CWQXF (CWQXF) Q3 2026 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to this presentation of Castellum's Q3 Report. There will be a Q&A session in the end of the webcast, and if you would like to ask a question by phone, please dial pound key five on the telephone keypad and ask your question. Let's start. Please go ahead, Pål. Pål Ahlsén: Good morning, and let's jump right into it. Let's start with the share buybacks. This morning, we announced that we intend to buy up to additionally SEK 8 billion of shares, obviously dependent on the share price and the value of our EPRA, the net asset value, of course, and the difference between the share price and the net asset value. Up to SEK 8 billion share buybacks. We have already bought back for SEK 7.66 billion, amounting to roughly 62 million shares during the period January to September. That will continue during this year and in the beginning of next year as well. During the quarter we have also, and due to our pretty big divestments, decided to reorganize Castellum from four to two regions. Two regions will disappear and be merged by two other regions. The idea is that this will increase efficiency and reduce costs. Our aim is to reduce administration costs by 15%, which almost amounts to SEK 100 million. During the quarter, we closed the Alecta transaction with two properties here in Stockholm. After the reporting day, we also closed the Wihlborgs transaction where we sold all our properties in Skåne. Those properties are still in our balance sheet and income statement, but from 1st of October, they are no more with us, but rather with Wihlborgs. We are continuing with our strategy back to basics, which means less bureaucracy, greater efficiency, and focus on leasing, and not the least, disciplined capital allocation. For those of you who are not too familiar with Castellum, we have a property fair valuation of almost SEK 130 billion. We own 37% of a Norwegian office company listed on the Norwegian Stock Exchange called Entra. That amounts to roughly SEK 11 billion. We have slightly more than five million square meters. Most of it is office. At the reporting day, we had 644 properties. Today, as we have handed over the properties in Skåne, we have around 545 properties and around 440, 430 employees. Net leasing is obviously a very important key figure for us. During the year so far, we have positive net leasing of SEK 105 million. This includes the total portfolio, and if we look at the like-for-like or excluding projects, the actual net leasing is negative SEK 63 million. It has been a long period of time now where the like-for-like or the excluding project portfolio has been a negative. And our view and my view is as long as we see negative net leasing excluding projects, we will have issues with the growth of income in the like-for-like portfolio. We will struggle with not increasing the occupancy rate. This is our main focus in the day-to-day business, to increase leasing and reducing vacancy. Here we can see the occupancy, how that has been affected by the negative net leasing for the past year where we had the best performance in 2022, where we were at almost 94% occupancy, and now we are down to 87%. This is obviously the negative net leasing trickling down in these figures. This is the action within the portfolio. Around 30% of the portfolio, we have seen action in the portfolio during the year. Half of that, 40% of the total stock have just prolonged. 3% has renegotiated, and 10% has terminated their leases. In the prolonged leases, there is obviously no change in the lease levels, and in the renegotiated leases, we have had to reduce the rent level by 2.5%. The changes due to prolonged lease term and renegotiation, the total of that is minus 0.4%. Here we can see what affects the lease levels we are, or the in-place rents we have in the portfolio. Obviously, we have disposed lots of properties, and we have made some development and some acquisition. But looking at the like-for-like portfolio, we can see that even if we are able to increase the average rent level a bit, the vacancy has a stronger effect on our in-place rent levels. So like-for-like, we are down minus 1.4% during the past 12 months. Increased vacancy and negative net leasing obviously also trickles down in the like-for-like figures, both for income, rental income, which is down minus 1.7%, and on the net operating income. If you look at the next slide, it is down even more, 3.6%, due to slightly increased cost compared with last year, and mainly due to a bit colder winter this year than last year. Now over to transactions, Christoffer. Christoffer Strömbäck: Yes. As most of you know, and as Pål mentioned briefly in the beginning, we have been quite active on the transaction market. We have signed deals totaling SEK 25 billion of value so far this year, and with the large one being the divestment to AP7 signed in February, SEK 5.6 billion of public properties. The divestment to Alecta signed in June, SEK 5 billion of office properties in Stockholm. And the divestment of our assets and our organization in Skåne to Wihlborgs, SEK 13.3 billion of mixed assets, also signed in June. The Alecta transaction closed the 1st of September, and the Wihlborgs transaction closed the 1st of October. In addition to these larger transactions, we have also signed a couple of smaller ones. In total, close to SEK 650 million in property value. Mix both in terms of geography and category. These figures on this page includes the divestment in Linköping and Umeå that was announced earlier this week. The total value, SEK 24.6 billion, was just above SEK 500 million or 2% above fair value the quarter before the transaction was signed. We are more focused on the total return we expect long-term in relation to the price we get or return on equity perspective, rather than price versus book values. in this table, we also highlight the total profit, that is including all effects in the income statement. That is value changes, of course, but also goodwill and tax effects, which are quite the big ones in the income statement. The value of our