I would like to welcome everyone joining the call. My name is Johanna, and I will be presenting our third quarter report today together with our CFO, Jakob.
Good morning.
The title of today's presentation is Strong Growth in Income from Property Management per Share and a High Level of Business Activity, and it captures this quarter well. Our underlying operations continue to perform strongly. We delivered an improved net operating income and strong growth of 13% in income from property management per share. We also continued to sign new lease agreements and make investments that are building our next phase of growth. As I have emphasized before, staying close to our customers is a key priority, as is our ambition to grow within the industrial and the logistic segment. During the quarter, we have advanced this ambition through both development projects and acquisition of a new property. We have stepped up our investment pace with the majority of investments directed to the industrial and logistics segment. I will return to this shortly.
At the same time, we are operating in a volatile macro environment in which interest rates, inflation, and geopolitical conditions are changing rapidly. Long-term interest rates rose during the quarter, driven by not only inflation linked to stronger economic growth, but also by concerns about high levels of debt and fiscal deficits, rising energy prices, supply disruptions, and increased investment needs, for example, in AI. The impact in terms of increased interest rates has so far been limited on us, and our net financial item improved, with a lower closing average interest rate. However, if the higher interest rates levels persist, they will gradually feed through to our financing costs. Jakob will return to this later. We therefore remain very humble about the outlook and consistencies in how we act.
The national economic outlook has improved, and the National Institute of Economic Research expects the Swedish economy to grow strongly in 2026 and emerge from the downturn. Although, higher inflation interest rates are expected to slow growth slightly in 2027. The Gothenburg region is now at the upper end of a normal economic cycle. It is supported by strong household trade and recovery in industry and manufacturing. This is somewhat reflected in the higher activity in the Gothenburg leasing market. Industrial and logistic properties continue to perform well, while corporates searching premises in the office market are more willing to make decisions than they were a year ago. Although, competition remains intense. At Platzer, we signed a large number of medium-sized and smaller leases this quarter, resulting in one of our highest level of newly signed leases during the third quarter in five years.
However, we also received more notices of lease termination during the quarter, and the net letting therefore amounted to SEK -9 million . Let us look at the figures for the quarter. Overall, the quarter shows strong underlying performance. Rental income increased by 4% and the net operating income by 6%. It is driven by both acquisitions and growth in the underlying operations. In the like-for-like portfolio, the net operating income increased by 3%. The surplus ratio, which reflects the efficiency of our property management operations, improved to 80% from 79% in the previous year. Income from property management increased by 10%, corresponding to growth of 13% per share. At the same time, we continue to deliver stable net financial items despite a slightly higher debt volume and volatility in the interest rate market. Jakob will return to this and provide a little more detail on this topic.
Let us take a closer look at our customers' leasing activity and net letting. New letting activity remains strong. During the quarter, we signed a number of medium-sized and smaller leases with a combined annual rental value of SEK 26 million, or actually SEK 34 million. I will return shortly to the development in the new lettings and what it tells us about the market. Net letting in Q3 amounted to SEK -9 million , and that is both in our wholly-owned portfolio and including associated companies. This was mainly due to higher volume of terminations amounting to SEK -35 million following two quarters with historically low lease terminating levels. We recognize this pattern with higher termination volumes in the third quarter from the past three years. At the same time, the net letting volume for the quarter were clearly stronger than Q3 in 2024 and in Q3 2025.
The terminations this quarter were concentrated to several office leases, primarily at Biotech Center at Medicinareberget. In our associated companies, new lettings and terminations offset each other. We have also been able to accommodate several tenant locations within our portfolio for tenants whose needs have changed. These leases represent an annual rental value of SEK 9 million. Looking at the year to date, the picture remains positive. Cumulatively, the net lettings amount to SEK 45 million , including associated companies, and SEK 42 million in the wholly-owned portfolio. As I mentioned, new letting activity remains strong. During the quarter, we signed new leases with an annual rental value of SEK 26 million in the wholly-owned portfolio. That is the highest level since 2021. Including our associated companies, new lettings amounted to SEK 34 million .
