Catella AB

STO:CAT B

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the Catella Q2 2024 report presentation. [Operator Instructions]

Now I will hand the conference over to the CEO, Christoffer Abramson; and CFO, Michel Fischier. Please go ahead.

[Christoffer Abramson, executive]

Thank you. Good morning, everyone, and welcome to Catella's Interim Report for the Second Quarter of 2024. My name is Christoffer Abramson, and I'm the CEO of Catella Group. And together with me today is Michel Fischier, CFO and Head of Investor Relations, and we will walk you through the highlights of the quarter. After the presentation, as always, we will open up for a Q&A session, and the materials and reports are available on our website.

So to remind all of you and for any potential new listeners, I'd like to start the presentation with a brief overview of Catella on Page 3. Catella operates in 3 property-focused business areas: Investment Management, Principal Investments and Corporate Finance. We manage a little over SEK 150 billion in our pan-European Investment Management platform. About 70% of the assets under management are managed in property funds, and the other part in a significant number of asset management mandates across Europe.

Principal Investments is where we invest our own equity into a broad and diversified portfolio of European investment projects together with investment partners. The vast majority of our own investments are managed by our own asset management companies across Europe. So in fact, managing our financial partners' investments as well as ours and generating additional fee revenue streams beside targeted returns on our invested capital.

Corporate Finance is our real estate advisory and brokerage arm with leading positions in 5 large European markets. Corporate Finance is also an important internal advisor to our other business areas, Investment Management and Principal Investments.

So with that brief introduction, I'd like to start this quarter's presentation with a market summary from the summer on Page 4. So following the first quarter of 2024, which was one of the slowest quarters since over a decade, the transaction activity increased somewhat in Q2. Although expectations on inflation continued to decline, central banks generally have remained somewhat cautious with interest rates cuts so far even though the swap rates have come down quite a bit over the summer, which we see as a positive indicator.

In addition, in the market, this summer elections were held in 2 of Europe's largest economies. And of course, the Olympic Games were held in Paris almost at the same time, which really further dampened the activity in some of our largest markets in Continental Europe.

Looking at valuations of European real estate assets, they have continuously now declined over the past 7 quarters. However, the reduction during the most recent quarter now, in second quarter, was the lowest since the price adjustments began during the third quarter of 2022. So with a touch of optimism maybe, we could interpret this as the market slowly returning to levels where seller and buyer expectations will soon meet. Currently though, still this summer, overall transaction volumes as well as capital inflows in the European real estate market continue to be low.

Our expectation is that a turnaround in the transaction market will commence early 2025. We've seen pockets across Europe where it's picked up already, but a broad recovery, we predict in early 2025. And with our efforts that we have put into cost efficiency, digitalization and the development and launch of new investment strategies, Catella will be much better positioned to benefit from a stronger market-based in all our business areas when a recovery begins.

So that market backdrop, let's move to Page 5 for a summary of our key operational highlights in the quarter. So even though the market continues to be quiet, we remain focused on adapting and evolving our business to increase efficiency, develop and launch new strategies for our investors, very importantly to secure our existing capital under management and review new and optimistic investments with our own capital. We have made material adjustments to rightsize our cost base. And we will continue to make additional adjustments where appropriate as long as the current market environment persists.

We also maintain a very strong balance sheet and liquidity position. We review new investment opportunities continuously. But as I mentioned before, they really need to prove their ability to tick all the boxes Catella has for its own investments. So in addition to meeting our return hurdles, the goal is always also to generate Investment Management fees. And importantly, having the right, ideally new, long-term majority partners investing alongside of us.

So we're also preparing to set up a Green Bond Framework, which will enable us to issue green debt going forward, which is going to be important when we're now reviewing options to refinance our outstanding bond, which matures in the spring 2025.

So if we go in then to Investment Management, it's probably the most important and best news in the quarter is that AUM increased slightly compared to the last quarter despite currency headwinds. I think that's a pretty strong starting statement for the business area of Investment Management. Capital inflows in our core property funds remain very limited. That's the downside. But so were outflows, which we consider a sign of strength under the currently challenging market conditions, where most players, and so are we, are dealing with pretty challenging redemption requests in certain vehicles.

