Good morning and welcome to this conference call on Castellum's Year- end Report for 2017, hosted by Henrik Saxborn, CEO of Castellum, and Ulrika Danielsson, CFO. My name is Inger-Li Löstman and I'm the Corporate Communications Director at Castellum. As usual, we will start with a presentation of the results, followed by a question-and-answer session. By that, I hand over to you, Henrik.
Thank you. Good morning, everyone. Let us start with telling you the story about 2017 then. 2017 was a very intensive year, and Castellum isn't the same as it was one year ago, simply. We have been in a lot of leasing activities, renegotiation, and a lot of new projects. We also were able to hold on to our position as the leading company in sustainability as well as starting our project Next 20. So if you look at the next slide, please. This year, we were actually able to sign 930 new leases on a total value of SEK 600 million. It gave us a net leasing of SEK 310 million. It's the strongest leasing in Castellum's history. And I believe that we signed the most commercial contract in Sweden by all types. So we are pleased with that.
But we are also pleased with that we went into this year with 3,169 assets that expired during 2017 and 2018 for a total value of SEK 3.2 billion. Of those, we were able to renegotiate, prolong, or in some circumstances terminate over 1,400 of them on a total value of SEK 2.8 billion. If you look at the portfolio, this was the year when we went in and had sold 10% of the value of the future. But we were also able during this year to reinvest in better locations, higher acquisitions, and new constructions. So the portfolio has gone from SEK 71 billion up to SEK 81 billion. A little bit less of that has been half of that has been because of value changes and the other half, of course, of investments.
So we actually were able to move the NAV from SEK 133 per sq m, per share, to SEK 153. It grew 15%. And don't forget, you shall also deduct the dividend of SEK 5. So with that said, we also moved the LTV to 47%, even though we were able to invest more than our 5%, actually 7% of the balance sheet. I'm also pleased that during this year, we have been able to secure the efficiency program of the integration of Norrporten to more than SEK 120 million that you will see coming through the next year, and it will be completed in the half-year end. And all this has, of course, it's fantastic to see that we now have 338,000 shareholders that have doubled in 2 years. So with that, I'll leave the word to Ulrika, and the next slide, please.
Then we can say that Castellum has never earned so much money regardless if we look at the cash flow from property management or the bottom line result. It should look like this due to investments and transactions made last year in combination, of course, with really good rental and property markets. On top of that, we are still living in a low-interest rate environment. The income from property management grew with SEK 465 million, or 23% if you look in absolute amount.
But since Norrporten was financed by issue of shares, the growth per share was 5%. A good market in combination with investment made means that the result after tax landed on SEK 5.9 billion, SEK 1 billion more than the year before. So what has driven this development? If we start with looking at the NOI, we can see on the next slide that the NOI increased with SEK 545 million, of which roughly SEK 650 million came from the income side and SEK 100 million from the cost side. Now, the like-for-like portfolio, if we look at that, and that is the portfolio that Castellum has owned in normal management for two years, had a contribution of roughly SEK 80 million or a growth of 4%, like-for-like. And then, of course, our projects that were completed give another SEK 60 million.
And then, on the other hand, we have ongoing projects where we had to move tenants and so on. So then we had a negative impact in 2017 on that. And the big part that is left is transaction made. If we're on the next slide, focus on the income stream, we can say that if we look to our lease maturity structure, you can see that we have not so much left in 2018 to handle. It has already been handled, the main part. The organization is starting to work with the leases for 2019. If we look into that, you see less expiration or less leases expire in the region of Stockholm because we have longer duration in that part of the portfolio.
If you take that one apart, it's rather well spread out around Sweden. I want to remind that we have a CPI. The CPI in October is, you could say, the most important of the CPIs during the year because that one puts the indexation for the next year coming. So just to look back a little bit, the CPI for October 2016, which means the indexation for 2017 was 1.2, the CPI for October 2017, which means that you are guided by the indexation for 2018, is much higher. It's 1.7. So that would be the guidance, what you can expect in indexation from next year in Castellum.
We also have another line in our income stream that affects the income, and that is discounts. In 2017, that one was SEK 97 million. And from what we can see today and end of May, that line will go down to SEK 70 million next year. And then if we go on the next slide and talk about the markets.
