Good morning, and welcome to the KlaraBo Q3 2022 earnings conference call. All participant lines will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing Star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Andreas Morfiadakis, please go ahead.
Thank you. Good morning, and welcome to KlaraBo's third quarter presentation of the interim report. Please turn to page two. This is the company's fourth presentation since being listed on Nasdaq in last December. Presenting today are CFO Jenny Appenrodt and myself, Andreas Morfiadakis as CEO and co-founder. Please turn to page four. KlaraBo is a pure residential property manager and developer. We're focusing on three areas in our operations. Firstly, property management. We have 6,500 apartments located across Sweden, divided in four regions. These apartments, with a relocation rate of close to 99%, are mainly situated in regions where there is a documented housing deficit, which means that the demand for the rental apartments is high.
Of our stock, we have identified that 66% have a renovation potential, which means that after investing in the apartments, we are able to increase the rent level, which leads to an increase in property value. This investment is being done with, when the apartment is vacant due to the natural churn rates that the properties have. The current average rent per square meter is at a low SEK 1,027 per square meter, which enables a solid increase of rent after refurbishment. Secondly, we have acquisitions where KlaraBo always looking for new potentials, to grow in multiple areas in Sweden. When it both comes to buying existing residential properties, but also buying land and building rights.
The last transaction we made was during the summer, where we bought a portfolio in Östersund for approximately SEK 860 million. Lastly, we have the new construction of residential. We have created a production efficient product where we mainly use volume-based modules constructed in wood that are made in factories in the Baltic region. High level of industrial performance speeds up the construction process, which leads to shorter production time and is more cost efficient than traditional construction methods. At the moment, we have close to 1,800 apartments under our product portfolio. Please turn to page six. We have a Q3 in brief. We close another quarter where we deliver high numbers of revenues, net operating income, and income from property management.
The NOI has increased with 11.5% from Q3 2021, which is explained by some small acquisitions done during the year, but mainly driven by the value-add work we're doing on a daily basis. By increasing the standards within the apartments, we are both increasing rents but also decreasing maintenance costs since the standard is much higher than before renovation. Increasing NOI is very important for us when we have a situation with increasing interest rates. We have during Q3 fixed STIBOR three months at a much higher level than during the Q2, which affects interest costs negatively. Something that Jenny will discuss more in depth.
However, even though interest cost has increased to a higher level than before, we still report an increase of income from property management with 6.5%, which is satisfactory. Seeing the result of increasing numbers of both NOI and income from property management, it is very clear that the good work from our property management team where we're developing the property portfolio must continue. Our occupancy rate of 99% and approximately the 6,500 apartments are fully let, which does offer a long-term stability in cash flow and value creation with gradual upgrades. The business model has been proven even in more challenging times as we're facing today.
If you go to page seven, some of the highlights during the quarter, and of course, the main highlight of the quarter is the acquisition in Östersund, where we did acquire 800 apartments with an average rent level of a very low SEK 960 per square meter, which is lower than the average number that we have in KlaraBo. When KlaraBo look at opportunities, we always analyze the geographical location. Östersund as a residential city has a strong economic and demographic development, and prognosis show that the population will grow with 17% until the year of 2040. Entering a new market, KlaraBo also always want to keep sufficient size so we can implement our own property management and business model. This is fulfilled in Östersund.
Lastly, we also want to have value-add potential when we acquire existing properties. With an average rent level of low 960 SEK per square meter and close to 100% of the apartments with renovation potential, Östersund is the portfolio with the best theoretical upside that we have in KlaraBo at the moment. We expect that the numbers from renovation will start showing in our income statement within six months with an increasing of rental value. On top of the figures just mentioned, KlaraBo also managed to receive a very attractive financing in regards to the transaction. The terms of three-year credit with an all-in interest rate of 1.4%, which of course is very favorable in today's market.
