Welcome to Fabege's presentation for the Q2 and the H1 year of 2023. As usual, we will finish up with a question and answering session, and it's also, as usual, possible to submit questions by email to ir@fabege.se. You can do that during the question and answering session. Please go to slide number two. I will not use up much time to go through this slide, but as you know. I'd like to stress the focus we have at Stockholm, and especially some suburbs in Stockholm, where we have the modern portfolio in rail-bound locations, very good public locations in focused areas. Next slide, please. To summarize the first part, we say, it's a strong half year.
We have increased rental income, we have operating surplus, we have, of course, negative values in the property portfolios. I think that was everywhere, what we could expect. We have a positive net letting in the Q2, and in total of the half, H1 year of SEK 22 million. On top of that, we have signed, as you know, the LOI regarding the rental of the entire Nöten 4 at Solna Strand. In total, that is 66,000 square meters. We will give more information about that when the contract is signed, and that will be in Q3. That's what we plan. Of course, during the quarter, we also increased interest costs. Also, we'll now tell you a little bit more about the figures in more detail.
Thank you, Stefan. Please turn to slide four. In the first six months of 2023, we reported increased rental income and improved net operating income, which was not fully covered by increased interest expenses. We reported a higher profit from property management for the Q2, specifically, compared to the previous year. Increased yield requirements in the property portfolio have continued to put pressure on property values. Rental income amounted to SEK 1.7 billion, corresponding to an increase of 12% in an identical portfolio. The increase in income was mainly due to the index link increase that entered into effect at year-end, higher parking revenue, and positive net occupations during the period, of which CONVENDUM's move into Bocken 39 at Kungsgatan was the largest one.
This was partly offset by a negative effect of the Swedish Tax Agency's relocation from Nöten 4 on the last of March last year. Increased operating expenses were mainly due to higher costs for energy and snow clearance, and the surplus ratio came in at 74%, which was in line with expectations. Birger Bostad's gross profit amounted to SEK 27 million, as five projects were completed and where final recognition took place during the Q2. Central administration costs came in at -SEK 55 million, in line with the previous year. 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 2.39 at the year-end to 3.1 at mid-year, as high market interest rates are gradually having an impact on our average interest rate.
The result in associated companies amounted to -SEK 27 million, of which -SEK 36 million related to capital contributions to Arenabolaget during the period. SEK 9 million, positive SEK 9 million, related to contributions from Birger Bostad's co-owned projects. We therefore reported profit from property management of SEK 703 million, a slight decrease compared to the previous year, which was due to higher interest expenses, but as stated, somewhat higher in Q2, specifically. Unrealized changes in value amounted to -SEK 3.8 billion, and I will come back to this very shortly. The surplus ratio in the derivatives portfolio decreased by SEK 100 million. The tax expense, which only related to deferred tax, was positive and amounted to +SEK 687 million. Please turn to page 5.
During the first six months, the increased market interest rates continued to have an impact on yield requirements and valuations. There were still only a few transactions in our market, and the valuations have also been influenced by transactions that were not completed. During the quarter, we have independently valued approximately 60% of the portfolio, and the other properties have been internally evaluated. The average yield requirement in our portfolio increased by six basis points during the quarter to 4.17%. The increased yield requirements were partially offset by higher inflation assumptions. Both Newsec and Cushman & Wakefield now expect an inflation rate of 6% in 2023. The average yield requirement is now back at a level equivalent to what we reported at year-end 2018. Total unrealized value, changes in value then amounted to minus SEK 3.8 billion.
Please turn to page six. The simulation shows that we can withstand write-downs of a further almost 20% 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. Next page, please. Reported equity decreased during the quarter and amounted to 134 SEK per share. The long-term net asset value, the EPRA NRV, amounted to 161 SEK per share. The loan-to-value ratio increased to 40%, and the equity asset ratio decreased to 47%. Both key ratios continue to indicate a very strong balance sheet. The interest coverage ratio, as expected, has decreased in line with increasing interest expenses and amounted to 2.6. Calculated on a moving 12-month basis, the interest coverage ratio was 2.9. Next slide, please. Financing.
