Catella AB

STO:CAT B

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Christoffer Abramson, executive]

Good morning. Welcome to Catella's 2023 Third Quarter Report. This is Christoffer Abramson, CEO of Catella Group. And with me today, Michel Fischier, Chief Financial Officer and Head of Investor Relations.As usual, we'll go through the main events of the quarter and the financial performance. And after the initial presentation, we will take questions on the phone and online. And of course, our financial reporting and presentation materials are available on the web.So let's start on Page 3 with a brief overview of Catella. We operate in 3 property-focused business areas; investment management, principal investments and corporate finance. We now manage nearly SEK 160 billion in our Pan-European investment management platform and about 70% of our 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 often together with partners. Corporate Finance is our real estate advisory and brokerage arm with leading positions in large European markets. And Corporate Finance is also an important internal adviser to our other business areas, investment management and principal investments.So with that brief introduction, I'd like to go ahead and start the quarter presentation with a market summary on Page 4. So the European real estate transaction volumes were at even lower levels than what we saw last quarter. And frankly, at levels we haven't seen since the global financial crisis. The drop in transaction volumes is also significantly higher than what we experienced during the GFC. We're now 7 quarters in and down 83%, which is obviously quite dramatic. Our house view is that the global economy has entered into a macro environment with high and volatile inflation, low productivity growth and higher nominal interest rates, at least compared to the last decade. In this new setting, we are seeing sort of a higher for longer interest rate environment maybe compared to the last sort of financial correction some 15 years ago, which caused us continued downward pressure, specifically on riskier asset classes as the market continues to adapt. Real estate has come a bit more heterogeneous as an asset class, and we believe that valuations are set to diverge further between different types of assets. In the short-term, segments with index rents and somewhat higher yield levels and low equity valuations are expected to outperform and we believe that prime locations with high ESG credentials will then outperform in the long-term. Our view is that for the first time in quite a while, a decade or so, market conditions now favor more active asset management over passive investing. In this challenging market, Catella's pan-European offering of virtually integrated local experts and asset managers is well-positioned to help our clients succeed even in a very, very tough environment.So with that, well, not great market backdrop, let's move on to Page 5 for a summary of our key operational highlights of the quarter. So to start, we are very excited to have closed the acquisition of Aquila Group in France in September. And we are now starting to really work together with the team on integration, on deals and on synergies. Besides adding SEK 15 billion to assets under management, Aquila adds significant synergies to Catella. We now have the opportunity to internally manage our French fund assets over-time and we have the presence in France with an attractive investment management proposal in the current volatile market. Additionally, we now have a partner for principal investments in France and for of course, for France being part of our pan-European investment strategy. And finally, it adds a new source of capital through the retail fund platform, Axipit. Retail investments is a source of capital that continues to show the stability even in the current market conditions and the cash-on-cash focus suits actually a higher yield environment with all our local entities across Europe well-positioned source transactions. Our focus is always on long-term value creation for our shareholders. And besides the acquisition of Aquila, we made additional progress during the quarter. For example, the divestments of the Infrahubs platform reduced our exposure to speculative development projects and frees up additional capital for other growth investments. With a strong liquidity and a strong financial position in general, we continue to evaluate how to grow the company through investments in digitalization, capital raising, M&A opportunities and, of course, optimistic investments. So we talked about Investment Management. We show an increase of assets under management of nearly SEK 10 billion in the quarter, mainly driven by the acquisition of Aquila and finalized development projects entering as assets into funds. The growth, however, is suppressed by exchange rate effects, as the Swedish krona appreciated in the quarter. So if we take out the currency effects and the acquisition of Aquila, we're pretty much flat quarter-over-quarter, which in this market environment, frankly, is pretty good. In the U.K., we signed a full-fledged asset management mandate for 3 locations of Transport for London, on top of the advisory mandate for their entire portfolio we communicated in the second quarter, which is excellent progress and an exciting mandate. Looking ahead, the increased fixed income, the pipeline of development projects, continued committed capital and strong relationships with our investor base provides a solid foundation for this business area, even though, of course, in the near term with muted transaction levels, variable revenues will probably remain lower than the prior year.So let's turn to principal investments. As I mentioned, we finalized the sale of the Infrahubs platform, where the divestment had a positive impact on profit after tax of SEK 28 million. So even though we continue to make progress at the right pace in our opinion, in our development projects, we expect that divestments of completed projects will be limited in 2023. At the same time, we see more