Good morning all, and welcome to Entra's fourth quarter presentation. On the picture here, you can see our asset, Drammensveien 134, where we signed the largest contract this quarter. Moving on to our highlights in the quarter: rental income of NOK 767 million in the quarter. That is down NOK 93 million compared to the same quarter last year, leaving us with an underlying rental income growth of 1.6% compared to the same quarter last year. Net income from property management is up with 7.1%, NOK 317 million. The lower interest costs have then offset the reduction in rental income. Net value changes of NOK 457 million in the quarter. Out of that, NOK 273 million is related to the investment properties. And leaving us then with a profit before tax of NOK 756 million in the quarter. Our net letting was minus 41 in the quarter.
We were pleased to see that Net Asset Value increased by NOK 2 per share, NOK 262, and also, we have continued to see our credit metrics improving with an effective leverage of 49.3% in the quarter. Following the quarter, we have also launched Entra back in the bond market, issuing NOK 3.1 billion of bonds and obtained bank refinancing commitments of NOK 20.2 billion. Our board's priority through 2024 has been to strengthen the balance sheet, improve credit metrics, and ensure that Entra has a solid investment grade, giving us good access to the bond market. To support this, the board has also decided not to pay dividend in 2024. If we move on to operations, we signed new and renewed leases of NOK 105 million this quarter. At the same time, we have had contracts with annual rent of NOK 66 million terminated, and net letting, as mentioned, of -NOK 41 million.
Our occupancy is currently at 94.3%. As I commented on in the last quarter, activity in the letting market slowed down following the summer. This is also something which has continued into the fourth quarter, where the total volumes signed in the marketplace were lower than what is normal for a typical fourth quarter in the market. We believe this is a reflection of several factors. Firstly, we have had two very active years with renegotiations, both of some pent-up volumes following the pandemic, but also, we've seen that some tenants have actually started their renegotiations and signed contracts early. Secondly, volumes with leases expiring in 2026 are around 100,000 square meters below the volumes we have in the two previous years.
However, when we look into 2027 expiries, we can see that they are actually 200,000 square meters higher than 2026, which should imply that we will see increasing activity and more lease searches coming out in 2025. And thirdly, there is an increased cost focus amongst particularly private tenants. And we've also seen that employment growth has been flat for public, sorry, private tenants, particularly in the Oslo market. Now, we do not see any big changes in respect of structural demand for office. What we do see is that there are some cyclical aspects affecting the activity in the short term. Although we have a situation right now with the private sector more cautious and slightly lower activity, their expectation is that the Norwegian economy is heading for a soft landing, implying also that economic activity should pick up going forward.
And if we look at the strong rental market growth we have had in the recent years, we also see that our public tenants right now are in a situation where they, on a tight budget, need to cut costs either through reducing their space or through moving to less expensive areas in the city. Now, at the same time, the majority of these public tenants are coming out of long leases where they have planned for a situation with one desk per employee. Now, when renegotiation, they are looking at underutilization so they can actually downsize their space when they renegotiate. We saw the same trend last time we renegotiated with public tenants when they went from cell offices into the open spaces.
At that point in time, over time, we saw that the space they freed up was absorbed in the marketplace as a natural part of the supply, and we expect to see the same thing happen this time, also knowing that there has been very limited new build volumes, which will feed into the market. Now, if you look at the portfolio of Entra, we have seen that in the most expensive parts of our portfolio in the city center, we have over time also changed our public tenants over to private tenants willing to pay more. This has been a normal course of business for us. It will, from time to time, mean that we see that we have some friction vacancy between tenants when we work to chase the market rents and optimize value on our properties from a long-term perspective.
We are, though, very confident that we will be able to pick our occupancy up about 95% again. We have great locations, we have good quality assets, and 80% of our vacancy is related to attractive lease objects. We are also realistic that it takes time to do this, and we might also see that occupancy will come slightly down before it starts picking up again towards the end of the year. The good news is that we see favorable market fundamentals. We are in a market where we believe that there is a great upside potential for us to work on both chasing the market rent potential in our contracts and also leasing the vacant space. Entra has signed two contracts for divestments in the quarter. We were pleased to see that we could sell the asset Grenseveien 78B, 13.4% above book values for NOK 410 million.
That transaction was closed in the fourth quarter. We also finalized the agreements for the forward sale of the ongoing development in Trondheim. This is a forward sale which was announced when we sold the Trondheim portfolio. However, our largest tenant had an option to take parts of that building, and we have now finalized the agreement, selling part of the building to the tenant, part of the building to E C Dahls Eiendom, the buyer of Trondheim. And the transaction will leave us with a decent profit margin on top of our construction project cost. So, with the sale of the Trondheim portfolio and the divestments we have done throughout the year, we have successfully completed our divestment program, and we will, of course, continue to optimize our high-quality portfolio as an ordinary course of business through asset rotation.
