Welcome to Catena Q4 report. 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. Now I will hand the conference over to CEO Jörgen Eriksson.
Hi everyone, welcome to this Q4 presentation. 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 property portfolio. We will then proceed to the business update, where we will touch upon our current growth initiatives. Sofie and David will then walk through the numbers in the financial update. We will then open up for a Q&A. Next slide, please. As we close the books on 2022, everyone can agree it's been a turbulent year. Fastly- shifting macro trends driven by the war in Ukraine and energy crisis in Europe has put large pressure on the economy as a whole.
Despite this, Catena has ended the year in stronger position than ever with an optimized prime asset portfolio, new existing projects within new development, and a resilient financial profile with a record low LTV below 32% and a very strong cash flow. As we move into 2023, we are optimistic regarding growth within acquisitions, new development and energy investments. We can at the same time put the foot on the pedal. Regarding our Q4 results, we continue to report rental income growth driven by acquisition, projects, and a stronger like-for-like numbers. Going into 2023, we will be able, by our CPI link contracts, to get a 10.9% rental increase from approximately 90% of our total contracts.
Thanks to our close relationship with our customers, we have had an early discussion in preparations for this raise with our customers understanding more or less the reasons behind it. During the quarter, we conducted an equity raise of SEK 1.6 billion earmarked for growth at an attractive ROI for Catena, and I'm looking forward to shed more light on these initiatives as we move ahead. Just before year ended, in line with our stated intention with the right issue, we acquired two prime cold storage assets from ICA Fastigheter through a sale and leaseback transaction. More details about the deal later in the presentation. Next slide, please. Now for a business overview. The next slide, please. Starting with the market update, we are facing a trying macro environment with decreasing consumer confidence impacting all companies.
What we are seeing at Catena is that the market-leading players are cementing their position in segments such as food and beverage and healthcare, and are more unfazed by the current trend. Catena are fortunate to have most of the leases with players such as DHL, PostNord, ICA, and Apoteket. When they are growing, we can assist them in gain ground ourselves. Thereby, we are optimistic regarding our customers and our ability to navigate in this challenging environment. In the transaction market we are seeing it warming up and transactions being made and our acquisition of ICA assets are just one example. We expect to see more assets to come on the market and Catena is in a great position to capitalize through our financial profile and ability to execute fast when needed. Regarding new development, we are seeing a growing interest for prime land lots.
In order to stay competitive and lowering costs, many e-commerce companies has shifted their operations to 3PL players who can, with the larger customer stock, invest heavily in automation and utilize their space more effectively. This business has led to increased demand for modern facilities suited for automation and has energy efficient set up with plans for clean energy generation and recharge stations for electric trucks. All these factors has accelerated these past years. All of this comes back to the long-term factors that favors logistics. The shift from transporting pallets to physical stores to now needed to include individual packages to customers has driven an immense demand for new space. Ongoing trends such as omnichannel and circular commerce are also growing trends that adds the demand for more logistics.
This together with longer and more complicated zoning processes, drives more pricing power for existing assets, particularly for prime assets. Time is therefore Catena's friend in this regard. We will believe the fundamentals for logistics to remain strong for the coming years. Next slide, please. For a business overview. During the quarter we added the property Egeskovvej in Horsens, Denmark, which brings the portfolio to a total of 125 properties with a contracted annual rent of SEK 1.6 billion. In Q1 2023, we had closing on the second Danish DKI property and also the ICA assets that we signed before Christmas. 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.
With that said, in the next quarter, due to the ICA transaction conducted in Q4, ICA will be our second-largest customer, all else equal. Sorry. Food and beverage will be a larger segment within our portfolio and further diversify the customer segment. Next slide, please. During the quarter, we conducted an equity raise of SEK 1.6 billion. We have identified three areas of growth investments, which we are now in a position to act upon while also maintaining strong financial profile. The three areas are projects within new development. The pipeline of potential new projects are approximately SEK 1 billion. We are enabled by our unique land bank and by our position as a leader within the Nordic logistics. Within energy, we have identified investments in solar panels and battery solutions upward SEK 500 million, which can give us an IRR in the low double digits.