Financing continues to remain in focus in the current market situation. The commercial paper market is functioning well, and the banks continue to show that they have more capital to lend to the sector. The bond market is still volatile, with high prices. In connection with the bond maturity of SEK 1 billion in February, we carried out a small issue of SEK 250 million. The spreads had then come down to a level which was, as a first step, felt sufficiently okay to show the market that we would like to be active. Since then, the spreads have widened again, and we have continued to prioritize bank debt. During the first six months of 2023, we have raised new bank facilities of SEK 2.9 billion, and we have repaid bonds of SEK 1.2 billion.
We are now in the process of refinancing bank maturities, in Q2 and Q3 2024, and we are also increasing our bank facilities in connection with this by a further SEK 1 billion. Taken together, at mid-year, we had SEK 5.9 billion in unutilized facilities, including the backup facility for outstanding commercial papers. Slide 10, please. We have worked for many years to spread our loan maturities. The slide here shows how the maturity profile looks. The strategy of long-term fixed rate periods is unchanged, and we aim for a distribution of our loan stock among several funding sources. The short-term funding via commercial paper, the green bar chart, is fully covered by backup facilities. During 2023, we have remaining bond maturities of SEK 1.2 billion in total during the H2 of the year.
We are prepared to change over these maturities to bank financing if the market does not improve. As I just mentioned, we are also in the process of refinancing upcoming bank maturities, including raising increased bank facilities to manage upcoming maturities. Page 11, please. Just over 60% of the loan portfolio is fixed, mainly based on long-term maturities and mostly through straightforward interest rate swaps, supplemented by some fixed rate bonds. Just over 40% of the current loan portfolio is matched by fixed rate terms beyond 2025. We are currently holding off on entering into further fixed rate terms, but the longer-term plan is to replace maturities with new long-term fixed rate periods. The high proportion of fixed rate terms today provides us with protection against rising market interest rates.
In the short term, the high market interest rates will thus have a more limited effect on our interest expenses. For a moving 12-month period ahead, an increase in the market interest rate of 1% generates an increased interest expense of approximately SEK 127 million, all else unchanged. Now back to Stefan.
Thank you, Åsa. A little bit short about the Stockholm market. In the beginning of the year, we saw a couple of transactions done mainly between institutional investors. There were pension funds buying, there were lot pension funds or listed companies selling. In the Q2, we haven't seen that many transactions, but the few that have been done has been on good levels. There are some also down with family offices that has been on buying side. Next slide, please. On a little bit more on the rent development in Stockholm. The contracts we are signing has been on good levels. The whole market are still stable levels. Even in the CBD, we can see record levels on some, not in our-
We haven't signed any of those levels, but I think we have been, and our co- connects are seeing, [inaudible] even SEK 10,000, SEK 11,000 per square meter in the city, in the CBD. It is stable market, and when talking about the, we got the indexation of 11%, I can say that we haven't had, we have had very few discussions with tenants. Also in renegotiating, we are, I think the levels is in certain levels we have, as you can see. It's a good, stable rent, rental market. Next slide, please. The takeout is beginning of the year, a little bit lower.
It's less activity, but even here, we see good demand, but longer it's longer decision process, so it takes longer time to get a signed contract. Next slide, please. The offices in Stockholm has the last 10 years, a little bit more than then, been growing, but are flattening out for the last almost five years now. The number of emphasis lease has been continued to grow, even if it's now seeing a little bit more down, but it's a very good, very high levels, and that we see that will continue. With that said, we go to the next slide, please. The vacancies. We have seen a little bit increase in vacancies over the last years, in especially in some part of Stockholm.
In the inner city, and the CBD, it has been very low. In some other parts of Stockholm, for example, Kista, we have larger vacancies. We see also now, we continue to grow a little bit in the beginning of this year, continued to grow, but it's surprisingly, I would say, stable, and it's a good market here. The next slide. Of course, we all the tenants, potential tenants, and I think all companies, and tenants are discussing how will the future of the office look like? We are seeing more and more people coming back to the office. We see more and more companies saying that the office is the base for the business.
Of course, as the digital transformation changed, how we working, of course, both on how we travel and how we have the meetings. We see. That means also we have will be refurbishment, where we're doing more smaller rooms, for example, so they can have smaller meeting room for Teams meetings ourselves. Another trend is that sustainability is high, even higher up, not only for the owners, the property, the real estate owners, but also for the tenants. I see much discussions about how we can help them to be sustainable. The need for flexibility and simplicity and service is also among those issues that we are discussing now. Of course, it's changing. Of course, it's a lot of discussions.
