Thank you, and welcome to this call. Castellum CEO Rutger Arnhult, CFO Maria Strandberg, and Treasury Jens Andersson will present the results of this first half year. After the presentation, there will be time to ask questions, as you heard. Now I would just say please, Rutger Arnhult, go ahead.
Thank you, and thank you for calling in. Yes, we are reporting our second quarter this morning, and we are happy to announce a strong result all through the quarter. We have income from property management plus 47%, which is 21% up per share. We have a positive leasing of SEK 109 million, which we are very happy about. We really reckon rebounding Stockholm rental market coming back from being depressed by COVID for a number of quarters. We are reporting a like-for-like rental income increase of 4.4%, which I believe is maybe the strongest we have ever reported in the history of the company.
We have a strong underlying business, and we also see that in the occupancy rate, which is now 93.7%, which is down by 0.5% since the beginning of the year when it was 93.2%. I believe this is the strongest figure ever in the history of Castellum, so we are very pleased with that. We do have a very solid and stable financial position with an LTV today of 38.2%. This is also down since the beginning of the year when it was 38.5%. We're stable and even stronger. We also show and see a strong growth in the net asset value, which is now 263 SEK per share. That's up by 16%.
I would say that Castellum is the leading commercial property company in the Nordics. We do have a strong, super strong platform in Sweden and Norway, but we're also in the market in Finland and Denmark, mainly in Helsinki and Copenhagen. 80% of the volume is in Sweden, as you know, and then 40% is in Norway through our company of interest, Entra. We're mainly focused on office. 72% of the portfolio is office. Out of that portion there's a large portion of public tenants in office segment. The public sector stands for 24% of our total leases total income.
When looking at the 10 largest tenants, you can notice that every second of them are actually a public tenant of the Domstolsverket, police and then second, Kriminalvården and so on. We have a very diversified geographically strong portfolio. We are in the major larger towns in Sweden and also in Helsinki, Oslo, and Copenhagen. The largest portion is in Stockholm, 26%, and then Oslo is 11%, which gives us a very strong situation on the rental market. Also, transaction-wise, we are experiencing a strong market. We see lower vacancy rates in both Stockholm and Oslo generally.
We see stable rental levels this year, mainly raised by the CPI in Sweden, 2.8%, and in Norway, 5.1%. Still slightly lower vacancy levels in both Stockholm and Oslo. Positive net leasing in the sector in general, and we report a very strong figure of SEK 109 million. We're very happy with this occupancy ratio of 93.7%. When we reach about 95%-96%, if we do, then I would say we are in a situation where we'd rather increase rental levels than really pushing out the square meters. Hopefully we reach that level in a year from now. It takes time.
As you know, 0.5% better is a really, really strong figure. The net leasing the last half a year here has been the strongest figures in the western region with Gothenburg and also Mälardalen where the region of Västerås has been the strongest this period. This also shows that it's very good to have this geographical diversification in the portfolio. Sometimes Stockholm is best, sometimes Gothenburg or Västerås is the best market. The best recovery is actually in Stockholm, but feeling-wise, we don't really feel it in the figures yet.
I think Stockholm was the market that was mostly hit by COVID since lots of people are relying on public transportation in Stockholm, and the situation is not really the same in the other large cities. We see modest value changes. Half of them are driven by projects. We now have a large portion of ongoing projects that are about to be finished. Now we know what the final cost of them is gonna be. As you know, the cost side in projects is today hard to lock in. Since these are all products built up in a different kind of market, we can now start to calculate how we will end up in them.
We are very cautious with new products. Some we have announced, but we also are pushing some forward, and looking for a bit more fixed prices on the product side. We also require a higher pre-let percentage normally in new products. We are more cautious with products since the capital market and financing conditions are tougher, and therefore we hold harder on our liquidity. Transaction yields and volumes are still good. We see a downturn, but it's still, there's a lot of transactions going on. Of course, a more troublesome finance market is having an impact on the transaction market. We don't see any shifts in yields yet.
