Castellum AB (publ)

Thank you. Thank you very much.

Yes, welcome, everyone. So we're going to have this half year report, and then we can start with taking the next slide, please.

So this first half year, in short, I would like to comment a few things before we go through it in detail. First of all, we now have created a Nordic platform with all our assets in Sweden, Finland, Denmark and also including our ownership in Entra, that is now over 18%.

So in direct or/and indirect gives us a portfolio of approximately SEK 114 billion in property, and then including the transactions done after closing, and 18% of the Entra assets. We can also conclude that we have done the strongest half year report ever with SEK 5.5 billion in.

We have shown the strength in the balance sheet, both in realized and in unrealized value uplift, and that together with the cash flow, and despite the dividend, gave us this result for SEK 5.5 billion. And then it comes to the market, the rental market.

It is a strong rental market. We can there conclude that both the market office and logistics in the Nordics has been very resistant, and I should say it's now waking up.

It is proven in both rent levels, negotiations and net leasing. And lastly, the fourth one.

I mean we have seen active and very attractive real estate market. The transactions is high.

over SEK 220 billion in transaction in the first half of the year in the Nordics, excluding Norway. The value creation is there through new record low yields, and that we can see in several cases.

So strong market is simply a word you can use for the half year. If we take the next slide, please.

In the next coming slides, I will show how we see the rental market on offices, and then I will comment on the logistics market as well. I could honestly still conclude that office market in the Castellum country or land is strong.

We can see that in the market generally, there are no changes in market prices or vacancies. You can see that the market is getting more and more active and that we have stable market levels in all office markets.

The negotiation for us gave us an uplift of 12%. The vacancies, yes, they are stable in our accounts.

And the new developments only creates 1% of new offices into the market. And I will come back to that because the Swedish government, for example, simply has a GDP prognosis of 4.7%, the Danish is 5% and so on.

So the conclusion for me is that the office market is waking up and that we will see growth in the office market that we will benefit from. And then talking about this discussion about changes.

It will come changes in the office market. When we've done our investigations, we know that 90% of the staff would like to come back to office and are expecting to do so from August and forward if we're talking especially about Sweden.

We can see that it's not only 1 solutions for the customers or the companies that we rent out to. It's flexible solutions.

And it goes from flexible solutions for office where the staff is not going to be there 100%, and staff simply demanded back for the companies. We are already now building more social areas.

And if we're talking about the contracts, discuss everything the companies would like more than 100% service for their employees. 2 companies that don't want any changes at all.

So the conclusion is that every real estate owner need to take decisions on what they should do, including their offer into the market. And lastly, on this subject, I mean area reductions.

It's a lot of discussion over the area reductions. There we can see that more and more people are working from home.

But my conclusion is, anyway, there will be no more any reductions of space, at least in limited volume. And that's built up with the fact that we need to see the companies to give them more social areas, we need to rebuild space for other services if they want to be an attractive employer.

But the flexibility and possibility is extremely important for the office owners to be attractive for the clients. So my view is that the market is going to pick up and grow with the knowledge we have now with the GDP growth and with the production volume of office, that is still very limited, and so we can't see any drama in changes from vacancies.

And lastly, the positive negotiations. As I mentioned, we have a positive uplift on the like-for-like portfolio of 1%.

That is partly built up with the negotiations that was 12% in our portfolio. So we have a strong, even stronger market in the office side than we expected.

And we'll take the next slide, please. Here you see net leasing.

Now the proof is, of course, the net leasing on the next slide. Here, we can conclude that ongoing portfolio has been very strong at the half year.

We can also see that a normal year, it is a normal year, if you look at the development pipeline. So to some data, we had a gross net leasing of SEK 266 million in annual rental value and net leasing of the SEK 66 million.

So it's very strong. The comparison here is done by its extremely last year that was including 2 larger developments that's unusual.

So a strong half first year. So we are in an office market that are changing a little bit.

The market is waking up. We see stable to strong rental developments in generally.

And I think there will be a lack of good office space shortly. If we take the next slide, please.

Logistic market. We can simply divide the market into 2 categories, the large distribution centers and the large.

