Good morning, all. Good afternoon, all. A nd welcome to the Diös year-end report. My name is Adam, and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad if you've joined us via the phone. Text questions may also be submitted via the webcast. I will now hand the floor to Johan Dernmar to begin. Johan, please go ahead when you are ready.
Good morning, everyone, and welcome to Diös year-end report presentation for 2025. My name is Johan Dernmar. I'm Chief Investor Relations Officer, and I'm joined today by our CEO, David Carlsson, and CFO, Rolf Larsson. Today, we will walk you through our performance of, for the Q4 , 2025, and highlight the strategic process that we made during the year. With that, I'll leave the word to David.
Hello, everyone. Let me begin with the most important highlights of the quarter. We delivered strong and profitable growth in income from property management, and we see increased leasing activity in our core portfolio. During Q4, IFPM increased by 16% quarter-on-quarter and 10% year to date, all in line with our new financial targets, underscoring the strength of our operating model and the resilience of our market. This growth is driven by higher earnings from completed projects, continued demand in central locations, and strong performance all across our portfolio. In addition, we took an important strategic step to further support long-term shareholder value. As announced recently, our board has initiated a share buyback program based on our strong and stable cash flows, a solid financial position, and the fact that the Diös share is currently trading at low levels relative to underlying value.
This strengthens our capital structures while fully maintaining our long-term growth ambitions. Operationally, the quarter was solid. Income reached SEK 669 million, supported by finalized projects and transactions. Net letting was slightly negative at -1 for the quarter. Despite two major terminations totaling -18 million, leasing activity remained robust overall, ending the full year positively of 3 million. The surplus ratio remained stable at 67%, normal level for a Q4 . Reported SEK 120 million in positive value changes, thanks to strong new lettings. The divestment of the Åre portfolio for SEK 660 million at book value, again, confirmed liquidity and robustness in our markets. In total, we divested SEK 1.6 billion during 2025 at or above book value.
Financing conditions also improved, with our average interest rate declining to 3.9%, down from 4.3% last year. Altogether, Q4 confirms our trajectory of profitable growth, strengthened fundamentals, and disciplined capital management. Our occupancy remains at 90%, fully in line with the long-term historical average. Fluctuations are explained by strategic divestments or of fully let residential assets, affected by 1-2 percentage points, and temporarily higher vacancies fully correlated with newly completed projects. Property values remain resilient. Across our cities, valuation yields have consistently been around 6% for more than a decade. Despite changing market conditions, the yield gap remains positive, supported by rental growth. Higher yield requirements in some parts of the, of the market have largely, largely been offset by higher rent levels in our portfolio.
Currently, we are refinancing debt at 3.5%, which, compared to, to a valuation yield on 6%, gives an attractive yield gap and a strong cash flow. Overall, this slides illustrates the stable operational and financial platform that underpins our strongest growth, growth in income from property management. Then, over to Rolf.
Thank you, David. Let's get deeper into the result outcome. Rental income increased by 6%, and the economic occupancy rate was 90%, compared to 91 last year. The change is partly explained by completed new production, which has created short-term market vacancies, but also by the fact that as of December the first, we sold 6 fully leased properties in Åre, which had some impact on the occupancy rate in Q4, but will have full effect from Q1 this year. Our assessment is that market has bottomed out, and we see a more positive rental market going forward as demand continues to concentrate towards modern, centrally located premises where our portfolio is highly exposed. However, it's important to remember that it usually takes 6 to 12 months from the time we sign a lease before it generates your rental income.
Property costs are slightly higher compared to last year, mainly due to higher costs for heating and property taxes. All in all, this means that the operating surplus for the quarter increases by 6%... corresponding to a surplus ratio of 67%. Despite higher interest-bearing liabilities and lower capitalized interest on CapEx, our financial costs are SEK 9 million lower compared to Q4 last year. The explanation is partly that Stibor is lower, but also that we have renegotiated a large part of our loans at lower margins. Income from property management increased by 16% for the quarter and by 10% for the full year. We have had slightly positive value changes regarding properties, and I will come back to this later. Our well-diversified portfolio has strengthened the resilience of our top line.
