Earnings Call: Q1 2021

Apr 29, 2021

Welcome to Catena's Q1 report. Talking to you today, it is, on CFO, Supery Bensben. Moving over to Slide number 3 and today's context you see in this slide. And we start off with some highlights. And Jorgen, you're welcome. Start. Thank you, Sophie. Slide 4. Katina came out strong in the Q1 with a 5% increase in the rental income and that is included a one off in Q1 2020 of SEK 11,000,000. Year to date, our profit from property management has increased by 6% year over year. EPRA increased by 33 percent to SEK276 per share, most because of revaluations, but also because of a directed share issue. Our net leasing operations summarize to SEK10 1,000,000. Worth to mention is that we came out this quarter with a net LTV below 50 And our acquisition in Denmark was completed at 1st March and will have a full effect in our Q2 report. We are underway with zoning plans anticipated to become final in 2021, enabling new potential projects. And we feel that our business are backed by strong interest from investors and the credit market is stable and close to levels before the pandemic. Please, Slide 5. As economies are starting to reopen along with ongoing vaccination programs, Confidence among consumers is increasing. The impact from coronavirus has limited effect on Catena in the Q1 of 2021. The setup program prepared for the Q1 of 2020 to cope with the situation is still in progress and of critical importance. Summarizing the Q1 of 2021, rental value of SEK6 1,000,000 was agreed to change from quarterly to monthly payments, Of which they all been paid for according to the plan. Discounts linked to government rent subsidy amounted to just under SEK 1,800,000. Slide 6, performance. And we go over to Slide 7. History of Profitable Growth. The hard work Tettina has put down to become the leading provider of logistic facilities in Sweden has been Testfully, profit from property management has paced at 14% compounded annual growth for the last 5 years And the earnings per share has paced at 41%. At the same time, the dividend has compounded annual growth at 20%. Please Slide 8. The rental income amounted to SEK 329,000,000 in the period and the total growth in rental income was 5% year over year. Project Development contributed 5.5% and net transactions 1.8%. Like for like rent growth contributed 0.6%, which comprises the combination of lease Reviews and renewals as well as indexation and changes in vacancy. There was also one off effects Related to prepayments of an early lease expiry amounting to 3.3%. Moving to Slide 9 and Sophie. And some other comments on the income statement. Our net operating income was 4% higher and income from property management of 6% higher than the same period last year. The surplus ratio went down slightly to 78.5 percent from last year, €79,100,000 But one should keep in mind the effects of the positive one offs in the rental income of SEK 11,000,000 that we had in the Q1 last year. This Q1 was affected of a harsher winter with a lot of snow in Sweden and a temporary increase of the cost for electricity. Unrealized changes in property value amounted to SEK 680,000,000 and corresponded to 3.4% of fair value. And the value changes of a derivative amounted to €85,000,000 All in all, the profit for the period ended at €722,000,000 resulting to an earning per share of SEK 19.95. Moving over to Slide 10. And Jorgen? As indicated by the diagram, our cash flow has been growing consistently since 2016. For Q1, we have performed Another strong cash flow period where we retain 57% from revenues in property management income where we have a target of 50%. Cash flow is a key for stability, enable us to generate investment capacity for a continued focus on profitable development pipeline. Our target is to maintain a level above 50% of rental income. And our dividend objective is to distribute 50% of property from property Management, that's Dan Loktak. Moving to Slide 11, operational review. And Slide 12, Sophie. Thank you. In our 5 regions, we've particularly experienced growth in the Malmo region with a EUR 24,000,000 increase, much due to the large acquisition of 5 properties in Denmark. The Gothenburg region grew with 19% with 2 acquisitions in Bordeaux. Cathearn now has now a total of 100 21 properties, of which 9 of them are located in Denmark. The economic letting ratio has temporarily gone down to 94%. This is due to new vacancies in the world, consisting of 38,000 square in the property Awe, where the e commerce company Neli is moving in towards the end of the year and also in another property called Vinsurnen of 15,000 square meters. And the letting process of this property is ongoing. Moving over to Slide 13. Patheen now has a diversified asset portfolio, both in term of geography, tenant concentration and asset