Good morning. Welcome to this presentation of Diös result for the first quarter of 2023. My name is Knut Rost. I'm the CEO of Diös. With me is our CFO, Rolf Larsson. We will take you through the result of the first quarter, major events and highlights, and end this presentation with an outlook. If you have any questions, there will be a Q&A session after the presentation. You can always reach out to us with your questions afterwards. Contact details are available on the last slide and on our website. The highlights for Q1 2023 can be summarized in four parts. To start with, we present a very strong operational outcome. Rental income has increased by 17% compared to the same period last year. The occupancy rate was 92%, the highest in our company's history. The surplus ratio was 64%.
With that said, I can state that we continue to deliver a very good operating result. Net letting amounted to SEK 3 million. On the financial side, our interest costs are increasing due to rising market interest rates. During the quarter, we have restructured the derivatives portfolio and extended our fixed interest rate to protect from even higher interest rates. On a positive note, we see that the capital market is more functional today compared to mid-February. On the back of higher financing rates in the market, we have adjusted the valuation yield in the portfolio on average by 11 basis points. This leads to unrealized value changes of minus SEK 564 million, which corresponds to 1.8% of the total property value.
The eyes of the world continue to be directly towards our market and the green transition led by the Swedish sustainable industries in and around our cities. Our properties are in attractive locations in the right cities to receive new establishments and develop our rent levels. The inflation rate has been rising in 2022 up until now, but my belief is that the inflation peak is behind us. We have received higher price levels in society, but also higher rental levels as a result of the index adjustments in our lease agreements. When the rate of inflation falls back, I believe we will see a higher activity in the transaction market and that new lettings will increase.
Going into the result in more detail by looking at the income statement, we can confirm the total income is up by 14% and rental income is up 17%. The difference is explained by compensation from early termination in Q1 2022. Occupancy rate is at a record high of 92%. Like for like growth is strong, 10.6%. Bear in mind that we have not included CPI indexation from residentials by end of Q1 due to that the negotiation was not finalized at the end of March. The average indexation for residential in our portfolio will approximately be 4%, adding SEK 2 million per quarter. We had more snow this year compared to last year, which adds SEK 5 million to the property cost.
All in all, we have satisfying cost control, although the inflationary pressure. Surplus ratio is at 64%. Net financial is up mainly due to higher market interest rates. Net debt is up SEK 2 billion compared to Q1 2022. I touch upon value changes on the previous slide. We have increased the valuation yield by 11 basis points to reflect the rise in market rates, which has led to a negative unrealized value change of SEK 564 million. As you can see, our property portfolio is well-diversified in terms of both segment and geography. We have also 29% of our rental income from public-related tenants and 9% from residentials, which means that we have a low risk in our cash flow.
Looking at the rental growth on offices, as you can see on the slide, it has had a stable trend upwards. It's still a relatively low krona per square meter. For 2023, we have more of a hockey stick development with the indexation and a good development in new letting and renegotiations kicking in. We repeat that the CPI indexation for 2023 was 10.9%, which corresponds to the increased rent of around SEK 170 million on an annual basis. Unpaid rents for the first and second quarter are at the same level as previous year, which means that our tenants have accepted their new rental levels. Our net letting continues to be strong, SEK 3 million for the quarter. It has been positive 18 out of 21 last quarters.
Demand is still very good for high quality and modern offices in location close to urban services and commuting centers. We see that the current market environment with inflation, higher interest rates, and the banking turmoil have made the time to get the ink on the paper a little bit longer. This has improved already, we are now seeing higher pace in new signed lease contracts. Our 10 largest tenants, of which six are tax-financed, account for 80% of our total rental income with an average lease term of 6.3 years. This means very low single tenant risk. I will now hand over to Rolf, who will go into the portfolio and our financing. Rolf?