This shows that the market and our ability to meet tenant demand and close deals is moving in the right direction. Although filling our vacancies still remain our highest priority and will do so going forward. Success requires focused efforts across the organization. Our strength lies in being local, staying close to our customers, and acting quickly. At the same time, we remain very humble in an environment where conditions can change rapidly, and therefore keep our full focus on what we can influence. One of the larger leases that we signed during the quarter was the one with Icomera, which is leasing 2,600 sq m at headquarters Gamlestaden. These premises are located in the same property that Mölnlycke Health Care vacated last summer, and the premises are now approaching 50% occupancy. Let me summarize our net letting.
New letting activity remains strong and is at the highest level in five years. At the same time, the volume of terminations increased following the historically low levels recorded in the two first quarters of the year. This is the main reason why net lettings in Q3 were negative. If we are looking ahead, NCC has verbally indicated that they intend to leave Kineum for Park Central, it is their own project, and this represents SEK 17 million in lease value. But no formal notice has been given yet to us, and therefore, it is not included in the report of net lettings for this quarter. We expect it to come in in Q4. We also expect forthcoming termination from Ramboll, as I have told you before, and this is also not included in the quarterly outcome.
Looking at the year to date, the picture remains positive with net lettings of SEK 45 million. Everything being equal, net lettings should remain positive even if the amount of termination totaling SEK -66 million are received during Q4. Our priority is therefore clear. It is to remain close to our customers and work actively to retain them. We track this through our retention rate, which now stands at 91%, compared with 83% in Q3 last year, which is very positive, of course. So let us look at rental development from renegotiations. This is the Swedish Migration Agency, and it is an important example how our active customer engagement recently completed this lease renegotiation with the Swedish Migration Agency at Lidköping. This lease has been extended by 15 years and also included an additional 1,500 sq m of space.
The deal provides us with a stable long-term cash flow and an attractive return. Overall, the Swedish Migration Agency annual rental value in the property increased from SEK 32 million to SEK 34 million, plus additional rent relating to tenant-specific investments of approximately SEK 250 million in total. The agreement entails a total investment of CapEx of approximately SEK 365 million. As this is a large lease, it affects the average rental growth from lease renegotiations in the quarter, which amounted to - 8%. For the year to date, however, the rental growth remains positive in both the office and industry and logistics segment, and it is now at + 3%, SEK 43 million in annual rent. At the same time, our economic occupancy rate has improved during the year from 90.4% in Q1 to 91.1% in Q3.
This slide shows our 10 largest tenants across our portfolio of more than 720 leases. Together, they amount for 32% of the total contract value. Our tenants represent a broad range of operations and provide exposure to several different sectors, including hotels, public authorities, industry, and offices, of course. This diversification contributes to resilience and to stability in our rental income. Our average remaining lease term is four years, and that is the same level as last year. We have accelerated our investment pace. During the quarter, we invested SEK 670 million, with the majority allocated to industrial and logistics. This image to the left shows the building site of Project Rigg in Arendal, 10,400 sq m with ASSA ABLOY as a tenant. The project is progressing according to plan. Move-in will begin in the spring, and rental payment will start 1st of April.
On the 1st of July, we also took possession of Sörred 8:15, a property of almost 30,000 sq m with Speed Group as tenant. This is the final project in Sörred Logistikpark , which we developed together with Catena & Bockasjö. The underlying property value amounted to SEK 570 million, and in connection with taking position, we received a dividend of SEK 108 million from the joint venture. The combined transaction with the Port of Gothenburg is also progressing according to plan. We are here a net seller of SEK 684 million. To recap, we are selling nine office buildings as well as quay and water areas, while we are acquiring 24,000 sq m of modern logistics space with Schenker as a tenant. The necessary municipal decisions are progressing.