Yes. Looking through the markets, for us, it's commercial assets mainly existing of office and logistic. The difference now from the residential market is a unique historical situation. The commercial market is very good. This is due to the shortage of space at prime location in our larger cities. Quite unique, the residential market, where oversupply in a number of segments has made it totally different. So if we're looking through what we are experiencing right now, we're experiencing rents going up, and of course, that gives another value drive.
But on the residential side, it's the opposite at this moment. For us, the strongest markets are still Stockholm, Gothenburg, and Uppsala. And if you look at the Stockholm portfolio, our top leases were from this year, SEK 4,800. It went from SEK 4,800 up to SEK 5,500. I think it will be possible for us to reach another level of 6,000 during this year on the best locations. If we look at renegotiation possibilities in Stockholm, the last year gave us more or less enough effect of SEK 10 million. Going into 2018, even though the volume of possible renegotiable contracts is less, the effect still is possible to get the double size of it.
If you looked at Gothenburg, we hold some top rents there in the possibility, and the top rent is SEK 3,400 a sq m a year. We see that it's possible to increase them in renegotiation overall of approximately 3%. But of course, don't forget that the leasing contracts that you renegotiate are possibly three to five years old, and that gives us the possibility to uplift the rent with SEK 1,000 a sq m in some cases. The other town then is Uppsala. There we are also in the line with the top rents, and we see the possibility to increase the rents around SEK 100 a square meter a year going forward.
This is the situation the same as in Gothenburg. In some cases, you have a 30% to 50% uplift in renegotiation, but the volume is not that big going into 2018. If you go to other towns then, you have Malmö. We can say the renegotiation possibilities are not there. You have a flat expectation on the market. Copenhagen has been better and better because the vacancy rate has gone down, but you can't see any big uplift on the rents going forward. That was the office market in short. Looking at another part of our portfolio is the logistic market.
If we change focus then, the market can be divided in two parts there. It's two different ones. We have often speaking about the larger national distribution centers that actually could be located in a large geographic area. Simply, they want to be in the south part of Sweden or close to the harbor of Gothenburg. This type of big logistics assets will still be under competition, and you can't see the fantastic rent development in the same pace as in the smaller ones. But that said, it's also a lack of space in the absolutely best locations.
So in my view, it's the right location projects are filled up rather quickly. Price-wise, the level is between SEK 600-SEK 750 a sq m a year. Therefore, we have invested in land and building rights north of Stockholm and have started a logistics center in Gothenburg Harbor without any tenants. It's filled up now to approximately 40%, and the leasing activity looks good. Both those sites could be used both as a national distribution center or just as a last-mile center. The other part of the market is the smaller ones then.
They are close. They should be located closer to the towns. That could be a part of last mile. There is a strong demand, and we also see a lack of efficient space, and we also see increasing rent levels. So here Castellum is perfectly located with approximately 1.5 million square meters that's mainly located exactly in good locations that we can use at last miles. This portfolio has seen examples of rents going from SEK 1,000 to 600 per sq m per year in two years. But in that case, the location is perfect.
It also has the possibility to connect to a railway station or railway and roads. But in main terms, you can see the market going from maybe up to SEK 1,100 to 1,200 on much, much lower levels. So if we change the picture, we can look at the net leasing for Castellum. So with this good rental market in combination with really good work from the organization, made us sign the net leasing of SEK 310 million then. And as you can see from the curve, the level says exceptionally high, and the last quarter was good. However, not as good as the first nine months.
By the trend, it's going downwards, but now from the really high levels, so it's still on a very good level simply. But important to note is, like we said earlier, we have during the year renegotiated a lot of leases on high values, and we are in a very good position with the market. But if we can also look at the next slide, if we divide the net letting by the last year's lettings, you can see that the largest net letting is in the central region. And here are towns like Uppsala, Örebro, Jönköping, and so on.
But if you only look at city by city, the largest is, of course, Stockholm is most. But it's also important to understand that the mid-sized towns in Sweden have had a very good net letting. If you only look at the absolutely best in our portfolio last year, it's one part of Gothenburg that was the winner during that year. I leave the word over to Ulrika and the next slide.
