Earnings Call: Castellum Reports Growth in a Cautious Market

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Earnings Call: Castellum Reports Growth in a Cautious Market

In a recent third-quarter earnings call, leading real estate company Castellum (ticker: CAST) reported a steady increase in net operating income and revenue from property management. CEO Joacim Sjoberg announced a 3.9% increase in net operating income and an 11.7% rise in revenue from property management.

Despite a slight increase in vacancies and negative net leasing, Castellum maintains a stable tenant quality, a loan-to-value ratio of 36.6%, and a strong financial position with a total cash reserve of 29 billion SEK. As of September 30, 2023, the company’s asset value stands at 155 billion SEK, predominantly concentrated in Scandinavian metropolitan areas.

Key Highlights:

  • Net operating income increased by 3.9%; revenue from property management rose by 11.7%.
  • Asset value is 155 billion SEK, with 74% located in Scandinavian metropolitan regions.
  • Excluding a significant logistics project, a negative net leasing of 10 million SEK was reported.
  • Moody's upgraded the credit outlook to positive; successful issuance of €0.5 billion Eurobond.
  • Aiming to establish 100 more solar panel systems by 2030; 64% of the portfolio is certified for sustainability.
  • Strong financial position with a 36.6% loan-to-value ratio and 29 billion SEK cash reserves.
  • Predicting a stronger Swedish economy by 2025.

Company Outlook: Castellum plans to invest at least 2.5 billion SEK annually depending on market conditions, with an expectation to remain a net investor and increase the portfolio value. The company anticipates stability in average borrowing costs affected by base interest rates.

Negative Highlights:

  • A slight increase in vacancies and reported negative net leasing.
  • Rental market in major capitals is more cautious; optimism from the summer has diminished.
  • The dynamics of the rental market indicate high rents in central business areas are a source of concern.

Positive Highlights:

  • Strong local demand for the Gladan project in Stockholm.
  • Commitment to sustainability with a significant portion of the portfolio being certified.
  • Moody's credit outlook upgrade and successful Eurobond issuance demonstrate investor confidence.

Shortcomings:

  • Excluding a major logistics project, Castellum faced 10 million SEK in negative net leasing.
  • A slight quarter-on-quarter drop in occupancy rates; however, the company remains optimistic.

Q&A Highlights: CEO Joacim Sjoberg addressed concerns regarding high rents in central business areas, noting that Castellum’s diverse asset portfolio serves as a mitigating factor. Sjoberg emphasized the importance of using current cash to finance urgent cash flow projects to avoid excessive leverage. Jens Andersson discussed the stability of financing costs and the gradual increase in tax rates affecting property management income. Andersson confirmed plans to reduce unused credit facilities after re-entering the Eurobond market.

In summary, Castellum is progressing with strategic focus on financial stability and sustainability in a cautious market. The company leverages its strong cash position to invest in new projects and enhance its portfolio while carefully managing risks. With a positive credit outlook and ongoing investment plans, Castellum positions itself for growth with expectations of a stronger economy in the coming years. The next earnings report is scheduled for February 19.