Morning all, welcome to Entra's first quarter presentation. Let's start with the highlights in the quarter. Rental income came in at NOK 872. That is 12% up from same quarter last year. Net income from property management of NOK 391. Slightly down from same quarter last year, however, up by 22% since the fourth quarter. Net value changes negative of NOK 451, whereof NOK 421 is related to the property portfolio. Leaving us then with a loss before tax of NOK 70 million in the quarter. Key events. Pleased to see that we had a strong rental growth of 12%. That this time it's mainly driven by finalized projects and also rental growth in the management portfolio including then CPI.
Net letting also high in the quarter with NOK 5 million. We are now also preparing to start one new small project in Sandvika. Pleased also to see that we had successfully divested one asset in the quarter at Grønland 32 in Drammen. If you move on to operations and the market, as I said, we had high activity in the quarter. We signed new and renewed leases of NOK 103 million in the quarter, close to 40,000 square meters. Out of that, NOK 37 million is related to the project portfolio. At the same time, contracts for NOK 50 million were terminated in the quarter. Out of this NOK 54 million, 29 is related to contracts where we also signed new leases.
Net letting, as I said, of NOK 5 million. If you take a look at the table below, some of the largest contracts signed in the quarter, we were pleased to see that the Norwegian Director for Education renegotiated with us. They've been sitting for 15 years in this building, and they have now chosen another 10 year tenure, thereby also reducing their space slightly. In Trondheim, we've signed a huge contract of 10,400 square meters with the municipality of Trondheim, Trondheim Torg AS. They will be occupying three different buildings in Trondheim. In Oslo, the municipality has signed a contract of 3,750 square meters in Storgata 51.
In Sandvika, we signed 2,750 meters with a new high school, which is where we will then start this small new build. Finally, in Drammen, Viken Fiber signed 2,000 square meters. If you take a look at the occupancy, it's currently at 96%. That's down from 96.5% last quarter. 40 basis points of that is related to lease buyout agreement, which we did in the fourth quarter. Also giving us some one-off effects on rental income in the fourth quarter and first quarter. Average lease duration currently at 6.3 years. 57% of rental income is currently from public sector tenants.
The new build project which we will be starting in Sandvika is a small add-on volume to some existing buildings. This is a parking lot today, where we were approached by a high school which wanted a new location in the city. The municipality was very pleased to get a new school, we were then able to get a zoning which otherwise was not possible. Pleased to see that we there signed a 25-year lease and we will now start the construction in the second quarter. Completion is expected to be in the third quarter next year. It's targeting energy class A, BREEAM excellent. The total project cost here, including both land and VAT, is around NOK 175 million, and we start reporting on this next quarter.
If you take a look at our list of ongoing projects, let me start by saying that they're all progressing according to plan. Five out of these six projects on the list are going to be completed within the year. Having said that also, we will start reporting on two new projects from the next quarter. The one I just spoke about in Sandvika and also, Holtermannsveien building step three, where we signed a contract with the Norwegian Broadcasting Company. As you can see from this picture, we have changed the status on two of the projects. We have increased occupancy in Holtermannsveien in Trondheim, up from 61% to 67%.
We're pleased to see that we there also have quite a lot of activity on the remaining vacant space, and also some firm lease processes ongoing. Moving to Vahls gate. Here we have reduced the construction cost by NOK 10 million in the quarter, which also brings the yield and cost up by 10 basis points from 4.3% to 4.4%. We continue to work with the divestments to strengthen our balance sheet. We were pleased to see that we successfully divested this asset in Drammen. Total transaction value of NOK 335 million. That is 18% above book value or 9% above peak valuation from first quarter last year. The transaction closed in March 1st, the proceeds will be used to strengthen our balance sheet.
This means that we now totally have divested NOK 2.3 billion, sorry. We continue to work on divesting more assets. A few words on the new European Energy Performance and Building Directive, which was published in the first quarter. This directive sets forth the energy efficiency requirements for buildings across Europe. Energy performance certificates are to be harmonized over the next years before 2025 in the European countries. Our impression is that the Norwegian certificates are more strict than what we see in many other European countries, also in the U.K.
According to the framework, all energy labels are to be based on a scale from A to G, where A represents zero emission buildings and class G corresponds to the 15% worst buildings in the national building stock. Furthermore, the directive also states that buildings to be lettable need to have an energy class of at least E by 2027 and at least D by 2030. Once the new guidelines from Norway are ready, we will start recertifying our portfolio. However, we have worked with energy efficiency measures systematically for more than a decade. As you can see from the chart to the left, our portfolio screens very well according to the new building requirements.
