Hello and welcome to Wihlborgs Fastigheter Audio Cast with Teleconference for Q4 2021. For the first part of this call, all participants will be in listening only mode, and afterwards there will be a question and answer session. Today, I am pleased to present CEO Ulrika Hallengren and CFO Arvid Liepe. I will now hand over to the speakers. Please begin.
Hello, and welcome to the presentation of Wihlborgs' year-end report 2021. I start with some figures. SEK 315 million, as in new leases signed during 2021. SEK 150 million is the net letting for the full year. SEK 67 million, as in net letting in Q4, and SEK 50 billion, that's our property value. 4.8%, it's as the increase in rental income in like-for-like portfolio, and finally, SEK 2.8 billion as the value of ongoing projects. All records in a historical perspective, but of course, just the starting position for the future. Now we'll go back to the standard presentation mode, a summary of Q4 2021. Even if the positive trends in the middle of the autumn was a bit slowed down by restrictions in the end of the year, we had a very strong finish of 2021.
All-time high quarterly operating cash flow. All-time high new leases and net letting, both quarterly and for the full year. Cash flow and earnings is our focus, and a strong cash flow also creates opportunities. We continue to start projects when the timing and location is right, and we now have an all-time high project portfolio, SEK 2.8 billion. Rental income increased by 4.8% in the like-for-like portfolio, a good temperature measurement of increasing rent levels. Results for the full 12-month period 2021, rental income amounts to SEK 3 billion 60 million, still affected by our divestment in Malmö in December 2020, but also from the one-off compensation from Danske Bank termination in Q3. The operating surplus summarized to SEK 2 billion 195 million, and income from property management amounts to SEK 1 billion 815 million.
The result for the period amounts to SEK 3 billion 348 million, which corresponds to 21.78 SEK per share, and EPRA NRV increased by 17% to SEK 172.65. A comparison between rental income 2020 and 2021, divestment -SEK 82 million, COVID discounts SEK 17 million less 2021, a better year for many tenants overall. Currency effects -SEK 19 million. 2020 was a poor year for service income, and 2021 was SEK 5 million worse. Vacancy SEK 51 million higher, and extra income from early termination from Danske Bank adds on SEK 69 million, and other increase in higher rent and new leases +SEK 57 million. Still affected by the divestment in comparison, but picking up in higher rents and when new projects are completed. Future positive effects will come from higher service income such as the Danish cantinas now when the COVID restriction ends.
Of course, when we sign new leases and vacancy decrease, the most important factor. Here are some of our new tenants that we have signed during 2021. Some large one like Trygg-Hansa, Oatly and Visma that are really positive for our project volume. Länsförsäkringar filling up the Diana area in Lund together with the Institute for Human Rights, but also smaller, but important tenants like Brödernas at Helsingborg Central Station, giving other tenants the right service. Record levels on new leases, SEK 350 million for the full year and SEK 150 million net letting. Positive net letting in every quarter during COVID is good. Breaking records and reaching for new levels is a signal that the market is strong. We have built a really strong organization, working hard, being close to our customers, and that pays off.
Some large leases are a part of these figures, but it's significant that the large number of smaller tenants is what makes the business enduring and strong. We have new leases of 186,000 sq m, and termination of 168,000. That's a difference of 18,000, but a positive value of SEK 150 million. The signals of increased rent levels and higher quality in the portfolio are definitely there. Here we have the net letting in historical perspective. Positive figures for the last 27 quarters. Letting in light blue and termination in dark. The dark gray line is the net letting. The number of new leases during the year is 564. Still no guarantee that we will never be below zero, but I see many positive signals further on. A list of our 10 largest tenants in alphabetic order. They contribute with 21% of our rental income.
