Welcome to Fabege's Presentation of the First Quarter 2022. I'm sitting here with Åsa Bergström, our CFO. Åsa will ask you to use the time after the presentation to ask questions. I can help with a dialogue today. Please go to slide. The second slide, please. Despite a turbulent external environment with the war in Ukraine as a main event during the first quarter, the rise we have had in the inflation and interest rates, I think we delivered a strong report. I'm very satisfied with that. We perceive that the market is stable with good demand for office premises in all our areas. New lettings and renegotiations are being completed at good levels.
Transaction markets in the market where we are active have been both during the autumn and the winter and now in the beginning of this year at record levels. I think it's reflected in lower yield requirements and positive changes in the value of our portfolio. We have also carried out two strategic acquisitions during the first quarter on the south side of Stockholm, and we will come back to that a little bit later. Åsa, can you please start to go through the result in a little bit more details, please?
I will. Thank you, Stefan. Please turn to page four. I agree that we can be very satisfied with the start of the year. We reported a better result right across the board compared to the previous year. Higher income, improved net operating income, and profit from property management. Rental income amounted to SEK 762 million, of which around SEK 6 million was of a non-recurring character. In an identical portfolio, income increased by 8%. Roughly half related to occupations in our project properties and the remainder mainly related to index adjustments, lower discounts, and increased re-invoicing of property tax. Increased operating expenses were mainly due to higher property tax and higher electricity cost. Meanwhile, other winter-related expenses decreased compared to the previous year, and the surplus ratio came in at 73%.
SHH gross profit amounted to -SEK 7 million, of which SEK 8 million related to costs for central administration. Income recognition takes place in connection with the completion of projects and final recognition did not occur in any projects during this period. We will review the methodology for allocating administration costs to the projects in order to ensure more even income recognition in the future. Central administration came in at -SEK ` 25 million. The previous year's expense also included non-recurring costs for Fabege's new head office. Interest expenses increased slightly compared to the previous year, which was due to an increased loan volume. The average interest rate fell slightly to 1.69% from 1.71% at year-end. Earnings in associated companies amounted to -SEK 3 million and mainly related to capital contribution to Arenabolaget during this period.
We therefore reported profit from property management of SEK 381 million, an increase of approximately 10% compared to the previous year. The strong property market is reflected in continued declining yield requirements and positive changes in value, as Stefan just mentioned. Total unrealized changes in value during the quarter amounted to almost SEK 2.2 billion. The average yield requirement decreased further by 6 points to 3.70%. The yield levels at which transactions were carried out late last year and early this year have now affected the yield requirements in the valuations with some time lag. The deficit value in the derivative portfolio changed to a surplus value, which means, an unrealized positive change of value of almost SEK 900 million. Finally, the tax expense amounted to -SEK 730 million and related to deferred tax only.
Please turn to page five, key ratios. Reported equity increased by SEK 4 per share to SEK 145 per share and the long-term net asset value or the EPRA NRV amounted to SEK 179 per share. The approved but unpaid dividend of almost SEK 1.3 billion has been entered as a liability. The only key ratio that does not currently meet our target level is the debt ratio, which amounted to 14.3. However, this has improved somewhat since year-end. Otherwise, the key ratios are in line with our goals and expectations. Our balance sheet is still very strong with a high equity asset ratio and a low loan-to-value ratio. Now please turn to page seven. We were finished with the year's refinancing of bank loans before the year end.
In February, we issued bonds of SEK 400 million with a three-year maturity at a spread of 100 basis points. Furthermore, we issued bonds of SEK 600 million via SFF with a two-year maturity at a spread of 69 basis points. Since the end of February, the war in Ukraine has created turbulence and has led to rising spreads in the banks and the capital market. Even though there is still good demand for Fabege's commercial paper and bonds, issues have been carried out at higher spreads. Current commercial paper maturities have been rolled over at short maturities. In April, we issued a further SEK 550 million in a two-year bond at a spread of 110 basis points. We maintain a reserve of unutilized facilities in the form of revolving credit lines of just over SEK 3.6 billion.
