Catena AB
STO:CATE
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Catena AB
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Hand you over to Benny. Please begin.
Welcome to today's presentation of the Q1 report for Catena. I'm happy to introduce my colleague, Peter Andersson, who is CFO, and we will do this together. Slide 2. The content of today's presentation will be shortly highlighted, then we'll go over to the result and balance overview, continue with the operational review and then capital deployment and some outlook and cases. And at the end, we will have a live question-and-answer session. Slide 3, starting with highlights. I would say that the market is still strong with fundamentals that remains very favorable for Catena. We are keeping the pace of project development driven by structural changes in the industry and supply chain. And -- but we also see higher intensity and more fierce competition among investors suggests a strong market going forward. Slide 4. Here, I now hand over to Peter Andersson. Welcome in.
Thank you very much, Benny. I should try to guide you through the income statement on Slide 5. If we -- looking at our income and our net operation income, we -- it's a little bit more extensive in the first quarter in general, which we took out to the other 3 quarters, especially when we're talking about the Property Expenses. We have also a new standard, IFRS 16 leases, which we have some effect of the income statements. For 2018, the leases were reported under Property Expenses. But for this year 2019, they had own row line under Financial. And in this diagram, you see it's under the Others. If we should compare with the previous year, we have a one-off effect last year in 2018 in value adjustment on the joint venture company regulation which approximately SEK 9 million. So if we take aside that one-off effect, we should look at the income from Property Management has increased approximately 23%. Slide 6, the balance sheet. Even on the balance sheet, we have some standard change regarding the IFRS 16 about the leases. And when we're looking to this slide, we have approximately SEK 354 million, and you should find the increase by this amount on Other assets and under the Other liabilities. This has only the effect which are key figures. For example, the equity ratio. If we take this aside, the equity ratio would rise with 0.73%. Over to Benny.
Slide 8. On the left-hand side, you see the -- visualize the relationship between the income and profit from property management. We are very happy about the profit surplus of Q1, which reached 53%, and I now see that we are stable on a high level. Q1 is typically the toughest quarter of the year, and therefore, I'm extra happy about that. On the right diagram, we are visualizing the rental value, and the rental value per square meter which indicates we invest and buy good quality property. Slide 9, Peter?
Slide 9. We are organized and operate in 5 regions, where the Stockholm region is the largest one. You can also see the economic letting ratio in this diagram. We are up in 96% in letting ratio. So it's a very good number. If we go to Slide 10, you can also see some figures from our side. And you will, especially if you would look at the middle one, when we have the 10 largest tenants which represent almost 45% of the income: PostNord, DHL, ICA, Boozt, Apotea, Menigo, Nowaste and so on is in this group, which if we guide you also if you're looking at the lettable space types by area, we have approximately 12% of Terminals and Distribution and Logistic Warehouses that are just one-off.Slide 11. Here, you can see the property value and the return on the property. And if you're looking 1 year back, we have increased the property value with approximately SEK 1.6 billion since last year. Back to Benny.
Slide 12. Logistics is the new retail. We're often saying that the work in the retail, in the stores are kind of moving back to the warehouse. The rental market remains steady and favorable going forward. Demand is high from logistics properties, both from investors and tenants. In 2018, a couple of transactions indicated net deals at between 4% to 5%. The increasing number of creditworthy tenants seeking well-located logistics properties with long contract is attracting to many investors. We experienced that the third-party logistics companies are getting an increasing number of inquiries, and they need more floor space. Historically, the logistics sector has been kind of characterized by a larger portion of properties being owned by suppliers themselves. The shift in consumption behavior have made the sector more professionalized. The structural themes of e-commerce, omnichannel and the urbanization underpins our business and especially our high-level focus on development, meaning that our well-spread portfolio is getting smarter and better for every new development completion. We experienced a high customer demand in certain areas, and we believe that our significant long-term pipeline and land bank have substantial potential in taking advantage of this situation, delivering attractive development returns going forward. The benefit of active management and high customer demand is also reflected in our higher letting ratio. If we move on to Slide 13, active management have led to strong operational performance, indicated by our work related to net rental SEK 20 million worth of increase in new leases contracted in the period and net SEK 8 million in the period. During 2018, that number was SEK 58 million and net SEK 40 million. Our focus on getting to know, even partnering up with our customer pays off, and we expect high customer retention going forward. The maturity of our contract remains well disputed over time, averaging approximately 5 years. Slide 14, Peter?
Yes. When we're talking about the funding structure, I should start to say that all our funding is secured by mortgages. So we have no unsecured. Even our certificate of the commercial papers is secured, but there is the back-up facility that we have put in mortgage to secure it. When we started 2019, we had approximately SEK 2.3 billion to renegotiate in this year, and we have already done something like SEK 1.5 billion. So we have left to negotiate approximately SEK 800 million. We have a little bit to work with when it comes to the debt maturity loans. So we have to -- we want to increase the length of our funding. Slide 15, capitalization. If you look further, we have -- the cost of debt is 2.6%, and we have reduced it with something like 40 basis points year-to-year. The LTV ratio has been reduced to 56.1%, and it's down 190 basis points from last year. Back to Benny, and Slide 16.
