Good morning all, and welcome to Entra's third quarter presentation brought to you here from Oslo. Let's move right on to the highlights of the quarter. Rental income came in at NOK 788 million versus NOK 639 million same quarter last year. Net income from property management of NOK 406 million.
Net value changes negative of NOK 3.823 billion in the quarter. Mainly explained by the external appraisers having increased their return requirements on our property portfolio even though yet not evidenced in the transaction market. Leaving us thus with a loss before tax of a negative 3.430 billion. Key events. Happy again to state that we have a positive net letting, solid letting in the quarter, NOK 6 million.
We also finalized one redevelopment project in the quarter in St. Olavs Plass, and we started one new refurbishment project in Trondheim at Brattørkaia 13. Very happy to say that we have secured additional bank funding of NOK 5 billion in the quarter, and our board has decided to pay out a dividend of NOK 2.6 per share for the first half of this year to be paid out on November second. Moving on to operations and our markets, starting with the letting situation. As I already mentioned, a solid quarter of letting. We assigned and renewed leases of NOK 80 million in the quarter. That's around 27,000 square meters.
At the same time, contracts for around NOK 23 million were terminated in the quarter, leaving us with a net letting of NOK 6 million. If you take a look at the largest contracts in the table here, very large contract signed at Langkaia 1 with a public tenant, total of 9,300 square meters. Combination there of a renegotiation and also increase in volume.
We also renegotiated a contract with the Norwegian Tax Authorities at Fredrik Selmers vei in Helsfyr for 2,000 square meters. We've renegotiated with Telia in Lakkegata. Here at Biskop Gunnerus gate 14, the retailer Coop on the ground floor has renegotiated, and Posten Norge has also increased their space with 1,000 square meters.
If we take a look at our occupancy, it's slightly down in the quarter, currently at 96.6%, and our average lease duration is currently now at 6.1 years, or 6.3, including the project portfolio. As I said, we finalized the project in St. Olavs Plass in the quarter. This is the last large redevelopment in the Tullin Quarter, which we have been working with for quite some years. It's a project of 16,500 square meters with a total project cost of NOK 1.14 billion. We started this project with a very low pre-let ratio of 21%, so very happy to see that we can report it at 95% now, close to fully let upon completion.
The project will be certified BREEAM-NOR Very Good, and yield on cost here is 4.9%. We started reporting this project of 4.8%. This project has also recently just been awarded the Transformation Project of the Year for the efforts we have done here on the ground floor, opening up the space and inviting the city into the building, creating more urban qualities in this neighborhood. A
few words also on the Tullin Quarter, because with the completion of St. Olavs Plass 5, Entra has also finalized the development of this Tullin Quarter, which has been something we have worked on for quite some years. It's actually Entra's largest urban development project so far.
The Tullin area is located at just three minutes walk from the National Theater Metro station in the city center of Oslo. Our ambition has been to develop this area into an attractive office cluster competing with CBD in Oslo. Our target has also been that we will see both rents and yields trend towards CBD levels over time. We have put quite a lot of effort into finding also the right operators on the ground floor, adding qualities and social spaces which help us to also attract the tenants willing to pay top rent.
Very happy to see that we have now also achieved a rent uplift here with as much as 50% in top rents in the Tullin Quarter over the years we've been working with this urban development project. Through this reformation of a part of the city, Entra has also put itself on the map as a recognized urban developer. We have received several awards for our environmental innovation project in Kristian Augusts gate 13. It was actually the first project in Norway targeting a circular economy, where as much as 80% of the materials going into that building have been reused.
For our project in Universitetsgata 2 here at the back, Rebel, we achieved the award as the Urban Developer of the Year for 2022, which is more or less like the Oscar for redevelopment, in Norway. Just now, we also were awarded the City Life Project of the Year for having put life into a part of the city which was pretty sleepy before we started the transformation.
Now, the efforts we've put in and the learning from this project will be very valuable for us also when we continue working with the transformation of other areas in Oslo, like the Central Station, which is going to go through a huge transformation over the next five to 10 years. In Trondheim, we started a smaller refurbishment project also in the quarter.