size. $46,000,000 of our contractual income is derived from our 10 biggest tenants, representing critical logistics providers with whom we hold several contracts and that is attached to a variety of our properties. The majority of our tenants, 42% represents logistics and transport providers and 39% represents the food distribution, an area that has grown during the pandemic and also has a booming e commerce sector. Both sectors provide an important service to society. Moving over to Slide 14, Jorgen. Thank you. Yes, on this slide, we present part of our customer. So, as Sophie talked about in the previous slide, many of them are experiencing growth and we will do our best to supply them with more spaces when needed. Some example of growth in our customers' business are that PostNL handled the same volume of parcels the day after Easter as they did on Black Friday. And Boust are expecting a growth of between 47% 49% in the Q1 2021. It is clear signals to the market that the megatrend e commerce is growing more and faster than we could imagine. Move to Slide 15, rental market. The rental market is strong, especially in the most populated regions of Stockholm, Gothenburg and Malmo shown on the slide where it is a shortage of new land. In other parts where land is not an issue. The market is typically more stable. We experienced significant occupier demand specifically from parcel delivery providers, Cold Storage and E Commerce Retailers. Moving to Slide 16, please. We have experienced the Q1 of positive net leasing of SEK 10,000,000. Our weighted average lease for approximately 5 years has been Stable metric for many years. And as Stokti mentioned before, the economic letting ratio has temporarily gone down to 94% You too. Vacancy in Goliad, waiting for nearly NOK 2,000,000. Moving over to Slide 17, balance sheet and debt management and further on to Slide 18. The EPRA NRV has grown by 16% annual since 2016 and we came out Q1 with SEK276 per share. At the same time, the 5 year average return on equity 17%. Move to Slide 19, Sophie. Since Q1 last year, the balance has grown with 27%, amounting to CHF 23,400,000,000. Equity has grown with 2 share issues. On March 1, new shares were issued to the amount of NOK 200,000,000 associated with the acquisition of the portfolio in Denmark. The last day of March, Catena completed a directed share issue, raising proceeds of approximately SEK 1,100,000,000. Both issues were given under the authorization the Board of Directors by the 2020 Annual General Meeting. We intend to use the proceeds to continued growth through investments in property development and acquisitions and furthermore to maintain a stable capital structure. Moving over to Slide 20. By the end of the Q1, the property value was appraised at euros 20,600,000,000 growth with almost €2,000,000,000 and an Ekpra net initial year at 5.3 The increase in value changes in the properties of EUR 680,000,000 is due to the ongoing market yield compression and that project is being finalized. During the Q1, we made external valuations of 68% of the property value. Moving over to Slide 21. Put some words out about our debt and capital structure, where our interest bearing liabilities amounted to SEK 10,500,000,000 and increased with SEK 800,000,000 last day of December. Our average interest rate stays at 2.3%. That is the same level at the end of December. LTV, according to the definition in our new financial targets, where we, from now on and onwards, include cash balances into calculation amounted to 49.7%. Equity ratio was reported at 41.1 percent with headroom from our new minimum target of 40%. Moving over to Slide 22. On our funding structure, during the quarter, almost SEK 1,900,000,000 have been renegotiated. And the remaining amount with debt maturity this year, we must be renegotiated during the 3rd Q4. Ongoing discussions with our bank creditors are going well, and both Farm and Commercial Paper markets are stable. Funds available on balance stake totaled at EUR 1.6 €1,000,000,000 comprising cash of almost €300,000,000 €1,300,000,000 of undrawn committed bank facilities. In the beginning of April, the settlement of the direct share issue was executed and added close to SEK 1,100,000,000 in cash. Moving over to Slide 23. In the beginning of April, we updated our financial target. For example, the target for equity ratio was raised from 30% to 40%. Increased coverage ratio shall not be less than a multiple of 2 and average debt maturity should be at least 2.5 years. The net to loan value ratio should not exceed 50%. Jurgen, do you have any comments on our new financial targets? Well, I think the new targets clarifies our focus on financial stability and sustainable growth, Growth of Attractive and Logistic Properties together with our long term customers. And we move over to