Ladies and gentlemen, thank you for joining us, and welcome to the Diös Fastigheter AB Interim Report, January through March 2026. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Johan Dernmar, Chief of Investor Relations at Diös. Please go ahead.
Good morning, and welcome to Diös Interim Report for the 1st quarter 2026. We're reporting on the period January through March. It was a quarter marked by continued geopolitical uncertainty and somewhat higher interest rates. Against that backdrop, our message is clear. Diös continues to deliver stable operational performance, supported by strong leasing activity, resilient occupancy, and disciplined capital allocation. Today we will start briefly by summarizing the quarter, then Rolf will move on to the operational development and the portfolio before David closing with the outlook. The presentation will be followed by a Q&A session. Listen to the instruction at the end how to register your questions. I now leave the word to David.
Operationally, the quarter was solid. We delivered positive net letting of SEK 15 million, which confirms continued demand for our premises, particularly in central locations. Net letting has now been positive in 26 of the last 29 quarters, underlining the consistency of our leasing performance over time. Our economic occupancy remained stable at 90%, unchanged compared with the same quarter last year. This level aligns with Diös' historical average, despite the economic slowdown in Sweden, and demonstrates the portfolio's resilience. Income amounted to SEK 663 million, broadly unchanged year-on-year, thus investments. The surplus ratio was 65%. On the financial side, the average interest rate increased slightly to 4.1%, driven by higher Stibor fixing and longer interest rate maturity. Financing margins remained stable during the quarter. From a valuation perspective, property values were supported by our leasing activity.
Unrealized value changes amounted to SEK 13 million, where lower CPI assumptions and higher tariff-based property costs were offset by strong new lettings. Importantly, transactions completed at book value continue to confirm our property values. Overall, this was a quarter of stable earnings, solid leasing, and resilient values, despite a more challenging macro environment. Looking at the portfolio over time, both occupancy and values have proven resilient. Vacancy levels are around historical averages, and recent fluctuations are largely explained by strategic divestments of full let properties and newly completed projects, rather than any structural weakness in demand. Property values in our cities have demonstrated low volatility over a long period, with valuation yields consistently around 6% for more than a decade. In today's market environment, the marginal cost of new debt is approximately 3.2%, resulting in a yield gap of close to 3 percentage points versus our valuation yields.
This is a position we actively embrace. It reflects a portfolio of high-yielding, low-risk assets combined with discipline and efficient financing. The attractive cost of capital strengthens the earning capacity of the portfolio and ensures that the spread between returns and financing costs remain robust. This solid yield gap not only provides resilience and financial security in our operations, but also creates clear headroom to continue investing in development projects and selective growth initiatives over the long term. Taken together, stable property values, strong cash yields, and competitive financing leave us well-positioned for continued stable growth and value creation, even in a challenging economic environment. I will now leave the word over to Rolf.
Thank you, David. Let's take a closer look at the earnings performance. Rental income was in line with the previous year with an economic occupancy rate of 90%. We continue to see that tenants take somewhat longer to make leasing decisions, certainly influenced by the geopolitical factors and the uncertainty they create. Nevertheless, several new leases were signed during the quarter, and we expect the rental market to gradually improve. There is still good demand for modern, centrally located properties where our portfolio is well-positioned. It's important to note that it usually takes six to 12 months from leasing signing before it generates rental income. During the quarter, colder than normal weather resulted in higher electricity and heating costs. However, on a climate-adjusted like-for-like basis, energy consumption decreased by 1.2%.
Overall, this resulted in an operating surplus of SEK 425 million for the quarter, corresponding to a surplus ratio of 65%. Despite higher interest-bearing liabilities and lower capitalized interest on CapEx, net financial items were SEK 2 million lower compared with Q1 last year. This is partly explained by lower Stibor rates, as well as the successful renegotiation of a substantial portion of our loan portfolio at the improved margins. Income from property management was in line with the previous year. On a like-to-like basis, income from property management increased by 1.5%. We've had slightly positive value changes, with valuation yield one basis point lower than last quarter, and I will come back to this later. Our well-diversified portfolio continues to strengthen the resilience of our top line. On a like-to-like basis, rental income was unchanged compared with Q1 last year.