At the bottom right here, you can see our block of buildings on the seafront in Trondheim, Dronningkaia, and this is actually the last part of the urban development project at Dronningkaia in Trondheim. It's a beautiful old building, which will go through a refurbishment, 6,000 square meters of office space and currently 72% pre-let, and the total project cost here is NOK 227 million. Out of that, around NOK 132.5 million is CapEx. Targeting here BREEAM-NOR Excellent certification and also a yield on cost of 5%. If you move on to our ongoing list of projects, very happy to be able to present a beautiful picture with a lot of green arrows this quarter.
First, let me start by saying that all the projects are progressing according to reported cost on time. Our occupancy on a portfolio level is currently at 76%. If I'll go through the changes here, you can see that the green arrow on Tordenskiolds gate 12, Stensberggata 1, and Vahls gate 1-3, we're marking an uptick in yield on cost on 10 basis points on these three projects. That's explained by a CPI coming in higher than expected, giving us some rounding up effects on the yield on cost. In Møllendalsveien 6-8, yield on cost is up with 20 basis points. This is a project where we reported cost increases a year ago, due to cost increases in the projects following the COVID situation.
Very happy to see that we're now back on track with yield on cost, where we started reporting at 5.2%. At Kongens gate 87, we have increased occupancy, signing a new lease contract with Access. In Nygårdsgaten, we just yesterday announced that Sopra Steria, already a tenant in the building, has increased their space, almost doubling their space. Occupancy is up to 77%. We've also increased the costs with around 9%, seeing that we have increased some qualities on the back of the new contracts which have been signed. This is however more than compensated by increase in rent, leaving us with a yield on cost at 5.8%, up from 5.5% last quarter.
On the general note, I'd like to also comment that we are currently experiencing delay between the cost increases we're seeing in the projects and also capital costs and on the other hand, the willingness to pay high rents with our customers, or expectations I'd say, for rents with our customers. This will potentially also delay the start of projects in our project pipeline. Having said that, in the current market situation, Entra will also have a even stronger focus on capital discipline and how we allocate available capital in order to maximize shareholder value. A few words on the market situation.
The high inflation, increasing interest rates, and also more subdued outlooks for international growth is expected also to have implications for the Norwegian economy, cooling it down. Having said that, the Norwegian economy clearly stands out with its very strong government finances and also the fact that we are benefiting from higher energy prices.
GDP growth is expected to come out at 3.2% for 2022 and 1.5% for 2023 according to Statistics Norway. The September CPI came in at 6.9% and almost all of Entra's lease contracts are 100% linked to CPI, most of them based on the index of November. Following the pandemic, the employment growth has been very strong in Norway and particularly in the greater Oslo region.
According to Statistics Norway, the number of employees grew with as much as 8% last year in the greater Oslo region. Unemployment rates in Norway are expected to be as low as 3.3% at the end of this year, then trending to turn upwards. However, only a slight increase in unemployment is expected in the coming years. In the property market, we are not seeing any signs of cooling down in the respective letting activity.
Arealstatistikk, who tracks all signed leases in the larger cities in Norway just came out with updated numbers this week for the third quarter, stating that both the number of contracts and also volumes signed in the third quarter this year was actually at the highest level we've seen for a third quarter. In respect of take up, we are not experiencing that our customers are demanding less space. We also saw that the Akershus, the affiliate of JLL in Norway, in August came out with their survey tracking space requirements.
They ask every year the large companies on the move whether they expect to need less space, maintain their space, or increase, and as much as 82% stated that they expect to maintain or increase their space requirements going forward. If you take a look at the graphs here, you can see that our consensus report states that the vacancy currently is around 5.5% in the Oslo market, and it's expected to stay at that level going forward. From the bottom graph there, you can also see that there's very limited new supply coming into the market in the years to come.
The low vacancy and the very limited supply of new offices in the years to come provides a very good property market fundamentals for us in the years to come, particularly in central Oslo. A few words also on the transaction market. The first half of this year, we experienced more or less a normal activity, and then we've clearly seen that the activity has cooled off during the summer and into the autumn. Year to date, transaction volumes have been around NOK 60 billion. We're expecting to see around NOK 100 billion this year. But there is, of course, more uncertainty to those numbers now, seeing that the activity currently is pretty moderate.
