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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to Catena Fastigheter's Q2 results. [Operator Instructions] Today, I am pleased to present CEO, Jörgen Eriksson; CFO, Sofie Bennsten; and CTO, David Silvesjö. Speakers, please begin.
Hi, everyone, and welcome to Catena's presentation for Q2.
Please, next slide. In today's presentation, we will start off by giving a short summary of the latest quarters followed by an overview of our current customer base and property portfolio. We will then proceed to the business update, where we will touch upon our current growth plan. Sofie and David will then walk through the numbers in the financial update, and we will then open up for the Q&A.
Next slide, please. I'm happy to report continued growth for the first 6 months in 2022, where we are registering higher rental income driven by projects, acquisitions and as well as seeing high demand for our projects and properties. The demand is showcased by us, starting during the quarter the next phase for logistics position Landvetter resulting at time of 6 months filling a 210,000 square meter land area. Truly excellent work by the organization and really showcase the demand for our projects.
We also made a number of transactions during the quarter, selling older properties in nonstrategic areas and acquiring new modern and sustainable properties in prime locations, adding to, for instance, our presence in Denmark.
By the end of the quarter, we announced one of our most exciting projects to date in Jönköping. We will build an 86,000 square meter facility for the leading home electronic retailer giant, Elgiganten. The project will be one of the largest in the Nordics and also aim to be the first logistic facility certified by WELL. And we'll come back to this later in the presentation.
So next slide, please. Here, I will give a short overview of the current property portfolio and customer base.
Next slide, please. During the quarter, we conducted a number of transactions resulting in 125 properties in the portfolio. We are increasing our presence in Denmark, and we have signed 2 new acquisitions of a total of 64,000 square meters in this quarter. Furthermore, we continue to be highly efficient in our property management, which is showcased by the higher surplus ratio. All in all, we continue our growth journey by adding great properties and building a sector-leading property portfolio within logistics in our markets.
Next slide. Taking a look at our customer base, during the quarter, we added properties from Halmslätten. This resulted in the tenant Martin & Servera is becoming one of our biggest customer and increasing food and beverage to 23% in terms of segment exposure. All in all, we are happy with our customer base and continue to support them in their growth journey going forward.
Next slide, please. The business update, we will take a look at our initiative of future growth. This involves projects, acquisitions and divestments, letting operations and sustainability as well as taking a look at the current market trends.
Next slide, please. During the quarter, we announced 2 important additions to our current development pipeline. Starting off, we announced to pre-let second phase of logistic position Landvetter. MM-Sport, a leading retailer, will lease 8,700 square meter of the second building, which will total 42,000 square meters. The remaining space will be built on speculation since we see a great demand and are confident to lease the remaining square meters in the near term.
Second addition is Jönköping, which I will go into more details in the next slide. With regards to current development, within construction prices, we are seeing an effect on the yield on cost. But due to our low cost per land and long-term experience with construction, we will still have a favorable yield on cost together with considerable margin of safety.
Next slide, please. So coming back to Elgiganten in Jönköping. During the quarter, we announced the biggest project to date. For the leading home electronic retailer, Elgiganten, we will build 86,600 square meter facility in Jönköping on the property Hyltena 1:98. The facility is directly opposite to Elgiganten's current facility in Jönköping with a direct connection to the E4 highway, an excellent logistic position. The investment from Catena will be SEK 813 million, and Elgiganten has signed a 20-year lease agreement.
The deciding factor for Elgiganten was excellent logistics position, Catena's long-term customer work and our sustainability agenda. The building will be groundbreaking since it will be one of the first Swedish logistics facilities to aim for a WELL certification, an international standard with regards to social sustainability, where the well-being of those who are working in the building will be in the focus. Besides WELL, the facility will have the opportunity for one of the largest solar panel installations in Sweden. We will certify it in accordance with BREEAM Excellent, and new initiatives for biodiversity will be put in place. Groundwork will start soon, and we expect the building to be ready for Elgiganten in 2024.
