I would now like to call over to Johan Dernmar, Chief Investor Relations Officer, to begin. So please go ahead when you're ready.
Good morning and a warm welcome to this presentation of Diös year-end report for 2024. Today we have our new CEO, David Carlsson, who will present the result together with our CFO, Rolf Larsson. My name is Johan Dernmar, and I'm the Chief Investor Relations Officer. After the presentation, there's an opportunity to ask questions. Please listen for instructions on how to register your question, and we'll do our best to answer. Thank you for your engagement. I'll leave the word now to David.
Thank you, Johan. This is my first interim report as CEO of Diös , and I have really been looking forward to this moment since it was confirmed that I would take over as CEO last summer. I started on January the 1st and have since gotten to know the company and my new colleagues. I have traveled to our cities and reviewed our property portfolio. With my experience from previous workplaces, 20 years' experience, I'm well acquainted with regional cities in northern Sweden and their dynamics. Leading a market-leading real estate company in growing cities is something I truly look forward to, and I'm determined to create growth for the future. Looking back at the results for the fourth quarter, I can state that it was a good result considering transaction and one-off effects.
The rental market in northern Sweden shows resilience, and the margin of increase in vacancies is a result of completed new production, both in our own portfolio and in the market generally, which has raised market vacancies temporarily, and this is not surprising to us, as it has been known for a longer period. Access to financing remains good, and we see lower interest rates and lower margins during the quarter. With continued rate cuts from the Swedish central bank in the first quarter, we see that the marginal cost of debt is lower than the average cost of debt in the portfolio. Property values are somewhat positive, and we see a marginal adjustment in the yield. The transaction market has picked up, and we see several deals being completed, which is positive and proves the value we have in our books.
I will return to the outlook at the end of this presentation, but what I can state is that there is a significant difference between different markets. We see that our cities in northern Sweden have a good development with continued stable or rising rental levels and underlying growth. To highlight some specific events during the quarter, I would like to mention transactions, completed new production, and the board's proposal on dividend and the nomination committee's proposal for the upcoming AGM regarding Chairman and a new board member. During the year, we have divested 45 properties for almost SEK 1.9 billion, while acquiring nine properties for approximately SEK 1.1 billion. This combination makes the result for the fourth quarter difficult to compare to the same quarter last year. The transactions in isolation affect rental income by minus SEK 24 million. Regarding the rental market, we experience stable development despite our vacancies increasing slightly.
This is entirely according to plan and something we have known about for a longer period. For example, we have completed a new office for the Social Insurance Agency in the property Biet 4 in Luleå. There, the Social Insurance Agency is leaving our premises in another of our properties, which results in an increase in vacancies. We see this development in our portfolio as relatively short-term and expected turnaround in vacancy development already in the second half of 2025. Recently, the nomination committee's proposal for the board and Chairman for the 2025 annual general meeting was presented. It is clear that the current Chairman, Bob Persson, declines re-election both as Chairman and as member. Bob has been on the board since 2007 and has been Chairman since 2011. The nomination committee proposes Per- Gunnar, also called P-G Persson, as the new Chairman.
As representative from the largest owner, AB Persson Invest, the current CEO, Björn Rensmo, is proposed as Vice Chairman and board member of the Diös Fastigheter AB. It is also worth highlighting that the board proposes a dividend of SEK 2.20 per share to be paid out on four occasions, while updating the current dividend policy. The new policy aims to increase predictability and enable further investments for growth. I now hand it over to Rolf, who will go through the results in more detail. I will return with a market overview at the end of the presentation. Thank you.
Thank you, David. Let's get deeper into the result outcome for the fourth quarter. Like-for-like rental growth is 1.6%, supported by indexation and rent reversion. The economic occupancy rate is 91% compared to 92% last year, which is good taken into consideration we have sold fully occupied residentials.
The operating surplus ratio for the quarter is down 6% to SEK 414 million due to one-offs regarding financial compensation for high electricity costs in 2023 and higher maintenance in 2024. We are pleased to observe that our daily efforts to optimize property management are resulting in increased energy efficiency, minus 3.2% for the full year. As we continue to invest in our properties to be more proactive and future-proof, we gather more evidence that properties with higher sustainability scores, such as lower EPDs and environmental certifications, are experiencing greater demand, higher rents, and increased value. Financial costs are slightly higher, primarily due to derivatives that have matured and restructuring of existing derivatives, which has led to higher short-term financial costs. We have had slightly positive value changes with valuation yield one basis point lower than last quarter.