We have brought down the project intensity in our portfolio as a diligent approach to CapEx discipline and also improving our credit metrics. Now, with gradually improving investment capacity, we are in a position to have a more balanced approach to capital allocation when profitable investment opportunities arise. Current market trends are not in sync with the construction costs and current interest rates, and it's hard to justify starting new projects. We will, however, be well positioned to start projects when we can get the rent levels, which will provide accretive returns on investments, and as already mentioned, the ongoing project in Trondheim has been forward sold. All of these projects are progressing according to plan, and the remaining CapEx is NOK 840 million on these projects. ESG is a fundamental part of our business strategy.
We are increasingly seeing also that our tenants, when they now start reporting on CSRD, are much more conscious about the energy performance of the buildings. In Norway, the situation is that the government is currently working to approve the previous energy directive from 2018, which has no direct requirements for energy classes within the building stock. We have, however, done a screening of our portfolio compared to the new EU directive, which was adopted in the European Union from 2024, and as you can see from this exhibit, a very small part, only NOK 2.2 billion of our portfolio, is something we will be working on to enhance the energy qualities. The remaining is well positioned to meet the future requirements, so that underpins the environmental qualities also of our portfolio. A few words on the market. The Norwegian economy has performed well through this cycle.
When we start seeing lower interest rates and also the real wages, which we have had over the growth we have had, sorry, over the past two years, when they start fueling into the economy, it's expected to see that the Norwegian economy will pick up again. The employment has remained stable or slightly positive growth and is expected to also remain so going forward. The inflation is on the downward curve. The inflation of November, which is the one which feeds into our rental income, came in at 2.4% last year. The January CPI is now lower at 2.3%. Expectations are that we will see the first policy cuts in March. If you look at the supply side in the market, the current vacancy in the overall market in Oslo is around 7%, of course, with some differences between the different clusters in the portfolio.
It's around the same levels also in Bergen. What we see in Oslo is that the vacancy is predominantly in the segment for small office space below 2,500 square meters. That's good news for Entra because we are predominantly exposed to large tenants where they have very limited alternatives to choose from right now. But then again, our vacancy is also in the space with smaller tenants where the competition is quite fierce right now, also because that's where you typically meet the subleases. Break-even rents for new builds. Yeah, a few words, sorry, on the new build volumes. From the bottom right chart, you can see that there has been very limited volumes coming into the market the last three years. In 2025 and 2026, there are higher volumes being completed.
However, 200,000 square meters out of those two years is related to two projects, Construction City and the new government offices, which are fully let. And the buildings they will be moving from will need to be redeveloped, meaning that they will go through 18 months of redevelopment. And they also have to ensure that they get market rents, which also can compete with the current construction costs in the market. This is an interesting exhibit where you can see that on the left side, the rental income in the Oslo market has grown more than the CPI over time. And at the same time, you can see that it hasn't been able to keep up with construction costs. Now, this has worked very well in the past when we have had lower interest rates and also yield compressions. You have been able to make profitable returns on projects.
However, in the current market environment, it's hard to justify new investments with current interest rates and construction costs. On the right-hand side, you can see an exhibit from DNB where they have asked the 25 largest real estate companies in Norway, representing about 50% of the office volume in Oslo, what rents do you need to start new projects? And as you can see, the bars in green representing the city center, expectations are that they will have to have at least NOK 5,000 per square meter and in the fringe areas, at least NOK 3,500 per square meter. So that implies also that we will have to see 8% rental income growth in the city center and 5%-25% in the fringes to get there.
This is why we also believe that we in a situation with a market with limited vacancies and limited new build supply coming into the market and a scenario where the Norwegian economy is heading for a soft landing and prospects of employment growth, we should see that rents will grow more than CPI over the next two to three years. The slight slowdown which we've had in the market over the recent quarters indicates also that we may have a more flattish rental growth in the short term. However, this should be temporarily, seeing that economic growth is around the corner. We believe that we will have favorable property letting fundamentals to work in when we work on our renegotiations and also letting of the vacant space, thus representing a great upside potential for us in the years to come. A few words on the transaction market.
Interest rates have topped out. Inflation is on a downward curve, and property values seem to now have bottomed out, as confirmed by our valuations. Prime yields are, as you can see from the consensus report, expected to trail down towards 5.5%, sorry, 4.5% this year. And we have already seen transactions in the market, both in the Q4 and Q1, supporting that prime yields should be around that level, where you have equity buyers at those levels, but also debt finance buyers, believing that they will see rental market growth going forward and also that we will get some interest rate cuts going forward. Ole, that leaves the floor to you.
