Hello, and welcome to the Castellum Interim Report, January through March 2022. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Just to remind you, this conference call is being recorded. I am now pleased to present our speakers, Rutger Arnhult, CEO, and Maria Strandberg, CFO. Please begin your meeting. Good morning. Rutger Arnhult, representing Castellum as the CEO since the beginning of the year. We just released our first quarter report, and we're happy to announce that we increased the income from property management by nearly 50%. The earnings per share is up by 21%. We report a positive net leasing of SEK 25 million. This is the 30th month in a row actually with a positive net leasing. We had two bad quarters two and a half year ago, and since then it's been positive. Still strong. Stable and solid financial position with a lower-than-ever LTV position of 37.3%. We do also have a strong growth in the net asset value, which increases by 18%. We have increased our focus on the Nordics, our Nordic platform. We have, during the last year, expanded in Norway, as you know, and in Finland. Meanwhile, we have also grown a lot in Sweden by the acquisition of some assets, and then on top of that, specific assets, and on top of that, the Kungsleden acquisition. The first quarter shows an expansion in Norway since our company of interest there, Entra, has grown quite significantly, and also showing a good value increase. So that's the position today. 12% in Oslo, 4% in Helsinki, 26% in Stockholm, and then a position in Denmark of 3%. The total volume is record high, SEK 182 billion, and with a total of 6.3 million sq m. Looking into the portfolio, it's today 80% in Sweden of the value, 85% of the lettable area, 16% of the value in Norway. The property categories is 58% office, and then on top of that, of the value, 14% in public sector. Looking at the income, 22% is from the public sector. We do have a diversified geographic real estate portfolio. As you can see on slide five here, Stockholm, it's about 1.1 million sq m. The west, Gothenburg, 1.3. Central Sweden, 1 million, and then so on. Stockholm is largest with almost SEK 47 billion in book value, with a rental value of SEK 2.4 billion yearly. Looking at categories, as I mentioned, public sector 22%. I'm changing to slide six, which is the largest. We do have a mix of large listed national, multinational corporates, together with these government contracts. Looking at the list of our 10 largest tenants, you can see that ABB, AFRY are the two largest, and then we do have the Police, the Natural Resources Administration, Handelsbanken, Swedish Social Insurance Agency, Migration Board, Region Stockholm, that's also government, and then Axis Communications and E.ON. That's the 10 largest. Stable companies that grow. Looking at rental markets, page seven, you can see that we do have a slight increase in rental levels in all CBD markets in the Nordics. You can also note that we do have a falling vacancy ratio in Oslo, which is positive, now reaching 4% there, which was about 5% a year ago. Overall, stable vacancy levels and increasing rental levels. We did once again show a positive net leasing from Castellum. Page eight shows this positive net letting. You can see that at the end of 2019, we did have a negative one, but since then, it's been positive, which it normally is in an increasing economy and good corporate environment. That's what we experience today. We do note that we do have companies coming back from being working from distance, specifically in Stockholm, where this has been the most common way over the last year. Now we see that companies, the employees are coming back to the companies, and we do have an increasing activity. The best region actually in the first quarter was Gothenburg, where you haven't had the same kind of working from distance situation as you have had in Stockholm. Now we expect Stockholm to take back some of their some new. How do you say it? Come back into the game with more activities. We have stable values, even though we have divested even in this quarter, we sold off in Gävle, a small town, a position of well slightly more than SEK 2 billion, we sold the whole portfolio. It also helps us to bring back the LTV to a really strong level, gives us power to do other investments in other cities going forward, focus on projects, maybe acquisitions in cities where we are larger. You can note that we did have positive value changes in the portfolio. Half of that comes from better cash flows in the properties, half of it comes from project gains. Then almost nothing from change in yield. We had a positive figure of SEK 400 million in the quarter. The transaction volumes are record-high, as you can see in the graph on page nine to the left there. The first quarter ended up with, I think it was SEK 53 billion, which is slightly more than last year. Last year was a record year, as you