We see that our transactions are made at book value, which supports our view that our property values are at fair value. Current tax is positively affected in the quarter used in accrual funds and negatively for the full year by withdrawal taxation in connection with property sales and non-deductible interest rate costs. Our well-diversified portfolio has strengthened the resilience of our top line. With 31% of our rental income derived from public sector tenants, we have a solid foundation for passing on CPI adjustments. We see that we can defend and increase our rental levels in connection with renegotiations and new lettings. Notably, 97% of all commercial lease agreements include indexation clauses, with 94% specifically tied to CPI. In line with our long-term strategy, we have increased the proportion of offices in our portfolio by primarily divesting residentials and acquiring centrally located offices. Like-for-like rental growth was 1.6%.
As David said earlier, we have slightly higher vacancies during the quarter and in the first half of 2025. However, we continue to experience strong demand for premises in central locations and expect a positive development of vacancies in the second half of 2025. Despite a slower overall economic sentiment in Sweden, we see great potential in our rental growth, both when it comes to rent reversion, the continued increased occupancy rate, and modern new builds. We're seeing an increase in peak rent levels in our new leases, which in some cases approach 3,500 per sq m. These rent levels are being reached in our strongest cities, which have been impacted by investments in the green transition. As a market leader with local management and being in a company with strong cash flow, we have a competitive advantage over many other real estate companies in our cities.
Net letting has been positive in 22 of the last 24 quarters, including SEK 10 million in the last quarter, where full-year net letting amounts to SEK 32 million. We see increased activity after summer, with Umeå and Luleå leading the way. With the economic outlook improving and interest rates decreasing at the beginning of this year, I anticipate increased activity. The underlying market remains incredibly strong, and there is a significant demand for the right premises in prime locations across northern Sweden. The market value of our properties amounted to SEK 31.4 billion. During the quarter, we have invested SEK 232 million in projects, and we have acquired seven properties for SEK 965 million and divested five properties for SEK 281 million, which was announced in June 2024. 91% of the property portfolio has been externally valued in Q4, which has resulted in slightly positive unrealized value changes of SEK 19 million.
During the last quarter, we have seen an increase in investment activity. We also see that property yield and market values have stabilized, and our assessment is that yield adjustments have reached a peak, and the average yield was 6.14%, which is one basis point lower since last quarter, and with an interest rate of 4.3%, we have a yield gap of 1.7% and thus a continued strong cash flow. As I said earlier, we have invested SEK 232 million in tenant improvements, property improvements, and new builds. Yield on cost on completed projects during the period, excluding project properties, amounted to 9%. There is low risk in our major projects where pre-let is a requirement, and most of the rental income comes from tax-financed operations. All new commercial projects are built according to BREEAM, at least level very good.
We currently have around 16,000 square meters under construction, with a total investment volume of SEK 610 million, where remaining investments amount to SEK 260 million. All our ongoing projects are proceeding according to plan, both in terms of cost and time. And in addition, we have around 200,000 square meters of existing or possible building rights, where we see great potential for further value creation. These will be used for both our own development and disposal. And 50% of the buildings refers to commercial premises and the remaining 50% to residential. As I said before, we have slightly higher financial costs in the quarter. The reason is that the derivative with zero interest has expired and the increase in debt resulting from the acquisition of properties in Gävle and Luleå. This has affected this quarter's financial cost with a total of SEK 9 million.
As we have mentioned before, we have had a strong focus on reducing our interest hedging ratio. We have therefore terminated derivatives with higher STIBOR fixing in advance and lowered our hedging ratio to 71% compared to 85% in Q3. The termination has led to a negative impact in Q4, but will have a positive impact on our future interest costs. During the quarter, we have refinanced a bank loan of SEK 566 million, and we have issued bonds corresponding to SEK 200 million and at the same time redeemed bond maturities corresponding to SEK 70 million. This means that in the next 12 months, we have additional loan maturities, excluding commercial paper, of SEK 2.9 billion, which corresponds to 17% of interest-bearing liabilities. We're actively working for a more prudent maturity profile with longer debt maturities.