The credit contributed to decreasing the average loan margin and lengthen the capital structure of our loans. All in all, a deal that has checked all the boxes of our business model. Another highlight during Q3 is that we signed a four-year lease of 2,000 square meters with the Swedish Police late in the quarter. This will have full effect during the following quarter in Q4. With that, I'm gonna hand over to Jenny, who will go through some numbers with you.
Good morning, everyone. Now we're on page nine, sorry. Revenue amounted to SEK 123.2 million for the quarter, and it's up by 5.5% on a like-for-like basis versus Q3 last year as a result of renovations. Costs on a like-for-like basis have increased by 4.2% year-over-year, where the majority is due to increased electricity costs, partly explained by the current level of electricity prices that we see, and partly by the fact that we had fixed electricity prices last year at very competitive levels. While some players have dramatically increased the price of district heating, we have not noticed any significant increase here. On a rolling 12-month basis, electricity accounts for approximately 12% of total annual property costs.
Other utility costs are mainly in line with quarter three last year on a like-for-like basis. Financial costs are up versus prior year, both in the quarter and year-to-date, with the main explanations being a general increase in STIBOR three months, which we'll come back to. New credits in connection to acquisitions that we've done, as well as in connection to completion of project portfolios in Motala and Halmstad. The SEK 700 million ten-year interest rate swap that we entered into in Q2 at a rate of 2.21%. Finally, the additional borrowings in quarter two of the amount of SEK 250 million as the basis of existing properties. In the year-to-date numbers, we also have SEK 11 million as a one-off financial cost, which was paid in connection with the refinancing process that we did, during the spring.
The changes in property values is the net of a positive contribution of SEK 120 million as a result of increased rental income from refurbishments. offset by a negative amount of SEK 190 million as a result of both slightly increased yields and higher discount rates. We have seen our external valuation firms starting to adjust the level of yields even though the approach differs between the three valuation firms that we use. The inflation assumptions have been adjusted, whereby the inflation has been increased to 8.5% this year and 4% next year. The general rental increase has been assumed to 4% in 2021 and 3% in 2023. The net effect of changes in property values amount to -SEK 68.7 million for the quarter, but still positive year to date.
If we now go to the next page, and now we're on page 10. On this page, we have the latest current earnings capacity. This is a snapshot as of first of October this year, based on contracted rents as of that date and on slightly revised budgeted costs. Sales is up by SEK 65.7 million from SEK 42 million, with the main contributor being the acquired properties in Östersund. We have delivered an organic revenue growth of 7% since the beginning of the year. We have continued our work with value-added renovations in the existing portfolio, and the run rate is at approximately 280 renovations per year.
As Andreas said, close to 100% of the acquired apartments in Östersund come with a renovation potential, which increases the number of unrenovated apartments in our portfolio and secures at least the current pace of renovations also going forward. Property costs have been adjusted upwards with close to SEK 1.5 million in an attempt to reflect the normalized level of electricity costs. The surplus ratio is at 57.3%, down from 59.9% last quarter. A temporary trend reversal explained by the lower surplus ratio of the acquired properties in Östersund. An average rental level of 964 SEK per square meter in a year indicates that there is a substantial rent increase potential of approximately 50% in Östersund following renovations. Financial expenses are up by close to SEK 47 million from previous quarter.
Approximately 70% of that increase is explained by higher floating interest rates, i.e. STIBOR three months. The average level of STIBOR three-month of our portfolio is up from 0.4% end of June to 1.75% end of September. This isolated increase from one quarter to the next is most probably the largest increase that we will experience, and we do not expect the increase to be as rapid going forward. The rest is mainly explained by the additional borrowings connected to Östersund and our completed project in Huskvarna. If we switch page, and now we're on page 11. Here we have our debt, a summary of our debt portfolio. Our interest-bearing financial liabilities amount to close to SEK 4.9 billion and have increased by close to SEK 600 million from last quarter.