properties as of the report date is SEK 129 billion. As Pål mentioned, this includes the properties divested to Wihlborgs. Excluding that figure or that transaction, it is SEK 116 billion. Please notice that we, in the balance sheet in this report, still have these Wihlborgs assets as assets held for sale. During the nine months period, you can actually go back a bit. Thanks. So during the nine months period, we invested SEK 3 billion in our existing properties. Half of it, SEK 1.5 billion, is new construction, and that also includes extensions and reconstructions. SEK 0.8 billion in TIs and SEK 0.5 billion in maintenance investments. So it is quite a large volume of investments in existing properties and projects. The value changes in the period, minus SEK 0.7 billion. Of that, actually SEK 1 billion was in Q3. Of that SEK 1 billion in Q3, roughly SEK 300 million was realized, and that is actually deduction for deferred tax for the Alecta transaction that was closed during that quarter. The remaining is more underlying unrealized value changes. A mix of categories, a mix of geographies. Actually, all of our regions have a minus in front of it, a bit more in Gothenburg than in the rest of the regions, but minus in all of them. Cap rate in our valuations has been very stable over the last couple of years. So the value declines that we have seen has been more of due to lower cash flow expectations. In this quarter, if we compare with the last quarter, the average exit yield is actually nine basis points higher, and that is mainly explained by the two large properties we sold to Alecta, which of course had quite much lower yield requirements than the average of the group. Loan to value, 37.4%, very stable. It was 37.3% last quarter. So stability and has been over quite some time. Also healthy headroom against policy, which is maximum 40%. This is also the larger divestments we have done during this year. We have used the proceeds for debt reduction 40% and equity reduction per share buybacks of 60%. So we are keeping the loan to value in all of those divestments on what we use with the proceeds. Debt maturities 4.0 years, that is down from 4.5 years in the last quarter. That is due to that we have, during the quarter, closed some longer-term loans linked to the divestments to Wihlborgs and Alecta. So also the Wihlborgs transaction we have closed the financing in this quarter before the transaction was closed. We also have one-off costs related to this of SEK 21 million that is recorded in the Q3 report. So that is break costs for loans attributed to those properties. During the quarter, we issued a EUR 300 million bond on the European bond market, three-year at 78 bps of credit margin, and that was done in the end of August. At that point in time, the market was very good. Since then, we see some 10-15 basis points higher margins in the bond market. Still stable margins in the banking system. If you zoom out, the bond market's margins are also still attractive, although they have, as I said, increased a bit over the last couple of weeks and months. Interest-bearing liabilities SEK 56 billion, close to 50/50 split between banks and bonds. We have an average fixed interest term of 2.7 years. We are currently hedged. At the report date, we are hedged at 61%. These hedges will almost equal improve quite a lot in Q4 as the Wihlborgs proceeds came in on the 1st of October. We haven't entered any new interest rate swaps during Q3, and we only use plain vanilla interest rate swaps in the hedging portfolio. As the headline here is unutilized credit facilities SEK 14 billion. As I said, we used quite a lot of our RCFs during Q3, when we paid back debts to Alecta and also for the Wihlborgs transaction. In the beginning of October, we have actually restored that. As of today, the unutilized credit facilities are much higher again. Average interest rate currently at 3.5%, that is same as last quarter. We moved up quite a bit in Q2, and that was when we redeemed the cheap euro bonds of some SEK 9 billion, which we had to do to be able to execute on our strategy of asset rotation. Been stable since then. We actually think that it will be stable also going forward the next couple of quarters, given both the current pricing of the forward STIBOR but also, as I said, with quite high hedging. As of today, as I said, 61% hedging as in the report. If we would calculate it as of today, it would be something like 75%. ICR 3.1 times. Financial policy is that we should be above three times. Also ICR expected to be stable despite the market pricing of higher short-term interest rates. As Pål also mentioned, share buybacks so far during 2026, SEK 7.6 billion, average price just south of SEK 123 per share. With that, we have concluded both the 60% part of the proceeds from the Alecta and AP7 transactions, as well as the part of the results for 2025, and today announced the SEK 8 billion, which is the same proportion of the Wihlborgs transaction. Last week we held an EGM. At that point in time, we have 9.9% of the shares, and then, of course, the EGM decided to cancel those shares. Income from property management per share is on this slide, increased 4.7% when comparing with the first nine months, the same period last year. We have, of course, bought back shares from these transactions. It should be mentioned that the AP7 transaction was closed on 15th of June, and the Alecta transaction 1st of September. So definitely generating some income for quite a large portion of that period. Looking at the 12 months instead, it is 3.4% up. Our net asset value per share is currently at SEK 169. It has increased with 5.9% since year-end, and just below half of it is due to profits, then consequently a bit higher than half of it depends on share buybacks. Bought back substantially below net asset value. As most of you know, our overall financial target is return on equity. Overall business cycle should be above 10%. Taking the first nine months of 2026 and annualizing the figure, we are at 5.2%. Far from the goal, but at least a small step in the right direction after four quite bad years.

