CWQXF - Castellum AB (CWQXF) Q4 2022 Earnings Call Transcript
Castellum AB (CWQXF)
Q4 2022 Earnings Conference Call
February 13, 2023 4:00 AM ET
Company Participants
Joacim Sjoberg - Acting Chief Executive Officer
Jens Andersson - Head of Treasury
Anna-Karin Nyman - Communications Director
Conference Call Participants
Markus Henriksson - ABG Sundal Collier
Niklas Wetterling - DNB Markets
Bart Gysens - Morgan Stanley
Fredric Cyon - Carnegie
Paul May - Barclays
Vanessa Guy - JPMorgan
Presentation
Operator
Welcome to Castellum Q4 Report 2022. For the first part of the conference call, the participants’ will be in listen only mode. [Operator Instructions]
Now I will hand the conference over to Joacim Sjoberg, Acting CEO; and Jens Andersson, Head of Treasury.
Joacim Sjoberg
Hi. Welcome, everyone. Welcome to this year-end report. As you can see from the slides, there has been a tremendous year behind us. Income from property management is up by 28%. Our EPRA NRV per share are up -- sorry, down slightly. But the like-for-like figure is up 7.2% year-end. The main drivers behind this increase is the successful renegotiation and indexation of our leases. And in the total portfolio, we are up by 5.2%, compared to last year.
The net leasing, as you can see, is up by SEK161 million and we have an increase -- an ICR of almost 4 times, down slightly from 5 times last year. And the driver behind the decreased ICR is mainly the interest rate hike that we see in 2022. So, if we look at the important events during and after this quarter, of course, one of the main news today is the announcement of a rights issue, but we have also decided not to propose dividend as has been communicated before.
In terms of new financial policy, we have increased the ICR to be at least 3 times and decided also not to increase 40% in loan-to-value. In terms of investments going forward, we foresee that we will focus on the most profitable investments and our CapEx will be gradually reduced this year and next year. And we believe that prioritizing stronger balance sheet and maintaining our credit rating is favorable for both shareholders and the bondholders.
As you can see from this slide showing our geographies, and we are now at SEK181 billion in property values and our share of Entra is SEK27 billion thereof. The -- we have a very good mix, mainly in metropolitan areas where the Nordics are rated very high in terms of their economies. And the capitals of the Nordic countries, Stockholm, Helsinki, Oslo and Copenhagen make up about 43% of our book value. We have a focus on growing municipalities, both regarding GDP in those regions and in increasing population.
So, Jens, I hand over to you.
Jens Andersson
Thank you, Joacim. This is a slide put together by Newsec that is meant to show the development in our most important markets. We see her yield levels slightly up in ‘22 compared with ‘21. Transaction volume is still stable on high levels, record volume in ‘21, largely explained by Kungsleden carbon takeovers.
CBD rents levels continues to be stable, however, deemed to be a bit volatile. Gothenburg and Helsinki show increasing vacancies, while Copenhagen, Malmo, Oslo have fallen vacancies, continues to be very stable in Stockholm. Valuation yields for their [Indiscernible] seven property portfolio, excluding Entra, increasing to 5% from 4.75% last quarter.
So -- and if we look at the tenant base that we have, it's very well diversified. The five largest tenants represent less than 10% of our total income and no individual tenant represent more than 2.2% of our total income. And out of the 10 largest tenants five are public sector tenants with, of course, the public AAA rating in total, it's a 24% public tenant ratio.
As you can see also from the balloon up to the -- in the right-hand corner, 99% of our leases are index-linked, which has given us quite an increase due to the high CPI of last year. Property values per category is somewhat of a summary, of course. It depends on how you define on a granular level. But you can see that we are very heavy on office, which we believe is a strength in this environment and the hampered retail sector in general, comprises in our world, mainly from the grocery sector where Gavle [indiscernible] [Fastighets] (ph) and others are the main tenants.