But to date, we managed to protect the capital in all our funds, which is a really good story. However, in this quarter, we've seen a bit of a trend shift. The AUM has increased in our asset management business. And we're building volume through management of select underperforming assets and assets which require repositioning in today's market. And growth in the AUM through our asset management proves -- I think, proves the resilience in our business model, where you can grow business in a weaker and more hesitant transaction market where investors have specific needs that play to our strengths across Europe.

Also, on the fund side, in order to create a stronger, more efficient and larger fund platform in Investment Management, we communicated the merger of our 2 fund companies, Catella Residential Investment Management, also known as CRIM, and Catella Real Estate AG, which we call CREAG, during the quarter. CRIM's focus is fund offering aimed at European residential properties, while CREAG's focus is on commercial properties.

Now by merging the front office and the new Catella Investment Management AG, we are creating a more efficient function for capital raising, more coordinated Investor Relations and stronger management and research operations. And at the same time, CREAG can focus exclusively on cost-efficient growth, while offering fund administration and support to Catella and to external parties.

Looking ahead, we have actively started to raise capital for our new product strategy called European Living Development. The strategy satisfies the extensive structural supply shortage of modern, sustainable and affordable housing options in different segments across Europe, which we talked a lot about over the last quarters. And supported by our in-house developed AI tools that identify attractive areas for investment projects and with a targeted return of over 15%, which really looks at the investor demands of tomorrow. And also, of course, responding to a desperate need in the European housing market.

While the initial feedback so far from investors has been very positive, both in terms of the strategy and the structure, and also the pipeline that we have already secured, patience is required when raising capital from new strategies. It takes longer given today's market conditions, and anecdotally or as evidenced by in the last 3 years, the time to raise new funds in globally has almost doubled. And of course, with new strategies, it's even more challenging. But so far, investor dialogues and the pipeline is really strong, and that's what we're working on.

So let's talk about Principal Investments, a relatively quiet quarter for Principal Investments. The focus remains on developing and completing existing projects, positioning assets correctly and also putting the first phases of several projects up for sale. Everyone's always very interested in Kaktus for good reason. It is a very attractive building in the exact right location in Central Copenhagen, fully-let residential buildings and with all our commercial rental agreements now in place, we are well positioned and we continue to look for the right buyer for the property.

Of course, summer is always a bit slow. But now with fall returning, investor discussions are picking up and with swap rates coming down, we think that we're well positioned, but there are no guarantees of how quickly you can conduct a transaction.

So looking ahead, we have another couple of projects in sales processes and a few more potential new investments that will come up for investment review in our Investment Committees and Board. We're looking at more vehicles for European aggregation mandates together with capital partners. And with valuations now appearing, at least in many markets, to stabilize at the new level, we are looking at more attractive investment opportunities that we have for some time.

So for Corporate Finance, finally, although transaction volumes in Europe increased slightly on the previous quarter, it's up about 7%. Volumes remain down by almost 60% compared to the peak in 2022. So we noted some increase in Corporate Finance activity in Northern Europe, which is very positive. A large degree of the price corrections have already taken place and investors are beginning to act with a little bit more optimism.

In Southern Europe, and particularly in France, transaction volumes were very low, driven by slower revaluation, political uncertainty and other factors. And -- but though in the second half of the year, we expect to see more deals completed, the pipeline is really building up. But as always, it's hard to predict exactly when that turns. But when you look at the U.K., it has already started to move a bit ahead and the Nordics. And usually, you're looking at 3-, 4- to 6-month lag in Continental Europe in that type of activity. So we expect that to pick up pretty soon.

So let's move to Page 6, summary of the group's consolidated results. So net revenue decreased by SEK 108 million or 24%. Really as an effect of lower transaction volumes affecting all our business areas and also materially the absence of performance-related fees. Now these were substantial in the comparable period, second quarter of 2023. That was really the tail end of the strong market where performance fees kept coming in. So it's a really hard comparable period, and we really look at how are we performing quarter-over-quarter, which we think is pretty solid.

