Earnings call transcript: Castellum AB’s Q4 2024 sees moderate stock rise

Castellum AB reported a modest increase in its stock price following its fourth-quarter earnings call for 2024. The stock rose by 0.21%, closing at 119.7, as the company highlighted steady financial performance and strategic initiatives. According to InvestingPro data, the company’s current market valuation appears fairly priced, with analysts maintaining a neutral stance and setting a price target range of $9.53 to $14.01. Castellum’s net operating income increased by 3.4%, while income from property management grew by 10.2%. Despite a 1% decrease in property values, the company’s financial health remains robust with a reduced Loan to Value (LTV) ratio and strong interest coverage. InvestingPro analysis reveals a "FAIR" overall financial health score of 2.41, with particularly strong performance in cash flow and relative value metrics.

Key Takeaways

• Net operating income rose by 3.4%.
• Income from property management increased by 10.2%.
• Stock price rose slightly by 0.21%.
• Property values decreased by 1%.
• Strong financial position with reduced LTV and high interest coverage.

Company Performance

Castellum AB demonstrated solid financial performance in the fourth quarter of 2024. The company reported a 3.4% increase in net operating income and a 10.2% rise in income from property management. These gains reflect the company’s effective management and strategic focus on property development and management, despite a 1% decline in property values.

Financial Highlights

• Net Operating Income: Up 3.4%
• Income from Property Management: Increased by 10.2%
• Loan to Value (LTV) Ratio: Reduced to 35.6%
• Interest Coverage Ratio (ICR): 3.3x
• Average Interest Rate: 3.2%

Market Reaction

Following the earnings call, Castellum AB’s stock experienced a slight increase of 0.21%, closing at 119.7. This modest rise suggests a neutral to slightly positive investor sentiment, with the stock price remaining closer to its 52-week low than its high. InvestingPro subscribers have access to additional insights, including six exclusive ProTips about the company’s growth prospects and market position. The platform’s analysis shows the stock has declined 13.17% over the past six months, with a beta of 1.33 indicating higher volatility than the market. The stable rental market in regional cities and increased investment volumes in the Swedish real estate sector may have contributed to this market reaction.

Outlook & Guidance

Looking ahead, Castellum aims to be net investors in 2025, with plans to increase investments and target a 7.5% yield on cost for new projects. While not profitable over the last twelve months, InvestingPro data indicates analysts expect the company to return to profitability this year, with an EPS forecast of $0.81 for 2024. Get detailed insights and comprehensive analysis through InvestingPro’s exclusive Research Reports, available for over 1,400 top stocks including Castellum. The company expects stable debt costs around 3.4% and anticipates stronger Nordic economies in the coming year.

Executive Commentary

Joakim, CEO of Castellum, expressed confidence in the company’s future, stating, "We are ready for new investments, both projects and acquisitions because we have a solid financial position." He also emphasized optimism for 2025, saying, "We are certain that 2025 will be a better year than 2024."

Risks and Challenges

• Decrease in property values by 1% poses a challenge to asset valuation.
• Cautious market conditions in major cities like Stockholm and Helsinki may affect future growth.
• Potential economic uncertainties could impact investment and financing strategies.

Q&A

During the earnings call, analysts inquired about Castellum’s ongoing share acquisition in Entra and the company’s plans for future investments. The management reiterated its positive outlook on market recovery and explained the rationale for its new S&P credit rating.

Full transcript - Castellum AB (CAST) Q4 2024:

Christopher Stoenbeck, Head of Investor Relations, Castellum: Good morning and welcome to this presentation of Castellum’s Q4 report. My name is Christopher Stoenbeck and I’m Head of Investor Relations here at Castellum. There will be a Q and A session in the end of the webcast. And if you’d like to ask a question by phone, please dial 5 on the telephone keypad and ask your question. It’s also possible to ask questions in the chat function in the website.

Please keep the questions few and brief so that everyone has a chance to ask. Let’s start. Go ahead, Joakim.

Joakim, CEO, Castellum: Good morning. And welcome to our presentation of the Q4 and the full year, results for 2024. It is a crisp and clear winter morning today, but spring is around the corner and we can feel it. So as we have stated before, we are now we now have the financial strong position and are investing in attractive opportunities, both investing in the existing portfolio, product developments and acquisitions. The last days, we have been quite active and announced a couple of important transactions and events.