And then if we dive into the property costs, you can see there are roughly SEK 100 million, or to be more specific, under SEK 8 million in increased cost. What drives that? The type of cost that increased most is property taxes, followed by administration and operation, but which activities created that? And of course, the main part is that when you have the bigger of both companies, so that of the SEK 108 million, SEK 104 million is coming from the transactions part, which means that like for like has a reduced cost.
And then, of course, the completed projects and ongoing projects had opposite development. So with that said, the cost side is rather stable. Of course, we still work with it. We should do that every day. But the biggest driver last year was the transactions. So with that, if we go back to the next slide, we do have some lines left to comment. And one line is the biggest cost line for Castellum and almost all property companies, and that is their interest cost. So if we go to the next slide again, we have split that information up in the report, this report, to try to give you a more transparent view on the interest rate portfolio.
So we have split the average interest rate that is connected to the, you could say, credit portfolio and the one who is connected to the swap portfolio because that is two different angles. And as you can see, next year, we will have swaps that will expire for SEK 1.7 million. That is rather expensive in these days of 2%. And of course, you have an interest rate that is negative on the short leg. So to be honest, it's 2.6. And depending on what we do, that would, of course, affect the interest rate portfolio.
On the other hand, other things will happen. So I think you can expect from Castellum going forward that the average interest rate will be rather stable. If we don't do any bigger changes in volume or something, we'll have them substantially in the market. And if we then go back to the next slide, we have another line that is really big on that is changes in value of properties. That for the whole year, we have around SEK 4.5 billion or an upwards of 6%. What it is rare to see is that the things that the organization can have an impact on. With that, I mean the cash flow, the renting, the renegotiation, the projects.
That is being a big part of the changes in value and how the market is pricing our assets, properties, is another part. So almost 60% comes from work that the organization has done to make the portfolio have a bigger value. And I will come back to the valuation itself longer from the presentation. Then we have the next slide. And that is a project that has been on the table last year and a bigger topic for our industry. And that is the proposal that has been made last year, two proposals I'm sure you know of.
And that is one proposal that is connected to selling assets in Sweden, and another one is an EU legislation that is connected to interest rate deductibility restrictions. From what we know now, the first one is connected to selling properties. There is no formal information what I know. But what we hear in the market is that they have postponed that to after the election this year due to that it's too much on the table. Regarding the interest rate deductibility restriction, there is a timetable that has to be met that E.U. has put.
And this week, we got the information that, or the market got the information, that that proposal will be official the 16th of April this year. So then we will know. We know that this will come, but we really don't know how it will be calculated. And that one is what we will know then. So that is the legislation that will have an impact on the tax calculation. What I also will be clear with this is that Castellum has a lot of tax margin going forward despite that we earn a lot of money.
But every crown can't be used everywhere in the organization. And that is due to that we have bought tax assets going forward with buying Norrporten and former stores. So you can see how it's split up. But despite this, from what we know today and from the tax legislation today, we can say that you can expect that we still manage 1 to 2 years with this. Everything else is, of course. So that means that when we are in a paid tax situation, from today's legislation, an effective tax rate should be around 68% for a company like Castellum.
Then if we go to the next slide, please. We do have a balance sheet that is strong with an LTV of 47% despite big investments being made. And this is the result of a good discipline with the financials, but also, of course, a well-being property market. A well-being property market leads us to the valuation. So if we go to the next slide, we see a lot of stuff on this slide. But we have done an external valuation of roughly 53% of the portfolio from a valuation point of view. And if we compare that part of the portfolio, our valuation with the external valuation, we have a difference of SEK 150 million, and that is 0.3% only.
But on top of that, we also let another external valuer do a desktop valuation of roughly 25% of the portfolio. And that 25% is also valued by external valuer number one. So on 25% of the portfolio, you could have three valuations. And that is what you see on the picture in front of your overhead. So the blue dot is Castellum's valuation. If you follow one that's upwards or downwards, you see the external values compared to ours. Of course, then you can say that on that portfolio, Castellum and external value number one that also makes the biggest valuation, we are only SEK 24 million apart from it.
