Earnings Call: Q4 2020

Feb 19, 2021

Good morning, and welcome to this audio cost. We have on Slide 3, we have the contents of today's presentation, and we will end up with some question and answers. Please go forward to Slide 4. It's been a remarkable year, firstly, because of the ongoing pandemic situation and the torment it's inflicted on the world health and economy and secondly, because we have been able to deliver stronger results than ever before. Year to date, our profit from Property Management has increased by 15% year over year. EPRA NRE has increased by 21% to SEK 245 per share, partly because of revaluation gains of 7% on back of strong investor demand and well executed development projects. The Board proposes a dividend of SEK7.5 per share, which corresponds to 15% increase. Our leasing operations have performed excellent throughout the year with net €79,000,000 worth of new rent absorbed with our development portfolio being the strongest driver. We are underway with zoning plans anticipated to become final in 2021, enabling new potential projects. The Catina platform provides us with the ability to create value for our customers beyond properties and buildings and the work we have done makes me confident about the future. Please move forward to Page 5. We have been fortunate enough to experience only a limited negative impact on revenues caused by COVID-nineteen so far. So the market sentiment throughout the years has recovered, uncertainties about long term impact of the pandemic still remains somewhat clouded. However, it's evident the pandemic has pushed globally supply chains to their limits and increased e commerce adoption and resharing rebuilding new inventory setups are structural forces what will take years to adapt. During 2020, we have agreed to switch from quarterly payments to monthly with some customers comprising SEK 88,000,000 of rental value, all of which have been paid according to the plan. Only SEK2.6 million have been subsided either through rent reliefs or through the governmental subsidy program. Please move to Slide 6. The hard work that Eni has put down to become the leading provider of logistics facilities in Sweden has historically paid off. Profit from property management has paid at 14% compounded annual for the last 5 years with EPRA MRV that has grown by 16% annually. At the same time, the 5 year average return on equity has been 17%. Please move to Page 7 and then we take Page 8. Yes. And then some short comments on our income statement. Net operating income was 11% higher in the same period last year and income from property management was 15% higher. This is at 19.6 per share compared to 16.63 a year ago. Net operating income ratio was reported at over 79.4% in comparison the last year's 76.3%. This is in part due to a mild winter and a lower maintenance cost caused by limited access to the properties during the pandemic. The rental income was affected by a positive one off In the amount of EUR 14,000,000 during the Q1 and a negative EUR 5,000,000 was related to reserved credit losses. Changes in property value amounted to EUR 679,000,000 during the 4th quarter and almost €1,200,000,000 year to date corresponding to a 7% of fair value. Moving over to Slide 9. Balance sheet has grown with 15% amounting to almost euros 20,400,000,000 compared to euros 17,800,000,000 last year, which is a difference of euros 2,600,000,000. Changes in value of properties contributed, as I mentioned before, almost with SEK 1,200,000,000 and investments in standing assets almost EUR 1,000,000,000. Equity ratio went from 35.6 percent to 37.2 percent and debt as a percentage of total fair value was 52.3 Moving forward to the operational review, Page 10 and moving directly over to Page 11. Rental income amounted to 1,000,000 sorry, SEK1264 1,000,000,000 in the period. The total growth in rental income was 7% year over year. Project developments contributed 3.5% and net transactions 1.2%. Like for like rent growth contributed with 1.5%, which comprises a combination of lease reviews, renewals as well as indexation and changes in vacancy. There was also one off effects related to prepayment of an early lease expiry as well as credit losses, net amounting to 0.8%. Moving to Page 12. As indicated by the diagram, our cash flow has been growing consistently since 2015. From the last 12 months, we have formed another strong cash flow, where we retain 57% from revenues in property management income. Cash flow is key for stability and enable us to generate investment capacity for continued focus on our profitable development pipeline. Our target is to maintain a level above 50% of rental income. Move to Slide 13. And some short comments on our portfolio. Catena is organized in 5 regions with the headquarters placed in Helsingborg and regional offices in Malmo, Gothenburg and Stockholm. Our total organization consists list of 46 employees. We have a total of 113 Logistics properties scattered around Sweden, with 4 of them located in Denmark. The properties are typically located on strategic routes in proximity to rail, ports and highways. During this strange COVID year, we've been able to keep our high economic letting ratio of 96% and also our surplus ratio at 79%. Moving on to Slide 14. We hold a diversified asset portfolio, both In terms of geography, asset size and tenant concentration, about 12% comprise typical cross dock terminals, 45% consists distribution facilities and the rest of the 43% closer to traditional logistic warehouses. 