With 32% of rental income derived from public sector tenants, we have a solid foundation for passing on CPI adjustments. This supports our ability to defend and increase rental levels in connection with both renegotiations and new lettings. In total, 98% of our commercial lease agreements include indexation clauses, of which 95% are linked to CPI. We see clear potential for further rental growth through rent reversions, improved occupancy, and by developing modern and efficient office space in prime locations. As the market leader in our core cities with strong local management and solid cash flow, we hold a competitive advantage compared with many other real estate companies in our markets. Net lettings during the quarter were positive, amounting to SEK 15 million. Tenant concentration risk remains low. Our 10 largest tenants account for 20% of total rental income with a WAULT of five years.
The WAULT for the total portfolio remains stable at 3.7 years, We continue to see a clear trend where tenants prioritize attractive locations and demonstrate a strong willingness to pay for modern and efficient premises. Vacancy levels are significantly lower in central locations across our cities, where our portfolio is well-positioned, contributing to the high resilience of the portfolio. At present, several discussions are ongoing with both existing and prospective tenants at good rental levels. The market value of our property portfolio amounted to SEK 32.7 billion. All properties were externally valued during the first quarter. The inflation assumption for the first year was reduced from 1.5 to 1%, and valuers have also assumed slightly higher operating costs. Taken together, these changes had a negative impact on property values of approximately SEK 110 million.
Despite these adjustments, we report a positive unrealized change in value of SEK 13 million, driven by value-creating lettings and profitable investments. The average yield amounted to 6.09%, representing a decrease of 1 basis point compared with the previous quarter. We note that our divestments are made at or above book value, supporting our assessment that the reported property values reflect fair value. During the quarter, investments amounted to SEK 270 million, primarily related to tenant adaptations and new developments. Risk in our project portfolio remains low, as pre-letting is a requirement and most of the rental income is generated from tax-financed operations. All ongoing projects are progressing according to plan, both in terms of cost and timelines.
Currently, 18,000 sq m are under construction, corresponding to a total investment volume of SEK 580 million, where remaining investments amount to SEK 300 million. In addition, we hold 310,000 sq m of existing and potential building rights, representing significant opportunities for further value creation. Around 50% relates to commercial premises, with the remainder allocated to residential properties. Going forward, our focus will be on tenant adaptations and selectively new builds secured by stable tenants and long-term lease agreements. During the quarter, we refinanced a total of SEK 1.5 billion maturing in June this year, as well as an additional SEK 1.1 billion with maturity in 2027. As a result, our average debt maturity was extended from 2.6 years to three years.
Over the next 12 months, we will have additional loan maturities, excluding commercial papers, of SEK 3 billion, corresponding to 17% of interest-bearing liabilities. We continue to actively work towards a more prudent maturity profile with longer debt maturities. Although borrowing margins have declined, the average interest rate increased from 3.9% at year-end to 4.1%, representing an actual increase of 17 basis points. This development is mainly explained by higher Stibor fixings. In mid-February, shortly before the escalation of the conflict in the Middle East, we entered a new five-year interest rate swap, extending our fixed rate maturity to 2.3 years. Bank financing is and will continue to be our most important source of funding. Currently, 63% of our outstanding loans are financed through banks.
We maintain a very constructive dialogue with all our lending banks who have demonstrated a clear willingness to support our growth ambitions and offer competitive terms. The margin on a three-year bank loan is currently around 115 basis points. With three-month Stibor at 2.1%, this implies an all-in interest rate of 3.25%. Compared with our average property yield of 6.1%, this corresponds to a yield gap of close to 3 percentage points, supporting strong and resilient cash flow generation. For comparison, the margin on a three-year bond is currently around 155 basis points. In total, 63% of our financing is bank-based. In addition, we have SEK 2.1 billion in undrawn credit facilities and a secured loan-to-value ratio of 38%. Further borrowing capacity will also be added through completed development projects.
Taken together, this, combined with our strong banking relationships, makes us feel confident regarding our future refinancing needs. We continue to apply a conservative balance sheet approach, reflecting our strong commitment to financial discipline and effective risk management. Over the past two years, we have reduced financial risk and strengthened our key financial metrics through divestments and a more cautious approach to larger new development projects. The balance sheet has also been reinforced through strategic transactions, while cash flow is developing positively. Loan-to-value currently amounts to 53.2%, and net debt to EBITDA stands at 10x . During the quarter, we bought our own shares for SEK 200 million, which impacts the quarter's cash flow, LTV, and net debt to EBITDA. A strong cash flow combined with a solid balance sheet provides us with the financial capacity to pursue both new investments and acquisitions.