It's almost nothing. But it's a bigger difference between the external value number two, and that is not strange because that is the pure desktop valuation. But it's well in our range of uncertainties, so to say, so only 4% differences. With that said, this is a good proof that the changes in value have substance behind us, and we are safe with the balance sheet that we have in the books today. If we go to the next slide then.
Yes, and when you then look into from value to where is the market right now, our view is that the real estate market is rather quite interesting right now because you have a lot of interested buyers, and you have some less, but some sellers. What we're experiencing right now is exactly what you see in our value sheet, is that the expectation from sellers is normally a little bit higher than the buyers. So the last quarter or half-year change in value has also reflected in the transaction volume.
And of course, it could also be affected, like we said earlier, about the tax issues and the probability or the problem making some deals technically. But we ended up with a volume in Sweden of SEK 150 billion, more or less the same volume that you had in 2015. What's interesting is also that you have deals done all over Sweden. So that's, of course, positive. So the sentiment is good, but the expectations then from the seller side have increased the last month. And I think that will right now slowing down the volume, actually, that we can see right now. If we go to the next slide, we can look at our investment done over years.
And of course, it's a little bit special one because we are not in the volume that we had last year. But as you can see, we have been efficient this year, and we have done a lot of deals. Actually, 7% of the balance sheet is driven by transactions that we were able of changing the portfolio on the west side in two deals and in Stockholm. That's where the investment was investment. Then, of course, the most important, an increasing volume of projects that you can see in these figures.
From that, I would like to talk about some examples on the coming projects line. You can see the total volume change, please. The coming project volume is approximately the same that we have right now. We expect to hold the volume of somewhere between SEK 4.5 billion to SEK 5 billion every year in project volume, to be honest. Right now, we have SEK 4.8 billion ongoing. We have, of that, the one that are larger than SEK 100 million stands for SEK 3 billion. There, of these SEK 3 billion, we have SEK 1.2 billion left to invest, simply.
So the positive what's happening in the residential markets, actually, I think it's going to affect us right now. It may be that the municipalities now will have time to work more with the zoning plans for commercial assets. It will probably affect the type of resources that we need, all types of resources. It could, and I think it will affect also prices on the construction side. On the projects that you see on the picture is an example of what we would like to and hope to build in the Globen area. We won the competition together with Wallenstam, another player, to build a new part of Stockholm City.
This will give us the opportunity to build commercial assets for something between SEK 1.2 billion to SEK 1.4 billion. We also, during this year, bought from the municipality an asset called Stockholm Water in Swedish, Stockholm Vatten. That is a project that we started. We have ongoing renovations inside the house that we believe first phase that we actually on-market with that. And after that, we have two other phases, one that we have an existing building right, and then another building right that we're negotiating the zoning plan with the municipality going forward.
This will be a project that will exceed SEK 1 billion, and it's a fantastic location in Stockholm right now. And then on the next slide, we have another example. That is the building. We are right now going through a building right procedure with the municipality. It means actually that we have a zoning plan in place. We're just doing the last adjustments with the rights to start building it. It's on-market, and it's an office building in south of Gothenburg then.
So what we can conclude on the project side is that we are starting bigger and bigger projects and have also larger projects than we ever had in the pipeline. And we are simply waiting for either customers, but mostly it's actually a zoning plan discussion that's holding the pace right now. So with that, we need to finance this, Ulrika. So how does the finance market look like? Next slide, please.
As I said in the start, our assets and our investments are needed to finance. So if we are describing the free market we are in, I have talked about it earlier this year, and there is no big change in that. It's the bank, the bond, and the CP market. And the feeling in the market is almost, from Castellum's point of view, as it was in the last quarter, good access to funding, different maturities. And of course, still here in Sweden, I used to say it's like a war after five years, both within the bank sector but also in the Swedish bond market.
However, you can get neither up to six and seven years on the bond market, the Swedish one, but there is no big volume. So a long duration from a, you could say, capital point of view, you need to access your bond market investments. The credit margins are rather stable. Some upward trends in the bond in the end of the year, but still stable, and some downward trends on the CP market. But fixed rates that are in the CP market still imply high CP margin because we still have a negative CP in that market.
