Welcome to the presentation of Wihlborgs Year-End Report 2023. Like an extreme ultramarathon with new challenges and opportunities every day, and at the same time business as usual but with changes every day. We have been able to take care of both challenges and opportunities at a high tempo and I'm very proud of the whole well-skilled and well-trained organization working close together and finding new solutions for our tenants every day. We totally break the scale for the amount of new leases in Q4, a record I like. I know that we train a lot and that brings more opportunities. And about training: there's a lot of talk about if it's carbs or proteins that build muscles best. I know that cash flow is what brings real stability and strength so we continue our focus on cash flow. Let's go to our report and a summary of Q4.
Record net letting and net letting positive again, now 35 quarters in a row. Rental value continues to increase in line with index, higher financing costs but ICR at 2.8x. Stable balance sheet and we see bond market recovering and our project investment gives us good position for the future. The board proposes a dividend of SEK 3.15 per share. Results for the full year: 2023. Rental income increased by 16% to SEK 3,881,000,000. Operating surplus increased by 19% to SEK 2,763,000,000 meaning that our focus on cash flow continues to work and income from property management amounted to SEK 1,747,000,000 affected by higher financial costs. Together with lower valuations of properties and derivatives result for the period amounts to -SEK 27,000,000. EPRA NRV is now SEK 89.17 per share +2% compared with one year ago adjusted for paid dividend.
A comparison of the rental income full year 2022 and full year 2023. Acquisitions plus SEK 123 million. Currency effects plus SEK 58 million. Indexation plus SEK 229 million. Supplementary billing increased by SEK 62 million. And lower income from outsourcing our canteens in Denmark 1st of March gives us minus SEK 33 million and other increase from completed project new leases and renegotiations plus SEK 107 million. We have signed new leases for the last quarter of SEK 146 million. SEK 371 million for the period and the positive net letting for the quarter is SEK 18 million.
This is an extremely high activity and I would say that we are in a period of transformation and when we can help our customers with their changing needs it's a good thing. I mentioned in the Q3 report that we expected changes from Danske Bank in Høje Taastrup and now in January we signed our largest lease ever.
A new lease with Novo Nordisk for the full area 62,000 square meters. This agreement means that Novo already has access and they have started their refurbishment. A 10-year lease for 62,000 square meters and not a single month with vacancy; that's a good solution. And as I usually point out, it continues to be the widespread of many tenants in many sectors that contributes to our long history of positive net letting. Here are some of the new tenants that we have signed during Q4 on this slide. As usual, it's a mix of different segments. Defense industry, an animal hospital, Lund University, technical services as examples. And here we have the net letting in a historical perspective. Letting in light green, termination in light blue and dark blue stacks are the net letting.
Now 35 positive quarters in a row and this last quarter we must expand the scale to make room for the high volume. SEK 146,000,000 in new leases and SEK 128,000,000 in terminations. Only one quarter with a negative number for over 14 years. We will do everything we can to continue like this but as always let's keep in mind that a quarter is quite a short period. Matching 62,000 square meters in and out the same quarter as we have done now in January is not to be taken for granted. It's more like magic actually. But this organization can work wonders so why not some magic as a part of it. Here's the list of our 10 largest tenants in alphabetic order. All these tenants are strong customers and they contribute with 20% of our rental income.
8 out of 10 are governmental tenants and the rental income from public tenants is in total 23% and they contribute to long-term stability on our cash flow. Rental value as of 1st of January is SEK 4,408,000,000 per year and rental income SEK 4,043,000,000 plus 6.1%. A good part is of course indexation. Let's remember that indexation in Denmark and Sweden have been quite different during 2023. Approximately 1% in Denmark and 6.5% in Sweden. In Sweden the indexation is made once a year with October CPI as base but in Denmark the indexation is made all year around depending on when the lease was signed. So low inflation in Denmark affects these figures. Looking at like-for-like figures comparing all the properties we owned a year ago with updated figures we can see that rental value is up 5.2% and rental income is up 5.3%.