And by the way, Elgiganten today press released that they have had a very strong year financial-wise, and they have a huge growth. So we are looking forward to have a very long cooperation or partnership with Elgiganten for many years to come.
Next slide, please. As showcased in this slide, our land bank of approximately 5 million square meter has over the years been a great enabler of value creation and a key element for us maintaining a leadership position within the logistics segment. Currently, we are progressing through the zoning processes with multiple prime land lots, many of them close to key logistical hubs. We are looking forward to report on them as we make progress ahead.
Next slide, please. And we are moving rapidly and executing in a high pace. In fact, since Q4 '21, the majority of our near-term pipeline is starting constructing and is pre-let. This demonstrates the great skill we have in the organization and the great opportunities we have through our long-term relationship dealing with the customers. Regarding the remaining pipeline, I'm hopeful that we in the near term will announce more pre-lets and construction starts.
Next slide, please. Taking a look at our acquisitions and divestments, we are continuing with our strategy to optimize our portfolio, increasing the share of modern and sustainable properties in great logistic locations and divest nonstrategic assets. During the quarter, we took over the properties we acquired from Halmslätten. The properties are modern, sustainable and great logistic position with a great customer in Martin & Servera. At the same time, we divested a number nonstrategic assets, many times older properties in nonprime locations. Example of this is the divestment of Fröträdet in Växjö. The facility was built in 1980s, and lettable space is 68,000 square meters. We saw limited potential for further development, and Växjö is not a prime location for us. We are happy with the latest transactions, and we'll act upon further opportunities in that market both when it comes to divestments and acquisitions.
Next slide, please. Looking at our leasing operations, we continue to register a strong net leasing. The WALE continues to increase slightly due to stronger customer interest for longer leases. Our letting ratio continues to be high, standing at 96%, reflecting the strong demand for our segments.
Next slide, please. On this slide, I would like to discuss the long-term factors affecting our segments and interesting trends spotted in our industry. On the customer side, I would like to point out the growing segment of cold storage facilities. Long-term trends such as higher interest for fresh food and buying groceries online has driven the demand over many years. However, the vulnerability of the cold chain was showcased during the lockdowns in 2020 when, for instance, Lineage Logistics, the world's largest temperature-controlled logistics provider, said that more than 90% of its cold storage facilities in Europe were full. This was a wake-up call for many actors and has driven an increased demand.
Another aspect which is growing in importance for cold storage players is energy efficiency and the decrease of GHG emissions. Many cold storage facilities are older and consumes a lot of energy due to the high energy requirements on freezing, therefore, it's important for companies to find modern and sustainable properties in order to address rising energy costs and high emissions. Catena have today a growing number of cold storage facilities including newly built and upcoming projects such as the facility we are building for Menigo in Landvetter. With all this in mind, we see a great potential for us going forward within this segment.
And regarding the overall logistics market in Sweden, we continue to see low vacancy rate and increasing international interest and competition for properties and land lots with higher construction prices, scarcity of land in prime locations together with historical low rent levels, it leaves room for a positive rent development going forward.
With the next slide, I would like to hand over to Sofie, who will walk through our work with -- in sustainability and, together with David, the financial update. Over to you, Sofie.
Thank you very much, Jörgen. And as mentioned, we announced a project in Jönköping for Elgiganten. Here, we will aim for the WELL certification, which is an international standard which measures factors affecting human health in properties. These factors can include such as thermal comfort materials and overall well-being. Catena will, with this process, break new ground within social sustainability in logistics properties, where the well-being of those working in our facilities will be at the center.
Furthermore, we continue building energy-efficient and sustainable facilities by certifying them in the BREEAM certification process, we aim -- and we aim for an Excellent grade of this project as well as we will work with biodiversity and solar energy.
Going to Slide 17 for financial update and further on to Slide 18. Our income from the period was driven primarily by our made acquisitions, completed projects and indexation driven by our CPI-linked rent agreements. Rental income for the half year amounted to SEK 760 million compared to SEK 673 million during 2021. This also increased our net operating surplus with 12% to SEK 605 million.
