Good morning, everyone, and welcome to the earnings call for Castellum's Interim Report, January-September. This report will be presented to you by Henrik Saxborn, the CEO of Castellum, and the CFO, Ulrika Danielsson. You will also have the opportunity to join the Q&A session after the presentation. By that, I think it's time to start.
Good morning, everyone. This is Henrik. We will start by noting that the market in the commercial property sector in the Nordics is incredibly strong, and that can be seen in the results we will go through today. So if we start with the net leasing, it remains high. We have a total net leasing of SEK 157 million, excluding the two largest contracts that we have signed during this period. That's with the government and also with the E.ON headquarters in Malmö. I'll be able to come back to that. We have increased the rent levels. In prime Stockholm location, we have noted in our portfolio an increase of around 20% last year. And in the total Castellum portfolio, the like-for-like increase over the 12-month period was approximately 5%, with 3% stemmed from rent increases and the rest come from reduced vacancies.
The vacancies, then, are slowly dropping, and the occupancy rate in the portfolio is right now 93.1%, another record. Actually, for Castellum. Then we're coming into the values. Our portfolio has assessed upward during the period for 4%, due primarily to lower yields in the market and also, of course, better cash flow. So the average valuation yield is being now approximately 5.3%, and you should also note that the logistic part of the portfolio has increased in value by 9% during this year. And on top of that, we have all the project opportunities that arise because of the high demand for modern and efficient office spaces.
In Malmö, Castellum has taken the leading role now of expansion in the most central parts of the development area in the town, and we are now then creating the two largest office spaces, approximately 50,000 square meters, in the coming years. During the last quarter, we have not only contracted more space for future developments, we have also increased the pipeline for more projects to come, so to call it. Before we're going in deeper to the results, I would like to give some heads-ups around the three news we launched in the last report: the Nordic platform, the logistics focus, and the coworking platform. All of this proceeds according to plan, and that means that we actively are looking now for new investments and especially focus on the Helsinki area.
On the logistics, we are now investing in logistics in the harbor of Gothenburg and north of Stockholm, and we'll be back on more regarding the organization of this part on the older portfolio at the year-end, approximately. The coworking concept, then, it's now under development and will be launched during the beginning of next year, and we will come back to that, simply. But then I think we can dig into the results, Ulrika. So the next slide, please.
Yes. And if we summarize 2018 so far, from a financial point of view, we can say that we have continued growth in income from property management with 13%. Strong cash flow growth together with value uplift creates an increase in NAV with 18%. We have a good investment space of roughly SEK 3 billion, of which SEK 2 billion is from constructions. We do have a good net leasing of SEK 157, and as Henrik said, that does not include E.ON and the new Swedish National Courts Administration in Malmö, which together stand for SEK 146. So if we take that into account, the net leasing is around SEK 300 so far this year. And lowered financial risk expressed as a decline in LTV to 46 and an increase in ICR up to 451. So we're on the next page looking into the P&L.
The third quarter this year, Castellum delivered the strongest result in absolute amount due to good cash flow and a strong property market. That means that the increase from property management with 13%, the story is the same as previous quarter this year. It's due to a good rental market, a good net leasing mainly last year. Completed projects together with lower funding costs create this growth. Then we do have a value uplift of roughly 4% due to strong cash flow, project gains, but mainly lower yields. The last one is driven by properties in the segment public sector and logistic warehouses. We do have a positive change in derivatives due to increased market interest rates and finally taxes of roughly SEK 500 million, of which almost everything was deferred taxes.
So if we dig even deeper into this, on the next slide, we have the contribution in the NOI that increased with SEK 234 million or 9%. That was made by the increased income of SEK 274 million, and however, it was mitigated a little bit by a small increase in cost with SEK 41 million. The growth in like-for-like continues to be strong with a contribution of SEK 142 million or roughly 6% of the 9% growth. The main 3% mainly is a contribution from the development portfolio. So if we go to the next slide and start with the income stream and rental market, on the next page, we can see that the rental market, as you know, has been strong, and that together with the hard work made by the organization in letting and renegotiation is the reason for the like-for-like growth of 5.1% apart from index.