If you just look at offices in Sweden, rental value is up 6.5%. So we keep indexation growth. Let's look at changes in market value of our properties. We started the year with SEK 55,179,000,000 in accordance with our external valuation. We have acquisitions of SEK 134,000,000. We have invested SEK 1,862,000,000. A small divestment minus SEK 18,000,000. Changes in valuation amounts to minus SEK 1,212,000,000, and together with currency translation minus SEK 73,000,000, that summarizes to SEK 55,872,000,000.
As usual at year-end, we make a total valuation of all our properties all at the same time by external appraisers. One appraiser in Denmark and one in Sweden. The value of the portfolio has developed as you can see on this slide since 2005 without raising any new equity. With investments, new leases and a few transactions, we have in 2023 been able to increase the value somewhat despite higher yield requirements.
We have seen higher yield requirements the last seven quarters bit by bit. The valuations are as you all know affected by several parameters and we sometimes hear predictions about how much valuation will change or have been changed but of course it's hard to make comparisons that are general. An assumption: these assumptions they change all the time and also the properties change all the time. Our appraiser made a calculation showing that the values of our properties would have declined 12.5% if they applied the current yield requirements to net operation figures from end 2022. But we have significantly improved income, improved operations and have developed our project since then. So it's a part of the daily operations that we are very proud of and by that we have been able to meet higher yield expectations quite well.
Most of all it's interesting to measure how we actually perform in relation to these values. These figures, the running yield, show that. How we actually perform in relation to the valuation. This is not the valuation yield. For the whole portfolio the occupancy rate is 93% excluding project and land and with an operating surplus of SEK 3.081 billion that gives a running yield of 5.8%. Fully let would give a running yield of 6.4%. Good earnings capacity in relation to the value of the portfolio. In the office portfolio with the market value now is SEK 46.085 billion and overall the occupancy rate is 93%. It's 95% in Malmö, 92% in Helsingborg, 90% in Lund and 94% in Copenhagen. In Malmö it's very sunny at the moment I must say.
Improved numbers compared a year ago except on Lund where we have added two new projects Raffinaderiet 3 and Kunskapen 1 which are actually not fully occupied yet. The operating surplus from offices summarizes to SEK 2,599,000,000 and a running yield of 5.6%. This brings stability and resilience when interest rates are at higher levels. The demand for logistics and production continues to be good. Occupancy 95% in Malmö, 88% in Helsingborg, 98% in Lund and 97% in Copenhagen. 91% occupancy rate as a whole with a running yield of 6.9% and a total value of SEK 6,983,000,000. Development of our portfolio's running yield: 5.8% is back on the same level as 2015 but we have also improved our portfolio since then so we have a higher quality today. A quick increase of the running yield during the last one and a half years.
Here is the catalogue of our value and properties in our four cities: 40% of the value in Malmö, 22% in Helsingborg, 16% in Lund and 22% in Copenhagen. The labor market in our region continues to develop well. Even if unemployment in certain segments has increased slightly, the unemployment in Malmö is also a bit higher than in Sweden as a whole. It's low in a historical perspective. And the Danish market has hardly any unemployment at all. The massive ongoing infrastructure investment in Denmark continues and at least the southern parts of Sweden will benefit from them in the future as well as we benefit from a good access to Copenhagen Airport. And time for financials. Over to you Arvid.
Thank you very much Ulrika. If we look at the slide with the income statement relating to the 4th quarter isolated, you could see that the rental income amounted to SEK 969 million for the quarter. That is up 9%. You should bear in mind though that the SEK 969 million are affected by the yearly settlement of additional charges. Primarily for electricity. And that has affected this number by SEK -15 million for the quarter. This is the yearly settlement which we always do.
Normally it results in us charging our tenants a few million SEK extra but this year that has been the reverse. Our operating surplus amounted to SEK 659 million. Also up 9% representing a surplus ratio of 68% for the quarter. Income from property management amounted to SEK 366 million. And that has of course been affected by interest costs increasing by 92% quarter versus the 4th quarter 2022.