But more important is to try to understand how Castellum has acted on the next slide. We have to negotiate rather big volume last year, roughly SEK 13 billion, and we have also terminated some agreements. And we have also new supply from the EIB, the European Investment Bank. So that means that we have credit frame of rather SEK 35 billion, and we have SEK 16 billion that is not used. Of course, some of that is backup facilities for the CP. We do have a bond frame of SEK 15 billion and have not used all but have SEK 14.2 billion outstanding at the year-end.
And they will have different duration, 2 to 7 years, and we like to do small issues to thrive the maturity structure and therefore the risk. And then, of course, the CP market is SEK 8 billion, and it has been full all year. If we go to the next slide then.
So all in all then, Castellum stands strong, and it's the reason why the board suggests the dividend of SEK 5.3 per share, and it will be paid out in two times. And it will, at the same time, have the same percentage of the cash flow as last year. And with that said, it means that Castellum actually is paying a higher dividend for the 20th year in a row. And we have then only five years to go to be a dividend aristocrat, simply. But it's not all about money. It's more some other things that are important.
So if we take the next slide, please. And in terms of sustainability, we retained an international and leading position. It's evidence that Castellum is standing out as one of the only, actually, a Nordic company in the construction and real estate sector that are included in the Dow Jones Sustainability Index. I'm very proud of that. More, we are also the global sector leader and with the highest ranking in Northern Europe by GRESB. And of course, it's a privilege to be that. I'm very honored about what has been done in the organization.
But we haven't been only doing that. If we take the next slide, it's also about what we've done in what we call the Next 20 projects, what we're looking into new businesses that could revolve or develop out of Castellum. And it's all about using simplified people's everyday lives, simply, and balanced work and families, as well as assisting customers with more utility premises, more efficiency, and so on and so on. And there we have three initiatives that we have launched. It's Beambox, that you see in the picture.
It's also something called Handly and something in Swedish called Oracle. And you will see us coming back with that during this year. But what will happen then? If we take the next slide. If you look at the market, if you look at the competition, you can see I can see a few cases where new supply will come out and actually make the market go negative. But it's important to understand that Swedish towns are small, and it's simple to destroy the market by building too much and too quickly. That could be and will not be.
But it could be the case in a town like Örebro, for example, where we have the possibility today on our own to start four new projects—offices in a short period of time. And of course, we will not do that. It will not be the case. It could not be the case in Gothenburg or Stockholm because the towns are too big. But now we are actually benefiting, like I said earlier, from the planning processes going too slow. And that we will see a few places, if any, where there can come up too much competition in the market.
So simply, the supply will not be too big the next coming years for the market growth. So simply, if I can conclude, we are in a very good position for rental growth going forward in the office market. We are also building up larger and larger projects, like you said, and I'm certain that we can increase the pipeline of this the coming next years. So from where Castellum stands and operates today, we are looking at great possibilities and achieve our objectives of 10% growth in income from property management in 2018.
This is building up on knowledge that we, on the existing portfolio, have the opportunity to deliver a major part of that growth. But we intend to continue in this path, increase the quality and density of the portfolio, which means that we have to remain open to acquisitions as well as sales alongside our competitive or big investment program. So with that words, I would like to open for questions.
Yes. We are ready to take questions. Please state your name and company. If possible, please put only one question at a time. I will also take some questions that I've got over the mail during the call. But first, I hand over to you.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad now.
Why we are okay. Please.
Thank you. Our first question comes from Fredrik Cyon of Carnegie. Please go ahead. Your line is open.
Good morning, guys. Great to hear that you're aiming to become a Dividend Aristocrat. I believe that's the first in Sweden. Three questions, if I may. Starting off with the like-for-like trend, it's been growing by 3% during 2017. You indicated that the indexation effect is clearly more positive in 2018. As well, the rental market is even stronger than one year ago. Should we expect more then in 2018 compared with 2017?
You know what? We are always a little bit cautious in that one. But I think that from what we know today, on the other hand, I think that you could have 2017 as a guidance for 2018. And the reason is that Stockholm has had a lot of maturities, and that has been renegotiated. And now they have a longer duration. And that market, we know, is the strongest rental market in Sweden. So on the other hand, we do have a higher CPI uplift. So maybe the 3% on a like-for-like year still could be the same guidance, but different mechanics.