If we go into Sweden, here we can see on the distribution centers where we see a lot of new construction, efficient funds and to a lower cost for a tenant. The locations is not critical and are built up normally in North Stockholm, Eskatuna, Gothenburg and in Scona, for some examples.

The increase of land prices are not reflective because of the lower deals that are in this market right now. But if we focus on the last mile, the locations are critical and driven by service and quality and timing to customers.

Rents are still increasing, and we can move rents up to amazing SEK 2,000 at square meter a year in the Stockholm are and over SEK 1,000, if you talk in about Malmö. If we look outside Sweden, the force area are interesting, and we can note that there are prime market rents up to EUR 13 at square meter a month, EUR 1-3 at square meter a month.

In this picture, you see. And this is the first drawing on the joint venture we have now, together with the Gothenburg.

We will invest approximately SEK 1 billion each in these facilities, looking extremely near Gothenburg Harbor -- or actually in the Gothenburg Harbor. And with that about the markets, I leave over to you, Ulrika.

Turning to the next slide, please. And a short conclusion for the first 6 months year in Castellum.

The change in income from property management of minus 5%. However, the underlying business together with guest management shows black growth figures, meaning that the negative development from the first quarter has changed.

And not surprisingly, the contribution to the negative development is, of course, Castellum selling -- being a net seller account until the end of June of minus SEK 9 billion. EPRA NAV is growing due to our good results, bottom line.

I will come back to that. The rental market is positive with net lettings of SEK 66 million, of which SEK 26 million in the second quarter.

Negotiation is back and is on the positive side, an uplift of 12% on average. And COVID-19 is almost not showing in our numbers.

Bills are being paid and liquidity are being reduced. And finally, the financial risk allow with an LTV of 38% and an ICR of 532.

And worth mentioning is that we have changed LTV. Earlier, we put the net interest-bearing debt in relation to property.

But since we now have a big holding in Entra and we see it as a long-term holding, we put the net interest-bearing debt in relation to total assets. And if we go to the next slide, please, and look at a lot of figures.

Let us start with the last slide, a result of SEK 5.5 billion or almost SEK 5.6 billion is, as Henrik said, the biggest figure number and it's the tough year in Castellum history. And that is driven mainly by changes in property values due to lower yields in the market, both on offices and logistics, but also created project gains.

As you know, we have sold a big portfolio earlier this year, which contained the yield movement in logistics warehouses and created a realized change in the first quarter in Castellum. But of course, this big portfolio has a negative impact on income from property management.

and it explains that development is part of the portfolio we closed, signed and delivered in the beginning of February and half of it in the beginning of May. However, this gives Castellum a really strong balance sheet, which we have used by buying more Entra shares during the second quarter and in the beginning of July, doing big acquisitions in Stockholm and Finland.

What's new this quarter in the P&L is 2 lines, a dividend of SEK 46 million from our holdings in Entra in the second quarter and the write-down of goodwill of SEK 53 million, which is a consequence of selling in Denmark and assets that we bought by. So all in, a really good bottom line, stable underlying earnings with a positive trend and accelerated trend and dividend and the big changes in value create this bottom line result.

And if we go to the next slide and look into the underlying property management. Growth in like-for-like is getting better versus the first quarter, and that is due to high rent levels, better development of vacancies and lesser incentives, and the cold first quarter compared to last year still hits up with a cost increase in the first 6 months.

Looking into different segments, we can see that the trend from the end of last year and the first quarter is still here; a good like-for-like growth in logistics and public sector; and modest like-for-like growth in offices, but it's better than earlier; a really good, good retail, mainly due to less incentives compared to last year; and like industry, it's such a few assets, and this trend is the negative number is due to higher vacancies. And regarding COVID-19 on the rental side, no bigger incentives this year.

The rent for Q2 is on the bank, and the payment for Q2 looks really good. Liquidity relief passed on the start of COVID-19 last year until today being in total SEK 145 million, SEK 146 million.

And of that, SEK 20 million is active at the end of June compared to SEK 45 million at the end of March. So the liquidity health is decreasing, and it's a signal of a good rental market.

So on to the next slide, Henrik.