EBIT ended at SEK 35 million. Again, compared to SEK 88 million last year is hard. That really was -- if you take out the performance-based fees in the second quarter for Investment Management, the change is not that dramatic. And it's -- if you look at the decrease, it was partially offset by initiatives to increase efficiency and reducing costs. And costs are down SEK 55 million year-over-year, which is a pretty large number in relation to the EBIT that we have delivered.

If you look at Investment Management, AUM increased by SEK 1 billion compared to last quarter. Again, that's including some currency headwinds. And AUM and funds remain relatively stable. There's continuous minor outflows in several funds, but that's normal. But I think keeping that AUM base and our funds stable is quite an achievement in today's market. But as we mentioned earlier, importantly, we've secured growth now in new Asset Management mandates. So despite a slower transaction market, the underlying business model continues to perform, and we maintain our emphasis on improving our fixed margins and developing new products.

So in Principal Investments, again, another quiet quarter, but we make progress on our current projects and look at new investment opportunities. And I think the critical factor here is we think that we reached pricing levels that makes it possible to transact, where land values have adjusted and our existing projects are well positioned for sale and the entry point is coming. So it's a pretty interesting time for Principal Investments.

In Corporate Finance, a relatively weak quarter on aggregate as an effect of a very weak transaction market. Really, we performed along with the market, broadly speaking. We noticed increased activity in the Nordics, and I'll come back to that a little bit, but Continental Europe and especially France was weak. So continued cost focus and efficiency improvements leaves us in a good position to grow profitably when the cycle turns. And already in Q2 from our cost reductions and the slight uptick in the Northern European markets, we delivered positive EBIT in Corporate Finance outside of France.

So on Page 8, we start discussing Investment Management. And since the inception of Investment Management back in 2015, we have delivered a strong average annual growth rate of nearly 20%. Over the last 12 months, the AUM has been stable. Again, we see that as a sign of strength in the current market. And in funds, as I mentioned, we have retained the capital with limited outflows to date. We've seen an increase now of Asset Management mandates and aggregation strategies that really balances the slower growth of AUM into funds, and frankly other business areas and it showcases our strength as a local operating partner.

Now in this current market environment and the next cycle to come, delivering added value or alpha, a different way of saying it, for your clients is what will set you apart. And this is one of our key differentiating factors. We are locally present with in-house vertically integrated operations across Europe, where we can really support investors on a pan-European basis.

Page 9, continuing with Investment Management. Look, the transaction volumes are muted, as we all know. It led to a similar top line, that's the same quarter last year when you exclude the variable fees. There's no way to make up for those that we had in a very strong market. But throughout the slower market we have, if you see -- if you look at the P&L, continuously work on efficiency improvements and cost reductions to mitigate the absence of performance-based fees and significantly lower transaction-based fees.

Through the initiated merger of our 2 fund platforms, we will see additional improvements through one merged EUR 10 billion fund platform. For us, of course, it remains critical that we don't let up and we continue to focus on efficiencies, on scalability and on improving and expanding fixed margins as we launch new products, and we will continue to speak more about this through 2024 and beyond. But when you summarize it and you look at a 36% increase in fixed fee revenues in 3 years, despite valuation decreases which affects the fees, we are well positioned for profitable growth in the coming cycle, also with a lower cost base.

So let's turn to Page 11 for an overview of Principal Investments. The Principal Investment portfolio consisted of 8 active investment projects at the quarter end, plus a number of smaller seed investments and equity co-investments in client aggregation mandates. Again, the quarter was relatively quiet, but I like to highlight, if you look at in the quarter and after the quarter, we're expecting a closing or sale of our logistics assets in Polaxis before the end of the year. We've signed a new large tenant in the Mander Centre in the U.K., increasing NOI materially. And the first phase in Seestadt in Mönchengladbach is now fully leased and ready for sale. Again, timing is always a little bit uncertain.

Founded on our strong financial position, we remain patient with our projects, and we are ready to utilize our liquidity and new investment opportunities as they emerge. We currently see more of those coming to market at relevant pricing, especially when you look at land, enabling us now to take to investment committee a stronger pipeline of projects meeting our return targets.