I will briefly comment on them now and then we will talk more about them during the presentation. Yesterday, we announced that we are starting a new project in Stockholm. It’s called INFINITI, and it’s located in Hagerstarden. We’re developing a 20,000 square meters top class office space in one of the most vibrant areas of Stockholm. The total investment volume is about SEK1.7 billion.

And last week, we also announced that we have acquired more shares in Entra and thereby passing the one third threshold, which means an obligation to present the mandatory offer for the remaining shares. As we have said many times before, we really like Entra. The assets, the market, the management and that the share price at which we are now as where we now have acquired shares and made a mandatory offer at NOK110.4 We think it’s a really attractive investment. And we are also happy that we two days ago could announce that we have added one more credit rating. And we are now rated by S and P And hence, both Moody’s (NYSE:MCO) and S and P.

The new S and P rating of BBB flat is going to help us to achieve even better finance financing opportunities. Lastly, but quite importantly, the Board has decided to propose a dividend of SEK 2.48 per share after two years of post dividend when we have been focusing on strengthening our balance sheet. So a short reintroduction or an overview, especially for those of you that don’t know us that well. Castellum is one of the largest listed property companies in the Nordic Region. Property value as of December sums up to SEK155 billion, including our share in Entre.

Castellum has a yearly contract volume of approximately SEK 9,500,000,000.0. Something about our property portfolio. Our portfolio is located in Nordic growth regions. Metropolitan areas, meaning urban areas with at least 1,000,000 people. And the remaining 26% is in growing regional cities in Sweden.

The largest market measured by property value is Stockholm, followed by Gothenburg and Malmo. In addition, we have a decent portfolio, although I would say it would benefit from being larger in Copenhagen and in Helsinki, as well as a very well positioned and profitable portfolio in a number of Swedish regional cities, including Vasteras, Oribru, Uppsala and Linkoping Oerskoping. Our regional markets have proven very strong resilience and even rental growth during the downturn in 2023 and 2024. We have a solid market position in our regional markets where we are number one, two, or three in each of them. That makes us relevant for tenants and for the city’s councils.

And in all of these markets, we have boots on the ground. Customer activities such as leasing, tenant improvements, relationships, etcetera, are all done locally. And with the backbone of Castellum supporting the regional business with centralized functions, we can utilize economy of scale. This is our fully owned and consolidated portfolio. And as mentioned, we also have a 33.3 stake in Norwegian Entra.

And our share of Entra’s portfolio is approximately SEK 20,000,000,000. And Oslo would be our third largest market if we added our share of Entra to this property portfolio slide. We will come back to Entre later in this presentation. Castellum’s tenants represent a cross section of Nordic business and authorities, and our exposure to individual tenants is low. Our 10 largest tenants represent less than 15% of our total contract volume, and no tenant generate more than 2.5% of our rental income.

The strong tenant base with many of our larger tenants being publicly funded, that is about 25% of our total contract volume, we have a very solid base. The largest tenant is the Swedish Police Authority with approximately 2.5% of our total contract value. The police is a tenant of ours in 12 different cities. As per the December, the remaining average length of our contract was three point six years. Looking at the full year result, it’s a pretty stable one overall.

Our net operating income is up 3.4% and the income from property management is up 10.2. We will look deeper into these figures later in the presentation. Our net leasing is positive, both for the full year 2024 and for the period. Also, this will be dug into in further detail further on. The changes in property value is actually positive for the first quarter since Q3 twenty twenty two.

However, it’s still negative for the full year of approximately 1%. We have continued to sell non strategic properties and have started to reallocate the proceeds into new investments in line what we have said before. So yes, we’ll cover this in greater detail. But from a helicopter perspective, the total income increases, divestments affect income negatively. We have reduced property costs.

We have reduced admin costs and also reduced our financing costs mainly due to lower interest costs but also lower debt volume. Especially notable is the decrease in central administrative expenses, which is down 162,000,000 Summing up, we report income from property management, as I mentioned, more than 10% from last year. Over to you, Jens.