I do believe that we also will see quite a lot of transactions in the third quarter, which will be reported in a few months. There is a lot going on. We have a total value change of 1.8% in this half year. Giving a like-for-like increase of rental income of 4.4%, that might sound modest. But also bearing in mind that half of that is from projects, it makes it even more modest. We see a slowdown. We don't experience the same kind of value increases as previous three years, but still, it's a positive figure. We're happy with that. SEK 2.8 billion in total.
I turn over to Jens, who is our Head of Treasury, and you can explain the financial situation for us, Jens.
Absolutely. The quarter has been very volatile in the debt capital market. However, Castellum has experienced a relatively stable quarter in many perspectives. We continue to have a large portion of our debt in the bond market, followed by bank loans. We see a slowdown in the commercial paper segment, and that has been transitioned into bank loans over the quarter. We still see interest in our commercial papers and think that we can continue to issue them over time. Important to understand is that we have unutilized credit facilities of around SEK 20 billion, and that includes SEK 1.3 billion of cash. We also have been able to preserve the average capital term that is pretty much the same as last quarter.
The same goes for average interest term that is just slightly below what we saw the last quarter. I think that we can expect over the next quarters that we can keep it stable or even slightly increase the capital term, even if the debt capital market is very weak at the moment. At the same time, it's summer, and it's always very slow during summertime. Of course, this time it feels a bit different. We've also been able to actually increase the amount of interest and liabilities that are hedged over the quarter. We feel that we have a relatively strong protection against the interest increases over the coming years. We also have a very diversified debt structure.
Over the next coming two years, we have around SEK 15 billion of bonds in the debt capital market expiring. As I mentioned before, we have roughly SEK 20 billion in unutilized credits and cash that we can exchange those bonds with. At the same time, it is unlikely that we will not be able to actually reissue those bonds, especially when the bulk of them. Out of the SEK 15 billion, the first SEK 10 billion expiring is Swedish MTN bonds with well-known counterparties that we can discuss with over time. We feel very confident that this will not be a problem. Jumping into financing activities. During the quarter, even with a very obvious slowdown in the debt capital market, we've still been able to continue to issue bonds.
Now in the Swedish capital market, the spreads were higher than the previous quarters, but still on relatively good terms. We've also been able to refinance SEK 13 billion of short-term bank loans, prolonging them, on very good terms. We've also been able to secure an increase of credit limits of SEK 4 billion from Nordic banks. Most likely, we will continue to grow that number with several other banks over the coming quarters. If the debt capital market continues to be slow, we will be in a position to transition into a larger portion of bank loans. A thing that Castellum is very proud of is all our green initiatives, and we try to do the same on the financing side.
Therefore, we think that it's time to update our green bond framework, and that will come during the autumn. We also are looking into a Green Equity assessment as one of the first real estate companies in the Nordics and hope to be able to labeling our ordinary shares as green in the coming autumn. Thank you.
Okay, going back to me. I start presenting the ongoing projects with a high activity and ongoing projects. As you know, we have a large portfolio of ongoing projects. It's SEK 6.3 billion today, with a high occupancy rate. It's 80%. Good yield on cost, 5.8%. A lot of these projects will be completed within the next nine months. Going into the next year, we will add not only managed properties into the property management portfolio from the project portfolio. We will also see that we increase our rental income from these projects. About SEK 337 million will be added to the income side.
A large value of about SEK 6 billion will also be transformed from projects into the management portfolio. Going forward, the project part will be a bit lower. That's also due to the previous years of COVID affecting the office market. Also today that we are more cautious today on starting new projects. It doesn't mean that we doesn't start anything at all. We do get new projects in the company. We just signed a paper regarding a 25,000-square-meter storage in Gothenburg. We signed a new lease on an animal hospital in Gothenburg also that will start to build. We do some.