Through these investments, we also future-proof our facilities and take leap forward towards a net zero target for 2030. Lastly, we have earmarked SEK 1 billion for investments on the transaction market. We are seeing great assets coming out on the market at attractive yield levels, and we'll act upon those which fits our portfolio strategy. We have acted fast in this regard and acquired the two ICA assets, which I will delve deeper into now in next slide, please. Which is in the business update. Next slide, please. The ICA acquisition. Just before the year ending, we acquired the two prime cold storages from ICA Fastigheter, the leading food retailer in Sweden. This transaction showcases our ability to execute fast when needed and also the great opportunity that exists on the market.
These assets are in line with our strategy to own the best logistics properties with best customers. In this case, we have bought two great assets on excellent location for SEK 500 million at the 5.75% yield. Arendal, which is showcased in the picture, overlooking the port of Gothenburg, the largest port of Ro-Ro traffic in the Nordics. Both facilities are recently built and has excellent sustainability credentials, with Arendal particularly stands out with a Green Building of the Year award. The transaction was made by sale and leaseback structure where ICA has signed a seven-year lease. We are very happy with the transaction and to deepen our partnerships with ICA. Next slide, please. Taking a look at our current projects, we are progressing very well with good cost control. We are seeing a peak in construction prices, it's trending downwards from now on.
Regarding the current yield of cost, we see that upcoming projects will, due to higher market yields and construction costs, hover around 6.5% going forward. Next slide, please. With regards to our land bank, we have progress with Örebro South and Logistics Position Söderåsen, with the zoning plan advancing forward. Both of these lots represent large areas for prime logistics and expect to gain legal force during this year. Some of the other processes are taking a little longer time, and that is something we have to get used to. Next slide, please. Looking at our leasing operations, we report a net leasing of SEK 85 million for 2022. Our letting ratio continues to be high, standing above 97%, reflecting the strong demand for our segment. Now I would like to hand over to Sofie for the sustainability and the financial update.
Thank you, Jörgen, and hi, everyone. Taking a look at our sustainability, we continue to work with certification of our property portfolio. Ending 2022, we had 25% of our lettable areas certified, which is the 10 percentage point increase since last year, and we will continue this work during 2023. We also increased our produced solar cell with 86% during 2022. In the coming annual report for 2022, we are glad to be able to introduce the new KPI with regards to our ambitious biodiversity goal to be net positive by 2030. We have chosen to track our progress using Green Area Ratio, that is grön ytfaktor in Swedish.
This is a way to measure eco-efficiency on the land area, the tool that many municipalities use. Our calculations are in many ways based on the calculation which is used by the City of Stockholm. While an international standard hasn't been settled upon, we believe this KPI is a great way to benchmark our initiatives within biodiversity. Going on to slide 60. Some financial update and 30 to 17. Thank you. Our income for the period was driven primarily by our made acquisitions, completed projects, and some indexation. Rental income for the year amounted to SEK 1.5 billion, compared to SEK 1.4 billion during 2021. Going forward in 2023, we will see a major impact on our CPI-linked contracts. The higher rental income increased our net operating surplus with 11% to SEK 1.2 billion.
Property cost per square meter amounted to SEK 150 compared with SEK 140 last year. The increase is driven mainly by higher electricity prices, which in turn is invoiced to our customers. Profit from property management rose 16% to SEK 954 million, compared to SEK 824 million last year. Higher financial income, acquisitions, and new developments have had a positive effect in the increase. Going to slide 18. The rental development since last year consisted of project developments of SEK 40 million. One example is the finalizing of the big project in Morgongåva, north of Stockholm. The two properties on Halmslätten we bought in April was a part of an impact of 81% of acquisitions. This was counteracted by divestments of SEK 38 million.
For example, we divested a sale, we had a sale of Fröträdet 1 in Växjö and Vanda in Kista. All this ends up in a like- for- like for 22% or 4.9%. I'm now handing over to David for some comments on financing on slide 19, please.