47% of our contractual income is derived from our 10 biggest tenants, with the majority of them representing critical logistics providers, room we hold several contracts with attached to a variety of properties. Many of our customers within Distribution and logistics provide a critical service to society. Moving on to Slide 15. And Jorgen? This is a slide where we are proud to present a part of our customer portfolio where many of them are experiencing growth even in this disrupted market. Simply put, our success is mirrored by the success of our customers and we are proud to acknowledge the long term relationship with Chem2Keeper with all of our customers. Move to Slide 16. On balance day, Our property value was appraised at approximately EUR 18,600,000,000 with a reported EPRA net initial yield of 5 point 5%. During the year, unrealized value changes amounted to almost SEK 1,200,000,000, which was due to several projects being finalized, especially during the last quarter and an ongoing market yield compression. Moving over to Slide 17. The rental market is strong, particularly in the most populated regions of Stockholm, Gothenburg and Malmo, shown on the slide, where it is the shortage of new land. In other parts where land is not an issue, the market is typically more stable. Move to sorry. We also experienced significant occupier demand, specifically from parcel delivery providers, cold storage and e Commerce retailers. Move to Page 18. We have experienced a successful year with positive net leasing throughout the entire year. In the Q4, we added another SEK 49,000,000 worth of new rent, primarily through development and this was in part offset by rent from space return of 16,000,000. Our asset management team has successfully contributed to our high utilization of our facilities, leading to continued higher occupancy of 96.2%. Our weighted average lead of approximately 5 years has been a stable metric for many years. Move to Slide 19 and then we go to 2020. In some words about our debt and capital structure, Our cost of debt has gone down to 2.3% from last year's 2.6%, mainly due to the prolonged swap agreement in the early stage of 2020. LTV was Reported at 52.3%, down 170 basis points a year back from now, primarily due to the increase in value of our portfolio. Equity ratio was reported at 37.2% with sufficient headroom from our minimum target, up of 30%. Moving on to Slide 21. And some details about our loan portfolio. Access to financing has gradually improved From the early stages of the year, with credit spreads being tightened during 2020, we have successfully printed EUR 1,400,000,000 in bond issues. We The intrinsic EUR 1,400,000,000 in bond issues with only a small concession in pricing compared with the beginning of the year. The commercial paper market has also picked up pace since the pandemic hit. And on balance day, euros 600,000,000 was utilized. Funds available on balance day totaled to EUR 1,800,000,000 comprising cash of EUR 400,000,000 and EUR 1,400,000,000 of undrawn committed bank facilities. As before, ongoing discussions with our bank creditors Are doing well. On balance day, we reported a debt maturity of 2.2 years And an average interest maturity of 3.5 years. Moving on to Slide 22 2 for capital deployment and I'll go to Jorgen on Slide 23. We continue to focus the majority of our investment into Development. During 2020, we have net invested around SEK 1 NOK200 1,000,000,000 worth of almost NOK1 1,000,000,000 comes from development. Move to Page 24. Here, you can see it's a slide of our transactions. And as we had shown, the major part has been concentrated in Denmark. We have also made some in Sweden, but that's just been for land, not up to any facilities yet. Move to 25. At the end of December, 29,000 square meters of space was under construction, which all was pre let, equating to remaining SEK 430,000,000 to invest. The value of the project in progress was SEK 1,300,000,000 of which SEK 1,000,000,000 was related to developments close to closing. During the Q4, we have finalized 3 major development projects, adding almost SEK 25,000,000 in NOI to our earnings. During 2020, we have added a total of 105,000 new square meters to our portfolio to 26 and then go to 27. So clear. In the words about our sustainability during 2020, we're glad to announce the IFRS our team has put in to comply with IFRS sustainability standards as well as with the TCFD recommendations. Satema's new goals for GHG emissions have been