We are very cautious, and that's because the financials are tougher, and the cost side is hard to get fixed. We like when we can build on cost with a fixed yield instead of the opposite. Going through the slides here shows some examples. We have a project called Götaland, and that's a really nice public property in Jönköping, and that will be completed by the end of the year. They will move in beginning next year into this new courthouse. We also see Sätra, the next building here. 25-year long lease, very nice building for Migrationsverket. Another example is Drevet in Helsingborg. Slightly smaller investment, almost SEK 300 million. It's 22,000 square meters, fully occupied, with three different tenants.
Godsfinkan in Malmö. This is the new courthouse in Malmö, a big project, 26.5 thousand square meters, occupancy rate of 94%, more or less fully let. We do still have some smaller place where we try to rent out to some law firms. The next one, Sjöfararen, also in Malmö, also a large project, 31.5 thousand square meters, occupancy rate of 96%. That's a new head office for Migrationsverket, and it's also gonna be a small new head office for Castellum in the southern part of Sweden, the new Malmö office. We have the Hornsberg. It's a Stockholm asset, which we will refurbish and let out to primarily Martin & Servera, but there are also other tenants in it.
It's a 10-year long lease in Stockholm. Tusenskönan, this is the animal hospital in Gothenburg. 18-year long lease, fully occupied, will start to be built now. That was a few examples of projects going on and projects about to be completed. Now I have a slide regarding our sustainability activities. What we've done during the first half of the year is that we have increased our targets. The new aim is to reduce energy by 2.5% a year. We have big ambitions regarding solar energy. We have now built 68 solar cell plants. The ambition is to build 100, and we now produce 5% of our total electricity needs.
Giving today's energy prices, these investments even look better than they did from day one. We will continue to focus on this and I would be happy to come back with an increased, even an increased target on this side, going forward. We now have 61% of the total property value classified or certified as different classifications of environmental requirements. How do you say it, Jens? I don't find the word there. But they're classified as sustainable buildings. Next picture, the picture shows one building we just finalized. It's a greenhouse in Helsingborg, a beautiful building.
You also see an interior building from the animal hospital being built. What we will see is we'll see that lots of projects will be finalized, rental income from them will increase, and CapEx going forward, next year primarily, will slowly get lower and lower. The largest projects, 10 largest, really shows which one it is. You can see the when they are completed Q1 2023, Q2 2023 or during this year, they will move from projects into the management portfolio. Financial performance, Maria, I'll leave that over to you.
Well, thank you, Rutger. As you have heard, we deliver strong results from several parts of the business. Castellum's ownership in Norwegian-listed Entra is 33.3%, and we report our holdings in Entra as an associated company, and the figures are based on Entra's report for the second quarter. The value of the property portfolio sums up to SEK 185 billion, including our holdings in Entra. This is an uplift over SEK 3 billion in the second quarter. Income from property management increased by 47% to almost SEK 2.4 billion, which is a result of our successful acquisition last year and strong rental markets. The rental income in the like-for-like portfolio increased by 4.4% due to new leasing, successful renegotiation, and indexation.
About all of our leases are index-linked, which, Rutger mentioned, and that means that we will be fully compensated for inflation. We have also had decreasing vacancies, and average economic occupancy rate for the period is almost 94%, which is all-time high for Castellum. On the other hand, we also have increase of cost during the period. Property cost in the like-for-like portfolio increased with 7.5%, and this is mostly a result of higher energy prices, but about half of the cost of electricity and heating are passed on to tenants. Increased administration costs are mainly due to the merger with Kungsleden, and some of the increase is temporary and will, in the long term, decrease as a result of synergies.
As we previously communicated, there are both financial and operational synergies that will be achieved on an ongoing basis within 2-3 years. Because of the effects explained, net operating income in the like-for-like portfolio increased by 3.5% in the period. For the entire property portfolio, net operating income increased by 43%. The next slide, our successful acquisitions last year of Kungsleden in Sweden increased holdings in Entra in Norway, and Kielo in Finland enable a 21% increase in income from property management per share, and this is well over our target of 10% annual growth. We move on to the EPRA key figures. Due to growing profit from property management and a positive value changes, we have a great increase in the figures, as you see.