Property costs per square meter amounted to SEK 155 compared to SEK 135. This increase is driven mainly by higher electric prices, which in turn is invoiced -- reinvoiced to our tenants.
Our profit from property management rose to -- with 19% to SEK 474 million compared to SEK 399 million in 2021. Up to this point, lower financial costs driven by our financing mix, stronger credit profile, investment-grade rating together with higher rental income is the main reason for the increase.
Going to Slide 19. Rental development for the quarter continued as previous quarter with a strong like-for-like driven mainly by indexation and also some vacancies being let. Acquisitions had a bigger impact this quarter as we added the properties from Halmslätten. Divestments decreased rental income by 1%. Those properties are, as Jörgen mentioned, nonstrategic assets where we see low potential for further development.
As mentioned, we have a favorable position with regards to compensation of higher CPI to rent increase. Approximately 90% of our rent agreement are linked to the CPI. And sustained higher inflation lead to higher rental income.
Now I would like to hand over to David, who will talk you through our financial standing.
Thank you, Sofie, and morning to everyone. While we continue our disciplined approach on refining our portfolio along with project developments, we are keen to keep a sound financial position with ample headroom to financial covenants and targets.
Given unprecedented market turmoil on the back of the Ukraine-Russia conflict and concessions from the pandemic, still with uncertainty whether it's over or not, we are positive we can mitigate the risk with a disciplined-enough credit profile.
On balance day, our loan to value was reported at 36%, whereas secured loan to value was 30% with an interest cover of 5.3x. The capital structure was strong with reported equity ratio of 50%. With market interest rates on the rise, we expect higher cost of debt going forward. However, with 65% of interest rate hedge along with average interest maturity of 3.1 years, this impact is partly mitigated. Over this time frame of uncertainty of where interest equilibrium will end up, inflation will have a positive and compounded effect on our rental value, as Sofie pointed out earlier.
During the quarter, we have extended our debt maturity to 3.5 years on average due to presettled refinancing. That was due to expire in August with only a minor concession to where prices was 1 year ago. Given market circumstances, our unique position offers leeway to take advantage of future opportunities.
Next slide, please. On balance day, close to 60% of our loan portfolio comprises bank credit facilities. And due to our long-standing relationships, together with our strong track record, I feel great comfort about the support they offer. At the same time, we have to be agile about swift changes impacting the financial markets. With bond markets currently under heavy distress, funding options have swiftly become scarcer, and alternative sources of funding are growing in demand. Our situation is that over the next 18 months, only about SEK 750 million of capital market debt is about to mature, including commercial papers. Through a strong cash position, along with unutilized and confirmed credit facilities in the amount of SEK 3.5 billion in combination with a resilient cash flow from operations, we feel comfortable we can handle upcoming financing in combination with deploying capital through our development pipeline.
Next slide, please, and back to you, Sofie.
Thank you very much, and we're now at Slide 22. And thank you, David.
Looking at our capital deployment. Acquisitions increased significantly in the second quarter due to Halmslätten acquisition, which totaled SEK 1.5 billion. Divestments for the period amounted to SEK 507 million, and current development CapEx amounted to SEK 912 million. As mentioned by David and Jörgen, we are comfortable with our financial position, which allow us to continue to net invest in great projects and acquisitions.
And onto next slide, #23. For the period, we have added SEK 2.8 billion as a result of net acquisitions and development CapEx. Our EPRA net initially came to 4.7%, and we have a current value of our properties of almost SEK 27 billion.
Now we go on to Slide 24 and some takeaway comments from Jörgen.
Yes, thank you, Sofie and David.
And then moving to Slide 25. So our 4 big takeaways from today. We have a great opportunity to grow in combination with a very strong financial position. We have during 2022 presented major projects in Gothenburg and Jönköping. In the Jönköping project, we will break new ground within the ESG. We have also recycled the portfolio through divestments of less strategic properties and acquisitions in Denmark.