Thank you, Sofie, good morning to everyone. On balance day, we are reporting an equity ratio of 53.5%, which is well above our minimum target of 40%. During 2022, we raised equity on two separate occasions, the first one, which we conducted in the spring of 2022, enabled the logistics real estate company, Warehouses De Pauw, to become a new principal owner in Catena, which we're very pleased of, and we are very positive that that's a good thing for shareholders long term. Anyway, they were both considered offensive from our perspective, they also serve as a protective shield against the stressed financial market that we all are aware of right now.
Gradually over the last five years, we have strengthened our balance sheet, which has now put us in a good and presumably favorable situation. Next slide, please. From this quarter, we have announced a new KPI to our finance policy, Net Debt to EBITDA, which should be maintained at below times and, on balance date was reported at 7.9x . Among all, it highlights our strong cash flow commitment to relation to our net debt going forward. Our Loan-to-Value was at the same time reported at the low 32%, and our Secured Loan-to-Value was 26%, with ample headroom to our policies. Our average cost of debt was 3%, which constitutes an increase of about 30 basis points from last quarter. Interest Cover was 4.9x and also signals a robustness.
We could easily lever the company if we judge the risk reward to comply with our overall strategy going forward. In the face of broadening price pressure and hawkish central banks, we are not hasted into any deals. Next slide, please. Our debt maturity structure implies we have about SEK 2.9 billion of refinancing to do the upcoming 12 months, whereof we have ongoing discussions regarding the entire volume. Most of that is related to bank loans, where we have good relations with all of the big Nordic banks. About SEK 400 million is a secured bond through SFF, which has already been negotiated for and expected to be refinanced this quarter. We have more than enough liquidity to cover for 12 months of loan maturities should that deem necessary, which is not very likely.
In the fourth quarter, we renewed a revolving credit of SEK 2 billion, and with our outstanding cash holdings, we have a total of SEK 4.5 billion of liquidity. We manage the cash as effectively as possible before making use of them in our core business, which is expected in the course of 2023. We expect the bond market to stay rather dysfunctional over the course of 2023, as I view the total outstanding pool of bonds related to real estate to be too large and needs to come down to find a balance between issuers and investors. Next slide, please. Our interest maturity structure implies we have currently 71% of total debt hedged with an average term of 3.2 years. Our derivatives portfolio and fixed interest loans combined have an average term of about five years.
Our strategy to keep a certain degree of interest rate protection in place has been consistent over time. In the current context with price pressures still surprising on the upside, we are relatively well-positioned. If the market rent were to increase from here with another percentage point, profits would be impacted by about SEK 31 million, all else being equal. Next slide, please, Erik. How values are impacted by this new landscape of higher interest rates and higher yields is, of course, also a matter of occupied demand and sustainable rental growth. We have clearly a very strong occupied demand. We have made a copy from the last quarter and run a number of simple stress test scenarios to assess the impact of higher property yields and rental growth and valuations. As last time, we present two different scenarios.
They are based on Q4 numbers and serve only as an illustrative assumption. As the test reveals, there is plenty of headroom before we near our lowest loan-to-value covenant. Given our strong balance sheet and low loan-to-value, this is quite expected. As long as occupancy stays firm, there should be a case for sustainable rent growth, which should help mitigate the yield expansion to some degree. Next slide, over to you, Sofie.
Thank you, David. Looking at our capital deployment, one of the largest acquisitions during 2022 was the two properties from Halmslätten. The first of two properties in Horsens, Denmark. The total amount of acquisition came to SEK 2.4 billion. Divestment for the year came to SEK 900 million, and development CapEx ended at SEK 1.4 billion. We're still comfortable with our financial position, which going forward will allow us to continue to invest in our projects and acquisitions. Going to slide 25. Some comments with regards to property valuation. We registered write-downs of SEK 365 million in the fourth quarter, driven by higher yield requirements. This yield expansion is mitigated by our CPI-linked contract, which increases our rent levels. The average weighted valuation yield for the portfolio is 5.4 by the end of the year.
