Catena AB (publ) Box 262
SE-401 24 Göteborg, Sweden Visitors: Lilla Bommen 6 Tel: +46 31 760 09 30 Fax: +46 31 700 89 88 www.catenafastigheter.se
Catena AB ANNUAL REPORT 2007
Catena is a property company focusing on properties in commercial areas outside city centres. The property portfolio is located in four growth regions in the Nordic countries:
Stockholm and Mälardalen, Västra Götaland, Öresund and Oslo.
CA TENA AB ANNU AL REPOR T 200 7
Solberg • Printed by: Strokirk-Landströms • Photography: Jonatan Fernström, Peter Brundin and others.
Catena Annual Report 2007
What you need to know
about Catena 2–3
Statement by the CEO
— Catena creates value 4–5 Business concept, goals
and strategy 6–7
Market profile 8–10
Property portfolio 11–15
Valuation 16–19
Risk and sensitivity analysis 20–21
Financing 22–25
Description of the regions
Stockholm and Mälardalen Region 26–27
Västra Götaland Region 28–29
Öresund Region 30–31
Oslo Region 32–33
Personnel 34
Responsibility for the environment 35 The Catena share went
against the flow 36–37
Financial report 38–72
Property list 73–76
Corporate governance 77–78 The Board of Directors 79
Group management 80
Definitions 81
The cover picture shows the property Almedal in Göteborg.
Contents Financial information
• Interim report January–March 2008: 21 April 2008
• Interim report January–June 2008: 14 August 2008
• Interim report January–September 2008: 23 October 2008
• Year-end report 2008: February 2009
Information about the Annual General Meeting
Catena’s Annual General Meeting for 2008 will be held at 4.30 pm on April 21, 2008 at Radisson SAS Scandinavia Hotel, Södra Hamngatan 59–65 in Göteborg. To be able to participate, shareholders must be registered in the share register and have notified their intention to attend.
Registration in the share register
Catena’s share register is kept by the securities register centre, VPC AB. Only shareholdings registered by the owner are listed under the shareholder’s own name in the share register. To have the right to participate in the Annual General Meeting, shareholders whose shares are managed by a nominee must re-register the shares in their own name. Shareholders whose shares are managed by a nominee should request the bank or stockbroker manag- ing the shares to request temporary owner registration,
“voting-right registration”, in good time before April 15.
Stock managers usually charge for doing this.
Notification
Notification of attendance at the Annual General Meeting may be made:
– by completing a form at www.catenafastigheter.se – by telephone +46 31 760 09 39
– by post to Catena AB, Box 262, SE-401 24 Göteborg, Sweden
– by e-mail to arsstamma@catena.eu
Notification should include the name, date of birth (Swedish personal ID no.)/corporate ID number, address and telephone of the intended participant. Shareholders wishing to attend the Annual General Meeting must have notified their wish to attend at the latest by 4 pm on Tuesday, April 15 when the notifying period ends.
Representative and assistant
A shareholder who does not attend in person may exercise his right through a representative who shall have a power of attorney signed by the shareholder. Forms of power of attorney are available at www.catenafastigheter.se. The power of attorney must not be more than one year old.
A shareholder or a representative may be accompanied by at most two assistants at the Annual General Meeting.
Shareholders wishing to bring an assistant should notify this to the company at the latest by the time stated under the heading “Notification” above.
Average number of shares
Weighted average of number of shares at the beginning and end of the period.
Book value of properties
Book value of properties, land, construction in progress and building fixtures and fittings.
Cash flow for the period from operating activities per share Management income for the period divided by the number of shares outstanding at year-end.
Debt/equity ratio
Interest-bearing liabilities divided by equity.
Economic occupancy rate
Rental revenue as a percentage of rental value.
Equity per share
Equity at the end of the period in relation to the number of shares at the end of the period.
Equity/assets ratio
Equity as a percentage of total assets.
Interest coverage ratio
Profit/loss after financial items after reversing interest expense, di- vided by interest expense.
Interest coverage ratio, current management
Income from property management after reversing interest expense, divided by interest expense.
Lettable area
Total area available for letting.
Loan-to-value ratio, properties
Interest-bearing liabilities as a percentage of the book value of properties.
Management income for the period after standard tax per share Management income for the period less 28 % tax, divided by the average number of shares.
Net operating income per sq.m.
Net operating income on an annual basis divided by lettable area.
Net profit for the period per share
Net profit for the period divided by the number of shares outstanding at year-end.
Number of properties
Total number of properties owned by the Catena group.
Number of shares
Registered number of shares on a particular date.
Pre-tax profit for the period per share
Profit before tax divided by the number of shares outstanding at year-end.
Property expenses
Operating expense, repair and maintenance costs, site leasehold charges/ground rents, property tax and property administration.
Rental revenue
Rents charged including supplements such as payment for property tax.
Rental revenue per sq.m.
Rental revenue on an annual basis divided by lettable area.
Rental value
Contracted rental revenue and potential rental revenue for vacant premises assessed by the company.
Return on equity
Net profit for the period as a percentage of average equity.
Return on total capital
Income from property management for the period after financial items plus interest expense as a percentage of average total assets.
Surplus ratio
Net operating income as a percentage of rental revenue.
Yield
Net operating income on an annual basis as a percentage of the properties’ book value at the end of the period.
DEFINITIONS
Key data
2007 2006
Financial
Return on equity, % 23.6 37.6
Return on total equity, % 13.4 17.7
Equity/assets ratio, % 39.6 33.8
Interest coverage ratio, management income, multiples 2.4 3.2
Loan-to-value ratio, properties, % 49.4 55.6
Debt/equity ratio, multiples 1.2 1.6
Share-related (relates to number of shares at the end of the period)
Earnings per share for the period, SEK 18.70 22.05
Management income for the period after standard tax per share, SEK 4.59 6.19
Management income for the period per share, SEK 6.38 8.60
Equity per share, SEK 86.99 71.43
Dividend per share, SEK 5.00 —
No. of shares at the end of the period, thousands 11,565 11,565
Average no. of shares, thousands 11,565 11,565
Property-related
Book value of properties, SEKm 2,479 2,352
Yield, % 6.1 6.6
Lettable area, sq.m 227,500 258,462
Rental revenue, SEK/sq.m. 772 697
Net operating income, SEK/sq.m. 663 599
Financial occupancy ratio, % 98.3 98.8
Surplus ratio, % 85.9 85.7
The year in brief
• Rental revenue totalled SEK 179.7m (177.0)
• Income from property management amounted to SEK 73.8m (99.5)
• Net profit for the year amounted to SEK 216.2m (255.0)
• Unrealised changes in value were included in the result at SEK 168.4m (252.8)
• In March 2007, six properties were sold with a capital gain of SEK 37.7m (—)
• In June 2007, one property was acquired at Svågertorp commercial area in Malmö
• A partly new board was elected at the extraordinary shareholders’ meeting in October, due to changes in ownership that have taken place in the company
• During the year, investments were made in existing facilities at SEK 95m (53)
• Decisions have been taken during 2008 to invest SEK 143m
• The Board proposes an increase in dividend to SEK 5.25 (5.00) per share
CATENA
2007
2
Catena is a property company focusing on proper- ties in commercial areas outside city centres. The property portfolio is located in four growth regions in the Nordic countries: Stockholm, Göteborg, Öresund and Oslo.