Yes, we are also happy, again, to report positive net leasing, we have had positive net leasing over the last 12 quarters throughout COVID, and now it continues. We see a continued stable demand from our tenants, contracts, however, take somewhat longer to negotiate. We see no clear trend on tenants taking smaller space, rather a combination where some expand another decrease base. We still see a few bankruptcies. However, it cannot be ruled out that they will increase in the current market.
Negative effects from the ongoing war and high interest rates can be expected, but do not show yet in the full-year net leasing. Net leasing ‘22 was SEK161 million, as previously mentioned, and it should be compared to the SEK162 million ’21, so not much of a difference. Q4 was somewhat weaker than previous quarters, partially explained by a few larger contracts being terminated that could be expected sometime in the near future, however, coincide the same quarter.
Among our largest projects that are above SEK100 million, we have 14 of them with an occupancy rate of 83%. The five largest are E.ON, Swedish court an administration office, Swedish police, an animal hospital and Northvolt investors close to 100% pre-leased. We have a total volume of ongoing projects, major ongoing projects of approximately SEK6.3 billion of which only SEK2 billion remains to be invested. We have completed 10 major projects during the year with a total annual rental value of approximately SEK220 million. Many of the larger ongoing projects in the list here will be completed in ‘23 and will generate approximately SEK280 million in annual rental value.
During Q1 ’23, E.ON new head office and new construction for the court office will be completed with an annual rental value of approximately SEK170 million. Total investment for the year ‘23 is SEK4.6 billion, including CapEx.
Yes. Okay. So, if we look at some of these beautiful buildings that we have completed in 2022, one of them is GreenHaus in Helsingborg, with the tenants as Helsingborg's municipality, AFRY, [Indiscernible]. And the annual rental value is SEK22 million.
Okay. And we see another example here. It's the climate-neutral police house in Orebro, with an annual rental value of SEK15 million. We have another police building. During the quarter, we also started a fully leased police house in Gothenburg in Hisingen, with a rental value of approximately SEK40 million.
And finally, another example of our projects is this logistics building in Malmo of 12,000 square meters, 97% let to a tenant that we cannot announce as of yet. But it started in the last quarter and will be completed within a year. We continue to have a high focus on energy efficiency. Energy consumption decreased with 4.5% like-for-like ’22, compared with ‘21. The energy used per square meter was 41% better, compared to the industry average. During the year 21 solar power plants were built, and in total, Castellum now has 76 plants producing over 7,000 megawatt hours. Due to high energy prices, the investments in renewable energy have proven to be far more profitable than calculated.
Another focus during the year has been to environmentally certify more properties in the portfolio, where at the end of the year, the company reached 249 certified properties. 45% of the portfolio is thus on step -- one step closer to the goal of 50% of the property area to be certified by 2025 at the latest. We are very happy to be the only Nordic large cap with green designation by NASDAQ. We are also the only Nordic real estate company to be on Dow Jones Sustainability Indices.
Property values year-on-year slightly up due to project investments, isolated the properties decreased in value by SEK3.5 billion on the full-year and SEK6.4 billion the last quarter. Over 50% of our properties were externally valued by Cushman & Wakefield and/or Newsec. Rental income up 7.2% and cost up 20.1% like-for-like. The latter, we deem to be of a more transfer in nature, largely explained by increasing electricity and heating costs. We have also done -- we have secured the energy prices rather late last year, which has affected the costs possibly more than other companies that had hedging in place earlier.
NOI up with 34% compared to 2022. However, Kungsleden was only consolidated November and December ‘21, therefore, the large increase. Income from property management per share, down from SEK3.52 to SEK2.78 year-on-year. Key drivers are increasing interest rates and higher prices on electricity and heating. Long-term effects on the cost side is difficult to assess, but is expected to normalize on a lower level than today.
Currently, loan to value is above our new financial policy, although well below our creditors' requirements. The suggested rights issue would strengthen the loan to value and ICR. Higher interest rates, falling values and expiring interest derivatives will, on the other hand, put continued downward pressure.