Jens, CFO, Castellum: Thank you, Joakim. Good morning, everyone. Looking at development of income during the period, the like for like portfolio income increased by SEK199 million, equivalent to 2.3%. The change in the like for like portfolio is mainly driven by indexation amounting to SEK $4.00 8,000,000 or 5.3%, though partially offset by higher vacancies of SEK 122,000,000 and discounts increasing by SEK 28,000,000. The development in Q4 isolated is somewhat weaker, mainly relating to other rental income and early termination fees in the fourth quarter last year of SEK 45,000,000.

The direct property cost for the like for like portfolio decreased by SEK 54,000,000, explained by one off in Q4 previous year as well. Electricity cost decreased by SEK 94,000,000, though mitigated by higher tariff bound costs for water and heating. Regardless, we keep a strong focus on our energy projects. Central administrative and property administrative costs reduced by SEK176 million, of which SEK143 million is explained by a write off of previously capitalized projects in 2023. Excluding one offs, the administrative costs still decreased by SEK 33,000,000 corresponding to 4% mainly due to reduced headcount and an ongoing cost review.

Looking at renegotiations, prolongations and net leasing, renegotiations corresponding to an annual rent of SEK $452,000,000 were conducted during the period with an average negative change in rent of 1%. Additionally, contracts with an annual rent of SEK 1,700,000,000.0 were extended during the period with no change in terms, equivalent to 62% of total lease stock up for renegotiation. Looking at leasing activities, we are happy to return with positive net leasing on both an annual or quarterly basis, though the higher termination rate continues to have a slight negative effect. Economic occupancy rate improves with 0.3 percentage points during the quarter and the positive change is mainly relating to started projects. Tenant quality is deemed very stable and outstanding receivables are low and decreasing compared to the same period last year.

Bankruptcies also lower than last year, down from $57,000,000 to around $40,000,000 however, somewhat increasing during the last quarter. We are also happy to dive into a very significant lease we signed in the fourth quarter with TB4. It’s a fifteen year lease for approximately 15,000 square meter and a total rental value of SEK 1,000,000,000. We will invest approximately SEK 300,000,000 in the building. Completion of the property is scheduled for the autumn of twenty twenty six, after which it will be ready for occupancy.

Today, Castellan has its own regional and head office in the property, but will be moving to new premises later this year to create room for TV4. In addition to TV4, we have also signed many other leases during the quarter, among others, including a 3,300 square meter lease in Helsinki, a 1,000 square meter lease in Stockholm at our central cluster on Tuskotan and a 2,200 square meter lease in Malmo in Hillje. All three contracts have been signed with different parties that do not allow external communication of the tenant. All contracts signed on fair market terms. Jumping into our favorite slide about rental income and net leasing.

Over the last five years, Castellanos has delivered a positive net leasing of SEK $5.00 8,000,000. However, during the last two years, the number was negative with minus SEK 54,000,000. Now with lower interest rates and a strong return to office strategy among many companies, a positive shift might be underway to some extent, supported by our leasing activities during the fourth quarter, but still too early to say with certainty. Income on the other hand is more stable and increasing over time, however, affected negatively by two years of divestments economy. New projects are underway and will grow rental income over time.

Joakim will tell you more on the topic of new projects later in the presentation. And then property values at a quick glance. During the period, Castellum has written down property values with approximately SEK1.6 billion equivalent to 1.2. Since the peak in 2022, downward close to SEK23 billion, the value change during the year is mainly driven by lower cash flow expectations. During the fourth quarter, we have the first quarter with positive value change since the third quarter twenty twenty two, where our projects have a solid positive value effect.

We are also seeing significantly higher investment volumes in the Swedish real estate sector. Volume wise, the fourth quarter ended the year in a really strong manner and might be an indication of what to expect for this year. Office stood for 26% on investment volume, which is at the level that we haven’t seen since 2016. Valuation yields up one bp since last year, more or less unchanged. In addition, our property sales continue to confirm our book values.

Highlights from the financial side. Loan to value now at 35.6%, down with almost 2% points during the year despite the slight downward pressure of property values. ICR currently at 3.3 times, expected to be stable going forward. Average interest currently at 3.2%, down by 0.2% during the quarter. We expect average interest rates to be stable around 3.2% during 2025.