And by that, over to Slide 26, and we open for Q&A.
[Operator Instructions] The first questions comes from Markus Henriksson at ABG.
A few questions here. Could you start off by helping us to split up the value changes in the quarter? Approximately how much of that stems from projects, cash flow and yield adjustments?
The most part, over 60%, are from increase in projects and rents. And then there are a smaller part of this quarter that is due to the yields.
Okay. Then could you give us an update regarding the joint venture Foodhills update, how it's going with the HelloFresh development and how it's going for the old Findus properties?
Yes, we are now finalizing the project with HelloFresh. There have been many other projects. It's challenging with the supplier of the materials, but we aim for finalize it in -- at the month of October, when HelloFresh will move in.
The letting job is an ongoing process in the old facilities, but we are positive regarding the joint venture. And for next year, '23, we will definitely show positive digits in our report.
And just to follow up on that, so the earnings capacity here now, of course, does not include any of that, so we should view the HelloFresh as October and then hopefully some leasing out into the other old properties next year.
Yes.
Then a small one on the 2 separate deals you've done in Denmark, one in April and one in late June. Where these 2 deals part of 1 package deal?
No. No, it was 2 separate. But the seller and the tenant, they have seen and reckoned a very, very strong demand. They thought that they should -- from the first deal, they could move from an older facility to this new. But they had a very strong sale and a strong year, so they find out that they need more spaces. And that's the case in Denmark at the moment. The vacancy rates are very, very low, and the demand for new facilities, very strong, so we were agreed on another deal.
Could you elaborate a bit how the talks went regarding that it was similar net initial yields versus if we look at interest rate expectations early April versus late June, quite a big difference?
Yes. Not -- of course, there is a difference. We have also had some negotiations about the deferred tax. Then we have also -- we haven't seen the spreads in Denmark and not that wide as they are in Sweden at the moment. Maybe we come back to that with more questions for David, but that's the case.
Fair enough. Then one more from me. And how do you view the Panattoni land acquisition here from Kilenkrysset? Do you see risk that development pipeline in Stockholm that we might see oversupply in a few years' time? Or how do you view that increased competition?
No, I think we welcome Panattoni. We have seen the amount that they have invested in the land that, on the positive side for us, there is a great value in our land bank, definitely. And the conclusion is also that they will offer the market not low rent levels. It means high rent levels, and we will be there as a competitor. And we -- our bet is that in the long run, there will be a great demand for a lot of logistic facilities, so no worries about that. We welcome competition.
The next question comes from Paul May at Barclays.
I just got 2, 3 questions from me. I'll do it one at a time. What are you seeing currently in market rental growth? So if you were to lease assets today relative to a year ago, are we still seeing strong levels of rental growth in the market? We're hearing from others sort of low to mid-double-digit rental growth year-on-year. I just wanted to check what your experience is on that.
We can -- for the first time, we have seen there is still no impact in our reports, but we have renegotiated some lease agreements where we see rental uplift without mention any digits. We feel very confident about the future. We have also -- as I said, we have had some value uplifts in our property due to new rents that will kick in next year.
So I mean in total for our rental income, it's just small impact, but it's a very important signal for us that for the first time we are not happy with just continuing the lease agreement. We want to have some uplifts as well.
And also -- sorry, Paul. I think we can mention also that in terms of the inflation we expect it to be sustainable inflation going forward. There should be enough leeway for our customers to pay higher rents in terms of inflation also going forward. That means we don't expect rents to go down based on the fact that even if inflation should be 5% over the next 2 or even 3 years, that's a sustainable development from our perspective.
Yes. So you're seeing market rental growth basically matching or in excess of inflation levels that we're seeing in the market at the moment?
Yes.
Okay. Great stuff. Just wondered what you're seeing with regards to -- obviously, financing costs have increased. We've heard from others in the logistics market that, that has had an impact on yields that investors are -- buyers are prepared to pay. And that's being offset by strong rental growth.