Yes, shortly to just summarize the last transactions that Ulrika shortly mentioned. We have the last quarter being very active on the investment market, as said, and succeeded in creating actually a real Nordic platform, mainly due to the acquisition in Finland and also, of course, by increasing our ownership in Entra.

But we have also been very successful in signing a joint venture with the of Gutenberg, which means that we will invest this SEK 1 billion in the logistic asset on a 50-50 basis. And lastly, we bought 2 assets at approximately SEK 1 billion each and the larger area of Stockholm.

This -- with this transaction, we have changed the portfolio and created a high-performing office and logistic portfolio with a very good tenant base and more footprint in the. This is something we strongly believe is going to create a good growth and value going forward.

In Finland, the yields on the transactions was 5.5%. And we sold another part with a little bit higher, approximately 1.7%, 1.75% yield.

And when we bought in Stockholm, we did acquisitions on 4.25 and 4.7 give you some figures to calculate on. All this is done, and we have closed all this deal.

And then back to you, Ulrika.

Yes. And on the next slide, we have the balance sheet stronger than ever and be up 38%.

The Entra holding was at the end of June, SEK 6.6 billion in our balance sheet. It's underlying financial assets.

That is roughly 18.45% and the ambition is to grow so we can consolidate it into our income from property management, and that you must have leased an ownership of 20%. So we are on track.

And since Entra owns a property portfolio of roughly before, today, SEK 58 billion, maybe a little bit more now, our exposure to Norway is almost at SEK 11 billion to SEK 12 billion, and we think that is a good position to have. And if you go to the next slide, please.

Short about the property market. A good transaction volume of roughly SEK 150 billion compared to SEK 81 billion last year and SEK 44 billion in the first quarter.

The volume and number of transactions have increased and the appetite for investing in real estate is really good. So a big interest in combination with our capital support lower yields and increased property prices or values.

And that is shown in our portfolio with an increase of SEK 2.6 billion in unrealized profit gains, of which SEK 2 billion is from yield movements and rest is project gains. The yield movement is both in office and logistics, but of course, much more in the latter one.

On top of that, we have sold assets, made logistics and warehouses earlier this year, which created a realized change in value of roughly SEK 0.5 billion. So both realized and unrealized summarize to 3.3% in the first half year and the unrealized gains is 1.6%, the second quarter isolated.

So it's better momentum than the first quarter. And then to the next slide, Henrik.

Yes. This is a slide we all love, of course, because this is growing and getting larger and larger.

This is a development. We have now created a large development pipeline, is approximately SEK 20 billion in investment volume, more to be started.

We have an ongoing development portfolio of approximately SEK 7.4 billion, in which SEK 2.8 billion is already invested. This is the largest ongoing development pipeline that Castellum ever have had, and I think the largest in Sweden in a real estate company.

It's -- or as you can see, it's well spread over the country, and the average economic occupancy is 67% in this one. And if we close a large and very newly started development in Stockholm, then it's up to 84%, 85%.

We calculate this project will make profit gains of approximately SEK 1.8 billion that are not in the books here. We can look at some if we take the next slide, please.

Infinity, we could start with one on the right-hand downside first. This is a new block in, where we will, in the next coming years, build a new block consisting of approximately 20,000 square meters.

It's a very attractive location, and the building will consist of office space with services and co-working as well according to the plan. It will be completed in the third quarter 2025.

And investment is approximately SEK 1.7 billion and yield is approximately 5.2%. The next one is Seal.

The Seal is our research and development side on the airport with the government sponsor tenant with a long lease of 50 years, 100% leased out. This has also started, and start up a permanent research and development side for sustainable transplantation.

So we are 100% certain this will attract other investments and interest in tenants in the future. And it's first and a small start with a good yield of over 6%.

And lastly, the new one is. This is the last example of the last mile distribution centers, where we are building outside Malmö and are very pleased to support in this, and the yield is approximately 5.5%.

And then if we take the next slide, we can see what will come. Castellum holds a large volume of building rights, approximately 1.5 million square meters of lettable area.

We believe it will be possible to start approximately 900,000 square meters of lease for the next coming 4 years. And that will be an investment volume of approximately SEK 20 billion.

Outside this volume -- out of this, approximately 550,000 square meters are logistics and the rest primarily office, and then some examples. What we call of is the one on the right-hand side -- upper right-hand side.