Mainly as a result of the loans that were taken over in conjunction with the acquisition in Östersund. As you heard, the loans run at a fixed interest rate of 1.43%, with the majority end of 2025. As we have said before, we have financing exclusively from banks, no bond financing. The average credit maturity amounts to 2.8 years, while the average interest rate tenure amounts to 2.5 years. The average interest rate margin, excluding STIBOR three months, amounts to 1.65%, which is even lower than what we had in quarter two, due to the favorable fixed interest rates of the additional borrowings in Östersund. The total average interest rate, including STIBOR three months, amounts to close to 3%, up from 2.3% previous quarter, mainly explained again by the higher STIBOR three-month rates.
According to our finance policy, a maximum of 60% of our interest rate maturities are allowed within the next 12 months, where we are currently at close to 48%. On the credit side, a maximum of 30% of our loan stock may expire within a rolling 12-month period, and at the end of September, we are at 11%. We are continuously performing sensitivity analysis, where we simulate the development of our main financial ratios and covenants based on both increased interest rates, inflation, and also yields. The simulation from last week, where we used the FRA curve, which is forward contracts of STIBOR three months on October 19, shows that we meet all our covenants stipulated by our banks up until 2025.
We have a reported cash position of SEK 363 million at the end of the quarter, with a loan-to-value ratio of 48.8%, up from 43.1% in quarter two. The increase is an effect of the acquisition in Östersund. In addition to our cash, we have SEK 1.3 billion of agreed and signed credit facilities, where one of the three tranches is an unsecured SEK 400 million RCF facility, which can be utilized for twelve months. The other two tranches are secured and can be borrowed for three years, partly with existing properties as security and partly with future assets as security. In total, this adds up to close to SEK 1.7 billion of available funds to KlaraBo, which makes us well-capitalized and gives a lot of flexibility going forward. Handing over to you Andreas.
Okay, thank you for that, Jenny. Now if we turn to page 13. As I mentioned in the beginning, KlaraBo is a real estate company with 89% of residential. We manage our 6,500 apartments in four regions, with the largest one are South, East and North. The average rent of the unrenovated apartments, which corresponds to 66% of our portfolio, is at a low level of SEK 1,027 per square meter. This gives us an upgrade potential rental value between 30%-50% when we renovate our apartment. As Jenny mentioned, we have on a 12-month basis renovated 70 apartments per quarter and still have a real occupancy rate of high 99%.
This is a strong signal that the demand of our product exists and will still offer attractive rent levels with high standards after refurbishment. If we go to page 14. One of the company's operational goals is that the rental value increasing shall be higher than the general increase that we receive from negotiation with the Union of Tenants. During the short period of time that KlaraBo has been active, we have delivered 10.4 percentage points higher rental value than the general market. Strong signal the organic growth that we control and manage each day without expanding the portfolio. Increasing the rental value by refurbishment also gives us decreasing costs due to newer standard in the apartments, which results in a higher NOI each quarter.
If KlaraBo would refurbish all 4,300 unrenovated apartments, we would theoretically increase our contracted annual rent by SEK 90 million, which means an increase of the current earnings capacity of approximately 30%. If we now turn to page 16, some reflections about the product portfolio. We have, during the years, been active with acquiring and receiving land allocations to produce our newly constructed rental apartments. We believe strongly in the concept that we have developed, and we have constructed close to 500 apartments, including the ones that are under production today. The market response has been good, and all apartments have basically been fully let ever since tenants moved in. The apartments are well-functioning, and the floor planning is effective.
However, the market today is not with us at the moment. Despite producing a cost-efficient product, the fact that we have increasing inflation, increasing material costs, supply problems, increasing interest rates, increasing energy costs, and increasing yields for new construction has finally taken its toll on our production cost, which now will result in a slowing down pace when it comes to new construction. We can, at the moment, not see enough profitability in any of the new projects that we have, so we have decided to postpone all projects. When they will start is, in today's market, tough to say, but we will not reach our operational goal of starting construction of 200 apartments this year.