Where only 13% of our market value representing 9.6% is in the categories, NOK 9.6 billion, sorry, are in the energy classes E to G. Out of that, however, the majority is related to officially protected or listed buildings which fall out of the European requirement. One third is related to development sites which will go through a complete redevelopment. Only NOK 2.2 billion of our management portfolio in classes E to G, which clearly tells us that we are well prepared for the EU regulations.
If you move on to market development, first of all, let me start by saying it's fairly difficult to have a very clear view on the geopolitical uncertainty and turmoil in the financial markets and how it will affect the prospects for Norway going forward. What we can state, though, is that Norway in the past has proven its ability to smooth out business cycles and with its strong government finances, clearly stands out on a more positive note than most and other countries. To give a brief update on the current situation, Norges Bank came out with their updated estimates in March.
Here they clear, they state that the GDP growth has slowed down and is expected to come out around 1.1% this year. That's down from 3.7% last year. The economic activity is still high. The labor market is tight, with an unemployment rate of 1.7%. The unemployment is expected to increase slightly going forward. However, not more than what would be considered to be normal levels for Norwegian economy. What we've seen in the past is that the typical office related jobs have proven to be more robust. In a scenario with a slight recession, we expect to see that the office related jobs will probably take a pause rather than a decline.
In respect of CPI, its currently was 6.5% in March. It seems to have topped out and be on a declining curve. Having said that, it's also expected to be more sticky and take more time to bring inflation down, seeing the tight labor market and also now weak currency bringing imported inflation up. The Norwegian policy rate is currently at 3%, expected to increase to 3.6% by year end, before it's trailing down in 2024 and 2025, according to Norges Bank's recent estimates. If we take a look at the rental market, we have very good data in Norway tracking all these contracts signed every quarter from IDR-statistic .
What we saw in 2022 is that it was a record strong year, both in respect of volumes or square meters signed, and also number of contracts. This continued also in the first quarter, where we had strong letting markets, once again with high activity, relatively to historical Q1 data. After a period of strong market rental growth through 2022, particularly in the city center of Oslo, where market rent grew above 20%, expectations are now that we will see a more moderate growth, according to the consensus report, around 3.8% this year. The vacancies have been low in Oslo, around 5.5%, overall vacancy.
If you dive into the city center of Oslo, it's been between 3.5%-5%. It's expected to increase slightly going forward towards 6%. Now, the new build volumes have been very low in the last years in Norway. A few projects were started during the pandemic. Also now we currently see that the high costs of construction also increasing interest rates have challenged return calculations. We do also expect to see very low new build volumes coming in in the years to come. A few words also on the regional cities. We have experienced favorable market conditions also there. In Trondheim, rental growth was above 10% last year. The vacancy there is currently around 5% in the overall market.
Here though, we're seeing that there's quite a lot of new build volumes coming in, and vacancies will expect to increase going forward. In Bergen, we've had a active letting market, stable rents, pressure upwards on rents for the most attractive segments. The vacancy in the city center of Bergen is currently around 6%. I'd like to also share, give a short update on the post-pandemic office trends in Norway. We have been following the office market very closely after the pandemic, and so far, we have not seen any changes in neither space requirements or lease duration in contracts signed. What we have seen, though, is that the use of the office is changing.
Akershus Eiendom, an affiliate of JLL, recently came out with a study on post-pandemic office trends and changes in the activity level around offices and also requirements for office. This study is based on mobility data available in the market and also in-depth interviews. We take out three key takeaways from this study. Firstly, hybrid office is here to stay. Employees are back in the office, but they do expect more flexibility. Secondly, what you can see from the bottom graph to the right, only 13% of the respondents have reduced their space requirements. Thirdly, activity at the workplace has picked up, particularly if you dive into the city centers.
In Norway as a whole, the activity around office space is currently only 10% below pre-pandemic levels. That means that about half a day more is spent working from other places than the office. If you move into Oslo as a whole, the activity level is 20% lower than pre-pandemic levels, meaning that one day extra is spent working from other places than the office. Now, if you dive into the details in Oslo, you can see from the graph to the bottom left that the city center of Oslo, the activity levels are actually higher than before the pandemic. While in the fringe areas, the activity is some 20%-25% below what we saw before the pandemic.
If you then factor in that Monday and Fridays are becoming the most popular working from home days, that also implies that activity through Tuesday to Thursday probably is pretty close to what we saw before the pandemic. A few words on the transaction market also. Transaction activity was low in the first quarter with a total transaction volume of some NOK 10 billion-NOK 11 billion compared to NOK 34 billion same quarter last year. The financing market and interest rate uncertainty delays and also halts transaction processes. We expect to see also limited transaction activity in the second quarter. However, activity should pick up again in the second quarter once the sellers and buyers expectations become more aligned.