The EPRA EPS increased with 29%, and our long-term asset value, EPRA NRV, increased by 16% to SEK 263. Strong results from several parts of the business, and I hand over back to you, Rutger, to sum up and present our takeaways.
Yes. Thank you, Maria. Strong figures. Well, the takeaways is that we see a strong rental market. We see rental increases and we do have a like-for-like increase of 4.4%. As you know, the CPI last year was in Sweden 2.8%, and we managed to increase it even more so 4.4% Like-for-like. Very strong figure. We also see the net leasing is very strong with SEK 109 million. We see the best ever in Castellum, the history of Castellum, occupancy rate of 93.7%, which is a really strong figure, and a 0.5% increase in six months.
One thing to stress is also that we have 99% of our leases are index-linked, and this is really important since we have this strong inflation. Yesterday's figure of 8.5% , giving the structure of our leases, would give us SEK 740 million in rental increase next year. If CPI will end up on 6%, that would mean about SEK 525 million in rental increases next year. That really helps us to pay. If we need to pay higher interest rates, that really helps us to get these rental increases. Higher costs, which we partly pass on to the tenant, but still we have to take part of it ourselves.
These increases help us to cover that, and more than that. We also have, as I mentioned before, large projects coming in under completion today. They mean CapEx, but that will end up in a few quarters and instead will be rental income. We will add on like SEK 340 million next year from new projects which we already know they are leased out and so on. Strong yields on those also. Average yield of 5.8% from those and very long leases. We do have a stable position. We have an average yield in our existing portfolio of 4.7%. We have margin in regards to today's interest rate.
Financial stability, loan-to-value of 38.2%. That's also low, and it's lower than the year-end, when it was 38.5%. As Jens mentioned here before, a strong forward-focused financial desk here, with a treasury team that really have taken care of our credit facilities, worked really hard with those during this first half of the year. Do have unutilized credit facilities and cash of a total of SEK 19.9 billion, which is compared with bonds coming out in the next two years of SEK 14.9 billion. Bonds that are about to expire are more than well fully covered by existing credit facilities, which gives us a good situation compared with lots of others.
We still believe that we will come back on the capital market. Given today's levels, this is a really important backup to have. Strong growth in EPS. The EPRA EPS up 29% and the net asset value up 16%. The net asset value is today SEK 263. Still, a few weeks into the third quarter, we don't see any different market than we've experienced during the first half of the year. Still a good market. We still work on new leases, and there are still projects coming in. We are careful with new investments. We are careful with new projects.
We take care of what we have, cautious with the cost side and just focus on continue to deliver strong, stable, results from Castellum going forward. That's where we are. We open up for questions. Anna-Karin, we do have maybe questions coming in, or if we get questions, we'll make sure to answer them, afterwards or some maybe now. We still have some time here.
Yes.
Anna-Karin-
There's some-
Do you have any?
I think the operator will have some on the line. You are welcome to ask questions now.
We will now begin the question- and- answer session. Anyone who wishes to ask a question, may press star and one on the touch tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets when asking a question. Anyone who has a question may press star and one at this time. Our first question comes from the line of Helen Rodriguez with Mizuho. Please go ahead.
Thanks very much for the questions. Can I please ask, so if I look at your cash flow statement, page 17 of the release, you have actually not spent very much money. You know, you've got CFO of, you know, SEK 2.5 billion this first half, and your investment spending is around SEK 1 billion, which is obviously quite good. Whereas if I go back a year, you have a similar quantum of cash flow, but you're spending about SEK 14 billion. Now, you've said a couple of times on the call that you are gonna cut your cloth a little bit more. Can you just give us a sense of how much investment you're planning over the next, you know, the next year or two in these times of sort of constrained capital markets?