The rental income from public tenants continues to be high, 24%. As usual, I keep mentioning that it's the wide diversity across many sectors in our region that is the strength that brings stability over time. Rental value is now SEK 3,472,000,000 per year and rental income SEK 3,128,000,000. That's + 6.2%, and our project portfolio will keep that growing. Looking at the like-for-like figures, we can see that rental value is up 4% and rental income is up 4.8%. A high level, and again, beating our vision to exceed index by at least a percentage point. The vacancy will decrease further when our new tenants move in. A summary of our office portfolio. The market value is SEK 40,749,000,000, and overall, the occupancy rate is 92%. It's 94% in Malmö, 89% in Helsingborg, 91% and improving in Lund, and 94% in Copenhagen.
As I said, this figure will continue to improve when our new tenants move in. There might be a slightly lower value in Q1 due to the period for refurbishment in some of the objects, but improving well during 2022. The operating surplus from offices summarized to SEK 1,996,000,000 and a running yield at 4.9%. We go to logistics and production. The demand continues, and here the occupancy rate is now at some kind of top level in Malmö, 99%, 90% in Helsingborg, and 93% occupancy rate as a whole, with a running yield at 6.3% and a total value of SEK 6,445,000,000. The demand continues to be strong throughout this sector in all our cities. For the entire property stock, the occupancy rate is 92%, excluding project and land, and the operating surplus, SEK 2,401,000,000, gives a running yield of 5.1%.
Excluding project and land, total value of the portfolio is SEK 50,033,000,000. Changes in market value of our properties. We started the year with SEK 46,072,000,000 in accordance with our external valuation, which once a year values 100% of the stock at the same time. We have made acquisitions for SEK 429,000,000, invested SEK 1,290,000,000, divested SEK 3 million, just a small piece of land at Vätet in Lund. We have changes in valuation of SEK 2,153,000,000. The increase of value in Q4 comes approximately 50% from lower yields, 30% from new leases and increased rents, and 20% from project development. Together with currency translation of SEK 163 million, that summarize a property value of SEK 50,033,000,000. The value of the portfolio has developed, as you can see on this slide, since 2005.
A bit flat last year due to the large divestment, but now back on track, seeking for further transaction possibilities though. The right product is of great importance, but also the right price, of course. The last one, trickier than ever to figure out, I would say. A catalog of our value and properties in our four cities. 42% of the value is in Malmö, 24% in Helsingborg, 17% in Lund, and 18% in Copenhagen. These cities belong to the same region. They are connected, but they also have differences so that they, in their own special way, contribute to the whole. Universities and good opportunities for good housing and living environments are common opportunities in all cities. Our total business model includes profit from projects and income from property management. For 2021, these results amounts to SEK 379 million and SEK 1,815 million respectively.
The business model since 2005 have created SEK 4.5 billion as profit from projects and SEK 15.8 billion from property management. In total, SEK 20.3 billion, of which SEK 7 billion have been distributed as dividend. The profit from projects varies over time in line with the time schedule for our projects and when they're filled with tenants. That's a very good part of our operation. What about the office? Do we have any news? Will the office be remastered in any way? We have done a sequel of our artificial intelligence report produced a year ago, now measuring people change in behavior and what they may be a little more subconsciously are asking for. The conclusion is that the expectation of the office increase.
Employees will ask for flexibility, balance in life, and that will put up new demands on leadership and organization, but also new demands on our product. We love seeing people again, and we also love when people talk about us. Finally, some real figures. Over to you, Arvid.
Thank you very much, Ulrika. Good morning everybody. Moving to the next slide, the income statement for Q4. We recorded rental income of SEK 770 million during the quarter. We had a positive impact included in those numbers, coming partly from a SEK 5 million COVID reserve which has been reversed during the quarter. We also had a reserve relating to the one-off payment from Danske Bank regarding AB Industriväg, which an agreement was reached in Q3, and that reserve has also been reversed. A total one-off effect of SEK 10 million affecting the quarter.