Catena’s 30 properties had a book value of SEK 2,479m as at December 31, 2007. Approximately 61% of the book value of the properties is in Stockholm and Göteborg. At January 1, 2008, Catena’s rental revenue amounted to SEK 187.3m (185.7) on an annual basis.
Revenue flows are stable since leases are long term. At the beginning of 2008, the occupancy rate was 98.3% (98.8).
Shares listed on OMX Nordic Stock Exchange The Catena share is included in the list of small-sized com- panies, Small Cap. The share is traded under the short name CATE and is included, among other places, in the index for property companies OMX Stockholm Real Estate. During 2007, the share rose by 6.2 %, from SEK 100.75 to SEK 107.
Long-term relations with tenants
Catena’s largest tenant is Bilia, a car dealer which accounted for 91% (93) of Catena’s rental revenue as at January 1, 2008.
Catena will continue to cooperate with Bilia, as a major tenant, but intends to increase the proportion of revenue derived from other tenants, both by acquisitions and new leasing. Catena’s know-how and knowledge of the needs and
preferences of retail and distribution companies is to constitute the foundations for the company’s development.
Catena’s success factors
Catena has experience of working closely with tenants
•
and understands their needs and wishes. The company has unique expertise in car sales and service which can be used in other sectors in which tenants demand change and good commercial locations.
Catena can expand further in the commercial properties
•
segment, focusing on current markets through active man- agement and improvement of the property portfolio. There are excellent opportunities for attracting new tenants, as a result of the properties’ good locations and Catena’s skills in the development of properties to suit customers’ opera- tions.
According to its strategy, Catena shall acquire commercial
•
properties with potential for stable revenues and satisfactory prerequisites for successful long-term value growth. Active management and streamlining make the properties more attractive, and this has been a consistent feature throughout the company’s history.
Catena shall divest properties for which it is considered
•
that there are limited opportunities for further value growth.
What you need to know about Catena
Locations in growth regions
Properties Book value, Rental revenue, Lease duration, Occupancy rate,
SEKm SEKm years %
Stockholm and
Mälardalen 9 897 65.1 11.5 96.2
Västra Götaland 10 607 48.5 10.2 100.0
Öresund 7 501 40.6 4.4 98.3
Oslo 4 474 33.1 12.6 100.0
Total 30 2,479 187.3 10.3 98.3
CATENA
2007
3
WHAT YOU NEED TO KNOW ABOUT CATENA
Oslo Region (read more on pages 32–33)
Västra Götaland Region (read more on pages 28–29)
Stockholm and Mälardalen Region (read more on pages 26–27)
Öresund Region
(read more on pages 30–31)
CATENA
2007
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Catena continued to develop well during 2007, and the year was marked by intensive work with invest- ments in the existing portfolio of well-located com- mercial properties.
Our properties are well located with good potential for further streamlining, which creates value for our customers and a growth in value and stable growing cash flow for Catena.
Together with long leases, this creates stability and provides good financial prerequisites for further development and streamlining, enabling us to offer our services to even more customers with the aim of becoming a leading player focused on commercial properties in the growth regions Stockholm, Göteborg, Öresund and Oslo.
… by streamlining
During the year, the focus has been on streamlining for Catena.
We have opted to make investments in our own portfolio, since we have seen that we can achieve a better return on investment and profitability in our own projects. During the year, we invested a total of SEK 95m in our properties.
The most extensive projects are a major investment in three properties in Norway and the conversion and extension of Almedal in Göteborg.
We are continuing to invest in our properties in close collaboration with our customers and have already decided on investments of SEK 143m during 2008. We also have a number of building rights where there is potential to create value. One example is the property in Almedal in Göteborg where we, in conjunction with the tenant vacating parts of the property, can make use of a building rights consisting of around 5,500 sq.m. Another example is the property in Lund where we are now negotiating on additional investment opportunities.
… by acquisition
Our strategy for creating value for our customers and our shareholders is focused on active management of the property portfolio, acquiring commercial properties, streamlining and developing the property portfolio and divesting properties, which are outside of our priority markets or which do not have any development potential.
Apace with prices of properties continuing to rise, our ability to grow by acquisition has been limited. Package transactions with good and less good properties continued to be paid with a premium. Towards the end of the year, some indications of a trend reversal could be seen – vendors and purchasers found it more difficult to find one another and fewer deals were signed. In this situation, the vendors still had
high expectations on prices while many purchasers were more hesitant. What was more noticeable was that high-geared investors disappeared from the market, naturally affected by the increasing turbulence in the financial markets with a squeeze on financing opportunities.
There are a lot of players who compete to purchase fully developed properties with long leases. This is not our strategy – we want to acquire properties or land with development potential.
During the year, we acquired one property in Svågertorp commercial area in southern Malmö. At the time of acquisi- tion, the property was vacant although our analysis showed that had great potential, since it is located adjacent to IKEA’s future location in the area. In early 2008, we have moreover acquired the neighbouring property consisting of an undevel- oped site. We will build a new office on the site for the listed Danish company Vestas. The project is to be completed in February 2009.
… by concentration
Our strategy also involves selling properties which do not have development potential or which are located outside our priority growth markets. In accordance with this strategy, we completed sale of six properties in March 2007 in Eskilstuna, Strängnäs, Falköping, Skara, Skövde and Trelleborg. The property portfolio was sold for SEK 235m, which was 21 % above the valuation at year-end 2006/2007. The total capital gain amounted to around SEK 37.7m, which corresponds to SEK 3.26 per share.
Favorable development during 2007
Catena has a stable business – with long leases, a long-term approach to planning and a clear cost awareness. We are reporting a management income of SEK 73.8m, compared with last year’s result of SEK 99.5m. Disregarding exchange rate differences, management income was SEK 86.2m com- pared with SEK 88.3m last year, despite sale of six proper- ties.
Lower yield requirements have meant rising property prices. Investments in existing properties have also had a not inconsiderable positive impact on our property values. The increase in value of Catena’s property portfolio was SEK 167.3m. Net profit amounted to SEK 216.2m.
Rental revenue has continued to grow, while net financial items including exchange rate differences had a negative effect on earnings.