FX hedge on Entre have impacted financial net by approximately SEK 19,000,000, a direct effect of the historically high interest rates differentiating between Norway and Sweden. Also in Q4, we’ve had one off in the financial net relating to innovation of bonds, early closing of loans and rating fee of approximately SEK 14,000,000. As Joakim previously mentioned, we are also very pleased to share that we have received a long term credit rating of triple T3 stable outlook with Standard and Poor. This confirms Castellum’s stable business model and strong financial position. The rating improves our position in the capital market and enables lower financial costs over time.

Looking at debt maturities, we are proceeding with our focus on extending duration, now reaching an average debt maturity of four point four years. During the quarter, we have only refinanced one term loan of SEK 3,000,000,000 on an eight year tenure on competitive terms. Glad to report that we also have 80% of all term loans signed during the year has been green. Limited amount of unsecured funding expiring 2025, say for one large euro bond of SEK 500,000,000 in March. Capital market is currently very strong and liquid.

Price indications on the three year domestic bond is currently slightly below 100 bps, 5 year bond SEK 125. Also roughly SEK 26,000,000,000 in cash and an unutilized credit facilities available at the end of the year. We have reduced the RCF volume during the quarter somewhat and expect to further cut it going forward when we achieve longer commitments from bond market and banks. During the quarter, we successfully completed innovation of Kunstlerdans bonds. This is done to streamline the debt portfolio and reduce administrative work.

All in all, a very good financial position for Castellum. Over to you, Joakim.

Joakim, CEO, Castellum: Thank you, Jens. Looking at our sustainability performance, we work towards the clear sustainability targets that we have communicated both in the short and the long term to contribute to a sustainable development despite the current changes in global views on sustainability investments. We are actively engaged in reducing our climate impact through enhancing energy efficiency. And that was actually achieved a minus 4% consumption or efficiency over the last twelve months. We continue to focus on sustainability certified buildings.

69% of the property portfolio was certified at the end of twenty twenty four. And for the ninth consecutive year, we have received top marks in the S and P corporate sustainability assessment. And we are the only Nordic property company in the Dow Jones Sustainability Index. The award consolidates our position as a sustainable investment alternative. In the assessment, which cover over 13,000 listed companies globally, Castellum ranked an impressive eighth position among property companies globally.

So and for the sixth consecutive year, we have surveyed Nordic office employees about their expectations of working life and the office as a workplace. The report called The Working Life of the Future is based on interviews conducted by an independent survey firm on behalf of Castellano. It’s over 4,000 office workers aged 18 to 67 that have participated in the survey. It will be published on the March 5 and I urge you all to read it. It’s going to be available on our website.

There is a clear link between office attendance and satisfaction with the office environment. The more satisfied you are, the more days you want to work in the office. This is why we aim to help our tenants to get more employees back to the office by improving the asset quality in our portfolio. Happy employees leads to happy tenants leads to good business for Castello. This is also why we rotate our portfolio towards higher quality.

Divestments of non strategic properties in favor of investing in refurbishment, TIs, property developments, acquisitions, etcetera, is our way of meeting future client demand. And as I just mentioned, quality is one of the most important value drivers. Rotation of our portfolio is an integral part of our value creation. We have invested 2.6 almost everything including new constructions as well as extensions and reconstructions. The $2,500,000,000 roughly in project investments are split between $1,100,000,000 in larger projects and $1,400,000,000 in smaller projects including CapEx and TIs.

They are each below 50,000,000, 5 0 million each. We have continued to sell non strategic properties, but we are evaluating a number of acquisitions of standing properties as of now. There could be more opportunities out there and I’m hoping that the transaction market will waken up this year so that we can accelerate our growth. There’s no need for us to further strengthen the balance sheet by selling. The balance sheet will continue to strengthen itself through our operations.

So we aim at being net investors already in 2025 and going forward. Something on our largest projects. We have eight larger projects ongoing and one to be started this quarter and that is Rotterdam One which is the property well TV4 will move into. Larger projects in this case means larger than $55.00 SEK. It’s a mix of metropolitan areas and regional cities.

The average occupancy rate is 94% and the rental value is $241,000,000 And the average lease duration of these new projects is fourteen years. Just a few words on the beautiful buildings that you see to the right. The top one is Bergallen in Nordkoping. It’s approximately 6,500 square meters fully let to the police authority on a six year lease. They will move into these new promises in Q3, Q4 of this year.