Share-related performance. If we look at profit for property management per share, dividend per share and EPRA NAV per share, we see that we have had a nice growth over year, stable and we expect moving forward in the same way. I also would like to point out that the return on equity was 4.5% versus 3.8% a year ago on a quarterly basis and the earning per share was at SEK 6.52 per share versus SEK 4.72 last year. Capital deployment, Slide 18. We have a lot of development project in process -- in progress, and we are coming from another record year of development, the majority of which we have already been leased and we keep up the pace going forward. The number represents projects in progress in the amount of at least SEK 5 million. Out of the 15 projects in progress, 5 of them is about to be finalized with tenants already moved in. 6 projects comprises new construction in a total amount of SEK 980 million and 1 of our projects are partly based on speculation and that accounts to 18,000 square meters, but we already had a lot of request on that one. Slide 19, investment in development projects. The development CapEx so far is at SEK 145 million for the quarter and the remaining investments moving forward are SEK 671 million. Slide 20, outlook in Cases. We are developing logistics position, and that is very important to us. We'll give you some cases, some example that we would look into. Slide 21. It's an example of logistics position. Sunnanå just outside of Malmö near Greater Copenhagen area. Here, we now have the multi-tenant warehouses. We have filled it up to 50% and negotiations are ongoing for the remaining 18,000 square meters with several tenants. Slide 22, logistics position Tostarp, East of Helsingborg in the Greater Copenhagen area. This is a high-quality location, nearby critical transport routes. We completed our first development project in September of 2018. Distribution center was tailored to fit one of our most exciting customer, Nowaste Logistics AB, modern thinking top player in the third-party logistics business. The lettable area totaling up to 30,400 square meters, was built at the cost of SEK 220 million with annual rental value of SEK 18 million. We managed the process end-to-end to ensure the quality at each step of the project. Slide 23. Still on the same position, we are right now building a highly automated warehouse based on omnichannel logistic for retail and brands. It's also a multi-client warehouse, which we projected in a very, very tight cooperation with the automation vendor and the tenant Nowaste themselves. We came from first meeting to contract, and we'll be ready for fully operation in less than 1 year. Slide 24. On the same position, we also signed a 15-year lease project with PostNord, and we'll be investing SEK 250 million in a new terminal at the position in Helsingborg. This will be the fourth facility to commence development at the site. The emerging logistics cluster at Tostarp the position with tenants operating primarily in online trend is excellently situated adjacent to the Helsingborg East exit from the E6 motorway. Catena Properties in the area, including several existing logistics facilities, cover a total of some 280,000 square meters of land. An additional part will now be made use of for the new construction of an 18,300 square meter terminal intended for the handling of parcel, packages and letters. The tenant, PostNord, is signing a 15-year lease with Catena, the rental value is -- of which amounts to slightly more than SEK 16 million. We are building a top-notch logistic position in the main junction for Gothenburg, Oslo and Stockholm in the Greater Copenhagen area. Slide 25. Since Catena are linking the goods flow of Scandinavia, we also need terminals for crossdocking and distribution all over the country. Katrineholm is in the Mälardalen region of Greater Stockholm, and there, we are about to construct a new facility for PostNord and the terminal for the local distribution. Slide 26. The forthcoming potential for future development projects. In total, we have a land bank of 2.8 million square meters and the potential of the lettable area is plus 1 million square meter, and the total potential investment going forward is some plus SEK 8 billion. I would -- especially would like to point out Stockholm Syd, where we'll have 450 million square meters -- 450,000 square meters of land and the Orebro with 700,000 square meters of land and down in Angleholm, Greater Copenhagen area, we will amount to 600,000 plus square meters for coming future development projects. Slide 27. We have some upcoming event. May 9, we are hosting LogistikTrender for the ninth consecutive year and we will also take part in the Capital Markets Day in Bastad, 9th, 10th of July 2019. Thank you for listening, and now we move over to the question-and-answer session. Thanks for now.
[Operator Instructions] Our first question comes from the line of Markus Henriksson from Pareto Securities.
About the value changes in Q1, what is the main drivers behind the figure, SEK 183 million?
There are several changes. It's the yield compression in some way. We have done some work with our Property Expenses in some cases and we have leased out to higher level of income in some case. So I think it's something like 38 different property changes. So it's ups and some small downs as well. But it's -- the summary is SEK 183 million.
Okay. Could you say some -- like what is the main driver, like is it mainly yield requirements or is it mainly cash flow only driven?
I should say -- yes, you have a yield compression, especially in when we have large -- a good tenant in a long lease period. If you have 10 years left of the contract in a very good position and we have no alternative with building around, then we have put some yield compression to that, especially when we look at other transactions in the market, we can see it the lower yields is coming out, and we have changed a little bit. But I should say, something like 50% of the yield compression and then the others things that we have changed.
All right. Could you mention some renegotiations done? And what kind of rental growth you see and then also geographically speaking, Stockholm restaurant et cetera?
Yes. But we have done some minor developments. We have, yes, put some LED light installation to some customers and so on. So then we increased our rental [indiscernible] go into one special, but this is, I should say, 10, 15 properties that may have done some smaller changes to rent.
Okay. Okay. My last question, are you up for any more speculative project starts ahead?
Not for the time being. We have the one that I mentioned in the presentation down in Malmö, Sunnanå of 18,000 square meters. Right now, we are not planning any buildings for speculation.
[Operator Instructions] Our next question comes from the line of John Vuong from Kempen.
You mentioned that the investor market is currently relatively strong. So you see more competitions in transactions. And you often refer to Helsingborg and Malmö as Greater Copenhagen. Should we read this as you're growing more into Denmark or should we read this as you're going to develop more?
I think you should read it that we are going to develop more. We do not have any plans right now for going into Denmark. But we follow it closely, and we must understand the strength of that region.
Do you have any questions via e-mail?
No.
No? I think that we can just close this call then. If you want to say any closing comments?
On a very high level, I'm pleased with the results and what we have achieved this first quarter of the year, and I especially would like to point out that it is Q1, and Q1 is typically the -- so to say, the toughest quarter of the year, together with Q4.
Thank you very much. This now concludes this conference call. Thank you all for attending. You may now disconnect your lines.