Slide 24 for and Capital Deployment. And moving on to Slide 25. And Jorgen? Yes. Our long term goal is to focus the majority of our investments Into development. Although during the Q1, we have acquired properties for SEK1.1 billion where of around SEK700 1,000,000 is in Denmark. We also invested SEK160 1,000,000 in projects in Q1. The ratio between acquisitions and development is not according to our long term plan, but rather an outcome of that our zoning plan processes take longer time to win legal force than we expected. We are eager to start with projects on our land bank shown in coming slides. Moving to Slide 26. Here we show a slide of our transactions. As you can see, the major part has been concentrated in Denmark. Slide 27. And here we have a picture of our largest Projects in progress and one of them, Morangirlver, we will come back to later in the presentation. Moving to Slide 28. On balance day, we hold a potential of about 5,000,000 square meters of land. We're almost 1,000,000 square meter of consolidated And we have development plans in place. Rest of the land bank is conditional on various contractual agreements such as detailed development plans having to gain legal force. The search of new land continues along with ongoing zoning plans in process. Next slide please. Sustainability. And then we take Slide 13, Sophie. During the Q1, we particularly have been working with of TCFD. All the employees have been involved and the results will be published on Catena's website during the spring. We've also started the work with climate declarations for new bid properties, which will be compulsory from 2022. To find new ways to reduce climate emissions on construction. It's one of the biggest challenges that the whole industry stands for. Furthermore, we started to get acquainted with the new EU taxonomy. And what that means to Caperna, the interpretation of the taxonomy will be gradually starting in 2022 with 2 of the 6 environmental objectives, which are climate change mitigation and climate change adaptation. Onwards, we will continue to inform you on our work with the taxonomy. Moving over to Slide 31 and some more sustainability. We continue to monitor our energy consumption and GHG emissions and are devoted to make use of new technology to enhance our efficiency. We also continue the work to give our new build properties and environmental certification, And we now have 8 buildings certified with Ljebigna Silva and several more in progress. The environmental certification will create possibility for green financing, and we have a goal that 50% of outstanding credit volume Shelby Green in 2025. Moving on to Slide 32 for some market insights And over to Slide 33. And Jorgen, you're welcome. Thank you. Some more interesting signals from our customers that Confirm our thoughts around the strong market. Online shopping grew by 40% in 2020 compared to 2019. And Dias Smit are seeing great demand from their e commerce related customers, and they will be ready to meet higher demand in the future. Apertija, the largest online pharmacy in Sweden, had a growth of 50% in 2020 compared to 2019. Next slide 34, please. And as we mentioned before and you have all recognized, We made a larger acquisition in Denmark at the 1st March. The portfolio consists of 5 properties And the largest tenants are Entegare and Daugard. We see that Denmark is an interesting case in the future, and I hope that we can grow more there. To Slide 35, here you see a picture of Moranghelva, A new logistic facility of approximately 38,000 square meters will be built in the Morgenkava Business Park, Which is located about 40 kilometers west of Uppsala. A 12 year lease has been signed with Babyland, which intends to conduct its e commerce Deliveries from the facility. And the new logistic facility will be environmentally certified in accordance with the Amelior Vigna Silva standard, Which is strict requirements in terms of energy, the indoor environment and choice of materials. Solar cells will be installed on the roof And the overall investment is expected to generate a net operating surplus of approximately SEK 17,800,000. Moving to Slide 36. Worth mentioning once again, it's our share ratio, Which brought in approximately SEK 1,100,000,000 and that was a great interest from investors and we are now ready to increase The pace of growth while presenting a very strong balance sheet. And now we move on to the Q and A session. Thank CFO. Our first question is from Nicholas Bertrand of BNP. Please go ahead. Hi. I got a couple of questions. First off, about the vacancy rate. You mentioned some kind of onetime effect here. And can you just explain that a little further? And Will we see the vacancy rate come back to 4% at the end of Q2? We have signed a lease contract with Nelly. And as we said in the