Yeah. I think we will invest about SEK 1 billion a quarter going forward during the next two, three quarters. You will see a slowdown in investments. You will see that we are and have been a little bit more cautious with new projects. That's mainly because of the problem of getting fixed costs on new projects. Partly also the fact that it's harder to take up cheap debt. We have written our requirements on new projects, and that will show up in three, four quarters from now.
Maybe for this year.
The short term, it will be similar to the first quarter, you know, and the first half of year. You know, the third and fourth quarter will be similar volumes as we've seen in the first and second quarter.
Got it. In terms of your development portfolio, which I think maybe I misread, it's 16 or something. I got the wrong number. Anyway,
It's in total 12. It's in 12.
12.
With that back. Yeah.
Of that 12, how much is pre-sold as it were? When you're doing these development projects, do you have your customer already? In terms of inflation and the cost of construction, how much is contractually passed through, you know, before you break ground, as it were?
You know, I can take an example. The largest project there is SEK 1.7 billion-SEK 1.9 billion, and that's a project that we spent SEK 100 million on it, but now it's put on hold. When I say 12, that's partly true. You can also say more or less 10, because that's not even. We have not even started to let that project out. It will not be started before we will not continue to build on that project before we have a certain portion pre-let. If we're not super confident that we will rent it out during the process of building it. That's really gonna be the situation. Even though the project is very good, it has a very good location in Stockholm.
We wouldn't dare to build it, you know, on speculation. We require a certain amount of pre-letting. Normally, it's between 60% and 80% pre-let. We have only done a very few examples of speculative, non-pre-let projects, and that has been logistics properties because we have had so many requests for new space in some of the areas that we have felt super confident of letting it out during construction. And that's actually the case with a few existing cases where we only have like 35% pre-let there, but we're super confident that the strong market will may help us to fill them during construction. We are more cautious today.
We are in general more cautious today, giving the problems with getting fixed costs on them. You will see a downturn in the total volumes of projects going forward for sure.
Okay. Thank you so much.
You're welcome. Thank you for question.
The next question comes from the line of Erik Granström with Carnegie. Please go ahead.
Thank you very much. Good morning. I had a few questions. First off, regarding your property value changes. You mentioned that projects was the main driver as well as some improved NOI. First off, could you say if you have changed your internal inflation assumptions this quarter?
Of course, we see what's going on, and we can. We haven't changed. We can't really change our inflation assumptions until we get the October CPI. We change it when we get the October CPI. Then we change it for sure. Of course it's not in our model. I don't know, Erik. I don't know exactly what it is, what our assumption is today. It's not 2%, since we have the level we do have in inflation today. It's not 8.5%, so there is an assumption. I actually don't really know what it is, Erik.
It's something between 2% and 5% during the next year, you know. We expect to get something, I would guess like 5% for next year and then I assume it's going back to like 2% again, the year after. Of course, we're not expecting 2% in the model. That would be strange. It's something like 5%, I guess. I can dig out the exact figure from the team who's working with that model.
Okay.
I see what you're aiming for. I understand what you're aiming for because it's when we put in, if we put in like 8.5, which was yesterday's figure, then things will happen, of course.
Right. At the same time, you haven't changed the yield requirements either. I was wondering what?
No, we're not. No. Yeah.
Right. I would assume that.
Yes, sir.
No, go ahead, please.
There is one big thing with a company or our segment, the office segment. You haven't seen so much downward yield shift particularly in the office segment during the last years, and that's due to the COVID situation. There has been so much worry about whether people are going back to the office or not, and that has created some caution regarding office buildings. You can see that. The difference between lower yields on office compared with lower yields on public samhällsfastigheter, public rental buildings or logistics or residential has a huge difference. There's a huge difference. We have not seen that downward shift as they have experienced in those segments.