Bank financing is and will be our most important source of financing, and we currently have 69% of our outstanding loans with banks. The proportion of bank financing has decreased since the turn of the year in favor of commercial papers and bonds. During the last quarters, we have seen a highly active Swedish bond market with high volume and lower margins as a result, and as I said earlier, in recent months, we have made issues of unsecured bonds, where we see a significant change in pricing. Today, a three-year bond has a margin of 160 basis points, which is 25 basis points lower than three months ago, and this also puts pressure on banks' lending margins, where the margin for a three-year bank loan is around 125 basis points, which is at the same level as in 2021.
Our average interest rate at the end of the period was 4.3%, which is 10 basis points lower compared to last quarter. The marginal cost of debt is now longer than our average cost of debt, meaning we have absorbed the increased interest rate. This will have a positive impact on our income from property management when refinancing and taking out new loans. We have divested low-yielding assets and used liquidity to amortize debt and thereby lowering our financial costs and improving our ICR and LTV. We have 69% of our financing in banks, SEK 2 billion in unused credit facilities, and a secured loan-to-value ratio of 40%. We will also add additional borrowing capacity through completed projects. This, together with good relationships with our banks, makes us feel comfortable about future refinancing.
We still have a conservative balance sheet approach, which reflects our commitment to financial prudence and risk mitigation. We have reduced our financial risk over time, lowered our LTV, improved net debt to EBITDA, and extended our interest rate fixing and debt maturity. During the past year, we have improved our financial key figures through divestments and a more cautious strategy regarding new major projects. And this, together with a strong cash flow and available liquidity, means that we now see opportunities for growth, which primarily means acquisitions and an increased volume of tenant adoptions. And as we mentioned earlier, during the last quarter, we have acquired centrally located office properties in Luleå and Gävle, cities where we expect good future growth. And yet again, I feel comfortable with our current financial position and action taken. Our strong cash flow with our operating expenses, committed CapEx, and further growth.
I will now leave the word back to David.
Thank you, Rolf. Despite the challenging macroeconomic landscape and some setbacks in the green transition, the fundamental factors for a green industrial transformation remain strong in our region. We continue to see significant investments from companies across various industries, positively impacting the growth prospects of our cities. Although many of these investments are in early stages and their effects on the cities are still limited, the future looks very promising. Just the other day, we received positive news from the government in Sweden. They have given the green light for the construction of the first major section of the railway line between Umeå and Skellefteå, known as the Norrbotnia Line. The Norrbotnia Line is crucial for the growth of northern Sweden, enabling more efficient commuting between cities and increasing freight traffic.
The long-term aim is to extend the railway line all the way from Umeå to Luleå. Currently, Umeå, Luleå, and Gävle are leading the way with rising rental levels and high investment pace. These are also the cities where we have focused our acquisitions over the past six months. When we look at the population growth, we see significant differences between various cities in Sweden. Population growth is a fundamental factor for economic growth and ultimately leads to rising rental levels. It is worth highlighting that many of our cities showed positive development even before the green transition. This indicates their effectiveness and the factors that make people want to live in and thrive in these cities. Umeå stands out as the city that has grown the fastest in Sweden over the past 55 years, which is evident in the city's activity.
New areas are being developed, the university is expanding, roads are being redirected, and the flow of people in the city center is increasing. Everything indicates that this development and growth will continue, with numerous ongoing urban development projects and many more planned. When we look specifically at the development and current situation in our region, we see high activity and growth that surpasses the rest of Sweden. The so-called gross regional product is growing fastest in our northernmost region. Unemployment is low in most of our cities, which means that our cities grow and companies demand labor. We need more people to move to our cities. The interest rate cuts implemented by the Swedish central bank are starting to have an effect on the Swedish economy. We anticipate increased activity as people have more disposable income, benefiting our cities' service sector, such as shops, restaurants, and other experience-based businesses.
Despite the weak macroeconomic development over a period, we continue to see rising rental levels, high inflation, and consequently high rent adjustments have impacted our tenants' profitability, but we have successfully renegotiated leases in all our cities at the same or higher levels. We see this as proof that market rent levels remain at these levels or higher. A clear trend we observe is that more companies are introducing rules and requirements for employees to spend a larger portion of their time working from the office. This is, of course, welcome news for us as a major office owner. We have not faced the same challenges as metropolitan areas, where a large portion of the workforce works from home. In our 15-minute cities, there is not the same dynamic with commuting challenges as in larger cities.