Catena has continued to develop well during 2007 and has achieved the financial targets with a good margin. Return on equity amounted to 23.6 %, the interest coverage ratio was
Statement by the CEO
— Catena creates value
CATENA
2007
5
2.4 multiples and the equity/assets ration at the end of the year was 39.6 %. During the year, the increase in value of Catena’s property portfolio was around 8 %.
Development close to customers
We have a long-term perspective on ownership of our proper- ties and are focused on taking care of them and of our cus- tomers. We create increase in growth mainly by developing our properties in close collaboration with our customers.
There is a high level of commercial activity in general and in the car trade in particular. We work close to our tenants to ensure the whole time that they have the right premises at the right location. I consider that there is further potential for streamlining and conversion of several of our properties. The properties at Kungsbacka are a good example of this. Bilia will vacate Catena’s two properties in central Kungsbacka.
The attractive location will provide us with an opportunity to convert the larger property to housing, perhaps in combi- nation with retail space. This kind of conversion has consid- erable potential for increasing the value of our portfolio. It is above all the good, strategic locations of our properties that provides us with an opportunity to create further value by streamlining.
Catena’s potential
At the beginning of 2008, the state of the market has weakened slightly, mainly in the light of concern that the US economy is moving into a downturn. However, we see that the level of economic activity in Sweden continues to be strong.
We are continuing our work of developing and improving our existing facilities. We have good prospects of coping with cyclical swings since our properties are situated in attractive locations, close to major highways in the dynamic metropolitan regions in Sweden, Norway and Denmark.
In the light of our strategy of acquiring properties with development potential, a weakening of the state of the market can increase our ability to carry out these kinds of acquisitions.
With a stable cash flow and strong financial position, Catena is well equipped to face any change in the market.
Göteborg, February 2008
Peter Hallgren President and CEO
VD-ORD
Statement by the CEO
— Catena creates value
CATENA
2007
6
Business concepts, targets and strategy
Business concept
Catena shall own, effectively manage and actively develop commercial properties in prime locations that offer the potential to generate a steadily growing cash flow and good value growth.
Overriding objective
Based on its focused approach, Catena’s overriding objective is to give shareholders a favorable long-term total return by being one of the leading players concentrating on commercial properties in a number of strategic locations.
Dividend policy
In the long term, Catena’s dividend is to represent 75 % of property management income
1)after tax
2).
Strategy Catena shall:
Actively manage the property portfolio, with focus on
•
stimulating long-term customer relations by offering attractive premises in close cooperation with Catena’s tenants.
• Acquire commercial properties offering favorable potential for good long-term value growth and stable revenues.
Actively improve and develop the property portfolio by
•
identifying and implementing value-enhancing measures that increase the attractiveness of the properties and their return, with due consideration for risk.
Divest properties for which it is considered that there are
•
limited opportunities for further value growth.
Business model with a cash-flow focus
Catena’s business model is based on stable and long-term relationships with tenants in out-of-city commercial areas in growth regions. Catena has experience of working close to its tenants and has great understanding for their needs and wishes. The company possesses a unique expertise on the car trade, which can be applied in other industries, where tenants make demands for changes and good commercial locations.
Stable cash flows are achieved as a result of long leases, of which almost 100% are subject to price-index clauses.
The business model includes the active management of properties and their adaptation in line with the development of the tenant’s operations – customizations which increase the value of Catena’s property portfolio in the long term.
There are good possibilities of attracting new tenants due to the strategic locations of the properties. Catena has the necessary expertise to develop properties to make them suitable for customers’ business activities.
The aim is an increased proportion of properties for other types of retail operations, both as a result of acquisitions and the conversion of car trade facilities to other types of retail operations. Catena’s properties are located in or close to attractive commercial areas in which this kind of conversion is becoming increasing feasible.
Catena’s long-term dividend policy stipulates that 75% of property management income after standard tax is to be dis- tributed. The remaining 25% is to be reinvested in operations to ensure continued value creation in the form of the further development of existing properties and property acquisitions.
Catena has good capacity to acquire additional properties, and acquisition can take place of both car trade properties and properties for other types of retail operations. However, it is a prerequisite that the properties have improvement potential.
Active management and streamlining shall subsequently make the properties more attractive. This has been a constant approach throughout Catena’s history.
Catena shall divest properties where the possibility of creating additional growth in value is regarded as limited.
1) Income after net financial items excluding realised and unrealised changes in value.
2) Income after net financial items less 28 % standard tax.
PROPERTIES FOR CAR SALES ACQUISITIONS
REINVESTMENT 25%
DIVIDEND CASH FLOW 75%
POSSIBLE CONVERSION
OTHER COMMERCIAL PROPERTIES
Catena’s business model
CATENA
2007
7
z
BUSINESS CONCEPT, TARGETS AND STRATEGY
Return on equity 40
%
0 10 20 30
31/12
30/6 30/6 31/12
2007 200631.12
30.6 30.6 31.12
2007 2006
4
multiples0 1 2 3
31.12
30.6 30.6 31.12
Interest coverage ratio
2007 2006
40
%
0 10 20 30
31.12
30.6 30.6 31.12
Equity/assets ratio
1) Risk-free interest rate is defined as the interest rate for a five-year Swedish government bond.
Financial targets and outcome
Over a business cycle, Catena shall achieve:
•Areturnonequitywhichexceedstherisk-freeinterestratebyatleast5percentagepoints
1).
•Aninterestcoverageratioofnotlessthan1.75multiples.
•Anequity/assetsratioofatleast25%andatmost35%.
During2007,thereturnonequitywas23.6%(37.6)includingchangesinvalueinthepropertyportfolio.
Theinterestcoverageratioamountedto2.4multiples(3.2)andtheequity/assetsratiowas39.6%(33.8)attheendoftheyear.
The Öresund Region. The properties Hästkraften 1 and 2 at Jägersro, which is one of the largest commercial areas in Malmö.
CATENA
2007
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Market profile
The property market consists of two markets: the rental market and the investment market. The development on the rental market depends on the favorable state of the economy with rising corporate profits and increased company investments. The investment market is also affected by economic development as a whole and is driven in particular by low interest rates and good access to capital.
Catena specialises in retail properties and our customers are affected by the development of employment and private consumption.
The development of the property and rental market are related with general economic growth in the particular region and nationally. The key factors in economic development include population growth, access to well-trained employees and good infrastructure.
Continued positive economic trend
In recent years, Sweden, Norway and Denmark have had historically low interest rates and inflation. Economic growth has been particularly high in the major urban areas in all three countries.