And if you split that into different parts, you can see that 3.3% come from increased rental levels and 1.6% from lower vacancies, and then we have the lump sum that makes 0.2%. So a good job and a strong rental market. But another value-creating part is development. So if we add that to the like-for-like growth, the total growth is 8% in our portfolio, and then we do have a mitigation due to the transaction part that has sold more cash flow than bought. So if we, on the next page, then go to the market.
Yes. As Ulrika mentioned, I mean, the headlines for this is, "No big changes, strong market." The market of offices is still the same situation as for three months ago. Worth noting is that it's nothing that speaks for any weaknesses in the rental market right now. On the contrary, the market vacancy rate goes down, and the rents continue to increase due to the fact that it's still that we have a supply problem in the office market, absolutely in the Swedish market, so to say. You can also see that it's a lack of good central-located office space also in Helsinki. The same applies to all markets, and it's going ahead. I can't see any worries on the short-term basis on the rental side.
And if we go to the next slide and looking at the logistics market in the same way, we have showing the slide for the last month. Now what is the last report? And what this shows is that the gray line is the expectation from the appraisals in the start of the year on the rental side, and the dotted line is the expected yield from the appraisals. What we can see is if you look at the high-quality products that we have, and especially on the last mile, that we have been able of signing contracts that are in much, much better levels than that was expected and also was in our books for this year. And looking at the yields yet on the dotted line, you can see that the average yield for our logistics portfolio is today approximately 6%.
But looking at the market development during this period, that actually the yield has gone down. So we see still a portion of potential in the yields as well as in the markets as well as in our portfolio. And this is Stockholm, so we can do the same. And looking at Gothenburg, on the next page, please. So you have exactly the same figures for Gothenburg, and you can also see that we are above the line from the appraisals on the rents. And here we have a situation where there's a really lack of logistics space connected to the Gothenburg harbor. That is the biggest port in the Nordics, and we are 100% leased out on that port. And we can go to the next slide, please. And going into this curve, you can mistake yourself and think that this is a weakened rental market. It's not.
It's two things that's extremely important to note, and Ulrika mentioned it already. I mean, we have two agreements that's not in the figures. If we include them, we end up with SEK 303 million as a net leasing compared with last year's SEK 251 million at the same time. You will also note that it's more and more important for us, of course, on the project part of the portfolio. But if we look at the next slide, we will see how this is divided into different regions. And we can, first of all, conclude that every region has a positive result. It's actually more or less the same if we look at isolated this quarter. The plus surplus for each region is approximately around SEK 6 million-SEK 8 million each.
If you look at the aggregated figure, the winner so far is still what we call the central region, existing of six very strong local or mid-sized towns. But this is a positive situation going forward, and all of the portfolio is giving us a surplus. Then we can move on to the next slide, please.
Yeah. Then we make a short stop at the property costs, and they increased with SEK 41 million, of which the main part is in OpEx. And that is due to a more snowy and colder climate the first part of this year, but also an extreme warm summer, which means more cooling, and more cooling means higher costs for electricity. So that is the explanation to this development. And if we go on the next slide, we do have another cost, and that is the funding cost or the interest rate cost. And as everyone has seen, the market interest rate has increased, and it's a lot of talk about that. However, I want to say it has increased from a very low level to still a very low level.
We think that the Swedish Riksbank will increase their rate interest rate with 25 basis points in December this year. However, we are uncertain if further increases will be made in the pace that the curve indicates. The gap between long and short interest rate has increased during this third quarter and was at the end of September roughly 110 basis points compared to 80 basis points at the end of June. If the Riksbank starts to increase the interest rate, we think that the curve, to some extent, can flatten for a while. Our main scenario here is, however, that the interest rate levels in general will be relatively low in near time, even if the volatility will increase.
So if we take that situation and then look at Castellum and our philosophy about duration, our policy regarding interest rate duration is an interval of 1.5 to 3.5 years. Castellum has been in the shorter interval, but during Q3, we have started to move upwards. Or in other words, we have prolonged the duration somewhat. You can see that the swap volume this quarter is roughly SEK 3 billion higher than it was at the end of Q2. I also want to say that we do not exclude further prolongation the rest of this year or the beginning of the next. So if we then go to the next slide, we have taxes, and not much has happened since the last time.
