Welcome to our presentation for the Q1 2024. As usual, you would be able to ask questions at the end of the presentation. This year has begun in a relatively stable way, despite the fact that the global scene on the global geopolitic turbulence has not decreased. It has rather increased during the first three months of this year, which is a little bit scary. There are many question marks in relation to the also to the economic situation, but with that said, the funding market has been functioning better and better since last summer and are now functioning well again, and we are getting closer to the first interest rate cut. There are no shortage of challenges, but Fabege stands strong. I will now hand over to our CFO, Åsa Bergström, who will review our numbers and results in a more detailed way. Also, please, Åsa.
Thank you, Stefan. Please turn to page 3. The year 2024 has begun in a relatively stable way. Rental income amounted to SEK 1 billion, which is in line with the previous year. A decrease due to property divestment in the autumn was offset by index increases and the taking of possession in previous project properties, of which Convendum's occupation in the property Hägern Mindre was the largest one. On a like-for-like basis, income increased by 10%. Increased operating expenses were mainly due to higher heating expenses due to the winter. The surplus ratio came in at 71%, and central administration costs ended up at -SEK 29 million. Interest expenses increased compared to the previous year, which was due to a slightly increased loan volume and higher average interest rate. The average interest rate increased from 3.13% at the start of the year to 3.29%.
Our active work with interest rate derivatives has partly offset the effect of the higher market interest rates, and we have actually refinanced loans in the capital market at the same or lower margins during the quarter. The result in associated companies amounted to -SEK 11 million and related to the capital contribution to Arena bolaget. We therefore reported profit from property management of SEK 329 million compared to SEK 351 million in the previous year. Unrealized value changes amounted to -SEK 1.4 billion.
I will come back to this very soon. We also recognized a small realized profit of SEK 3 million, which was a time lag from the transaction with NREP in the autumn. The surplus value in the derivatives portfolio increased by SEK 213 million due to higher long-term interest rates. The tax expense at last, which related to deferred tax, was positive and amounted to SEK 137 million.
Please turn to page 4. The market-related yield requirements continued to increase, although at a lower rate, which has also had an impact on the valuations. There are still a few transactions, very few transactions in our market. During the quarter, we have once again independently valued a large proportion of the portfolio, approximately 70%. The rest of the properties have been valued internally. The average yield requirement in our portfolio increased by a further 8 basis points in the quarter to 4.51%. Since the values peaked in Q3 2022, we have now written down the property value by about 15% in total. The average yield requirement is now back at a level equivalent to what we reported in Q1 2017. The changes in value in Q1 were almost exclusively due to increased yield requirements.
The total change in value amounted to -SEK 1.4 billion, as I mentioned before, and we are now reporting a total property value of SEK 77.4 billion. Please turn to next page. This simulation shows that we can withstand write-downs of a further almost 15% based on today's market valuation without impacting our internal targets, and the margin is even higher in relation to the covenants in our bank agreements. Please turn to page 6. Reported equity decreased during the quarter and amounted to 123 SEK per share. The long-term asset value, the EPRA NRV, amounted to 146 SEK per share. The equity-to-asset ratio was unchanged at 47%, and the loan-to-value ratio increased by one percentage point to 43%. Both of these key performance indicators confirm our continued strong balance sheet.
The interest coverage ratio, as expected, has decreased in line with increased interest expenses and amounted to 2.4, a decrease of 0.1 since year-end. Now please turn to page 7. Financing is naturally still in focus, but as I said in connection with the Q4 report, the market situation now feels significantly more positive. This positive development has strengthened in early 2024. There is a strong interest from investors in the capital market, and the margins have continued to come down to levels that are now competitive compared to banks. The commercial paper market is functioning well. We have reduced the margin in a couple of steps and are now issuing three-month commercial paper at a margin of 55 basis points. As stated, the bond market is also functioning well.