Growth in the Swedish economy, which has undergone a very positive development in recent years, was dampened during 2007. The gross domestic product (GDP) grew by 2.6 % (4.1), according to Statistics Sweden. It was above all, a reduced contribution from foreign trade, which dampened growth. Private consumption rose by 3.1 % (2.5). During the year, inflation, measured as consumer price index, rose by 3.2 % (1.4).
According to the Confederation of Swedish Enterprise’s forecast from December 2007, households are expected to withstand the international slackening that industry will encounter in the coming years. Their forecast is that private consumption will rise by 3.5 % in both 2008 and 2009.
Employment developed weakly in Sweden at the begin- ning of the twenty-first century, in particular in relation to the buoyant level of economic activity. The strong level of economic activity was mainly led by the export industry, which was affected by rising productivity and rationalizations and thus a limited need for new recruitment. In the autumn of 2006, there was a trend reversal on the labour market and since then employment has increased. Surveys from the winter
of 2007 indicated that corporate plans for employment would be relatively good during 2008.
The Norwegian economy also continued to develop posi- tively during 2007. GDP grew by 3.5 % (2.5), according to Statistics Norway. Private consumption rose by 6.4 % (4.7).
Increased raw material prices have contributed to economic growth in Norway in recent years, and private consumption has also benefited the Norwegian economy. During the year, the consumer price index in Norway rose by 0.8 % (2.3).
In Denmark, GDP grew by 1.8 % during 2006 (3.9), according to Statistics Denmark. Exports and private con- sumption contributed to growth. Private consumption rose by 2.7 % (3.8) while consumer prices rose by 1.7 % (1.9).
The development of employment was also strong in Den- mark and Norway. In Denmark, unemployment during 2007 was the lowest for three decades and there was a shortage of labour in a number of sectors. Unemployment was at record low levels in Norway.
Expanding trade
In general, the prerequisites for the retail trade are good in the Nordic countries with the current low interest rates, ris- ing disposable income and increased private consumption.
The recent period’s turbulence in the financial markets and the concern about falling house prices does not seem to have any great impact on household consumption behaviour. One important explanation for this is the sharp increase in house- hold disposable income. This is in turn explained by the good development of the labour market, with falling unemploy- ment and tax relief.
The retail trade in Sweden, Norway and Denmark has undergone and is undergoing structural transformation. In the last ten-year period, there have been a large number of establishments in out-of-city retail areas, and new out-of-city retail areas continue to develop outside the city centres.
These areas are characterised by ease of access, good parking opportunities and large store areas.
The expansion of out-of-city retail trade depends mainly
on lower land and construction costs compared with
locations in the centre of the city and changed patterns of
consumer purchasing habits. Large retail areas with a clear
profile and content are taking market shares while smaller
suburban shopping centres are finding it increasingly difficult.
CATENA
2007
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MARKET PROFILE
The lower land and construction costs in out-of-city locations mean that retail tenants pay lower rent, which, together with the stores’ scale benefits, make possible lower prices for the end consumers. In combination with the stores’ large diverse offering of products, and good parking opportunities, this makes out-of-city retail areas attractive.
There is a lot to indicate that the trend towards increased out-of-city retail trade will continue. A number of new shopping centres are planned in Sweden, Denmark and Norway at the same time as out-of-city and regional centres are becoming larger and larger.
Sweden is one of the countries in Europe where the planned expansion of the retail area is largest. The main part of construction is planned as shopping centres and out-of-city retail areas. Unlike many other countries, Sweden has relatively few restrictions on construction of out-of-city retail areas, which, among other things, is reflected by a number of industrial areas close to major highways being converted into out-of-city retail areas.
In Denmark and Norway, temporary prohibitions against further establishment have been introduced at a number of places. The reason for this is concern that the city centres will be eventually impoverished. These temporary restrictions can lead to rising rental levels and market values in existing out- of-city retail areas.
Catena has expert knowledge of the car trade The overwhelming part of Catena’s lettable area consists of car trade facilities with appurtenant activities. Continued streamlining of Catena’s car facilities depends on the good development of the car trade and repair shop services.
Around 500,000 new cars a year have been sold in Sweden, Norway and Denmark in recent years. The value of the total new car market in the three countries is estimated at around SEK 90 billion.
To a considerable extent, sales of new vehicles follow the same pattern as the economy as a whole. In the short term, factors such as interest rates, fuel prices and tax regulations affect the demand for new cars. In recent years, sales of environmentally-friendly vehicles have increased dramati- cally. Bilia, Catena’s largest tenant, has dealerships for car marques which are in the forefront of the development of this type of vehicle.
The service market, including repair services, spare parts and accessories has a more stable development pattern than
new car sales, over a full business cycle. The total number of cars registered in Sweden, Norway and Denmark is around eight million, with around four million in Sweden, and about two million in Norway and Denmark, respectively. The number of vehicles on the road is increasing steadily, and the BIL Sweden trade association expects the total number of cars in Sweden to exceed five million at the end of the 2010s.
Vehicle sales in Europe have been deregulated, and the re- sultant competitive trend is fewer but larger dealers, handling more marques. There is also a development in the direction of larger main facilities with extended car sales and service operations, and a number of satellite workshops for repairs and service. Smaller sales operations are being phased out and property owners then often convert the facilities for some other type of use. As the largest automotive chain in the Nordic countries, Bilia is playing a major part in the development of the industry.
High level of activity in the property market
The market for retail commercial properties partly depends on private consumption, which is increasing despite cyclical fluctuations. Commercial properties such as central retail properties, shopping centres and out-of-city retail properties attract a large number of investors who are looking for low risk and stable earnings.
In the light of the trend towards increased retail trade and strong private consumption, interest in acquiring commer- cial properties has increased. The most active domestic and foreign investors are property companies specialising in retail properties who want to reinforce their market position, as well as traditional property companies, who are seeking to diversify their portfolios by adding on retail properties to other property assets.
The volume of transactions on the property market has been high in recent years. The high transaction volume and rising price levels continued during the first half of 2007. In- vestment volumes during the first six months of the year were record-high with the City of Stockholm’s sale of Centrum- kompaniet in Stockholm for around SEK 10.4 billion as the largest transaction. The buoyant development of the Swedish economy contributed to the strong development of the rental market, which was one of the explanations for the continued interest in Swedish properties for investment purposes.
However, the level of activity slackened during the second
half of the year with fewer completions during the latter part
CATENA
10
2007MARKET PROFILE
of the year. The market was characterized by a wait-and-see approach and there was an imbalance between the expecta- tions of vendors and purchasers‘ assessment of what were reasonable price levels.
During the year, property transactions were carried out for around SEK 125 billion according to Jones Lang LaSalle, a reduction of around SEK 150 billion compared with the record year 2006.
The great interest in investing in properties has continuously pushed down yield requirements, while these stabilized in the course of the year in particular in markets with limited rent potential.