Debt capital market still relatively illiquid. Positive signs can be noted with our bonds trading 200 bps below all-time high last autumn. Good appetite from the banks, but we need to preserve our unencumbered assets, currently up 52%, according to Moody's definition, where we have to keep it above 4% to 5%. Loan margins are up somewhat during the second half of 2022, although still roughly half of the spread required by the debt capital market.
Average interest 2.6%, up from 1.9% end of ‘21. Net debt to EBITDA, 13.6, compared to 16.7 end of ‘21. 57% of our loan portfolio is secured with swap derivatives or fixed contracts with a duration of at least one year. Debt maturity structure, we have SEK25 billion of bonds expiring in the coming three years. Available cash and unutilized revolving credit facilities amount to SEK16.2 billion. Reduced project investments and proposed no dividend will free up further funds. And in combination with the suggested rights issue, all bonds could potentially be repaid the coming three years. Our expectation is although that the debt capital market recovers within a reasonable time period.
Nonetheless, no one can say for sure. Therefore, we need to prepare for worse times in order to safeguard a Baa3 rating and, in the long run, strive for an upgrade. Our commercial paper program is quickly being repaid only SEK200 million remains. Investment pressure short-term bonds at higher spreads rather than the commercial paper program.
So, the key takeaways so far is that the profit from property management is up by 9.5% per share. We have a positive net leasing for the 12th consecutive quarter. And the rental income like-for-like is up 7.2%. We have an occupancy rate of 93.4%.
In summary, that means that we have a very strong increase in property management, and the positive net leasing is due to both new projects and existing assets. The economic vacancy rate is marginally up, compared to 2021, but vacancies are a fundamental factor for us creating value. We become relevant for tenants, and we can refurbish and increase rent when we have vacancies.
However, as stated in the year-end report, the prospects for 2023 are divided. Operations are moving along at a good pace within Castellum, while financial markets remain uncertain. We must be able to adapt to current environment with focus on our performance.
Yes, and then some information on the rights issue. And this is just an overview, and we are not able to give you any more exact information. That is something we will come back on later. However, the Board of Directors have resolved to propose at the Annual General Meeting 2023 authorizes the Board of Directors to resolve upon a new share issue with preferential rights for existing shareholders. The size of the deal is approximately SEK10 billion. The reasons behind this have already been mentioned.
And important for everyone to know is that the transaction will be fully underwritten by Akelius Residential, Citibank and Nordea. We are helped by the syndicate that is Citi, Handelsbank and Nordea, and we also have a good lineup of Swedish/Nordic banks that will assist us as joint book runners, Danske Bank, DNB, Nykredit, SEB and Swedbank.
The Annual General Meeting will be held on the 23rd of March. So therefore, we cannot say much more right now. Thank you.
Joacim Sjoberg
So that completes the presentation that we have prepared. And we do open up for questions, and you know how to do that.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Markus Henriksson from ABG Sundal Collier. Please go ahead.
Markus Henriksson
Thank you and good morning. A few questions from me. First off, the like-for-like costs, they were up around 13% in Q3, and now it increased to 20% year-over-year now in Q4. You mentioned electricity prices and securing them rather late, but could you give us a bit more details surrounding any potential nonrecurring items?
Jens Andersson
Yes, I would say that is the main driver here that we secured our electricity contracts late Q3, and we will see the full negative effect of it during Q4 and Q1. So, the contracts were not that long. They were only for two quarters. And therefore, starting from Q2, things will normalize. However, we do not know how high the energy prices will be at that time.
Markus Henriksson
Perfect. Me neither, so let's see. Then how much of the like-for-like rental income growth here of 7% is due to higher recharge cost to tenants? What is the like-for-like on rental income alone?
Jens Andersson
Very good question. I think we will revert on that later with the written answer.
Markus Henriksson
Then a question, have you had any dialogue here with Moody's in conjunction with the news running the rights issue?
Jens Andersson
Yes. Yes, we have. they do not give any direct advice on how they will see this. However, they will go to committee later on today and release a report late this evening.