For the full year, we made a positive valuation gain of SEK 865 million, whereof SEK 765 were unrealized changes. The EPRA Net Initial Yield came to 4.8%. These are for us comfortable levels with respect to the current environment. Now it's time for Jörgen and some closing remarks. Please.
Thank you, Sofie. Next slide. Takeaway from Catena's Q4 can be summed up into three points. The first is that Catena is entering 2023 with strong fundamentals. Our organic growth opportunities are attractive, and we can be offensive during the year. Secondly, we have a resilient financial position driven by our strong cash flows and lower loan-to-value, which give us significant headroom to act upon our growth ahead. Lastly, the third one, we are opportunistic with regards to the transaction market and new development and looking forward to present more great news throughout the year. With that said, I would like to open up for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from John Vuong from Kempen. Please go ahead.
Hi, good morning. Thank you for taking my questions. Just one on your CEO comments. You mentioned that you'll probably announce several new projects this year. Could you provide a bit more color on what to expect? Does this fully relate to the SEK 1 billion in projects that you're expecting? Or is there anything else besides this?
I mean, I cannot give more flavor on, more color on it in terms of what customer is it, and so on. We are discussing deep with customers and certain land in our land banks. It's looking very promising. I mean, at least SEK 1 billion is reasonable, but I would guess that it will be above SEK 1 billion in new projects presented during 2023. I also feel quite confident with its decent levels in terms of yield and costs.
In terms of decent levels, I suppose that's in line with what you're currently doing or, would that be better than what you're currently doing?
Yes. As I said before in the presentation, I think we will hover around 6.5%, compared to the 6% that we have presented before.
Okay. That's clear. Maybe on rental growth, historically, you often mention that on average, rental growth is at best just indexation. Given availability of lands, I suppose you're a bit more upbeat now with the comments you made during the presentation. Are we now actually in a situation where market rental growth can keep up on average with the indexation that we had that we're seeing as of first of January, or is it even going to surpass this indexation?
I think if we can keep the level that we the new level that we have after this indexation of 2023. I think also we can see some examples of even higher rents going forward in 2023 if we have renegotiations in certain places as, for example, Stockholm, Gothenburg, and Malmö. A little early to say, but we are confident with the new rent level that is approximately 11% higher than it was last year.
Does that mean that on your portfolio average, it could be better than just indexation?
Could be in some cases, yes.
Okay, thanks. Just one more on your financial policy. Not personally the new KPI, but one of the KPIs that you already had is to maintain an investment-grade rating. Would you consider also obtaining one from an international credit rating agency given that you're also adding the net-to-EBITDA KPI now?
Yeah, that's a good question. That's definitely something that we might consider. We'll have to come back with that one once that will be materialized.
Okay. Thank you. That's clear.
The next question comes from Markus Henriksson from ABG Sundal Collier. Please go ahead.
Thank you very much. First off, I want to thank you for the investment split here on projects and tenant adaptations, et cetera. Very helpful going forward. I want to follow up there a bit on the, on the project volume. You invested around SEK 800 million here in 2022 in new construction, and you highlight SEK 1 billion that you will use your new money from the equity raise. The way I look at it, you have a lot of remaining investments around SEK 1.8 billion already, and a lot of completions are in 2023 and 2024. I'm a bit curious in to see what you see on potential new project negotiations, or should we just expect that you finalize the ongoing ones?
Hello, Markus. Good question. Let me be as clear as I can. We have a remaining investments in our project portfolio for about SEK 1.8 billion. We are talking about a potential of a new SEK 1 billion in new projects that we can present to the market this year. So that in total could be like we are running SEK 2.8 billion in new projects during 2023.
Very clear. Thank you.
Thank you.
If we can just look a bit on the value changes in the quarter, minus 1.3%. Could you split it up, projects, cash flow, yield adjustments?