One should also keep in mind, looking at SEK 751 million in rental income in Q4 2020 that during two months we had income from the divested properties as that divestment was effected on the first of December 2020. We had an operating surplus of SEK 537 million. Included in those numbers and in comparison with Q4 2020 we had winter-related costs of SEK 5 million more than we had the corresponding quarter a year previously. With income from property management amounting to SEK 443 million, slightly lower interest costs than in the previous quarter. I will get back to that in a few slides. With positive value changes of almost SEK 1.6 billion in the quarter.
As Ulrika said, 100% of the properties have been valued by external appraisers as of year-end. In rough terms, you could say that about half of the value increase comes from lower valuation yields, about 30% from increased rents and lettings and about 20% from profits from projects. With a positive change in value of derivatives, giving us all in all a profit for the period of SEK 1.668 billion. Looking at the balance sheet, you can see that during the year, property value has gone up by SEK 3.9 billion. At the same time, borrowings increased by SEK 1.1 billion, and equity was up by SEK 2.5 billion.
Looking at the change in equity, you should also, of course, bear in mind that during 2021 we paid a dividend of SEK 800 million, or just above that. It's not huge numbers, but I think it's interesting to note that, as you've seen for a few quarters, we have derivatives both on the asset and the liability side of the balance sheet. For the first time, the market value of our derivatives, excuse me, on a net basis actually has a positive value of SEK 31 million. Moving to the key figures which the balance sheet translates into, our equity-to-asset ratio now stands at 42.9%. We have an LTV of 46.5%. And an interest coverage ratio of 6.7 x.
These are, as I will show you in graphic form, actually the strongest balance sheet numbers that we've been able to show also in a historic perspective. The EPRA NRV, as Ulrika related to, has increased by 17% to SEK 172.65 per share. On the back of strong balance sheets and on the back of strong cash flow generation during the year, the board proposes a dividend of SEK 6 per share, and that is up 14% versus last year, and thereby continues the trend of continuously being able to increase our dividend now for the 16th consecutive year. The EPRA net asset value or EPRA NRV in a historical perspective, you can see on the slide in front of you.
The increase during the year was 17% and measured from 2009. Adjusted for dividends, the average annual growth has actually been exactly 17%. So we think that is a strong track record, which we are happy to continue. Looking at the financial ratios in a five-year historical perspective, you can see a gradual increase in the equity to asset ratio, a gradual decrease, especially over the past two to three years of the LTV, and a very strong interest coverage ratio, not least since year-end, 2018, where the interest coverage ratio went up to about six times, and we've been above that since.
Even more important, looking at our financial stability than looking at the LTV, we think it's important to look at our net debt in relation to EBITDA. During the year, we strengthened this ratio further, and it now stands at 10.7 times. Our financing sources as of end December are roughly the same as they have been over the past year. Roughly half of our external financing comes from bank loans, a bit over a third from the Danish mortgage loan system, and a bit under 20% from the bond market, both via our own MTN program and via SFF, Svensk Fastighetsfinansiering. Excuse me. The structure of our loan portfolio you can see in detail on this slide.
The fixed interest period now stands at 2.9 years, and the average loan maturity at six years. I think it's worth noting that the average interest rate at 1.27%, we feel actually is a very competitive level in an industry comparison. Looking at the loan maturity and the fixed interest period in a five-year historical perspective, loan maturity has been very stable. The fixed interest period has come down slightly, and according to our financial policy, is likely to remain around three years going forward. Finally, looking at available funds. As you can see in this graph, we have during the pandemic period had larger unutilized credit facilities than we have had historically. That has been, in our view, a good precaution in uncertain times.
We have though consciously over the past couple of quarters brought down unutilized credit facilities somewhat. They now stand at a bit over or between SEK 2.5 billion and SEK 3 billion. We feel that is a comfortable situation to be in when it comes to seizing investment opportunities. With that, I'll hand back the word to you, Ulrika.