It was previously rented to another public tenant but had been vacated totally upgraded and certified as Milje Vignad Silver. The lower picture on the right is Rebslaugaren in Oriberu. It’s a building in the city center of Oriberu right at Stor Torje. It’s a renovation for Cab Group approximately almost 5,000 square meters, five year lease. They move in June 2025.

And looking into further into the future of our major project developments, one of our strengths is the large number of opportunities throughout our portfolio and the sum of a large number of small and medium sized development opportunities, adding up to a very large total of almost SEK 40,000,000,000. Having said that, we have a couple of major development opportunities that perhaps lie a bit closer in time. And the largest one is in Gothenburg, where we bought an airport in 2018 and where we have the opportunity to create a substantial logistic hub in an excellent location. In Gothenburg, we also have a very central office development opportunity. We call it Noon.

And it’s situated right between Nordstorn and the LABOMEN. And you can see that at least the idea of what that building would look like in the middle. In Stockholm, we have a number of development opportunities in Hagerstalden, including Infiniti, which we will talk about shortly. And INFINITI. Well, yesterday, we announced that we are starting a new project in Stockholm.

It’s called INFINITI as mentioned and it’s located in Hagerstaden. We are developing some 20,000 square meters of top class office space in one of the most vibrant areas in Stockholm right between the Life Science Cluster at Karolinska and the city center. The investment volume is SEK1.7 billion. And in the area, we also have two large standing assets. One is Isotopen, fully let to of about 23,000 square meters and Blesten, which houses a hotel and others.

In addition to INFINITI, there are two more development opportunities in Hagerstalden, Emerald House and Jeblyem Sozset. Both buildings are yet to be decided upon when we will start them, but they’re close by to null . Entra, well, last week we announced that we have acquired more shares in Entra, thereby passing the one third threshold, which means an obligation to present a mandatory offer for the remaining shares. As mentioned, the Norwegian Securities Trading Act stipulates an immediate announcement when passing a threshold and hence, we had to announce the acquisition after only acquiring 100 shares. We acquired those shares at the price of NOK 110.4 per share and this is also the price in the mandatory offer.

Yesterday, we published the offer document and the acceptance period starts today and lasts for four weeks. Walde, which has 40% of the shares, has informed us that they will not accept the offer and they have also published a press release with this information as well as stating that they will not submit a counter offer. Entra has a high quality portfolio in mainly in Central Oslo. It has a strong customer base with long leases and a large and attractive product portfolio, which makes the company well positioned for the future. We think that acquiring shares is a good investment for us and are happy to further increase our shareholding through the mandatory offer.

Another very good news is that the board has proposed to the AGM a dividend of DKK 2.48 per share, which corresponds to our new dividend policy of at least 25% of the income from property management. This comes after two years of post dividend when we have focused been focusing on strengthening our balance sheet. So summarizing 2024, I must say it became far better than expected when we went into the year. The rental market is stable in our regional cities. However, it has been during the year and still is a bit more cautious in the capitals of Stockholm, Helsinki and Copenhagen.

We are very proud of delivering positive net leasing and will continue to have a strong focus on our leasing activities. We have said it before, we are ready for new investments, both projects and acquisitions because we have a solid financial position, a strong underlying business and feel comfortable that 2025 will be a stronger year for the Nordic economies. As of lately, we have also announced a few new investments, null that we talked about, acquisitions of shares in Antra coupled with the mandatory offer. Thank you. And over to you, Christophe.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Thank you. So it’s time for questions. It could be that we have a slight delay between hearing your questions and being able to answer them. So just stay with us and we will answer as soon as we hear them. But if you like to ask a question, please dial 5 on the telephone keypad and ask your question.

And it’s also possible to ask questions in the chat function. The first question should come from John Wong from Kempen.

Jens, CFO, Castellum: The next question comes from John Vuong from Van Land Schott (ETR:1SXP) Kempen. Please go ahead.

John Vuong, Analyst, Kempen: Hi, good morning team. Hi, good morning team. Thank you for taking my questions. You mentioned a gradual increase in projects. I I think in the report you’re also talking about having evaluated a number of acquisitions.

So it’s quite clear that you are going to be a net investor. How should we think about your leverage level going forward? You also mentioned that there’s no need to sell anymore. Could we still see continued capital recycling of non core assets here?

