Focus on growth in a cautious market
Following a long period of soft market activity, 2023 closed on a cautiously optimistic note, with inflation appearing to be under control and stock markets rising, driven by the hope of earlier-than-expected interest rate decreases. While the swap markets are pricing in interest rate cuts, increased geopolitical risks could affect this fragile optimism.

In European properties, we believe that most of the asset price adjustments are probably behind us, although this is likely set to continue to some extent during early 2024. Although the transaction market remained slow in 2023, the gap between prime assets with a solid sustainability profile and other parts of the property market widened. While this trend was most pronounced in the office segment, it is likely to spread to other segments as tenant preferences evolve. Industrial and logistics properties recovered faster in Europe compared to other regions, benefiting from a post-COVID trend related to changed supply chain management. In the residential segment, there is a structurally widening gap between supply and demand for affordable and sustainable housing in Europe. Given the already limited supply, stabilized construction costs and a shortage of – and halted – development projects, this represents a tailor-made opportunity for Catella. Our strength is founded on our local competence and project management ability, and during the year we will continue to introduce new products that meet the needs of a changing market.

Although we expect it to remain challenging to raise capital, at least during the early part of 2024, a renewed focus on fundamentals by investors should increase interest in active asset management, high-yielding investment strategies and opportunities to acquire resilient assets – factors that are to Catella’s advantage.

As previously mentioned, 2023 was a challenging year for the entire property sector and fourth-quarter transaction volumes in Europe were down by 50 per cent on the previous year – and down by as much as 78 per cent compared to the fourth quarter 2021. Nevertheless, Catella posted a positive operating profit for the full year, albeit down significantly on the record year 2022. The main reasons for the decrease included a hesitant market and the associated significantly lower variable income. A stronger SEK in the second half-year and higher interest rates also had a negative effect on net profit.

The changing market conditions led to adaptations in the organization throughout the year, with a reduction in full-time headcount by close to 30 or over five per cent (adjusted for acquisitions and divestments). Most of the cutbacks were the result of natural resignations and recruitment freezes, although restructuring programs also contributed, reducing profit for the year by close to SEK 10 M, and SEK 4 M in the quarter. Sometimes, challenging conditions can speed up necessary decisions, and we are now looking forward to an even more scalable growth journey.
At the same time as making adjustments to the organization, we have also completed some forward-looking initiatives. One example includes building up a central capital-raising function aimed at improving access to global institutional investors.

Growth in a weaker market
Investment Management’s assets under management increased by SEK 12 Bn in the year to SEK 152 Bn. The acquisition of Aquila Group complemented our business operations in France and Europe, adding a new source of capital in the form of investments from private individuals. Our latest fund, Ûpeka, launched in the second half of the year, has already raised EUR 20 M, of which half was invested in high-yielding assets in 2023.

Profit for the quarter was SEK 19 M as a result of lower variable fees, a stronger SEK against the EUR, and restructuring costs of SEK 3 M. The business area continued to return strong underlying profitability and long-term growth, which is always our focus.

Towards the end of the quarter, we completed major transactions in Finland and Spain, evidence of a brightening transaction market and demonstrating the strength of our offering.

A hesitant year for Principal Investments
After the end of the quarter, we signed an agreement relating to the sale of a logistics property in Jönköping. This was the final property in the Infrahubs partnership, which added SEK 280 M in liquidity. Since the start, the partnership has generated SEK 225 M in profit after tax for Catella’s shareholders, with most of the assets divested before the start of the market downturn.

Other development projects are progressing according to plan, albeit at a slower pace. We are in the process of finalizing the last commercial leases for the Kaktus property in Copenhagen and are now starting to actively market this unique property for sale.

Principal Investments’ investments totalled around SEK 1.7 Bn at the end of the quarter, distributed over 10 projects in six countries. With strong liquidity and continued price pressure, we continuously evaluate new investment opportunities that meet our required return thresholds and have the potential to generate new management mandates.