Presentation here. The full effect of that contract is from the 1st January 20 22. So we expect that we come back to the higher rate at the latest This 1st January, 2022. But it's, as we said, a temporary dip. Okay. Yes. And given the recent share issue, Can we expect an increase in volumes near term? Or what's the share is mainly to bring down the LTV To your new financial targets? No. It's we think that we can Speed up the tempo in growth and we can see that there are some interesting case in the market and we are Very confident with our land bank. So as soon as we have the legal force on the zoning plans, acquisitions and development. So it's a combination of Acquisitions and Development. I cannot say if it's next quarter or the coming quarters, but we are Very confident with the situation that we will ramp up the growth here in the coming 12 months. Okay, great. Did you evaluate any other type funding that wouldn't dilute the cash earnings per share for common shareholders Such as issuing hybrids or D shares instead? I want to go in Some details, but of course, when we did this issue, we saw that that was the best alternative for us. Okay. Yes. I saw in your report that the average interest rate is flat Quarter over quarter, while the increase bearing debt is up by 8% or so. But in your cash earning, you have slightly cut Your financial costs outlook. Can you just help me understand that? Is that an effect that you will use The raise equity to reduce the debt? Or do you have a more bullish view on your funding margins going forward? We can see that the funding margins will coming down in the future. I I think that's the biggest reason. Okay. And how large is the difference there? I cannot say any Erikson figures. Time will tell, but We feel confident. Couple of points, Dan. But it's ongoing it's an ongoing process to deal with our entire portfolio. We have a lot of loans agreements this year that we are renegotiating as we go on. So we're going to see a little bit change in the course of this year, and we hope we can make better options, but we can cut a few points at least. Yes. So there is potential. Yes. That's what we discussed. Yes, great. And Regarding value changer, you picked up speed there on a rolling 12 month basis. I believe you raised Your values by 10%. Do you believe you have to catch up with the market now? Or is it more positive revisions to come? Well, that depends on what direction the market is going. But We feel quite confident with the valuation right now. And then we'll see if the yield compression is Going further down, we have to come along, so to speak. Yes. Okay. And lastly, just A short question about expected earnings from JVs. Can we do you expect to have any positive contribution from JVs near term? For the joint ventures. Now we see it quite flat. We hope that it was a minus in the Q1. It was due to the winter and that they make over the year, we should see it quite flat, but it shouldn't be minus in the end at least. Okay. No big exposure or anything. Thank you. That's all for me. Have a nice weekend. Yes, you too. Thank you. Thank you. Thank you. Our next question is from Markus Henriksen of Ferito Securities. Please go ahead. Hi, Jorgen and Sophie. A few questions from me as well. I saw in the presentation that you have a pending zoning plan in Stockholm South. I have seen this granted. Is that correct that it's granted? Yes. It's correct In one way and in another way, there is also some other permits waiting We're good to go, so to speak. We are talking about Questions about handling the water. Yes, Vatten Dum is needed And so on. So it's not just as we are speaking, we are not ready good to go, so to speak. All right. Do you have any time frame? What if you look historically or what you heard From other similar cases, how long does it usually take? I don't know. It's like At the end of the year, I think that it could be some positive signs. It's tough to say when we're handling with the courts and so on. But, yes, 9 months, plusminus. Okay. So if we look at the other zoning plans, This has been kind of the one you've been mostly eager to start up with. What other selling plans do we have where you Could start a new construction project here in 2021? We have Sonaneo, where We are waiting for the decision from the court and we have to have the decision before this summer. And hopefully, after the summer, somewhere in the Maybe October, Q3, Q4, we can be good to go at Sona now. Okay. Thank you. I have a follow-up on the occupancy rate as well. You I thought you weren't quite clear there with the Nelli property. But If we look at acquisitions you made also, I noticed that you mentioned the order 92 and also here we are 3 in a 3 core property. Could you elaborate a bit on how large vacancies we have in those two properties? 