opportunities for new investments that meet our return requirements as market prices continues to adjust and more opportunistic investment opportunities arise. And lastly, for Corporate Finance, we continue to have a solid pipeline of transactions, both big and small. But in order to realize more of these, not all, of course, but also not zero, in the near future, we need to return to a more normalized transaction market, and it's difficult to predict when this is likely to occur. There are some bright spots. Demand for valuation services remained stable throughout the year and continues to be very strong. And we carried out a pretty significant transaction in Finland, where our market share now is quite substantial. So doing the best with the current market situation.Let's move to Page 6 for a summary of the group's consolidated results. So year-over-year revenues increased by SEK 26 million, mainly driven by principal investments and accrued income from logistics projects and rents from standing assets and a final management fee from a project that was sold in prior years. EBIT ended at SEK 32 million compared to SEK 74 million last year, which was mainly an effect of lower variable revenue in Investment Management. Going to Investment Management specifically, AUM has increased by almost SEK 17 billion over the last 12 months. And as I mentioned, quarter-over-quarter, apart from the acquisition of Aquila Group and exchange rate is broadly unchanged. Look, we continue to see resilience here of the underlying business model with fixed fees growing by 14% and solid profitability despite a slower transaction market. I would like to point out, however, that in the third quarter, specifically the investment management EBIT was negatively impacted by temporarily increased cost, which has now been reduced on the salary side, also an increase on management fees from the group, which has been corrected to the right levels, which is then offset at group level. So it's impacting investment management negatively, but on a group level, it's actually favorable on a net-net basis and natural cost inflation continuing across Europe. We still believe that with the return to normalized levels is the guidance that we give on roughly where the underlying earnings set in Investment Management remains the same and with Aquila should be even stronger, whereas we have not reported earnings for Aquila in the third quarter. In Principal Investments, apart from the sale of the Infrahubs platform, no divestments were realized during the quarter. And like we've mentioned, we are looking ahead, we'll focus on developing our current pipeline of projects and on pursuing co-investments, even more of those aimed at generating new asset management mandates and revenue streams across Europe. And finally, for Corporate Finance, the transaction volumes, as I mentioned, down 60% year-over-year, 83% from the peak across Europe and continued to deteriorate in the last quarter and which naturally affected revenue and led to a slightly negative EBIT in the quarter. It continues to be difficult to precisely predict how and when deals will be realized, but a marginally negative EBIT in a seasonally weak quarter is not a terrible result in this market environment, and we look positively at the fourth quarter.So we move to Page 7 to discuss investment management in a little bit more detail. We love this chart. Since the inception of Investment Management, we have delivered a strong average annual growth rate of 22%. AUM has increased by SEK 17 billion over the last 12 months, broadly flat quarter-over-quarter, of course, but with Aquila on-board with another SEK 15 billion, we also have a more diverse capital base and added additional competencies to meet opportunistic investor demand, not just in brands but in pan-European strategies. And as I said earlier, for the first time in a long time, market conditions now favor the more active local management over passive investing, which ideally suits our model and we can take opportunities of a challenging market with our vertically integrated local experts and asset managers.So on Page 8, the underlying AUM growth drives increased fixed fee income. And this is our key underlying investment management metric and the main long-term profit driver in Catella. As you can see, our fixed fees have increased by 45% since 2020. And again, it's worth noting that we have not included Aquila Group in the third quarter. This quarter's EBIT ended 70% lower than last year, but last year, we had a non-recurring revenue from Catella Asset Management Denmark with the sale of a project called GreenPoint, which accounted for about SEK 34 million of EBIT that year. And you add-up the lower acquisition fees and disposal fees and no performance-based fees in the current quarter, that's pretty much that SEK 70 million on the downside, simply from lower transaction activity, whereas at the same time, those have decreased, the underlying fixed fee revenue increased by 14%, which really shows the long-term resilience of our business model in the long run, of course, with the muted transaction market, it's very hard to generate significant variable revenues. But this is a long game. Catella has a long-term investment play where we look at strong and stable AUM growth with increased fixed fees and cost leverage. Operating expenses were a bit high in the quarter. We hadn't really gotten our salary numbers down, which has now been in action. We've taken some actions, which on top of that, took some restructuring costs in the quarter. We had some debt deal cost on the M&A side. And as I mentioned, increased management fees from the group. So these are all factors that should revert to trend going forward. And I think the underlying earnings on a quarterly basis without many transactions is still at the numbers we have indicated before and not at the 26% level we have seen this quarter. Looking ahead, we have already carried out cost reduction measures in Q3 and continue to do so in Q4 to substantially reduce fixed expenses from early 2024.So Page 11, Principal Investments. The