We're seeing sort of market valuation is still going up, but we are seeing yields softening. Is that your experience at the moment? If you're sort of -- if you were looking to buy things today relative to even 3 months ago, would you expect to pay a -- be able to pay a higher yield for that? Or are you still seeing strong competition on the acquisition side and on the disposal side, should we say as well?
Maybe the competition is not that strong as it was 5, 6 months ago, but still there is a lot of interest for logistics in Sweden. We haven't seen any transactions when the yield went public the last month. Here, we saw enough market in Denmark. We'll start with a client from [indiscernible] I think it was. There was no public yields, but we consider it was regarding 4.2 or something like 4.3 maybe. But pretty much the same, but of course, in theory, should be a bit higher yields when the financial costs are rising all the time. But we'll see after the summer.
And just 2 -- just sort of 2 last ones, I suppose, on that financing cost. Obviously, the -- your weighted average cost of debt, 2.3%, I think up 30 bps so far year-to-date. If you -- you've got a strong financial position. But if you were to refinance today or if you're getting new debt coming in, what are you seeing as the all-in cost of debt of that? Is it sort of 3.5% to 4.5%, depending on which sort of financial instrument you use?
And then also, what do you see as the availability of credit in the market? Are you seeing any restrictions on that? Are you seeing any additional scrutiny from either the bond market or the banks with regard to your ability to get access to financing?
Yes. That's a good question. And we don't see any limitations from our perspective in terms of limitations in capital. As I mentioned, all of the banks and the relationships we have with banks, they are also probably of our growth going forward. And if there are acquisitions or projects for that matter, they are all keen on helping us grow along with those ambitions. With the fact that the bond market is malfunctioning, obviously, that is not a way to go forward, but we are very comfortable that we have the capital we need to grow.
On the pricing, well, that's a different case today, of course, than 6 months ago. I would say, just to give you sort of some flavor, you could look at the swap, 5-year swap in Sweden, which is, well, 2.6. Yesterday, it's somewhere at 2.50%, 2.60%. And we have a margin of between 1.5% and 2%, depending.
And in Denmark, it's a different case. The credit spread or the credit margin could be somewhere between 70 bps to 100 bps over the Danish swap 5 year, which is lower. So in that way, we have a better starting point in Denmark, all else being equal. And as Jörgen mentioned, the yields are still somewhat higher in Denmark to begin with as well. But obviously, what everyone is asking is where does yield end up. Well, we don't know. We feel that we are in a unique position where there will be lots of opportunities in autumn. And I think that's what we are looking at. And we feel we have no rush in any way. So from our perspective, we feel that we can take advantage of the market circumstances.
Yes. No, I think since -- yes, particularly post the LTV reduction, post the share issue to WDP, it's obviously helping as well. Just on the bank financing that you sort of mentioned around looking at the swap plus the margin, with your negotiations with the banks, are they pushing for if you were to get financing for you to fix that? So to take 5 year plus the margin as opposed to taking the short-term floating rate debt and obviously taking rate risk? Is there a push from the banks to give them some securities as well for you to fix it or are you still able to get floating rate there at lower cost?
Well, that depends to which funding partner we are working with, but there is no change, I would say, in general as supposed to how things were 1 year ago in that regards.
Okay. Okay. So it's a mix of flow to the mix effect somewhere, all in probably towards sort of 3.5 rather than 4.5, it would be a fair assumption if you were to [ look at ] everything?
Yes. But from our perspective, we have been since -- well, sometime back, been trying to push that maturity, which we have 1.5 years ago, our average debt maturity was at 2 years. So now it's at 3.5. And I think we will try to push it even further out.
Thank you. There are no more questions at this time, so I hand the word back to the speakers for any concluding remarks.
Okay. Thank you very much, everyone, who listened. And from the Catena side, we want to wish you all a very happy summer and keep you -- keep in touch. Thank you.
Thanks.
Thank you.
Bye.
Bye-bye.