On Page 13, focus on Corporate Finance. Mentioned this already a couple of times, transaction market increased slightly in the second quarter compared to the first. And our revenues grew with the market roughly. We outperformed in several areas, although we had a challenging quarter in France, but that has a lot of market factors attached to it. But if you noticed, revenue decreased by about SEK 13 million year-over-year, but our cost reductions offset almost this entire decrease. So we had a slightly lower loss actually than last year.

And we can't be happy with that performance. But if we increase EBIT year-over-year in a very, very softening market, I think we've done some things right. And having a positive EBIT outside of France in the quarter,at least is an indication that, that things are not all that bad and we have performed well in 4 -- really 4 of our 5 key markets. The pipeline remains really strong. It just takes a long time to conclude transactions. I think if you look at the rest of 2024, you're 1 or 2 or 3 large transactions away from having a decent year. And that's what we're working on, on daily basis, of course. And the teams are working harder than they did arguably when the market was peaking, because it takes a lot of effort to close the deal today.

So with that, I'll hand over to Michel, who will share a brief financial summary, beginning on Page 15.

[Michel Fischier, executive]

Thank you, Christoffer, and good morning, everyone. As Christoffer already mentioned, the quarter was negatively impacted by lower variable revenues compared to the same quarter last year. And this was mainly an effect of the overall and very slow European transaction market. The work to adapt the organization and to reduce costs during last year as well as the beginning of this year continues to be seen in our numbers. And this is the main driver behind partially offsetting the significant drop in revenues.

Looking below the EBIT line, we had significant FX headwinds during the quarter as the Swedish krona strengthened against the Euro and Danish krone. Same period last year, we had the opposite effect, which resulted in positive FX effects of SEK 49 million. Whereas this quarter, it ended at negative SEK 24 million, leading to a delta of SEK 73 million year-over-year. Besides negative FX revaluation effects, actual cost for current debt increase as an effect of increased market rates, mainly as average interest on the outstanding bond, increased compared to last year. Altogether, this led to a net loss of SEK 33 million or SEK 9 million if you would adjust the figures for FX.

Continuing to Page 6, looking at our balance sheet and financial position. Our balance sheet and liquidity remains strong and thus enables opportunistic investments as well as continued investments into our current project pipeline. As mentioned, we've started looking into establishing a Green Bond Framework. This to enable us to issue green debt when we start to review the refinancing of our existing outstanding bond maturing in March '25.

I'd like to remind you when looking at our balance sheet, that the overall majority of our liabilities are related to development projects in Principal Investments. These projects are in turn valued at cost. So hypothetically, if all our projects were divested today at cost, our net debt would be negative after adding cash, i.e., holding more cash than our financial obligations.

Since development projects are treated differently depending on Catella's ownership, we've provided this slide as well to help your understanding as well. End of quarter, we had an equity ratio of 35% and our cash position was some SEK 950 million, up from SEK 800 million at year-end. And thus, we continue to have balance sheet strength and available liquidity going forward. Additionally, after quarter ended, we entered into a new additional senior financing on Kaktus of SEK 50 million. The new credit is an effect of Kaktus now being treated as a stabilized asset. And in conjunction, we will be released from all parent guarantees on senior loans. The debt will be primarily used to repay more expensive financing.

With that said, I'll hand back over to you, Christoffer.

[Christoffer Abramson, executive]

Thank you, Michel. Great. So before we conclude and open up for Q&A, I'd like to summarize the quarter again from our perspective on Slide 18. The market environment continues to be uncertain. But as we said, with some optimism, you could envisage a slow market recovery from the current levels as pricing is starting to stabilize and the swap rates indicate further interest rate reductions. You can see a little bit of market activity and a lot more discussions picking up.

Obviously, the current market backdrop has had an impact on all of our business areas in the last 18 months or so. And since we began experiencing a sharp decline in market activity, we have initiated and continued to execute a number of initiatives to increase efficiency, digitalize our operations, merge operations and to reduce costs.

Of course, the effects of our efforts cannot fully mitigate the effects of the sharp decline in market activity, especially the material effects of lower transaction-based fees and the absence of performance-based fees. This quarter was the last quarter where we have those types of comparables, and we will look now in the coming quarters really to look at quarter-over-quarter consistent improvements, expanding our fixed margins and continue to work on our AUM and transaction volumes.