Like for like, rental income in Q4 increased by 1.4%, and with 32% 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. 98% of all commercial lease agreements include indexation clauses, with 95% tied to CPI. With the increase in GDP growth and upcoming tax breaks for individuals, we are optimistic about the economic outlook for Sweden. We see potential for rental growth through rent reversions, increased occupancy rate, and by creating modern, efficient offices in prime locations. As the market leader with local management and being a company with strong cash flow, we have a competitive advantage over many other real estate companies in our cities.
Net letting for the full year is positive, while in the quarter, it's marginally negative at SEK -1 million. As David said, the reason is two major layoffs, a cold storage and freezer warehouse, and a school, both in remote locations, which affected net letting by SEK -18 million. We have a low tenant concentration risk. Our 10 largest tenants account for 20% of our total rental income with a WALT of 5.1 years, and the WALT for the whole portfolio is stable 3.4 years. We continue to see a strong trend that tenants are looking for attractive locations, and that the willingness to pay is high for modern and efficient premises. Vacancies are much lower in central locations in our cities where we are well-positioned, which means that the resilience of our portfolio is high.
Currently, we have several dialogues underway with existing and new tenants at good levels. The market value of our properties amounted to SEK 32.5 billion. 92% of the property portfolio has been externally valued in Q4. The unrealized value changes in the quarter amount to SEK 120 million as a result of value creating lettings and profitable conversions. The average yield was 6.10%, a decrease of 4 basis points from the previous quarter. The change in yield is partly affected by our sale of Åre, but also by a general adjustments of yield requirements in our strongest markets, Umeå, Luleå, and Gävle, due to increased cash flows and increased quality in our property portfolio. We see that our divestments are made at book value, which supports our view that our property values are at fair value.
During the quarter, we have invested just over SEK 300 million in tenant adaptations and new builds. There is low risk in our major projects, where pre-let is a requirement, and most of the rental income comes from tax finance operations. All our ongoing projects are proceeding according to plan, both in terms of cost and time. We currently have around 26,000 square meters under construction, with a total investment volume of SEK 850 million, where remaining investments amount to just over SEK 400 million. In addition, we have around 310,000 square meters of existing and possible building rights, where we see great potential for further value creation. 50% refers to commercial premises and the remaining to residentials.
Going forward, we will prioritize tenant adaptations and, in addition, new builds where we have stable tenants and long lease agreements. By year-end, we had loan maturities over the next twelve months of SEK 2.9 billion, which corresponded to 17% of interest-bearing liabilities. Since then, we have refinanced a total of SEK 1.5 billion maturing in June this year, as well as an additional SEK 1.1 billion that matures in 2027. This also means that we have extended our debt maturity from 2.6 to 2.9 years, and we're actively working for a more prudent maturity profile with longer debt maturities. Our average interest rate at the end of the period was 3.9%, and the trend of lower interest rate continues as the marginal cost of debt is still lower than our average cost of debt.
This will have a positive impact on our income from property management when refinancing and taking out new loans… Bank financing is and will be our most important source of financing, and we currently have 63% of our outstanding loans with banks. We have a very good dialogue with all our banks, and they are clearly willing to join our growth journey and offer us good terms. The margin on a three-year bank loan is currently around 115 basis points. With three-month Stibor at 2%, it means a total interest of 3.15%. If you compare that with our average yield of 6.10%, it means a yield gap of nearly 3%, and thus a continued strong cash flow. And the margin on a three-year bond is currently around 140 basis points.
As I said, we have 63% of our financing in banks, SEK 2.3 billion in unused credit facilities, and a secured loan-to-value of 37%. 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 have a conservative balance sheet approach, which reflects our commitment to financial prudence and risk mitigation. During the past two years, we have reduced our financial risk and improved our key financial figures through the investments and a more cautious strategy regarding major new projects. The average interest rate continues to decline, and we are strengthening our balance sheet through strategic transactions while cash flow is growing. The loan-to-value ratio amounts to 52.5% and net debt to EBITDA to 9.8 times.
The strong cash flow and a strong balance sheet means that we have room for both new investments and share buybacks. Yet again, I feel comfortable with our current financial position and action taken. Our strong cash flow will serve operating expenses, committed CapEx, and further growth. Now, I will now leave the word back to David.