Thank you. Just a few words on this sustainability team. Since the last report, another five properties have been approved and classified as Miljöbyggnad iDrift. All of the buildings certified from the older stock have reached the silver level, which is really good. We have also 2.3 MW solar cells installed by the end of 2021. Once again, I would like to mention the work we do with changing our cooling machines and the fluorocarbon gas that is the most common gas in cooling machines, and we change that into propane gas instead. We have by that in 2021 reduced risk of 1,200 tons carbon dioxide emissions, and that change will be sustainable over time. Now let's go to investments in progress.
We have during 2021 invested SEK 1.29 billion in ongoing project, and it remains SEK 2.299 billion to invest in already approved projects. We have projects of over SEK 2.8 billion ongoing. Overall, the projects continue according to plan in a good way. Some smaller delays due to COVID, but nothing that will affect our customers. A quick review of our largest projects. The largest one up to now is Pulpeten 5 in Hyllie, a project that we call Kvartetten. We invest SEK 6 96 million Swedish krona and will get 16,000 sq m lettable floor area. At the highest certification standard with Miljöbyggnad Gold, WELL, and NollCO2, zero carbon dioxide. Leases are signed with Trygg-Hansa for 12,000 sq m, and together with Mindpark and Spill, this project is 85% pre-let.
With no other vacancy in the area and Kvartetten almost full up, it's time to start the next project in Hyllie. It's Bläckhornet 1 and the project that we call Vista, a large mobility hub with 400 parking spaces. Although the block is right beside the train station, parking is still an important sales factor. On top of the mobility hub, there will be 16,600 sq m office and restaurant. Now we can start the whole project at the same time. An investment of SEK 884 million, so now Pulpeten next door is only the second largest one. Completion Q1 2025, but the mobility hub will be ready earlier. At Hindbygården 7, we're doing a project for a lettings and back-office optimization, a state-of-the-art office at a good transport location in Malmö.
Completion in Q3 2022. In Raffinaderiet 3 in Lund, we continue with this conversion project. We have signed several leases at top levels in Lund, over 3,000 SEK per sq m. Completion in Q4 2022, and I know that the investment will be a bit over SEK 140 million, but still with a yield on cost at approximately 6%. This investment will give us 5,800 modern sq m of modern offices, with this industrial touch right beside the central station. Since we have good discussions with possible tenants seeking for larger areas than we can offer at Raffinaderiet, we also have decided to start Posthornet 1, phase two in Lund. 9,900 sq m just beside the railway station. The investment is SEK 448 million, and completion in Q4 2024.
At Science Village, right beside the research facilities MAX IV and ESS, we have started our project space where Oatly will be the main tenant with their research and development team. They have options for the whole building, and we have more building rights just beside this one. The food tech sector is, of course, interesting, and we will invest SEK 245 million, and the building will be completed in Q3 2023. In Helsingborg, we have started a multi-tenant logistics project at Huggjärnet 13 . The building permission is expected to be approved now this week, seventeenth. We build this project in two phases, and first one will be completed in Q2 2023. At Snårskogen 5, also in Helsingborg, we will build a facility for Doka, 2,200 sq m. Investment SEK 60 million, and completion Q1 2023. A large ongoing portfolio that's also mentioned.
Let's mention something about the future investment. Here we have four possible projects in our three Swedish cities. Vätet 1 is new on this list, just beside Kunskapen 1 at Science Village area. At Ideon, we can build approximately 16,000 sq m just beside the tram station. Polisen 7, it's offices in the city center of Helsingborg, and Fredlingen 15 and 18 is also in Helsingborg, and we can offer up to 22,000 sq m gross floor area in logistics. A few other projects from the industrial and logistics segment. Rausgård 21 in Helsingborg, approximately 20,000 sq m. Grustaget 1, also in Helsingborg. Approximately 20,000 sq m. Bilrutan 5 in Landskrona, 14,000 sq m, right beside the highway.