We will continue to evaluate each project, and as soon as we reach reasonable numbers again, we will be ready to start construction. The market always needs attractive new rental apartments with reasonable rents that KlaraBo offers. If we go to page 18, just to summarize a little bit. We do have an economic development that is still very uncertain with high inflation and increasing interest rates. We are entering rent negotiations that are more uncertain than they have been for a long time. The uncertain real estate market might have a negative impact on the property values in the short term. We are confident that by increasing land rent levels from our value-add business model, property values will increase in the long term.
We are also sure that rent and energy prices will reach new balance points, and a decrease in housing construction and purchasing power among households supports the demand for existing housing with reasonable rent levels as KlaraBo delivers. Finally, the low vacancy risk as the housing shortage persists strengthened the rental apartments and KlaraBo's position in the long term. With that, we are done with the presentation. Thank you for listening, and we can now take questions if there are any.
Thank you very much. We will now begin the question-and-answer session. To ask a question you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your questions have been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Markus Henriksson with ABG Sundal Collier, please go ahead.
Thank you very much. I hope you can hear me Andreas and Jenny.
Yes, we hear you clear, Markus.
Perfect, so a few questions from me. You highlighted the production start target here in 2022. You also have the same one for 2023, 200 production starts. Based on your knowledge you have today, do you think you will be able to reach that target in 2023? Elaborate a little bit on why or why not.
Well, I think that the market has opportunity to change quite quickly. The only thing that we are announcing today is that we are postponing the projects. We don't think that there is, at the moment, any reason for changing the operational goals for the next year and going forward. This goal is for 2022, at the moment.
Very clear. Looking into that, we're in late October. We have, you know, very few months left of the year. Do you see any indications of construction cost inflation coming down somewhat in discussions with contractors? Or do you feel that it's similar situation as you saw in Q2?
I already in Q2 saw that the especially timber was coming down a little bit. However, we have not seen that in the tenders that we are receiving from the contractors at the moment. I still believe that many contractors have a lot on their tables and have not yet adjusted the prices. However, we are seeing quite a few layoffs. We are seeing companies that are changing their plans going forward. I'm still quite confident, comfortable that things will change. However, the change between Q2 and Q3 has not been enough for us to start any new projects.
There are just too many things that are pointing at the moment at the wrong direction.
Very helpful for that. Thank you very much. On renovation, do you see any further cost increases? You highlighted some increases earlier in the year, a bit isolated in certain geographies, but do you see that spreading or is it fine on your end?
No, it's still fine on our end. Except for what we reported last quarter, we have not changed anything in that part of the business model.
Thank you. Last question. You had an explanation for why renovations came down in the quarter. But you have earlier said that we should expect somewhere around 70 units per quarter. Based on that, you have acquired quite a large new property portfolio. Do you think that expectations could come up somewhat from the 70 renovations on average per quarter?
Yeah, of course. I mean, the 70 apartments per quarter was before we made the Östersund acquisition. Now it does take a little bit of time before we get everything going in Östersund. Of course, we are expecting the Östersund portfolio to add to the number of renovated apartments per quarter. However, with that said, as long as we are renovating 70 apartments in the old portfolio, that the total amount that are unrenovated there is of course going down, which will affect the number of possible renovations in that portfolio. I mean for that, in the long term, we always need to add new portfolios with renovation potential to keep the high level.
For the next couple of quarters, we do expect that Östersund will be adding some positive numbers when it comes to the number of renovations at least.
Very clear. Thank you for taking my questions.
Thank you, Markus.
Thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Andreas Morfiadakis for any closing remarks.
Okay. Just thank you for listening, everybody, and I just wish you all a good day. Thank you.
Thank you. The conference has now concluded. Ladies and gentlemen thank you for attending today's presentation. You may now disconnect.