Thank you, Knut. I will begin by looking at the market value of our properties, which amounted to SEK 30.9 billion. The decrease since Q4 is explained by negative changes in value for the quarter. The average yield was 5.85%, which is 11 basis points higher since last quarter. All segments and cities have been affected in a range of eight to 13 basis points, which shows that the yield change is primarily driven by higher market rates. The increase in yield is partly offset by positive net letting, renegotiated leases, and higher cash flow. We only have minor changes in the inflation assumption for 2023. With an average yield of 5.85% and an average interest rate at the end of the period of 4.1%, we still have a yield gap of 1.8%, and thus, a continued strong cash flow.
On a yearly basis, we are currently investing just over SEK 1.3 billion in tenant improvements, property improvements, and new builds. All our ongoing projects are proceeding according to plan. Before we start our projects, except residentials, we always have 100% signed leases. Most of the rental income in these projects comes from tax-financed operations. All projects will be certified according to BREEAM, Very Good or Excellent. We currently have around 90,000 square meters under construction with a total investment volume of SEK 2.5 billion, where remaining investment amount to SEK 760 million. In addition, we have another 200,000 square meters in existing or possible building rights in central locations, which we either develop ourselves or sell to other developers.
The demand for new modern premises and housing remains high, but prevailing market conditions may mean that we will postpone certain project starts, especially regarding housing. We have refinanced all bank debt maturing in the first half of 2023, with margins that's 20 to 40 basis points higher than last year. Over the next 12 months, we have loan maturities, commercial papers excluded, of SEK 6.6 billion, which corresponds to 40% of interest-bearing liabilities. 30% relate to bank loans, 2% to secured bonds, and the remaining 8% to unsecured bonds. We have very good relationships with all our banks. We feel that they are confident in how we run our business, and they are willing to be on our journey and offer us competitive terms. We have initiated discussions regarding all loan maturities within the next 12 months.
The discussions are positive. Our goal is to refinance all loans within six to nine months before maturity. We also have two maturities of unsecured bonds maturing in June and September, a total of SEK 1.4 billion. As Knut said earlier, we feel that the capital market is working better and better with several completed issues in the near term. Our goal is to refinance all or part of our maturing bonds on the capital market. If this is not possible at reasonable levels, we have credit facilities available. We currently have 83% of our outstanding loans with banks, 3% in covered bonds, 3% in commercial paper, the remaining 11% consists of unsecured bonds. Our loan-to-value ratio was 53.7%, which is under our target of 55% and far below our covenant of 65%.
Our debt maturity is at the same level as before and amounts to 2.3 years. We have extended our fixed interest rate during the quarter by restructuring parts of the derivative portfolio and signing new derivatives. The fixed interest period now amounts to 1.5 years, and the interest coverage ratio amounts to 2.5 x. The average interest rate at the end of the period was 4.1%, which is 0.9% higher compared with last quarter. The increase is due to rise in market rates and slightly higher margins. We have 83% of our financing in banks, SEK 1.1 billion in unused credit facilities, and a secured loan-to-value ratio of 46%. We will also add additional borrowing capacity during the year through completed projects. This together with good relationships with our banks makes us feel comfortable about future refinancing.
As you can see in the graph, the yellow bar will have gradually reduced our share of commercial paper over the past year in favor of bank financing. Our ambition is to be a recurring issuer of both green unsecured bonds and commercial papers. Today, we have 16% green financing and 37% sustainability-linked loans. We're actively working to increase the proportion of green assets, and our goal is to have at least 55% green assets by 2026. Now, as you see in the graph our net debt to EBITDA is stable between 11 and 12 times, where net debt has grown in pace with the EBITDA over the last years. Yet again, I feel comfortable with our current financial position. Our strong cash flow will serve operating expenses, committed CapEx, and proposed dividend. I would now leave the word back to Knut.
Thank you, Rolf. I'll talk a little about the market. As previously stated, I think Northern Sweden is the fastest-growing market in whole of Europe right now, thanks to all the new investments in the transition towards a greener industrial production. We have mentioned the battery factory Northvolt, which is only one of many ongoing initiatives. Other examples are the steel production companies, SSAB and H2 Green Steel, and investments into the power grid, forestry, and electro fuel. Now latest, we gotten announcement of a major investment in Östersund. This investment will create 1,000 new jobs in a town with 60,000 people. It is a unique electricity-intensive circular initiative consisting of a data center that will be powered by renewable energy and at the same time supply heat to a large-scale food farm.