And as you know I mean the underlying STIBOR rate since spring 2022 has increased from 0 to just above 4% and that of course affects the financial net. We've had changes in value of properties amounting to SEK -297 million for the quarter isolated. And we've had a change of value of derivatives of SEK -506 million in the quarter. And as you also are quite aware of the expectations of future interest rates in the financial markets had a huge shift end November beginning December. And those changed expectations have of course affected the value of the derivative portfolio significantly. All in all a result for the period of SEK -350 million. Looking at the balance sheet you can see that the investment properties versus 12 months previously have increased by approximately 0.7 billion SEK. Equity has decreased by 1 billion SEK.
But you should of course be aware or remember that that decrease has been affected by the value changes of derivatives and properties amounting to in total SEK 1.8 billion. Borrowings at the same time has increased by SEK 1.1 billion to SEK 27.9 billion. Looking at the key figures, our equity assets ratio now stands at 39% and the LTV at 50%. Well, in line with our financial targets, although slightly weaker than the previous quarters. Interest cover ratio is 2.8x which is still a good level given the sharp increase in the underlying interest rates that I just mentioned. EPRA NRV stands at SEK 89.17 per share. Against the backdrop of our liquidity position, our balance sheet metrics and our earnings capacity, the board proposes a dividend as Ulrika mentioned initially of SEK 3.15 per share. Making this 18 years of rising dividends.
Looking at EPRA NRV in a historical perspective, you can see that the 89.17 is a slight decrease versus 12 months previously. Although of course that number has been affected by the dividend paid spring 2023 of SEK 3.1. Overall over this period of time we still have an average annual increase of EPRA NRV of 16%. The financial metrics in a historical perspective you can see on this slide. The decrease in the interest coverage ratio is of course against the backdrop of increasing market interest rates but still historically at quite decent levels. And in relation to the historical development of the equity assets ratio and the LTV we feel that our balance sheet metrics are quite stable. On the next slide you can see the net debt in relation to EBITDA during the year. We've been able to strengthen this ratio from 11 to 10.3 times.
Our financing sources are basically unchanged versus in the Q3 report. A bit over 50% of the financing comes from Swedish bilateral bank agreements. Some 40% from the Danish real mortgage system and 7% from the bond market. I will get back to the bond market in a couple of slides. The structure of our interest or our loan portfolio you can see on the following slide. We have now an average interest rate in the portfolio of 3.93%. We have an average fixed interest period of 2.8 years and the average loan maturity of 6 years flat. Looking at interest rate sensitivity, the graph shows how a change in the market underlying market rates would affect our average interest rate.
You can read the graph in the way that if the underlying rates were immediately to increase by 2.5 percentage points we would still be able to meet our target of a 2.0 interest rate cover ratio. On the next slide you can see how the fixed interest period and the loan maturity has evolved over time. So we've according to our financial policy entered into a few new plain vanilla interest rate swaps during the quarter bringing the fixed interest period slightly upwards in the quarter while the loan maturity has remained stable over several years as you can see. This is a graph showing the bond maturities and I think it's worthwhile pointing out that on the left-hand side of the slide you have bonds amounting to approximately SEK 1.1-1.2 billion which mature now in February and March.
We've of course had those in mind during the coming past or during the past couple of years. As I mentioned, the shift in the sentiment in the bond market has been quite rapid. Since December we've seen an increased demand for new issuance of corporate bonds also in the Swedish real estate sector. The 3 bonds on the right-hand side of this graph are actually bonds which we have issued during December, January and February.
That is the past few months. Most recently now in February via Svensk FastighetsFinansiering we issued a 2-year bond at 135 basis points margin. That illustrates the improvement in the bond market over the past few months. Lastly from my side you could see the development of our available funds. That is unutilized credit facilities plus liquid funds as of year-end which stands at SEK 3.2 billion. With that I hand the word back to you, Ulrika.