This is positive discussions. The office is still even more important. The public transportation, that the ability is even more important than three, four years ago. Next slide, please. As you know, we had negative net letting during the Q1. During the Q2, we have a positive net letting. In total, for the H1 year, we are up +SEK 22 million. On top of that, we had the LOI we signed with a tenant for Nöten 4 . We will announce more details when the contract is signed Q3. It has been a lot of activity, that has been positive discussions. I think it's still a good market here. Next slide, please.
When we used to show you this slide, I think it's important to do so at every presentation. We have to stress the quality of the tenants we have. The 25 largest tenants represents more than four to the rental value, but it's long contracts, it's good quality tenants. Next slide, please. The renegotiations. As we said before, it's, we got the uptake with 11% for the 1 January. Now we extended last year, relatively a lot, relatively large amount with unchanged terms. We continue to do so. On the ones we really have negotiations discussions, we are up about 1.5%.
I think it's quite natural for us, we know now, when we see the index maybe up 6%, next year to act or to extend on those terms. Next slide, please. We have positive trend of the occupancy rate. We have said this before, our goal is to increase this to 95. It will take some time. During the beginning of this year and since we are increasing, and we welcome with this, we are focused on the rental or the letting discussions, as you know, the letting work. We are happy that we have a trend that is in the right direction. Next slide, please. We tried, we has since a couple of years, given you this.
Slide about the rental development in the existing lease portfolio, and it looks like this the, today. As you know, or we said, also said before, the Q2 was a little bit better than we said before, but that's mainly because of the parking income we had. This is, you see this as a help to know what we see as what we know today, and in the, as I said, existing lease portfolio. Next slide, please. There's a couple of years we tried to show this picture on this slide to give you our view of the what we know today about the rental development on the existing lease portfolio.
It's about what we know, locations and negotiations we've had in the so far this year and the before, and about that now index. If you can add maybe another example, an extra on the, from the first year of 2024. It's just to show for what is on the contracts today. I think the Q2 this year is a little bit better than, as also said before, than we said in the beginning of the year because of the incomes, as in the parking has been better than we expected it to be. Please, next slide. CapEx. This year, we have said we will end up with approximately SEK 2.9, and next year will be a little bit lower.
I will not, I don't think I have to comment this that much more. Next slide, please. In the product portfolio, the positive here is, for example, in the Q1, we, where we have now signed even more contracts, I think this will be up to about 67%, over 70% of the now signed contracts. Hopefully, we will have the whole house on a contract later this quarter. It will be a little bit larger area, but it, because it's a whole, even the common area, we will be including that contract if well. Only that will add quite a lot to the total, we'll let, after that, it will be up more than 75%, I think.
In Flemingsberg, I will tell you more, they are moving on, and they will. It's less than a year when Opera and the Royal Dramatic Theatre will move in. Porten 1 is still low occupancy rate in here, but we have very good discussions about the tenants there. I feel very positive for all those projects, actually. Semaforen, we have to remember that that is a parking house, so that will be a little bit different, so we will now have not have any signed long contracts there before. Next slide, please. When talking about the sub-areas, I'd just like to say some few words. We are on journeys.
We are on a journey from, for example, in Arenastaden, the industrial area that was less than 15 years ago, to what we are today. We know that friends, the offices, and on top of that, we have Mall of Scandinavia, we lost actually 50 million visitors, and it's owned, as you know, by Westfield. We have 2,000 people living in Arenastaden, we're only halfway, as we used to say. We are on a journey. In Hagalund, we're also at a journey. 5 years ago, the Birger facilities look like, you can see here in the middle of the picture. Right now, we're halfway to the vision for 2028. We have the Q1, as we said before, under constructions. We have the first park, 400 apartments moved in.
We have the new facility for Birger. It's a journey. If you go to the next slide, please, it's on a business park. We are also at a journey, but we're much more existing buildings. During this quarter, we have opened a new food court, which increased the activities in the area. We have new gyms, we have other facilities for an active life. We have signed a couple of new contracts with, for example, Miele and Mekonomen, and we have the hub for recycling. We have a hub for recycling also here in Solna Business Park. A lot is moving, going on. It's a journey. We go to the now, also to have on the first start, I can say the same.