Also assuming that we will have a more available and attractive financing markets in the second half. What we are also seeing is that the underlying interest for centrally attractive location remains intact. Also some increasing interest for secondary locations with higher yields. We're also seeing that international investors to some extent are more active looking into the Norwegian market. Prime yield is currently in Oslo at 4%. It's now expected to top out around 4.2% according to our consensus report. Continued strong inflation and also market rental growth will continue to have balancing effects on valuations. Moving on to you, Anders.
This was a rather uneventful quarter actually in terms of financial figures, and in line with expectations. What we ended up with was revenues of NOK 872 million. It's a solid NOK 66 million up from the fourth quarter. That is stemming from NOK 49 million coming from CPI, which we have pretty much 100% of the CPI at 6.5% coming directly into our revenues starting from the first quarter every year. We see in this quarter also flowing directly through the entire P&L. Projects contributing net NOK 24 million, partly offset by NOK 8 million in divestments of assets. I lower revenues because we divested assets during the fourth quarter and the first quarter.
If we compare to the first quarter last year, we are up a full NOK 91 million. In terms of acquisitions and divestments, it's pretty much a wash. We acquired Oslo Areal a bit into January, and that was offset by divestments done throughout the year. Net projects contributing NOK 39 million in additional revenues from Q1 last year. Lastly, but not least, a full like-for-like growth of 6.72%. Actually 6.73%. Which is about 21 basis points above the CPI. Again, a very strong revenue growth, and that we can see into the net income from property management, NOK 391, which is NOK 71 million up from the fourth quarter last year.
Basically, you see the top line revenues growing by NOK 66 million, net income from property management growing by NOK 71 million. Basically flowing directly through. Moving over to the profit before tax, or in this case, loss before tax at NOK 70 million. Here, as we know, the value changes has a major impact on our end results. We wrote up the portfolio with NOK 2.8 billion in the first quarter of 2022. It was written down by NOK 1 billion in the second quarter, another NOK 4 billion in the third quarter, we wrote it down by approximately NOK 400 million during the fourth and the first quarter. That's why it's impacting sort of the large deviations or changes from the net income from property management to the profit before tax.
Quickly, cash earnings per share coming at 8.4, NRV at 207, stable from the previous quarter as the net income from property management offsets the negative value changes of about NOK 400 million. NTA at 204. In terms of the P&L, as I mentioned, there was like really no big surprises. You can see that the OpEx, operating costs, coming in at NOK 74 million, which 8.5% of revenues. In this quarter, we saw the energy prices have increased in Norway compared to the first quarter last year. While in Norway, the tenant pays for their own electricity costs, but for the vacant space, Entra has to pay for that.
That added another NOK 5 million for this quarter compared to the first quarter last year. Adjusting for that, those NOK 5 million, the OpEx percentage is 7.9%, which is directly comparable to the 8.2% last year. In that way, we're happy with how the cost efficiency of the business is going. In terms of the admin costs coming in at NOK 48 million, which is significant down from the first quarter last year. The main reason for that or the reason for that is that we had one-off extraordinary cost of NOK 16 million in the first quarter last year. NOK 14 million from the acquisition of Oslo Areal, and NOK 2 million as Entra's contribution to the war in Ukraine.
Overall, 5.5% of admin cost is something we are happy with or comfortable with. We are pegging towards what we previously announced at an admin cost of about NOK 210 million, which is pretty much the same number as we ended up with too in 2022, i.e., we are actually cutting the Sort of taking out the CPI and the salary wage adjustments in our admin costs. Again, with a sort of cost percentage of 5.5% on admin and, about in the low 8s on OpEx, We're in good situation in terms of the cost efficiency. Financing cost, I'll come back to that one, NOK 366.
Clearly, NOK 151 million more in financing cost this quarter than in the first quarter last year. The reason being we have NOK 1 billion more in debt, which contributes somewhat, but the average interest cost of that quarter is up by 131 basis points. That is a key driver for the NOK 151 million in financing cost. I will come back to how that will look going forward. In terms of the call the income bridge saying this is a summary of what is known in the market in terms of our expected revenues the next six quarters. You can see it's sort of operationally flat between the Q1 and Q2. We have a one-off revenue in Q1 and in Q4. We spoke about that on the last quarter presentation.