Yes. I'm looking at my colleagues here if we should do any splits. I don't have the exact digits on that. We have to come back. We have it, of course, but not on top of my head. Of course, the yields have trended up, as Sofie told you. We have the extremely counterweight in the indexation of 10.9%. There has been during 2022 also uplifts from the new completed projects, of course. No certain digits top of my head. Sorry.
That's fine. Thank you. Also a bit of an update on the HelloFresh project, finalized in October, if I'm not remembering wrong. To me, it's a quite large facility, but I see in the updated earnings capacity that you have zero contribution from JVs in 23. Could you just give us a bit of an update on the JVs that you have and why or why not, we should see any contribution from that role?
We have, in the JV, we have, there was a smaller delay on the HelloFresh, but now it's of course completed and the tenants have moved in. There seems to be an upside in that project. In the JVs total, there are some other smaller challenges that is the counterweight to the upside in the HelloFresh project. Maybe we can give some more color on that in the coming quarters.
A bit more negative development in the Foodhills part while Hello here is giving a positive contribution for 2023. Is that correct?
Exactly. It's the older part of the Hello, Foodhills Fastigh et, is a bit challenging, so to speak.
All right. Thank you. You highlight that the direct market might open up a bit in 23. Could you share a bit what you currently see on the transaction market? Do you get something from brokers or is it very limited deals out on the market currently?
We get a lot of questions from brokers. I mean, seller and buyer are much closer to each other than the case was in the summer. Now we have to see what happens because of the Riksbanken's interest rates uplift again. Maybe some are more careful about buying. Of course, we are looking into some cases when we are talking Prime Logistics. I think that there will be more deals, transactions presented in the market, not necessarily we are one of the buyers, but we have seen a lot of proposals.
Thank you. Last question. Do we have any non-recurring items to highlight during the quarter? I see, for example, a financial income of SEK 11 million. Should we expect you to continue to have decent return on your cash? Could you help us out a bit?
Well, there is a non-recurring item in the form of an exchange related gain. Other than that, I think it's fair to assume that we will have interest income from funds being invested. We are living in a world right now where interest rates actually do occur also on investment. Given the fact that we have a lot of cash, you can expect to have some income there, yeah.
Perfect. Follow up there. I see that there was SEK 14 million in currency in FX gain. That was in Q3. Do you have another FX gain in Q4 as well, or was it for the full year 2022 that you meant?
Yeah, no. Yeah, only a small figure in Q4. For main part was related to interest income.
All right. Thank you. Those were my questions.
That will continue in 2023, but it's related to our cash holdings.
Got it.
The next question comes from Paul May from Barclays. Please go ahead.
Hi, team. Thanks for the presentation. Just a couple of questions from me, starting on the, on the finance expenses. Obviously moved up to 3% as of the year-end. Just noting you've got about SEK 4 billion of interest maturity at 0.3% in the current year. Is that right to assume that that moves to a higher, much higher rate over the year, so interest rate further increases by year-end 2023?
Hi, Paul. I have a bit trouble hearing you, but if I interpret your question right, I think it's fair to assume that if market rates, and when I say market rates, I mean, STIBOR three months and CIBOR six months, which are typically the interest rates that have an impact on our interest cost. If they were to increase by another 1 percentage point from here, you could expect about 30 basis points impact of our overall interest rate.
Just sorry, just to check. On the existing interest maturities, just noting you've got SEK 4 billion of interest maturities due this year at 0.3%. Would there be an additional increase on top of any changes in market rates as you refinance those interest derivatives and maturities?
Yeah. Yeah, that's a good question. I think it's fair to assume that whenever we do refinancing right now, most of that is related to bank loans, I think in comparison to a year, two years ago, you have a minor concession, which could be somewhere between 10 and 20 basis points on top of the margin that we typically paid 18 months ago.
Okay. all in cost of refinancing about between 4.5% and 5%, is that a right fair assumption?
Let's give you a very concrete example. It all depends on what maturities you choose. But let's say the market rate is at about 3%, and you have a margin which could be anywhere between 80 basis points up to 1.75 basis points, depending on if you are, you know, lending in Denmark, Sweden, what tenor. It's very really difficult to give you the perfect answer to that one.