It's a new one. It's actually absolutely best located in Gothenburg, where we have a building right under zoning plan for approximately 30,000 square meters.

This is located in an extremely good position. It will have a subway station under it for trains and next door to the upper of Gothenburg.

We think this production can start as soon as the infrastructure is in place, and that will be 2023 or 2024. On lower right-hand side, you have shopping.

When we bought, it was a large number of government buildings, and one of those was in absolutely central shopping. We have now gotten the possibility to rebuild this, 20,000 square meter building, during the next coming years into a high-quality office building.

And the first contract is already signed, standing for approximately 16% office space. In addition to this, we have also more building rights in this area that we will start in the next coming years, and this will be more or less building a new part of the city center of Yunshang.

The last one on this slide is Bruna. It is North Stockholm.

We have a capacity of building approximately 45,000 square meters of logistics. But of course, we have much, much more capacity of logistics assets in the portfolio.

For example, the airport in Gothenburg with a capacity of approximately another 800,000 square meters, and then, of course, some assets around Malmö in South. So I let over to you, Ulrika.

Yes. And on the next slide, a short summarize of our financing or funding activities.

The debt market has been stable, favorable during the first 6 months this year. And at the end of June, Castellum had roughly SEK 61 billion in credit facilities available, of which SEK 42 billion was used.

We 129 billion was outstanding bonds, SEK 7 billion CPs and SEK 6 billion. During this first 6 months, we have refinanced a smaller bank loan.

We have taken up new RCF and terminated term loans. In the bond market, we have been active in the local one, issuing almost the same volume, SEK 2.5 billion, that has been terminated.

And the MTM program, the Swedish domestic fund program, is now at SEK 25 billion and total outstanding, as I said earlier, is SEK 19 billion. Regarding the CP, we have a program of SEK 10 billion and has been active.

It's still a good arbitrage to be in that market. And at the end of the period, SEK 7 billion was outstanding.

Of course, part of this liquidity has been used in the beginning of July to buying assets in Finland and Stockholm. And then over to you, Henrik.

Okay. The last slide, looking a little bit of the future.

The office market, I touched very much on it from the beginning. What we can see in the office market is that it will continue to grow.

The GDP prognosis for Nordics is good. Sweden is around 5%, and the new production volume is 1%.

The export industry, for one example, is looking better and better. And this all together means that the office market will continue to grow.

The logistics market will also continue to grow and change, meaning it will continue to create opportunities for companies like Castellum with both knowledge and capacity. So from my standpoint, I see the position in the leasing market that Castellum as good with a solid tenant base and a lot of opportunities.

Castellum, then, I should say that the company is prepared for the future and have capacity to adapt. We have one of the strongest development pipelines that our SEK 20 billion is already 7 under production that we know will create profit to the company and with good occupancy rate.

The strong balance sheet, even though we've done a lot of investments, the LTV level will be below the 45%. The strong Nordic exposure.

We have a growing exposure into the capital, and we have prepared the balance sheet and the capacity to grow and build also. And the company largely holds one of the strongest positions when it comes to sustainability and will continue to be an attractive partner as well as an employer to our tenants.

And then shortly and lastly, I would like to thank everyone because this is my last report. I will be leaving the company at the latest, in the beginning of October.

So it's definitely my last report. The last 8 years, we created a total return of approximately 17.5% per annum on average and lowered the risk and made it into one of the most sustainable real estate companies in the world.

I would like, therefore, to take the opportunity to thank all colleagues that I work with together all these years and made this journey so interesting. I would also like to thank all customers and 8,000 shareholders.

and all other contributors who made this company what it is today. Thank you much.

And then we open for questions.

I have a couple of questions and starting off with the Finnish acquisition. Your card in Finland, and you mentioned that the net yield is 5.5%.

And I think this appears as a high yield. And I wonder is this a consequence of falling price levels in Finland or rather a consequence of this specific portfolio with perhaps quite high vacancies?

I can conclude that this is under competition. We've done this deal.

The yield is, I think, combined of the -- that we have the capacity to work with the vacancies, maybe scared a little bit of the market off. But I think the main reason is that we started this negotiation when it was more uncertainty around the pandemic as well as the office market in Finland.