In respect of yields, according to our consensus report, yields for prime office in Oslo are expected to expand to around 4 % over the next year. Having said that, the low supply of new office space and upward pressures on rents is expected to have some balancing effects on property valuations.
A few words also on our ESG work and reporting. We were once again very happy to see that we were acknowledged with a five-star rating with GRESB's framework with a total score of 90 points. GRESB is a very comprehensive ESG reporting framework that measures ESG performance, both on an individual asset level and on a portfolio level. It's also by far the most reputed framework within the real estate sector.
In 2021, as much as 1,500 companies and assets for around $5.7 billion U.S., no sorry, $5.7 trillion was included in their assessment of companies. We're also very happy to see that we have maintained our gold level with EPRA for compliance with their best practices in respect of reporting, both in sustainability and financial reporting.
This is important to us as ESG is a very integrated part of our business model, and it clearly proves also that we are dedicated to being an environmental leader. It also enables us to capitalize on our environmental qualities and our governance structure, both in equity and debt markets. I think that leaves it for you, Anders, to take it from here.
Thank you, Sonja. I guess we could fairly say that the intensity of the first half of the year has been fully spread out into this third quarter as well. We have seen market volatility, we've seen equity pressures, we've seen inflation and central banks stepping in, and also some companies struggling with their funding and getting new liquidity. In that turmoil, Norway actually stands out in a very positive way.
Actually benefiting from the high energy prices with a strong GDP and employment growth, and also with a strong state being willing, as evidenced with being willing to support the business environment. On a country basis, it's Norway actually stands out. Entra also has done well for the third quarter.
Operations are pretty much dead on as expected, so we won't spend too much time on that. I will talk about the value changes. We had, as Sonja said, almost NOK 4 billion negative value changes on the assets in the quarter, and also on the funding situation, which is rather positive. Moving on to the revenues.
Ending up at NOK 788 million, so we're up NOK 5 million from the second quarter, and basically dead on where we expect it to be. We're up NOK 149 million since the third quarter last year. The bulk of it, NOK 115 million, comes from acquisitions, and then Ullvariel being the key driver of course. We also divested assets for NOK 28 million, leaving a net positive contributions from acquisitions and divestments of NOK 87 million.
We have, throughout the year, put a number of assets into operations coming back from projects, giving another NOK 42 million in quarterly revenues. We have also taken out two assets from the management portfolio, taking out sort of NOK 4 million. A net addition to the portfolio of NOK 38 million. Finally, we have a CPI of 5.1% that came into effect from November last year. As you will recall, almost all of Entra's contracts are 100% linked to CPI. No arguments, no discussions, basically linked to CPI. Year-on-year in September, it's 6.9% in Norway. Secondly, we have a bit flat, like for-like growth, both on the quarter and on the year-to-date.
On the net income property management coming out at NOK 406 million, you can see it's primarily driven by the increased interest costs. It's NOK 133 million above third quarter last year. That is basically the explanation for coming down. We actually are now seeing that the increased cost of debt is starting to bite on the PNL.
Finally, profit before tax, or in this case, loss before tax coming at 3.430 billion, impacting greatly by the almost NOK 4 billion of write-downs on the asset portfolio, partly offset by NOK 130 million in write-ups on the hedges. I'll come back into that later. Cash earnings steady at 9.2 per share. That is 12 months rolling, annualized.
NRV down from NOK 230 last quarter to NOK 210 now, again, driven by the negative value changes. Still a 13% CAGR on the NRV from our IPO back in 2014. NTA at NOK 208. Looking at the actual PNL, this is a few comments on the numbers. Firstly, you see that operating costs coming at NOK 66 million. That is 8.4% of revenues. Especially actually not in line what we are expecting to see from our business. We should be in sort of the low eights. What we have for this quarter is that we have a NOK 6 million additional charge of energy costs. In Norway, all energy costs are being paid by the tenants.