know. Still a strong transaction market. We do have slide 10. We do have a very diversified debt structure. The largest portion of debt is from bonds, Swedish bonds, Euro bonds, and then it's with 62%, then it's bank loans with 29% and commercial papers with 9%. The maturity structure is presented here. It's well diversified and spread out over the next coming years. Not too much coming within the next twelve months, which is more or less taken care of. Next slide here. Solid and stable financial position. We are decreasing our LTV ratio, so now it's 37.3%, and we do have a strong ICR of five, or you can also say 500%. We are maintaining our strong and high activity in ongoing projects. We have a project portfolio of a total of almost SEK 11 billion. The larger ones are SEK 8.2 billion here, of which are built up SEK 3.7 billion, remaining investment SEK 4.5 billion. The occupancy ratio in the portfolio is 57%. Some are more or less fully let, and some are fully let, some are 100% vacant, and that's because they are in an early stage. With a few exceptions, some logistics properties we build on speculation because the market is so strong. We believe we will have them fully let before they are completed. Yield on cost an average 5.4%, which is slightly higher than our average yield in the portfolio of 4.7%. To show you some examples, which number is this slide? Well, it's a slide of a beautiful building in Stockholm. It's Infinity. It's an investment of SEK 1.8 billion. It's almost 20,000 sq m. It's in early stage, so it's at the moment not let. It's hard to pre-let because it's not coming. It has not come that far. But it's a beautiful building and will be completed in 2025. That's something to start working on the letting, I would say, next year. Totally different one. Next one, the new head office for the Nordics of E.ON in Malmö, more or less fully let. It's E.ON building headquarters, super sustainable. It's more than 30,000 sq m, and it's an investment of SEK 1.3 billion. A similar one in the same city, Domstolsverket in Malmö, also SEK 1.3 billion, 26,500 sq m. Beautiful building. Next, more or less next door, increases our position in Malmö with modern, efficient buildings. Another example, also Malmö, which comes from the Kungsleden portfolio, is Eden in Malmö. It's a mixture of tenants, coworking and so on. Existing and new tenants are moving in, and it just opened up in the first quarter. It's like the smaller one of nearly 8,000 sq m. Beautiful building. Another example, also a court in... It's also a government building of slightly more than 9,000 sq m. It's an investment of SEK 300 million. It's in Jönköping, central Jönköping. Another example of a small, efficient, and beautiful building in our portfolio in one of our more regional cities. An example of a logistics property, Drevet in Helsingborg, big one, 22,000 sq m, close to the major road to Stockholm, Gothenburg, E4, efficient building, good ceiling heights, and so on, tenants moving in when it's ready. It's gonna be completed end of the year. The 10 largest projects, slide 19, 85% of this will be completed within 24 months. The exception is the top one that will be completed in the first half of 2025. The rest of the projects are gonna be completed before that within 24 months. It's a huge portfolio. In total, it's SEK 11 billion in projects. So it's this portfolio plus another SEK 2 billion in smaller projects, but it's a large number of different small projects. In total, almost SEK 11 billion. This is something we really focus on because it gives us a slightly higher yield than we can than we have on average. And it's definitely is a higher, much higher yield than we can achieve when we try to buy new buildings. We add on high-yielding, modern efficient buildings in good locations. We are, as you know, one of Europe's most sustainable property companies, one of the world's most sustainable property companies actually. We're number one ranked in the Nordics. We're number two in Europe. If we compare ourselves with our competitors, our likes in the sector here, we do have a 41% lower energy consumption, which is very good, and we try to improve that every day, as well. We are investing a lot in solar cell plants. Today, we have built 66 of them, and we have another 34 in pipeline. Today, they produce 6% of our total energy needs or electricity needs. We also certify our buildings, and today, 246 of them are environmentally certified, which corresponds to 61% of the property value. Financial performance. What should we highlight? Maria, I give the word over. Well, thank you, Rutger. She was pushing me there. I'm so sorry. I'm so glad. Well, as you have heard, we deliver strong results from all parts of the business. Castellum's ownership in the Norwegian-listed Entra is 33.3%. We report our holdings in Entra as an associated company in the figures, and the figures are based on Entra's Q1 