Catella continues its strong growth and continues to deliver on our refined strategy with three property-focused business areas.
Investment Management reported its best quarter to date, driven by both growth in assets under management (AUM) and performance-based fees. Principal Investments completed two sales from its property portfolio that significantly exceeded the business area’s target return of 20 percent IRR. Corporate Finance noticed a slightly weaker transaction market due to a gap in the price expectations between sellers and buyers.
AUM increased by SEK 23 Bn over the past 12 months and SEK 10 Bn since previous quarter, showing that interest in our product offering remains strong among investors. At Group level, operating profit attributable to Parent Company shareholders was SEK 328 M, delivering one of the best quarterly results ever.
The world continues to be impacted by Russia’s invasion of Ukraine and a general macroeconomic uncertainty. In addition to increasing inflation and rising financing costs, energy costs are also increasing. For Catella, this leads to accelerated efforts for energy transition in our investments, fund and mandate offerings, and in transaction advisory. As always, challenges of this type also give rise to new opportunities, and Catella sees the accelerated development as a positive force in the property sector. We recently adopted a long-term ESG strategy at Group level, which harmonizes our long-term ambition and goals across subsidiaries and business areas.
We continue to enjoy a strong financial position where liquidity is further strengthened by Principal Investments’ sales of development projects. Without near-term refinancing needs and a strong cash position, we are well positioned to explore long-term and opportunistic investments for continued profitable growth.
New milestone in Investment Management, exceeding SEK 130 Bn in assets under management
In the second quarter, Catella’s AUM increased by SEK 10 Bn to SEK 135 Bn. This marks a new milestone in the business area’s history. Inflows remain strong to funds with residential focus and Catella’s first dark green, article 9 classified fund, CER III.
Asset Management mandates also contribute to the growth, and our acquisition of Catella WPP (Poland) increased AUM by nearly SEK 1.5 Bn. In an uncertain macro environment with lower property investments, our competencies and well-implemented projects for adapting and repositioning properties is meeting market demand.
We continue to review the current property holdings in our funds to further meet our own and our investors’ sustainability ambitions. In 2022, we expect to sell certain portfolio assets to facilitate a transition to other investments as well as sustainability profiled investments.
Investment Management’s operating profit improved by over 40% year-on-year, driven by underlying strong growth in AUM and performance-based fees. We continue to see strong interest from investors, and committed capital for future fund investments exceeded SEK 10 Bn at the end of the quarter.
Two additional successful sales in the property portfolio reducing Catella’s risk exposure in development projects
During the second quarter, two further sales of development projects were agreed in the partly owned Infrahubs. Interest in the logistics properties was strong and resulted in profit of nearly SEK 100 M, corresponding to an IRR of 58 percent.
We continue to see strong interest in the modern, sustainable logistic properties that we develop. Uncertainty regarding construction and financing costs has however increased for development projects. In light of this, stronger focus will be given to co-investments with partners in order to open up new revenue streams in Investment Management and Corporate Finance. Additionally, we expect good opportunities for opportunistic investments in the current market.
After the end of the quarter, Principal Investments’ investments in six countries totalled approximately SEK 1 Bn in eleven projects, four of which are expected to be divested in 2022. All development projects have financing and expected development costs in line with our return requirements.
Slower transaction market during the quarter
Catella Corporate Finance continues to enjoy a strong market position in all five remaining markets. However, the current bid-ask spread between sellers and buyers slowed and post-poned transactions during the quarter. Before the gap is closed, we expect a continued tentative transaction market. Despite lower revenues, Corporate Finance delivered a solid operating profit of SEK 26 M (43) during the quarter.
In Sweden, Corporate Finance was the transaction advisor for the sale of the logistics properties in Örebro and Ljungby. At group level, we continue the work of facilitating synergies between our business areas. During the past year we have seen many good examples and these sales highlight additional ones.
We continue to see a stable transaction pipeline into the coming quarters, albeit at a slightly slower pace. However, tighter credit markets and future refinancing needs will likely benefit our newly established segment in Debt Advisory.
We continue to operate within macroeconomic and geopolitical uncertainties, which significantly impact the decisions we make for the future. We are currently taking a slightly more cautious approach to own investments in development projects. We have a strong balance sheet, which we will continue to strengthen. In a turbulent market, we want to be able to act on opportunistic investment opportunities and invest long-term in our business for future revenue streams in all our business areas.
We will also continue to develop our offering in sustainable investments and mandates to promote energy transition in the property sector, a market in which we have built a strong position that we aim to continue to grow.
In terms of results, we expect one of the best years in the company’s history. This is supported by a refined strategy that focuses on growing assets under management in our property funds and an attractive total product and service offering targeted at the property sector.
Thank you for your confidence. We will continue the exciting work of creating customer, societal and shareholder value in 2022 and beyond.
Christoffer Abramson, CEO and President
Stockholm, Sweden, 19 August 2022
Catella presents the Interim Report and answers questions today at 10 a.m. CEST. To participate, go to https://financialhearings.com/event/44397.