Hello, everyone. Thank you for joining us, and welcome to the Diös Interim Report January to September 2026. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Johan Dernmar, Investor Relations Chief at Diös. Please go ahead.
Good morning, everyone, and welcome to Diös Interim Report presentation for January-September 2026. My name is Johan Dernmar. I am the Chief Investor Relations Officer. Joining me today are David Carlsson, our CEO, and Rolf Larsson, our CFO. David will begin this presentation with the key highlights from the quarter and our strategic priorities. Rolf will then take us through the operational and financial performance in more detail. After the presentation, we will open up the line for questions. With that, I would like to hand over to David.
Thank you, Johan, and good morning, all. Thank you for joining us. The third quarter was another strong and stable quarter for Diös. We continued to deliver on the fundamentals of our business, active leasing and profitable investments. Together, these activities strengthen our cash flows and create long-term value in the portfolio. Activity increased significantly in September after the seasonally quieter summer months. At the same time, we continued to identify and execute investments based on premises in the right locations, long-term customer relationships, attractive returns on capital, and value creation. Our operating model continues to deliver. We combine local market knowledge and close customer relationships with the financial capacity to invest profitably and create value over time. Let me take you through the key highlights. This was a strong and stable quarter, characterized by high business activity, positive net letting, and continued profitable investments.
Net letting amounted to SEK 4 million for the quarter and SEK 29 million for the first nine months. Following the seasonally quieter summer period, strong activity in September more than compensated for negative net letting recorded in July and August. Income from property management increased by 5% in the quarter to SEK 281 million. On the rolling 12 months basis, income from property management increased by 7%. A solid performance given that we were net sellers during the period. This demonstrates that our underlying earnings continue to strengthen, supported by active property management, disciplined cost control, and the impact of completed investments. The market remains selective, but demand is clearly concentrated towards modern, efficient premises in attractive central locations. This plays to the strengths of our portfolio and our local operating model. We also continue to create value through our day-to-day business.
Investments, new leases, and stronger property cash flows contributed to positive unrealized value changes during the quarter. This is important. The value creation is primarily the result of the work we do in the properties rather than a general change in valuation yields. It demonstrates how good transactions and profitable investments translate into stronger cash flows and higher property values. Our financial position remains stable, giving us the capacity to continue pursuing attractive opportunities while maintaining financial discipline. Overall, the quarter demonstrates the strength of our business model, close customer relationships generate leasing opportunities, and the leases create a basis for profitable investments, and the investments strengthen both cash flows and property values. Rolf Larsson will now take you through the operational development, the portfolio, and our financial position in more detail.
Thank you, David. Let's take a closer look at the earnings performance for the current quarter. Rental income was slightly lower than in the previous year, with an economic occupancy rate of 89%. This was primarily due to an industrial property in Skellefteå becoming vacant on July 1st. Despite this, the occupancy rate remained stable at 90% for the period. Several new leases were signed towards the end of the quarter, and we expect the rental market to gradually improve. There is strong demand for modern, centrally located premises where our portfolio is well-positioned. It's important to note that it usually takes 6- 12 months from lease signing before it generates rental income. Property costs were slightly lower during the quarter, primarily due to reduced expenses for electricity and heating. Energy consumption for the period on a climate-adjusted like-for-like basis decreased by a strong 3.3%.
Overall, this resulted in an operating surplus of SEK 479 million, corresponding to a surplus ratio of 74%. Net financial items improved by SEK 18 million compared to Q3 last year, driven by improved refinancing margins and lower STIBOR rates. Income from property management increased by 5% year-on-year and by 7% over the last 12 months. Realized value changes were slightly negative during the quarter mainly due to costs related to property packaging, deferred tax discounts, and transaction costs associated with property disposals. We reported positive unrealized value change during the quarter, with the valuation yield decreasing by one basis point compared with the previous quarter. I will return to this shortly. Our well-diversified portfolio continues to strengthen the resilience of our top line. On a like-for-like basis, rental income increased by 1.6% compared with Q3 last year.
With 33% 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 diversions, 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 letting during the quarter was positive at SEK 4 million, bringing net letting for the period to SEK 29 million.