report. The value of the property portfolio sums up to SEK 182 billion, including our holdings in Entra. This is an uplift of SEK 6 billion in the first quarter, despite the sale of our property portfolio in Gävle. Income from property management increased by 48% to SEK 1.15 billion, and this is, as you have heard, a new record for Castellum. The rental income in the like-for-like portfolio increased by 4% due to new leasing, successful renegotiation, and indexation. About all of our leases are index-linked, which means that we will be fully compensated for inflation. Our vacancies have decreased, and the average economic occupancy rate for the period is almost 94%. On the other hand, we have also had an increase in costs in the quarter. Property costs in the like-for-like portfolio increased by 7%. This is mostly a result of higher energy prices, but about half of the cost of electricity and heating are passed on to tenants. Increased administration costs are mainly due to the merger with Kungsleden. Some of the increase is temporary and will, in the long term, decrease as a result of synergies. As previously communicated, there are both financial and operational synergies that will be achieved on an ongoing basis within 2-3 years. Because of the effects explained, net operating income in the like-for-like portfolio increased by 2% in the quarter. For the entire property portfolio, net operating income increased by 38%. Our successful acquisition last year of Kungsleden in Sweden increased holdings in Entra in Norway and Kielo in Finland enable a 21% increase in income from property management per share. This is well over the target of 10% annual growth, so a great start to the new year. The EPRA key figures. Due to growing profit from property management and positive value changes, we have a great increase in all figures. Our long-term asset value, EPRA NRV, increased by 18% to 259. As a summary, we deliver in all parts of the business and have started the year in a very good way. Now Rutger- Back to me. will present outlook and takeaways. Yeah, back to me. What's our outlook and what's our takeaways? I think it's important to stress that we do have a stable rental market. We also have a strong property market, which makes this possible for us to refurbish our portfolio, which we did by selling off in Gävle, for example. Stable yields. It's also important for our balance sheet, of course, and we see a strong market there. Lots of investments, investors are piling up, and most of them are not able to buy what they want to buy. It's a strong market. We do have a financial stability, and that's a strong financial position, and that's important. I think we will see going forward a difference between the strong companies and the less strong companies. You will see a diversification of what we can borrow at. We've seen that the yield spreads on bonds, for example, has changed between 70 and 450 points. We come out on the lowest part in that comparison, which is very important. We still can keep our large focus on project developments. By building our own buildings, we know what we get, and we get better yields and definitely better yields compared with what we can buy at, what levels we can buy at. Continue to focus on our project development. from our own portfolio. We continue to work with the integration of Kungsleden. We are more or less integrated fully by the time of the summer vacations. It will take some months in some cases, and some years in some cases to take benefit from the synergies. Full focus on that. I would like to point out again, income from property management per share, the EPS, increased by 21%. The low LTV of 37.3. The strong occupancy rate of 93.6, almost 94% increased. I will also stress that we have shown strong and good access to the capital markets lately by issuing new bonds and refinance old bonds from the Kungsleden portfolio, for example. We show a positive net leasing, which is the strongest evidence of how the market are. We also notice that the activity in the Stockholm market really picks up after have been the slowest market for the last 12-18 months due to COVID. More hurt than every other market in the Nordics, I would say. People coming back to the office, and we experience a strong market, and it's shown by positive net leasing. I think that's it, and I will open up for questions if there is any. Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name's announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Markus Henriksson of ABG. Please go ahead. Your line is open. Thank you, and good morning. I have three questions. First, it's regarding the investment ramp up here in 2022, 2023, 2024. You invested almost SEK 4 billion in 2021, and now we have the Q1 figure here for 2022. How do you foresee your investment ramp up? You discuss a lot about ongoing and coming projects. Yes. I think we will. In this quarter, we invest slightly more than SEK 1 billion. I think if we can keep that level, I'm very pleased. Hopefully, we can generate projects on our own to be able to keep a level of SEK 1 billion a quarter. The best would be to be able to ramp up it even more. But at least we're SEK 1 billion per quarter would be a good volume. That's the best way for us to grow. We get modern and new buildings in good locations located in the cities where we are focused to. We maintain that. Also longer, we also achieve in many of these cases really long, stable leases from day one. Thank you. Then I can see that costs for some of the major projects are up 3%-5%. You also increased the rental values up somewhat. Do you think we should expect further cost increases in your ongoing new constructions? How do you think currently regarding new project starts? What's the discussions with the construction companies? Yeah. I think in existing portfolio, we're quite safe and secured with the cost side, but I'm sure we will see some costs coming up. Full focus on that. Most of the costs are locked in. Going forward, it's gonna be an issue because, as you mentioned, we see increasing cost all over the production side. It will affect new projects going forward. I'm strong believer of the. I strongly believe that the market will the rental market, tenants will be willing to pay the extra cost for no location. It will become more expensive, but I think they will be willing to pay that extra cost because when it comes to new construction, the cost for the company is not that large. It's a smaller part of their total cost. We'll see, but that's an issue, definitely. New construction, tougher pricing on that, increasing prices, and we need to be able to make sure that we can get it from the new tenants, and I believe we will be. But that's gonna be a thing we have to work with going forward for all of us in the sector. Thank you. Last question. You divested in Helsingborg and Gävle. Have you divested all non-core assets you wanted? Should we expect more divestments going forward, or are you a net buyer in- Uh, we will- going forward? Probably a net buyer, but we haven't divest everything. We did. When we announced the acquisition of Kungsleden, we showed that there was a 90% overlap, and we still haven't sold the 10%, so there are still properties on the sell list. But it also, we are also presented with new possibilities all the time. We have been. We haven't been so active on buying single assets lately. We did a few acquisitions last year in Stockholm. Two of them, one in Solna Strand and one in Solna Järva Krog. That's actually two last smaller ones, SEK 1 billion each. Investments like that, I'm sure we will be attracted by over the next coming quarters, but we will also sell off. Net. Not. We will not be a net seller, I guess. Rather, a company that grows over the next three quarters this year. But it's always hard to give a prognosis here because, you know, you need to find the right buildings and right properties that attracts you. We'll see. That's, you know. We are not done with the sell-offs. That's for sure. Definitely. Okay. Clear message. Thank you. Those were my questions. Thank you, Markus. Thank you. We currently have one further question from the phone. Just as a reminder, if you do wish to ask a question, please dial zero one now. That next question is from Erik Granström of Carnegie. Please go ahead. Your line is open. Thank you. Good morning. I have three questions as well. Starting off with property costs. You mentioned that 50% of the increase due to electricity and so on is being passed on to the tenants. Did that take place in Q1, meaning that is part of the 4% like-for-like, or is that something that happens later on? That is actually something that happens later on. We do bill tenants for electricity costs and so on, but you know, they do have a fixed, in most cases, a fixed amount, but that amount is being adjusted afterwards in correlation to the energy index. It will come later on. We are kind of banking the tenants' rising electricity costs for a while. Is that something that takes place at the end of the year, so in Q4? Or is it something that happens during the year? No, it's more, I would say, Q1 next year. Oh, okay. About a year. Unfortunately. Okay. Thank you. It's lagging a lot. Yeah. Unfortunately. My second question is regarding valuation. Have you taken into account indexation at all, in property valuations in Q1, or how do you expect to handle that? Indexation in the valuations came in more or less in the fourth quarter since we had the October figure at that point. I think I'm quite sure that all the valuation firms included you know the 2.8% in their models. That's taken into account. One issue there Erik with the electricity energy costs. It can be that if electricity costs fall again if they come back down then we will overbill our tenants in 2023 compared with