Thank you, Rolf. Northern Sweden continues to offer exceptional conditions for long-term economic growth, driven by a combination of structural advantages: abundant hydropower and wind power with really low electricity costs, large areas of available land, a cold climate that supports energy-efficient industrial production, and stable institutions and governance. Also, strengthened security conditions following NATO membership, which is driving investments reachable for Sweden with so low national debt. Combined with attractive 15-minute cities, green industrialization, electrification, forestry, data centers, and military investments, the region is undergoing one of the strongest transformation phases in Europe. This environment is fundamentally positive for us. It supports sustainable rental growth, high tenant demand, and long-term value creation.
During the quarter, we finalized two essential projects: Biet 7 in Luleå, a new production of a modern 5,700 square meters office property, and Kraften 12 in Umeå, a conversion into a centrally located 2,500 square meter hotel property. Annual rental income from these two projects amounts to SEK 22 million. We invest in centrally located properties with strong tenants and no speculative developments. All our projects are delivered to BREEAM standards of Very Good or higher. These investments strengthen our range and enhance our platform for profitable growth. We have renewed a 10-year lease with Region Jämtland Härjedalen for the Frösö Hälsocentral, covering approximately 3,500 square meters. The agreement includes significant property upgrades to enable modern, sustainable, and efficient healthcare operations, strengthening one of the region's key care hubs in the growing Frösö Strand district.
Yield on cost is approximately 8% for the SEK 46 million investment. We also signed a 15-year lease with Evidensia for a new modern veterinary clinic in central Gävle in a today vacant premise. The long-term establishment enhances the local service offering and aligns with their strategy to attract strong, community-focused operators to prime urban locations. Investment for this tenant is SEK 24 million at a yield on cost of 9%. The agreement with Member 24 in Gävle demonstrates our approach to transforming less desirable retail spaces into gyms in prime locations. We have signed a 10-year lease supporting it with a SEK 9.5 million investment at a yield on cost of 12%. During the quarter, we were appointed a 15-year lease agreement in Sundsvall with the Swedish Courts Administration, Domstolsverket.
The agreement covers approximately 6,300 square meters in a newly developed, modern, and sustainable courthouse at Norden 10 in central Sundsvall, adjacent to Clarion Hotel, which we built a couple of years ago.... This project follows a competitive procurement process, in which our proposal was evaluated as the most advantageous based on the combination of price and quality. During the appeal period, one competitor complained, which resulted in a reevaluation process. So we cannot be completely certain yet that we can proceed and sign the lease agreement with a rent on SEK 23.2 million. Construction is planned to start around the turn of 2026, 2027, with occupancy expected in the Q1 of 2029. The building will be certified according to Miljöbyggnad 4.1, aiming for a Gold rating.
The evaluation of the project and Diös as a landlord strengthens our long-standing position as an attractive key partner to public sector tenants, which today represents roughly a third of our rent, rental income. Our growth strategy remains clear. Our strategy for profitable growth continues to be built on three pillars. One, investing in the right assets, two, optimizing revenue and costs, and three, owning properties in the most attractive locations. We focus our portfolio towards central locations, where demand is strongest and alternative use potential provides long-term resilience. Our strong local presence, long-term customer relationships, and high-quality premises are key components driving profitable growth. A core strength of Diös is the resilience of our property portfolio. With stable tenants, diversified segments, and centrally located assets in growing regional cities, our portfolio generates strong and predictable cash flows.
These cash flows are not only stable, they also provide us with favorable financing conditions, as lenders clearly recognize the robustness of our business model. Lower margins and attractive terms directly supports our ability to continue investing, and critically, help fuel continued growth in income from property management. Our strong cash flow gives us the capacity to invest in profitable tenant adaptations. Finalized projects is now at 7.7 yield on cost, and new tenant adaptations is aimed at over 9%. Energy-efficient upgrades resulting in energy savings of 5.4% for 2025, selective new developments, and strategic acquisitions. This disciplined capital allocation ensures we continue to deliver sustainable long-term value for both tenants and shareholders.
We also took a clear strategic step this quarter by divesting the correctional facility project in Östersund to Stenvalvet for SEK 117.5 million. This move is fully in line with our long-term focus, concentrating our capital on core urban properties where Diös has scale, market leadership, and strong value creation potential. A correctional facility does not fit naturally in our core portfolio, and selling the project now allows us to realize value and redirect resources to high-return opportunities. As the project in Sundsvall, this is a clear example on how we are in the position to create value with our land and building rights. The projects includes both a full renovation and new construction, totaling 5,400 square meters, supported by a 15-year lease with Kriminalvården.