Thank you. I promise you you will get a lot of good questions so we come back to you later. I hope so. Let's give an update on sustainability. We continue with our certification program adding on properties to this year's list of certified properties at year end. 71% of the Swedish offices were approved in the certification system and today over 80% of the offices are submitted for approval. Our goal is that 90% of Swedish offices will be certified in until 2025. We continue to aim for the highest standard in all our projects. Zero carbon dioxide certification have trained us and we improve our way of working all the time. We cannot afford to invest in anything but the best which means the lowest impact. That is what creates the highest value tomorrow.
We also continue with energy savings. 6% reduction of energy consumption as a total for the full year. Our solar cells produce corresponding 9% of property energy consumption. We continue with energy saving actions in the existing portfolio. Some examples from 2023 on this list and one example is Nya Vattentornet 3 in Lund where we have added on our innovative cooling heat pump which we call the Janne Solution. Together with other actions we have saved 46% specific energy consumption and the energy classification of the building has improved from E to A. We also improve our way of work and reporting our results and we have been classified at GRESB sector leader with 5 stars and 93 out of 100 possible points. We also got an A- in the CDP benchmark. That means that we are a part of the leadership group.
Of course it's great to be classified as leader but the best way to make a difference is to get a lot of friends in that group. We try to spread the word about our solutions so that others can be inspired to make the changes that are most suitable for them. Let's go to our investment in progress and a quick overview of our biggest project. During 2023 we have invested SEK 1,862,000,000 and it remains SEK 2,664,000,000 to invest in approved projects. Construction costs continues to stabilize and improve somewhat. We have taken some actions with a new procurement in a few projects and that have improved our results. When we work together with our contractors we often find the right solutions together. The largest ongoing project is Bläckhornet 1 in Hyllie and it follows the schedule well.
The structure up to level 5 above ground is completed and frame completion has started on the mobility hub. We have signed the first leases and good discussions continue. Estimated completion for the mobility hub is Q4 this year and for the offices starting from Q4 2025. In Malmö we have started the refurbishment of our iconic Börshuset. 6,000 square meters offices, restaurant and coworking in absolutely top location and that will also give us top rents in Malmö perspective. Approximately 60% pre-let and completion in Q4 2025. Posthornet 1 phase 2. A newly built offices of 9,900 square meters right beside the central station in Lund. Investment of SEK 448,000,000 including the value of the land and completion is planned to Q1 2026. We have done new procurement and that has given good results and now I'm looking forward to start digging. Good discussions with possible tenants.
There are hardly any other options if you are looking for newly built offices in the city centre. In Hørsholm Copenhagen we invest for a new school for NGG. 11,600 square metres and investment SEK 390 million. Tomaten 1 in Lund. We build a new facility for Inpac. 6,400 square metres in the first phase and we invest SEK 137 million including buying the land from the municipality. Yield on cost approximately 6.5%. Completion in Q2 2024 and here we have been able to use the first zero-carbon steel in this building. A first test production from SSAB but it's a start. The facility for Nederman with 20-year lease at Rausgård 21 in Helsingborg will complete in Q3. Investment SEK 420 million. We also continue with a project for Rollco at Snårskogen 5 in Helsingborg. At Sunnanå we are about to start the production of 17,000 square metres logistic.
100% pre-let with completion in Q3 2025. That was some of the ongoing portfolio and let's also mention somewhat about the future investments which are important for us. Amfitrite in Malmö where we have signed an agreement with Malmö University after a public procurement act to create a project together. The architectural competition has started and after that the zoning plan will be designed together with the municipality. One of the best places to be in Malmö and we are happy to get the opportunity to work together with Malmö University. Here are 4 possible projects in Lund and Helsingborg. Science Village area. Ideontorget. Polisen 7 in Helsingborg and Västerbro in Lund where we can develop some 70,000 sq m in the future. Zoning plans are approved for the first 3 projects. Some office possibilities in Malmö in the area of Nyhamnen and Dockan.
