Time to pass the torch
To our esteemed shareholders:
At the meeting of the Nomination Committee following its appointment in October, I announced that after the 2021 Annual General Meeting it would be time for me to focus on other engagements after nine intense and stimulating years with Castellum. It is with some sadness, but also strong faith in the future, that I address myself to you for the last time in a summation of the past year.
Let me touch on some of the focus areas the Board of Directors has prioritised over the past few years to steer Castellum into a position where we can future-proof value creation and deliver on the promise of a long-term sustainable total return for the share, with a low risk profile.
The shift in the asset portfolio to products and areas with secure, healthy growth is about developing existing holdings, but it is also about letting go of holdings to provide scope for new investments. Under its current management and in strong teamwork with the Board, Castellum has transformed from being a stable but somewhat slow and anonymous property management company to one of Sweden’s foremost urban and property developers, with a rapid business tempo.
Business that creates values
In early 2013, the company’s property value totalled SEK 36 billion. At the end of 2020, the company’s value was listed at nearly SEK 103 billion. Over these eight years – which otherwise coincide with CEO Henrik Saxborn’s time at the wheel – 280 acquisitions with an aggregate value of SEK 45 billion have been completed, and extensions and reconstructions to existing holdings are estimated at close to SEK 11 billion. Moreover, approximately SEK 7 billion has been invested in the development of new properties. During the same time period, 280 properties at a value of nearly SEK 20 billion were sold. In total, gross activity of close to SEK 85 billion, nearly 2.5 times the value of the original holdings.
Out of all the decisions on the Board’s agenda, investment matters are among the most critical for driving and protecting value. Having the courage to take risks, and the wisdom to let things be. Despite the challenges following from COVID-19, the year just concluded has been no exception where activity is concerned. There were a large number of Board meetings: 20 in all, primarily digital. I am extraordinarily proud of the level of commitment, the breadth of competence and the strong integrity that the current Board demonstrated during the year. A mix of members with long and varied experience in major listed companies, and members with more limited Board experience but with expertise in relevant fields have enabled efficient Board activities.
Yield at low risk
Another focus area for the Board goes by the name of business cycle- and trend-proof operations. After a number of years with extremely favourable conditions for the property management industry, with significant increases in rents and falling required investment yields, initiatives to reduce the risk commenced a few years ago. Portfolio risk has been reduced through increased focus on quality and tenants with a stable base, such as government agencies. Efforts that also manifested Castellum as an international leader in sustainability – or, expressed in more international terms, “taking the yellow jersey in Environmental, Social and Governance (ESG)” – have lowered operating risk while driving profitability.
Access to financing under attractive terms is the single largest risk for a property management company. Castellum’s CFO has consciously led the company to a position at the forefront as an attractive borrower through successful work on its credit rating as well as access to various financing sources, which have reduced financial risk.
Investors – both domestic and international – are continually raising the bar for ESG and in contrast to other alternatives, Castellum stands out as “investment-worthy” based on these criteria. This is a position worth defending and safeguarding. Wavering confidence can have consequences for financing from both the stock market and creditors.
Gaze fixed on the road ahead
Predictions about the future testified to changed preferences among our customers long before the pandemic, which gave Castellum a head start in developing its customer offering, especially through the acquisition of the co-working pioneer United Spaces two years ago.
The fact that Castellum was already out of the starting gate in comprehensive efforts to change in relation to customers would be a success factor when crisis management in the wake of COVID-19 came to dominate the agenda. It is my conviction that being this close to the customer, which became a must in the spring, will lead to deeper long-term and profitable relationships for Castellum.
During the year, the Board adopted two road maps for climate neutrality by 2030: a more traditional one pertaining to property management, another ground-breaking one in the more challenging field of project development. One important measure towards achieving these goals is the ongoing massive expansion of solar cells on new and existing properties, which both creates dependability and reduces costs, and promotes more renewable electricity in the Swedish power grid.
Passing the torch on
In the years since the company’s listing in 1997, Castellum’s Board of Directors and its management have regarded the annual meeting in Gothenburg as a high point where we have had the opportunity to meet many of our owners, both large and small. Not only to listen, but to talk about Castellum’s challenges and successes. As a consequence of the COVID-19 pandemic, we were unable to meet in 2020. Nor will the 2021 Annual General Meeting provide opportunities for physical meetings.
It thus remains for me to pass the torch to a new Chairman of Castellum – and a Board of Directors with a new composition – remotely.
As shareholders, you have a particularly great responsibility at the Annual General Meeting on 25 March 2021 to vote for the future, and Castellum’s management, with all due consideration.
You have a choice between two different proposals for the Board, which is unique in modern Swedish corporate governance. It may seem difficult, but I want to encourage you to carefully study both alternatives and think beyond what’s just around the corner.
My hope is that Castellum will retain its distinctive character as an independent player, with high ambitions for order and clarity and reliable corporate governance that strengthens the confidence of the world around us in the Swedish stock market. Over the last ten years, this model has delivered an average total return of 14% to Castellum’s shareholders despite lower financial leverage than most Swedish listed property companies. For the 23rd year in a row, you as our shareholders will take a position on a proposal from the Board for an increased dividend.
For my part, I look forward to seeing you at the 2022 Annual General Meeting, but then only in my capacity of a devoted shareholder in Castellum, like all the rest of you.
Gothenburg, 15 February 2021