Thank you. Thank you, Sonja. Yes. We continued the financial improvement both on net income from property management as well as profit before tax in the fourth quarter.
As you are aware of, in Q2 2024, we divested our Trondheim portfolio. So for comparison purposes, we have marked out the impact on Trondheim portfolio had on the rental income in the graph to the left. Rental income came in at NOK 767 million, which is more or less flat compared to the third quarter 2024, as well as the fourth quarter 2023. The rental income is also on par with what we highlighted in our rental bridge in the third quarter presentation. In the fourth quarter, we had positive impact from CPI of NOK 30 million, but this was offset by negative like-for-like of NOK 18 million and other divestment outside Trondheim of minus NOK 12 million. Adjusted for all divestments, the underlying rental income growth is 1.6%.
Net income from property management came in at NOK 317 million, which is up 7.1% compared to the NOK 296 million we had in the fourth quarter of 2023. This is due to lower interest costs more than offset the lost revenue from the divestments we did in 2024. Profit before tax came in at NOK 756 million, and this was supported by positive contribution from both our hedge instruments and our property values, and I will come back to that later on. Some comments on the P&L. We already gone through the rental income line, but I will give you some flavors on the other line items. Our OpEx came in at NOK 65 million. This is 8.5% of rental income, which is in line with historical levels. Other revenues and other costs are just a reclassification due to the forward sale of the Holtermanns veg in Trondheim, which Sonja mentioned earlier.
Admin costs came in at minus NOK 51 million. This is up from minus NOK 44 million in the fourth quarter of 2023. In the fourth quarter of 2023, we had the reversal of provisions, which combined with the inflation of 2024 explains most of the increase in the administration cost in the quarter. Looking forward into 2025, we believe or we target administration costs around NOK 200 million for also 2025. Financing cost is significantly down with NOK 108 million to NOK 348 million. This is mostly due to lower net interest-bearing debt of nearly NOK 8 billion following the divestment we did in Trondheim. However, we also have a lower average interest rate in Q4 2024 with nearly 30 basis points compared to fourth quarter 2023. Value changes, you can see that we have positive value changes from investment properties of NOK 273 million. I will come back to this later on.
Then we have changes in the value from financial instruments, which is a value change in our hedge portfolio due to an upward shift in the NIBOR. And this leaves profit before tax of NOK 756 million. Moving then to our per-share data. On the left-hand side, you can see that the cash earnings measured as the rolling fourth quarter increased from NOK 7.0 per share to NOK 7.1 per share. We also had the positive improvement on the net asset value increasing from NOK 160 per share to NOK 162 per share, as you can see in the graph to the right. And this is the second quarter in a row we had the positive uptick on the NAV.
In addition to this, we have distributed 37 NOK per share in dividend accumulated since the IPO, which gives average a total return which averaged 9% per year since the IPO. Over then to the rental bridge. As mentioned earlier, the rental income in the fourth quarter was in line with the rental bridge highlighted in the third quarter. Looking forward and based on reported events, the model indicates that the revenues in the first quarter will be 783 million NOK, up 2.1% compared to the fourth quarter in 2024. This is 12 million NOK below what we highlighted in the third quarter rental bridge. However, this is because the actual CPI came in at 2.4% compared to our estimate of 3.0, which impacts 5 million NOK in the first quarter rental income.
In addition to this, we sold the Grenseveien 78B, which Sonja mentioned, which also impacts NOK 5 million, and the rest is net letting. Please note that this graph is not a guidance. It just highlights the rental income trend based on existing contract portfolio, and the upside in this graph is related to renting out vacant space, and the potential upside here is NOK 202 million per year. While the downside risk in this graph is related to terminations of contracts that expires in the period. The property portfolio value had a positive development in the quarter. The investment portfolio increased with NOK 273 million, as you can see in the graph to the left. This is up from a positive NOK 37 million in the third quarter, so we have now two quarters in a row with a slight positive value increase.
As you can see on the top right graph here, most of this value increase is related to slight better or slight improved yields from the appraisals. In this quarter, it was the East Fringe area, also East Fringe area, that had slightly lower yields. Valuation seems to be through the trough, and as Sonja mentioned earlier, generally yields are expected to come down going forward. In addition to this, we had the added value from increased market rent assumption of NOK 88 million. Going back to the left, you can see we have a CapEx of NOK 492 million in the quarter, and this is related to the four ongoing projects Sonja mentioned, as well as other development projects. We continue to have a disciplined investment strategy based on the current interest and rent levels.