A few other possibilities from the industrial and logistics segment. Tomaten 1 where we can add on another project. Bilrutan 5 in Landskrona. We have more land in Landskrona close to Bilrutan where we can continue with further industrial and logistics projects and the same thing with Sunnanå in Malmö. Here are some examples of what we can call fill-in projects on existing land but with demand increase we can add on value. The summary again of Q4. Record new letting and net letting positive. Rental value continues to increase in line with index. Higher financing cost but ICR at 2.8 times. The bond market recovering and our project investment gives us a good position for the future. The board proposes a dividend of SEK 3.15 per share. By that we open our 100-year celebration and are also open for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Lars Norrby from SEB. Please go ahead.
Good morning, Ulrika. Morning, Arvid.
Morning.
Question about valuation. Once again, just like in the third quarter, 100% external valuation, which is good. I know you talk about that there are many different factors affecting values, but I think, Ulrika, you also mentioned that you have raised the yield requirement or some people call it valuation yields now. Did you say seven quarters in a row?
Yes. We started in Q2 2022.
And by roughly how much have you raised the yield requirement?
It's hard to give you a figure for that because it's a different you know it's a lot of different parameters but as I mentioned our appraisers did this calculation trying to give a number of how much the change in parameters would have affected the income from late 2022. If we haven't been able to do anything else the value would have decreased with 12.5% with the new parameters for valuation yield. So that could give you some figure for the portfolio.
Let me try to rephrase. I'm an analyst. I asked the question several ways. It's more like have you increased the yield requirement by closer to 50 basis points or it's more like 80 basis points?
Over this period of time more like 80.
More like 80. Thank you. Apart from that jumping to well we can touch upon transactions.
Have you seen any material amount of transactions in your primary markets to sort of support valuations or is there still a very low number of transactions out there?
Yes. It's very low number of transactions that are comparable. I think that we have when we have looking at some larger possibilities I think we have been quite close to each other in assumptions for the newly built project and good projects but maybe sellers and buyers are a bit further away from each other when it comes to development projects and such. So I think we are still in a period where we see a calm period for transaction but we'll see.
From your perspective I think back in 2022 you were a net buyer of some SEK 2.3 billion or something like that. In 2023 you were a marginal net buyer of SEK 100 billion or something like that.
Looking ahead, now, will you be a net buyer or a net seller in 2024?
We try to expand our portfolio. We prefer to expand by adding on new projects, but I don't see us as a net seller.
Okay. Thank you. Those were my questions. I'll leave the floor to somebody else. Thank you.
Thank you.
The next question comes from John Vuong from Kempen. Please go ahead.
Hi. Good morning. Thank you for taking my questions. I think in Q4 yet almost record leasing driven by the pipeline, but at the same time lease terminations were rather large. Could you provide a bit more color on these?
Correct. Very high transformation period. We see that many tenants seeking for changes in some ways.
Some want to expand and other ones to decrease, but as pointed out before, as a trend we see that you ask for higher quality and trying to find the best solution for your employees both in location and quality. So there has been a very high volume both new leases and terminations and a part of that is of course larger companies doing structural changes. But as pointed out it's the large number of leases that gives us this great volume even if some of the both upside and downside came from the same tenants as well.
Great. That's clear. So I suppose part of it is driven by the Danske Bank.
No. No. Danske Bank is not. No. Danske Bank is not a part of the Q4. Danske Bank and Novo Nordisk is in Q1.
Okay. Okay. Clear. And what exactly is your plan with these vacated floor plans?
Are you moving them into your renovation pipeline?
Sorry once again. Please.
What is exactly your plan with the vacated floor plans? Are you moving them into your pipeline to renovate them and release them or do you think you can release them as is?
I think you mean the areas where we have received terminations. Do I understand that correctly?
Yeah. Exactly. On the terminated floor plans indeed.
Yes.
Okay. Of course that's depending. I would say that some of the terminations are already newly let to someone else. There is no larger refurbishment needed in that volume I would say. We had for example terminations at Hermes in Helsingborg but that has been a part of the plan for a long term so I would say that it's just a normal part of the operation but it has been a quite high volume this period.