I just want to mention that Castellum does not pay much taxes, and that is due to that we do have tax losses carried forward to use of roughly SEK 1.3 billion. The new income tax legislation regarding interest rate deductibility, I just want to remind that it will not have any big impact on Castellum due to our strong cash flow, so to say, compared to the interest rate levels. On the next page, let us go through the property market. If we start on the next slide with the balance sheet, we can say it's strong with an LTV that still continues to go down slowly. At the end of this quarter, it was 46% despite high investment pace of SEK 3 billion and dividend of SEK 1.4 billion.
So this balance sheet gives an NAV of SEK 168 per share, which is a growth of 18% on a 12-month basis. And on the next slide, if we go on the portfolio, it consists of, like I said, used to say, not only different geographical areas but also different asset classes where our main focus is offices, public sector properties, and warehouse logistics. And the last one is 15% from a value point of view, but from a square point of view, almost 30% of the portfolio. And if we split that part up into two new parts, so to say, last mile and big volume warehouses, you can say that the last mile stands for roughly 30%-35% of that stock.
If you compare the valuation yield this quarter compared with the last quarter, you can see that it is two segments that have a low valuation yield. It's the public sector properties and the warehouse logistics that stands for the 10 basis points lower on the portfolio level compared to Q2. Let's talk about market on the next slide.
Exactly like Ulrika indicated, I mean, we have some yield corrections. But I would like to start with that this is an extremely liquid market. Looking at especially the Swedish one, we have transactions now under SEK 3 billion done this three quarters. It's actually 296 transactions done. At this time, if we compare it with last year, then we had SEK 99 billion done. So it's an extremely strong and liquid and transparent market. The yields here, we have corrected or changed the one in Gothenburg and Helsinki compared with last quarter. But I will indicate that it's a pressure downwards or stable in the market right now, and especially for dry assets, long contracts, we have extremely strong demand from international as well as national investors.
If we look at the same way on the next slide on the logistics market, this has been a dramatic change in the Swedish and Nordic sector. We're showing the Swedish one here, but this is the same more or less in the Nordic side. Especially Sweden, you see the yields drop. We have indicated 5%-5.2% yield, and that's happened the last nine months. We see deals done under 5%, so we are actually cautious when we're writing. We have about 5% on the yields. What we can have done that affected our portfolio, as we said, we have increased the value with 9% in our existing portfolio. I can't see anything else than this will continue, and it's driven by a huge demand from abroad, especially. Then we can go to the next slide, please.
Here we have, and then moving to the logistics, we are showing you what's going to happen in the central part of Malmö. As we said, we can see that this is where Malmö Central is going to develop. We are the first development that's going to be built. And here we're going to then invest in 50,000 sq m, approximately SEK 2.3 billion for the Swedish courts as well as E.ON's headquarters. And this will continue, and we are calculated to be done, and they will be moving in in 2021. But if you look at the next slide, you can see that we actually have a bouquet of different products that are planned or under production. And if you look at the average yield on everything that's ongoing and that's in the report on the large one, we have an average yield of 6.8% on total cost.
Of course, that's extremely interesting because that gives us a historical good difference from the market value. It gives us approximately 175 basis points-200 basis points from the market yields. As I said from the beginning, this is not the only thing we do. We have a fantastic pipeline going forward, and it's also increasing right now. We can go further, please.
And then today, the last market, the credit market. So if we go to the next slide, we say that Castellum experienced good access to funding within the banks as well as in the bond market. The margins are stable. And however, we think, and I think I mentioned that in Q2 presentation, that the trend that has been in the Eurobond market with increased margins will have a little bit bigger impact on the Swedish bond market the rest of the year. And if we go to the next slide, Castellum has during this year focused on putting out new bonds on the Swedish bond market to a volume of roughly SEK 4.4 billion, and then repayment has been made of bonds during the same period of roughly SEK 1.5 billion. So that means that at the end of September, the outstanding volume was SEK 17 billion.
