholm areas.
Okay. That's helpful. Thank you.
Just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypads. There are no further questions at this time. Please go ahead, speakers.
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