Okay. That's great. Thank you. Just a separate one on obviously WDP now owning 10%. I understand, I think they've got a board representation, but I may be wrong there. What influence have they had on the business since the spring? Have they brought any sort of changes to strategy or is it any, you know, acceleration of the development pipeline, for example, or is that something that was going to happen anyway? Thank you.
You're right. Joost is in the board since last spring. First of all, he has the fantastic experience from the logistic in Europe and a great track record. He has come with a lot of expertise in the boarding room. Also we have met our management with WDP management. We have exchanged experience. They are impressed by our sustainability work. We are impressed of their development history. Now we are looking into, as I said before in the presentation, quite heavy energy investments and for WDP, the energy is the biggest customer. We have started to use each other for better business, so to speak. That's what I can say at this stage.
Fantastic. Fantastic. Thank you very much.
The next question comes from Jan Ihrfelt from Kepler Cheuvreux. Please go ahead.
No, that's okay.
Okay. Thank you. Good morning, and a couple of questions from my side. Firstly, if you look at the NOI margin, the last five years, the NOI margin has been down in Q4 compared to Q3. Now it's more or less unchanged. You were mentioning there weren't any, I mean, one-offs. That's indicating a better NOI margin going forward or?
I would say that we have a better NOI margin going forward. That's also a result of the optimizing the portfolio that we have started the last years, and we will work further on with that in the coming years. Yes, you can assume a higher NOI margin.
Okay. Going back to the projects, the project Sunnanå and Stockholm Syd, how soon can you start this? Is it first half of this year or second half or any time frame that will be valuable?
Yeah. Sunnanå, of course, there is a zoning plan. It's gain legal force, and we have started with groundwork. That's just general work. We could be very fast with the new project there once we have signed a lease agreement with the customer, and we have discussions ongoing. Potentially, it could start with the construction work to this summer after a building permit. Stockholm South, we have still a challenge with the water permit, but it's in the court of law right now, and everything looks right. We are good to go for a third of the area, and we have also made a lot of groundwork there using dynamites and so on.
We could also be good to go and start constructions, this summer or even a bit earlier if there is a rush from the customer side.
Okay. The Ramlösa project, looks on the table here that it's been little bit delayed for half a year. Is there something that happened that has caused this delay, or?
We are in a negotiation with the municipality, and we will soon sign agreement for the land. I think it's up and running right now. Some smaller delays, but that you have to get used with that when you're talking with the municipalities, traffic government, and land deals, and I don't know the English word, but it's taking so much time.
Okay. Little bit of a clarification. You mentioned that the ongoing projects, the remaining part of it is SEK 1.8 billion, and you probably will add another SEK 1 billion in new projects this year. What about CapEx? Because I think these are divided into 2023 and 2024. Do you have any CapEx guidance for this year?
For this year? No, we have to come back with that. It also depends on when we are starting up the different projects that we are talking about. It's not decided yet, of course, since there are no agreements. We are more guiding the market that we have the potential and probably present projects. When we start the construction, we'll have to come back then.
Yeah. My last question regards acquisitions. I can see you have a lot of projects that is going to be started. Are you still looking for acquisitions or are you going for the projects alone?
Well, that depends on how much projects we will decide upon. Of course, it's an interesting alternative with some more acquisitions. We have the firepower and we are ready to use our balance sheet during 2023. Whether how much it's divided into acquisitions, new projects and energy investments, it's we have to come back with that exact digits.
Okay. What kind of markets is most interesting to do acquisitions at this time? Is it still Denmark or where do you look if you go for the acquisitions?
It could be both in Denmark and Sweden. Of course, the currency right now is in favor to acquire in Sweden, actually.
Okay. Thanks. Those were my questions.
Thank you.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Well, thank you everyone who has listened to our presentation. Have a nice day, and we'll keep in touch.
Thank you.
Bye.
Bye-bye.