We did not enter into any new fixed interest terms since year-end. Of the loan portfolio, around 75% is now fixed, mainly based on long-term maturities and mostly through straightforward interest rate swaps, supplemented by some fixed rate bonds. The plan is to replace maturities with new long-term fixed interest terms. During the first quarter, we continued to repurchase shares, approximately 2.3 million shares in total. Our own holdings now amount to 11.8 million shares, equivalent to almost 3.6% of the total number of registered shares. The shares have been repurchased at an average price of SEK 125.81 per share, and we will retain those treasury shares until further notice. Please turn to page eight. The strategy of long capital maturity and the high proportion of fixed interest terms remains unchanged.
In other respects, we aim for a distribution of our loan stock among several sources of financing. Other loans in the chart, apart from bank loans in the Nordic banks, also refer to loans from Brunswick and European Investment Bank. Now back to Stefan.
Thanks, Åsa, for the excellent review of the results. I think maybe let's go through a little bit about. Tell you a little bit more update of our property portfolio. Please go to slide 10. As Åsa mentioned, our value growth was almost SEK 2.2 billion, which means that we now have a property value of approximately SEK 86 billion. Our project and development properties accounted for about 17% of the value, and during the first quarter, approximately 40% of our portfolio was independently valued by external valuers. The increase in the number of properties from 94 - 100 was mainly due to a property division in Haga Norra and to the fact that our REIT developer SHH expanded its portfolio by a property. Slide number 11, please.
When the world around us is so turbulent, it's reassuring to have stable customers with long or even very long leases. We see in the daily work an emerging trend that the smaller customers in the new renegotiations would like to have shorter leases, lease terms or shorter lease terms, but larger customers are not afraid to and would very often like to have long-term commitments. That's also what we saw in our large latest major lease with Alfa Laval that, for example, expires in 2047. Slide 12, please. When talking about if we look at the Stockholm inner city where we have almost 40% of our property value, this sub-market is showing very, very strong demand. I see.
I also can say that what we have seen when we have our colleagues in the sector have came with their report that the demand in the inner city is very strong. We see a trend, a continuing trend that the customers are requesting good locations, and they are willing to pay high rents, but perhaps with a little less floor space for good location for when talking about the good locations. This is of course due to the fact that the companies will and they very often have to have an office that can attract employees and to, for them to be an attractive employer. That's what we see now, and we think it will continue and will even be strong. On this picture you see the Wenner-Gren Center. We said it before. They also announced a new project in future.
We think it will start about 2025, 2026, where you see in the middle of the round, the traffic coming out from the inner city, that we will have a building of 9,000, a new building of 9,000 sq m in the future. Please go to slide 13. As you know, we see a huge future potential in Hammarby Sjöstad. It will continue to develop very well for the next years and the next decade. The district has a good mix of housing, offices, and services, and the area will grow together with the Stockholm inner city in the longer term. During the quarter, we took the decision to start the reconstruction of the property Porten 1, which we acquired in the Q2 2020.
Slide 14 please. In Arenastaden in Solna, we see very good rental levels and strong demand. The problem is that right now we don't have any major modern space that is available. We are working on getting our approved zoning plans so that we can start new projects. During this year, the focus will be on letting the final floor space in Poolen. Tietoevry is right now moving into the major space of the property Poolen, and they will be in right now and during May, especially May. A lot of focus will be during this year on letting the final floor space in Poolen.
In longer term, we will also have a better mix in the whole area, in the whole of Arenastaden. Better mix of properties with, we also mean that we construct about 750 new apartments by 2026. Slide 15, please. In Haga Norra, which is a part of Arenastaden, you can actually see here our properties that we are starting right now in the middle of the picture. That we have started an office project, the Hus 1 of 43,000 sq m. This will be a multi-tenant building involving an investment of approximately SEK 1.4 billion.
We haven't been worried about starting a project without any anchor tenant, like we usually do, but the property will be situated in a very attractive location in between the center of Arenastaden and Haga, the Haga Park. We aim to complete the project by mid-2024, and we hope to sign the first new contracts during the end of this year and during 2023. There will also be another addition, another four or up to 600 apartments in this Haga, in the Haga Norra area. Please go to slide 16. In Solna Business Park, we have the highest vacancy rate right now in our areas.