So we actually used the opportunity to do the acquisitions during a good time. And as you know, the acquisitions like this takes time.

So this is something we started very, very early in this year.

Okay. I see.

And regarding the acquisitions, I would just like to confirm that you stated it was a net yield for -- of 4.25 for K11?

It's correct.

Yes. And that was 4.7%, right?

Correct.

Yes. Okay.

Good. And regarding projects, do you think it will be easier to start new office projects in the coming 12 months given the increased activity in the net letting market that we see?

I can conclude that. You have to divide the market into larger and smaller companies that we sell on the tenant base that are different.

You can also have to divide the market into smaller and larger cities. And what we're seeing right now is, if we talk Sweden, that the vacancy rate is rather low still.

I can read in reports that they are estimating higher vacancies. But we can see that the companies don't have so much opportunities normally.

So therefore, I think with just the increase of new developments of 1% of the stock, it will not be enough. And that means that you're over time.

I see actually, we will, in some attractive locations have a lack of office space. So yes, it will give the opportunity to start new developments again.

And I see very little risk, especially in the smaller cities. And then it will take a little bit more time than you have normal vacancy rates in Gothenburg and Stockholm again.

But it will go quickly simply. So one-off year, something like that.

Could see in some cases, actually, we will be lack of office space, to be honest.

Okay. That was my question.

And finally, congratulations for delivering a strong final report from your side here.

Starting off by thank you, Henrik, for patiently answering all our questions throughout the years. But I will take this opportunity to ask a few more before you leave.

And perhaps if I could start a little bit about the vacancy rates. You mentioned that it's a very stable office market out there.

But in the report, you do mention that you see some increase vacancy in CBD areas in Sweden. Could you talk a little bit about the difference here of the overall office market versus what you're seeing in CBD area specifically?

Yes. I think it's all have to do with new developments.

We know that we have some colleagues that are a little bit stressed about the new developments that's not rented out. But that will come down.

It's very attractive locations, so -- and attractive locations. We can also see that we have tenants that are surprised.

They can't find good alternatives in the market. And we can then also see that we have renegotiation power like our colleagues, and we ended up in 12%.

So I think we have to divide the situation between large and smaller customers. The large ones will rebuild their offices, and they will have the most of the staff in parts of the day if you are -- of the week if you are in Stockholm.

And some companies is already demanding the staff in -- now in August or September because they want to have the production up simply or the efficiency up. So that's the large one.

The smaller companies are looking for flexibility. Here, I think things -- co-working will have a strong position and flexible agreement, and that's midsize to small companies.

And the third thing that's happened right now is that some of the companies would like, simply us or someone else, to take over more responsibility for the employees and the services around it. All in all, I think you will have more people work from home in in larger cities, especially Stockholm, that you will have occupancy in the office of 80%, 90% in 2 to 3 days a week.

In, you'll almost not see a difference. In Helsinki, either don't want -- we don't think it's going to be so big difference, not in Copenhagen either.

So that's my view on the office market going on.

Okay. And do you think that CapEx will have to increase in order to sort of defend your rental incomes in renegotiations as tenants demand perhaps more social areas in the office?

Or is this something that the tenants will have to pay for as with any other tenant changes or CapEx?

It's a very good question. What we see is that you're going to invest more in the office space, especially for the largest companies.

We haven't heard any demand from their side that they want us to take the hit for us, so to say. So my view is that this is something that the companies are prepared to take because they see it as a responsibility to employees.

That's more enormous standpoint that we met in the market. But the CapEx will increase, but they will be -- also taken by the tenants.

So far, then that's my view.

Okay. And you invested SEK 1.7 billion so far the first half of this year in your own portfolio.

And you're also saying that there is some sort of acceleration. Should we expect this figure to increase for the second half of the year?

Or is this pace pretty much what you think that you can perform?

I think you should calculate it as more or less the same going forward. The one -- the largest one we just put into the notes, so to say, is SEK 1.7 billion in Stockholm, but that's under a very special pace because there we're investing over the tunnel starting the construction work.

So I should say, use the same investment volume approximately going forward.

