Group net income

Castellum’s business model is built on investing in and developing commercial premises managed by a decentralised and customer-centric organisation. Castellum focuses on cash flow and operates with low financial risk.

Castellum owns 642 properties encompassing 4.4 million square metres in Sweden, Copenhagen and Helsinki. Our properties can be found in city centre locations and well-situated business districts, with good public transportation and built-out services.

Castellum works with a long-term perspective; its strategy for growth includes continually refining and developing its property portfolio by investing in new construction, extensions and reconstructions, as well as making acquisitions. The purpose of the investments is to improve cash flow, thereby increasing the value of the properties. New projects are gradually added through acquisitions of both development properties and unutilised building rights.

The operations comprise three different areas:

Property management

Through customer-centric property management, that is built on good business conduct, sustainability and innovation, Castellum enables its customers to reach their business goals.

Project development

Castellum will continually invest in existing portfolios and develop new portfolios, resulting in a quality shift to a more sustainable and stable portfolio, as well as increased earning power. In addition, Castellum will be an active player that promotes urban development and growth.

Transactions

Castellum continually develops its property portfolio in order to strengthen the company’s position as the leading player in Nordic growth cities.

Castellum’s earnings in 2020

Income from property management

Income from property management (i.e. net income excluding acquisition costs and financing fees for acquisitions, changes in value and tax) for the period January–December 2020 amounted to MSEK 3,380 (3,146), corresponding to SEK 12.35 per share (11.52) – an increase of 7%.

Segment information

 

 

Income

 

Income from prop. mgmt

MSEK

 

2020

 

2019

 

2020

 

2019

Central

 

1,595

 

1,504

 

913

 

815

West

 

1,365

 

1,328

 

790

 

749

Öresund

 

1,262

 

1,176

 

747

 

665

Stockholm–North

 

1,611

 

1,651

 

1,025

 

1,008

Finland

 

59

 

58

 

8

 

22

Co-working

 

112

 

104

 

–10

 

1

Total

 

6,004

 

5,821

 

3,473

 

3,260

The difference between the income from property management of MSEK 3,473 (3,260) above and the Group’s reported income before tax of MSEK 7,028 (6,765) consists of unallocated income from property management of MSEK –93 (–114), acquisition costs of MSEK –25 (–9), financing fees for acquisitions of MSEK 70 (—), impairment of goodwill of MSEK — (–179), change in values on properties of MSEK 3,863 (3,918) and change in values on derivatives of MSEK –120 (–111).

Income

The Group’s income totalled MSEK 6,004 (5,821). Rental income includes discounts of MSEK 119 (90) as well a lump sum of MSEK 16 (16) as a result of early termination of leases. Castellum granted discounts of MSEK 14 in accordance with the government’s rent support package linked to COVID-19, whereby Castellum takes 50% of the cost. Accordingly, for reasons of simplification, rental income was reduced by a net amount of MSEK 7. Furthermore, MSEK 20 in non-recurring income was received, which consists of a number of insurance cases that were settled during the second quarter.

The average economic occupancy rate was 93.1% (93.8), where the calculation has been changed to only take into account vacancies unlike previously, where discounts were also included. The comparative figures have been restated. Moreover, the co-working company United Spaces generated income of MSEK 112 (104) in the period.

Development of income

MSEK

 

2020

 

2019

 

Change, %

Like-for-like portfolio

 

5,377

 

5,259

 

2.2%

Development properties

 

254

 

190

 

 

Transactions

 

261

 

268

 

 

Co-working

 

112

 

104

 

 

Income

 

6,004

 

5,821

 

3.1%

Rental income in the like-for-like portfolio increased 2.2%, which was due to higher rents, up 2.8%, but also to higher vacancies and discounts of 0.6%. Gross lettings (i.e. the annual value of total lettings) during the period was MSEK 644 (411), of which MSEK 258 (56) pertained to lettings in conjunction with new construction, extensions and reconstructions. Notices of termination amounted to MSEK 405 (435), of which bankruptcies were MSEK 9 (16) and MSEK 17 (18) were notices of termination with more than 18 months left of contract. Accordingly, net lettings for the period totalled MSEK 239 (–24). The time difference between reported net lettings and the income effect thereof is estimated to be between 9–18 months in investment properties and 12–24 months for investments in new construction, extensions and reconstructions.

Net lettings

 

 

Region

 

 

MSEK

 

Central

 

West

 

Öresund

 

Stockholm

 

North

 

Finland

 

Total

New lettings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Existing properties

 

109

 

107

 

58

 

100

 

9

 

3

 

386

Investments

 

63

 

27

 

143

 

22

 

3

 

 

258

Total

 

172

 

134

 

201

 

122

 

12

 

3

 

644

Terminated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminated

 

–83

 

–95

 

–117

 

–99

 

–2

 

 

–396

Bankruptcies

 

–1

 

 

–7

 

–1

 

 

 

–9

Total

 

–84

 

–95

 

–124

 

–100

 

–2

 

 

–405

Net lettings

 

88

 

39

 

77

 

22

 

10

 

3

 

239

In 2019

 

–44

 

–48

 

39

 

40

 

1

 

–12

 

–24

Operating costs

Direct property costs totalled MSEK 1,170 (1,235), corresponding to SEK 279 per square metre (292). Property costs for the like-for-like portfolio decreased 6%. In addition, expenses for co-working totalled MSEK 120 (99).

Property administration totalled MSEK 379 (374), corresponding to SEK 90 per square metre (92).