It has led, what we have done, to a strong financial position, as Michel mentioned, with preserved liquidity. And moreover, it has put Catella in a stronger position. We've taken necessary actions with a lower cost base and higher fixed fee income to grow profitably when the market does begin to recover. The merger of our 2 fund platforms is another important piece of the puzzle of increased efficiency and positioning for growth. We're creating one combined EUR 10 billion fund platform, with a more efficient function for capital raising, more coordinated investor relations and stronger management and research operations.

And finally, our development projects, our investment projects, continue to run according to our expectations. And we've retained our assets under management over the last year, both signs of strength and resilience in a challenging market. There are no easy wins at the moment, but we're doing, I think, the right things operationally and strategically and we look ahead with some cautious optimism as the market begins to recover.

With that, I would like to thank you all for listening and opening it up for questions.

[Operator]

[Operator Instructions] The next question comes from Emil Jonsson from DNB Markets.

[Emil Jonsson, analyst]

I'd like to start by asking, I think you mentioned last quarter that you expected new Asset Management mandates to be the main source of growth during 2024. Does that mean that we can expect this to continue to contribute positively to AUM in Q3 and Q4 as well?

[Christoffer Abramson, executive]

Well, we sure hope so. Every Asset Management company is working actively to grow their mandates. It's -- what we can see is that there's an increased need for active Asset Management across the entire real estate industry. There's been a period up until at least 2022 or 2023, where beta or just running with the market valuation increases. And pretty passive management has been, I'm not saying easy, but it's happened. And now it's really about alpha. It's about being an effective and knowledgeable local operating partner to the global capital. And that is really playing to our strength.

We've seen in this last quarter, especially in our Finnish operations, where the team has done a great job over the last year or so of really showing what they can do and helping people manage complex assets and improving portfolio performance, and that attracts new capital. So in Finland alone, we added several hundred millions of euros of AUM in complex mandates. And that is something that we're working on in every single Asset Management company across Europe. Of course, if we are able to begin raising capital for pan-European strategies, which we are doing through Principal Investments and other strategies, that will help Asset Management companies as well.

And the last thing that I would say is we are working actively with our existing and new Asset Management companies to in-source asset management. We have had, from our funds, a couple of outsourced asset management engagement, particularly in France, where we didn't have asset management for a few years, which we are now ready to in-source. And that will -- it will not increase AUM because it's the fund AUM, but it will increase our fees and decrease our fee leakage to external parties. So there are multitude of things that we're working on. And I think active asset management is going to be a really critical factor over the next coming years.

[Emil Jonsson, analyst]

All right. And on Kaktus. As far as I understand it, it's been actively marketed for a couple of months already. What is the interest been like from investors so far?

[Christoffer Abramson, executive]

It's a great asset. It is basically fully let. It has all the commercial leases in place. And the interest is high, but at the same time, it is a core investment and the core investors have been very cautious for a pretty significant period of time now. We've had over a dozen pretty active dialogues with large investors. The interest is there. But as we've said and maintain over several quarters now, we are not taking a discount offer on this asset. It's a prime asset, it's a great asset. But we believe summer, of course, has been very quiet.

I'd be lying if I didn't say that most investors have actually partly taken the summer off. The discussions are now picking back up again. And with recent interest rate cuts and the swap rates in Denmark down some 30 points since the start of the summer, that begins to look more interesting for core investors. So the dialogues are ongoing. And until we see a firm offer at the right level, we're not going to execute. But it's a great asset, and we're in no rush to execute at the wrong price point. But we feel pretty confident that this is happening.

[Emil Jonsson, analyst]

All right. And do you think the potential buyers will be more keen to bid up the price more if you sort of wait for more rate cuts to materialize?

[Christoffer Abramson, executive]

Short answer, yes. There's a -- having a fully stabilized asset in a lower interest rate environment, de facto, lower interest rate is arguably a better price, it's most likely you have to put that against our balance sheet, both exposure and our cost of debt. So that's kind of the daily dialogue we have when we look at our potential exit options here, time versus cost of debt versus the risk versus what's the optimal price point. With most of our investments, both now and in recent years, we tend to want to cycle our capital, recycle our capital quicker and not have extended balance sheet exposure.