Okay. That's clear. There's been lots of talk here in Swedish media about the residential market, of course. Are you seeing any contamination effects on the retail side or any other part of your portfolio?
No. If you ask retail, we can come back to retail. To start with the other part of the portfolio, I don't see it. I'm actually starting to see more positive effects. The most practical one is actually that the construction companies now have teams that were signed up for one or maybe two projects and were choosing between them. I don't have anything in the books right now. So that thing could be able to actually starting now too, and I know we are discussing more projects and signing them up for more projects.
So I think that will affect the price on our projects going forward positively. You asked about the retail side also. The retail side for us is something that we are very cautious on. We haven't mentioned that. We are looking at what all intelligence is saying to us. I mean, the outlook is that we're going to lose 10,000 shops in Sweden. The outcome is also that the prognosis is that 30,000 people are going to lose their jobs. But I'm certain that mainly part of their jobs will now come back into the logistics sector where we have the possibility to build or rent out our space.
So I see that we are in a sweet spot simply on the e-commerce side right now. And as you know, the e-commerce on the Christmas shopping, I think the e-commerce standard for something around 35% of all shopping. So that is my view of the effects run. So no effects, negative effects from the residential market, simply.
Okay. Thank you, Henrik. And then one final question on the occupancy rate. That's the only thing that didn't improve year-over-year in 2017, of course, partly due to your projects. But shall we expect that given how strong the market is, that you're going to be able to reduce your vacancy in the overall portfolio during 2018?
Yes, from what we know today. It's also freeze this moment in time. Yes, you should expect that.
Okay. Thank you.
Okay. We have one question over the mail that was also about implications of the residential slowdown. But I think, Henrik, you answered that if we see any implications for Castellum long and short term. So we leave that mail question then. And next question, then, please.
Thank you. The next question comes from Niclas Höglund of Nordea. Please go ahead. Your line is open.
Yes. Good morning, Niclas Höglund here. I have two questions as well. If we first start with your savings program or your cost-savings activities that should be on a run rate of SEK 120 million from this year, is it fair to assume that the valuators will take these, I mean, lower costs into account as it's supported to the NOI and also be a positive driver not only to the cash earnings but also to valuation?
No. I can start with that. Traditionally, the answer is very short: no. No. My experience is that it's very hard to get that into lines for what we're doing right now on the value side, unfortunately. Some very small effects, but nothing to pencil in.
Okay. Unfortunately. If we move forward to your guidance on taxes, 6% to 8%, I clearly appreciate that you put a lot of efforts into discussing taxes with us. But this 6% to 8%, is it the EBIT or EBITDA method that you are using? Because it's still a little bit uncertain what they will choose.
When I said what you could expect of an efficient tax paid when tax losses are used, so to say, it's based on today's regulation and not the strength deductibility restrictions. Because we now don't know which rules they will choose. What I know is that it's, you could say, tough negotiation between the parties because the official proposal number one is not the most liked proposal, so to say. So I want to get back with the guidance when we know what's on the table.
Yeah. But then again, we know that then these taxes will be higher. So if you take the easiest or well, the not easiest, but the less negative, the EBITDA method, could you confirm that it would be another 2% to 3% given the current interest environment?
Yes. You could say that I try to guide that from this since we do earn a lot of cash flow because it's not just interest. It's taxes also. So if you are a strong cash flow player, then you have the possibility, of course, to have a high interest rate deductibility. So Castellum earn a lot of cash flow that is strong, and we are in a low-interest rate environment. So of course, this will have no big impact. And that is, of course, offset that in the proposal that was made is that they also will lower the income taxes from 22% to 20%. So that also will be the reality that offsets, of course, the other part.
That's understood.
But I also want to mention that if they lower the income tax to 20%, you still will have a big, you could say, deferred tax income because your deferred tax on the debt side will be less of a debt, so to say.
Fair enough. And if you're right on that the sort of gains tax proposals will be, well, postponed after the election, do you see that that should have any major effect in the transaction market, how markets view the sort of deferred tax, well, assets in connection with transactions?
I think we experienced during this year, actually, that the market has been extremely strong or you haven't adjusted enough or very little to this tax discussion. Going forward, I see from now that the market has its view and risk elements already in the calculation with this. I think we are in line with the market in this respect. I don't think we're going to see any changes in the short term.