The total investment amounts to SEK 18 billion, and the first stage will be finalized in 2026, and in whole will be ready by 2033. We also have positive news on the migration to the northern part of Sweden. According to the company MindDig, 50 families per month are willing to move to our cities. In total, to meet the employment needs of over 100,000 new employees, this pace needs to accelerate. The municipalities and government still have a great challenges supplying these families with residentials opportunities. The current financial situation makes it harder for us to get acceptable returns on constructing new residential. The approval process is today way too long, and the waiting times unacceptable. To meet the need from the industries and investments in our cities, this must change.
We are now taking a more active part in the lobbying towards the regulators. The transaction market continues to be relatively slow, with few transactions hitting the wire. However, I see some light in the tunnel the last month and where buyers and sellers are finding each other. We keep a close eye on the market and have several ongoing dialogues, I am positive on finalizing one or two transaction in Q2. The ongoing major projects are proceeding according to initial plans, both in terms of cost and time. The cost of the new police station we finalized recently even got under calculated budget, which is a success in current inflationary environment. I see that we will release the start of some new major projects this year. We have a constructive dialogue with several tenants that requires new production or major renovation.
These new projects will have marginal effect on CapEx for 2023. For tenant adaptations, the pace is still good, and the yield on cost remains at around 8%. We can see that some negotiations are taking longer due to market uncertainty. I believe the pace to pick up after summer when Riksbank can ascend in its hiking cycle. To summarize in short, we are presenting a strong quarter on operating level. This is a proof of high activity and a strong underlying market, and at the same time, we manage the cost pressure very well. CPI indexation on rental agreement is going through, taking rental income higher with very little pushback from tenants. I believe the inflation spike is behind us and looking forward to having a more stable market to act on. Financial costs is up due to higher market rates.
We have acted to secure ICR at acceptable levels by restructure and new derivatives. The green transformation is happening for real in Northern Sweden. The economic activity continues to be high. The optimistic outlook has not faded. I am convinced that we have only seen the beginning of what reflects an interesting market in our geography, and I look forward to an intense and exciting journey ahead. Together with other players in Northern Sweden, we are creating new businesses in the biggest green growth revolution of our time. With my employees, our secure and stable owners, and a very interesting investor market, we will deliver continued shareholder value.
It takes us to the end of this presentation. Thank you for listening. We are now ready for questions. Stable owners and a very interesting investor market, we will deliver continued shareholder value. It takes us to the end of this presentation. Thank you for listening. We are now ready for questions.
Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. To withdraw your question, press star followed by two, and please to also remember to unmute your microphone locally. Our first question comes from Markus Henriksson from ABG. Markus, your line is now open. Please go ahead.
Thank you very much. Good morning, Rolf and Knut. A few questions from me. First off, you mentioned that you see a bit more activity on the transaction market. Could you state any transactions that you see that is representative of your portfolio?
Thank you for the question, Knut here. No, not really. What I mean with that sentence is that we see that more both buyers and sellers contact us and want to act in the transaction market. We haven't so far seen any real transaction in our market. We see that, for instance, more interest for our building rights in our central location in our cities. We don't actually have any proof of any values and so forth concerning the transaction market. I think it will come into Q2.
Thank you. Very clear. That was my next question. You mentioned that you might see a transaction or two in Q2. Was that acquisitions or divestments potentially?
For us, it can actually be both. It's very easy to say just now that we are net sellers or we have been for the last 10 years net buyers, but we always work as we can be buyers. If the right transaction occurs, we will be ready to act. I think not many, but I think a few transactions will occur in the near future. We can do great business and act. I think in Q2, maybe Q3, we will see proof of that.
Thank you. A question on interest maturity. It's now the highest since 2017, 2018 after the restructuring. Do you foresee that you will further increase the interest maturity into 2023?
Rolf here. Yeah, if the conditions are right, I think now we have acted, as Knut said in the presentation, to secure the ICR level. We will look into our derivatives and our portfolio, and if we feel it's the right levels, we will continue to prolong our loan maturities.