The market for retail properties largely tracked the develop- ment of the investment market for properties. During 2007, the total transaction volume of Swedish retail properties amounted to SEK 66 billion according to Jones Lang LaSalle.
In particular during the latter part of the year, it was clear that players with a high level of financial leverage were less active in the light of difficulties with financing in the wake of the global turbulence on the credit markets.
Most properties were sold as packages in 2007 as well and paid with a premium, i.e. the aggregate price level for the properties was higher than if the properties had been sold separately.
The strong private consumption entails that an increasing number of retail properties are constructed, which could entail pressure on rental levels, in particular. The increase in supply is offset by a strong level of economic activity, however.
More specialised than other property companies The largest Swedish property owners consists of institutions such as Vasakronan, Skandia, AP Fastigheter, SEB and Alecta as well as the large listed companies such as Kungsleden, Fabege, Castellum, Hufvudstaden and Wallenstam.
Catena’s markets consist of four growth regions in the Nordic countries: Stockholm, Göteborg, Öresund and Oslo.
The company owns, manages and develops commercial properties in out-of-city retail areas in these cities. Catena has accordingly a clearer specialization and a more concentrated geographical market than many other property companies.
Catena’s properties are located in attractive areas adjacent to existing retail areas or in areas which are undergoing transformation from industry to retail trade and are there- fore favoured by the increased retail trade and the ongoing structural transformation.
On the markets where Catena is active, there are proper- ties focusing on the car trade with a total area of around 2,770,000 sq.m. With retail areas consisting of 217,000 sq.m., Catena had an assessed market share at year-end 2007/2008 of around 8 %.
The market for car trade properties is very fragmented.
The number of property companies which only focus on out- of-city retail areas are few, since the market for this segment is still undergoing structural transformation.
Compared with the industry, Catena has long leases up to 16 years with an average of 10.3 years. Catena also deviates with regard to the occupancy rate. On January 1, 2008, the economic occupancy rate was 98.3 %, which is high both in an industry perspective and in comparison with other listed property companies.
Catena compared with other property companies
Property Occupancy Mortgage Interest term,
yield, % rate, % rate, % years
Catena 6.1 98 49 1.8
Castellum — 88 45 2.2
Sagax 7.3 97 68 5.7
Balder — 93 75 0.8
Wihlborgs 6.0 93 58 1.3
Source:Thecompanies’year-endstatementsfor2007.
CATENA
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11
The property portfolio
At year-end 2007, Catena had a total of 30 property units with a total lettable area of 227,500 sq.m. The property portfolio is divided into four geographical areas: the Stockholm and Mälardalen Region, the Västra Götaland Region, the Öresund Region and the Oslo Region.
On December 31, 2007, Catena’s properties had a book value of SEK 2,479m (2,352), and, on January 1, 2008, a rental value of SEK 190.6m (188.0). The Stockholm and Mälar-dalen Region accounted for 36% of the book value, which was the largest proportion.
Focus on retail properties
Catena is focused in properties in out-of-city retail areas.
These properties are currently primarily used for car sales and associated operations such as repair shops, accessory shops and spare parts stores.
These properties are considered to have good potential for use in other out-ot-town trading operations, mainly due to their satisfactory communications and retailing locations, and substantial parking areas. Catena’s strategy is that the proportion of properties used for other retail activities should increase by wholly or partly streamlining and converting car trade facilities for other types of retail operations, and by the acquisition of new properties.
Rental value and rental revenue
Catena’s total rental value amounted to SEK 190.6m (188.0) as at January 1, 2008. The economic occupancy rate amounted to 98.3 % (98.8) on the same date. Total rental revenue for the property portfolio amounted to SEK 187.3m (177.0) on an annual basis.
The rental trend for the property portfolio has been positive.
During 2007, Catena’s average rents rose by 10.8 % to SEK 772 per sq.m. (697).
The Stockholm and Mälardalen Region accounts for 36% of the rental value, which is the highest share, followed by the Västra Götaland Region at 25 %.
Customer structure and leases
Good customer relationships are a major factor in successful business operations as a property owner. Catena, with its clear focus and long experience of retail properties, has a clear advantage. Catena understands the conditions under which their customers’ businesses operate and the challenges they are facing. The company can therefore offer suitable premises and supplementary services which create added value for customers.
Bilia is Catena’s largest tenant, accounting for about 91 % of rental revenue (93) on January 1, 2008. Bilia, which is listed on Stockholmsbörsen, is the largest car trade chain in the Nordic countries, with sales of SEK 15,405m during 2007.
The other tenants include Volvo Truck Center Sweden, Märkesoutlet, Friskis och Svettis, Tidermans Hyrmaskiner, Vestas and the upper secondary school Lunds Fordonstekniska gymnasium.
Of Catena’s 30 property units, seven are covered by a framework agreement with Bilia covering 15.3 % of the rental revenue as at January 1, 2008. This agreement gives Bilia an opportunity to vacate space representing not more than one third of the basic rent as at January 1, 2009, at most two-thirds as at January 1, 2012 and all areas covered by the framework agreement as at January 1, 2015. Bilia has opted to make use of the possibilities for vacation in the framework agreement for a property in Kungsbacka. This property constitutes 9.8 % of the total framework agreement.
Rents for occupied premises with lease terms of more than three years are normally linked to the Consumer Price Index.
Almost 100 % of the rental volume in Catena’s portfolio is subject to this form of annual price adjustment.
Property holdings, key ratios
December 31, December 31,
2007 2006
No. of properties 30 35
Properties’ book value 2,479 2,352
Yield, % 6.1 6.6
Lettable area, sq.m. 227,500 258,462
Rental revenue, SEK/sq.m. 772 697
Net operating income, SEK/sq.m. 663 599
Economic occupancy rate, % 98.3 98.8
Surplus ratio, % 85.9 85.7
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2007THE PROPERTY PORTFOLIO
Lease have varying durations. The average remaining economic duration for all leases was 10.3 years on January 1, 2008. Periods of notice vary from 3 to 24 months, with extension periods of 9 months to 5 years.
Active management of the portfolio
Catena classifies its properties under three headings:
1) Properties that provide stable cash flows and which do not need to be developed in the next few years.
2) Properties which should be improved or converted.
3) Properties which should be divested.
The major proportion of properties is in the first category.
Many of these properties have been converted, or have been customised for tenants in some other way, within the last few years.
The category that calls for streamlining or conversion includes several properties which, in most cases, involve improvements without changing the type of operations con- ducted. A number of properties may require conversion from car trade facilities to other kinds of sales operations, which is possible, for instance, when leases expire. A conversion of this nature may be on a scale comparable to the acquisition of a property.