Maybe that's good for us now, because that means that we have in an average in the segment higher yields. We have in our portfolios, you know, 4.7% average yield. It's still, of course, very difficult to buy any buildings on that kind of high yields. You can't even buy an old rubbish building in Stockholm at that yield. But maybe you can by the end of the year, but not today. We haven't experienced any yield shifts in our segments. I have heard of some yield shifts in the logistics segments. Newly built long leases where the most extreme levels are gone.
As you know, we sold off quite a lot of our own logistics in about a year from now and got well paid. I guess we could have got more or less the same level today, because that was not a portfolio of newly built and long leases. It was a mixture. The most extreme yields are not there anymore in logistics, I've heard. You haven't read about it really yet. That's, you know, that's what I hear when I speak with the transaction teams around the market.
Okay. Thank you. My last few questions regarding cost development. First off, the central admin cost increased quite substantially quarter-on-quarter. You mentioned that long term you expected to come down with synergies from the Kungsleden acquisition. Could you give us a sense of what sort of your running situation is for this year and next year? And how much was extraordinary because the step-up is SEK 18 million I think or SEK 17 million or something like that quarter-on-quarter.
Yes. There is a lot of one-offs of course, and that has to do with the transaction and also transaction of Kungsleden, and also transformation into to new systems and so on, and investments in regard of that. There is a lot of one-offs. We haven't given a specific figure, but of course, the ambition is to lower the average cost of managing every square meter. We are not getting bigger and more costly per square meter where the ambition is to lower the cost per square meter. We are spending a lot of time and effort in doing this more efficient with new systems and you will see that.
This year is gonna be hit by double costs on many things, double salaries, double cost for systems, and so on. For example, we pay for getting our buildings, our economics administered by external help in the Kungsleden portfolio, even though we do have now the capacity to do everything by ourselves. We have to pay for that the whole year out, for example. We pay for, you know, CFO and CEO and so on double. There is a lot of costs this year, and that's one-offs.
Okay. Thank you.
Mm-hmm.
My final question.
Mm-hmm
is on sort of your NOI margin. I think it's 66% in the first half of the year, which is down maybe three percentage points or something like that.
Mm-hmm. Mm-hmm. Mm-hmm.
What kind of level do you think that you will be able to reach for this year and going forward? Should we expect Castellum to run at clearly lower NOI margin going forward? Or are you aiming to reach sort of the 69%-70% that you have had historically?
Exactly. Our aim is to reach 69%-70%. I think the first quarter has been. It's been, you know, the energy cost is above average, above an average year. When we compare with the normal year, this first half was a tougher one. Also giving the energy prices and so on we've had, that has also had an effect. Of course, 70% is something we should be able to reach. Then long term, even better. We spend a lot on becoming more efficient and more sustainable. We work. As you know, we work hard on reducing costs in our buildings. One other thing with yields, I would say, we differ maybe from some others.
Our main competitors are super strong. Our neighbors are super strong companies. Our next door buildings are most often owned by very stable long-term owners, and they just buy and hold and never sell themselves. I don't believe that we'll see any major yield shifts down in our segments because it's not speculative areas. It's the neighbors are long-term holders, strong holders. And as you know, it's like Vasakronan and Fabege and that kind of neighbors we do have. Different in different towns, but they are all very stable and long-term institutionally owned most often or the larger listed ones with stable financials. They will not start selling. There will be very few things coming out.
If something comes out for sale, there will be so many that will be interested in buying it. I don't expect any big changes in yield, actually, even though everybody are calculating, of course, with the increasing interest rates. Increasing interest rate is something we have assumed for many years. Of course, we haven't expect to have negative interest rates. We have all expected the interest rates to come back to something more normal. What's different at this point is the turmoil on the capital market. Bear in mind, everybody is not out there. There is a lot of companies without bonds. There is a lot of investors without debt.
There is also a lot of the companies who has bonds also have owners that are more or less government or institutions that can replace some of their bond debt with actual equity or lending out the money themselves to the real estate company. It will be turmoil on the capital market for a while until it stabilizes. Some of the money that has been on that capital market will disappear. We just have to wait that out and see where it lands. Meanwhile, we do have credit facilities to cover it, Jens went through before.