It's a journey. We have been working with this for more than 20 years. It started as an industrial area, and it's now an area full of activity. We have some of the houses, or the buildings are the old that have been developed, but also new, a lot of new build, both residential and offices. It's a really attractive area, and it will continue. As you know, we have a couple of future projects even here. In all these areas, we are the number one of real estate owners, and so it's really attractive and interesting areas. In Flemingsberg, the journey has already started.
The journey for the whole of Flemingsberg started 60 years ago when there only was 350 inhabitants in the area. Here you can see the first building. It's our building, Regulus, which is built in 1964. When you see the next slide, please, you can see what we have today, or what's today in Flemingsberg. It's 15,000 workers, 15,000 residents. It's 18,000 students. It's the 8th largest student campus in Sweden, actually. Also here, we are now taking the next step for the vision of Flemingsberg, as you can see on the next, with the 50,000 residents, the 50,000 workers, and the 50,000 students. We are right now in the planning process.
It will not look exactly like this in the world, but it's a vision of which direction we work in. Next slide. Here you can see that you know about the project in Alfa Laval. You know about the Royal Opera and Royal Dramatic Theatre project. We are now also, you can see here. We are talking about Regulatorn 3. It's the old building, that's the first in the area, as I said, where we're now working. We will keep this, it will be developed, and it will be part of the future Flemingsberg. We were investing even in this one now to be for new tenants, sign some new contracts, and to take this, modernize it.
If you look really close to this picture, to this slide, you can also see that it's a new, small, light on the, in this down, lower end of the slide, you can see a small building which we have acquired during the quarter. It is a neighbor to all the rest, and we thought it was important to have in there, have control over this for the future development. It's a small, it's an investment of about SEK 20 million, but can be an important part of it for the future. Next slide, please. We hear a lot about the residential market in Sweden. It's tough. It's tough for many, it's especially there are no new products or almost very few, at least very few new products started.
On the ongoing products for Birger Bostad, they are running as expected. We have completed five projects during the period, and what maybe will surprise you, we have sold 21 apartments since the year, and this is especially, mainly in the south of Stockholm. In the joint venture, we have in Brabo and Haga Norra, we have since the 01 January, sold 34 apartments, and we now have only 10 left. For if we had 418 when we started some years ago, and we have now 10 left, and to sell, and 34 has been sold since. In total, we have sold 55 apartments since the 01 January, and with that one, we're very happy and satisfied with.
It also means that if they're ready to move, almost ready to move in, there's still a market for residential apartments in Stockholm. On this next slide, you can see also, well, just to summarize, the building rights we have, both for the commercial and residences. I'll talk about the construction costs. Unfortunately, nothing new, I would say. They're still at the same high levels as we saw a year ago. Some of the, for example, the concrete, the wood, some steel has been coming down. On the other hand, the weak Swedish krona has had impacted the price of electronics, for example, and some also on working labor forces. But we see now more problems for the construction industry.
We hope it will come down during the next six months, so, but still at a very high levels. Next slide, please. Åsa, please tell us a little bit more, give an update on sustainability work.
Yes. Sustainability continues to be a prioritized issue at Fabege, and we are gradually working to contribute to more sustainable Stockholm. On the energy side, we have set a target to reach an average energy use of maximum 70 kilowatt hours per square meter by 2025. We are currently at an average level of 73, and the goal is to reduce this by 1 per year over the next 3 years. Part of this work involves investing in expanded solar cell capacity, and we are also investing in more charging points, which are being increasingly demanded by our tenants. Recycling is also a very topical issue. We introduced a circularity goal for the year, where at least 20% of the material in our products must be reused material.
One part of this work is our recycling hub in Solna Business Park, where we now collect and catalog material which can be recycled. So far, this only occurs in Fabege projects, in the longer term, we hope that this will become a more general marketplace for recycling. Next slide, please. Here in this slide, you can see our Sustainability House in Haga Norra. The Sustainability House, which is constructed by using 70% reused material, has attracted a lot of attention. Technologies for retention and reuse are being developed, we have a lot to learn from each other in the industry. You can shift to the next slide, please. For example, here, you can see what different materials have been reused. Everything from facades to floors, doors, and cooling units.