The city council decision is expected in December 2026, and the transaction is expected to be completed in the first quarter of 2027. Our industrial and logistic portfolio is located next to the Port of Gothenburg, which continues to strengthen its position as the largest port in the Nordic region, handling 57% of all Sweden's container traffic. It is a vital engine for Sweden's trade and industry. This is also why Arendal is one of Sweden's most strategic locations for industrial and logistic properties, and where we own substantial assets. We now take the next step through Arendal 5.0, our long-term development plan to grow in line with the needs of future industrial and logistics. In our next phase of growth, we plan to develop 200,000 sq m on new industrial and logistics space.
This represents approximately SEK 2 billion in project development investments on land that we already own and within the existing detailed development plan. Over the next seven years, we intend to develop this area, which was launched at the beginning of this quarter. A little bit about the economic cycle in Gothenburg. The region is now at a normal level, with trade and manufacturing acting as clear drivers. Manufacturing has recovered after a slow start to the year, with higher production and growing optimism ahead of the fourth quarter. Large employers as SKF, AB Volvo, Saab, Essity, are expecting to perform stronger, while Volvo Cars has announced saving packages due to declined sales in China. The service sector is cautiously positive and expects demand to increase. Employment has grown for 14 consecutive months, and unemployment is declining, and the labor market continues to strengthen gradually.
The Swedish property transaction market has developed strongly during the year, with transaction volumes up approximately 48% compared to the corresponding period 2025. Residential properties have led the development, followed by industrial and logistics properties at 20% and offices at just under 16%. The Stockholm region accounts to approximately 38% of the transaction volume, compared to around 11% for Gothenburg. Activity in the Swedish logistic property market is already higher than during the full year of 2023 or 2024. The market continues to perform strongly, with solid demand from both tenants and investors, and a slight positive rental growth. Prime yields are around 4.8%, while long-term demand continues to be driven by e-commerce, the industrial transition, and the need for modern logistic locations. The interest is strongest in modern sustainability-certified properties on Hisingen, in Mölnlycke Landvetter area, and in Borås Viared.
Turning to Gothenburg office market, activity is clearly higher than it was a year ago. According to JLL, new lettings and by the Swedish Police Authority. Prime rentals remain stable around SEK 4,200 per square meter, while super prime offices are achieving levels up to SEK 6,000. At the same time, competition remains intense, and the vacancy rate is around 14%-15% following the large volume of new office space added in the early 2020s. Demand is clearly strong for modern urban spaces with good public transport, while peripheral location or older buildings continue to face greater challenges. This trend is also reflected in leasing activity. 60% of this year's take-up has been located to central Gothenburg. The current development pipeline amounts to 120,000 sq m, but no progress has been completed or started during this quarter.
In the CBD area, around 60,000 sq m is under construction, with completion planned for 2027. This is keeping the supply elevated in this area, where the vacancy rate is also the highest, just over 15%. The three ongoing CBD projects are now approximately 60% let. It improved from last quarter, when it was 41% let. Vacancy rate for individual projects are also moving in the right direction. Kaj 16 is more than 70% let, while just over half of the space at Park Central has been leased. At present, no new project starts are known for 2027. This means that new supply will be constrained, which should support gradual reduction in vacancy rates over time. With that forward-looking perspective, I will hand over to you, Jakob.
Thank you, Johanna. Let's go in a little bit more in the details of our results and financing. As Johanna mentioned already, we delivered solid growth this quarter. Rental income reached SEK 450 million, up 4%, while net operating income rose by 6% to SEK 361 million. As Johanna mentioned, higher market interest rates have not yet impacted on our financing costs. We reported very strong growth in income from property management, which reached SEK 218 million. That's an increase of 13% per share. In other words, we delivered strong quarter, both operationally and financially. That said, long-term market interest rates rose sharply during the quarter. If they remain at these levels, they will of course gradually affect both us and the sector. Our rental income is largely protected against inflation. 93% of the income is linked to index.