In February, we issued SEK 1 billion in a public transaction, a 3-year bond at a margin of 145 basis points. Since then, the margins have come down further, and we see a strong interest from potential investors. The banks are also continuing to show that they have more capital to lend to the sector and to Fabege. And drawn revolving credit facilities of total SEK 6 billion provide us with continued security ahead of upcoming refinancings. Please turn to page 8. We have worked for many years to spread our loan maturities, as shown in the graph. The strategy of long-term fixed rates period is unchanged, and we aim for distribution of our loan stock among several sources of financing. The short-term funding via commercial paper, the green bar chart, is fully covered by backup facilities.
We have facilities in place to cover the upcoming bond maturities in 2024 and also in 2025 if required. However, the market conditions are now more attractive, of course, and we intend to refinance our bond maturities with new bonds. The bank facilities are continually refinanced through extensions. Page 9, please. Of the loan portfolio, 56% is fixed, mainly based on long-term maturities and mostly through straightforward interest rate swaps, supplemented by some fixed-rate bonds. Approximately 40% of the current loan portfolio is matched by fixed-rate terms beyond 2025. During the spring and autumn, we have continued to work actively with callable interest rate swaps with the aim of reducing our interest expense. The average fixed-rate term amounts to 1.9 years. Adjusted for the estimated maturity of the callable swaps, the fixed-rate term increases to 2.8 years. Fixed-rate terms provide us with protection against rising market interest rates.
In the short term, the higher market interest rates will thus have more limited effect on our interest expenses. For a moving 12-month period ahead, an increase in the market interest rate will generate a higher interest expense of approximately SEK 139 million, all else unchanged. And the opposite will, of course, come with decreased interest market rates. And now back to Stefan.
Thank you, Åsa. As Åsa mentioned, we chose to externally value about 70% of our portfolio even this quarter. And of course, the valuations are based on the transactions we saw in our market. The transaction market as a whole has continued to remain relatively slow, but the transactions that we have seen have confirmed the valuation levels. In the transaction market, as you know, we don't see any distressed sellers. Of course, there can be distressed sellers in other markets, in other segments outside our core markets. And some of the transactions we saw, you can see here on the slide. They are in the inner city of Stockholm, for example, at Fleminggatan east of Kungsholmen. There were some transactions and also at Vasagatan close to the central station. The yield levels, you can see, they confirm about 4.5% for many of them.
The buyers are mainly the pension funds and some of the funds. The pension funds and the fund managers are still a lot to invest, actually. So there is, and we also see the gap between the sellers and the buyers are closing during the last months. So maybe, and hopefully, there will be more transactions during the next rest of the year. Will we do any transactions in 2024? Maybe, and if we, we will probably be more on the selling side than on the buying side. That's what we said before too. Next slide, please. When talking about the Stockholm market as a whole, we continue to see increasing vacancy rates. Especially in some sub-areas, for example, in Kista, I think it's up to more than 75% now.
We have helped to increase that with taking some new tenants to moving to Solna, which is still quite attractive. Even there I can see some vacancies. But we also for the first time see some increasing vacancies in the CBD. There is a stable rent, rent levels, but the increase in vacancies is mainly it's some companies that are, for example, not only because of the working more flexible, working more from home, but also that has been going from own rooms to more activity-based offices. So a lot of reasons. And some of the tech companies, for example, are decreasing because they are not growing the way they expected some years ago. There is, as a whole, some uncertainty in the rental market. For the first time in many years, we can see a decrease in the number of office workers in Stockholm, at least flattening.
It's flattening out. And of course, as we said before, many companies and public authorities are thinking about how to use their office. I'm a strong believer that they have no doubt about the important role of the office, but they rather discuss how should they use them or how should it look. And that's also why we have an important role as an advisor for them in many discussions. The tenants we see that have been there are also tenants that have been late, for example, public authorities in the journey to reduce the number of square meters per year, and that they're doing so now. This has been a trend throughout the last 20, 30 years, but it's not a new trend.
But in general, I think we have a lot of discussions, but it continues to take time, and I think that's true for all our colleagues in the sector too. Next slide, please. We have a stable, as you know, a stable customer base, which is it's not something new, but I think it's important to emphasize when we're discussing our figures. And that also means that we have, over the last two years, achieved an increase of more than 20% and almost 20%. And as Åsa mentioned, that's also the main reason that our rental income increased this quarter by about 10%. Next slide, please. Net letting was negative. I know it disappointed me this quarter.