what the cost is. We get it back and maybe we have a gain on it during 2023. Then of course adjust it again in 2024. We're banking now. It might be the opposite 2023. We'll see. Okay. That's clear enough. Regarding the indexation, I was more thinking about the current inflationary rate, and does that mean that you don't expect to make any adjustments, except for when you have the October figures for 2022, meaning it will take place in Q4 this year? Yeah. I think that's the way the valuation firms do it. They don't adjust for inflation quarter to quarter. They normally do it annually. We have to work with- Okay We have to work with our rental levels over the year. That's taken into account and leases. The best way to improve our values is to increase the occupancy level and increase the rental levels in the negotiations we do daily. As you know, we renegotiate about a fourth or a fifth of the portfolio yearly. That's where we have to put in the energy to really increase and have the recent inflation as an argument in those new negotiations. In some examples, we are increasing our asking prices a lot. For example, on logistics, we ask for a lot more than we planned for. We try to make use of this inflation situation and really cover our costs in that way. Okay. Fair enough. My final question is regarding your LTV. It's now down towards 37%. What kind of opportunities do you see out there aside from the project portfolio? I mean, you bought back shares in Q1. Is that something you're looking into currently as well? How do you plan to handle the balance sheet? Well, yeah, we can, of course. We do have a buyback mandate from the annual general meeting. We will most likely use that if the share price is as low as is now. If we can buy the share at SEK 195, and the net asset value is more or less SEK 260. Then, of course, 'cause that's a good deal, a 25% discount. Then, of course, also, see if there is opportunities to use a strong balance sheet to expand, to continue to expand. Our long-term goal is, as you know, a 10% yearly growth. We've grown a lot more than that last year. So maybe we slow down for a while, but long term, it's definitely our ambition to grow by 10% yearly. Then we need to buy buildings as well. It's not enough by just creating our own products. It doesn't make us grow as much as we would like to. But it's a strong balance sheet, one of the strongest in the sector in the Nordic sector, which makes it possible for us to come to the bank and borrow new money, also makes it possible for us to borrow at the bond market. We are an attractive issuer of bonds. We are also very cautious to maintain that position so that we have a strong rating and a good relationship with the bond market. It's a balance. For sure, we do have the power of doing things. It's a very strong company, Castellum. It's amazingly strong with the cash flow and the position. Also, bear in mind the high yield on the portfolio, average yield of 4.7%. We're adding on new products all the time with a higher yield, 5.4 is the average in our portfolio. Newly built long leases. Very strong position, very strong pipeline on projects. We do have the possibilities to do some interesting things if there is opportunities. As I mentioned before, the situation for us compared with some others are very different. Some has experienced really, really strong or have increases on interest rate margins. Meanwhile, we have seen increases of about 70 points on the bonds. Okay. Thank you very much for answering. You're welcome. Thank you, Erik. Thank you. We've had one further question come through. That's from the line of Anton Wilen of Bloomberg News. Please go ahead. Your line is open. Anton, if your line's on mute, you'll need to unmute it. Oh, sorry, I was on mute. No. Good morning. Thanks for taking my question. How much further could you increase your LTV ratio? You said you were happy with that it was lowered, but what's a comfortable LTV ratio for you if you're gonna be a net buyer going forward? Well, at today's market, we feel very comfortable with the low LTV. It's more or less set by the rating institutions, or in our case, Moody's, and an LTV above 45% is not okay for them. That's our headroom. We have to stay between today's level and 45%. Reaching 45% makes them a little bit nervous, so they would like to see some haircut on that, so maybe 44%-44.5% in reality. You know, passing 45%, then we need to have a very strong and believable explanation and show them a way to get back down to below 45%. You know, that's as much as we can stretch. We are today a strong company in each and every market where we operate. But we could definitely become stronger in Helsinki since it's a big town or in Copenhagen since it's also a big market. Our portfolio of SEK 6 billion, respectively SEK 7 billion in each of those two markets is not very much in comparison to the total market. It's a lot of