In addition, the authority has signed a separate 15-year office lease in our adjacent property, which remains in our ownership and continues to strengthen our stable long-term cash flows. This divestment sharpens our strategic focus, frees up capital for growth in our priority cities, and demonstrates our ability to create value from non-core assets while continuing to contribute to Östersund's development alongside strong institutional partners. To summarize, Diös holds a unique position in the geography, experiencing strong structural investments. Our business model, based on central locations and active management, gives us long-term profitability, strong and stable cash flows, and low tenant concentration risk. Looking ahead, we enter 2026 from a position of strength. Demand continues to concentrate towards modern, centrally located premises, where our portfolio is highly exposed.
Leasing activity remains solid, and tenant willingness to pay for the right space in the right location supports both occupancy and rental growth. Delivering on our 10% growth ambition. With strong and stable cash flows, declining financing costs, and a solid balance sheet, we have a clear capacity to execute on our ambition of delivering 10% annual growth in income from property management and NAV per share. Through value-adding tenant adaptations, selective investments, and disciplined capital allocation, we see a clear and credible path to continued profitable growth.... Before we open for questions, let me make some closing summarizing remarks. As recently announced, our board has launched a share buyback program enabled by the mandate from the 2025 AGM.
This decision reflects our strong cash flows, a robust financial position, and our view that the Diös's share is currently trading at low levels relative to intrinsic values. The program optimizes our capital structure, and importantly, does not limit our ability to invest in profitable growth. Our strong operational momentum, disciplined financial management, and proactive capital allocation, give us great confidence in our ability to continue delivering profitable, sustainable growth. Thank you. We now welcome your questions.
As a reminder, if you'd like to ask a question on today's call and you've joined us via the phone, please press star followed by one on your telephone keypad now. If you're joining us via the webcast, you may submit written questions, star one or written by the webcast. We have a question from Lars Norrby, from SEB. Lars, please go ahead. Your line is open.
Thank you, and good morning. Two questions. First, a simple one. Let's talk about the weather. Wasn't it unseasonably warm in Q4? And for that matter, now in Q1, it's super cold, even here in Stockholm. So has that affected your profitability and costs in the Q4 ?
I'm gonna fix that.
The weather was quite normal in Q4 in our region. But as you say, it's been very cold, both in January and so far in February, so the cost for heating will probably be a little bit higher than last year.
Okay, thank you. And second question on a completely different topic. Asset, the rotation or structure, whatever you like to call it, you have divested the entire portfolio of Åre. You're in the process of divesting a correctional facility in Östersund. Do you have anything else that you're looking at in terms of magnitude in the portfolio that is not, well, a natural part of your portfolio, let's put it that way?
Hi, Lars. David here. We have, as we talked about before, we have identified a non-core portfolio of about 5% of our assets. So it's SEK 1.7 billion-SEK 1.8 billion, and we are currently looking for right buyers and to pick a portfolio that suits the buyers. So we have around 10-12 discussions all the time, and we see what fits everyone. So it's up for grabs, but we don't do it as one portfolio on the market. We are currently having discussions, so that's... If that's the answer.
You don't break that up, and communicate it geography-wise, what is included in that SEK 1.7, 0.8?
No, we do not, because it's current. It's rotating all the time, what's in the non-core portfolio, because if we find a good tenant with a long lease, it can change so that that facility won't be in the non-core portfolio anymore. So all the time, we are rotating, and the cities are changing all the time also, especially in the C and D locations where most of these assets are. So if we find some good conversion opportunities, we can keep it, but if it's still non-core, we'll sell it. So it's rotating all the time, so it won't be a good idea to communicate the whole portfolio all the time.
Okay, thank you. That's very clear.
As a reminder, that's star followed by one on your telephone keypad or written questions via the webcast. We have no more questions on the phone line, so I'll hand over to Johan for the webcast questions.
Yes, thank you. As of now, there's no webcast questions. I'll leave it for 30 seconds if there's someone who would like to send some questions. So it seems like we have no more questions, so I will try to round this off, and thank you all for listening. And, as always, please reach out if there's any questions or something you would like to discuss after the call. So with that, we wish you all a nice day, and see you again in next quarter. Thank you.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your line.