Mainly, it was mainly due to the fact that some, I think it was two public authorities, after many years, chose to leave a property in the Stockholm inner city, and move to Östra Kungsholmen, actually. They also, after more than 20 years, liked to modernize their office, and we couldn't find in our portfolio any good alternative for them, unfortunately. The next slide, please. Renegotiations. As we said before, most of the contracts that we're right now are extending as unchanged times due to the big increase we have had by the indexation over the last years. One that has been renegotiated is about zero, but it's only SEK 25 million renegotiated in the beginning of the year. 250 million, more than that, has already been renegotiated last year when the current agreement expires.
But when we're looking forward, of course, there are some leases in the portfolio that are below the market rent still, but we also have to be realistic and see that there are some, as we said before, that are above the market rent when we've been negotiated in the future. Next slide, please. We have said for a long time that the long-term goal is to go back to the level of occupancy rate for 94% to 95%. And that's what we're working for. This quarter, we saw a small decrease in the occupancy rate. I think it was 0.4% or something. But it looks a little bit bigger here. But the total tendency for all negotiations right now, and it's continued to take longer time, and that there are reluctances to take decisions. And that is nothing what we saw also last year.
It has not increased, but we don't see any big improvement of the decision-making. But we have a lot of discussion going on, and that feels positive. What's true, that's even more true today, is the expression location, location, location. It's about good communication for the public transport, has to be very important. And also the flexibility is very high up on the agenda. As we said before, vacancies are increasing slightly in Stockholm as a whole, but I think the rental market continues to be relatively fundamentally strong despite that. Next slide, please. We used to show this to show you how the rental development will be for the next four quarters. And it's stable. We will see in the second half of this year that the Opera and Dramaten, the Royal Opera, and the Royal Dramatic Theatre will move in the building in Flemingsburg.
If we look even more further on for the, so we start with 2026 instead. With what we know today, the project portfolio will be projects going on today will be finished and will increase the rentals with about SEK 380 million, I think it is today. So next slide, please. I'll include investments. As we said before, this is SEK 2.8 billion this year. The Q1 was SEK 645 million. We will be very restrictive in terms of starting new projects in 2024. The only we have been starting, which I will tell you a little bit later on, is in Birger Bostad residential project. Next slide, please. Yeah, this is the same projects that we have been showing now for quite a while. As we said, most of them will be finalized this year and next year.
The positive is that we have been continued to increase the occupancy rate, and now it's now 86%. We have announced some new agreements for Polisen at the Korphoppet in Hammarby Sjöstad. And they also will, and so that is positive. We have good discussions with the Haga Norra project accorded, and we also see increasing for we have some also for the last square meters in Semaforen. So it looks positive, and as I said, this will add for the coming 16 months it will add another SEK 380 million in increased or in rental income. So next slide, please. In early 2024, we began the next phase in the development of Haga Norra, when Birger Bostad started to build 285 apartments, of which 75 will be rental apartments. We see continued interest for housing in this area, in good locations. It's a very good location, Haga Norra.
We will greatly start to sell the apartments during the second half of 2024. Occupation is expected to take place end of 2025 and 2026. So, Åsa, please tell us a little bit more about the sustainability.
Yes, I will. Please turn to page 20. There's not so much happening during a single Q1, but we do have some news at least. There was a cold winter start to the year, but in spite of that, we managed to keep energy consumption at the same level as the previous year. As I have told before, the target is to reach an energy consumption at the level of 70 kWh per square meter this year. During the quarter, we started the process of recertification of 24 properties in our investment property portfolio. We also received a very nice acknowledgment that the project property Separatorn 1 in Flemingsburg, the office building for Alfa Laval, achieved its target level of BREEAM Excellent with a good margin. In addition, Fabege has been included in the OMX Sweden Small Cap 30 ESG Responsible Index on Nasdaq Stockholm.
This is further proof that strengthens our position and shows that their sustainability work is taken very seriously. The index follows the performance of the 30 most liquid companies with a market capitalization up to a certain level that are listed on Nasdaq Stockholm, and whose issuers meet the special ESG criteria. Fabege's share is already classified as a green share on Nasdaq Stockholm, so-called green equity designation. Now back to you again, Stefan.