Net letting was negative in July and August as leasing activity typically slows during the summer, while terminations continued to be recorded. The strong positive net letting in September more than offset the summer decline and reflects the continued high level of leasing activity in attractive central locations. Tenant concentration risk remains low. Our 10 largest tenants account for 21% of total rental income with a WALT of 4.6 years, and the WALT for the total portfolio remains stable at 3.6 years. We continue to see a strong trend where tenants prioritize attractive locations and demonstrate a willingness to pay for modern and efficient premises. Vacancy levels are significantly lower in central urban locations where we have a strong presence. This contributes to the high resilience of our 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 32.9 billion. 98% of our properties were externally valued during the second quarter. The inflation assumption for the first year remains at 1% and then increases to 2%. The average valuation yield amounted to 6.07%, representing a decrease of one basis point compared with the previous quarter. Overall, this means that we report positive unrealized value changes of SEK 32 million for the quarter, driven by strong leasing activity. 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 totaled SEK 210 million, primarily related to tenant improvements and development projects. 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 costs and timelines. Currently, 15,000 sq m are under construction, corresponding to a total investment volume of SEK 390 million, where remaining investments amount to SEK 250 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. In September, we issued a three-year bond totaling SEK 500 million, while at the same time redeeming SEK 100 million of bonds maturing in October. As a result, our average debt maturity stood at 2.6 years at the end of the period.
Over the next 12 months, we will have additional loan maturities, excluding commercial papers, of SEK 2.7 billion, corresponding to 15% of interest-bearing liabilities. We continue to actively work towards a more prudent maturity profile with longer debt maturities. The average interest rate increased to 3.9% from 3.8% in Q2, driven by higher STIBOR fixings. Our average fixed interest term was two years. Bank financing is and will continue to be our most important source of funding. Currently, 61% 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 120 basis points. With a three months STIBOR close to 2%, this implies an all-in interest rate of around 3.2%.
Compared with our average property yield, this corresponds to a yield gap of close to 3 percentage points, supporting strong and resilient cash flow generation. For comparison, the margin on three-year bond is currently around 130 basis points. In total, 61% of our financing is bank-based. In addition, we have SEK 2.8 billion in undrawn credit facilities and a secured loan-to-value ratio of 35%. Completed development projects will further increase our borrowing capacity. 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 improved our key financial metrics through divestments and a more cautious approach to larger development projects.
The balance sheet has also been reinforced through strategic transactions, while cash flow continues to develop positively. Loan-to-value currently amounts to 52%, and net debt to EBITDA stands at 9.8 times. We remain selective in our investments, prioritizing projects and acquisitions that strengthens cash flow, enhance returns, and support long-term value creation. Our approach to capital allocation and debt management enable us to balance growth opportunities with financial flexibility while preserving a strong balance sheet. A strong cash flow, combined with a solid balance sheet, provides us with the financial capacity to pursue attractive investment opportunities and acquisitions. I am comfortable with our current financial position and the actions taken to date. Our robust cash flow is sufficient to cover the approved dividend, operating expenses, committed CapEx, and support continued growth. With that, I will now hand it over to David again.
Thank you, Rolf. Let us now move from the quarter's financial and operational performance to the longer-term conditions in our markets. Our cities have strong underlying conditions for economic growth. Access to renewable energy, available land, and favorable climate for energy-intensive activities, and well-functioning institutions provide a strong foundation for continued investment. These advantages support activity in areas such as energy, industrial development, forestry, and data centers. We are also seeing increased investment related to defense, infrastructure, security, and civil preparedness. For Diös, the relevant question is how these investments affect the cities in which we operate. Large industrial and public investments create broader requirements for offices, hotels, restaurants, retail, education, healthcare, and other private and public services. They support employment, attract people, and create new flows through our cities. They also generate new types of requirements.
Security, preparedness, operational continuity, and robust technical infrastructure are becoming increasingly important, particularly for public sector organizations and operations providing essential services. This creates concrete opportunities for us. Through our local presence and close customer relationships, we can identify new requirements early and translate them into leasing opportunities and profitable investments. The last 12 months, we have started projects for SEK 970 million, with a gross yield on cost at 7.9% in average, with the value creation of 24%. The changing external environment is creating new requirements for many of our tenants. Security, preparedness, operational continuity, and robust technical infrastructures are becoming increasingly important. This is particularly relevant for public sector organizations and other tenants whose operations need to function reliably under changing circumstances. For Diös, these requirements create new opportunities.