Finally, I will hand over to Stefan, who will say a few words about our social and sustainability efforts.
We just need to summarize, but that is a special focus on Flemingsberg and what we can do there to increase the trust, the safety, the comfort, and in working together with other real estate owners, together with the local communities. We are especially focusing on education, the employment, and on the leisure time. There can be activities in sport, in dance, for example, culture. We have a really big project with the Opera, we call Children at the Opera. We had a festival last two weeks ago for the young people and with the music, and we're helping with the schools.
But also, Katrin, I wanna say that the TalangAkademin, which is going to get people out in to work, last year, it helped 62 people, I think it was, to work or to start studying, and that's really make a change for the local community. Please, now time for questions or comments. please.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from John Vuong from Kempen. Please go ahead.
Hi, good morning, team. Thank you for taking my questions. Could you provide a bit more color on what your expectations are for market rental growth? I mean, looking at your numbers last quarter, you were signing some leases at roughly 4% below ERV, but then now it's flipped to 1.5% ERV. Is this reflective of the market, or is this more of a sampling issue?
I assume you mean renegotiations, which was slightly negative.
Yes, exactly.
Last quarter, which was slightly positive this quarter. I think last quarter we said that those renegotiations that went minus were dominated by a few contracts on the retail side. Those renegotiations that we have done in the Q2 are mainly just ordinary office rental agreements. I think the +1.5% is more or less zero, which is also what we have communicated before, that we are quite happy just to prolong contracts according to existing terms, which means that there is not really any uplift. The figure 1.5% is, of course, on the positive side. On the other hand, there's only a small amount of contracts being renegotiated. More contracts are just being prolonged on existing terms.
Okay, that's clear. That essentially means that your reversion in your portfolio is currently zero after the indexation?
I think, as you know, we've got the indexation of uptick of almost 11% from the 01 January. Now, they're expecting the inflation of about 6% for next year. So, I think we have a good rent level now that I think is also the market rents. Some contracts may be under, still underrented, but also that maybe there are some that are overrented because of the- but in general, I think it's a good rent level. We continue to see the good, stable market in Stockholm.
Okay, perfect. Thank you. That's clear. Maybe on the Nöten 4, what exactly does the LOI depend on?
Sorry, I didn't get your question. What exactly?
I mean, it's only an LOI at this point in time, so it's not converted to an lease. Is there any conditions that needs to be met?
We have some discussion to conclude with finish, and we will sign the contract during Q3, the lease contract. We like to announce this because we draw Nöten 4 from the market, and we also had to say, "No, thank you," to some other potential tenants. That's why it was important for us to announce that we have an LOI and that we're going for signing a contract during good lease agreement during Q3.
Okay, fair enough. In your report, you mentioned that a new approach is being adopted and that the investment will be adjusted. Any color you could provide on which direction the total investment would go, and anything that could be said on yield and cost after this adjustment?
regarding Nöten 4.
We will announce more figures when we also are announcing the tenant and the contract. We will give you all the information at that time. Today we will not say that much more. It's included, you can say also that we have, when you look at the investment, we are the CapEx for 2024, for example, is for about SEK 2 billion. It will be, I think it's around that anyway. That's how much we can say.
Okay, perfect. Thank you. Those were my questions.
We can maybe add one more thing about Nöten 4.
Mm.
Since there's been some rumors that the potential tenant is only going to be there for a very short time. We confirmed earlier today in the Swedish call that it's a long-term contract. It's not a temporary contract.
The next question comes from Kownator from GS. Please go ahead.
Kownator from Goldman. Thanks for taking my questions. Just as a quick follow-up on Nöten 4, I think if we calculate the yield on cost from your development pipeline, it's around 5%. Is that ballpark the number, or is that number going to evolve? I appreciate you don't want to comment on the latest conditions, but just be good to comment on that number that is from your release. First question. Why don't we start by that, and then the second one?
I'm sorry, even here, I would like to say we give you more figures, and we go give you more details when we're, we'll have signed the contract.
Okay. We shouldn't rely on the existing parameters from that slide at this stage. That's actually we should understand.