So thank you. To sum up a little bit, I'd like to show you some of the priorities we are focusing on for this year. Of course, we cannot influence geopolitical turbulence and the big economic situation. Cost control. Of course, this is always important, in good times and poor times, or bad times. But, like other companies, we always have to distinguish between good and bad costs in everything we do. And I don't like to talk about bad costs at all because they shouldn't exist. Unfortunately, sometimes they pop up. So we have to work with it. The daily grind is a very important business like ours.
We also have to dare to think in new ways and differently in order to bring down, for example, construction costs, which is a big focus for this year, to be able to continue the development of our products in the future. We have a lot of good examples of good costs in the daily work, but also how we can use AI to be more efficient in all everything we do. Enable future products, of course, to the cost of construction is one important part. But we also have, we are right now continuing the work on our planning processes in the focused areas. So we continue that to be able, if we find the right tenant, for example, to start the work in the future. So we're also starting to also be able to start letting works. We have to have approved local development plans.
We have continued to marketing and working actively on making all those areas attractive, attractive to all the areas. That's one of the main advantages to be focusing on some areas, is that we can really affect the impact the way tenants and companies are experiencing our areas. And that also means that we can develop, for example, and providing new services in the area to be able to make it even more attractive. Another focus is, of course, to refinance our bond maturities and secure access to capital. And as Åsa already has told you about this. And today I feel comfortable about our refinancing situation, which I've been very comfortable with this all during these turbulent times and also with the good relationship with the Nordic banks.
Then we like to, we should continue to be at the forefront in terms of sustainability. That's a part of our DNA. Many view this as a cost. But I see it as a long, natural long-term investment. And also, if you don't do it now, you have to do a lot more in the future. And it's like any other debt. You should be on the balance sheet at that time. So to continue to work with it in the daily and with a good planning is important, and also we reduce the investment for doing it. We also see both internal and external pressure for being in the forefront for this. So we are also, we are continuing the important work on helping to improve safety and well-being in the place, the areas we're operating in. This is also part of the business for us.
This can be occurring to focus on increasing the opportunities for meaningful leisure times for the people living and working there. Help the education systems. Also get access to practical training and work. We are working actively along with municipalities and other companies and other actors to create favorable conditions for positive development, and which also, of course, is good for our local business. So, of course, while the focus is also very, I think it's very good for both short-term and long-term business. If not doing it, it should be a disadvantage for us. With that said, I will leave, we will open up for questions. We see 20, maybe we said it before, but we see 2024 as a year maybe of transition into a more positive 2025.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Jonathan Kownator from Goldman Sachs. Please go ahead.
Thank you for taking my questions. I've got two questions, please. One on rental outlook and occupancy, and one on the financing. So first of all, on the rental outlook, I've seen on page 16 that a few of these bars are going down to the year. Just was wondering if that includes disposals and closing of disposals, or if that's already departures that you're aware of. And connected to that, I see that one of your top 10 tenants is departing, or is, sorry, as a year, as an expiry in 2024. And I just wanted to know if you already had visibility on what was going to happen there. So that's the first question, please.
All right. Well, the staples in the graph, they reflect the coming; they include coming inflows and outflows of rental income. So tenants leaving that we know today are included, and tenants moving in that we know today are also included. But so just as the portfolio looks today is what is reflected in the graph. And no further indexation from 2025, so just as it looks today.
We can add that maybe, we can add that maybe you have an upside in the indexation if you look at the 2025. And also we are quite conservative when forecasting the parking, the incomes from the parking.
Okay. So fairly flat overall, thank you. The second question is on ICR, actually. So I've seen that it's come to 2.4. Obviously, you're above your targets and well above covenants. How about discussions with rating agencies? Is there a particular threshold on that CR where they're comfortable with for your actual rating? Is there a potential threshold that will be that they've indicated to maintain investment grade rating? Obviously, I know it's a set of factors, but just focusing on ICR, whether it's part of the discussions, thank you.