portfolio, but it's a large portfolio. If somewhere we would like to expand there, but you know, it needs to be a good deal if we should do anything. At the moment, you know, we are just focused on the integration. It's nothing we plan for, but that's the limitations. Maintain the strong- Right Ratings and maintain the good access to the international bond market. That's a major focus also. Okay. Would you say you have been more inclined to lean more towards bank financing in the recent months, or are you still looking for the bond market? We try to balance that, so we love to be the best client of our banks. We do have all the Nordic banks. We work with all of them. It's very important so that we balance this. As you know, to get the rating, we also need to have a certain amount of unencumbered assets, and where we are today, that's the mix is where we need to be. Hmm We actually do have the perfect mix, I would say. It could shift a few percent up and down, you know, the portion from each lender. You know, it's that. We're more or less where we would like to be. It could vary slightly over the years, but not much. Thank you. Just as a final reminder to the participants on the phones, if you do wish to ask a question, please dial 01 now. Okay. There seem to be no further questions from the phones at this time, so I'll hand the floor back to our speakers. Thank you. Thank you. We have some questions coming in from the chat as well. Okay. The first one is, in your view, how much higher interest rates can current property valuation withstand before yields are affected? Good question. I wish I knew the answer. But I'm sure that the market sure. I'm never sure of anything, but I think that the property market will not be affected by an increase of, let's say, 1% from today's levels. If it would be affected, that would surprise me, definitely. Because the market has never expected the rental levels to be this low. So one, maybe 1.5 will not affect. If it increases more, then we'll probably starts to increase the yields. So that's, you know, 150, then it starts to affect the market. That's a guess, but I would be surprised if it doesn't. All right. Next question is, it looks like you issued a five-year bond in April with a 3.84% coupon rate. What was this issued at par? It was issued at par. Yes. We paid steeper a 155, and today that is traded at something 148.50. It tightened a little bit. Oh. That's where it still is. The next question is, what type of properties are you mainly interested in acquiring going forward? We're mainly interested in office and logistics. That's our, you know, main field, and for the private larger companies and government. We continue to focus on our existing focus area. Yeah. There is also a question about the portfolio going forward. David Johansson is writing like this: "The sale of the portfolio in Gävle at a premium to book, combined with the significant repurchase at a discount to NAV, looks like a very smart use of funds since it combines a refinement of your portfolio with a value-adding repurchases. If you could elaborate on how the transaction market is functioning right now, would similar deals be possible going forward, do you think? Yeah. It would be possible to do similar deals today. We did sell above book value, and on top of that, we also did a gain on the tax situation as big as or even bigger actually because the discount for deferred tax is lower, much lower than the booked deferred tax on the property. It's a really good sell-off, as mentioned. Buying our own shares with discounts is a really super trade, so I can't. I just agree. More of that would be lovely. There we do have portfolios for sale still. As mentioned before, the overlap in the Kungsleden portfolio was 90%, not 100%, and we haven't sold all of those 10% that was not overlapping. Also in the Kungsleden-Castellum portfolio, the existing portfolio, we always go through and identify properties that could be efficient to sell, to give room for new acquisitions that creates a more efficient and modern portfolio. We always analyze our existing portfolio, and we will always do. You will also see sell-offs in strategically focused markets where we are strategically long-term focused. All right. We have one final questions. "Are you planning to present your LTV in accordance with the new recommendation from EPRA? I think we will continue to present it in the way we do now. If EPRA change, we will probably not follow that. We know. We might not even follow EPRA at all at the end. We'll see. That's an open discussion. We try to give a most accurate reporting as possible. That's an ongoing discussion with them. We'll continue to focus exactly the way we do. Or maybe have both, so that it's easier for analysts and investors to follow us. We'll see. That was all the questions that we have today. Thank you for listening. Thank you. Thank you. Thank you all for listening.