Continued weak transaction market
Although revenues in the Corporate Finance business area reached their highest level in eight quarters, we are still a long way off normalized levels. However, the outlook brightened a little in the fourth quarter with a stronger position in the Finnish, French and Spanish markets. We have also seen increased demand for advanced debt and restructuring advice, and we acted as advisor on major complex transactions in Sweden and Denmark during the quarter.

Outlook
Despite a somewhat brighter outlook and a slightly more active market, in combination with falling inflation and a lower interest rate outlook, we plan for the relatively subdued trend to continue during the first half of 2024.
Given our strong financial position, both for Catella and in our funds, we continue the work of launching new products to meet the changing market conditions and reinvesting in long-term value creation throughout 2024.

Christoffer Abramson, CEO and President
Stockholm, Sweden, 09 February 2024

Catella presents the Interim Report and answers questions today at 10 a.m. CET. To participate, go to
https://ir.financialhearings.com/catella-q4-report-2023

For further information, please contact:
Michel Fischier
CFO
+46-8-463 33 86
michel.fischier@catella.se

During January 2024, 55,000 shares of class A have been converted into the same number of shares of class B. Thereafter, the total number of votes in Catella amount to 97,711,188.

The total number of registered shares in the company after the conversion amount to 88,348,572, of which 2,340,654 shares of class A and 86,007,918 shares of class B.

For more information, please contact:
Michel Fischier
CFO
+46 (0)8-463 33 86
michel.fischier@catella.se

During December 2023, 65,378 shares of class A have been converted into the same number of shares of class B. Thereafter, the total number of votes in Catella amount to 97,931,188.

The total number of registered shares in the company after the conversion amount to 88,348,572, of which 2,395,654 shares of class A and 85,952,918 shares of class B.

The nomination committee before the annual general meeting 2024 comprises Eje Wictorson, appointed by Claesson & Anderzén, Erik Eikeland, appointed by Alcur Fonder and Henrik Abrahamsson, appointed by Symmetry Invest. Eje Wictorson has been appointed as chairman of the nomination committee.

Information about the work of the nomination committee can be found on the company’s website, www.catella.com. Shareholders who wish to submit proposals to the nomination committee may do so in writing via e-mail to valberedning@catella.se or by post to Catella AB, Att: Nomination Committee, P.O. Box 5894, SE-102 40 Stockholm, Sweden.

The annual general meeting in Catella AB will be held on Wednesday, 22 May 2024 in Stockholm.

The global economy has entered a macro environment with high and volatile inflation, low productivity growth, and higher nominal interest rates (compared to the previous decade). We continue to see a higher-for-longer interest rate environment, causing continued downward pressure on riskier asset classes as the market adapts. Geopolitical risk compounds this view with the potential impact on the energy markets and the general inflationary nature of conflict. Real estate has become more heterogenous as an asset class and we believe that all property asset classes are set to bifurcate further. Segments with CPI-connected rental markets, somewhat higher yield levels, and low equity valuations are expected to outperform in the near term, with high ESG credentials an additional factor.

Office values are under intense pressure from ESG-conversion needs and from vacancies driven by new working models. However, the contrarian capital is starting to focus on prime supply-constraint locations, with the aim of redeveloping assets to prime ESG stock meeting the flexible office needs of the future. For the first time in a long time, market conditions now favor more active asset management over passive investing. In this challenging market, Catella’s pan-European offering of vertically integrated local experts and asset managers will help our clients succeed.

The impact of the rising yields in residential assets has been largely offset by rental growth. Significant housing stock is owned by the older demographic groups with lower debt level, while the high cost of debt will likely deter younger buyers and push that market back to renting. At the same time, the demand for and requirements of ESG-compliant assets keeps increasing, which should strongly support sustainable build-to-rent investments in the right micro locations. Catella already offers two separate pan-European Article 9 funds, and we are working to deliver a new offering that meets the growing demand for affordable and sustainable housing.

In other segments, we see ESG-compliant new construction space in Logistics and Industrial assets in high demand – the on-shoring trends and purchasing patterns here continue to point to growth with a simultaneously limited supply. Catella is developing attractive assets through our French platform, while our logistics fund continues to grow on the back of strong investor demand.