They enable us to improve existing properties, deepen long-term customer relationships, and make profitable investments based on clearly identified tenant needs. The two projects on this slide are examples of this development in practice. The first investment is in Östersund, where we are developing premises for Region Jämtland Härjedalen. Region Jämtland Härjedalen needs to modernize Frösö Health Center into a robust healthcare facility and evacuation hospital, capable of maintaining and expanding essential care during heightened preparedness or external threats. The project therefore includes upgraded ventilation, heating, water, and wastewater systems, electrical and fire safety installations, as well as refurbished clinical spaces, driven by the need to strengthen healthcare resilience and reduce the vulnerability of Östersund Hospital. The healthcare center will comprise approximately 3,600 square meters with a 15-year lease and planned occupancy in August 2027.
The investment amounts to SEK 71 million, with an expected yield on cost of approximately 8%. The second investment is in Luleå, where we are refurbishing approximately 7,100 sq m of office premises for the County Administrative Board of Norrbotten. The County Administrative Board needs modern and flexible office premises that meet enhanced security classification requirements. The investment therefore includes extensive tenant adaptations, security upgrades, and improvements to the building's technical system and envelopes. The investment is expected to amount to approximately SEK 109 million, with an expected yield on cost of approximately 8% and planned occupancy in January 2028. These projects demonstrate our approach to profitable growth. We start with a clear tenant requirement and develop the solution together with the tenant. The result is modern, fit-for-purpose premises, secured future rental income, and an attractive return on the capital invested. It is not about investing simply to increase volume.
It is about investing where demand has been identified, where the risk is controlled, and where the return supports long-term value creation. Let me conclude by connecting the quarter's performance to our strategy for profitable growth. Our strategy is based on three closely connected areas. First, our portfolio strategy determines which properties we should own. We focus on growth markets and attractive properties, particularly central A and B plus locations where there is tenant demand and potential for alternative use. Second, our leasing and property management strategy is about optimizing revenue and costs. Through local presence, close customer relationships, and active management, we identify tenant requirements and create solutions that strengthen occupancy and cash flow. Our competence in energy and technology, combined with the benefits of scale, also enable us to improve cost efficiency and energy performance over time. Third, our investment strategy determines where and how we allocate capital.
Our stable cash flows give us both the capacity and flexibility, but we remain selective. We prioritize investments where we can see a clear path to higher earnings and long-term value. Capital allocation, however, is broader than the investments in our existing portfolio. We continuously evaluate how our capital can create the greatest long-term value for shareholders. This means balancing profitable investments in our properties against potential acquisitions, strengthening the balance sheet through debt repayment, and repurchasing our own shares when we consider this to be an attractive use of capital. The allocation will change depending on the opportunities available, expected returns, our financial position, and conditions in the property and capital markets. Our objective remains the same: to allocate capital to the alternatives offering the best combination of risk, return, and long-term value creation. The third quarter demonstrates how the different parts of our strategy reinforce one another.
A local presence and customer relationships generate leasing opportunities. The leases provide the basis for profitable investments. The investments strengthen cash flows, and stronger cash flows support property values. This is how our business model creates value in practice. To summarize, we deliver another strong and stable quarter. Positive net letting and strong business activity, continued profitable investments based on identified tenant demand, positive unrealized value changes supported by investments and stronger cash flows, and a stable financial position that gives us flexibility in how we allocate capital. We enter the final part of the year with high activity in both leasing and transaction discussions. Our priorities remain clear: strengthen occupancy, develop our customer relationships, manage the properties efficiently, and allocate capital with discipline. That gives us a strong foundation for continued long-term profitable growth. Thank you for listening in, and we are now ready to take your questions.
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Oscar Lindquist with ABG Sundal Collier. Your line is now open. Please go ahead.
Hi, good morning. I was wondering, could you provide some thinking on the interest rate fixing itself from 2.4 years in Q2 to 2.0 years now in Q3, and you have SEK 2.6 billion swap maturing now in Q4. Has that been replaced, and what is your thinking about managing interest rate maturity going forward?
Rolf here. We've had some swap terminations in the quarter, and we're naturally looking to take other interest rate swaps to prolong the maturity going forward. But it's always a matter of price. But we're looking into prolonging the interest rate maturity, always. But I can't give you a figure or a specific plan or something.