43,000,000.3 percentage points from Nelie and the acquisition. Yes. Nelie is 38,000 Square Meters. And Hevia, I think it's 3,000 to 4,000 square meters vacancy in the Hevia Property. And then we had moving out in the Q1 from another property in Bordeaux, Wiltonen. And that property is around 15,000 square meters. But there we have Good discussions ongoing. So we think that's a normal case for us. Okay. And if we look at the unit record property, what do we are we missing that in order to lease out So that vacancy, do you need to invest time and money there? Or do you see it as an easy vacancy? I think it's a normal case. And I'm not sure about how much we need to invest in that case. We have to come back on that one. Okay. Thank you. Also have a question regarding new construction. If we look at in the total market in Sweden, it's been around 500,000 square meters The past 5 years of new construction. And now this year, it's much higher. And you have a few zoning plants that are pending. But we look into 2022 and 2023, how do you view your potential to defend the market share you had in 2019 And 2020. We are still very confident that we will increase Our case, when we're talking about the pending zoning plans, I mean, we have like Stockholm South is a Very huge area. In Aurobindo, we have even bigger and we have Lambetho and Jotiboy and Sonanea in Malmo. And it's a very, very good position. So I think that we can present a lot of new projects in the If we are talking in 24 months, for sure. Thank you. And also a follow-up on financing. You expect to renegotiate around 25%. Is most of that in Q3? Or is it split evenly in Q3, Q4 here in They can help you. I think it's quite the most I think is in Q3 and then a bit less in Q4. Okay. Thank you. Those were my questions. Thank you, Markus. Thank you. Our next question is from Jon Erfelth of Kepler Cheuvreux. Please go ahead. Okay. Thanks. I have a couple of questions also. And I start with A comment in the report saying that the planned maintenance is Running on a low speed so to sway. When you actually do more planned maintenance Work. Is that going to affect the surplus ratio to any larger extent? Or is it just a comment on cautiousness? I don't think it will be a larger extent. But due to the pandemic, there have been some restrictions from our tenants that we Cannot disturb them too much. We have to respect it. But I mean, it's no larger figures that will came out From the surplus in the nearest future? No, I think it's more of a cautious way to put it that we had some fluctuations during the quarters, that is always better to do maybe mid form maintenance during the when we don't have the weather against us. But there shouldn't be any big fluctuations at all. Okay. And looking at the property revaluations and if you could Split that into regions. Are there any regions that are stronger, so to say, when it comes to property In summary, just a little bit weaker. If you could comment upon that. Yes. I wouldn't I don't want to mention weaker because I think the whole market is very hot in the moment. But of course, In Stockholm, there have been some properties that compression is quite clear that it's going down a lot. And also valuation connected to our developments Like Thorstapp and Sonamil. That's a typical example of very high valuations Increases in the valuations. And that makes us confident when we are looking The new projects coming in Stockholm South and Landwetter and so on. Okay. And just a Question along that line. I saw on one of your slides here that the gross initial yield in Johan Sjoping was 9%. How come that it was so high? Yes. It's a good question. We'll have to come back to that. I can say that's spontaneous. Yes, great. And then a question on your LTV. It's very close to 50% and that's Actually your target, how should we view future growth there? If you do acquisitions, do you need to bring in more money? Or how can't you Finance your expansion here because you're very close to your limits here. Yes. But also we have the bank account Full of cash. And I mean, of course, we can do acquisitions and we can have an LTV of around 50%. So and that's our target. I don't see that as an issue right now. Okay. So you could live with Being very close to your limit, so to say, because other companies are having hurdle 50% and they would like to be in the SEK 45,000,000 or so. Okay. It's good for us to be on the target hovering around 50%. Just a broad question on rents. Due to the very strong market that we see on the Back of the e commerce trend. When you renegotiate, could you put up rent levels somewhat? It hasn't been that historically, but do you see a new situation now, so maybe some rent growth? Yes. I mean, so first, we don't have that many contract renegotiating every year. But And there is no more options for