Our energy cost is on the vacant areas only. Even that, given the increase in energy costs, it's up by NOK 6 million compared to the third quarter last year. Clearly, energy cost is a big part of the cost now for our tenants. We charge it basically directly to them. It's basically a non-starter discussion. It's in the contract they have to pay. Looking at the admin costs coming at NOK 45 million. Basically in line what we had expected. On the year to date at NOK 154 million, please bear in mind that we have a NOK 17 million, a sort of one-off restructuring charge, relating to the Oslo real estate back in the first quarter of the year was the total of NOK 17 million.
We have on the associated companies a quick comment. This is a negative NOK 17 million. Of that, almost all of it has to do with one real estate company that we own a small part of that actually wrote down the values of their assets as well. It's the result of sort of asset-driven value changes. Finally, on the financing costs coming in at NOK 275 million. Again, NOK 133 million higher than the third quarter last year. That is a result of having NOK 15 billion more in debt and 105 basis points increased cost of debt compared to last year. All in all, on the operational part, very happy with the results. I'll come back to the value changes afterwards.
When we look at what is known in the market in terms of projects coming in line with signed contracts, net letting, acquisitions, divestments, this is basically how Entra's revenues will look like in the next six quarters. As you can see, we're expecting about NOK 800 million for the fourth quarter, primarily driven by four new projects coming online during the quarter, two in Oslo, one in Bergen, and one in Trondheim.
In addition to sort of increased revenues from those projects coming online, because tenants will gradually move into those assets, so typically over like almost a three-quarter period. We have put in here a 5.5% expected CPI, and I think we said we're on the sort of safe side on that one.
We expect to see a fairly flat revenue development over 2023. You would expect that the revenues would come up as the projects we're putting up now in the project portfolio are being put into operations. What we will have is during the summer next year, there's one large asset where the tenant will move out, and that will have a negative NOK 18 million quarterly impact in net for next summer. That will then be sort of offset and a bit more by the new projects coming online.
We expect put in place now a 3.5% CPI going into 2024. If you look at sort of the overall picture, you will recall we had revenues of NOK 2.5 billion in 2021. 2022 we expect to be on the NOK 3.15 billion, give or take, so it's a 26% up from 2021. In 2023, if we just add up these numbers, you get to NOK 3.45 billion. Another 10% increase. If we compare from 2021-2023, i.e., back in 2021, NOK 2.508 billion, and now NOK 3.45 billion in 2023, it's actually a 38% increase.
Clearly Oslo Real is a big part, but if you take out the effect of Oslo Real, it's still a 19% increase in revenues from 2021 to 2023. Of which about half of it is CPI, and the rest is basically our organic growth, developing the project portfolio, putting assets into place, getting more revenues out of each square meter.
Again, Entra is on now, and has been for the last three years, on a sort of a total growth track, which we're happy to see. On the balance sheet part, we invested another NOK 570 million in projects this quarter. Basically in line with what we've done the last couple of quarters. Of that, about NOK 35 million is on smaller sort of tenant alterations, smaller projects.
The rest is basically on the big project portfolio. What stands out, of course, is the negative write-down on the assets of NOK 3.953 billion or almost NOK 4 billion. Let's just take one step back on that one. Entra has a policy of using two external appraisers, and they do a DCF analysis on each asset every quarter. What we saw now in the third quarter was that basically there were very few transactions taking place. Uncertainty is sort of rather large in the market, and we thus decided to take in a third appraiser for this quarter. For this quarter, the appraisals were done by three independent companies, each of them appraising each asset on a DCF basis.
What we did see, even though there has been, as in most other countries now, very limited or no transaction evidence, we saw that our appraisers basically taking into account a number of soft factors saying something has happened in the market, and which meant that they have taken up the required rate of return requirements between 20 and 66 basis points. It varies a bit between different kind of assets.
We have taken the average of those three appraisers into our books, leading to a net negative of almost NOK 4 billion. We do see that other companies have different views on this, other countries have different views on this, but we find this to be a very prudent way of doing it, basically take an external view and having their sort of average of their appraisals into our books directly.