The target is to maintain interest rate maturity of more than two years, or how should we think about this?
Yeah. You should think more than two years. It's a matter of timing.
Okay. Yes. If you could provide some details on the expected impact from net lettings over the coming quarters here. Do you expect positive development on occupancy near term?
The occupancy is different from the net letting because what we see now is the lower occupancy rate in the quarter is due to negative net letting. We had some positive net letting last year, but it's shown now it was about zero last year. It's one property in Skellefteå, which we communicated before in the net letting, where Daga left the light industrial property, and that affects by 0.4, and we have discussions ongoing with two new tenants. So we're hoping to adjust that. But for the quarter, that was affected. When you compare the last five years, I looked back and you see that in Q3, there is always lower net letting in comparison to the other quarters. So this is actually the four in this quarter, plus four, is the next best in the five last years. It's been around zero.
We're happy with that in the Q3, but it was a good upside in September, and we're looking to hope we close some good deals in Q4, but not ink on the paper yet.
Sure. I understand that the occupancy and net lettings are different, but I was more thinking based on the net letting you've had for the last three, four quarters, how do you expect occupancy to develop, say, for Q4 and near term?
We think it's going to be relatively flat. It's about 6- 12 months after we sign the new contract until it affects the occupancy rate. You could think of it at flat.
Okay.
We also sold a lot of properties that were fully let by the AURA portfolio with 97% occupancy rate and the high school in Borlänge at 100%. So that affects the occupancy rate with 1%. We're fighting all we can. We're not satisfied, but we're working a lot with the new lettings. If you compare to other office companies or companies on the market, we performed relatively well, but we're not satisfied. It's the highest priority to lower the vacancy rate.
Yes. Has your general view on the outlook for positive net letting changed any-
No
during the quarter?
No, it has not changed.
Good. Just on the projects you highlighted, say, for example, the Länsförsäkringar project. I believe it was guided at 7.6% yield on cost. Is that the incremental impact we should expect on NOI on completion?
That's gross yield on cost. You have to look at it like take 6.5 or something. In average, with all the decisions we took now for SEK 970 million in this last 12 months, we have average gross yield on cost on 7.9%, and you can think about it as net yield on cost, like 6.5% or something.
Okay. Good. Thank you. That's all from me.
Your next question comes in the line of Martijn Kartman with Van Lanschot Kempen. Your line is now open. Please go ahead.
Hi, good morning. Thank you for the presentation. You mentioned that over the past 12 months, you've started projects for around SEK 970 million at a gross yield on cost of 7.9% on average. How does this compare to the 9.7% yield on cost you communicated at the 26 half year results?
It's been some projects during the quarter that's lowered the average yield on cost. We still have a good investment volume going on. There are some major project that adjust these numbers somewhat. It's the same kind of numbers, but it's been updated with the decision taken in Q3.
Okay. Thank you very much.
Your next question comes in the line of Lars Norrby with SEB. Your line is now open. Please go ahead.
Thank you, and good morning. Question about share buybacks. We heard Balder this morning stating that share buybacks, they see that's the best investment available. Yesterday we had Castellum announcing up to SEK 8 billion on buybacks. In that case, divestment funded. You haven't done any buybacks in Q3, focusing instead on CapEx investments. What's your view on this topic? Buyback, is this a good alternative and what's your plan?
It's a discount of the stock price and the upside of the stock price. The upside is that you can use buybacks as a good allocation alternative. It's always on the table for us, but we are weighing together the LTV, the possibility to invest in new projects, and it could be a good situation to buy some assets as well if it's a good market for that. But we always weigh everything together and the board has a mandate on 10% from the AGM, but there are no decisions taken today, but it's always on the table.
To rephrase it then, currently, do you think you have enough investment opportunities to channel your cash flow into without having to use the alternative of share buybacks? Is that the way it looks for the remainder of this year, or what's your assumption?
It's the way it looks today. But we don't know how it looks in two months because it's always about alternative capital allocation. We're always weighing it together. Every board meeting, we're looking at all alternatives and weighing it together and take decision after that.
Good. Thank you.
There are no further questions at this time. I will now turn the call back to David Carlsson, CEO, for closing remarks.
Thank you all for listening in, and wish you a really good Friday and a good weekend after that. Thanks a lot.
This concludes today's call. Thank you for attending. You may now disconnect.