Further, we have reduced the volume of secured debts within the banks by SEK 6.5 billion, and we have borrowed unsecured debts within the EIB of EUR 75 million. In order to prolong the capital duration and make the terms and conditions better, Castellum has negotiated bank agreements of roughly SEK 7 billion, and further volume is ongoing at the moment. We are aiming in the near time to set up an EMTN program in order to increase Castellum's financial flexibility and give us a tool to reach bigger shares of loans with a longer capital duration on an unsecured basis. That is a summary of the activities on the funding side so far this year. On the next slide.
More that will happen. To give you some guidelines, we will continue development and reposition the portfolio. We will focus even more on logistics. We will definitely create a new coworking business. We will increase the project portfolio, and short term, we will deliver a cash flow growth that at least is in line with our objective for the company. Thank you much.
Okay. Thank you for the presentation, Henrik and Ulrika. I think it's time to move on to the Q&A section.
Thank you. And ladies and gentlemen, if you do have a question for the speakers, please press zero one on your telephone keypad now. The first question is from Niclas Höglund from Nordea. Please go ahead. Your line is open.
Yes. Good morning. Niclas Höglund here. A couple of questions, if I may, firstly, on revaluation. We've seen that, well, revaluation on the assets has been sort of lagging your peers up until the first half, and now we can see some kind of catch-up effect. Would you agree with that, or is it better traction and the sort of lag from lower yields, more of an overall market that is also supporting your valuations? And then also in connection with that, what's the CPI assumptions that evaluators use now in 2019? Do we see some potential for the fourth quarter given the outlook for October to October CPIs? Thank you.
Okay. I will try to get all your questions. Let's start with the first one. I think it's actually the valuation you see in the isolated Q3 here is actually divided in different parts. It's, of course, to understand where the market is. And for us, it's to go get everything correct. And if you call that lagging, I don't know, but we always want to be certain before we're pushing something into the balance sheet. On the second hand, I think that it's still a moving market. We see pressure on yields. You see yields if you divide it into the absolutely CBD location, we've seen figures that we've never seen before. On the logistics side, the same. So I think the answer is actually still a moving market, and we try to cook up what's happening actually on the balance sheet side. And so that's that one.
CPI, it's a short answer. It's 1.5% on that one. Is that answer enough, Niclas?
Yeah, of course. And we will look after for a slightly higher number than in the October to October, I hope. If I may follow up on projects, you didn't talk much about we saw some small lease that was signed to Marsh McLennan in Stockholm Värtan on some of the platforms in the quarter. Could you elaborate on the rental level? Was it close to SEK 6,000 per sq m, which you were hoping for?
Yeah. Yeah. We're signing on the levels that we have indicated, 6,000 approximately. And we are also preparing for other vacancies in that area, and we are assuming at least 6,000 of them as well. And according to the project, it's a huge demand for space, as you know, but we are on the design phase of that project. So that may be going to take a little bit more time than you're seeing the signed contracts, but it's nothing to do with the market. It's the other way around, actually. But yes, we're signing on 6,000.
A follow-up on that because previously, you mentioned that you sort of had the project booked at cost. With the sort of signing of leases, there could be a revaluation. Has that taken place already in the third quarter, or do you need sort of a higher utilization in the property before you want to sort of adjust for the property values?
That is a good question. So far, regarding this project, it's still no project gains in the balance sheet, so it's still at costs.
Okay. Excellent. A final question on Domstolsverket or the Swedish Courts Administration in Malmö. When I try to do the math, I get to 5.5% yield at cost, which is pretty attractive. But could you elaborate also on the rental level? Is it indexed from here, or is it sort of the level it will be from 2021?
Yes. I mean, it's indexed, and this has index clause that are negotiated, and so you can calculate with an indexed contract.
But yes, to clarify, so it's indexed. So if we will have, well, 1.5%-2% index for this year or for next year and also for 2020, the appropriate amount will then increase accordingly. Yeah.
Yes. Good.
Super. Thank you very much.
And next question is from the line of Tobias Kaj from ABG. Please go ahead. Your line is open.
Yes. Thank you. I would actually like to continue at the same project with some questions. And first of all, when do you expect to be able to start the production, and what kind of permission do you need to be able to start?