investment portfolio now consists of 10 active projects in logistics, residential, mixed-use, office and retail. And besides the tenant, we also have some smaller investments in predevelopment phases and co-investments where we co-invest alongside growing asset management mandates. Our investments are spread across 6 European countries, and we intend to increase both the geographical spread and the diversification of the portfolio with more co-investment mandates. New for this quarter is that we have included our other co-investments in the principal investment business area as this is growing and importance becomes part of our core operations. We invest in new ideas generated within the organization, such as our funds in Sweden, which is listed real estate and funds in the UK, which are listed REITs. And also shortly, the retail fund recently launched by Axipit called Pamica. Our investment in Pamica is also included in the business area. Catella was one of the first investors in Pamica and additional investments were made this year in the latest investment company, Pamica 4. As we've communicated previously, we see that these types of strategic growth investments, both the co-investments to generate mandates, but also seed investments in these types of funds might increase going forward as part of our strategy to diversify our investment and generate additional income streams. Operating profit in principal investments during the quarter was mainly driven by rental income from Kaktus in Denmark and accrued income from logistics projects in Metz and Barcelona in France and Spain, respectively. And besides the sale of the Infrahubs platform, we had no substantial transactions and in the current market environment, we really don't expect divestments on a big scale during 2023. Our strong financial position, however, continues to give us the flexibility to be patient and hold on to our cash flow positive properties and then be ready to utilize our liquidity in pursuing new investment opportunities to emerge.Now focus on Corporate Finance, Page 13. Aside from a few large and complex portfolio transactions across Europe, the traditional core transaction market was even weaker in Q3 and really at record low levels. We continue to have a solid pipeline. We've made some good deals, but the comparative numbers are obviously very hard, but we continue to have a strong market position in our 5 markets. However, it's really hard to tell when and how and if some of -- or how many of these in the pipeline will materialize. Transaction pipeline is solid, and it's not so much of an execution. From our side, it's more of buyers and sellers meeting and when will they meet. The majority of our revenues stem from traditional buy and sell-side brokerage in the quarter, which, of course, was down significantly year-over-year in the overall market. At the same time, the demand for valuation services remain very strong as the revaluation of assets is even more critical for most players in the current market. In total, revenues fell SEK 12 million year-over-year and EBIT was the same number. But again, as I said, seasonally, the third quarter is not particularly strong, and we think we performed okay, and we've continued to take some cost measures that will reduce the cost base going forward.So I'll now 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 started with, when excluding the addition of Aquila and taking unfavorable FX translation effects into account, AUM ended at similar levels as [indiscernible]. In the sluggish environment, we are currently experiencing, this is something we are pleased with, as it has provided a solid fixed revenue growth in the mid-teens over the last year. and reached SEK 225 million in the quarter. Despite the increase in fixed fees, it does not compensate for the decrease in variable fees, where we see a substantial change, driven by the slow transaction market and some valuation effects. If we look at EBIT for Investment Management for the quarter, they had ended below our baseline, as Christoffer already discussed. In part, this was driven by tough comparables from same quarter last year, but also an increase in operating expenses, where we have made adjustments that you will see in the following quarters. The same goes for Corporate Finance where some redundancies have been carried out, but they are not yet reflected in the P&L. One additional comment on the EBIT is the other business area, other which mainly comprises of HQ operations and internal elimination. The reduced loss of SEK 8 million compared to SEK 15 million last year is in part driven by lower personnel costs on group level as well as increased charges to the business areas from Group. If we then move on and take a look below the EBIT line. The main reason behind the negative profit is the financial net. The interest on our bond maturing in 2025 amounted to SEK 27 million. Additionally, FX translation effects from a strengthened Swedish krona against the Euro and the Danish kroner resulted in a negative SEK 37 million in effect from currencies. This was partially offset by the divestment of Infrahubs, which generated a positive SEK 28 million in the financial net.If we then move on to Page 16, looking at our financial and liquidity position, we continue to have a strong balance sheet and equity ratio. Year-over-year, our cash position, however, is lower, and that is due to the reason that we have chosen to replace expensive junior financing with an internal shareholder loan in the development project, Kaktus. We've also made some additional investments through shareholder loan contributions in our development pipeline.And to conclude and also reiterate what we previously said, the liquidity we have provides us the flexibility to replace external financing with internal shareholder loans and thus using our cash where it makes most sense. At the same time, we have additional financing available, which we will make use of when we see new investment opportunities meeting our required return targets.And with that, I'll hand back over to you, Christoffer.