We have not carried out so many investments in the areas, and we acquired it 15 years ago, and we are now working with two new projects to produce and even also produce more of the residential buildings in the area to get a better mix, to have a lively 24/7. Also with having the high vacancy rate, we also mean that we have the highest, maybe the highest potential in this area. Right now it's an area that currently becomes quite deserted after office hours. It makes for not that good range of services for our office customers. That's something we're now working on. We're aiming to add another 350 apartments by 2026.
We are going with a better mix of services, and list of activities is long. Please, slide 17. Flemingsberg is going from strength to strength, and that's also where we see huge potential here. We have during the first quarter acquired a little bit more land here from Skanska. Now everything you see is what should be clear here in the picture is what we own today and we're working with. We have the Alfa Laval property that will be, we will start construction end of this year. The acquisition of Generatorn 10, and the project started for Operan & Dramaten.
Next slide, please, is showing how we started to construct the first step of Operan & Dramaten building, and which we finalized in and is finally now underway building it, and the project will be completed during Q2 2024. When talking about Flemingsberg, we have now the focus on the planning processes. We have a total of more than 500,000 sq m development rights, which is approximately 50% of that are residential. I think when I say we are so positive, we start now seeing the potential out there, which I hope we can tell you much more about in the coming quarters and the coming years. Next slide, please.
When talking about the transaction market, Åsa started earlier said that it has been a very strong transaction market in our areas. There are few transactions in the city, but the ones that have been done at very low yields. Yields quite much lower than actually even the updated valuation yields. So it's a strong few properties, but strong market. If you go to the next slide, please. You here see the Karlbergsvägen 2 in the south of Stockholm, which we acquired during the beginning of April, actually. We'll have it in this. We now like to tell you a little bit more about it because we acquired it for about SEK 800 million.
It's fully rented, but there is possible building rights. There is a potential to develop it. We think it's has good potential also in the rental levels, and it's close to Hammarby, and it's on its way to Flemingsberg. It's 22,000 sq m. I think this will be a really good deal for us in the future. We'll put a good potential in the south. As you know, we believe in the south of Stockholm since before. Next slide, please. I already told you about our acquisition, Generatorn 10. You can see here in the picture. We acquired Generatorn 11 last year, also from Skanska. They are both important for the development of the future city center in Flemingsberg.
Next slide, please. The rental market, we go to slide 23, please. The positive trend is continuing in the rental market from the previous quarter. There is a lot of inquiries and viewings. But we still see a little bit wait-and-see attitude when it comes to taking decisions among the larger discussions. We continue to see uptick in the rent levels. It's a strong market, as we said, and that's mainly in the CBD, but also in the other areas we have. Arenastaden has had very strong. Hammarby Sjöstad, good demand.
Maybe in the Solna Business Park, there's still good demand, increasing demand, but as we know, we said you know we have the vacancies there. Next slide, please. In the Stockholm market as a whole, we have a relatively low vacancy rate. We have seen a relatively modest growth in the office stock market or office stocks for the last 15 years. There are projects going on, but it's a very healthy market, you can say, and still a good market in many ways. Next, please. That's also what we can see in our net lettings, for we have a positive net letting of SEK 8 million.
We had last year a record level at more than SEK 160 million, and we're positive for the rest of the year. We have said that we will have a goal of at least SEK 80 million, and I think that's what we're hoping to at least reach. Next slide, please. Leases of about SEK 20 million were renegotiated during the quarter. A good increase on those with +17%. We also extended a little bit more, but there were contracts at good levels and without doing any, maybe. When talking about unchanged terms, it's also maybe without doing any investments. We have started the year with +2.8%, which was a very good start for us, of course, on the whole of the portfolio.
It also sets some limit for the whole of the regular negotiations, especially when you also see increasing energy costs and also tax costs. Next slide, please. As expected, vacancy rate increased in connection with the fact that the Swedish Tax Agency has now left the premises in Nöten 4. The property will be adapted in order to be rented out to several tenants. I will tell you a little bit more about that because yesterday we published our plans. I still don't see any structural vacancy in the portfolio long term, and I'm certainly not satisfied with occupancy rates of 89%, and we will work actively with that. We see it as a potential.