Central administrative expenses were MSEK 149 (163). Central administrative expenses also included costs related to the earnings and share price-related incentive plans for members of Executive Management of MSEK 14 (10).

In the fourth quarter, Castellum announced its intention to present the shareholders of Entra with an offer to acquire the Norwegian listed property company. Costs worked up pertaining to the above total approximately MSEK 25.

Income from property management per share

Development of property costs

MSEK

 

2020

 

2019

 

Change, %

Like-for-like portfolio

 

1,048

 

1,119

 

–6.3%

Development properties

 

61

 

51

 

 

Transactions

 

61

 

65

 

 

Direct property costs

 

1,170

 

1,235

 

–5.3%

Co-working

 

120

 

99

 

 

Property administration

 

379

 

374

 

 

Central administration

 

149

 

163

 

 

Total property costs

 

1,818

 

1,871

 

–2.8%

Property costs

SEK/sq. m.

 

Offices

 

Public sector properties

 

Ware­house/
logistics

 

Light industry

 

Retail

 

2020
Total

 

2019
Total

Operating costs

 

208

 

173

 

93

 

98

 

134

 

155

 

166

Maintenance

 

56

 

35

 

18

 

25

 

32

 

38

 

38

Property tax

 

130

 

112

 

28

 

27

 

75

 

86

 

88

Total property costs

 

394

 

320

 

139

 

150

 

241

 

279

 

292

Lettings and property administration

 

 

 

 

 

 

 

 

 

 

 

90

 

92

Total

 

394

 

320

 

139

 

150

 

241

 

369

 

384

Net financial items

Net interest was MSEK –786 (–782). The average interest rate over the period was 1.9% (2.0). Net interest was positively affected by approximately MSEK 27 due to the 0.07 percentage point decrease in the average interest rate. Furthermore, interest costs for leases amounted to MSEK 20 (22), of which site leasehold fees were MSEK 18 (18).

Castellum signed credit agreements both to ensure financing of the combination with Entra and to have full coverage for Entra’s outstanding interest-bearing liabilities. Net income for the period was charged with approximately MSEK 70 for these credits.

Net lettings per quarter

Property value and changes in value

Both interest in property investments (which was rather uncertain in the first half-year) and access to capital strengthened during the second half-year, which has resulted in a stable and strong property market despite it still being impossible to fully overview the effects of the pandemic. A certain amount of differentiation is occurring among different property types, with secure cash flows remaining particularly attractive. Castellum recognised an unrealised change in value of MSEK 3,712 (4,276).

Moreover, sales of MSEK 151 (–358) were recognised, which comprised an earnout from the sale of the Archimedes property in Stockholm in 2018 (the detailed development plan entered force during 2020 and the transaction has finally been settled) as well as the sale of five properties at a price that exceeded their value by approximately MSEK 30.

Castellum signed agreements in late 2020 on the sale of an asset portfolio to Blackstone for approximately SEK 18.1 billion, net, less costs and transaction and deferred tax of approximately MSEK 900, entailing an underlying property value of approximately SEK 19 billion. The sale was divided into two tranches:

  • Portfolio No. 1, with a net sale price of approximately SEK 5 billion and a valuation at year-end of approximately SEK 4.8 billion, with hand-over in early February. The transaction was contingent upon approval by the Swedish Competition Authority (granted in January 2021) and will thus be recognised as sold in the first quarter of 2021.
  • Portfolio No. 2, with a net sale price of approximately SEK 13.1 billion and a valuation at year-end of approximately SEK 12.7 billion, with hand-over in late March or early April. The transaction was contingent upon both approval by the Swedish Competition Authority (granted in January 2021) and the successful acquisition of Entra (offer withdrawn in February 2021).

The aforementioned portfolios showed unrealised changes in value of approximately SEK 1.6 billion in the last quarter. The portfolio premium, which totals approximately 3% of the net sale price or 20 basis points in yield requirement, has not been taken into account. The portfolio premium, totalling approximately MSEK 550, will only be realised as a change in value upon transfer.

The value of the derivatives changed by MSEK –120 (–111), mainly due to changes in long-term market interest rates.

Changes in value on properties

MSEK

 

2020

 

2019

Cash flow

 

502

 

1,638

Project gains/building rights

 

780

 

532

Required yield

 

2,065

 

1,742

Acquisitions

 

365

 

364

Unrealised changes in value

 

3,712

 

4,276

NOI %

 

3.7%

 

4.7%

Sales

 

151

 

–358

Total

 

3,863

 

3,918

As %

 

3.9%

 

4.3%

Average valuation yield, MSEK

(excl. projects/land and building rights)

 

2020

 

2019

Net operating income, properties

 

4,771

 

4,455

+ CPI/Index 2020

 

294

 

94

+ Real occupancy rate, 94% at the lowest

 

17

 

228

– Property admin, SEK 30/sq. m.

 

–133

 

–128

Normalised net operating income

 

4,949

 

4,649

Valuation (excl. building rights of MSEK 608)

 

98,953

 

90,614

Average valuation yield

 

5.0%

 

5.1%

Income over time

Income from property management over the past ten years shows stable development and has grown by an average of 7% per year. However, changes in value on properties have been volatile over the past ten years, totalling an average of 3.3% per year, which is above the inflation rate (approximately 0.9%) for the corresponding period.

Tax

Recognised tax totalled MSEK 1,413 (1,115), of which MSEK 247 (165) is current tax.