Yeah, as long as nothing else has been said, so yes.
Okay. Second question, if I may, just to follow up on the interest coverage and the increase in interest costs, given the hedging that you have also in place, how should we think about the interest coverage ratio? It's 2.6 currently for half year. How do you expect that ratio to evolve? Is it going to go down a bit further? What are the rating agencies tell you about the sort of threshold that you need to maintain not to be downgraded, given you already on negative watch? Thank you.
I think we can expect the ICR to continue to come down a little bit more. We expect it to be above our own internal target of 2.2 over time. We haven't really had any in-depth discussion with Moody's regarding rating triggers. They are not announcing any specific rating triggers, but they put the negative outlook on Fabege in November, and one of the concerns was the ICR. We have said earlier today also that it's not unlikely that we will have a downgrade, but we still believe that we will remain on investment grade.
Okay, fair enough. Is there anything you do? How are you thinking about this ratio? I mean, what do you think? I mean, appreciate you have, obviously, an official target. How are you thinking about maintaining this ratio? Is there, you know, I appreciate everyone has targets. Sometimes people can have temporary leeways to that target. Do you think could be acceptable for a while, this ratio could be lower, or how are you thinking about, you know, improving that ratio if that's part of the strategy?
There are different ways that we can work. One is on the financing side, depending on how much we work with the capital market or going over to bank, which is today cheaper. That's one thing. Another thing is interest fixing, using swaps, and the possibility that we have there. Also, of course, reducing the balance sheet by selling properties can be one option. Another option is to work with the vacancies and the daily business to make sure that we are not losing.
Mm.
income, but that we are actually increasing the income.
Mm-hmm.
One important part of that is the ongoing projects. Of course, Nöten is an important part of that. There is a potential of more than SEK 350 million just in the project portfolio, and another SEK 150 million in rental income from reducing vacancy.
vacancy
To a more moderate rate where we have been historically.
I think it's, as also said, it's also important to stress that part of the product portfolio, where, for example, Operan and Dramaten , it's less than one year before they were moving in.
Yeah
And occupied. It's now non-yield, non-yielding, no cash flow in. There will be step by step, also from the product portfolio, better cash flow.
Is it fair to assume that the first instance is just to, obviously, to, you know, then make that pipeline come to market, try to increase occupancy? Those are the two main priorities, of course. Are you thinking that at this stage, you know, you're thinking about disposals? Is that too early? Are you first thinking about, you know, operational improvements? How are you thinking about the sort of priorities within the, you know, the number of tools that you've given us to work?
As you know, in the past, and for many, many years, we have from time to time been selling some properties that we think are fully, we that we think that maybe someone else can be a better owner. We think we can use the capital maybe in a better way. We from time to time buying some properties that we're adding to the portfolio, and we will continue with the same strategy. From time to time, we will see ourself, yes.
Okay. Are you actively doing that at least or just too early or market not there?
I mean, we will communicate when we have something to communicate, not before.
Okay, fair enough. Appreciate it. Thank you so much for your help.
The next question comes from Paul May from Barclays. Please go ahead.
Hi, team, it's Paul from Barclays. Just I've got three questions, I think probably take them one by one. On the property values in the commentary, you seem to be a bit more confident or, it seems like the values have dropped far enough, given the commentary in there. I'm just noting your property yield of 4.17% is well below levels where property yields were when swap rates were at current levels previously. I think previously, you were up at sort of 5.9%, 6.7% in 2005 and 2010, when swap levels were at similar levels. Appreciate we've got some inflation at the moment, that's not coming through in market rents from what you're saying.
I just wondered what gives you the confidence that the property values and the property yield of 4.17% is the right level? Could we see further pressure on that, particularly given the recent move in swap rates over the last couple of days? Thanks.
We think, of course, that is the right value today, and especially once if we have 60% external value and the rest internal value. Will it continue to be under pressure? I think we have to expect it to do, because if what we see in the interest rate market right now with the uncertainty and also moving up, maybe there will be more more upticks in the yields. Can't say no. What we have that the Stockholm inner city and the Stockholm CBD, it's a strong market where we have a lot of pension fund money, pension funds. It's difficult to say how much, but the increasing interest rates will, in my view, at least, mean risk for increasing yields.