There was one tenant that was acquired by another company, moved from Oslo to their head office in Bergen, and they paid us the full remaining rental for the last remaining three years of their contract. That was accounted for in Q4 and Q1. It has a NOK 16 million then decline revenue effect from Q1 to Q2. We see another drop from Q2 to Q3 stemming from two things. one is an expected moving out of one tenant in an office building in Oslo, about NOK 18 million.
The divestment of the Sørkedalsveien 6 in Oslo that will be closed on June 30 and has another NOK 16 million in a negative revenue impact from Q2 to Q3. We're seeing that it's picking up again with about NOK 23 million from Q2 to From Q3 to Q4. That is basically the projects coming into place where we are delivering new projects and they are gradually picking up speed in terms of providing revenues. Then again, supported also by continued completion of projects, a CPI adjustment of expected 4.5% coming in from Q4 into Q1 or starting in Q1 in 2024. All in all, expecting a stable development in our top-line revenues.
Moving on to the balance sheet. We have invested NOK 514 million in this quarter on our projects, large and small. If you look back, we invested some NOK 2.7 billion in 2022. We expect to be investing around NOK 1.5 billion between the thumb and the index finger in 2023, and then another NOK 1 billion in 2024. Our project activity is going down, as also explained by Sonja in terms of the macro factors determining project profitability. We will only start profitable for projects. In terms of we're taking out the Grønland 32, the asset that was divested in Drammen, and then we have in this quarter a net negative value change of NOK 421 million on the asset portfolio.
Our net yield on the portfolio is now 4.32. If we go back to the peak valuations at Q1 last year where we were at 3.88, so 44 basis points uplift in the net yield on the management portfolio. Back in Q1 2022, the expected CPI was around 2% for 2023 and another 2% for 2024. It ended up with 6.5% in 2023, we expect to be in the range of 4.5% for 2024. Of course, the increased increase in the CPI that's flowing directly into our P&L has an effect also on the net yield calculations. If we are just sort of taking time back into Q1 last year, the net increase in our...
The increase in our net yield would have been around 65 basis points when if we, if we were at the same CPI expectations back, about one year ago. We see that the yield uplift has to a large extent already been taken into our books. On the right-hand side of the balance sheet on the funding, it was a very active quarter. We did three bond taps on long durations with three different investors, with a nominal value of NOK 1.1 billion, but they were done at a subpar values, so they gave us NOK 1 billion in new funding. We did five commercial papers, total NOK 1.2 billion.
We see that in terms of the pricing, our bonds were done as sort of seven and eight years. If you take down sort of normal maturity at five years, they were done at a margin of around 175 basis points. Higher than what were sort of our Entra's base case from years back, but significantly lower than what we see that other real estate companies are able to get. The CPs were done at a credit margin of around 40 basis points. Again, a very attractive funding source for Entra. If we look at in the LTV, we're at 52.8 in terms of the APR LTV and 49.9% in terms of effective leverage, which is the basis for Moody's rating.
We are working on taking that down. ICR at 2.2. We were at 2.05 for this quarter alone, but 2.2 on fourth quarters rolling, and we expect that to level out sort of slightly north of 2%. In April, we have done one CP, NOK half a billion credit margin at 32 basis points. We find that funding is still available in the market, but it clearly is more expensive both in term of the base rates and also the credit margins than what we saw some months back. We'll come back into the debt maturities part. Looking at the interest rate, the base is Entra has about 51% of the debt hedged in terms of fixed rates at 4.6 years.
The credit margin is fixed for 2.3 years. Looking at that graph on the left-hand side, we have said that this is the nominal interest rate for Entra at quarter end, each quarter going back, and also expected going forward. Then to do that, we have used the forward rate, which is the green line. We have used the existing hedges that are in our balance sheet, and we have also used the as-is credit margins. As you can see, if we are refinancing on kind of new what we call normalized credit margins, we have expected 130 basis points. You can see that it has an uplift in the average interest costs going forward, but not materially so.
Just to make clear, this is the nominal interest costs. We have about NOK 12 billion of bond done at subpar values. If we do the effective interest costs, it's about 15 basis points higher than the nominal bond. Yes. I think that was on that one. In terms of the debt maturities, which is important for us, this shows starting off from a cash and undrawn RCFs position at NOK 7.6 billion. You can see we have NOK 3 billion in bond and CP debt that needs to be refinanced or that will expire during the next 12 months. That is fully doable with the existing cash. We do not need to go to the market in the next 12 months.