Kaktus is an unusually large asset for our balance sheet, this makes this conversation and analysis even more critical. But yes, the short answer is yes, and you have to balance that against what it does to our balance sheet and our financing costs.

[Emil Jonsson, analyst]

All right. I think the last thing you've communicated is that you were hoping for a divestment during H2. If you were to -- let's say, you were to delay it further. Don't you feel like you'd be missing out on other projects that you could have invested in? Or do you think it's better to just wait it out and wait until you get the right valuation?

[Christoffer Abramson, executive]

Again, it's very similar to your previous question. It's a balancing act. Right now, we don't have an investment pipeline that is restricted by our available capital. If we continue to hold that for a very long time, that could be the case. Although we're obviously looking at our bond and refinancing of that bond, and debating whether we should have a framework that's even bigger. Maybe not raising capital quickly, but could we do that in a more flexible way, and Michel and I are talking about this on a daily basis almost. It's a fine balancing act. The great thing is that we have fantastic assets and a strong balance sheet. So at least we have the luxury of this flexibility.

[Emil Jonsson, analyst]

All right. That makes sense. And if I'm not mistaken, the bond is maturing in just over 6 months, I think. Let's say that Kaktus is still on the balance sheet when that day comes, then assuming your current cash position, would -- the only option then would be to refinance the bond? Or is there some other option I'm missing on the bond specifically?

[Michel Fischier, executive]

I think we'll need to get back to your question, Emil, when we get closer to the maturity of the bond in March '25.

[Christoffer Abramson, executive]

Obviously, with 6 months left to maturity, we're exploring a number of options. And as I mentioned before, we are starting to prepare for a Green Bond Framework with the expectation that we will have more flexibility on our balance sheet. But we don't, as you know, get ahead of ourselves in our communication, but have a little bit of patience and things will become more clear.

[Emil Jonsson, analyst]

Okay. Have you explored at all using -- well, let's say that you were to sell Kaktus tomorrow and get all the proceeds on your balance sheet. I know one option would be to maybe try to sort out the bond with parts of those proceeds. And you mentioned that the investment pipeline right now is not restricted by capital. Would it be -- are you exploring any other options, like maybe using some of the proceeds for buybacks, for example, considering the stock's trading at a pretty low valuation?

[Christoffer Abramson, executive]

As you know, we just said, we're in the middle of analyzing and preparing for how and in what way to refinance our outstanding bond. We have, as you know, Board pre-approval for buybacks should we consider that option. So all those options are at our disposal, but we're not obviously at liberty to say what we plan to do. But the options are on the table, and it's great to have strong liquidity. And our outstanding bond today trades at a material premium. It's a good market for debt. So -- and that's another, I think, strong position to be in.

[Emil Jonsson, analyst]

All right. And I think I'll finish off just with a more conceptual question. So in the public funds, when you look at the performance they've delivered, I think in some of them, at least, you had negative year-on-year performance. In such an event, if you want to generate performance fees the following year, is it correct that you need to first recover that loss? And then on top of that, beat the funds respective hurdle rate.

[Christoffer Abramson, executive]

Generally speaking, yes, there's a high watermark. And yes, that conceptually is correct. So in some funds, there is some way back. I mean -- but as you know, there's one thing you know about real estate is cyclical. And we are going to continue to reinvest the capital in assets at a very different entry point. But yes, in some of these funds, it takes a significant time to recover to get back to generating performance fees. And that's why our focus is not only on maintaining the capital and recycling the capital in those funds with new type of investments at new entry points, but of course, to raise new funds and raise new mandates looking much further ahead.

Our game is assets under management, which is a very long cycle game. I mean no one should really look at Catella as an investment -- as a stock investment. For short term, quick turnaround, super profits, it's a long game of building increased fixed profitability and sprinkling in some really good performance from equity and exits and performance fees and promotes along the way. But yes, it will take a little bit of time.

[Operator]

The next question comes from Patrik Brattelius from ABGSC.

[Patrik Brattelius, analyst]

Can you hear me?

[Christoffer Abramson, executive]

Yes.