[Christoffer Abramson, executive]

Thank you, Michel.So before we conclude and open-up for Q&A, I'd like to briefly summarize the quarter from our perspective here on the final Slide 18. Now the market environment is, of course, tough, but we continue to leverage on our track record and competencies of navigating in all kinds of markets. This market with continued geopolitical macro real estate valuation uncertainties, et cetera, we are well positioned to add value for clients and shareholders through active asset management and investment strategies. Also, in this type of market, it might be good to be a little bit boring to use maybe a bad word, but we have not taken big levered bids. We have a solid balance sheet, solid liquidity and our core business model, which we like to continue to point out, relies on steadily increasing fixed revenues, something that continues to deliver stable, albeit now unspectacular results, but there's a stable increase, and that's the growth story that we'd like to tell, and that's what we're driving every day in the business. We are a long-term value creator, and we build the future of Catella by investing our stable returns, plus when they occur more variable transaction profits in long-term value creation within the organization through M&A opportunities, and which most recently shown by the strategic acquisition of Aquila Group.And with that, I would like to thank you all for listening and open up for questions.

[Operator]

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

[Emil Jonsson, analyst]

Starting off, when looking at net inflows in investment management, there are a lot of moving parts. You got acquisitions and divestments and finalized projects and FX and so on. But if you adjust for this and you look at the actual in and outflows, did you have positive or negative net inflows in terms of new capital that came in from investors versus capital that investors pulled out?

[Christoffer Abramson, executive]

Well, without going into exact details, very, very, very minor negative and simply because capital inflows at the moment are virtually zero across the industry. We have added, obviously, AUM by completing projects and utilizing committed capital that already sits as net asset value in our funds, but not treated as AUM. But on the positive note, the outflows are also virtually immaterial, which I think is a sign of strength. And as I've discussed on previous earnings calls, it's an ongoing virtually daily communication and discussions with our investors to make sure that they understand the long-term position and keeping their capital in as the best course of action. And that's been successful so far, and we have good positive dialogues and very, very immaterial outflows, which, again, in this market is not bad.

[Emil Jonsson, analyst]

And these cost cuts that you mentioned, am I correct in the understanding that you've made efforts during the quarter to cut expenses in both corporate finance and in investment management. Is that correct?

[Christoffer Abramson, executive]

That's correct. The biggest, if we say active redundancies and cost measures have been in investment management, whereas in Corporate Finance, it's a little bit more of not rehiring and focusing efforts on real revenue-generating personnel. But yes, it's a little bit across the board. Nothing hugely dramatic, but significant enough that will make a pretty material positive impact in '24.

[Emil Jonsson, analyst]

Okay. And what kind of cost measures have you taken in investment management? Does that have to do with staff or is it something else?