Irrespective of their size, investments are always under- taken with the object of improving cash flow, and hence the
return and the value. A good example of a project involving conversion of part of the property from a car dealership to other types of sales operations is the Tyr 2 property in the Värnhem district in central Malmö. After streamlining parts of the property in two stages during 2006 and 2007 from car trade to retail space, they now house an outlet company.
Some properties have a location that makes them suitable for housing or office developments. Improvements of this nature often result in a higher degree of development than a car trade facility, and hence satisfactory profitability. On the other hand, this means that new local planning is required for the area. An example is Catena’s properties in Kungsbacka.
In connection with the present tenant moving to a new facility, an opportunity is opened to develop the area with housing, possibly in combination with offices and retail space.
The third category – properties that should be sold – in- cludes properties that are not located in Catena’s growth areas in major urban regions or which do not have development potential. In March 2007, Catena completed the sale of six properties in Sweden, located in Trelleborg, Skara, Skövde, Falköping, Eskilstuna and Strängnäs. The total building floor space was about 35,000 sq.m. The agreed price was SEK 235m.
This sale produced a capital gain of SEK 37.7m.
Malmö Urnes 2 (in process of construction). Illustration: Skapa Arkitekter AB
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13
THE PROPERTY PORTFOLIO
Investments and projects
Investments, that is to say improvements and development of existing properties and acquisitions of new properties and new production, shall be made where these measures make possible an increased occupancy rate, higher rental levels and improved cash flows.
During the year, investments were made in existing prop- erties totalling SEK 95m. The largest investments were the modernization of the car showroom and conversion of the repair shops at Ökern in Oslo, modernization of the car facility at Follo, Municipality of Ski, Norway, continued improvement of the property Tyr 2, Värnhem, Malmö, expansion of the facility in Almedal, Göteborg, and conversion of the car facility in Södertälje.
In addition, there are a number of projects where decisions on investments have been made. Ongoing projects mainly consist of conversion and extension of the facility at Dram- men, Norway, conversion of the facility at Almedal, Göteborg, and conversion of the repair shop at Segeltorp, Stockholm, to the concept “Framtidens verkstad” (“the Repair shop of the future”). The investments decided upon amount to SEK 143m for 2008, of which the major part will generate rental income from 2009 onwards.
Acquisition, an important part of strategy Catena’s strategy is to acquire commercial properties in high-priority geographical areas which have the prerequisites for satisfactory long-term value growth and stable revenues.
In the main, properties are to be acquired where there is po- tential for improvements and where the location is a decisive factor.
During the year, the property Malmö Urnes 1 was ac- quired, which is located adjacent to Ikea’s coming establish- ment at the Svågertorp commercial area. These buildings were erected in 2006 and contain a car repair shop and a carwash totalling around 2,143 sq.m. The site area is around 8,500 sq.m. Read more about the property on page 31.
Building rights and development potential
When valuing Catena’s property portfolio, an explicit value has been established for building rights at only four property units, Hästkraften 1 and 2 (Jägersro) in Malmö, Fältspaten 2 in Lund, Skår 57:13 (Almedal) and Högsbo 35:1 in Göte- borg. Only one of these four building rights is an immediate asset for development; the other three require that a present tenant vacates the whole or part of the property. In addition to these building rights, an explicit additional value has been established for Haga Norra, Solna, for future development potential when the current tenant moves. The value of the building rights and development potential is included in the property valuation at SEK 44m.
We also make the assessment that there is potential for further development, conversions or extensions to the majority of properties when the space requirements of the current tenant change or the tenant vacates the property.
At the property Urnes 2 in Svågertorp in Malmö, which was acquired in January 2008, there is a building right of around 3,000 sq.m. in addition to the 3,600 sq.m. utiliszed for new construction of offices for Vestas. This property is not included in the valuation carried out on December 31, 2007.
In addition to the current building rights, Catena is actively
looking for new land areas to develop in or adjacent to the
commercial areas in the prioritized growth areas.
CATENA
14
2007FASTIGHETSBESTåNDET
Göteborg Skår 57:13 (Almedal)
CATENA
2007
15
THE PROPERTY PORTFOLIO
Market value of investment properties as at December 31, 2007
Valued Valued by Forum by Fastighets- business
SEKm ekonomi partner Total
Stockholm and Mälardalen Region 897 — 897
Västra Götaland Region 607 — 607
Öresund Region 394 107 501
Oslo Region — 474 474
Total Catena 1,898 581 2,479
Change in book value of investment properties January 1, 2007—December 31, 2007
SEKm
Book value at January 1 2,158
Changes in value 167
Investments in existing portfolio 95
Acquisitions 24
Foreign exchange effect 35
Book value at December 31 2,479
Stockholm and Mälardalen Region 9 88,755 897 10,106 67.7 763 96.2 65.1 52.8 5.9 81.1
Västra Götaland Region 10 59,139 607 10,264 48.5 820 100.0 48.5 42.9 7.1 88.5
Öresund Region 7 50,211 501 9,978 41.3 823 98.3 40.6 35.7 7.1 87.9
Oslo Region 4 29,395 474 16,125 33.1 1,126 100.0 33.1 31.4 6.6 94.9
Total 30 227,500 2,479 10,897 190.6 838 98.3 187.3 162.8 6.6 86.9
The five largest properties account for 52.0 % of the rental revenue.
1)RentalrevenueonanannualbasisasatJanuary1,2008,includingestimatedvalueofvacantspaceonanannualbasis.
2) Rental revenue on an annual basis as at January 1, 2008.
3)RentalrevenueonanannualbasisasatJanuary1,2008lesspropertycostsforcorrespondingpropertiesduringtheprevious12months.
4) Estimated yield for 12 months.
Net
Economic Rental operating
No. of Lettable Book value Rental value1) occupancy revenue2) income3) Surplus Segment properties area, sq.m. SEKm SEK/sq.m.. SEKm SEK/sq.m.. rate, % SEKm SEKm Yield4), % ratio, %
Property portfolio Lease-duration structure
Contracted rental revenue as at January 1, 2008 Expiry No.of Leasedarea
year agreements sq.m. SEKm Proportion,%
2008 16 17,277 13.6 7.0
2009 12 11,611 9.8 5.1
2010 3 2,683 2.1 1.1
2011 4 800 0.6 0.3
2012 3 1,576 2.0 1.0
2013 1 7,809 4.8 2.5
2014 7 37,237 28.9 15.0
2015 3 14,027 12.6 6.5
2016 3 3,830 4.0 2.1
2017 2 10,582 8.7 4.5
2018 0 0 0.0 0.0
2019 1 18,995 15.9 8.2
2020 2 19,951 23.6 12.2
2021 2 45,651 32.7 17.0
2022 3 27,010 24.3 12.6
2023 1 6,921 9.5 4.9
Total 63 225,960 193.1 100.0
Theaverageleasetermis10.3years.