improved by the scientific science based target initiative, Which is an important signal about our ambitions going forward. Moving over to Slide 28. During the year, important steps have been taken to ensure environmentally responsible and cost efficient operations. We are devoted to ensure that all new buildings are constructed in agreement with ISO standards And that today attained a level of environmental certification of at least €1,000,000,000 of ethanol. We now have 7 certified properties during 2020 and have ongoing processes with another 11 properties, which will give a total cover of 17% of our portfolio. We track our energy juice and GHG GE emissions on a regular basis, and we are devoted to make use of new technology to enhance our efficiency. We also added 7 new solar cell installations during this year, the last year. Moving over to Page 29, Market Insights. And leaning over to Jorgen at Page 30. Yes, we have some interesting news from some of our customers. Post North announced record volumes in terms of parcels for week 1 and now in 2021. DHL reported a huge B2B growth in Q4 and boost exceeded all expectations during 2020 and they are seeing a huge growth in 2021. So we can see continued strong demand for new logistic facilities. Moving to Slide 31. We held a piece of promising land south Stockholm, where we expect to have a final decision on zoning plan within the next 3 to 12 months. It comprises 450,000 square meters of land, enables another approximately around 200,000 way of me to so let's go to area, which could potentially generate somewhere between the €150,000,000 to €200,000,000 in head rent. This is an excellent position for logistic purpose and our ambition is to have a similar development as the one in Sonangau outside Malmo. Go to Page 32. In November 2020, we announced the agreement to finance the automated warehouse solution installed in Eoroniete 9th 2, a property we agreed to acquire in September with the fashion company, maili.com as tenant. Although the quality and location of the property portfolio is important to our customers, we believe that the service we provide other than the building is crucial to build up long standing relationships with top performing customers. Moving to next Page 33. We're about right now to start to construct a logistic facility up in Northern Sweden in Luleo for the customer Schiller 3's expense in Nord. It's an investment of SEK70 1,000,000 and it will be finalized at the end of 2021. It is a good location up north along the highway, which will supply Northern Sweden with cold goods. Flow to 34. The search of new land continues along with ongoing detailed development plans in progress. On balance day, we hold a potential of about 5,000,000 square meters of land. We're almost $1,000,000 consolidated in our balance sheet. Rest of the land bank is conditional on various contractual agreements such as detailed development plans have been to gain a legal force. Okay. And then we are ready for Q and A. Yes. Okay. Slide 35. 35. If there are any questions? Thank you. There'll be a brief close while any questions are being registered. Our first question is from Nicholas Spectorin of BNP. Please go ahead. Your line is open. Hi. You mentioned that the maintain the development CapEx It was about SEK 1,000,000,000 in 2020. And you have remaining investment volume for your ongoing projects of about SEK 500,000,000. Is it a fair assumption that the investment volume will go down in 2021? It depends there. Maybe it could be depend on when we are having our zoning plans approval and we can start some new projects. Otherwise, to keep up the steam in the growth, we have maybe to look at some acquisitions to keep up the growth and increase our result of property management. But we have not 100% control of it since the zoning plant processes can be delayed in some cases. So it could be a decline in 2021 and uptick in 2022, is that? Yes, it could be a smaller one. Yes, okay. And We are yes, sorry. As you also mentioned that volumes for aircraft tenants is growing. How's the status about a known upcoming termination in your portfolio? The vacancy rate is very low. And do you expect it to keep that way coming years? Yes. As we mentioned, the underlying demand for our facilities are very strong. So we cannot see that and we have no signals at all that there would be some contracts terminated. On the contrary, we are having a lot of questions about asking for more surfaces. Okay. Yes. Thanks. And my last question is about your land bank and development pipeline. When do you expect to start to sign leases Like in the stock and seed. And it's always I mean, we have discussions ongoing, but it's very tough to sign contracts when we are not at the stage where we can know exactly when we are clearly when we are allowed to start building. And it's very critical for some of the tenants which date they have to move in. So it's tough to say. But of course, we with a have a very high pace of pipeline, as soon as we