Jens, CFO, Castellum: Yes, a very reasonable question and assumption looking at the loan to value, we have internal targets of 40% loan to value and we will stay clear within those boundaries. It might go up slightly or continue slightly downwards. It really depends on the opportunities that we see in the market.

John Vuong, Analyst, Kempen: Thank you. And then on the question of capital recycling, could you still see yourself being a seller in this market?

Joakim, CEO, Castellum: As I mentioned earlier, we will continue to trim our portfolio selling non strategic assets, but that is mainly to make sure that we have an effective management of our properties and also that we focus on growth regions. So we might sell things on a continuous basis, but that is not for the purpose of adjusting our balance sheet.

John Vuong, Analyst, Kempen: Okay. That’s clear. Thank you.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Thank you. And I’m so sorry about this delay. But next question from Lars Nordby, SEB.

Lars Nordby, Analyst, SEB: Okay. Thank you. I’ll stick to the topic of expansion and that somebody else take the nitty gritty about the fourth quarter. Once again, as you mentioned, you have evaluated a number of acquisitions during the quarter. But obviously, you opted to take another route, an indirect route through triggering the mandatory bid in Antra.

Can you just take us look ahead step by step thresholds? Now you passed one. So then it’s 40%, isn’t it? And then it’s 50%. And more explicitly, my question is, if you would manage to acquire the remaining shares at the mandatory bid price, Can you handle that without the share issue?

Joakim, CEO, Castellum: That’s a good question, Lars. And yes, the short answer is up to 40%, yes. And that is the next threshold. And I think it would be unwise of us to already now speculate what it will be for the future going forward even further than that.

Lars Nordby, Analyst, SEB: Okay. Then I’ll leave it at that. And then just a question on the other sort of potential avenue of expansion, which is projects. The null project that you announced yesterday, it’s there’s no signed lease in that project. So what triggered you to start to announce the start of this project now?

I think it’s starting in the third quarter. And would you consider starting another major project without having signed the lease?

Joakim, CEO, Castellum: Those are also two good questions, Lars. And the reason for us starting is that we have had our finger on that trigger for quite a while. And now we feel both that the market outlook is good. There’s a window when there’s very few other projects being finalized at the time when this project is finalized. And finally, we are in the financial position to be able to actually do this investment without jeopardizing everything that we worked for so hard during the last two years.

And the follow on questions whether we are happy to do other major investments without having them fully let prior to starting them. I would say that that really depends on the location and the product. There might be instances of us starting without a fully linked project. But I doubt that we will do that on the scale of which null is, I. E, almost 2,000,000,000 in one go.

We are not increasing the operational risk level of Castellan.

Lars Nordby, Analyst, SEB: Okay. Thank you.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Thank you, Lars. Next (LON:NXT) question from Erik Braunstvan, can you hear me?

Erik Braunstvan, Analyst, Unknown: Thank you. Good morning. My first question is again regarding null . Could you tell us what kind of rents or yield on cost do you expect for this project?

Joakim, CEO, Castellum: Yes. Well, rent levels, we expect above DKK 6,000 per square meter in parts of the building, that’s likely to be the top floors, etcetera. And then of course, there might be less attractive areas in the building where we will not be able to sign at six thousand. But those are the top rents that we aim for. And the yield on cost on this project has passed the threshold, the internal threshold that we have of around 7.5% yield on cost unleveraged.

So this is right in that area. We need, of course, to differentiate between, let’s say, a Stockholm project in attractive office locations and for example, a logistics building somewhere in the outskirts of our cities. So there is a room to maneuver, but our overall target is 7.5% unleveraged yield on cost and this qualifies.

Erik Braunstvan, Analyst, Unknown: Okay. Thank you. And my second question regards your cost of debt, I believe in including unutilized terms, you have 3.4% at the end of twenty twenty four. Based on what you know today, do you expect the cost of debt to be flat in 2025? Or do you expect it to move in any particular direction?

Jens, CFO, Castellum: We expect it to be flat at that level.

Erik Braunstvan, Analyst, Unknown: Okay. Thank you. And then my final question is regarding your investments for 2025. If we exclude potential acquisitions and divestments, how much do you expect that you will actually invest in ongoing projects as well as in your existing portfolio compared to what you did in 2024? Do you believe it will be more or about the same level?