ContractedrentalrevenueandLease-durationstructureinthetablesincludeleasesentered
into but which have not yet come into effect.
Lease maturity structure as at January 1, 2008
1)1) Lease maturity structure regardless of vacation possibilities in the framework agreement with Bilia.
The framework agreement applies to seven properties, which together cover 15.3 % of rental revenue as at January 1, 2008. The framework agreement enables Bilia to vacate space corresponding to at most two-thirds as at January 1, 2012 and all areas covered by the framework agreement as at January 1, 2015. The framework agreement will then cease to apply. According to the framework agreement, the tenant does not have the right to vacate space on other occa- sions than those mentioned.
0 10 20 30
-23 -22 -21 -20 -19 -18 -17 -16 -15 -14 -13 -12 -11 -10 -09 -08
SEKm
Year
2023 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Rental value (total SEK 190.6m) as at January 1, 2008
Västra Götaland Region 25%
Öresund Region 22%
Oslo Region 17%
Stockholm and Mälardalen Region 36%
Book value (total SEK 2,479m) as at December 31, 2007
Västra Götaland Region 25%
Öresund Region 20%
Oslo Region 19%
Stockholm and Mälardalen Region 36%
Valuation
The assignment
Catena assigned Forum Fastighetsekonomi AB (“Forum”) to conduct an assessment of market value of Catena’s property portfolio in Sweden, as at December 31, 2007. The property portfolio owned by Catena in Denmark and Norway has been valued in the corresponding manner by Thurø, Bjarne Jensen & Winther-Petersen and Adgestein Takst & Eiendoms- rådgivning AS, respectively.
The aim of this property valuation is to assess the market value of the properties concerned. The market value is the most likely price in a normalsale on the open market.
The number of properties valued amounted to 30, of which 23 are located in Sweden, three in Denmark and four in Norway. Most of these properties are located in major urban regions.
Swedish properties
Brief overview of the marketThe property market has continued to be strong in 2007 with continued falling required returns during the first half of the year. During the second half of the year, required returns have probably been unchanged. Rising interest rates and credit turbulence have meant that financing has generally become more difficult. The category of purchasers with the highest proportion of loans disappear and turnover reduces slightly. Purchasers with a high proportion of capital of their own reappear.
A strong upward pressure on rental levels aided by strong net letting has been noticeable in the metropolitan markets.
The consumer price index on which rental increases for 2008 were based was as much as +2.7%.
The slightly sluggish market seemed to lead to there again being a larger difference between good and bad properties, i.e.
we will probably see a movement in the opposite direction to recent years’ yield compression. Modern office and retail properties with stable tenants on long leases and shopping centre properties are the types of properties which are most attractive and which show the lowest yield requirements.
Documentation
Catena has supplied lists with relevant information for leases/
premises, information about planned investments and informa- tion concerning framework agreements. In addition, historical operating and maintenance costs have been received.
The properties have been inspected in some cases before this valuation assignment. The remaining properties were inspected in 2005 or 2006 in connection with previous valuation assignments.
Information has also been taken from the Property Data Register (FDS), detailed local plans, site leasehold agreements, etc.
Valuation method
The market value for every property valued has been assessed with the aid of a cash-flow analysis in which the estimated value of the property was based on the present value of the net operating income after investments and the present value of the residual value in the costing period (i.e. the total capital in calculations). Different value supplements or value deductions are made in appropriate cases. A costing period of 10 years was normally applied, although if the lease term was more than 10 years, a costing period of 15 or 20 years was assigned.
Every valuation property was assessed individually and its location, type, condition, leases etc. affect decisions on yield requirements and the cost of capital.
The following common assumptions and prerequisites have been applied:
• The rate of inflation during the costing period has been assumed to be 2.0% per year.
• Operating and maintenance costs have been assumed to track inflation.
CATENA
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2007VALUATION
Rents in current leases are used during the term of the lease.
Subsequently, an assessment of the market rent is made and an adaptation if this deviates from the current rent at the same time as the vacancy risk is taken into account.
Costs for operation and maintenance, property tax, site leasehold fees etc., are assessed at property level. Our assess- ments of market yield on properties etc. are based on analyses of comparable property purchases that have taken place.
The cost of capital corresponds to the market’s total required return and comprises the real interest rate, com- pensation for inflation and a risk supplement. The size of the cost of capital depends on the market’s requirements for risk supplement, which varies according to the type of property, its location, alternative areas of use, tenant and lease composition etc. In the normal case, a cost of capital is applied which is equal to the required yield times inflation.
With the exception of a few properties with short leases, the cost of capital for net operating income has been set below that for residual value. This has the case for long leases with virtually guaranteed tenancies in combination with the leases being entered into as basic rent agreements with supplements for property tax, where the tenant is responsible for almost all operating costs, and internal maintenance. Overall, this means that the cost risk is reduced and that the cost of capital can accordingly be reduced.
The following table shows the range for the cost of capital and property yield requirements in the different regions and what this means for initial property yield.
Framework agreement
Catena and Bilia Personbilar AB (the predominant tenant in the property portfolio) have entered into a framework agreement (Master Lease) for seven of Catena’s properties.
This framework agreement enables the tenant to give notice to vacate an unspecified part of the premises at certain times.
At the end of 2011, altogether two-thirds (including those previously vacated) of the premises can be vacated and the rest at the end of 2014. In principle, this has been taken into consideration only by rental risk deductions at property level.
Projects & Building rights
Projects in progress have been treated as if they had been completed with a deduction for residual investments.
The value of any building right has been taken into account if, in practice, the property owner has an opportunity to use such rights. In other words, only building rights for land that is not utilized or which is leased on a short-term basis have been taken into account. Building rights have been valued on the basis of knowledge about market levels at the particular location and reported as additional value for the respective property valued.
Market value
The aggregate market value for the Swedish properties totals SEK 1,898m at the time of valuation. This amount consti- tutes the total of the separately assessed market values for the individual properties, i.e. no consideration has been taken to any portfolio premiums. The aggregate market value gives an average property yield of 6.32%.
Cost of capital
for present value Yield on properties
calculation of net for calculation of Initial yield Region operating income, % 1) residual value, % on properties, %
Stockholm Region
5.25–7.70 5.75–7.75 4.87–7.99
Göteborg
Region5.63–9.65 6.50–7.75 5.53–10.06
Öresund
RegionSwedish part 7.09–9.09 6.75–7.00 4.21–7.54
1) Refers to the average during the calculation period, which reduces comparability.
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2007CATENA
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2007Danish properties
The market value of every property has been mainly assessed with the aid of a cash-flow analysis. The rate of inflation during the costing period has been assumed to be 2.25% per year.