The planning process is long gone, and we need building permission for the court to get started. To start, depending on how long that will take, we will, of course, we expect to start 2019 and be finished 2021, two years production time.
When you receive the permission, will that also enable you to start more projects, or is that permission related solely to this project?
The permission that gives us only permission for us to start this project, but we are also, of course, buying the land from Jernhusen at that time. We don't own the land right now. At that time, we also acquired the land from Jernhusen in that calculation.
What's the price for the building rights that you pay?
That will not be in public.
Okay. And is the E.ON project, is that waiting the same permission, or is that a different?
That's another zoning plan that's ongoing on that other side of the street. So it's not the same procedure.
Okay. Is that also expected to start next year?
Yes. 2019 and finish 2021.
Niclas indicated a yield on cost of roughly 5.5%. Is that something you can confirm?
I think it feels it's a little bit low. No, I should say that we are somewhere between six and his indication.
Okay. Given that your LTV is gradually declining, do you expect to be net buyer of properties in coming quarters?
No. I think that we will see a turnover in the portfolio that we will keep or hopefully lower actual LTV levels going forward for the next phase. So yeah, you will not see incredible change on the LTV levels, but hopefully, you will see a portfolio moving.
Okay. And in terms of value revisions, can you mention the split between office, public properties, retail, and logistics? Is the uplift similar in the different segments, or you mentioned that yields were coming down mainly for public properties and logistics. Is that also where we see the largest value uplifts?
Yes, that is true from a percentage point of view, but an absolute amount of office parts is bigger in numbers, so to say. But I think that the guidance I gave you on the yield shift gives you good guidance on the bigger parts from a percentage point of view.
Okay. From a geographical point of view, is there big spreads between the different regions in terms of uplifts from a percent perspective?
Yes. It is. Yes, it is. It is. And you have a bigger uplift in Stockholm compared to the Öresund region.
Okay. Thank you. One final question regarding your tax situation. You have consumed roughly half of your loss carried forward this year. Is it a risk that from 2020, you will start to pay a significantly higher amount of pay tax, or will you be able to maintain at the current level for many years?
I think what you can see is that one impact on our tax losses is how the derivatives move. So if the swap value in the derivative portfolio disappears or you have positive changes in value, that will consume tax losses, so to say. So I think that if you take that away and look at a normal earning pace, we could have tax losses for maybe one, one and a half year more from now. From that point of view, I think that you for Castellum could calculate with an actual or efficient tax paid of roughly 7%-8%.
That's after one or 1.5 year, or?
Yes, unless the derivatives doesn't go skyrocketing.
Yeah. Okay. Thank you very much for taking my questions.
As a reminder, if you have any questions for the speakers, please press zero and then one on your telephone keypad now. We have a question from the line of Erik Granström from Carnegie. Please go ahead. Your line is open.
Thank you. Good morning. I have one question regarding the financial costing in Q3 in particular. I noticed that the average interest rate going out of Q3 was 2.1%, which was the same one as at the end of Q2. However, the average interest rate for the period was also 2.1% for the first nine months, whereas it was 2.3% in the first half of the year. Ulrika, perhaps you could tell us a little bit of what happened during Q3 in particular in terms of your interest costs because they also dropped substantially between Q3 and Q2.
You can say that we have done a good job that was within negotiations and so on that was in the ending of the 2.1% as of 13th of June, but you didn't have that so much in your P&L numbers, so to say. So that was good to have a catch-up with us in the Q3 isolated. And then also, you have one number that can have an impact on not so great impact, but can have some impact. And that is, to be honest, how much of your funding costs that can be capitalized in your project volume. So that was a little bit better this third quarter, but of course, it's not a big number. So that is some of the explanation.
Okay. Good. Just to follow up there, that means that we could still look at your sort of average at the point of ending Q3 and then make our assumptions regarding the size of the credit portfolio going forward, I mean.
Yes. And made an indication of if we want to prolong the duration in the interest portfolio.
Yeah. Absolutely.
Yes.
Okay. Thank you.
We currently have no further questions registered, so I'll hand the call back to the speakers. Please go ahead.
Okay. Then if we have no further questions, we'd like to thank you all for joining today. Wishing you a great Wednesday. So take care. Thank you, and goodbye.