Joakim, CEO, Castellum: It will be more. It will be more. We have room for that given our strong financial position. And we also feel a higher degree of confidence that the market is improving. And those two are the main sort of factors for us actually pushing for growth.

Erik Braunstvan, Analyst, Unknown: Okay. Thank you. Those were my questions.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Thank you. Next question, Paul May, Barclays (LON:BARC).

Paul May, Analyst, Barclays: Hi guys. A couple of questions for me. Just wondered, I think in previous quarters you’ve commented on some negative releasing spreads. I’m just wondering if you can give any color on that in Q4 and how you see that evolving over the next year. I think a similar question is, October CPI came in Sweden at 1.6%.

I think over this year you’ve achieved quite materially below the prior inflation level. Do you expect to achieve the 1.6% next year? Or do you think that you’ll also come in below inflationary levels?

Joakim, CEO, Castellum: I’ve got

Paul May, Analyst, Barclays: a couple of other questions after that.

Joakim, CEO, Castellum: Very good questions. And I would be lying if I could be super confident in saying that we will achieve 1.6 or two point zero or one point zero. We’re humbled that some of our submarkets have challenges, but others are going very, very well. So we have renegotiated a very large number of contracts 2024 as Jens mentioned. The slowdown in the economy has affected the renegotiations.

But as you all could see, we are doing quite well in terms of the gross leasing. And I believe firmly that the upturn in the economies of the Nordic countries will give us a stronger demand. We have, of course, in our internal budgets, a view on it, but it would be unwise to make any promises in terms of what we will achieve. But we are certain that 2025 will be a better year than 2024.

Jens, CFO, Castellum: And I think if I can add something, looking at the renegotiations during 2024, they were at zero if we exclude one contract with an entity under reconstruction. So I think that’s a fairly strong sign for a relatively weak year.

Paul May, Analyst, Barclays: Thank you very much. And just coming back on, I think it was Eric’s question around the cost of debt. I think this year you’ve got about $8,200,000,000 of bond maturities being on average there about a 2% cost. Seeing as refilling of those will be between maybe 3.54%. Just wondered why the confidence you have around a flat 3.4% effective interest rate given you’ve got quite a bit of debt that’s going to mature at quite high at quite low levels that you’re misrefinanced?

Thank you.

Jens, CFO, Castellum: A quite technical answer to that question. First of all, when we issued that bond, we actually decided to swap it from fixed to float half of it. So the effect will only hit us to half the extent that you expect. And of course, we also see significantly lower spread levels, both in the euro bond market, but even so in the SEK market. So around SEK3 billion of those bonds expiring will be issued in the SEK market on very decent levels.

And I think we also will over time have a positive effect from continuing somewhat the lower underlying interest rates in our portfolio. But a very good question.

Paul May, Analyst, Barclays: Perfect. Thank you.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Next question from Neri Kumar of

Neri Kumar, Analyst, Unknown: Good morning, everyone. Congratulations on your new S and P rating. If I may ask, what exactly triggered you to take an S and P rating, given you already had a Moody’s rating? So just wondering what are the thoughts around that?

Jens, CFO, Castellum: The answer is that we have seen a trend over the last few years that several of our peers also have taken out a secondary rating. We believe that over time, it will complement one another. A few years ago, it could have been perceived as an increased risk of having two ratings. Now we deem it to be something that will stabilize our possibilities to issue bonds over time and also give greater certainty to some people that favor one or the other of the rating agencies.

Neri Kumar, Analyst, Unknown: Got it. I have just one more question around this. So I was reading the report put by S and T and I noticed that your $1,000,000,000 hybrid is considered 100% debt by S and P because of the way it is structured.

John Vuong, Analyst, Kempen: So

Neri Kumar, Analyst, Unknown: I wanted to check if you’re thinking how you’re thinking about that instrument? Do you see any merit in refinancing it ahead of the call date so that the new hybrid has the equity content at both S and P and Moody’s?

Jens, CFO, Castellum: I think that also a good question and no decision has been taken to do anything before first call date of the hybrid, but we clearly see that the market is open on very favorable terms. The hybrid is trading at around par. So therefore, we have the possibility to act if we decide to act. And of course, it’s a perpetual instrument that will be a part of our balance sheet in the future as well.