[Patrik Brattelius, analyst]

My first question is regarding the CatWave transaction announced in the quarter. So to my understanding, you sold half your stake and generated SEK 18 million. And according to the CEO wording, it sounds like you have an ambition to sell the second half in 2025. Could we expect that you will get the same amount of profit for the remaining part? Or what are the drivers here?

[Michel Fischier, executive]

Yes, sure. To give you some background, so CatWave stemmed from the old Catella Bank and was then half of it was bought by partners, a number of years back. And that agreement also came with a call and a put option with multiples associated with it. And those multiples are done based on EBIT. So the amount of SEK 18 million then stands on the multiple of the EBIT in 2023, and the following transaction next year then will also be based on the 2024 EBIT numbers and the associated multiple.

[Patrik Brattelius, analyst]

Okay. And 2 quarters have progressed and how has CatWave delivered so far?

[Michel Fischier, executive]

I don't think that's a public number that neither we or that by our partners want to disclose.

[Patrik Brattelius, analyst]

Okay. I understand that is fair. But can you say anything about the time line in 2025? Is this early, midyear or late '25?

[Michel Fischier, executive]

No. It will be the same timing next year.

[Patrik Brattelius, analyst]

Okay. Perfect. Then is there any possibility to quantify any cost synergies from the merger of Catella Residential Investment Management and Catella Real Estate AG?

[Christoffer Abramson, executive]

No. I don't think we can look, because a lot of this is an ongoing initiative. We've obviously, as you know, already in the past 12, 18 months, reduced costs significantly in those companies separately, which are now having its full effect. This merger has been initiated and will be formally and fully executed from January 1, which means that there are a number of ongoing discussions. And so we cannot really disclose that yet. But during the start of 2025, we should be in a position where we can do a bit more conclusive remarks of what it is.

But then it really is about ongoing efficiencies of operations, not just on the cost side, but truly on the revenue-generating side. But as you know, we don't give any forward-looking estimates. So the work is ongoing. It will continue to improve and make our operations more efficient. That's pretty much what we can say.

[Patrik Brattelius, analyst]

That makes sense. But just fundamentally, 2 platforms going into 1 platform, there should be some overlapping in terms of staff or no?

[Christoffer Abramson, executive]

Really can't comment on that. You understand this is a merger of companies in Germany, and I can't comment further on that.

[Patrik Brattelius, analyst]

Yes. That is fair. In Principal Investments, you sounded more optimistic regarding the stabilizing of valuations. Are there any particular regions that you want to highlight here that where you see more attractive opportunities relative to other parts?

[Christoffer Abramson, executive]

It really is, if you look at regions generally in Europe, the U.K. is usually first and its corrections. Then come the Nordics and Northern Europe, and then the further South you go, it's a bit slow. So -- but that doesn't mean there aren't attractive opportunities across these markets. We have, as I mentioned, which I hope to get back to you in the third quarter report, some things on the table. And that's across Europe really. We've had a number of small and bigger investments up for debate. And it looks pretty interesting. But we operate in really in 12 countries and looking at all of them.

[Patrik Brattelius, analyst]

I understand. Then lastly, if I understood you correctly, when you talk about transaction volumes on Slide 4, it sounded like you we're more optimistic that transaction activity would resume in early 2025. And then thinking about how the Corporate Finance segment has developed. It's been quite soft in the first half of 2024, given that you expect a pickup first in 2025 is -- how should we think about the development of that segment?

[Christoffer Abramson, executive]

I think you have -- there's a couple of factors. I think when we say market recovery, we kind of refer that to a real recovery. I mean I think in the third quarter and the fourth quarter, we'll see somewhat. That's our best guess. And you look at market sentiment across our research and other party's research, it's a slow recovery, where we think the market will really start picking up in 2025. I still think that the third and fourth quarter or the second half is going to be much better than the first. There's been recovery signs. What we mean in '25 is a real recovery.

Right now, the pipeline is pretty strong of transactions in Corporate Finance. It just takes a long time. And frankly, a lot of summer was on hold, which means Q2 was really, really hard. And now looking at the tail end of August and going into September is going to be critical. But I would envision a bit of a rush in the fourth quarter before we see a real pickup. But Corporate Finance is a daily grind to close transactions. It's really, really hard to predict. But the recovery signs are there. The pipeline is there. And as I mentioned, in this business, you get 1 or 2 or 3 big portfolios, it really changes your bottom line.