[Christoffer Abramson, executive]

Mainly staff, but we're also looking at cutting a lot of consultancy spend, optimizing and centralizing IT spend, pausing some spend and investments. What we're focusing on in growth is growth investments, in capital raising, in digitalization, artificial intelligence and new products, that's where we want to spend money. That's revenue generating on a long-term basis, whereas we're -- as you do, when markets are very strong, there's a tendency, especially in a decentralized organization that you run a lot of great projects, but maybe the ROI isn't always the best and now we've taken stock and cut back on a lot of that. So focusing on core growth, revenue generating personnel. So there were some redundancy costs in the third quarter. There will be some more in the fourth, but that's a strong positive for 2024 and beyond. Obviously, redundancies are never a positive experience, but also necessary in this market.

[Emil Jonsson, analyst]

And just to make sure that we're on the same page. How significant do you think these cost measures will be if we compare it to current sort of run rate cost levels in Investment Management and Corporate Finance. Are we talking like a 5% reduction or a 25% reduction.

[Christoffer Abramson, executive]

We can't really, as you know, give guidance on future results. But it's near one of those numbers. But it's not an immaterial number, but clearly, we only have 500 people across the group. We just added 20 or so with Aquila. So the headcount reductions that we make, it's about reducing where it matters, and it's about not rehiring until the market recovers and it's about pausing or reducing spend that does not generate revenue in the short-term. So it's going to have a material impact, but material is put relative until variable revenues come back or become stronger, it's not obviously not going to offset that entire drop if we compare year-over-year. But going into '24, we'll be in a much -- we're in a leaner position, I should say.

[Emil Jonsson, analyst]

Okay. And moving over to Principal Investments. Right now, it says the total capital invested in Kaktus is about SEK 1.7 billion. Am I correct in assuming that if the property were to sell for, say, SEK 2 billion, then that SEK 300 million difference would go almost entirely to you. Is that correct?

[Christoffer Abramson, executive]

We own 93% of Kaktus, give or take. So yes.

[Emil Jonsson, analyst]

Okay. So 93% essentially of that difference?

[Christoffer Abramson, executive]

Yeah.

[Emil Jonsson, analyst]

All right. And given what you knew at the end of Q3, would you have been surprised if, let's say, the Kaktus property sold for over SEK 2 billion?

[Christoffer Abramson, executive]

Well, I would have been very surprised if it's sold right now because we haven't gotten LOI. So that would have surprised me a lot. But I can't comment on the market pricing. I think it's 495 spectacular sort of micro living units with a really unique long-term location. And if you can see it real time today with the sort of green overpass and the connection to the city, it's a great long-term buy for someone. But in today's market, the transaction market takes a long time. So that's all I can say about that.

[Emil Jonsson, analyst]

All right. And what are the latest developments on the corporate tenant you're trying to sign for Kaktus. Has that developed any further during the quarter?

[Christoffer Abramson, executive]

Yes, it has. I think we're in a pretty good position to secure the last tenants in the corporate, in the base basically of the building, which, of course, will make it a lot easier to put the property on the market as a completed and fully rented asset.

[Emil Jonsson, analyst]

Okay. And if we think more sort of big picture for next quarter, there's a lot of seasonal variation at play here. Q3 is a pretty slow quarter overall. When looking at, let's say, transaction activity in Investment Management and Corporate Finance, from where you stand, do you think we'll see sequentially higher activity in the next quarter?

[Christoffer Abramson, executive]

I hope so. Look, the market is in an unusual period. But of course, fourth quarter is usually higher than the third. It's harder to predict this year because in most or at least in a strong market, you have pretty strong visibility of a lot of players wanting to make significant transactions before year-end. In this particular market environment, I'd say that it's a lot more driven by the bid-ask spread and whether views are met on valuation rather than getting transactions done by year-end. So it's harder to predict this year, although it would be very unusual if the seasonality wasn't sequential. But today, it's really hard to predict. But the pipeline is pretty good. I wouldn't bet my on real high transaction levels in our Investment Management business, that would be unusual in this environment.

[Emil Jonsson, analyst]

All right. And just one last question. What's the plan for the outstanding bond once it matures. Do you intend to just roll it over or would you plan on doing something else for it?

[Michel Fischier, executive]

I mean, of course, we're evaluating different options, and this is nothing we can comment upon. We would need to come into the entire market at the same time.