In Sunnanå in Malmö, where we have built for Region Skåne and WHB, we can add on an extra 17,000 sq m logistic for production. The planning of Nyhamnen in the city center of Malmö continues, but the larger zoning plans will delay due to infrastructure planning by the municipality. But we can continue our design and planning with ongoing zoning plans, for example, Smörkajen. Here we see an improved design for our 13,000 sq m. The Kranen 15 just at the entrance to Dockan area from Nyhamnen. The work with the zoning plan is about to be started. We will see new design here as well, and architectural competition will be a part of this process. Naboland 3 in Dockan, just a few hundred meters from Kranen 15.
Here, the planning permission is ready, and we can submit a building permit application whenever we think the timing is right. 8,000 sq m. At Västerbro in Lund, the zoning planning is ongoing, and we can develop approximately 70,000 sq m in this area. Something about Denmark. At Industrivägen 41, the area where Danske Bank had its operations. We can continue to develop this area for mixed use. We have a very large area here, very close to the new tram station, just at the left on the map, Lättbanan, and we can develop something like 100,000 sq m housing, school, and workplaces here. In Højbjerg, also in Copenhagen, the zoning plan is just approved, and we can continue to develop the area for mixed use here as well.
The offices are already built, but increasing the density and combining offices with housing in this area will create an even more attractive area. We own part B to F in this picture. One of the buildings, we are already developing a preschool for the municipality at the moment. Let's summarize Q4 once again. A very strong finish of 2021. All-time high quarterly operating cash flow. All-time high new leases and net letting, both quarterly and for the full year. All-time high project portfolio, SEK 2.8 billion. Rental income increased with 4.8% in the like-for-like portfolio. By that, we are open for questions.
Thank you. Our first question comes from Markus Henriksson with ABG. Please go ahead.
Good morning, Ulrika and Arvid. First question regarding like-for-like rental income, here up 4.8%. Do you have any one-offs, or could you highlight significant drivers behind that figure? Have you already included the indexation for 2022 in the analysis per property category you have in the report?
Yes, the indexation is included as the property table reflects the situation as of first of January 2022. As Ulrika said in the presentation as well, we're of course happy that we are able to beat index, and our ambition continues to be to beat index by at least a percentage point on this metric.
There's no extra income payoff in that, in such way. It's only the indexation and the normal hard work.
Okay. Perfect. Could you highlight what drivers do we have if we look at excluding the ex-indexation and look at different geographies or submarkets or logistics offices, where do we have the strongest contribution?
You don't have any significant difference in the development in industrial and offices. Also, the geographic spread of the increase is fairly even among our four cities.
Okay. You highlighted SEK 10 million here in extraordinary items. We also have around SEK 4 million in higher snow removal costs. Do we have any other one-offs or figures affecting comparisons here going forward?
I think we try to highlight what sticks out a bit. No, there's nothing in addition to that which I think. Well, we've tried to be specific within the presentation in the revenue development slide, and also in the report, but no other extraordinaries.
Okay. You also mentioned the service income from the Danish canteens. What have you got from that during a normal year, and what has been the impact roughly in 2020 and 2021?
I think on the operating surplus level in the income statement, the negative effect from the canteens has been between SEK 10 million and SEK 15 million in 2021, and slightly less in 2020.
Okay. Perfect. Also question.
When people come back to work, then we are really happy to at least even those figure out.
That's clear. Also regarding projects, you have two large project starts here. Do you think it's likely that you will have any other large or several small project starts in 2022?
I think that we will continue to add on projects. As you can see in the portfolio for the future, we have some possibilities that we can start quite quick. But it's hard to predict which one will go first and exactly when the timing is, but if you look back historically, we have been able to find new projects all the time. We will continue with that.
Thank you. Last question, looking at the bilateral market, Danish mortgage system or the bond market, and what do you see right now? Do you expect financing costs to come up somewhat here in 2022, all else equal?