Let's keep in mind that the largest volume that we have been working with and that could have caused some long term needed investments and working with that have been taken care of in Høje Taastrup with Danske Bank and Novo Nordisk. So that is a great solution of course.
Great. That's clear. Thank you. Maybe onto Denmark. Indexation has been fairly low on the first of January because of the low inflation but at the same time you note that market vacancy has fallen. On balance what are your expectations for rental growth in Denmark?
Denmark have a history of low growth on the rental market but as you mentioned the vacancy is down for the whole area so let's see what can happen.
I think that we some improvement on rent levels we expect that but a quite stable level in a historical perspective and of course that takes some time to change that expectations as well.
Okay. That's clear. That's it from my side. Thank you.
The next question comes from Niklas Wetterling from DNB Markets. Please go ahead.
Good morning. I have a few questions on projects and firstly historically in your Q4 presentation you have provided us with a slide of the profit from projects and I'm not sure I saw this this time but what has it been for 2023?
The profit from projects during this time has been a bit lower than we have seen before but we have been able to quite quick come back to higher yield on cost expectations in our calculations. But still positive effect from projects as a total. But sorry, I have no numbers for that today.
Okay. Because last year it fell back quite a lot and was the lowest in 10 years or so, but it's still positive in 2023.
Yes. It's positive but at lower numbers than we have had in a historical perspective. It's had been a quick change of course, as you know, on yield expectations from project, but we have been able to keep up quite well and have definitely higher yield requirements in our projects today, so.
Okay. Thanks. And then on yield on cost, for example, for new built offices, I believe you earlier mentioned that you're in for 6% and I wonder now if you believe that's good enough after this Annehem transaction at 5.6%.
Yeah. Maybe that transaction consisted of some extra efforts or you have to be aware of that for example the environmental certification on that project wasn't the highest level even though it was a very nice building and good leases but we'd like it to be a bit higher. Yes we get higher yields than that in our new projects. Some value gain.
Okay. 6% is still good enough to start projects?
It depends. If it's a really good project maybe you can think that 6% is enough but I would like it to be a bit above 6%. For example Börshuset which is a bit special because it's also renovation and refurbishment and an old building but we get 6.4% on that and that is a really good location so.
Okay. Thanks. And then lastly I had a question on the two press releases you had last week on lease extensions and renovations for Bravida and Nordea. Can you share any thoughts on CapEx and rent levels and will there be any value creation in these kind of renovation and extension projects or is it more like just getting the tenants to stay?
No. It's a bit of a value race but and I think I can't really remember. I can come back to you with the figures for yield on cost but it's a positive effect from these projects as well.
Okay. Great. That's all my questions. Thank you.
Thank you.
The next question comes from Alexander Totomanov from Green Street. Please go ahead.
Good morning. Thank you for taking my question. Last week Fabege took its dividend figure materially below the company's dividend distribution policy with the economic environment given as cause. I believe your policy is to distribute 50% of earnings from day-to-day property management and by my calculation your proposed dividend is materially above that. Can you help me reconcile it? Do you foresee a more benign operating environment in the Øresund region and would you need to lever up further in the first half to pay this dividend?
Okay. It was kind of hard to hear you but you had a question about the dividend level that I picked up and what we've said in our dividend policy is that we aim to distribute around 50% of the income from property management and we are aware that the SEK 3.15 is slightly above that.
The considerations that we've made for the dividend proposal is of course we've taken into account the balance sheet metrics. We've looked at the liquidity situation and our cash flow generation capacity and we've also looked at the aspect of continuity. Balancing these factors we feel that the proposal of SEK 3.15 is appropriate. Did you have an additional question apart from the dividend? I didn't quite pick that up.
Not at all. Thank you very much.
Thank you.
Thank you.
The next question comes from Fredrik Cyon from Carnegie. Please go ahead.
Good morning Erik and Arvid. Congratulations on the 1st century. I have a couple of questions starting off with investment volumes for 2024. Do you expect them to exceed the level of close to SEK 1.9 billion that you had in 2023?