No, no adjustments from our side. Clearly it is, it's an impact. That means the yield on our portfolio went up by 25 basis points in the quarter, up to 4.17 on the management portfolio. If we include what also the NOK 1 billion that we wrote down in the second quarter, that means we've taken up the average or the net yield on our portfolio by all 29 basis points. This clearly has an impact on also the debt ratios. When we look at, I mean, this quarter has been continuation of the first half year. We see that the base rates have come up further. The credit margins have remained fairly stable on, for us at least, high, compared to the high levels.
Not for us because we're actually on the low credit margin compared to most other companies, but it's up from what we're used to from the last 10 years. We see that funding availability, especially in the bond market, has pretty much dried up. I mean, the Euro market is pretty dry. Entra is only in the NOK market, so it doesn't really affect us that way. Clearly it affects the full market. In that context, we are very happy to see that we have secured another NOK 5 billion in new bank funding during the quarter. Entra uses five partner banks, and three of them together put up NOK 5 billion in the quarter.
We're very happy to see this because actually it evidences the trust and the comfort that the banks put in Entra as a debtor. In addition, we rolled over 650 million in commercial papers quite well. The credit margin on those two were between 71 and 90 basis points. Still actually reasonable funding compared to today's market, but clearly higher than what we have been used to see. What we see is the ICR at 2.3 and the EPRA LTV at 51. If we use the Moody's definition of LTV, basically on a total asset basis, we're at 49.4.
Our policy in terms of LTV is that Entra over time shall not be above 50%. Even though the Moody's is below, EPRA is slightly above, that means the asset rotation is on the agenda for Entra now and also going forward. Okay. In terms of how we see the funding market right now. CP market is still available, but the liquidity is significantly lower than we have seen, and that is typically a market that is on and off.
Now it's sort of quasi off, even though we were able to get another NOK 650 million in the quarter. The bond market is still open in Norway, but credit margins are on levels where at least for now, we are not in the business of printing paper on.
Currently, a five-year bond for Entra would be at a credit margin of about 220 basis points. We do have incoming calls from bond investors still willing to lend us money on that price. We're rather happy about our bank partners in this respect. Then on the bank market, I said banks have to prioritize now. There's a number of large bonds maturing in the real estate industry in Sweden and in Norway. Banks will need to pick their partners and pick their friends. We're happy to see some evidence that the banks are good friends of Entra. A good thank you for some of our partners, like DNB, Nordea, SEB, Handelsbanken, and Swedbank. Long-lasting relationships really pays off in times like this.
Two more exhibits on the financing part. Average interest costs, nominal interest costs as of the end of the quarter was 3.17%. You can see here now that we have then extrapolated the forward interest curve as of September 30, put in our existing hedges and basically our as is credit margins to see how will the interest cost of debt develop during the next years. What we see now is that we're actually a good way up the curve already. With the existing market, we will end up with cost of debt, nominal cost of debt at about 3.6%-3.7% in years to come and then flattening out. Clearly not a positive picture.
Look at interest will come up, but actually not bad because we are already way up, and you can see it sort of putting into our numbers. On the hedge portfolio part, which is an important driver for why we are not following the full effect of the forward curve. Clearly, 49% of our debt portfolio is hedged, and that hedge portfolio is on an average term to maturity of 4.9 years.
Then also credit margins basically locked up on an average for 2.6 years. Last exhibit we like to show is the cash situation and the debt expiry or debt maturities. As Sonja also said, we have NOK 8.3 billion now in available funding and cash, so significantly increased since the second quarter.
When we look at the maturity profile on the debt, you see that in the next year, there will be NOK 3.7 billion of debt expire or maturing. Then in the next six months, another NOK 2.3 billion. If you take the full effect of the next 18 months, it's a NOK 6 billion debt maturing. Then we have NOK 8 billion to offset that right now. We have been generating some somewhere between NOK 1.3 billion and NOK 1.5 billion in cash over each year, the next couple of years. Then we have a project CapEx expected around NOK 1.5 billion. All in all, things are not looking bad for Entra in terms of liquidity, and we're sort of very, very comfortable with the situation.