What we're seeing currently is that bank margins are stable or maybe moving slightly downwards. The bond market, as always, is much more volatile than the bank market or the Danish mortgage system market. As everybody has seen, the bond market margins have gone up over the past couple of years based basically on geopolitical uncertainty. I would expect bank financing costs to be rather stable during the year. The increase that we've seen in the 10-year interest rate swap, for example, has not yet been reflected in STIBOR, as STIBOR has remained very stable at just below zero. Everybody can listen to the Riksbank as well as we can.
I don't expect STIBOR, and I don't think people expect STIBOR to increase sharply during the coming six-12 months.
Perfect. Thank you. Those were my questions.
Thank you.
Our next question comes from Niklas Wetterling with DNB. Please go ahead.
Thank you and good morning. I got two questions. First, you have a long debt maturity while the average interest rates maturity has fallen down a bit during the year here, and I believe about 50% of the debt is at a floating interest rate or interest rate that matures in 2022. Is that a level that you are comfortable with going forward as well?
We are comfortable with the average interest maturity and our financial policy basically stipulates that a certain proportion measured in % of the interest maturities shall fall due during the coming one, two, three, four, five, and so on years. The policy has been formulated in that way rather than being formulated in terms of an average interest rate maturity measured in years since that number can be so-so, so to speak, manipulated by individual very long interest rate swaps. We are comfortable with the financial policy that we follow.
Okay. Thank you. My second question is, what's the key argument for the share split?
The share split has no real economic or financial effect as we all know. We have effected a share split on a number of occasions historically since we were spun off in 2005. For us, it's basically a signal that since the last share split, we've basically doubled the value of the company. It sends a signal both externally and internally that we've actually accomplished something, which is not all bad. It's actually pretty good. We have been able to double the value. It's more of a signal that we've done something over the past few years. The last share split, I believe, was in 2018.
Okay, great. That's all of my questions.
Our next question comes from Erik Granström with Carnegie. Please go ahead.
Thank you. Good morning. I have a few questions as well. I think I'll start off with the project portfolio and your investment level. I believe you invested about SEK 1.2 billion in 2021, which is about the same level as the year before. Could you say something about what you expect to invest this year given that your project portfolio is growing?
Yes. We have a few large projects that are up in volume, and some of them just in the start. I expect us to be above SEK 1 billion this year as well, but not reaching the highest levels that we saw in 2019, close to SEK 1.7 billion, but over SEK 1 billion.
Okay. Also, in terms of profits from the projects, I believe you stated it was SEK 379 million in 2021. You had a number of projects that were also completed. You have about SEK 170 million in investments to be completed for 2022, and then you have more going on the coming years. Should we expect the profits from projects will be slightly lower in 2022 because of fewer completions, or will you continue to report profits from these projects as you start to rent them out, even in sort of early to mid-stages?
Yes. We calculate them as profits along the way when we do sign leases. We don't have to
Okay.
I think you should expect the same level approximately.
Okay. Also what are your outlooks for potential acquisitions? You mentioned something about prices being difficult to sort of get your hands around. What do you see in terms of outlook there, and what have you noticed in the market so far?
Well, I think that we now see some possibilities on offices in Sweden, which is interesting. Of course, Denmark is always a great interest. We grow where we have possibilities, but we are cautious both with the quality and location and of course, the price.
Perhaps just to clarify, do you believe that your vacancy will come down in 2022, all else being equal?
It will come down. It might get a bit higher in Q1, but then lower as further the 2022 comes. Yes, lower.
Okay. Also looking at the proposed dividend, your income from property management was more or less unchanged in 2021 versus 2020. Despite that, the proposed dividend is 14% up. How should we view that? Your balance sheet is rather strong. Is this an indication that you can't find any investment opportunities? Or, what's sort of the rationale for the high dividend in relation to the unchanged income from property management?
It basically relates to, as you state yourself, that the balance sheet is stronger than ever. We also feel that the cash flow generation capacity that we have continues to be strong. We have had over the years and still have the ambition to be able to increase the dividend each and every year. Against that backdrop, the Board proposes the increase to SEK 6 per share.