Markus Henriksson
Perfect. Last question. You mentioned previously that you have some signed LOIs for further divestments. Are you looking into divesting even more? Or are you more or less done now with the announced rights issue?
Joacim Sjoberg
Well, I mean we were a property company. So, we buy and sell properties all the time. And some of them are on our sales list and some we get offers for. So I'd say that out of these SEK181 billion of assets that we have for sure, there will be more transactions, but I cannot neither guarantee or state anything about that. It's, of course, a moving target. But yes, we will continue to sell and invest in new properties.
Markus Henriksson
If I just change it up a little bit, you have been very clear that you aim to be a net seller previously. Do you aim to be a net seller in '23 as well?
Joacim Sjoberg
That's a very tough question. I mean 2023 is far from completed. So, we'll have to come back on that at the later call just to be sure.
Markus Henriksson
Alright. Thank you. Those were my questions.
Joacim Sjoberg
Thank you.
Operator
The next question comes from Niklas Wetterling from DNB Markets. Please go ahead.
Niklas Wetterling
Thank you. And yes, I have two questions. And the first one is regarding the CEO recruitment process. If you can share any about that one and when you expect to be able to announce a new CEO?
Joacim Sjoberg
Yes. Well, I can say as much as that the process is ongoing and has been ongoing for quite a while. As we've stated before, this will take some time likely because most of the potential candidates are in a position at the moment, meaning that they have a notice period of 3 to 6 months, so -- but we aim at being able to announce something as soon as we can. But the timing is also dependent upon the candidates' current situation.
Niklas Wetterling
Okay. Thanks. And my second question is regarding the stocks that Castellum has repurchased before? What's the strategy with that holding?
Jens Andersson
We cannot comment on that question right now.
Niklas Wetterling
Okay. Then that’s all for me. Thank you.
Operator
The next question comes from Bart Gysens from Morgan Stanley. Please go ahead.
Bart Gysens
Yes. Hi, good morning. It's Bart Gysens from Morgan Stanley. I just had a question on the rights issue. I appreciate you can't provide much detail, but can you help us understand a little bit the thought process about the amount that you're planning to raise? You're taking your LTV down from -- on your reported base, from 42% to 37%, but there are, of course, different ways to define a loan-to-value ratio. EPRA has come up with an EPRA LTV where you proportionally consolidate, whether you treat hybrids as debt.
On that basis, the LTV is meaningfully higher. The reduction is not meaningfully bigger, of course. So, what gives you the confidence that SEK10 billion is sufficient to protect your balance sheet from the potential further correction in capital values?
Jens Andersson
I mean SEK10 billion is a big amount. Comparing it with other rights issues over the last few years in the Nordic, it comes out as one of the larger ones. And therefore, I think size-wise, it's difficult to see a larger amount than SEK10 billion. But looking at our balance sheet, we think that it will fulfill the needs that we see for a foreseeable future. But of course, we cannot say for sure that the debt capital markets will recover and present possibilities to issue new bonds at reasonable levels. So therefore, it gives us a lot of time to maneuver. We can continue to sell, but we could also wait a while and see how the market develops.
So, it's definitely not an exact science. We understand when we run the numbers that it will most likely not immediately lead to an upgrade by Moody's. That would have meant that we would have -- we had to take in a larger amount, but SEK10 billion is good enough, and that is a number that we've agreed upon together with our advisers.
Bart Gysens
Okay. Thank you very much.
Operator
The next question comes from Fredric Cyon from Carnegie. Please go ahead.
Fredric Cyon
Goo morning, gentlemen. Two questions. Starting off with the rental value reported on Page 11, that does not include any indexation, right?
Joacim Sjoberg
On Page 11, hold on. Okay. No. So there's a slight increase but not to the full extent.
Jens Andersson
Yes. It actually includes in Stockholm for the Castellum portfolio. We have quarterly indexation connected to consumer price index. So, it's a small portion of it. I think it's around 5% of the increase.