I should say you see that the green color denotes bonds. Bonds have to be repaid. There's no discussions about it. The light blue is bank debt. You can discuss with banks, and they are good discussion partners for us. We are already in discussions now on the debt that is expiring, the NOK 2-something billion, to have that extended into another one to two years. We also did that during the second quarter, so it's basically business as usual for us. All in all, it's kind of hard to say it's a positive quarter when we have sort of written down NOK 4 billion on our assets, but we believe that is a prudent way to do it. Operationally, we're doing good. On the financing side, it's a big step forward in terms of securing the company for the years to come. Thank you.
Thank you, Anders. A few closing remarks before we go to Q&A. As I mentioned, the high inflation, increasing interest rates and more subdued outlooks for international growth is expected to also cool down economy in Norway.
However, the Norwegian economy clearly stands out with its very strong government finances and also the fact that we are benefiting from higher energy prices. Low activity in the transaction market through the autumn, and we're also experiencing an upward pressure on yields, driven primarily then by the increased cost of debt and also higher return requirements. We are experiencing a continued strong letting market.
There are low vacancies and very limited new supply coming into the market, which also provides us a favorable property market fundamentals for a landlord like Entra, and also some resilience in the event of a declining demand. Entra has a very solid balance sheet and financing. We have now secured additional NOK 5 billion of bank funding and have more than NOK 8 billion available to meet future obligations and debt maturities. I think that closes this for now for the presentation, and I do believe we might have some questions too now. Yep. Okay, honestly, let's
Quite a few questions. To start with, what about the inflation adjustments of your rent? Your tenants will also get higher electricity bills. Will they be able to take on both increased rent and high electricity bills?
Yeah. That's not really a concern for us because if you look at our tenant base, as we also put forward some evidence on in the last quarter, we have 57% of them public tenants and also very high quality tenants all over, so not something we're concerned about.
If I should just add a few sort of, during the COVID part, I mean, we had revenue loss of about NOK 15 million. Which actually equals about 0.3% of total revenue base for those eight quarters. It really shows the underlying strength of our tenants. Clearly it is an issue for business. I mean, we said that Norway as a whole is benefiting from higher energy prices. Clearly it's an issue for businesses when the cost of energy will come up.
If we look back in 2019, energy cost was 19% of what we charged to the tenants. If you take the first half of 2022, it was 36% of what we charged the tenants on the common costs. Clearly, I mean, the energy cost is an issue for them, but for us it's a non-starter, and we're not. That is, it hasn't been a discussion and it will not be a discussion.
On the backdrop of both higher inflation and higher electricity bills, do you see any risk of decreasing market rents?
Well, I think that we're in a pretty solid starting point in Norway. As I already mentioned through the market slides that we have very low vacancies in Oslo. We have a very limited new supply coming in. We're basically at a good starting point for future declines in demand or also if we should see any changes. It's not really a big concern for us.
Also, if you look at the one table in the quarterly report about the mansion portfolio, and you see that it is currently significantly under-rented.
Yeah.
Even though if market rents should come down.
Mm.
I mean, it's a fairly solid cushion to the existing revenue base. I think that makes us see some add to that on, sonus-
Yes. Yes.
On, uh-
It's a good point.
You now have an LTV above 50% and the portfolio yield is still relatively low. How will you maintain your investment grade rating?
Yeah.
You go.
There's two questions on that one. Let me just take the IG rating first from Moody's. Entra now has a Baa1 rating from Moody's equal to BB B + from S&P with a negative outlook. That means there's one chance in three that we will have a downgrade. Moody's looks at us in their view on Entra, they have certain key metrics to maintain the rating.
LTV should be below 45%. We're now at 49.4%, so we're above that. They would have an ICR less than 2.5, and we're now at 2.3, so we're actually below on that one as well. So those two are clearly negatives in terms of ratings.
There's a number of positive factors that Moody's will take into account. Clearly, the business fundamentals. Entra is a solid company. The assets are high quality. They're well-placed. They're limited residual risk. The business fundamentals are strong. The share of public tenants is important for Moody's, and it's now like it's only in the high 50%, which, at least in what they signal to us, it is positive and it's sort of enough to maintain a good sort of green arrow on that one. Thirdly, and probably most important, is the available liquidity that we have. In times like these, Moody's is very sort of concerned about do the companies have available cash or undrawn facilities to be put in place for replacing the debt maturities.