Okay. And my final question, if I may. The Stockholm Vatten project, you're talking about a SEK 1 billion project. Could you share some thoughts on timing and maybe how the return or yield potentially you see in this project?
Yeah. I think for us, in a total complete project, we are on somewhere around the 6% on this one, depending very much on the possibility of what the zoning plan will give us volume in the end. We are securing on the first phase of this somewhere about 4.5% to 5%. And then, of course, it only can go upwards because of the building rights possibilities. But the first phase is we already started to the leasing activities, and we tear down everything interiorly that we can tear down.
And it has given us a positive view of the project. And we also was able of finding new spaces in there. So it's going the right way. And the leasing activity looks extremely good. So I think during the first half year of this, you will see the first press releases that we're leasing out. Of course, from there, depending on which are the tenant, it will take us more or less a year to get the first phase of actually the old house completed.
Super. Thanks very much. Thank you.
Henrik, I have two questions over mail that is about your favorite subject, taxes. So if I may, I'll just read those. You might have clarified already. But the first one is from LaSalle. What is the expected recurring tax rate going forward of the tax losses carried forward have been used? And then I have a question from DNB Markets. How would you consider our LTV long-term with the new interest rate deductibility tax cap likely coming?
The first one, I said that if we just talk from today's regulation because that is what we know about, then you could say when the tax losses carried forward have been used, then you can expect from a company like Castellum that do a lot of investments in our own properties, which during the regulation today gives us a lot of deductibility if we work with that. Then you can expect 6% to 8% in an efficient tax rate going forward, efficient tax paid rate. And then if you look to the LTV level, I say that I think I've said this now for a couple of years that we should go towards where we are today, and the trend is still here or a little bit lesser.
And that is due to that we have known that this interest rate deductibility will be one issue to handle, which mean in reality that interest rates passed in a calculation efficient way will be more expensive, so to say. That is one part. And then we know also that we are in different cycles in the property market. And number three also, we know that when you get a really big volume in the lending market or the funding market, you could say that there is some bottlenecks in the Swedish system, which means that you have to get a lot of more tools in the toolbox.
And if you put all those together, I think that the LTV of where we are today is, you could say, a comfortable level to be on. And then you can see how the world around us will develop. Then we can have a good starting point to choose which direction we will move the LTV. We are very comfortable where we are now.
Thank you. Next question, please.
Thank you. Our next question comes from Jamie McDevitt of Kempen & Co. Please go ahead. Your line is open.
Hi. Thanks very much.
Oh, we lost him.
One moment, Jamie.
Yep.
Maybe we could take another question while.
I'll move through to the next question. I think Jamie's been disconnected. I'll move to the next question, which is from Jan Ihrfelt of Kepler Cheuvreux. Please go ahead. Your line is open.
Did you see a fast increase in price of building rights in 2017? The second question is if the planning process for commercial building rights will speed up a bit. Maybe one could assume that more building rights will come out to the market. Does this have any impact on prices for commercial building rights 2018 and going forward?
I think that yes. Yes. We saw the effect on the building rights, commercial building rights, absolutely. And then the change is, of course, upwards. And we was competing, for example, that's official for the Globen area. And there you have an indication of where the pricing should be. But the square meter is the one. But if you look at that, you could end up in the conclusion that the commercial part of the assets is somewhere between SEK 14,000 to SEK 16,000 a square meter BTA, building technical area, simply.
But then the volume is not negotiated. So that could be the worst case for Castellum to give you one example. And of course, that's one of the top levels that we have moved during the last year from SEK 3,000 in the Stockholm area to these levels. But of course, that has also been made possible because of the value changes in the project. Going forward, it's a lack of proceeding in some of the municipalities. And it's not all municipalities. It's some municipalities and especially bigger towns.
And then, of course, then you end up in Stockholm and Gothenburg. Then you will see some building rights coming out. But owners, I assume, will hold to them because we need to produce these office buildings. And the profit of doing that is great. So I can't see at this moment you will change the value of the building rights in the short term. I hopefully think that this will be the case during this 12 months that we'll see more building rights coming out. But I expect everyone to hold to the commercial building rights in the short term. I hope that gave you an answer on your question.