Fredric Cyon
And looking at the outlook for 2023, we knew CPI in October was about 10.9%. What do you expect in terms of CPI effect at the top line in 2023?
Jens Andersson
I mean we do not do these forecasts. However, we can clearly state that we have 83% of our lease contracts that are 100% connected to CPI. So, if that gives any flavor.
Fredric Cyon
Yes. Okay. And then moving over to large projects in Malmo that's to be completed here in the first quarter. Was there any contribution from those projects in terms of rental income during the fourth quarter? And do you expect the full benefit of it in the first, if not?
Jens Andersson
Nothing was added into the fourth quarter, and the full effect will not occur until 2024.
Fredric Cyon
Okay. And how does that look like?
Jens Andersson
The first quarter, it will not be -- I'm not sure if they will start paying the second quarter or if they will pay part of the first quarter, but it will not -- we will not achieve the full effect of those contracts in 2023.
Fredric Cyon
Then moving over to the bond market. Considering the move now with the rights issue, do you expect to be back issuing new bonds during, let's say, the first or second quarter? Or do you anticipate that the bond market is currently too weak for you to issue?
Jens Andersson
Yes. I mean it's difficult to say. The spreads tightened 50 bps this morning after we communicated our ambition to do a rights issue. If this continues, we will be back on reasonable levels to which extent there will be liquidity enough for larger bond issues. We cannot be sure on. But I was more -- I mean, most likely, we will not be out in the market the coming two quarters, but who knows?
Fredric Cyon
My final question relates to the advisers. There's a bunch of banks involved here. Have they provided you with any additional unutilized credit facilities in connection with this rights issue?
Jens Andersson
All banks, say, for Citi have a major exposure to us lending us a lot of money, and we have a very good relationship with all of them. And therefore, the problem is not really borrowing money from them. It's keeping the portion of unencumbered assets that we need to safeguard to keep our rating with Moody's.
Fredric Cyon
So, I offered you correctly that there is no additional benefit in terms of getting more unutilized credit facilities post this rights issue.
Joacim Sjoberg
There's always a benefit in having a good dialogue with your banks and working together with them. They're important providers of one of our key sources of capital. And there's ongoing discussions all the time, both financing projects that are very profitable and other credit facilities as well. So, I wouldn't say that there are no other benefits, but there's nothing that we'd like to communicate at this moment.
Fredric Cyon
That’s clear. Thank you, gentlemen.
Operator
Please state your name and company. Please go ahead.
Paul May
Hi, it’s Paul May from Barclays. Can you hear me, okay?
Jens Andersson
Yes.
Joacim Sjoberg
Yes.
Paul May
Yes. Great stuff, sorry. Just a couple of questions from me. I appreciate, obviously, you moved yields out about 30 basis points, I think, over the year, but that does compare to a 300-basis-point move in underlying financing costs -- in terms of market financing costs. Just wondering why, you feel that, that level of value is now appropriate. I think the last time, your weighted average cost of debt was around 2.6%, your property yield was sort of 5.8%, and I think the last time the market financing costs were around 5% or 4% to 5%, which they are now, your property was about 8%, I think. So just wondering why the 5% is seen as being the right number, which obviously feeds into the rights issue being sufficiently sized and giving you time. Just wondered what your thoughts there were on that valuation.
Jens Andersson
I mean, first of all, half of our properties were externally valued by Cushman & Wakefield and Newsec, and therefore, we feel that -- I mean, it's not really our call. It's something that the company together with our operators and auditors agree upon, and this is the number that our own valuation model came up with, and it's very close to the external valuations that we have received. So, we have great comfort in it. Should it be 2% or 5%? I mean this is the number that we feel is reasonable.