And then I have two more questions, and I'll bundle them out. One is you -- it seemed to me that you're quite adamant in the fact that you will increase your holdings in Entra to above 20% in order to consolidate that position.

But just to clarify, you don't expect to go over the 33, which would then trigger a mandatory bid.

That I have to leave to the next CEO, of course. But I think your estimation should be correct.

Okay. And then finally.

You've continued to buy back shares so far this year. And I was just wondering your balance sheet remains very strong.

You hinted at that as well. Is there a reason why you would stop the buyback program at this point?

Or do you think that it's most likely that you will continue?

It's Ulrika here. It's all about our view on our future NAV versus the share price.

So that's a calculation the Board takes each quarter in connection with the interim report. So it's a moving target all the time.

And finally, I would like to comment that 15 years of answering your questions has been a.

Just a short question about rent discounts. I believe they were slightly up in Q2 quarter-over-quarter.

Can you just give some flavor about that figure and the outlook ahead for the business?

We can't see an increase in market on the discounts, and so I don't recognize your figure there. But let's see here.

In like-for-like, they are down. But then we make changes in the portfolio by getting new developments into the portfolio.

So the underlying incentives, as I think you asked about, if going on in the right direction.

It was SEK [55] million in rent discounts, I believe, in...

Yes, and it was SEK 60 million last year.

Yes. But in Q1, it was SEK 28 million.

Yes.

Okay. So it was SEK 27 million in Q2.

So about flat rental discounts.

Yes. But if you look into the -- if you split that into 2 different buckets, one is like ordinary management, then that is going down.

But then we have more -- some more incentives in new developments that have been completed that is coming into the portfolio.

Okay. And you're taking that you are not doing -- you don't split it up over the lease term?

Yes. We do, of course, but that is like new incentives in new leases that we have never had before.

If you -- in spaces we have never had before.

Okay. Okay.

So all in all, the rent discounts is going in the right direction in your view?

Yes.

And from a market perspective, we feel no pressure here. And I think it's extremely important to say that we see a market that is also picking up and that are also understanding that it's no discounts in the market, and we can hold the market prices.

And this is something we've worked on for more than 1 year, of course, more or less weekly seeing where we are in the offers, discounts and everything. So my view is that the market is coming back and it's coming back strongly.

But we can see here that we have some questions sent to us. And Henrik, the first one, can you give us a better sense of the Finnish acquisition, the geographic distribution adjusted for the disposal that was...

Yes. From the beginning, it was approximately 40% Helsinki area.

And then we took out 1 30% of the portfolio, and that was not Helsinki. So you're simply going to take away the 30%, and that's all 100% in another town.

And there, we also are not having any staff in this transaction. So that's what we benefit from.

And then we have some more questions, I think, Ulrika.

Yes. In which submarket, the office leasing spread was strong or strongest office market and weakest office market?

Yes. I think we should look at this as we hold extremely stable market levels during this 1.5 year on all.

And going forward, we should be cautious with an overproduction in some submarkets, and that's due to some large developments. And then you have -- especially, like I said earlier, you have some submarkets in Gothenburg, when we have an overproduction in the near term, but we have hold our market levels on the rents all the time.

So I have no preferred and no worse. I think we are flat more or less on all the cities.

And then a question maybe to myself. Where would you expect LTV and the occupancy rate by the end of this year?

And that's a tricky question just at the end of the year. But the LTV, if we take that first, of course, that is dependent on many of the property market is still going strong and even more stronger, so we can get more valuation uplifts and the investment phase.

But to give you a guidance, a comfortable zone to be in is around 42%, 43%. And we are there at the year-end exactly or not, I can't tell at the moment.

But we are -- we have started the third quarter very actively. So that is the guidance where we are comfortable in.

The occupancy rate is also a tricky part, expect at the end here. But as you can see from the Q2 report, the occupancy rate increased somewhat versus Q1.

And based on positive net letting so far, the indication is at least that it shouldn't go down from where we are now. And that was all the questions we have got.

Okay. If there is no other questions out there?

Okay. Then we thank, everyone, and wish everyone a wonderful summer.

And hopefully, I will meet you in some other way in the future. Thank you very much.