have the zoning plan approved and then we can really take the discussions and the intention to sign contracts. I hope that we can to present some deals this year on Stockholm South. Okay, great. Thanks. That's all for me. Thank you. There will be a brief pause while we register any further questions. Our next question is from John Bjorn of Kempen. Please go ahead. Hi, good morning. Maybe a follow-up on the strong underlying demand for your facilities. I was wondering whether you have a bit more color on the relocking spreads you're signing with your tenants. Spreads of the rents, you mean, for upcoming new contracts Yes. That question is quite common. And we think that if we are negotiating and we have the locations in Stockholm, in Malmo and Gothenburg. There is a good chance to raise the ramp level a bit. We are not talking about those rates we can see in the office market, but we feel very confident with the positions we have in Stockholm and Malmo and Gothenburg. When we are talking other locations, we can see that the rent is quite the flat in the future when there are land available, so to speak, the other side of the street. All right. That's very clear. Thank you. And maybe on your value growth, given where transactions have been even during last month. Do you expect to see more yield compression in the medium to short term? I think there could be some more yield compressions and the signals we have seen from Europe and so on, Southern Europe and Germany and U. K. We can see that there have been made some deals at very low yields in Sweden as well. So maybe we can see in 3 to 6 months, there will be some more compressions. All right. That's very clear. Thank you. Thank you. There will be another brief call, so we register any more questions. We have one question that came through by mail. It's from Ryan Dumard on Clearance Capital. And the question is, assuming you get toning for Starkem Saas this year, What is the expected completion time? Jerk, do you have an answer? Yes. It varies. But I think this So it could be reasonable, but with and there is a lot of work with the land. But Let's say, we have approval to in the spring and then, let's say, somewhere around 18 months when and then we can have the tenants moving in, in Stockholm South. And then for to complete the whole area, if that's the question, it's well, It's very tough to say, but we are we can talk about 5 to 7 years to complete the whole area to be a qualified guess. We do have one more question on the phone line from Victor Trudy of ABG. Please go ahead. Thank you. Just first of all, you talked about north of Sweden and some expansion. And I I just wonder if you would like to give a bit more flavor on your ambition with that expansion. Yes. I mean, we see that Sri LaFries Expressen is, so to speak, a good customer, and we are very glad to follow customers all over Scandinavia and we see that we can maybe have some more deals with the customer in the future. And we also see that as long as we follow the E4, the highway up through North. We think it's very good and our vision is to link Scandinavian goods. So that's the argument why we are investing in Up North Sweden. That's very clear. Thank you. I just had something more here on You talked about your extra service apart from location that you offer your tenants. What distinguish you from the competitors in that is we are working very close to our tenants and we have discussions with them quite often and we are very fast and we are not any kind of invisible capital investing in properties. We are where we operated in them and we can handle different situations if they need a quick expansion or they need to move out out and maybe move to another facility somewhere. We can solve it very pragmatically and very fast. And we have had a lot of credit from our tenants about that. So fast food it and we can also discuss some logistic challenges. We are also in discussions with, for example, financing automations and giving the met rights in that case since we have some experts in our organization, in our networks about that kind of things. So We are over close to the tenants. Yes. And that's a fairly new operation, isn't it? The financing of automation? Yes. We see also that I mean, for example, When tenants there want a new facility with freezing or chill, it's very common that the landlord is investing in that kind of machines. We see in the future that a lot some logistic facilities. They have an automation installed and that could be in the future that it will be more common the landlord will be a part of that discussion. Understood. Thank you. That was all for me. Thank you. Thank you. There are currently no more questions on the audio line, so I'll hand back over to our speakers. Okay. And we don't have any more questions during through evening. So I think we can say thank you to you all for today. Thank you for listening and taking care. Nice having you, and we wish you a pleasant weekend. Thank you. Thank you very much. Goodbye.