The values continue down. It's possible. Should we take into account the high spreads in the debt capital market, high underlying interest rates? Yes, that is done in the valuations, but we cannot really -- I mean we cannot see it as a long-term unchangeable effect. We still believe that inflation will come down. And when it comes down, underlying interest rates will most likely follow down. So, the full effect cannot transition into the valuations immediately. And therefore, you see a lag in the system, which I think is sound. And we have seen the same in connection with the Lehman crisis where values came down with around 8%, looking at all listed Swedish real estate companies as an aggregate.
Paul May
Okay. So, it's sort of an expectation on further rates coming down. Is that fair to say? If rates don't come down, then value is likely to move out further? Is that sort of what you're saying just to...
Jens Andersson
Yes. That is correct. But this slow slope then take into account the self-healing capacity of a real estate company, pretty much the same that you would see with the bank that if this continues, we have the CPI indexation, so as long as our tenants can pay the higher rent levels, we will see increasing rental income that will work in a favorable direction while high rent levels will work in the opposite direction. And who knows which side will win?
Paul May
Indeed, indeed. Crystal-ball type. Second question is around CapEx -- sort of annual CapEx requirement. I appreciate you're bringing down investment on the development side as in sort of the CapEx you have control over, I suppose. What's the total CapEx spend or the maintenance required CapEx spend if you wanted to split it that you kind of have to spend on an annual basis in order to keep buildings occupied and so on and so forth?
Jens Andersson
I mean it's a very tricky question. And short term, you can reduce the CapEx quite a lot. Can we go well below SEK1.5 billion? I don't think it's advisable. Roughly 1% of our property portfolio, excluding Entra, I think 1%, that's a reasonable number. Sometimes, we want to go higher, especially if we can find new tenants that want to pay good rent for new premises. But in this cycle with high underlying interest rates and then a very large portion of uncertainty, we need to be very careful, but let's assume 1% as a little...
Paul May
And just to be clear, that's 1% on top of any of the development investment CapEx that you're doing? So that 1% is kind of not fully maintenance but sort of a recurring CapEx spend. Is that correct?
Jens Andersson
Yes, when we say SEK4.6 billion in ‘23, it's project -- I would -- the simplest way to put it would to be -- all of it is CapEx, but a good portion of it refers to larger projects. So, when I say 1%, that is just CapEx, not projects.
Paul May
Right. And that SEK1.5 billion is on top of the SEK4.6 billion? Or does the SEK4.6 billion include the one-offs?
Jens Andersson
It's included.
Paul May
It's included. Yes. Okay. Thank you.
Operator
Please state your name and company. Please go ahead.
Vanessa Guy
Hi, this is Vanessa Guy from JPMorgan. Can you hear me, okay?
Joacim Sjoberg
Yes.
Vanessa Guy
I had just a couple of questions, and apologies if someone has asked them before. When you mentioned that you're considering divestments of the SEK180 billion of your portfolio, I assume Entra is also being considered for that, and...
Joacim Sjoberg
I must correct you. We have a total asset base of SEK181 billion. So, we do not propose to sell all of our assets, then we have [Technical Difficulty] else to do. So no, we're -- but the question was whether we will be net sellers or not in 2023? And we cannot say anything about that because we do constantly consider both selling and buying assets. And of course, we have a sell list that we're working on. But we -- also, given the volatile market, we need to make sure that we are careful with our investors' money. So, whether we will actually buy or sell more or less during the year, we cannot say at this very moment.
Vanessa Guy
And you can't comment on whether you still see the Entra stake is core and something that you want to maintain for the foreseeable future.
Joacim Sjoberg
We have already communicated that we have a Nordic strategy. And for us, the Entra holding is our Norwegian foothold. Entra is a listed company, and I'm on the board of it, so I'm unable to comment on it other than that the strategy for Castellum to be present in all the Nordic markets remain and our exposure to Norway is through Entra. So more -- I cannot say more than that.
Vanessa Guy
Thank you for that. And one last question. In terms of -- you've mentioned that you've secured -- well, you've refinanced SEK3.8 billion of secured debt, and you've also signed SEK4.3 billion of new secured financing. Is there any more color that you can provide on these -- on what yields probably they were done, what the differences that you're seeing between the secured and the unsecured market?