In an uncertain market with limited transaction activity, Catella continues to focus our operations while simultaneously advancing our positions. On the European market, transaction volumes decreased by more than 60 percent year-on-year, to EUR 22 Bn.

Reduced transaction activity affects all three business areas, while also requiring that we adapt our organization. We have been doing this on an ongoing basis during the year, and in the quarter we reduced headcount in several companies further, which generated some restructuring costs.

At the same time as we are adapting operations to the prevailing market conditions, we are expanding our business. In September, we completed the acquisition of 60 percent of Aquila Group for an initial purchase consideration of SEK 113 M. The acquisition adds more than SEK 15 Bn in assets under management and represents another step on our growth journey. With one of the largest independent operators in property investmentmanagement in France now on our team, we will benefit from key synergies with existing operations in France and Europe, while it is also of major strategic importance to broaden operations by adding a new source of capital from private investors through the French fund operations.

Sluggish market for capital raising

Lower inflows to traditional property funds is the natural consequence of higher interest rates, continued uncertainty, and lagging property valuations. However, interest in opportunistic investments is increasing, a market where we have solid competencies and where we are focusing our growth efforts.

Apart from the acquisition of Aquila Group, assets under management largely remained unchanged, adjusted for exchange rate effects, on the preceding quarter. We consider this a sign of strength given the current market conditions, and are pleased to see continued growth in assets under management in our Article 9 funds, which have the sharpest sustainability focus.

Investment Management’s profit amounted to SEK 26 M in the quarter, the result of a sluggish transaction market as well as some M&A and restructuring costs. Underlying fixed management fees continued to increase by 14 percent on the previous year, driven by increased assets under management. It is worth noting that income from Aquila Group was not included in profit for the quarter.

Looking ahead, Investment Management is holding strong in a turbulent market, with stable fixed revenues, extensive committed capital, and continued strong relationships with our investor base. In addition, we are seeing increased interest in more actively managed mandates, while the acquisition of Aquila Group opens up the prospect of new capital inflows from the private investor market.

Broader focus in Principal Investments

One of Catella’s strengths lies in that we co-invest in development projects with the aim of generating returns as well as attracting new business through management mandates. We also invest in new ideas generated within the organisation. This is an area that is set to expand in future, partly through additional investments in our funds in Sweden and the UK, as well as the fund now being launched within Aquila Group. We have also added our investment in Pamica to the business area. Catella was one of the first investors in Pamica, and further investments were made in the latest investment company, Pamica IV, this year.

Even if progress has been made in our investment projects, we anticipate that divestments of completed projects will remain limited in 2023. At the same time, we are seeing more opportunities for new investments that meet our return requirements as market prices continue to adjust and more opportunistic investment opportunities arise.

At the end of the quarter, Principal Investments invested a total of some SEK 1.7 Bn in 10 projects across six markets.

Advisory market remains hesitant

Transaction  volumes in the quarter were at their lowest since 2009, which naturally affects Corporate Finance. Income decreased by approximately SEK 20 M, which generated operating profit of SEK -6 M (6).

We continue to have a solid pipeline of transactions, but in order to realize these in the near future we would need to return to a more normalised transaction market, and it is difficult to predict when this is likely to occur.

New opportunities for growth and profitability

We continue to advance Catella’s positions on a sluggish market, while simultaneously adjusting our cost structure. We develop products and solutions adapted to the new market environment while simultaneously investing in digitalization, sustainability, and AI. These investments will drive scalability and competitive advantages in the longer term.

The current market conditions highlight the importance of being a resilient and forward-looking company that is able to adapt to a changing market environment. This is at the core of Catella’s business model and values.

Christoffer Abramson, CEO and President
Stockholm, Sweden, 27 October 2023

Catella presents the Interim Report and answers questions today at 10 a.m. CET. To participate, go to https://ir.financialhearings.com/catella-q3-report-2023