I think that's what, that's the view we have. We try to be very transparent. We try to be in the forehand of when you're working with so much in external valuation each quarterly.
Yeah, I very much appreciate your openness, shall we say, and disclosure relative to potentially some others. Just on the second question, the renegotiations that you've had in the H1, are those renegotiations on the leases that saw the 10.9% CPI uplift, or did they not see that uplift because they were being renegotiated quite soon after? Just trying to sense, is the 1.5% increase that you noted on top of the 10.9%, the CPI, or is there some adjustment that we need to be aware of?
No, that's correct. This 1.5% are reflecting renegotiations done during this year, so after the uplift of the 11% of indexation last year.
And also to stress maybe, one more time, is that since we see so much the inflation and we see the uplift, because thanks to the indexation, we prolong a lot of the contracts without negotiations right now.
Yeah. Just follow on this, a more sort of general quick discussion, a bit more detail, if you could. Obviously, everyone's looking or most companies are looking to get secured bank financing at the moment in most markets, Sweden is not alone in that. We're hearing in other markets that negotiations are taking a long time, much longer than previously. Banks are being more selective over the properties that they provide security on, given they've got access to pretty much all properties. Also, we're hearing that while they are open, the size of deals, so the size of the lending, and the debt that's being provided on each individual deal is much smaller than it was previously. This is in other markets.
I just wanted to get a sense as to in Sweden, is it all operating as it was, or are we seeing similar issues with the negotiations on the bank lending? Thank you.
I think we are only borrowing from the Nordic banks, mainly the big Swedish banks and Danish Nykredit. We have very, very long relationships with these banks, as I have said also previously. I think we are in a very good position because of these bank relationships. All our banks, when we are talking to them, have clearly said that they support us in shifting from capital market financing into to bank debt. I mean, yes, if you compare the process of signing a new bank agreement with the process of getting money from the capital market, it's a longer process, but it hasn't really changed since before. I think the process with the banks are still the same as we have experienced before. I think it matters who you are, and if you are an existing customer or if you are a new customer asking for new debt.
They know us very well, they know our properties very well, so I think that's a good help right now. I think it's not only you can't come as a new client or customer to any bank today. You have to be in, be an old one and, have already a relation. I think you're right if you're talking about.
it will take some longer time, even if you're a new client, and you like to do a deal here in Sweden, for example, for foreign. It takes a longer time. Sweden is a relatively small market, and we've good liquidity, but the banks know the market very well. They know the properties very well. They are also very strong, the banks. The Swedish or the Nordics banks are compared to many other banks, very, very strong here. Good discussions and good relations is important.
I think also because the local market here, and that we are so well known by all the banks, means that we have relationships only, not with the people who are dealing with Fabege as a customer in the bank, but we also have access to top management in these banks. We build our relationships on many levels in the banks, which is very good for us.
Cool. Great. Just linking with the previous question from Jonathan on the ICR, is that the main focus for the banks at the moment? LTV is kind of a by-product of what is the ICR that you could have, given marginal financing costs. If the LTV ends up being very low, the LTV is low. That's not the factor the banks are focused on. Is that fair to say?
Yeah, I.
Yes
When we look at the bank financing, we have the LTV. Normally, LTV covenant is only on property level, and it varies somewhere between 55, 50, maybe in some cases, 55, up to 60%. The ICR bank covenant is 1.5, which gives us a big headroom today. In the bank financing, these are not really questions that we are discussing. Of course, the banks are monitoring how Fabege is doing, and they are following our results, as everyone else. I think, the Moody's rating is the one who's most concerned about the ICR and the development of the ICR, not only in Fabege but in the whole real estate sector in Sweden.
Okay. Just because on the ICR, that's not on a per secured building, The banks are looking at your ICR on an overall company basis?
just think that's a bit surprising, given t hey're securing against specific properties.
Yeah.
Maybe I'm right.
Yeah. That's also why it's so important that they know us as a company. They know how we're working. They see the whole situation. They see the progress also.
Okay. Thank you.
Okay. Do you have any further questions? One, maybe one last?
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Not, so, thank you very much for joining us this morning. You're always, as usual, welcome to give us a call or to mail us, and, have further discussions or questions. Thank you, and have a nice summer.