Okay. Thank you, Rutger, and everyone else presenting.
Thank you.
Today. Those were all my questions.
The next question.
I can add on. Before the next question, I could add on. Giving Erik's question regarding what we assume, what we have kind of yield requirements we have in our model or CPI expectations. Bear in mind that 99% of the portfolio is indexed. If we get 8.5% index as we did see yesterday, that would mean an increase of our rents with SEK 740 million next year. If we get 6% CPI, that will give us SEK 525 million in rental increase next year. That covers a lot of higher interest rates cost. We also expect higher interest rates cost, but that covers a lot.
Once again, real estate with index-linked contract, it's a good hedge when you meet inflation, and that's something to bear in mind and not forget. Sorry, next question.
The next question comes from the line of Paul May with Barclays. Please go ahead.
Hi, team. Hopefully you can hear me. Just got a few questions. Obviously, the debt side of the business is where most of the focus is, and I don't think there's much question around the structural side on the growth rents and how that's progressing. It's, you know, investors' concern is very much around the debt and the progression there. Just wondered. You mentioned about the new financing facilities that have been arranged through the first half and the SEK 19.9 billion, I think it was, of available facilities. What is the all-in cost of those new facilities that you arranged, particularly any more recent ones, and how does that compare to sort of in place or what that would have been six months ago? Also on the non-cash available facilities, what is the all-in cost of those if they withdraw?
I turn that over to Jens Andersson.
Sorry, this is the operator. Mr. Andersson, since your line is muted.
Okay, sorry. Let me take that again. Apparently, my line was muted. If we look at the facilities that was refinanced over the quarter, the SEK 13 billion, the increase was around 2.5 basis points on average. Yeah, I mean, pretty much no change at all at present. With that said, it doesn't give us any guarantees that it will not be increased in the future. We feel that the bank market is extremely stable for us at the moment.
Sorry, just on the.
And the com-
Sorry, is that just on the margin you've seen that change? Sorry to jump in. I'm talking about the all-in cost, so including the spread and. The all-in cost is only up 2.5 basis points.
Yeah, the spread is 2.5. I mean, the underlying interest is known for everyone. On the SEK 74 billion total of debt, if you look at the 1% increase, that would mean SEK 740 million. But with the hedge that we have in place, the increase will come in at around SEK 350 million. So we have a relatively good protection against underlying interest increases. But it is not perfect by any means. But it gives us good stability. At the current situation, we can actually handle underlying interest rates of 7% and still be in line with all our covenants.
The weighted average cost, I think, was 1.9 as of the quarter end.
Yeah.
If you refinanced everything today, I'm not assuming you will, but if you did, if you were to refinance everything today with a mix of bank bonds.
Yeah.
commercial paper, what are you looking at as an all-in cost of financing Castellum over the medium term?
I mean, I cannot really say how it will look like in the future. Of course, we will take loan by loan. As we see it, the first SEK 15 billion of bond debt that we already have covered with revolving credit facilities. If we were to go into the market and refinance them as bank loans, we do not expect any change in our spreads.
The all-in cost would be SEK 175.5. Is that basically?
Yeah. It will remain unchanged for the first SEK 15 billion. That's our assumption at least. We believe that the first 4 billion that we already have in place will cost us around 125 basis points. Then we have assumed that the remaining 11 billion will cost around 175 basis points. That the average on that will pretty much give us the same cost as we have today in the bond market.
Yes. Yeah. Okay. Just sort of linked to that, I mean, it's probably more a question for Rutger Arnhult. Most investors that we speak to see your leverage as being much higher, given the hybrids sort of into the high forties. Obviously that's a concern if yields were to expand, and I appreciate your commentary to Erik Granström on. Obviously, yields have not compressed as much as logistics yields, but they have compressed as interest rates have come down. In theory, they should expand as interest rates have increased. That would be the sort of logical, mathematical approach. I appreciate it doesn't always work that way. I just wondered, what is your thought process around leverage more generally?