the market, there is no more land available, then of course, the rents Will go out. But we are not seeing it right now For like it has been in the office market in Stockholm, for example. But we are pretty confident that in the coming years, We have a possibility to raise the rent levels a bit in the big cities Around this big cities. Okay. And due to the long contracts, it takes time to potentially It's Jordan. Yes. I mean, it's long contract, so it's tough to say. We don't have so many indications every year. Okay. And finally, a question maybe for Sophie. Paid tax was, I think it was SEK 16,000,000 or SEK 16,000,000 this quarter, even larger than pay tax for the whole 2020. Is there anything to read into that? Or are you expecting the pay tax to be on Pretty much the same level as I think in 2020. I mean, I think You mean compared to last quarter or the Q1 last year, you mean? I'm just looking at the cash flow statement. And Well, it's more in a that the customer statement shows that. It's more that we pay taxes. Got it. Yes, property. No, yes, the property the taxes for last year during the Q1. And of course, with the new limitations for Gente, 3 dogs, all dogs with the Gensingama, We'll make that we will have a bit larger. And then 2020, we paid the tax for 2019. And those taxes weren't that high because these regulations haven't hit them. So that's why you see a bigger part now that we pay, which is for 1 year back. So I think this is more accurate for the level going forward that we can see than the historical figure. Yes. Okay. Thanks very much for taking my questions. Thank you. Thank you, Julian. Thank you. Our next question is from Victor Treuza of ABG. Please go ahead. Thank you. Just the first question on your reported NRV per share. Is it based on They're roughly 38,200,000 shares on 41,200,000. On the 41,200,000. Okay. So just because for the race, if I use that, I come up to a year on year change More around 46%, 45%. And I think you guys reported 33%. If you adjust, that is if you adjust from last year, obviously. But So that you put the same number of shares for Q1 2020 as well? Yes. I think we need to calculate the average And this larger number came on the last of March. So I think it's that's why we don't get a bigger get that difference. Okay. Right. Thanks. And you've talked a bit about the maintenance costs earlier and being somewhat cautious. Something I noted was that you say some costs will or have been postponed due to COVID-nineteen. And In what range would you say that those costs are? Is it like 10% of your the maintenance cost you had this quarter or Ballpark figures. It's always difficult to talk about what's to come. We can't really see that yet. But so I think we will have a difficult figure on it. Okay. And you cannot really see if it looks to be a large cost item or if it Seems to be. I would say we cannot see that it will be a large figure in the coming quarters. Okay. Perfect. And just to clarify with Sonoran, the new property there, because you finalized one Last year, right? And so this and you have maybe you have both stated in the report for Q1, Maybe even in the year, they are probably. Yes. I mean there are There are 2 different property names, right? I just haven't Yes, yes. Yes, they are. And we are now waiting for the zoning plan to be approved on another 110,000 square meters. Right. Okay. Exciting. Just the last one here, let's see. When it comes to on Page ten, you can see your project portfolio. And you state that total remaining investments amount to EUR 599,000,000. I assume that is or that has also stated that, that is both for projects and for investment in existing portfolio. Is this an for an indefinite time line or is it for the rest of 2021? Or What time period is that set? That's what we have in the books right now in the total going forward that's been decided and started on. So it's going to be ready during 2021 or can also drift into 2022. But that is what decided and ongoing. Yes, Anna. And it's not common that project is longer than 12 months. I think that Morangjave is the one that will be finalized in the beginning of 2022. And I think no projects that we have here is finalized after that one. Yes. Okay. And just quick on Morangorvas. Is that Apothea's facility next to it? Is that also yours? Or is that somebody else? Poteya is ours and this new project with the Babyland is our project. Right. That's near Solver, 116 Okay. That's all for me. Thank you for taking my question. Thank you. Thank you. There'll be a brief pause, or any further questions are being registered. There are no further questions at this time. So I'll hand back over to our speakers. Okay. Well then, thank you all for listening in today. And we would like to wish you all a wonderful day and a nice weekend. Goodbye from Helsingborg.