As I said before, it's a lot of vacancies are mainly in Solna Business Parks. Next slide, please. Our projects and we can go directly to slide 29. We invested a little bit more than SEK 400 million during the first quarter. We have said that with the volume for this year, we'll be approximately, in total, SEK 2.4 billion. Last year, it was a little bit less. It was about SEK 1.9 billion. In addition to the SEK 2.4, you have to add the housing development that is that the SHH is working with.
We also have some challenges, of course, when talking about the project, and that are the costs. High inflation and the turbulence in the world around us will of course imply a risk for long term, the long delivery times, material shortages, and higher construction costs, both in terms of material and labor. This will not have any major impact on our ongoing projects which are progressing according to the plan. It will and can have effect on the future projects. Hopefully, it will not prevent us much from starting projects, but we must think outside the box, and we will have an extra focus on the costs. I think we will as a larger company be able to solve a lot of the challenges we have.
Of course, there are a lot of question marks about the costs situation right now. When talking about if you go to the next slide, I mentioned earlier Nöten 4, the huge vacancies we got during this quarter, 50,000 sq m office space in Solna Strand. We published yesterday the plan for how we will develop this, and I think it's very excited. We will start the project during this year, and it's called Staden Under Tak. I think the English translation were The City Under the Roof. We will see. It's a huge property, and it will be like you can find. You can have an office, you can have the gym, you can have the flexibility.
As you see here, it's very close to the waterfront. It's a very, I think this can be a very attractive building. We have to invest in it. We have to work hard with it. It's a huge vacancy, but it's huge, also huge potential. Next slide, please. Another large project is residential project. We have a joint venture with Balder in Tumba, south of Stockholm, close to Flemingsberg, where we will have a start to build approximately 1,050 apartments, and also approximately 50,000 sq m. Next slide. On the top of that, you can also add some other residential projects that we are working with right now in SHH.
It's in Flemingsberg, also in some other small cities in Sweden. Bålsta, in Västerås. Svalöv c lose to Malmö, Landskrona. That's what SHH has been good at in the past and what they have a strength in building smaller projects with good return. We will continue to do that, but we have focus on the Stockholm area. We have focus on the large residential projects that we will tell you more about during the year in Solna and Flemingsberg, where we're talking about hundreds of, as you know, hundreds of apartments. Please, next slide. We already said Alfa Laval will start the project in Q3 2022.
We will invest a little bit more than SEK 800 million, and it's in total 27,000 sq m. It will be completed during summer 2025. This is what we're working on right now. We spend a lot of time on it, of course, in Flemingsberg. Next slide, please. Now I will ask Åsa to tell you a little bit more about our sustainability work and all the activities we're doing there.
Yes. Thank you, Stefan. We can move on to page 35. Sustainability is an ever more important factor, and external interest in sustainability issues and Fabege's sustainability strategy is increasing. Only during the last two weeks, I have received several emails with questions regarding data from our sustainability work. Also the new EU taxonomy will impose additional reporting requirements and will hopefully also encourage further improvement of processes both in Fabege and in the surrounding world. Next slide, please. In 2019, we set a goal that our property management should be climate neutral by 2030, referring to Scope 1 and Scope 2, and that the carbon footprint in Scope 3, which is project operation, should be reduced by 50%.
Since 2020, we are measuring and following up with the ambition to gradually reduce our carbon footprint through various measures and innovation. It is an educational journey towards a tough goal but also very inspiring. Please turn to page 37. We also have an ambition to contribute to the community around our city districts through various measures. This work has become even more important with the investments that we are carrying through in Flemingsberg. A number of engagements in Huddinge are therefore shown on the list here, and there will be more examples going forward. Aiming, among them, to help pupils in local schools to be eligible for high school and also initiatives which aim to provide internships and work experience for people who are far removed from the labor market also in these areas.
With that, I think we are ready for questions.
To summarize, we have had a very good start of the year in what we can impact, of course. But on the other hand, we have what's happening in the world, and that's both terrifying and will impact our business, of course. With that, thanks for listening and questions.
Thank you. If you do wish to ask a question, please press zero and one on your telephone keypad. The first question we've received is from John Vuong, Kempen. Your line is now open. Please go ahead.