Thank you. You mentioned, Rolf, a minor change in the inflation assumption for 2023. What is the change and what was the figure last quarter?
The inflation assumption for 2023 last quarter was 4.5%, and it's now 5%, and then 2% long term.
Very clear. Thank you. Those were my questions.
Our next question comes from Albin Sandberg from Kepler. Albin, your line is now open. Please go ahead.
Yes. Hi there. A couple of questions from my side as well. While I don't envy you having to come up with a market value of a portfolio when there are no transactions, I fully understand the difficulties in doing that, for sure, appreciate you coming as close as you can. If you look at the LTV now and you compare it to your maximum target, there is not a great deal of headroom. I just wonder if that's a stress factor for you, or does it impact the way you plan to run the business here going forward? Also maybe taking into account the fact that it doesn't seem the Riksbank is fully done with its rate hikes as of yet.
Maybe there is some further downside risk to values as we move through 2023. That was my first question, basically, if you feel that your LTV target is at risk.
Not at the moment. Of course, we have close eyes on this and we're ready to act if we see a risk, on the LTV target.
We'll follow it closely, but we don't see the risk is so clear just now.
Let's say if you were to end up above it, would it impact your financing conditions, terms, or anything else?
Yeah, it could, but it's a possibility for us to, as we said in the report, to postpone some investments and also use our liquidity to amortization of our debt instead.
Yeah. Thank you. On the project side, it seemed to me like you're indicated actually a little bit better than expected, which is good if I understood that correct. I just wonder the outlook for the ongoing developments and maybe if you could clarify a little bit more how is it that you have been such successful also in this terms of cost inflation escalation? Is it because you have fixed prices with the contractors or you have been able to raise rents more than you thought initially? Maybe give some more color on that and how you see the potential risk during completion of the project portfolio.
Thank you for that question, Albin. This question is, I think, the most common question just now. We work like this. We work with the contractors that we know. For instance, I can take an example. The hotel we finalized earlier this year or last year in Umeå, that was a construction company called Selbergs. That's a company that we have a great confidence in, and it goes both ways. The same people, the same managers from that company went over to build Vale, that we're building for the Försäkringskassan and some residentials. We work with target price, contracting target price, and our lease agreements with the tenant are flexible. In the end, it can differ about 10% up and 10% down.
If it gets more expensive, the contracting sum, we can adjust the lease. We work in another way now, and we are securing the target price, so to speak, both with the tenant, with the contractor and ourselves. That's a very efficient method. I worked with that for 30 years when it comes to this sort of time and we don't always work like that. In this sort of times with the high inflation and so forth, it's a very good way of handling things in the contract. Concerning the lease, the level of the lease, we see that nearly every new contract concerning new construction are above or around SEK 3,000 per square meter.
That's a trend, and that's that's very good for us, of course. We see that when we before the inflation was going up so fast, one and a half, two years ago, we had a sort of yield on cost on those construction about 5% to 5.5%. Now we are we are going towards 7%. That makes those sort of investment still very profitable for us.
Yeah. Thank you. My final question is a follow-up on Markus and the maybe the whole financing strategy of Diös. I mean, I think at least in a peer comparison, you have been rather short both on the interest rate and the credit maturity side. Maybe that's a good strategy over time. Do you see any changes to that, or should we assume Diös operating the way you have done in the past, or will you take any other active bets in one way or another?
I think, our strategy in the long term is to prolong both, debt maturity and the interest rate maturity, and to have a more, should I say, stable and predictable the cash flow, in the years to come.
Should I take that once or, and, Knut, that you would be ready to pay up a little bit in order to achieve that versus...
Yeah.
What you have done in the past, that is?
Yeah, that's right.
Great. Thank you very much. That's all for me.
We currently have no further questions, so I would like to hand the floor back to Johan for final remarks. Please go ahead.
Thank you very much for listening, and as always, please reach out to us if you have any further questions after this call. Have a great day. Thanks.
Thank you very much.
Ladies and gentlemen, this concludes today's call. You may now disconnect your lines. Thank you.