Normally we are compensated for interest rate increases driven by inflation. At present, however, other factors are also pushing up long-term rates. I will come back to interest rates a little bit later. Turning to the balance sheet. The value of the property portfolio increased up to SEK 30.7 billion and is reflected by high level of investments, not least our acquisition of the logistic property in Sörred. Net investments SEK 666 million in the quarter. The LTV on total assets increased a little bit from last quarter, now at 48%. Last quarter, it was 47%. Our net financial items improved despite the high level of debt and amounted to SEK 133 million. Our ICR, the interest cover ratio, has improved during the year and now stand at 2.6.
The debt ratio for the quarter was unchanged at 10.8x, and that is a level that we are comfortable with. If we go further down in the P&L, the quarter was positively impacted by fair value changes in financial instruments and amounted to SEK 289 million compared with SEK 210 million the same quarter last year. Net asset value per share amounted to SEK 135, representing a year-on-year increase of 5.5%. To sum up, we ended the quarter with stable financial position and delivered strong performance, supported by robust cash flow from operating activities. A little bit more details about the development in the net operating income, broken down by like-for-like portfolio, projects, and transactions. If we start with the rental income, it increased by 4% in the quarter to SEK 450 million.
The growth came from both the like-for-like portfolio and also transactions, with positive contributions from the acquisition in Tuve last year. Like-for-like growth was driven by indexation, but also from tenant move-ins. Income from development properties or projects remains somewhat lower following Mölnlycke Health Care's departure last year from our property in Gamlestaden. Although we signed additional leases during the quarter, that will improve the cash flow next year. In the middle row, property cost decreased by SEK 4 million or 4%. Last year, the same quarter, we included some one-off costs, such as property tax. Also we had higher bad debt losses last year, which we do not see this year. At the same time, some expenses have also risen, including utility tariffs and also planned maintenance activity. But overall, as said, we reduced our costs for the quarter.
Taken together, it means that the NOI increased by SEK 21 million or 6% with a like-for-like growth of 3%. The NOI income ratio for the quarter was 80%. If we look at the performance by our segments and look at for year to date, so the period Q1 to Q3, we divide our operation into industrial and logistics, offices, and development. In the development segment, that includes our property development, and that may include both offices or industrial logistics, depending on the project, of course. During the period, both industrial and logistics and offices contributed to the growth, 9% from industrial logistic and 2% from office segment. The growth in industrial and logistic came both from the existing portfolio or like for like, and the transactions. Most of our net investments this year was in the segment industrial and logistics, SEK 561 million.
Also, a significant share of the SEK 91 million in the development was industrial and logistic with the Rigg projects that are ongoing. Together, the industrial and logistic segment has grown by 9% this year, the property value, and amounts to SEK 7 billion. That represents 22% of the total portfolio of SEK 31 billion. Financing. We continue to have a stable financial position. As I mentioned, higher interest rates have not yet had a negative impact on the quarter's earnings. Our average interest rate at quarter end, including credit commitments, was 4 basis points lower than the end of the previous quarter, and our interest cover ratio remained unchanged at 2.6x.
On a rolling 12-month basis, our debt ratio increased slightly to 11.3x, and that is because we calculated using closing net debt, which increased following the acquisition we did while the operating earnings so far include only one quarter of income from that property. If you look at the quarter itself, the ratio was 10.8x. I have already touched on the development in the interest rate market. Given the significant movements during the quarter, I would like to spend a moment on our interest rate hedging. Our average fixed interest rate period stands at 2.6 years, down from 2.9 years in the previous quarter. Both the fixation period and the proportion of interest rate hedging in the zero to one-year bucket, which you can see in the chart at 45%, were affected by the passage of time during the quarter, while the total volume of derivatives was unchanged.
However, some derivatives have moved into the zero to one-year bucket, and it has also been affected by increased borrowing. We did not enter into any new derivative transactions during the quarter. However, in the first half of the year, we extended SEK 1.3 billion of derivatives, and we moved them from medium-term maturity into longer maturities. We have SEK 750 million of cancelable swaps, and they are included in the zero to one-year maturity profile and do not affect the averaged interest rate fixation period. We have a clear financing policy that says that no more than 50% of our interest rate hedging may mature within zero to six months. At the quarter end, that figure was 34%.
