Following a more positive outlook in the fourth quarter of 2023, the market returned to being more hesitant in the first quarter of 2024. Transaction volumes and capital inflows on the European market remain very low compared to the peak in 2021. In a situation where central banks continue to search for evidence of stabilized and lower inflation, we expect that we will have to wait a few more quarters before we see a clear turnaround in the transaction market. While our pipeline for transactions is stronger than it has been for some time, most transactions continue to take historically long to complete and the proportion of completed deals remains relatively low.

In line with a hesitant market and the associated lower revenues, we are reviewing and adjusting our cost base. Compared to the same quarter last year, total income decreased by SEK 44 M, but we simultaneously reduced costs by SEK 46 M which led to a slightly improved operating profit of SEK 4 M (2). The comparison includes a negative change in market valuation of our fund investments by SEK -8 M.

At the same time as continuously cutting our costs, we have also made progress with other initiatives. For example, we have developed an AI tool that identifies locations for development projects where future demand for rental apartments is substantial and the potential for value growth is high. The tool is currently being used in the launch of our new product “European Living Development”. This product strategy has been developed to meet the extensive demand for, and growing shortage of, modern, sustainable and affordable living in Europe. At the same time, it also meets investors’ increased return requirements.

In general, capital raising continues to take longer to complete, but as interest rate expectations stabilize and financing terms improve, we expect the investment market to pick up.

Unchanged assets under management
Assets under management in Investment Management totalled SEK 151 Bn in the quarter, slightly down on SEK 152 Bn at year-end. The background to the decrease primarily relates to a finalized asset management mandate in the UK. The mandate totalled close to SEK 6 Bn and was initiated over six years ago based on an aggregation strategy in London, and once the portfolio reached the targeted size, the mandate was ended.

Profit for the quarter amounted to SEK 32 M (31), where income was slightly down on the previous year although this was offset by lower costs. After the end of the quarter, we entered into a few new mandates which support the business area’s long-term growth.

Project developments and divestments according to plan
In the quarter, we completed the sale of the final logistics property in the Infrahubs partnership. In Catella Logistics Europe, we completed and transferred the logistics property in Barcelona, and for the Isoparc project in France we chose to reclaim the invested capital relating to the land acquisition and continue our role as project developer. Principal Investments currently has investments of approximately SEK 1.4 Bn divided over 8 projects in Denmark, France, the UK and Germany.

Other development projects are proceeding according to plan and dialogues relating to future divestments are also progressing according to expectations.

Having further strengthened our liquidity, we are well equipped to invest in new projects that satisfy our required rate of return and that can lead to new management mandates.

Transaction market more sluggish in the quarter
As mentioned, transaction volumes in the quarter remained at low levels. This was reflected in Corporate Finance’s revenue, which decreased by -14 per cent year-on-year. While the business area has adapted its cost structure, the exceptionally low transaction volumes generated a slightly increased loss.

By focusing operations over the past 12 months, we are prepared and in a good position to grow cost-effectively as the market recovers and our pipeline is realized.

Outlook
With a more efficient organization and lower cost base, Catella continues to launch attractive products adapted to longer-term market expectations. With our pronounced ESG focus, use of AI, and shared intelligence across the Group, we continue to hone our offering while awaiting market stabilization and a return to more normalized transaction levels. Overall, these initiatives ensure that we are in a strong and resilient position for continued profitable and sustainable growth.

Catella presents the Interim Report and answers questions today at 10 a.m. CET. To participate, go to https://financialhearings.com/event/48740

Christoffer Abramson, CEO and President
Stockholm, Sweden, 06 May 2024