Jens Andersson
Yes, sure. I mean the secured financing from the Nordic banking system is still very favorable. However, the spreads have come up somewhat, somewhere between 30 and 50 bps. So, we still think that it's a very good thing for us to increase the portion of secured financing as long as the debt capital market is illiquid and highly priced. I mean we have an ongoing discussion with many, many different banks, and we know that there is more money to get from the Nordic banks. But as I said before, we need to safeguard the ratio of unencumbered assets that Moody demand from us.
Vanessa Guy
Great. Thank you very much.
Operator
Please state your name and company. Please go ahead.
Paul May
Paul from Barclays again. Just one follow-up question, given the comments and thoughts on interest rates. What is your base case for where inflation is to come, which obviously feeds into your expectation around where the property yield should be? Just to get a feeling as to what is baked into the valuations moving forward.
Jens Andersson
I mean it's really tricky. First of all, the Swedish government released quarterly reports on where they see the CPI in the coming year. And I believe in the last report they sent out, it was 8%. In the valuations, we see a number of 4%. So, I think that most of the operators apply a very cautious model for next year.
Paul May
Okay. And how does that feed into your thoughts around interest rates if inflation sort of fall? Just to get a sense -- because you mentioned the values are kind of dependent on rates coming down.
Jens Andersson
I mean we are not the central bank, and we are no experts on these subjects. I think we will just have to live with outcome. And of course, that's one of the reasons why we secure a good part of our loan portfolio with derivatives or fixed contracts.
Paul May
Okay, good. Thank you very much.
Operator
There are no more questions at this time. So, I hand the conference back to Joacim and Jens.
Anna-Karin Nyman
Okay. We have some written questions as well. I think some of them are answered already, but there is some that we haven't commented on. The first one is what -- from Peter Wild. What was the impact on rent from indexation for 2023?
Joacim Sjoberg
We don't know...
Jens Andersson
We haven't communicated this number. But as I said before, a good portion of our contracts do have CPI indexation, and therefore, you should assume that not all of the CPI indexation but a good portion of it will be seen in the Q1 figures.
Anna-Karin Nyman
All right. There's another question here from Jonathan Kownator. Assuming you would use proceeds from a potential right issue to rep any debt, what would be the interest rate on the debt you could replay -- repay?
Jens Andersson
I mean first of all, initially, in connection with the rights issue when we get the funds, we will most likely repay on our revolving credit facilities. They are sadly the cheapest usually. And therefore, the effect will not be the same as if we actually were to repay more expensive bonds with perhaps longer duration, but assuming an underlying interest rate of 3% and revolving credit facility spreads of 1.5%, that would mean SEK450 million on an annual basis in reduced interest costs.
Anna-Karin Nyman
Okay. Thank you, Jens. And the last question from Phil. Hello, on your outstanding Eurobonds, did you hedge the currency of the proceeds of the Eurobonds when issued to SEK? Would you prefer issuing new bonds in SEK or in euro?
Jens Andersson
I mean, first of all, all of our EMTN bonds say, for the last one, have been hedged 100%. So, there is no risk on the SEK-euro side. And then on the last one, it was hedged with the currency swap of around 50% of the sales value. And then in the future, I mean, if liquidity and price is the same, I guess it would be better not to have a currency risk at all, and therefore, it would be better just to issue everything in SEK or most of it at least as long as the amount of properties we have in the eurozone is rather limited. But I guess that a lot of investors prefer investing in Eurobonds and therefore, we will most likely be in that market as well.
Anna-Karin Nyman
Okay. That was the last question for this call. Thank you.
Joacim Sjoberg
Thank you all for listening in, and thank you for your questions and your interaction. I hope you will be able to dig into the details once you go through the year-end report in full. And we're happy to answer questions to you -- sent to our IR department. Thank you.
Anna-Karin Nyman
Thank you.
For further details see:
Castellum AB (CWQXF) Q4 2022 Earnings Call Transcript