The aggregate market value for the Danish properties amounts at the time of valuation to around SEK 107m. This amount constitutes the total of the separately assessed market values for the individual properties, i.e. no consideration has been taken to any portfolio premiums. The aggregate market value gives an average property yield of 7.01%.
The following table shows the range for the cost of capital and property yield requirements and what this means for initial property yield.
Norwegian properties
The market value of every property has been assessed with the aid of several methods, of which a cash-flow analysis is an important part. The rate of inflation during the costing period has been assumed to be 2.5% per year.
The aggregate market value for the Norwegian properties amounts at the time of valuation to around SEK 474m. This amount constitutes the total of the separately assessed market values for the individual properties, i.e. no consideration has been taken to any portfolio premiums. The aggregate market
value gives an initial average property yield of 7.37% (since some simplification of treatment of initial vacancy has been applied).
The following table shows the range for the cost of capital and property yield requirements and what this means for initial property yield.
Some uncertainty is attached to all market value assessment and it is implicit in the concept of market value that the stated market value is within a market-value interval. This interval can be estimated at up to ±10% for a particular property. In market value assessment of the whole property portfolio, the deviations as a rule cancel one another to some extent so that the uncertainty interval can be assumed to be in the range of ±5%.
Göteborg, January 2008
Forum Fastighetsekonomi AB
Hans Voksepp
Authorized Property Valuer SFF
1) In one case a discrepant key ratio has been excluded due to initial vacancy.
Cost of capital
for present value Yield on properties
calculation of net for calculation of Initial yield Norwegian properties operating income, % 1) residual value, % on properties, %
Oslo Region
9.30–10.10 6.58–7.20 6.00–6.90
Cost of capital
for present value Yield on properties
calculation of net for calculation of Initial yield Danish properties operating income, % 1) residual value, % on properties, % Öresund Region
Danish part
7.75–8.50 7.00–7.50 6.46–7.58
VALUATION
CATENA
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2007 Mölndal Trombonen 3CATENA
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2007Risk and sensitivity analysis
Catena has concentrated its property portfolio on the major urban regions in Sweden (Stockholm, Göteborg and Malmö), and on the Copenhagen and Oslo regions.
At year-end, Catena had an economic occupancy rate of 98.3%. The unrealized value growth in investment properties during the year amounted to SEK 167m. Interest rate levels, inflation expectations and general economic conditions are key factors that influence value growth. Other factors include the extent to which Catena has succeeded in developing its properties and the status of the leasing and customer structure.
Catena’s key objective is to acquire retail properties with satisfactory potential for long-term growth.
Rents and tenants
Over time, the rental trend for commercial properties is governed by supply and demand. Demand for Catena’s commercial premises is affected by cyclical factors, structural change and the development of the location in question in terms of population and employment, for example. The supply of premises in a geographically defined market is determined by the existing floor space and by any additional new construction. In locations with a declining population, the demand for premises also tends to decline in the long term, which may result in a higher overall vacancy rate, with a risk of poor or negative development of rents.
Catena’s properties are in well-located areas in the urban area concerned. Bilia, which is the largest tenant, accounts for 91% of rental revenue, and the average term for Bilia’s leases is 10.9 years. Roughly 100% of the rental volume in Catena’s portfolio is subject to annual adjustment. For the most part, rents change in line with index clauses, and correspond to 100% of the CPI.
The risk of rental losses is considered to be low.
Operating and maintenance costs
Catena’s tenants tend to have relatively extensive responsibility for operation and maintenance, and they are normally liable for all interior maintenance, and for operating costs subject to a tariff structure (heat, water, electricity, etc.). In other words, Catena’s exposure to changes in operating costs is
very limited. In the event of vacancies, however, the company’s income is affected by costs such as heating, previously defrayed by the tenant.
Property tax
The majority of Catena’s properties in Sweden are classified as industrial properties, for which property tax represents 0.5% of the tax assessment value. The majority of Catena’s leases include a clause under which Catena is entitled to bill property tax to the tenant. This entitlement also forms part of Catena’s leases in Denmark and Norway in cases where property tax is debited to the property owner.
Net financial items
Catena’s largest single cost item is interest expense for borrowed capital. During 2007, Catena’s Board established a finance policy stipulating rules for the way in which Catena’s Finance unit is to handle borrowing, loan terms, fixed-interest terms and the way in which the risks in financing operations are to be controlled. In order to reduce the risk of higher interest rates, Catena has decided to extend the fixed-interest term by means of interest-rate swaps, in accordance with the company’s finance policy. The fixed-interest term amounted to 1.8 years at December 31, 2007.
Capital structure
Catena’s capital-structure objective is an equity/assets ratio in the 25–35% range, and an interest coverage ratio of not less than 1.75. As at December 31, 2007, the equity/assets ratio amounted to 39.6%, and the interest coverage ratio was 2.4.
Currency risk
Catena owns properties via subsidiaries in Denmark and
Norway. Changes in foreign exchange rates may have a negative
impact on the income statement and the balance sheet. These
subsidiaries are financed in the currencies of the countries
concerned. If loans granted were not utilized, currency futures
have been purchased for the corresponding amount. This
means that, for the most part, the impact of changes in foreign
exchange rates is confined to net income and equity in the
country concerned.
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2007 RISK AND SENSITIVITY ANALYSISEnvironmental risks
Property management and property development entail an environmental impact. Catena’s tenants have operations with an environmental impact and which are subject to permit and notification requirements – for example the handling of motor fuels, oil and chemicals – and they also conduct filling-station operations. On the other hand, Catena does not conduct, per se, any operations which have a directly negative environmental impact.
The Swedish Environmental Code stipulates that a party that has conducted an operation which has contributed to contamination has primary liability for subsequent treatment and decontamination. If the party that has conducted such operations cannot defray the cost of subsequent treatment and decontamination, liability lies with the party that acquired the property and which, at the time of acquisition, was aware of, or should have discovered, such contamination. Hence, in certain circumstances, claims may be addressed to Catena for subsequent treatment of decontamination regarding the presence or suspicion of contamination in soil, water areas or the ground water, in order to put the property in a condition stipulated by the Environmental Code. Claims of this nature may have a negative impact on Catena’s income and financial position.
Catena’s environmental processes are long term and goal- oriented, and are pursued as an integrated aspect of both property management and project development. All proper- ties were subject to an environmental audit in the course of the review that took place in connection with Catena’s stock exchange listing in 2006, and it was noted that certain prop- erties have a limited degree of contamination. The possibility of the presence of other environmental contamination which might lead to costs and/or claims for compensation with an impact on Catena’s income and financial position cannot be eliminated.
Currently, however, there is no information regarding any major environmental claims on Catena.
Sensitivity analysis
Impact on pre-tax
Change income, SEKm