I'm comfortable with our current financial position and the actions taken to date. Our robust cash flow is sufficient to cover operating expenses, committed CapEx, and to support continued growth. Starting this quarter, we're presenting a future earnings capacity that reflects the company's 12-month earnings capacity as of a given date. This should not be considered as a forecast, as it does not include any assumptions regarding future changes in rental levels, vacancies, or interest rates. Rental income is based on contracted annual rents. Operating expenses reflect an assessment of a normal year's cost levels, while central administration costs are based on the actual outcome over the past 12 months. Net financial income is calculated based on the group's interest-bearing liabilities and assets. Interest expenses are determined using the average interest rate with additions for accrued financing costs and fees for unutilized credit facilities.
The change compared with the earnings capacity as of January the 1st is primarily driven by a higher average interest rate. With that, I will now hand over to David again.
Thank you, Rolf. The broader market context for our regions remains supportive. Just look at the map of all investments above SEK 100 million in Northern Sweden. Northern Sweden continues to benefit from strong structural drivers: access to renewable energy, available land, ongoing industrial investments linked to the green transition, and increased focus on infrastructure and defense-related activities. Together, these factors support new establishment, job creation, economic growth, and long-term demand for our premises in our cities. What we clearly see is that demand is strongest in central locations. Tenants continue to prioritize modern, efficient premises in the very heart of our cities, where accessibility, quality, and flexibility are highest. Vacancies are consistently lower in these locations, and the willingness to pay for the right space remains solid.
At the same time, we are seeing continued reversal of the work from home trend in regional cities. More employers are encouraging employees to spend more time in the office. Unlike metropolitan areas, our 15-minute cities do not face the same commuting challenges. This supports office attendance and drives demand for centrally located workplaces that function as meeting places, brand builders, and collaboration hubs. Together, these trends reinforce our strategy of focusing on central, well-located assets, where demand is most resilient and where we see the strongest long-term earnings potential. For Diös, this reinforces our conviction in owning and developing centrally located properties with strong alternative use potential, where demand remains most resilient over the cycle. In the spring budget, the Swedish government reiterated its focus on infrastructure investments, including continued commitments to rail infrastructure in northern and central Sweden.
Improvements in logistics and connectivity support long-term economic activity and strengthen the investment case for our regions. At the same time, we continue to see strong momentum in the green industrial transformation in Northern Sweden. Stegra has secured additional institutional backing, including an expanded commitment from the Wallenberg sphere, further strengthening the financial and industrial credibility of the project. These developments are complemented by coordinated regional growth initiatives where municipalities, industry, and the public sector work together to ensure that infrastructure, skill supply, and urban environments develop in parallel. Taken together, this supports our conviction that the long-term fundamentals in our markets remain strong, providing a solid backdrop for leasing demand, occupancy, and earnings growth. This quarter proved our ability to deliver results through active leasing, reinforcing our strong market position and sustainable growth.
We signed and expanded leases with government-funded tenants and large, well-established corporates, such as National Government Service Centre, Statens servicecenter, Swedish Transport Administration, Trafikverket, and SCA. These type of leases are attractive from a return perspective. They offer low credit risk, stable cash flows, and attractive use of capital. Statens servicecenter is an office lease with a six-year term, 2,600 sq m, and yield on cost above 9%. The lease to Swedish Transport Administration is on the six-year term, 1,100 sq m, and the yield on cost around 8%. SCA is an office lease with a six-year term, 1,200 sq m, and a yield on cost above 11%. In addition to leasing, the quarter also highlights our ability to create value through development.
We completed 50 residential condominiums in the Vale block , a very centrally located project in the heart of Umeå. The total investment amounted to SEK 132 million, and the project generated a profit above 20%. This is clear illustration of how we can monetize building rights and crystallize value in a disciplined way, delivering attractive project returns while recycling capital into new opportunities. Asset rotation remains an important part of how we sharpen the portfolio. After the end of the period, we announced a divestment of seven non-core properties for approximately SEK 290 million at book value. The divested portfolio has an occupancy of 92% and the annual rental value of SEK 32 million, which again confirms market liquidity and the robustness of our valuations.