With that, it is time for questions. I repeat, if you would like to ask a question by phone, please dial pound key five on your telephone keypad and ask your question. The first question comes from Fredrik Stensved, ABG.

Thank you very much. Morning, both. My first question is on the share buybacks and what you started off this call with saying, Pål. You said that the share buyback program is for up to SEK 8 billion, but dependent on the share price and the difference between NAV and the share price. My question is how we should think about other metrics that I assume also goes into this consideration, not just the difference between the share price. Rates are up, ICR should be coming down for most companies. I guess at what projected ICR do you believe that Castellum has to deleverage versus buybacks, and what else goes into this consideration as well? Pål Ahlsén: If I may start, I would say that our main consideration is to make return on the capital we have in the company. As long as we see what we see right now, we see it's better to return the. If we can't earn it, we have to return it, like we said in the previous quarter. We are constantly looking at prices in the property market and to see whether we can invest in the property market, and it does not look like that right now. Then we have the consideration between the NAV and the share price. Today, there's a distance there that could change either through that the share price increases or that the property prices go down. If the property prices goes down, we will probably start investing in properties again. That's on the sort of the active side on the balance sheet. Then we have the passive side, which you mentioned on interest rate coverage and so on. I will hand over that to Christoffer, but I think with our hedging and pretty stable, even if the net leasing is a bit negative, it's pretty stable income anyway. If we would make a projection of our interest coverage ratio going forward, it will remain around our target of three and around what the rating agencies look at or what Moody's look at for several quarters ahead. Actually years, I would say. That's not the key consideration right now. Do you agree Christoffer? Christoffer Strömbäck: I totally agree. As I said, quite stability on that side. With the pricing that we see in the market as of today, the forward pricing. Then of course, if something changes then we, as always, have to reiterate that thinking. But what we see right now and what we can plan for and with the hedging we have, we feel comfortable with that.

All right. That's clear. Second question is on the hybrid bond, which is callable this winter. Can you talk a bit about how you think about refinancing that one? A new hybrid, other equity instruments, normal debt, or just keeping it where it is? Christoffer Strömbäck: We actually haven't made any decisions on that one. We intend to come back to the market in a more formal way when we do so. We stay away from speculating about that future decision, so to say.

All right. That's fair. Maybe if I reframe the question more from a shareholder and share buyback point of view, without, I guess, going into details or talking about the hybrid specifically before you've made up your mind. But hybrid spreads have widened quite a lot. Can you talk about why it makes sense from a shareholder point of view to proceed with the SEK 8 billion share buyback program compared to deleveraging? Does that only goes back to the fact that you think ICR will stay above three, or can you elaborate a bit on buybacks versus deleveraging? Christoffer Strömbäck: I think as we have stated before, we are quite happy with our current leverage. That's why we have chosen that split between debt reduction and buybacks for distribution to the shareholders. So far it has been through share buybacks.

Okay. I guess we'll wait for the formal announcement. That's it from me. Thanks.

Thanks. Next one is Lars Norrby SEB.