Net portfolio yield is now at 4.99% compared to 4.97% at the end of the third quarter. Some comments then on our financing strategy, our long-term debt structure. So first of all, we have a low-risk asset side. We benefit from a stable macro environment here in Norway with an all-time high sovereign funds that smoothens out the business cycle and stabilizes the Norwegian economy. We have centrally located assets at public transportation hubs, of which nearly 80% is in the capital of Norway, Oslo, many of which are already environmentally friendly and taxonomy aligned. And lastly, we have also a low-risk tenant portfolio on long leases that creates a stable cash flow. Nearly 50% or about 50% of our tenants are public, and the remaining are solid private and listed companies here in Norway.
When it comes to risk appetite, we will continue to have a conservative approach when it comes to leverage and interest risk. When it comes then to credit rating, having good access to the bond market is an important part of Entra's financing strategy, and this is to have a stable funding platform over time and at favorable cost. We target to have a conservative, sorry, we target to maintain an investment grade throughout all parts of the cycle, as we have done in the past. We will also continue to be a strong presence in the Norwegian bond market, where we currently have nearly NOK 19 billion outstanding in bonds. However, we will over time also start to explore other sources or other currency of bond issuance and private debt placements. The bank debt structure is now in place.
We have a long-term stable structure, but it's also flexible, and this can optimize our secured financing potential. So the next step now is that the board will propose no dividend for 2024 as a structural piece in setting a potential path to a rating upgrade. We will also continue to explore new bond issues, as we have already started in January at favorable terms, and I will come back to this. And lastly, we will remain capital disciplined and have a balanced approach when it comes to investments and improvement in credit metrics. Our debt metrics continue to improve in the quarter. All our debt ratios went in the right direction. Our leverage ratio is down 0.6 percentage points to 49.3%. Our interest coverage ratio is also up from 183 to 191, and we also had a slight improvement in net debt to EBITDA to 11.7.
We expect to continue this positive trajectory in the debt metrics going forward, and this is supported by continued capital discipline as well as potential value increases and lower interest rate. However, it will not necessarily be in a straight line. After the quarter end, our long-term financing structure started to come into place. So the graph here represents what our financial position was at the end of the year. And as you can see, we had ample supply of liquidity at the time following the divestment of the Trondheim portfolio in Q2 2024. We also postponed issuing new bonds due to this significant liquidity buffer, as well as somewhat less favorable credit terms, especially in the first half of 2024. However, after the end of the quarter, there have been significant changes to our financing structure.
We have issued bonds of NOK 3.1 billion, mostly five-year Norwegian crown floaters, and we started with a credit spread of 150 basis points ending at 125 basis points at the last tap issue. We also have got bank commitments of NOK 20 billion, extending credit facilities from 1.3 to 3.5 years. So the average time to maturity has following both these bond issues and the bank commitments increased from 3.1 years to 4.1 years. So if you look at the graph in the middle here, all these debt maturities, which is measured as blue bars, will move significantly to the right. We will also no longer require such a significant liquidity buffer, and we will take down the liquidity buffer to around NOK 7-8 billion to optimize our total funding cost.
Still, we will remain or we will continue to have ample liquidity, and we have a debt coverage ratio of around 20 to 24 months following this adjustment, and the debt market remains open. Moving then to the cost of debt, so this fixed line represents Entra's interest cost or interest rate historically, as well as our forecast going forward. The yellow or orange line represents what we highlighted in Q3, and the green one is our latest estimate. Dotted line here is the NIBOR forward curve. As you can see, the actual cost of debt came in at 3.97%, which was slightly better than what we highlighted in the third quarter. Based on the current assumptions, we believe the average interest rate or our average interest rate will be lower in 2025 compared to 2024.
And the stability in this graph is, among other, due to our significant fixed interest rate hedges, which we have a hedge ratio now at 65%. As when it comes to the development on this curve, we had a negative development because of the NIBOR shifted upwards. However, this was offset by improved credit margin outlook. Here you can see that the five-year credit spreads for our bonds were reduced with 15-20 basis points in the quarter, and this has continued to come down after the end of the fourth quarter. Sonja.
Thank you, Ole. Okay, so a few closing remarks from me.
First of all, we see that the Norwegian economy has kept up well, and even though we have had a slowdown in the short term, when lower interest rates and the strong wage growth we've had in the past year start feeding into the economy, it is expected to see that the economy also will pick up and that we will have some cuts in rates throughout the years, starting in March. We currently see a slightly slower letting activity in the market, but with expected economic activity, this should also pick up going forward. Our expectation also is to see that rents will continue to increase in the medium to long term.