[Christoffer Abramson, executive]

What I would say Emil is that bond matures in the late spring of '25. That gives us quite a long time to plan ahead on how we would like to structure our financing going forward. We have 1.7 million invested on our balance sheet in real estate projects at cost. Compare that to SEK 1.25 billion bond and SEK 1 billion in cash, it gives us a pretty good sense of flexibility and the ability to plan for this. And I think our balance sheet is pretty strong, looking at what our equity level is and how the market looks at the company, I think that's in a strong position. And as you know, probably know that the bond is trading at a pretty reasonable level. So I think the refinancing, how we decide to pursue that, it seems like we have a strong interest at least from the credit investors.

[Operator]

The next question comes from Patrik Brattelius from ABG.

[Patrik Brattelius, analyst]

My first question will touch upon a previous question there. But can you quantify the temporary effects impacting the investment management segment there?

[Christoffer Abramson, executive]

Round numbers a little bit. We shouldn't go too detailed here. But the management fees, that's what --

[Michel Fischier, executive]

Mid-single digits.

[Christoffer Abramson, executive]

Yeah, mid-single digits. We had a little bit of that deal cost and redundancy, then we're probably up to low double digits. The point is on a sort of normalized level, it is still is at that minimum 40% level I would say, on an ongoing extremely low transaction basis. So like I said, I think our guidance around that segment's run rate at very low transaction levels hasn't changed. But this quarter had a couple of unusual effects.

[Patrik Brattelius, analyst]

So yeah, then you talk about basically the fixed within the segment. And you're right there on Slide 9 that the measures that you are taking, there for cost reduction will be visible in 2024. Is it possible to quantify that effect to any degree?

[Christoffer Abramson, executive]

No, that would be a guidance, I guess, to future earnings.

[Michel Fischier, executive]

Yeah. And then Patrik, it wouldn't make sense at this point in time to do so since we're taking additional actions as well and will do in Q4. So I think it will be more relevant for us to get back to you and your colleagues in our Q4 earnings call.

[Christoffer Abramson, executive]

Where we'll obviously also report the employee number.

[Patrik Brattelius, analyst]

And then if we go over to Aquila Group, you're right, there's no contributions on income this quarter. But if you were to include it in the quarter for a full quarter, how would that have impacted your income and operating profit, all else equal?

[Christoffer Abramson, executive]

Well, we've close the deal in September. So let's show that in Q4. It's an EBIT positive business. It's a strong platform. The key for us is not what it brings in this quarter or next. There key really is we now have a value-add, opportunistic, really, really expert team with a great track record and client base in France and beyond. We have the retail fundraising, which has begun, the fund is launched, and we're going to ourselves see invest in it, which we're very excited about and we can now work with the rest of our French businesses. That's what matters. This is not about the current quarter or next, it's about the coming few years and adding to our then organic growth via this acquisition.

[Patrik Brattelius, analyst]

Then my last question is regarding principal investments. The operating profit in the quarter stood at SEK 21 million. And when we read in the notes here, you're right that it's primarily driven by rental income from Kaktus and Catella Project Management. So are there any one-offs in this line or should we expect that as long as you haven't divested Kaktus and Catella project management, this will be the run rate level going forward?

[Christoffer Abramson, executive]

Yeah. There's one minor one-off from a performance fee from a previously sold project. I can't remember exactly SEK 6 million or something like that. So maybe it's SEK 15 million at a run rate currently.

[Operator]

The next question comes from Jesper Von Koch from Redeye.

[Jesper Henrikson, analyst]

So let me just start with the Investment Management. And I don't know if I missed it in the presentation, but the number of employees was sequentially up from 307 to 323, but you mentioned that it's temporarily heightened. Could you just elaborate on that?

[Christoffer Abramson, executive]

Yeah. The redundancy impact is not shown in that number, yes. So that number will come down. The hiring has been sequential. So we haven't really -- it's like slowing or steering and turning and moving train a little bit. So it's going to show as an impact in the fourth quarter. So I'm not sure what the exact number will be at the end of the fourth quarter. But the terminations and the redundancies have occurred since, so that number is going to come down. Obviously, adding Aquila is in this quarter. So that's 20 or 18 or 20 of that uptick.