We have been in discussions, or we are providing a lot of information to Moody's, who put the rating on Fabege. They don't have a specific threshold on the ICR. As they communicate, they would like it to stay not too much below three, but they are confident with the levels where we are now. We have also been very transparent with Moody's on the outlook for 2024 and how it will progress in the next coming years. Since 2024 will show a decline in the ICR, and then it will come back in 2025 when we have the tenants moving in from finalized projects. So this is information that Moody's already have and which they had also when they made the affirmation of the rating in November 2023.
You also had another question first about the tenant that has a contract expiring in 2024. That is renegotiated in good terms.
Okay, excellent. Thank you. Just do we know when Moody's next review? Is it in the spring typically, or?
It will most probably be before the summer or shortly after the summer.
All right, excellent. Thank you so much.
The next question comes from John Vuong from Van Lanschot Kempen. Please go ahead.
Hi, good morning. Thank you for taking my questions. Could you provide a bit more color on the 10% like-for-like rental growth? I mean, October inflation was 6.5%. You signed relettings mostly unchanged. Occupancy only improved by 60 basis points compared to last year. So what is exactly the bridge here to 10%?
Some different items, of course. The major impact is from the indexation of 6.5%, as you mentioned. We also had an extra income of SEK 12 million, one-off item for a penalty from a tenant who is going to leave Fabege. And then incoming rents from finalized projects. And the biggest part of that comes from Convendum moving into a property in central Stockholm.
Okay, so projects are included there. So on comparable portfolio, the only thing excluded is acquisitions and disposals.
Yes, that's correct.
New build projects, so it's old buildings. Projects and old buildings.
Okay, so renovation is included, but new build not.
Convendum is moving into the Hägern at Drottninggatan in Stockholm, and that it's an existing building.
Yeah, okay, clear. Thank you. And then moving on to your target on occupancy. I think in your report you mentioned that you want to move towards 95%. How do you plan to move here? Are you moving more assets into the renovation pipeline, or do you want to wait for tenants first before you start spending CapEx?
Normally, yes, yes. You can say part of it is that we hope that we'll be able to fill up and come back to better in Solna Business Park. And we see that trend is moving in the right direction. We also have some other spaces in the city that we hope we can. So it's a lot of different actions, but we are working hard with the team to go in that direction, and I'm quite optimistic for that.
Okay, and over what time frame do you expect to move towards that 95%?
We haven't set any target, but within the next years, you can say. But it will take some time since, as you know, the discussions. We signed the contract now that we're moving next year maybe. And so the discussions right now take some time. So we have to give it some years.
Okay, that's fair. And then you just also briefly touched upon Solna Business Park. Of course, you just signed a lease yesterday. How much CapEx are you going to spend on this lease or on moving them into the building?
That contract will be, I don't like to mention the exact number, but it's relatively expensive. It has been an area or space that has been relatively rough before. But that property is we are developing now, Smeden. It's a big one in Solna Business Park and the largest property there. And we also have some other areas we are discussing right now with other tenants. So I think it will be a good investment for the whole of Solna Business Park.
Okay, that's clear. Thank you.
The next question comes from Alexander Totomanov from Green Street. Please go ahead.
Thank you for taking my question. I think only one left that hasn't been asked. With regard to the negative net letting figure for this quarter, you mentioned it was driven by two public sector tenants moving from the inner city. When do you expect them to move? And have you already started reletting discussions for the inner city properties? And do you expect the inner city properties to need extensive redevelopment?
First of all, I think it's the second half of 2025. So it's during 2025. They will move out. They have been sitting with us for a long time. Unfortunately, we lost them since they like to move from owned rooms, so to say, to more activity-based. And we didn't have the space, and they didn't like to sit in the during the refurbishment period. So, but we, and when it's about 5,000 in total, about 5,000 square meters in a very good location. So I'm also optimistic that we will find new tenants there with maybe even or probably even better terms for us. So hopefully for over the time, it will come out some positives on this.
Thank you. Thank you very much.
So if there are not any further questions, so thank you very much for joining us. Thank you for asking the questions. Please give us a call to Åsa, Peter, or myself if you have any further questions or comments or anything you'd like to know. Have a nice day and thank you.