And that's -- if you look at our Swedish business, for example, since we're sitting in Stockholm today, we've been, in the first half of the year, #1 in the market of completed transactions. And that's pretty great. We haven't really closed that big whale, which would put us in a high level of profitability. But the underlying performance and market presence is really strong.

So as you know, it is a bit volatile. It is about getting those big ones that really changes the game. And we think that there's good opportunities in Q3 and Q4. But from a general market recovery, remember, we're down 60%. So I'm not talking about another 5% increase, I'm talking about picking up transaction volumes slowly up to more -- never right to say normalized levels, but to a bit more normal level. We think that might take a few more months.

[Operator]

The next question comes from Jesper Von Koch from Redeye.

[Jesper Henrikson, analyst]

Just a couple around the -- your preparation for a Green Bond Framework. So first, what's the potential size of this, if it could cover like the whole refinancing of the existing bond? And second, if you could talk about the flexibility of it and what the interest rate profile could look like?

[Michel Fischier, executive]

Very detailed questions, Jesper, which we cannot answer today at all. We're preparing Green Bond Framework. We made some progress. And when we're ready to make a full communication, we will do the whole market [indiscernible].

[Jesper Henrikson, analyst]

Okay. Good. Then just a broader question around your inflows into certain funds. If you could just talk about like your main or most important activities to ensure substantial inflows?

[Christoffer Abramson, executive]

I'm sorry, Jesper, there's a little bit of background noise. I missed the first part of that question.

[Jesper Henrikson, analyst]

If you could talk about your most important activity to ensure substantial inflows into certain funds?

[Michel Fischier, executive]

Inflows into funds?

[Jesper Henrikson, analyst]

Yes.

[Christoffer Abramson, executive]

Well, that's continuous capital raising efforts across Europe. It's about delivering consistent strong performance. There's no magic wand or specific activities in fund inflows. I think are you meaning to -- are you talking asset management or funds? Because in funds, really what's going to make the difference for term is continued investment activities, which we saw, for example, in the second quarter in our Catella European Residential III, a EUR 50 million investment into finished residential real estate portfolio, some 250 apartments, which is also managed by our Finnish asset management entity. That's a typical forward-looking transaction that secures inflow. Not necessarily new capital, but it increases AUM.

And apart from that, it's continuing to complete development projects that will then be added into AUM. Those are the 2 main things currently. Raising capital is a longer process. From an asset management perspective, we talked about it earlier as far as repositioning of assets, taking over tough portfolios and also in-sourcing external third-party mandates into our existing asset management entities.

[Michel Fischier, executive]

Okay. Good. I think we have 3 questions from the online. And the first one is from Max Olovsson, and how big is the committed capital for Investment Management at the end of Q2?

I can start by answering it. And committed capital has broadly remained the same, around roughly SEK 10 billion. The difference we've seen since 2022, that conversion of actual commitments into investments, which then provide AUM growth, takes a lot longer time in this very slow transaction market. And I hope that answers your questions, Max.

And then the next one was from [indiscernible]. You have communicated that Kaktus operating net covers the interest costs related to the property. In today's report, it was stated that the interest rates associated with Kaktus is 5.8%. Thus the current operating net, Briefneto, still covered the interest cost associated with liabilities in Kaktus, excluding the areas that we generate any rental income.

So the answer to that question, when including the cost of debt, we roughly end at a net breakeven result for Kaktus around that. So I hope that answers your question.

And then the last one was from [ Yvonne Morin ]. A bit more extensive report regarding the sale of Kaktus, and that I think we've already covered. So that was all the questions that came in online.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

[Christoffer Abramson, executive]

Well, I guess we're a little bit out of sync there, but at least that concludes the discussion. And I appreciate all the questions, both written and the verbal. Very detailed and engaging questions. We hope that we've provided sufficient color and information. And we thank you for your time today, and we are just about exactly in the hour mark. And thank you so much for your attention and look forward to speaking following the third quarter. Thank you.

[Michel Fischier, executive]

Thank you.