Property values are believed to have bottomed out, and there are expectations now, both from our consensus report and the specialists in the market, and also by what transactions we have seen in the market that yields will come slightly down in 2025 towards then the 4.5% as indicated in the consensus report. We are pleased to see that we have improved our balance sheet and credit metrics significantly through the year, through the asset divestment program, and also very happy that we have now a long-term financing structure established and are back in the bond market, and also very good to know now that we have done a big job with our partnering banks, refinancing commitments for NOK 20.2 billion.
We expect to see also that we will be able to provide future rental income growth driven by both CPI, the projects we are completing, and also solving the vacancy in our portfolio. So I think that concludes it for now, and we are ready for some questions for, yeah, let's move to Q &A.
Yes, we have a couple of questions. The first one being, can you provide insights into the types of tenants and locations that contributed to the negative net letting in Q4?
In Q4, we had, I would say that about half of the terminations of NOK 66 million is related to two tenants, which were now relocated and/or co-located, I should say, together with other public entities. So basically, moving out of our portfolio into other buildings outside the portfolio as part of entities where they have a home, basically.
And one contract also related to one of our development projects where we move a tenant out to a temporary location and then do the redevelopment and move it back. So then it comes in as a termination in the fourth quarter. So not really any extraordinary effects in the net letting terminations this quarter.
How has net letting developed so far in Q1 2025?
Well, we have some ongoing discussions where we do expect to see that we will also have some terminations this quarter, but it's too early to say where we will peg. We continue to work hard to sign new contracts, and then whether we close these contracts this quarter or the next is difficult to say.
Do you expect any other large terminations in 2025?
Well, I mean, it's an ordinary course of our business that we have tenants renegotiating every year, and we have had fairly large volumes renegotiations in 2024. We have a lot to work on in 2025. What we are seeing is that more and more of our tenants are now reconsidering whether they should sit in the current way in the office or whether they want to have a different workplace solution. So we are much more in a competitive market environment, which means that it is a real competition winning each contract. So of course, there are contracts at risk, but no kind of single one large contract in the next 12 months, which we are sticking out, but there's a lot of work to be done, and we are conscious that that's the top priority for us to work on those.
Oslo S Utvikling. When will Oslo S Utvikling start delivering units and be accretive to earnings?
O slo S Utvikling is a residential development company, and the next building step will be completing their residences in the fourth quarter this year. And then following that, I think the next project is in the fourth quarter of 2026 approximately. And they are also working on the investments of some of their ground floor assets. No dividends coming from that side in the next 12 months.
You write up assets, but have negative net letting. You state that this is due to higher expectations. Please elaborate.
Sorry, could you repeat?
You write up assets, but have negative net letting. And you state that this is due to higher expectations. Please elaborate.
I think what we have tried to say is that the market rental growth, underlying market rental growth, which feeds into the property valuations, has had a positive effect on the market valuations. Yeah,
I think it's important also that obviously we use external appraisals also. It's not our internal valuation, and they have added higher market rental in certain assets, which brings some of the value up, but most of it is slightly lower yield in Oslo East Fringe area, start of new projects, including the start of the new headquarters for Yara,
well, all the lease contracts which we have signed, we have done calculations and also based the rent discussions on what we need to have to get the returns we require, so we will, of course, start the projects where we have signed lease contracts.
Y ou state that you have completed your asset investment program. What about the two properties in Stavanger?
I also said that we will continue to work on optimizing our portfolio and work with normal portfolio rotation. The Stavanger assets are not strategic assets for us. If we get the right price, we will also be willing to divest these assets. We're not there in a situation where we have to sell. We sell if we get the price we want.
You comment that yields will compress as base rates are reduced. However, we have not seen this in other markets where base rate cuts have already happened. Rates already reflect many base cuts. Will Norway be different?
I think our comment is that we have already seen transactions in the market supporting that yields will trail down in line with what the expectations are in the consensus report.
The buyers are obviously seeing that they're willing to pay at those yields. That supports the argument.
Yeah, and this is also based on external reports also. They might be speculating that rental levels come up much more because the construction cost is much higher than the current levels we see in the market. That they might also expect that more cuts than it's in the forward curve. That also might be possible.
Y eah, we also see that there's quite a wide universe of buyers in the market where you have pension funds, equity buyers wanting to or requiring to increase their allocation to real estate. Also quite a lot of long-term investors, family offices, which are basically taking a bet on the market, expecting to see that, as Ole said, there's something has to give going forward.
Thank you. That concludes the Q&A session for today.
Okay, thank you very much for joining us today, and we look forward to seeing you on the next quarter.