You know, in the high 40s%, as most people would view it from an equity investor point of view, it appears high. Not as high as some of your peers, I appreciate. But just wondering what your sort of thought process is around leverage. Is it to maintain a higher leverage? Is it to eventually reduce leverage? What is the thought process there?
Since we are keen to keep our existing rating with Moody's, we are actually working on lower our LTV to get some headroom, so that we are not on the borderline of their, you know, so they don't downgrade us. That gives us a limitation of maximum 45% LTV. As you know, they look different on hybrids. They do look different on bought back. Yes, we have bought back, which we hold in our own possession. They do a lot of haircuts. We are at 45% today, so we can't increase our leverage if we would like to keep our rating. That limits us, and that's what we work for.
Going forward, you would rather see a lower LTV in Castellum than we have today.
Excellent. Thank you. One final one.
Just to make sure that we can come back or we can come out on the capital markets on attractive levels. Even though the levels are not so attractive as we speak, but we of course look forward to see some better levels going forward. The market just needs to calm down a little bit. As I mentioned before, I think there is some capital leaving the capital market, and that you need to stabilize and find a new balance on that market. If you look at our average yield, it was 4.8% a year ago, and now it's 4.7%.
We have also changed the quality in the portfolio that could explain a slightly lower yield. 10 points lower could be explained by the fact that we have better houses now, better average quality with a higher average rental income per square meter.
You can also compare with average square meter income in Castellum today than a year ago, then you can see that it's above the CPI levels. I think it's 4.2% up a year ago from now, and like for like, it's 4.4. Higher rental levels explained by higher quality, which normally means that you have a slightly lower yield. But still 4.7, it's a good yield spread towards the interest rates today.
We don't expect yields to come down. We expect, actually I expect, as many others, yield to come up a little bit, and we are-
Yeah.
We are prepared for that, of course. Giving the strong CPI in October, a strong increase of a rental next year, if we don't adjust the values, then you will automatically see a lift in average yield.
Yeah.
If we just keep the values and get like 6 or 7% increase in income, then also bear in mind that we pass on a lot of costs to the tenants because we are not willing to take the risk on energy and so on fully. We pass that on, half of it. If we don't adjust the values, then the average yield will come up in our report.
Thank you. Sorry, just given your close ties to the largest investor, M2, just a question there on, you know, running some numbers and if marked to market all the investments that M2 has, it would appear that it's almost, I think it's covenant, it's equity ratios. I appreciate the value of Corem, I think, and Castellum is held at NAV, I think, within the M2 accounts. I just wondered, are there any risks or issues with regard to any like margin calls or pressure, selling pressure potentially from M2, given the material reduction in share prices that we've seen in recent weeks?
They did in the papers a stress test just saying that there we do have a lot of headroom. That was based on that they thought that we value everything daily. Bear in mind that the M2 group are having the largest holdings as companies of interest. Of course, they do frequently impairment tests. Since all the companies, the major companies they hold are performing better than ever, long-term leases, long-term credit facilities, and so on, long-term stable values, there will not be any changes in view on the long-term value of the companies. Since it's companies of interest, you will.
Since they are following the IFRS accounting regulations, you will not adjust for temporary shifts in the values. They will report their part of the results as the same way Castellum report our part of the result from Entra. The daily share price doesn't, if it goes up or down, impact the covenants in the company. The answer is no, the daily share price doesn't impact the covenants in the company.
Thank you very much.
Thank you very much. I think that has to be the last question for today, but we will be very happy to answer any other questions by email during this day. Please email to Maria Strandberg or to me myself, Anna-Karin Nyman. With that, I would say like to say thank you to everyone who has been listening today.
Thank you. Thank you from Jens and me also here. And please send us questions, and we will make sure to answer them in written or call you up. If you want us to call, we call you up also. Thank you.
Thank you.