As we talked about, that is, Entra in that way is very strong. We are like if I remember, 2.4x next year's expiries. On that one, it's a mix. Clearly, they will review us as they have signaled they will do, and there are positive and negatives on that one. That is on the IG part. Still, there's a long way down from Baa1 to Baa2 to Baa3, and then further down. We are very optimistic in terms of the IG rating, but it might be clearly that, I mean, they assume they will take a look on us from the Baa1 to Baa2.
Mm.
The second part was about the LTV.
Your stated target LTV is below 50% over time.
Yeah.
How will you reduce your debt to achieve this level?
Like I said, yeah, over time is an important not above 50% over time. That means for shorter periods of time, we can have sort of according to our own policy LTV ratios above that. Let me say share issue is not on the agenda for Entra.
Clearly, then there's basically two ways of doing that. We can continue to run the company to build and develop value and you can divest assets. They both are important for Entra going forward. Both sort of maintain the sort of solid operations of the company and also to look at asset rotation. That those are the two sort of elements in our toolbox for that.
What was the interest rate, the cost on the new NOK 5 billion facility?
It wasn't one. There were actually three different facilities from three different banks. We never go out with the exact pricing of bank financing. What I can say is that there's one of the brokers in Norway called Union. They do a bank survey every quarter. In that survey, the summary was that the average credit margin on bank debt for real estate in Norway now was 252 basis points. There was a wide range from about 160 and upwards. Without going into this, I can say that Entra is in the very low-end part of that range, without going into specific details.
The yield on cost on a number of your projects remains below 5%, yet your cost of capital is likely higher than this currently. How do you reconcile the value creation opportunity here in the current context?
It's gonna be a quite long answer to this one as well. Sorry about that. The yield on cost is calculated based on the CapEx that we use on that or invest in that project, and the initial balance sheet value when we make the decision.
Mm.
Any value changes in sort of during the contract period, up or down, is not reflected in the yield on cost. The only thing that will sort of change the yield on cost on that part, so the basically denominator is fixed on balance sheet values at decision and CapEx. Then it's basically the top-line revenue, the net revenues from that project.
That is being adjusted. Those revenues are being adjusted on a CPI basis from the date, from the time we signed the contract with the new tenant. That there can be some changes on the yield on cost due to that we get a higher or lower CPI than expected. In addition, when we make new and, in this case, a lot better contracts than we initially, and than we expected.
Mm.
Those are the drivers for the change in yield on cost. In terms of the yield on cost report, there are those certain Oslo projects that have yield on cost down to the 4.4%-4.5% area. Still above our cost of debt, both as is and also coming through in the sort of next year. Clearly, there's a pressure on the profitability of our projects in terms of when values decline. As we see it now, all the projects that we are undergoing as we speak have a significant value add effect on our books.
Mm.
If you just add up the total sort of expected value of those projects and compare that to initial book value and CapEx, there's even with this very conservative, or some would say probably pessimistic view on the future, there's about NOK 1.4 billion in value from those projects in itself. A significant value being up. Of that, about NOK 1 billion is already put into our books, and the remaining half billion NOK remains to be taken. Clearly, I mean, the value, I mean, when interest cost goes up, when rate of return requirements goes up, it has an impact on total values, as we saw when we wrote down the full value of the managed portfolio by almost NOK 4 billion.
Mm.
Sorry for the long answer, but it's actually has to be said.
On the value changes of the property portfolio, why? Can you repeat why the yield is up by 25 basis points? Do you see any support from deals?
Sorry, why the-
Yield is up by 25 basis points, and this is supported by deals.
Okay. I would say no, it is not supported by actual transactions taking place. It is the appraiser's estimates that something has changed in the market due to the higher cost of funding, and thus also the rate of return requirements from the on the equity side. There's no hard evidence in the market. We have not seen, and also our three appraisers have seen in the market.
That is basically on an opinion that gravity works, kind of argument, saying something has changed, and that also will impact the values. As I said, different companies use different methodologies. Our principle is to take the values that the appraisers provide to us and use that directly.