Okay. I believe the payout ratio then in the proposed dividend is somewhere around 50%, which I think is a little bit higher than historically for Wihlborgs. Is that a level that we should expect going forward as well? Or do you see cash flow generation increasing and thus you can still hike the dividend but still have a payout ratio that's slightly lower?
Historically, the payout ratio has, in relation to the income from property management, been between 40% and 50%. With this proposal, it's at the higher end of that spectrum. Our ambition is to be able to run the company in such a way that we can continue to increase dividends.
Okay. That sounds good. Thank you very much. Those were my questions.
Our next question comes from Staffan Bülow with Nordea. Please go ahead.
Yes. Thank you. I have a couple of questions, starting off with one question on the net letting figure. Is the Trygg-Hansa lease included in the Q4 net letting figure?
Yes, it is. It's
Okay.
It's a part of it, of course, but as I mentioned, the large numbers is from the many leases that we have done.
Okay. That is clear. You started a new project in Hyllie, Bläckhornet. Could you explain the rationale for starting this project on speculation?
I would say that it's the same thing that when we started Kvartetten. We need something to put out in the market. We have almost no vacancy in the area, just 2,000 sq m in Kvartetten. The production time is long. I think it's a good thing that we can start with the mobility hub because it's also attractive for Kvartetten and the other objects that we have in the area. Long production time, and we know that the market is there. It's the right time to start.
Okay. Thank you. That's clear. What kind of development profit margin do you expect to achieve in these projects in Hyllie both for Pulpeten and Bläckhornet, if you could specify that?
We can put it this way, that we expect us to have a yield on cost at approximately 6%.
How does the rent level stand for a new produced office in Hyllie?
At good levels. Reaching a good increase, I would say. Tenants are willing to pay for the right product in the right location, and this is a good spot to be. And so...
It is like top brands in Malmö, in Hyllie?
Yes. Yes.
Yeah. Finally, I have a question regarding yield compression. You mentioned that one third of the value uplift comes from yield compression. Could you specify how many basis points that is and in which segments?
I would not like to specify the number of points. To correct you slightly, around half of the value increases both in Q4 and for the full year come from valuation yield compression. We've seen a larger yield compression in the industrial logistics segment than we have in the office segment.
Okay. Great. Thank you. Those were my questions.
As a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. Our next question comes from Anton Wilen with Bloomberg News. Please go ahead.
Hi. Good morning. You write in the report that inflation may impact the property transaction market. What kind of impact?
Well, if you look at inflation and the valuation of properties, we basically say that an increase in inflation will feed through to increased rental income, since most of our rental contracts are linked to consumer price index on an annual basis. So, with a higher rental income, you also get increased value of the properties.
May this, like, slow down the activity you think? Or what kind of impact could it have on the actual activity?
You mean the activity in the transaction market?
Yeah, 'cause you say the red hot property transaction market may be impacted by inflation, so is it?
I think from our perspective, a potential increase in inflation is for our operations it's not necessarily a bad thing, as I relate it to the rental income effect. Increased inflation does create increased uncertainty, and that may potentially have a negative impact on the transaction market as uncertainty always is a drawback.
Okay. Have you seen any such signs already in the market? Has it slowed down from last year?
What we've seen is actually a good activity in the transaction market, and also basically high prices being paid.
A continuation from last year more or less, or.
Yes. That's what I would describe it as.
Okay. Do you think it could impact your acquisition activity in 2022? Higher inflation.
I don't think so. Now it depends if it comes new numbers in any way, but I hope that we can find the right transactions during 2022 and positive signals definitely from the office side.
All right. Okay, thanks for taking my questions.
Thank you.
At this time we have no further questions. I will now hand back to the speakers for a final remark.
Okay.
So-
We'd just like to thank you all for listening in and wish you a good day.
Thank you.
Bye.