John Vuong, Analyst, Kempen: Got it. So you plan

Neri Kumar, Analyst, Unknown: to keep the instrument in your capital structure going forward. I was just wondering if your thoughts have changed around that with the higher interest rate environment?

Jens, CFO, Castellum: The plan is to keep it.

John Vuong, Analyst, Kempen: Because it’s going

Neri Kumar, Analyst, Unknown: to be like an expensive instrument once you reprice it or reset it?

Jens, CFO, Castellum: I mean, the thing is

John Vuong, Analyst, Kempen: Thank you.

Jens, CFO, Castellum: No, I think that if you look at the framework for getting 50% equity allocation from S and P and Moody’s,

John Vuong, Analyst, Kempen: The

Jens, CFO, Castellum: hybrid, if we issue another one, will have to comply with both those frameworks in order to achieve the 50% allocation, which is, of course, important for us in the future. If the entire hybrid was considered 50% equity, it would affect the loan to value in S and P’s model with around 3% lower loan to value.

Jonathan, Analyst, Goldman Sachs: That’s helpful. Thank you very much.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Thank you. Next question is from Jonathan of Goldman.

Jonathan, Analyst, Goldman Sachs: Good morning. Thank you for taking my question. I just wanted to come back to the operating environment you’re seeing today. Obviously, you highlighted that you expect better economic growth to trigger demand. What are you seeing exactly on the ground today?

Obviously, you’ve signed a big lease with the TV studio. Your vacancy slightly decreased. But are you seeing that better demand already on the ground at this stage? Or are you just anticipating it? And have you had already big events for 2025 that you know about, perhaps, departures also that have already been signed?

Joakim, CEO, Castellum: Good question. I mean, it’s a combination of what we call anecdotal evidence in the market and actual data points. The data points are the number of meetings we have and the number of requests for proposals that we get. The more anecdotal ones are what happens in those meetings where a lot of companies actually display a higher confidence in their future development. On the downside, of course, there are a number of companies that didn’t make any decisions whether to increase or decrease their activities during COVID.

And and quite a few of those decisions are have been made now rather than than a year or two ago. So so so, yes, we feel confident that the upturn, especially in the Swedish economy with lower interest costs both for companies and for private consumers combined with financial a more expensive financial policy from the government will give us a stronger economy in The Nordics in 2025. That will make its way into our business as well, even though, of course, office is late in the cycle, but we are confident that 2022 sorry, 2025 will be a stronger year, hence our decision to move forward with our investments.

Jonathan, Analyst, Goldman Sachs: Okay. Very clear. But essentially, it’s a bit early to still see it in the numbers. And no large departures to be aware of already in your portfolio for 2025? I mean, you’ve got Northvolt as a tenant also?

Joakim, CEO, Castellum: I mean, as soon as we get notice of departures, we are, of course, reporting them. And if it’s a major one, we will report that if we deem it to be we be required to report it under the rules and regulations. But we are not aware of any such significant departures as of now. Traditionally, the fourth quarter is a departure where lots of tenants are on leases that can be terminated in the last quarter. And therefore, typically the fourth quarter is a troublesome quarter from that point of view.

So no, we don’t have any knowledge of any big departures that we have not reported on.

Jonathan, Analyst, Goldman Sachs: Great. Thank you very much.

Christopher Stoenbeck, Head of Investor Relations, Castellum: Thank you. Esther, one or two short questions from the chat. We’re running out of time here. How do you view the opportunity to acquire standing properties versus repurchasing shares?

Joakim, CEO, Castellum: This is a question that we got from another media this morning as well. And we are a very asset allocation driven company nowadays with both board and management being occupied by creating shareholder value through allocating our resources to the areas where we get the best return. And of course, it looks very cheap to repurchase shares at the moment, but at the same time, the board just announced that it’s proposing a rather substantial share dividend of a quarter of our result. So we need to make sure that the money that we have is allocated to where we can get a good long term return, thus creating shareholder value. At the moment, we are reviewing all options, repurchasing, reducing debt, investing in standing properties or allocating funds to property developments.

And we are currently reviewing acquisitions and investments in standing properties as a more attractive way to create value actually.

Christopher Stoenbeck, Head of Investor Relations, Castellum: I think that has to be the last question of today. So thank you all very much for listening in.

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