It was a strong start to the year across all three business areas, Investment Management, Principal Investments and Corporate Finance. Assets under management increased by SEK 17 Bn and operating profit attributable to the Parent Company shareholders increased by SEK 127 M to SEK 111 M year-on-year. The drivers behind the strong progress are primarily due to Principal Investment’s first property sale from the Infrahus portfolio and last year’s positive growth of assets under management in Investment Management.
The first quarter of 2022 was unfortunately impacted by the Russian invasion of Ukraine and a significant increase in macro economic uncertainty. The crisis brings the debate regarding energy efficiency and sustainability to the table as well as a global increase in interest rates and inflation. These challenges, and opportunities, for the real estate sector makes it even more important for Catella to refine and develop our company with a clear goal of being the link between property and global capital.
Following the divestments and liquidations of Catella's non-core business segments, we have continued to develop and strengthen our remaining operations. As part of this, we performed a strategic review of Corporate Finance which resulted in the difficult decision to discontinue our operations in Germany and the Baltics where we have experienced limited synergies for the Group and losses for several years. The divestment impacted the first quarter with non-recurring costs but ensures that going forward we can focus further on growing the markets where we have a strong position, and further benefit from the existing synergies between Corporate Finance and our other business areas.
A focused company also gives us the ability to accelerate growth by broadening our product offering and expanding geographically. Our majority holding purchase of Warsaw Property Partners at the start of May is an example of opening up a new market which will immediately generate an Investment Management platform and opportunities to identify development projects for Principal Investments in collaboration with our new partners.
Stable inflow of new capital in Investment Management
In line with previous years, the first quarter was quiet and had lower acquisition activity and hence moderate growth in assets under management, which currently amounts to SEK 126 Bn. Behind the growth was a strong inflow to the CER III fund, Catella's first dark green, article 9 classified, fund which reached the milestone of EUR 1 Bn in the quarter. I am also pleased that we launched our second dark green fund, Elithis Towers, which plans to develop approximately 100 energy-positive residential properties. This is an exciting and long-term partnership and also the world’s first ”Energy-positive Residential Impact Fund”.
To further meet our own and our investor's sustainability ambitions, we have started a review of our current property holding within our funds. The aim of the review is to give us a clear picture of which properties we can, and should, adapt from a sustainability perspective and which should be divested in order to invest in more sustainability assets.
Year-on year, Investment Management's operating profit improved by 70% and demonstrates the scalability of the business model. The interest in our investments remains strong and committed capital for future fund investments exceeds SEK 12 Bn which enables further growth. In the quarter we simplified the name of the business area to “Investment Management”.
First sale from the Infrahub portfolio and a total of seven development projects in Principal Investments which will be completed and divested during 2022
In March, the first sale of a development project from the partly owned Infrahubs was completed. There was great interest in the property, which confirms our solid business model of developing a portfolio of modern and sustainable logistics properties with long leases. The sale generated a total profit of SEK 102 M, with an additional SEK 30 M to be recognized when the installation of what will be the largest rooftop photovoltaic cell facility in the Nordics is completed.
To further simplify and clarify Catella’s organisational structure, all project development companies were moved to Principal Investments in the quarter. Currently, we have SEK 1.3 Bn invested in 16 projects in six countries. Seven of these are expected to be completed and divested during 2022.
A stronger and focused Corporate Finance
Despite a weaker transaction market, as usual during the first quarter, operating profit increased by SEK 20 M after excluding non-recurring costs related to winding-down the German operations (SEK 17 M).
Corporate Finance Sweden was the transaction advisor for the sale of the logistics property in Norrköping, which generated a successful sale for Principal Investments and a market based fee for Corporate Finance, proving the important role Corporate Finance plays for the rest of Catella.
Despite a more uncertain global outlook, we see a continuous stable pipeline of transactions in the upcoming quarters. We also see an increased demand for services within our newly launched business area, Debt Advisory, as an effect of a tighter credit market and refinancing needs.
The macro economic and geopolitical uncertainties continue and are impacting the decisions we make for the future. In the short-term it is evident that we are entering a market with higher inflation and rising interest rates. Furthermore, we note an increased interest in sustainable assets, which to us is positive.
However, I feel secure in the quality of our current pipeline and the investment philosophy that we base decisions on.
Looking ahead, we will not comprise our return requirements nor risk control for future investment decisions in a more uncertain macro environment.
Next week, I will gather my European colleagues to discuss future challenges and opportunities in an environment with tighter monetary policy and increased focus on sustainability. The aim is to reach a clear agenda and consensus regarding areas where we can mitigate potential negative effects from an increasing uncertainties. But, more importantly, our aim is to identify and develop sustainable services and products better adapted to a changing world.
My personal ambition is that Catella will continue to create and refine its existing portfolio of partner companies and development platforms with a shared sustainability vision and the ability to deliver stable growth and a profitable project pipeline.
Christoffer Abramson, CEO and President
Stockholm, Sweden, 6 May 2022