Also, under the policy, our average interest rate fixation period should be between two and five years, with a target of 2.7, which will then be compared with the 2.6 we have now going out of the quarter. 2.7 is broadly where we have tended to operate, going back, and we intend to continue doing so. Our strategy is to spread hedges over time and keep interest costs predictable and manageable in relation to the underlying earnings in the business. Because the average fixation period naturally shortens as time passes, we need to remain active simply to maintain the current duration. With that in mind, we expect to be active in the fourth quarter. At the same time, we expect our combined transaction with the Port of Gothenburg that Johanna talked about.
We have a little bit less than SEK 700 million as net seller, and we predict it to be completed in the first quarter. All else being equal, the resulting debt repayment that we can do will reduce the proportion of floating rate debt. Of course, that we will take into account as well when looking on what activities we should do. Continuing with financing a little bit more. We increased our capital tie-up to three years during the quarter. Among other things, we issued SEK 500 million of bonds in early September at what we consider attractive margins. We continue to see good access to bank financing. Although demand in the bond market appears to have softened somewhat, is our impression. Our LTV ratio on total assets, 48%, as mentioned, while the ratio on LTV on property is 49% and is unchanged from last quarters.
In Q3, if we look at the property value of SEK 30.7 billion , in Q3, we recorded unrealized value changes of SEK -64 million in the quarter, and that's roughly split 50/50 between cash flow adjustments and changes in yield requirements. The higher year-to-date figure of SEK 148 million is mainly affected by that we, during Q2, change the indexation assumption in the valuation from 2% to 1%, which had a negative impact. From finance to sustainability. Our sustainability work continues on several fronts. During the quarter, we were one of only two Swedish companies to receive two gold awards from EPRA, recognizing both our sustainability reporting and our financial reporting. This is confirmation that we have taken our reporting to the next level, giving us a stronger foundation for monitoring and prioritizing our ongoing sustainability work.
Examples include continued investment in our own electricity generation, as well as the development of working methods and KPIs for social sustainability. The share. On April 17, a new share buyback program of SEK 200 million was approved. In the program, we have repurchased shares of SEK 165 million so far, and SEK 68 million of those was in the third quarter. We expect to buy back the previous program that we had, which ran until the AGM. We repurchased shares of SEK 95 million . In total, 3% of all shares have been repurchased and are held in treasury. This is one of the tools we use to create shareholder value. Going back to Johanna.
Thank you, Jakob. This is our dedicated and highly committed team that you see on the left. These are the people who delivers customer and shareholder value every day. Last August, we adjusted the organization setup to enable us to act even faster and to stay closer to our customers and give increased mandate to the organization to deliver. We have streamlined the group management team from 10 roles to six, and we have also organized the business into two areas: property management and development. Let me summarize the quarter. We delivered a strong earning growth, with income from property management per share increased by 13%. Both the occupancy rate and net letting have improved since the beginning of the year, while net lettings in the quarter were affected by higher volumes of terminations following two quarters with historically low levels.
Leasing activity remains strong, net letting for the year to date is still positive of SEK 45 million. We also increased our investment pace in line with plan, focusing on industrial and logistics. Through the logistic acquisition in Sörred, the ASSA project, Arendal 5.0, and the combined transaction with Port of Gothenburg, we are strengthening our position and building the next phase of growth. Together with active property management, portfolio rotation, transactions, and our share buyback program, we create long-term shareholder value. At the same time, we are operating in a volatile environment where conditions can change rapidly. This means that we remain humble about the outlook. We adhere to clear financial policy and prioritize predictability in our cash flow, which guides how we act going forward.
Our task is to remain a clear plan for what we can influence, filling our vacancies, strengthening our cash flow, maintaining good cost discipline, staying close to our customers, and making swift, commercially sound decisions. With a stable financial position, strong local market expertise, and an organization with a high level of execution capacity, we are well-positioned to continue creating value both here and now and over time. With that, we conclude our presentation, we open the call for questions.