Well, thank you, and good morning. Obviously, you managed to make three really major portfolio divestments during the year. Looking ahead now, are you continuing to work on additional significant divestments? Do you feel that in any way the recent increase in long-term interest rates have affected the transaction market? Pål Ahlsén: I can start answering. We are continuously speaking with a lot of investors, both institutional capital and property companies. There is continued interest in making transactions, even though I would say, and you can give some more color on that later on, Christoffer, that I think the recent rate hike has probably made some people a bit more reluctant. That would be my gut feeling, but still there is a big interest in making transactions. Interest rates are still not very high. There is still access to a lot of capital, and there is a longing for making transactions during a couple of pretty thin years on the transaction market. Many are making strategic investments when there are possibilities to do so. Christoffer Strömbäck: Yeah, I totally agree. As Pål mentioned also, we have a couple of ongoing transactions that we work on, and they are going as planned, I would say. But then, of course it is always the deal is not closed until it is closed. So let us see. Of course, we should be prepared for that in some way or the other, the transaction market is affected by the higher long-term interest rates. We have not really seen it in the transactions so far to be honest.

My second and final question is regarding your holding in Entra. Obviously, a potential source of cash that can be used to buybacks if something happens to the ownership. Pål, you are on the Board of Directors. What is the thinking from your side in terms of Entra? Do you want to do the same thing as you are doing in Castellum? That is divesting properties and using that for buybacks. Pål Ahlsén: I think the discussions we have in the boardroom in Entra needs to stay there, but obviously I am a bit inspired of what we are doing in Castellum.

In terms of ownership, are you more likely to go down in ownership than to go up in ownership in Entra? Pål Ahlsén: Oh, no. Tricky question. We are not discussing adding any shares as it is right now. Our main concern is all the shareholders that have had pretty weak development for the past 10 years owning Entra shares to improving that. So that is what we are discussing rather than changing or going up 1% or 2% or going down 1% or 3%. But in the long term, I have said this before, obviously, I think Castellum should focus its operations in Sweden predominantly.

Okay. Thank you.

Thanks, Lars. Next one is Staffan Bülow, SB1 Markets. Staffan Bülow: Good morning, and thank you. A couple of questions, starting with the buyback. The mandate is limited to 10% of the shares, but at the current share price, SEK 8 billion would correspond to more than 10% of the share count. If the NAV discount remains quite wide, would you consider canceling the initial 10% then launching a new buyback program to reach the SEK 8 billion? Pål Ahlsén: Yes. A simple answer. Staffan Bülow: All right. Very clear. You announced in Q3 that you will reduce admin cost by SEK 100 million. How much is central and property, and how long time will it take to reduce admin cost by SEK 100 million? Pål Ahlsén: I think it will take, probably if one look at it from a balance sheet perspective, I think we are there perhaps in the summer next year or in one year from now, if you look at it from a balance sheet perspective. Gradually we will see declining cost during the coming 12 months. The allocation between property administration and central administration will become more of a guesswork. Actually we are looking at that as one thing actually within the company, or at least I do. I think to give you some color, I think roughly half of it will come from reducing staff, and the other half will be other parts from reducing offices, since we are smaller, cutting back on other small things and many small things, and eventually that becomes quite large sums. Staffan Bülow: Okay. That is clear. A question on the leasing market, because if you look at net letting in standing assets, it was actually less negative in Q3 versus Q2 also where the negotiations were less negative. Would you describe the leasing market as the same versus last quarter, or do you see some improvement? Pål Ahlsén: Still we are facing quite a lot of competition. It still have not turned around to a positive market. I think one wisely should look at the standing assets and not add all the projects which I think many are looking at the complete things, but it is significantly more profitable, obviously, to lease in standing assets which you have already paid for than paying for a new asset and then have positive net leasing. That is not comparable, not even close to comparable. The net leasing on standing assets, removing projects is the key for turning the underlying profitability around. Then we still see a lot of competition due to high vacancies in general in our portfolio. Staffan Bülow: Perfect. Thank you. Those were my questions.

Thank you, Staffan. Next one is John Vuong Kempen.

Hi. Good morning. Thanks for taking my questions. On capital return, there is some alternative route to return capital, which is a special dividend. Could you maybe walk through the rationale for choosing a share buyback over a special dividend? At what point could you consider that as an alternative? Pål Ahlsén: We do not want to say any figures on when we think that the other is better than the other, so to say. At this point in time, as the share has been trading so far and trading now, then we think it makes more sense to buy back shares than to pay it out as dividend, ordinary dividend or special dividend.