These divestments free up capital and management capacity, allowing us to focus on assets and projects with stronger long-term strategic fit and return potential. To summarize, we delivered strong net letting, maintained stable occupancy, and reported positive value, driven by good business and leasing activity. We are operating in a world characterized by continued uncertainty. Political tensions, volatile capital markets, and an interest rate environment remains difficult to predict. This naturally affects sentiment and decision-making across many sectors. It is important to emphasize that Diös is well-positioned in this environment. Our portfolio is concentrated in regional cities with stable underlying demand, lower volatility in rents and property values, and a tenant base dominated by public sector and well-established corporates. This provides resilience through the cycle. We also benefit from strong and predictable cash flows and conservative balance sheet and disciplined capital allocation.
These factors give us flexibility both to manage risk and to act on opportunities when they arise. In periods of uncertainty, the importance of location quality, tenant quality, and financial discipline becomes even clearer. These are exactly the areas where Diös has built its strategic position over time, and they give us confidence in our ability to continue delivering stable performance and long-term value creation, even in a more challenging external environment. With that, I will say thank you for your attention, and we will now open the floor for questions.
We will now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone keypad to raise your hand. To withdraw your question, please press star one again. This first question comes from the line of Lars Norrby with SEB. Please go ahead.
Two questions from my side or two topics. First, on the net letting number, which obviously improved sharply in Q1 to SEK 15 million from a range, if I remember correctly, of between SEK -1 million and SEK 2 million in the quarter, so SEK 25. Why was there such a sharp improvement, and is it something that we should not extrapolate into the remaining quarters of 2026?
Hello, Lars. David here. It's some bigger deals, lease agreements that we landed, but there is no exceptional what we see in the rest of the year. We're aiming for this SEK 15 million in net letting every quarter. That's our aim, and we're really proud that we did it this quarter with the war and everything when the tenants are pushing the decisions a little bit further. We will land those SEK 50 million this quarter. There's no turnovers like one deal in SEK 15 million or SEK 20 million or something. It's 125 new lease agreements and in total in net letting SEK 15 million. Yes.
Okay. Thank you for that. Second and final topic, buybacks. You did some SEK 200 million in Q1. You have signed a couple of quite substantial divestments that will add, I think, some SEK 400 million in the rest of the year. You have an LTV of 53%, what are you gonna use the proceeds from those divestments? Will that be redeployed into CapEx and acquisitions or, is there excess capital that gives you room for more buybacks?
Yeah. Hi, Lars. This is Johan. We're currently, like everyone else, taking every day, every week with the current financial uncertainty that we have in the world, and also strengthening our balance sheet short term, but also gathering some firepower for continued investments. We did in the quarter, we see a pickup in investments in the current portfolio at good returns. We hopefully that will continue, and that will give better returns than buying back the shares as we see it right now. We will continue to invest in our portfolio, but also gathering firepower for finding new acquisitions. It also give room if we can't find the right kind of properties to buy back shares in the future.
As we sit right now, we're a bit, we're gathering some financial flexibility short term.
Yeah. In addition to that, we took decisions this quarter on SEK 123 million in new tenant adaptations at a return on 8.4%. That's higher than the implicit yield right now. We're having good capital allocation at the moment.
Okay. Thank you.
Thank you, Lars.
Your next question comes in the line of Martijn Kartman with Van Lanschot Kempen. Your line is now open. Please go ahead.
I also have a question on the share buybacks. As you believe that share buybacks are accretive, are attractive alongside investments in own portfolio, is that due to limited investment opportunities, or is that reflective of tenant demand for better quality assets?
This is David. I can take that. It's a combination of the situation with the our low value on the stock market and the stocks price, and that we have the liquidity to do the share buybacks. We are aiming to be a net buyer on site. Right now we're in a situation that we're selling more than we're buying. We see that we will grow in future with more acquisitions. It was a good opportunity to use the over liquidity in Q1 to buy back shares and use that way of capital allocation.
We will have good opportunities for investments and to be a net buyer on site.
Okay. Thank you very much. I have a second question, which is following up on your net lettings. You mentioned that tenants are taking longer to make decisions because of the war. Q1 only had one month of impact. Are you confident that you can continue to achieve this quarterly SEK 15 million target for the remainder of the year?
Yes. We see that. Have a big respect for the situation in the Middle East and what that affects. We see that we have large deals on the table that we know are not affected by the situation in the Middle East. I'm saying that with confidence.
Okay. Thank you very much. That was it.
Thank you, Martijn. There are no further questions at this time. I will now turn the call back to Johan Dernmar for closing remarks.
Thank you everyone for listening to this webcast. As always, if you have any questions, please reach out to us. The details are on the website or in the end of the presentation. With that, I wish you all a fantastic day. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.