We are now seeing increased activity regarding investments in office adaptations, which is very positive. We're coming from a period of some hesitation from tenants, whether there has been significant uncertainty about long-term office needs. It is important to remember that these investment costs often do not justify changing offices, as the rent savings achieved are not sufficient since rental levels remain relatively low in our market. Our operations demonstrate stable performance. We observed significant resilience among our tenants throughout the recent economic cycle, with relatively few bankruptcies and rent losses. The real estate market in general also shows stability, with property values being less volatile than in metropolitan areas. Our cash flow is not only higher than in many other regions, but also more stable. Therefore, we believe that net debt to EBITDA is an important measure to evaluate our low financial risk in addition to LTV.
Over the past six years, we have only experienced negative net letting in two quarters. We find that tenants are less inclined to move in smaller cities where prime locations are fewer and alternatives are limited. Our property portfolio is concentrated in prime locations. This not only creates synergies between different types of premises, but also offers excellent opportunities for alternative uses and conversions. Offices that do not meet today's indoor environment standards can be converted into residential units, while retail spaces on the second floor can become attractive offices. With our rental levels, there are significant opportunities to make profitable deals through these changes, thereby maintaining a low vacancy rate. As Rolf said earlier, we are currently making very good deals through our adaptations and renovations. The yield on cost for ongoing investment is currently 9%, which in many cases also leads to an increase in value.
With an improved economic outlook, we expect the volume of tenant adaptations to increase. With new peak rental levels and low interests, it became profitable to start commercial new construction three to four years ago. This has led to an increase in market vacancy due to completed projects over the past year. Currently, there are very few new construction projects underway in our cities, which means we expect current vacancies to decrease in the coming years. We have some relocations to new constructions occurring in the first half of 2025, but after that, we foresee a turnaround. Regarding transactions, we will continue to refine our portfolio through asset rotation. We will continue to grow by acquiring properties with potential that complement our current portfolio in regions with the best growth prospects.
To maintain financial stability, we will also divest properties that do not belong to our core portfolio or where our development potential is limited. Despite a brighter economic future with lower interest rates and higher growth, we aim to maintain or strengthen our financial risk from this level. That said, we can temporarily increase our debt to capitalize on growth opportunities through acquisitions. In the long term, LTV should be between 45% and 55%. The other strength lies in our local presence, combined with the company's size, which creates economies of scale in terms of expertise, favorable financing conditions, and investment capacity. This provides competitive advantages few other companies in Northern Sweden have. However, we have not reached the ceiling in any of our cities and can continue to grow, especially in the cities with the brightest prospects. I believe in the development and growth of Northern Sweden.
The green transition has only just begun, and we have yet to see the effects of the NATO membership. Fundamentally, there is underlying growth driven by an active business community, forward-thinking municipalities, education, culture, sports, proximity to nature, and urban qualities. These are fantastic conditions for living a simple and sustainable life. I look forward to continuing to drive the development of our cities based on each city's strengths, development that creates value for our tenants, for our cities, and of course, for our shareholders. Thank you.
This takes us to the end of the presentation. We are now ready for questions.
Thank you. If you would like to ask a question, please press Star followed by One on your telephone keypad if you have joined us on the phone, and if you change your mind, you can press Star Two to remove.
If you have joined us on the webcast today, you can ask your question online also. We'll pause here briefly while questions are registered. We have a question from Albin Sandberg with Kepler. Please go ahead when you're ready.
Yes, hello, and good morning. I had a couple of questions, and I start off with a change dividend policy. One, if you just could clarify, I think you're now saying around a third of the income from property management. I took it that before it was around half of net income, that excluding value changes. So I don't know if there's a tax impact to look at, but that's the more technical part of it.
Then just the overall message that you're sending, that I take that you lower your dividend assumptions or dividend ambitions, I would say, and whether that is a way to fund growth or is it because you're looking for continuing strengthening the balance sheet, and if I got that message right.