Good afternoon. Thank you. Thank you for taking my question. Perhaps on the valuation side, it's a bit surprising to see further yield compression at this level. Is this predominantly driven by the external appraisals, the 40%, or are there also adjustments to your own internal valuation model?
Yes, it's a combination. We use the external valuations and the data we get from the external valuers in order to also carry out internal valuations. During this quarter, we valued externally around 40%, and many of the remaining properties have been internally valued. One of the reasons for the positive value changes is that we saw declining yields, another decline by 6 basis points from 3.77 - 3.70 during the quarter. This is one explanation for that is that there is a time lag between what is actually seen on the market and until it is also reflected in the valuations.
You also can say that the yields in the transaction markets and especially yields you've seen in the CBD, for example, in the few transactions have been far below what we have in the valuations. There was some transaction between two of the Swedish insurance companies, AMF and Folksam, for three properties close to the CBD. End of last year, they were at 3% yield about. And the values are still conservative compared to the transaction market, but they have lowering the yield during the quarter. But yeah.
Okay. That's a fair comment. Perhaps as a follow-up on that, what are you seeing in the investment markets in the current quarter then? Is it slowing down or are we still seeing transactions to be finalized?
You can say that.
Perhaps if you could comment on that.
The first quarter was very active transaction market in Sweden as a whole, but mainly in the logistics and residentials. There is one large property out for sale right now, but it's a family-owned, 20,000-something square meters in the city. There, I think there is at least a huge interest for that, and we will see. Probably we'll see that transaction closed in May, I would say. I think it will be at very good levels. There have been very few office buildings out for sale in our core markets or in Stockholm as a whole, you can say.
Okay, that's clear. Yeah, perhaps on the capital structure, I appreciate that you are well doing share buybacks given these well large discounts to your NAV. Given your debt ratio still being a bit higher and well as you just mentioned the strong investment market, should we expect more disposals going forward to manage your average?
Right.
You can say that we have been the last years looking at how to invest, of course, and how to allocate the capital best. We are always doing that. Of course, as you said, the buyback has been one good short. We have been a little bit too. Sometimes we said we have been boring, but we have been active in some of the bids and for the properties that have been out for sale last year. We were, of course, bidding for the buildings that I just mentioned that were sold in the CBD, but we haven't been close to what the insurance companies have been willing to pay.
The property we are buying in Älvsjö, south of Stockholm, in the south of Stockholm, I think it's a good example for where we think it could be interesting. It's low, relatively low rents. It's a relatively large building or property, 22,000 sq m. We think it's a good yield. It's a little bit better than 4.5%, and it's in a area where we think we have a good growth, and we also see a future opportunities for projects. I think that's a good example when we would like to look at them to acquire in the market.
Otherwise, it's one tool in the toolbox. As you said, the levels have been attractive for us.
On the disposal side, I could imagine that there's quite some assets in your portfolio which are a bit drier, where you don't necessarily have the upside for you as an office redeveloper.
In the past, we have been from time to time selling some property where we think we can't develop them more. I think in most of our areas, we still see an upside, long-term upside on the rents, and we also have a good cash flow from them. It's about, of course, we have it as an alternative if we find better investments. We have, as we also said earlier, that we have a very strong balance sheet. We still have a low loan-to-value. The debt ratio is also an internal debt, so we have very good room for the covenants we have. It's. We have a lot of.
We have the strong situation in the balance sheet.
Okay. That's helpful. Thank you. That's it from my side.
The next question is from Jonathan Kownator of Goldman Sachs. Your line is now open. Please go ahead.
Hi. Thank you for the presentation. Thank you also for the color on lettings and occupancy. I want you to come back to that point, please. You've highlighted obviously areas where you want to invest and reduce vacancy. Can you help us perhaps understand a bit in more details what needs to be done to reduce that vacancy, and what sort of reduction you think you can target? Are you going to have to redevelop properties and invest CapEx? Is it just a letting effort? Is it just that the area doesn't attract tenants at this stage? That's question number one. The second question, which is a bit of a follow-up, to some extent, you've highlighted pretty strong demand for Arenastaden and for CBD.