Okay. So by the sounds of it is pretty much driven by the discount to NAV then? Pål Ahlsén: Yeah. That is one part of it.

Great. Thank you. Just following up on the deleveraging question. I appreciate you steer your capital allocation decisions based on your LTV ratio of 37.5%. But as an equity analyst, I do look at the hybrid as 100% debt, as is the case for our LTV, which now continues to increase and now is 51%. It continues to increase as you distribute 60% of your proceeds in share buybacks. Is there a point where this becomes too high? Christoffer Strömbäck: You are right, of course. We are not only staring at our report that ultimately we look at all of our different LTV measures, so to say. Of course, hybrid sizing compared to the overall balance sheet is also important. That is part of the discussions we are having. As I said, let us come back to the hybrid once we have decided upon that. But of course, that is something that is going into that discussion.

Okay. Thank you.

Next question, Pranava Boyidapu, Barclays.

Good morning. Thank you for taking my question. Forgive me for bringing the hybrid back into the conversation. I understand you have a lot of options, and you have not your decision. Is it possible for you to explain a few of the options available in context of the fact that you just said you expect your cost of debt to remain at the percent and ICR to be in line with where it is currently? And of course, in context of the fact also that you talk about saving SEK 100 million on admin costs. Arguably, how you deal with the hybrid is going to cost you a lot more than that. Can you just lay out maybe three or four options that you possibly have just to understand how the cost might look like? Christoffer Strömbäck: I understand that question, of course. It is relevant. We actually would like not to go into different alternatives because it will always be interpreted as our major alternatives or the ones we are thinking of the most right now. We think it is more prudent to come back when we have something to announce on the matter.

Okay. Let me ask you this question in a different way. Do you think that cost of debt is going to stay around 3.5% in the next six months, including any action you might take on the hybrid? Christoffer Strömbäck: Also that one, we have to come back on it. Look at everything we have said on ICRs, on interest rates, et cetera, as is, of course as our balance sheet looks today.

Sure. I appreciate that. I guess it's worth just flagging that the call date is six weeks away, and the USA5 at this point is around the same level as the average cost of debt that you're mentioning. That's all that I had.

Thank you. The next one, Nadir Rahman, UBS.

Hello, good morning. I hope you are well. Two questions from me. The first one on the value changes. You mentioned the report that the values declined due to more difficult leasing and lower cash flow expectations due to vacancies persisting for longer. Could you first clarify where these are in terms of location and why you are seeing these harder to fill? Is it due to tenants being in wait and see given the macro environment, or is it due to downsizing? That is my first question. Christoffer Strömbäck: Geographically-wise, value declines in the quarter is throughout our regions. All of our regions actually have a minus in front of the figure. It is quite broadly. I think I mentioned before that it is a bit higher in Gothenburg than the other regions. It is specifically more on Lindholmen where we also had at least one larger move out, or known move out, I should say, maybe.

Okay. That is very helpful. Thank you. My second question, revisiting the Entra point. I am looking at my screen, and I see that Castellum has quite materially outperformed Entra year to date, something 40%-50%, if not more. As it stands today, does this not look like an attractive entry price? Not to your point, stay where you are, but instead to increase the stake. To the question asked before me, to drive value for Castellum, if you were to essentially use your churn and earn model to crystallize through disposals and buybacks, does it look like an attractive point at which to buy into Entra and increase it? Or are you still strongly committed to staying Sweden-centric? Pål Ahlsén: Was the question about Entra?

That is correct, yes. Pål Ahlsén: Okay. I didn't hear. Okay. Obviously, I think our DNA in the company is truly in Sweden. We've been operating commercial properties in Sweden for the past more than 30 years. So this is the key knowledge. That's why we've stated that our strategy is to own properties predominantly in Sweden, commercial properties. The Entra stake came in Castellum at another time, by the end of the golden era of real estate, where everything looked bright for the future, interest rates were negative, and still the demand for properties were significantly higher than we see today. So now we have that stake in Entra, and our only concern now is to make Entra better or make Entra great again. And that's done through, obviously, we are a bit inspired by what we're doing in Castellum, and we think that's something we are discussing also, obviously, in Entra. But there are more shareholders, there are more board members than we, and they are smart and have good ideas, them as well. But those specific discussions need to remain in the Entra boardroom.

Yeah, of course. That's great. Thank you very much. Pål Ahlsén: Thank you.

Thank you. That was actually the last question for today. Thank you all for listening, and have a great day.