Mm.
We do see that there are, again, different views. If you look at appraisers in other countries, they have more of a transaction-based attitude or so modus operandi for doing their valuations.
Yes. What CPI has been factored into the valuations for 2023?
That will be the average of those three because they're not using the same CPI. On average it's 5.3%. That corresponds. It's a bit more conservative than what we use in Entra, where we use 5.5%, and also Statistics Norway. Sorry, Central Bank of Norway.
The ICR is falling quite dramatically.
Mm.
Do you have any concerns, and how will you mitigate further pressure?
Are you asking me if I'm concerned? I mean.
Yes, of course.
I was born concerned, and I'll own this skill for 55 years. I mean, the ICR is now at 2.3. With the continued, I mean, we've taken a large part of the increased interest cost already. We expect that to continue into the next two quarters. With that, our ICR will be, should be around two, so low twos probably. It is not a concern in terms of any covenants on the bank or bond agreements, so I'm totally unconcerned or not concerned on that one. The covenant on our debt is 75% LTV and 1.4 times ICR. I mean, we're way on the safe side.
Clearly it will be a discussion point with Moody's, where they have a 2.0. They want to see a 2.5 ICR with ours as compared to the low 2s that we expect to have. A concern? It's not a concern, but it will be a discussion. For our business, not a concern, but for our discussion with Moody's, it will be a discussion point.
How are you seeing credit margins trending, and what is your refinancing needs the next three years?
Say again, Tone, please.
How are you seeing credit margins are trending, and what are your refinancing needs the next three years, two to three years?
I mean, in terms of refinancing needs, it might be that the question came before we had the presentation or during presentation, but I think that is fairly well.
Covered
Covered in the when you look at the maturity profile and the available debt. I think the most important thing I'd like to emphasize again is, yes, we're well covered now for almost two years. You see the debt expiries now are basically bank debt. That is, it's our modus operandi to extend that debt. It's basically the way we do business. We extend and prolong our debt maturities. Sorry, the first question was. There was another part.
The credit-
The credit margins.
Yeah, the refinancing needs.
Yeah, the refinancing is what covered, but there was.
Credit mar-
Talk about credit margins.
Credit margins and trending.
On the bank market, they clearly have come up, reflecting the bank's funding cost as well. I would say typically up by some 50, 60 basis points in terms of on the bank market in general. Again, Entra is sort of on the favorable side of that curve. I guess that a lot of other companies will have higher margin increases, credit margin increases also from the bank side. In terms of bonds, for the quarter, it's been fairly stable between 200 and 220 basis points on credit margin on the fiber bond. That, I mean, that's clearly up from the things we've seen in the past, where typically we did that on a 70, 80 basis points.
I mean, we did one at 53 basis points back in 2015 that we still treasure. It's been fairly stable now for the last quarter. CP market is so. There's so little liquidity, so it's kind of. It's also a very small part of our debt portfolio. It also has come up, but not to the same extent. When we do, again, three-month CPs on a credit margin between 70 and 90 basis points. Again, I think the summary is for long. Sorry, I'm answering long again.
Yeah.
It's a fairly stable credit. During the quarter, we've seen fairly stable credit margins.
What levels of market rental growth are you seeing aside from inflation? Is there a risk that tenants will start pushing back on high rental increases led by inflation?
What rental market growth we're seeing aside from inflation? Well, if you look at the Oslo markets, it's been pretty strong for the last couple of years, and we're still experiencing that, it's a good sentiment for taking out market rental growth. Seeing that CPI has come up so much, I don't think we can expect-
Mm-hmm.
To see the same development going forward. I don't know if we are happy to see that. We'll be able to take out CPI in the years to come. I think beating CPI is not going to be very realistic in the years to come. The second part was okay.
Is there a risk that the tenants will start pushing back on high rental increases led by inflation?
Well, back to Anders' point earlier that Entra's portfolio is still under-rented. So for us, it's more that the inflation is helping us to catch up on market rents, giving us actually easier job to pick up on rents.
I believe that concludes the Q&A.
Mm-hmm.
Thank you.
Okay, thank you for joining us today.
Great set.