Yes, hi, Albin. This is Johan. Yeah, you're correct on your assumption. It's to fund further growth. So there's a bit lower, if you compare the new dividend policy to the old one, that we lower dividends somewhat, but that's only to that we see more opportunities in the market to invest for further growth. And also to add on, we try to make it more simple for the shareholders to look at the income statement and see how much the dividend will be instead of, like you said, deducting tax and effects from realized value changes.
Okay, that's clear. Thank you. And then I wonder, you state some extra costs in the net finance for Q4, as I understood it, because of the derivatives changes and so on. Could you quantify how much that is?
Rolf here, if we look quarter three to four, the derivatives is SEK 4.5 million, and the increased debt when we bought properties in Luleå and Gävle is around SEK 4.5 million, so SEK 9 million in total.
And then my final question was around your comments on the net letting and maybe occupancy situation that I understood you're guiding for a little bit better or stabilizing levels in H2.
I wonder if that's because of leases that you know about already now that will take place during H2, and also whether there are any, let's say, potential tenant departures due to upcoming rental renegotiations that you feel happy with or that one should know that there is a bit of risk or there is very low risk this year just to get the full picture for 2025 and what you're saying?
It's David here. The explanation is mostly in the projects that we are finishing in the coming years. There are vacancies now, but we're going to get income from it beginning in the second half of 2025. That's the explanation. It's three big projects that we're moving around tenants and getting the rents up, but it's going to take time before the money comes in.
So you can see in the net letting, it has been positive during all of the year, and that's the guidance.
Yeah. And are there any sort of upcoming rent renewals that you share a little bit extra, or is it more business as usual as any other year?
It's business as usual, and in a positive way. We see that in every turnaround with tenants, we really get the rents on the upside and good returns on the projects. So for us, it's good news, but now in two quarters, we're going to see the numbers going down, but then we're going to see a turnaround, so it's expected. Okay.
Thank you very much. That's all for me.
Thank you. We have Ventsi Iliev with Kempen on the line now.
Hi, good morning. Just one quick question for me.
On the like-for-like rental growth, I see it came at 1.6%, and I understand that part of the change is because you adopted the new definition, but still, versus indexation, it is also quite a bit weaker than previous quarters. So I was hoping that you could explain some of the differences versus the previous quarters.
Yes. Hi, Ventsi. It's Johan. Just to clarify, there's no new definition on the calculation for like-for-like growth, but there's a revision of the Q3 number due to miscalculation from our side. So that one was 3.6% instead of the last reported 6.5%.
But the explanation of the lower like-for-like is related to what David mentioned around finalized projects in our portfolio, but also in the market, that we've seen companies moving from our existing premises to newly built premises, which creates some vacancies in the wake, but also tenants moving to other new projects that have been finalized in the market. For instance, the municipality of Östersund has moved part of their employees back to their main headquarters where they were located in our premises before. So that's something that we've known about for quite some time, and it's also reflected in the net letting looking back. So to sum up, yeah, the like-for-like for the quarter is lower, but it's mainly due to new finalized projects.
As also David stated, the rental market still shows good resilience, and we see that we could defend or even increase the rents from current levels when we renegotiate or we find new tenants. The rental market is still strong, but the like-for-like figures for this quarter are on the low side.
Okay. Maybe just one follow-up question. Do you expect this trend to continue, or would you say that all the recently completed supplies now fully left? Maybe as an add-on to that, do you expect to beat indexation in 2025?
I would say that there is some move-arounds in the first half of 2025, but looking back on the economic developments the last couple of years, there's been no new production started.
So when we come out on the second half of this year, there's no new square meters being finalized in the commercial market in none of our cities. So we have a couple of more quarters where we see that the market vacancy could increase somewhat, but there's maybe one or two projects in one or two cities, so there's no major impact. But looking at the second half of this year, we expect a turnaround on vacancies in H2.
Okay. Clear. Thank you.
Thank you. Just a quick reminder that you can register to ask a question by pressing Star followed by one if you have joined us on the phones. Otherwise, you can ask a question on the webcast today. A final reminder that you can register a question by pressing star one. Otherwise, you can use the webcast today.
I would like to hand it back to the management, as I can confirm the Q&A has now concluded, and I'll hand it back to management for some final comments now.
Thank you. And thank you all for listening in. We are, as always, available for questions afterwards, so please reach out if there's any questions. Thank you, and have a great day.