[Jesper Henrikson, analyst]

And then regarding performance fees for your funds, do you have like high watermarks in all or some of the funds? Like do you have to return to all-time high and then reach a specific like return rate?

[Christoffer Abramson, executive]

Sure. Not all, but most. And as you well know from the public funds, it's not likely in the short-term. That's going to be really hard for us or any other player. But I would like to point out that what's interesting about adding Axipit, that fund platform in France, albeit it's very small today, but it's raising capital and it continuously invests. And so our starting point there is at a really nice yield. And that's going to be a good timing to be ahead of the competition with the gone-in yield as we grow that platform. So that's one thing that went out on the fund side.

[Jesper Henrikson, analyst]

And then how far have you come in terms of like rotating your fund assets to like sustainable real estate and do you have a specific share of like sustainable assets that you aim for?

[Christoffer Abramson, executive]

Well, if you look from a pure proportional basis, some of our biggest funds are Article 9 funds or Article 8 with some substantial high ESG credentials. And as you know, at the end of 2022, we made a large exit from a couple of our funds to rotate out some older assets, which we are now investing in new, albeit slowly because of the current market environment. But yes, going forward, that's a very singular focus, not because of needing to meet those metrics, but frankly, if you look at the long-term value potential in assets today, we firmly believe that the right locations and ESG credential is going to be the right, it's going to be the long-term play. And managing those is something that we're going to do even more actively. But yes, it's a pretty high proportion, and we obviously still have significant liquidity in the funds that we need to continue to invest, but we're not just like everyone else is being patient, we are being patient, and we'll only invest those in assets that -- where the sellers are at the market level.

[Jesper Henrikson, analyst]

And then moving on to principal investments. How do you think about timing for new investments, like is it worth waiting new investments until Kaktus have been divested in order to like reduce your risk exposure?

[Christoffer Abramson, executive]

No, I don't think -- we don't look at it that way. I mean, obviously, with Kaktus on our balance sheet right now, the ability for us to invest in something equally big or a collection of big assets is limited, but that's not our business model. We look at continued smaller longer-term bets and opportunistic investments, which we continue to make. I mean they might be small and they don't really pop-up on the reporting, but we look at them ongoing. We've had made some small co-investments, and we continue to have aggregation mandates where that adds up and we look at new opportunities every week. But yeah, I mean, we clearly need to divest Kaktus to make a real big push. That's clear. I mean we don't want to necessarily take on more leverage in the short-term. But we have liquidity and our ideal ticket size is maybe now SEK 20 million, to SEK 40 million, SEK 50 million in any singular investment, and that takes time to build up and show up on our reporting, but that's how we want to operate.

[Jesper Henrikson, analyst]

And then if you could just give us a status update for [indiscernible], like discussions with buyers and so on.

[Christoffer Abramson, executive]

Looking pretty good. Again, timeline of getting transactions across the finish line takes a bit longer than it used to, but we're pretty confident.

[Jesper Henrikson, analyst]

And then one last question from my side is about buybacks. I mean if you think about it, I mean, wouldn't see like better ROI than anything else and you have it under your own control. I know that you have like your main [indiscernible] with almost 50% and so on. But could you just like elaborate on how you think about the issue?

[Christoffer Abramson, executive]

Well, I'm glad, Michel got the last question. We will think about it.

[Michel Fischier, executive]

As you know, we have the flexibility. But if, when and how we decide to, I mean, that's nothing we can comment on in a quarterly earnings call.

[Christoffer Abramson, executive]

Yeah. Look, the liquidity we have, we see the market with a lot of opportunity and that's going to increase. So utilizing that in creating co-investments with great management mandates attached to them and I think it's related to your Kaktus question earlier. I mean, until that is sold, we probably have a reasonable level of liquidity to work on our opportunistic investments rather than buy back in the short term. But it's something that we look at immediately.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Christoffer Abramson, executive]

Okay. Well, thank you, everyone. We have no more comments from our side. We appreciate the number and quality of questions and for your attention, and we'll speak to you next quarter. Thank you.

[Michel Fischier, executive]

Thank you.