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%.

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.

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.

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

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.

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.