We have about NOK 6.4 billion in bank debt that we will work on to further extend. We are comfortable that we're able to do this. We extended NOK two and a half billion of bank debt in Q2. We got NOK 5 billion of new bank debt in Q3, and we extended, i.e., pushed the maturities, another NOK 4 billion in Q4. These were done. Those were difficult times as well. We are comfortable in terms of also extending these debt maturities. I think that concludes. In terms, we are comfortable with our debt maturities and the situation as it is. Thank you.
Thank you, Anders. Okay. A few closing remarks here. First of all, Norwegian economy is resilient, and we have a strong government financing supporting our economy. Also, workplace activity seems to be back at more normalized levels in Norway. We are continuing to seeing the strong demand also for centrally located offices in our cities. We are experiencing very favorable rental market dynamics with low vacancies and also low new build volumes, particularly then in the Oslo market. In respect of the transaction activity, it's been limited in the first quarter, expected also to be limited in the second quarter.
We do, however, see interest for attractive locations, and the transaction activity is expected also to pick up in the second half. We are continuing to work with additional divestments according to our plans to further strengthen our balance sheet. I think that concludes it for now from our presentation. I just check if we have any questions, Tone.
We have two questions, Sonja. The first being vacancy has increased slightly over the last quarters. Is this a sign of a softening letting market?
Let me start by saying that when you're at 97.3%, it's very hard to get any higher. We're basically been fully let. When we've been seeing it declining now, it's explained by several factors. First of all, we had been preparing to take some of our buildings over to a project phase, meaning that contracts are trailing off. Here we are now working with reletting the space more on short-term basis as is contracts. This is, of course, much lower quality assets, which is more also difficult to let in the market. That is one explanation.
The second explanation is the part which Anders also mentioned, where we've done one lease buyout agreement, which affected the vacancy with 40 basis points this last quarter. Finally, we're working with quite a lot of renegotiations. With the high volumes we have had to work on in 2022 and also in 2023, it would be only normal to see it increase slightly. We'll be having also new projects completing completed this year. Expect also that these projects... I would be very happy to see if they're about 96% upon completion, but we tend to be a bit below 96% when they're completed. That should also bring occupancy slightly down going forward.
No signs of market changes affecting our vacancy.
Thank you. The second one being, do you expect bank funding to increase its relative share of your funding mix going forward?
Well, bank funding accounts for about 53% our total funding. With the sort of limited debt expiries in the next two years, our base case is that we do not need new funding from our banks, but we are asking them to renew their existing debt facilities. We are able to sort of carry this company through, both without going to the market to attract new bond funding and also without asking for new funding from the banks. We are discussing with the banks to prolong and extend the existing facilities as we have done during the, well, through 2022.
Also I should add, I mean, when we are well into, but not completed our divestment program, and that will also contribute, further cash, to increase our liquidity and cash position.
I actually received another couple of questions on that note. Can you comment on the progress on your ongoing sales processes and also if the divestment target is unchanged?
Yeah. We communicated last time that we were planning to divest in the range of NOK 5.5 billion-NOK 6 billion. We have divested for NOK 2.3 billion. We have ongoing processes towards reaching that target. What we do experience is that trans-transaction market is difficult these days. Total volume, as Sonja said, is down to NOK 10 billion for the first quarter. We are positive that we will be able to complete our program according to plan. We have a list of assets that we can sell, that we are comfortable with selling, and we do see interest from different parties for acquiring these assets. Looking at the assets that we have sold, I mean, the mix of buyers is quite significant.
We have international private equity funds, we have state-owned companies, we have family offices, and we have sort of partnership real estate, companies or partnerships. We do see that the buyer mix is diverse. We do see experience that they do get financing, of course, more expensive than previously, but they are able to secure financing. Yes, we are working towards our target, and we will revisit and refine that target if needed.
Do you believe that the divestment target will change if the board decides to cut dividends?
Well, the board will review the divestment. Not divestment, but the.
Market
... the market situation regarding dividends in October. Right now, our focus is we want to divest assets that doesn't have a material impact on Entra's platform and our base. We are able to pick out assets where we can find interest from buyers, be that neighbors or other sort of selected groups. We will basically I think the sort of 5.5-6 target is that works, that works well in terms of both with and without dividends. Clearly, the dividend decision as such doesn't affect the LTV materially. It's about 0.3% or 30 basis points in terms of the full LTV, but it's an important signal in difficult times.
I think it's hard to give a sort of a very solid, firm answer on that one. We want to sell assets. We want to sell them at acceptable prices for us and the buyer. We'll just need to move on forward with the, with the program. It has been, I would say successful, so far at least.
Yeah. Thank you. That concludes the Q&A.
Okay. Thank you. Thank you for joining us today.