You're right now investing in the south when you're finding opportunities, and you're saying that it's difficult obviously to find opportunities elsewhere because there's nothing on the market. Can you help us understand the demand for these type of areas to the south of Stockholm at this stage? I appreciate maybe the product is just not there yet. In many markets, we tend to see, throughout Europe, a concentration of tenants towards the center of the cities, and they're, as you were describing, ready to pay for less space, but they're no longer really that interested in some premises in the outskirts. Do you think it's gonna be different in Stockholm? Thanks.
I don't know if Stockholm is that different, but I think there is definitely a different submarkets in Stockholm. In Arenastaden or in Solna we have larger offices, we have lower rents, and so it's mainly when you need more space, more square meters, and you can't afford to pay what is in the CBD levels. In the south, t hat's also why we continue to develop Arenastaden. We also have to remember that we have the railways and the subway underground going in most of our areas.
In the south, we have much lower rents normally, not in Hammarby, but you go south, so if we go further south to Älvsjö, for example. More than 50% of the people in Stockholm are living south of Stockholm. There is a lack of modern offices there. We know that companies need maybe like also to have a small hub in the south. We know there is a lot of companies that are already located in the south, but they need more modern offices. They need to, or they need to grow. We have in Stockholm quite an interesting line between Uppsala, Karolinska, and Södertälje.
In Uppsala, you had Pharmacia, which is part of Pfizer today. You had in Södertälje, AstraZeneca, and you have in the middle of the world-famous Karolinska Institutet. All in all, what that means is that we also have a lot of med tech, pharmaceutical companies, the whole railway. With that said, in Flemingsberg, for example, we have a lot of them already have a lot of students. You have a lot of people living there, but there is a lack of modern facilities for offices. That's why we're also so positive. The price for the land, it's much lower in that part.
We think we will be able to develop a very interesting build in the south. We will be able to do much better when we look at what we can acquire the land for and what rents we start with. In Alfa Laval, we start at SEK 2,700 per sq m, and we're seeing that will be a long-term upside on that. A little bit the same story we have done in Arenastaden. We acquire land quite cheap, and then we develop the area, and then we hopefully can get the yields to come down and the rents to go up.
It's long-term, but it's very interesting, and that's also why we're positive both to the north side, Arenastaden and Solna, and to the south. That is two different stories. You'd like to add in something also?
No, I think you probably said most of it. You said. You mentioned the one important thing, that it's connected to the railway system and the subway. Another thing is that the in Flemingsberg, it's a large area, which is going through a major development in the coming years. By owning the majority of the land, we have the key to make a difference like we have in Arenastaden where rent levels during the 15 years that we have been investing in Arenastaden have increased from around SEK 1,600, SEK 1,700 up to SEK 3,500 until SEK 4,000 per sq m. With developing the area, we can create more than the market has created during these years, and this is also something that we are looking for in the potential in Flemingsberg.
Can you help us understanding a bit, you're working on a number of development opportunities. Some of them you're launching without pre-let. Where is the demand for pre-let currently? Are you active having discussions, you know, having active discussions with potential tenants? Or is it a bit I mean, you were saying that some decisions were taking a long time to come through. Is that related to these pre-let projects in particular?
Both yes and no. If you're talking about the single tenant buildings like, for example, in the Alfa Laval, it took some time to get the signing of the contract because of the pandemic, and now we have this little bit the same with the really large contracts or single tenants when talking about the Ukraine situation. Well, the war. When talking about the multi-tenants building, for example, what we have now have started to build in Haga Norra, I think it's more that you as a small or middle-sized company, you don't make the decision to move before three years in advance. You do it, maybe one year before or one and a half year before.
It's quite natural as to the way the market works today. In total, I think the Stockholm market is very healthy because there are not that many built on speculations and it's still quite small volumes. It's been that for the last 30 years almost. It's a healthy market as a whole. We have to build on without having signed contracts because as you said, the small and mid-sized companies don't have that like to sign closer.
Okay, thank you.
Any further or something, Peter?
Very happy with the question.
Do we have anything from the mail? No?
No, nothing from the web.
Okay. Thank you very much for joining us, and don't hesitate to give us a call. You're always welcome also to visit us here in Stockholm, and I hope to see you soon in real life here. Thanks for today.
Thank you. Bye-bye.