Yeah. Okay. Thanks.
Thank you. Next question, please.
Thank you. We have Jamie McDevitt of Kempen & Co back on the line. Please go ahead. Your line is open.
Hi. Thanks. Am I back online?
Yes, you are.
Great.
Welcome.
Second try. Just a question on the LTV. It seems about 10% of your debt is due to mature in more than five years. Is there any intention to change the duration and try to shift the duration of your debt maturities to be a bit more longer term? Obviously, the Riksbank is indicating that they'll be moving rates up. And as you mentioned on slide 20, it seems like the credit margins are starting to move out. So I'm just wondering if it would be prudent now to start to extend the durations and addressing the LTV a bit more longer term.
If you talk about the duration, you mean in the interest rate portfolio and not the credit portfolio? Just to answer the right duration, so to say.
Yep.
Yes. I could say that we are living in one tool to manage to get a longer duration in the interest rate portfolio to use in swaps. We have a situation here in Sweden with a negative interest rate and a Stibor floor in the bank debt, so to say, which means that if I do use a swap, I will pay both the short and the long term, both the short and the long leg in that swap because as long as I have negative interest rates, I must have funded up swaps at the tool. Which tool is still to use? The banks are not so keen on lending out fixed interest rate debt even if it's better now than before. You have the bond market.
When we are talking to investors, we like to ask about fixed rate lending from them. Some are keen on doing that, but the bigger part is still kind of lending out floating. That means that as long as we have a negative interest rate, the swap tools is harder to get. We are working on getting the maturity out but with different tools. On the other hand, there are not so big volume. That is the complexity in the market we are in right now. On the other hand, if the market interest rate, if the market interest rate is moving, we have another side in that we have this connection between the swap portfolio and the debt portfolio.
You could say that as long as the market interest rate is moving up towards zero, it will not affect the funding cost of Castellum. So when the market interest rate is going above zero, then, of course, you have another situation. But we are far from there now. So that is our reality to act in, so to say. And then if you go to the LTV level, I had that question before, and I don't know if you was disconnected then, but I said that where we are now, I still think that we are on a comfortable level on 47.
And we have worked that down by, of course, selling large portfolios in the end of 2016 and have discipline on how we are using our money. And then, of course, we have had the property values with us, of course, also. And the reason is many things. It's in the cycle where we are in the market and also preparing for getting more tools in the toolbox for the future and prepare for new tax legislation.
Got it. Thanks for the detailed response. But just one last, I guess, point of clarification. Just going back to slide 20 on the credit spreads, the credit margins moving out a bit on the medium-term notes for, I think it was the second half of the year. Can you give some color on the movements on that side?
It's not a big movement. It's just to give you a reflection. On the other hand, you always have year-end, you could say, movements in the market. That means that it's no big movement. It's no big movement, but it's trend. And of course, it was from very, very low levels. So I could say the autumn in 2017 was the lowest margin since the spring 2015 for Castellum. So it's no big impact.
Okay. Thanks very much.
Thank you very much. Next question, please.
No further questions on the queue so far. Once again, if there are any further questions, please dial 01 on your telephone keypads now.
I have one in the mail that I can take while we are waiting. That is from DNB Markets, Simen Mortensen. And he says, "Our NOI margin was in 2017 at 69%, up from 67% in 2016. What can you guide on NOI margins going forward? How much of the improvement relates higher rents versus the new assets?" I think that the NOI margin, to be honest, is a little bit cosmetic because one thing that has an impact on that, I used to say that you can start with some good NOI margin. I realized that you have to use it.
And with that, I mean that if you don't do any maintenance in your assets, you get really good NOI margin. So how much use on your maintenance will affect the NOI margin? And that can vary between different quarters and single year, of course, also. But with that said, you still also have the weather. So I say that from a Castellum point of view, you could expect around where we are or a little bit better. But if I should give you some guidance, stick to what you see in 2017. Thank you. Do we have any more questions on the line?
No further questions have come through.
Okay. Very good. Then I think we're ready to say thank you. And it was great having so many questions and such a great interest. So by this, we close this conference. Thank you and goodbye.