I am pleased to present improved profits and continued growth in assets under management in a challenging and uncertain economic environment. We are however not unaffected by the macro climate, where uncertainty is dampening investment activities and making financing challenging. The transaction market declined sharply in the second part of the year, which affects all three of our business areas. We believe it will take additional time before sellers’ expectations are sufficiently reduced and buyers perceive that the market has reached the necessary stability for long-term investment decisions, after which the property market will enter a stronger phase. During a cautious period, our strong financial position enables us to make long-term investments in areas such as product development, M&A, opportunistic direct investments, and digitalization.
Over SEK 140 Bn in assets under management but lower expectations on capital inflows going forward
Assets under management increased by SEK 7 Bn to SEK 142 Bn in the third quarter, and we are pleased that our real estate funds and mandates continue to deliver strong returns coupled with a strong sustainability focus. However, a likely scenario until markets stabilize is that capital inflows and growth will decrease in the near term, due to a slower transaction market and a lower investment appetite. In the current market environment, we will continue to develop our fund offering with products with a sustainable profile, which has been a growth driver in recent years. We are also developing new value-add product strategies, driven by demand from our pan-European clients.
During the quarter, Catella signed an agreement for the sale of 26 rental properties in Germany and eight in the Netherlands with approximately 4,000 apartments to ZBI Group from two of our residential funds. The rationale for the sale is to modernize the property portfolios and to enable new investments with an improved sustainability profile. The transaction is expected to be completed and accounted for around year end.
Investment Management’s operating profit improved by 60% year-on-year. This was largely driven by fixed fees from our continued growth in assets under management, and also by performance-based income from specific asset management mandates.
Divestments postponed due to market uncertainty
In Principal Investments, we continue to develop our projects as planned. However, the timing of planned sales has been delayed slightly. Investors are less active than previously, which is natural in an environment where underwriting and macro parameters are less predictable. In such an environment, it is an advantage to be well-capitalised and stay calm during the current turbulence, as our projects remain attractive in the long term. We are also looking at a number of opportunistic investments in various European segments and geographies.
As of September 30, Principal Investments had approximately SEK 1.3 Bn invested in 11 projects in six countries.
Weaker transaction market
Before buyers’ and sellers’ expectations align, the transaction market will continue to be relatively inactive. Corporate Finance sees a stable pipeline of transactions during the upcoming quarters, albeit at a slower pace than normal. On the other hand, demand for valuation services is strong in the current uncertain market with material price movements.
Operating profit for the quarter was SEK 6 M, an increase of SEK 10 M compared to the previous year. This is primarily due to divestments of loss-making operations earlier in the year.
We predict, and are adapting to, continued uncertainty in the macro-economic and geopolitical environment, with a dampened transaction market affecting all of our business areas. We continue to develop product offerings in sustainable investments and management mandates to promote energy transition, an area in which investor interest remains strong. We are also working with our investment partners to develop new product strategies with increased focus on long-term value-add investments in areas where we see business opportunities. Thanks to our strong financial position and attractive assets, we are in the comfortable position to hold our own assets until the market has stabilized, and instead focus on evaluating new opportunistic investments. In Corporate Finance, we continue to help our customers in a more sluggish transaction market, primarily through larger portfolio transactions, including financing advice.
At Parent Company level I am pleased to welcome Peter Umegård as Chief Digitalization Officer. With Peter’s experience added by further recruitment of leading-edge competencies in data and digitalisation, we will raise our level in data, analysis, research, AI and new product strategies. As always, our aim is to help our investors and customers to create value, based on intelligence-driven, future-focused strategies and investment opportunities.
Thank you for your continued confidence in Catella.
Christoffer Abramson, CEO and President
Stockholm, Sweden, 28 October 2022
Catella presents the Interim Report and answers questions today at 10 a.m. CEST. To participate, go to https://financialhearings.com/event/44524