No. I would expect them to be a touch below that but still on an historically high level.
Very clear, Arvid. Moving over to Bläckhornet. Most of your ongoing projects have a fairly high occupancy rate but that is not true for Bläckhornet. What's the interest level for the project? Do you think we will approach usual Wihlborgs project occupancy level at completion?
Yes. I expect that. We have as I mentioned good discussions and we have discussions on all areas in the building but the completion is starting in late 2025 and will continue during 2026 so it's quite far to that point in time. But a good product. Very good product and very low competition in the same time schedule so it's a good assumption that we will continue our history of filling up our projects.
On that topic in general talking about project completion volumes in Malmö for 2024, 2025, and 2026, can you compare it with historical levels just to get a sense of construction activity?
There's a lower construction activity today so there are possibilities but lower activity and therefore it's timing from us that we have possibilities with our projects.
Okay. And then two more questions from my side. Moving over to cost of debt. So given the current market's interest rates pricing at what level do you think your cost of debt will peak at?
I mean what you should look at is of course the tables that we have in our reports regarding the interest rate maturities and the derivatives portfolio.
So as you can see, I mean, we have approximately half of our debt, which is, so to speak, short term, that is not covered by interest rate derivatives, and the market now expects the underlying STIBOR rate to go down quite rapidly during the year. If that will materialize or not is of course, well, I don't know any better than you do, but that is the market expectation. But so far STIBOR is still, I believe, as of yesterday, at 4.08, so the expected fall in STIBOR has not materialized yet.
Okay. And then my final question relates to the valuation yield. I know you don't disclose it, but the running yield was 5.8. Approximately how much higher is the valuation yield? Are we talking 50 basis points, 30 basis points, or less than that?
Well, as you state yourself, Fredrik, we feel that it's no big point in disclosing an exact average valuation yield, and therefore you will not get an exact answer. We think that it is, however, interesting to note, as you do, that the running yield over the past few quarters has come up significantly, and the most important thing to look at is, of course, how do our operations actually work? Which type of cash flow do we actually generate?
We agree. Don't blame me for trying. Those were my questions. Thank you.
The next question comes from Markus Henriksson from ABG Sundal Collier. Please go ahead.
Thank you. Good morning, both. First, the question on the two new ongoing projects. We have the Posthornet 1 and Börshuset. You mentioned it was 6.4% yield on cost in Börshuset but I'm also a bit curious on potential rental levels for Posthornet and Börshuset or in more general terms for your projects what do you see relative to your current market levels in investment properties?
The new rents are at higher levels than we see in the existing portfolio. At Börshuset it's I would say above SEK 4,000 but at least SEK 4,200 on a good office there. So of course we don't start new projects without adding on something that also continue with the kind of work we have done historical. We add on something that creates a higher value and also of course we need tenants that are willing to pay for that.
Thank you. In Stockholm it's quite common to get a rent-free period when you are a coworking actor as the High Court took most of the majority of the space in Börshuset. Is that the case also down in Malmö?
No. I would say it's not the same thing. Sometimes we have a short period when you're moving from one place to another so you don't get double rents or if you rent a much larger space than you actually need for the first one or two years maybe you have some kind of help for the additional area on an early lease period but otherwise I would say that you pay your rent and you have that on a decent level and it works more like that.
Thank you for that. I might have missed that but I saw you rented new lettings in Q4. Have you done anything also during the first quarter and if you have how much and what type of swaps or derivatives?
As you saw we did a bond issue under our own MTN program in January of SEK 400 million and when we did that bond issue we swapped that amount to fixed over that two-year period. So that is what has happened after the year end and we continue to use plain vanilla interest rate swaps. We have not worked with positive values of our swaps and restructured things to realize a cash flow etc. So we've just entered into plain vanilla interest rate swaps on a few occasions during Q4 and the one I just mentioned in January.
Very clear. Thank you. Then we had a question before on acquisitions. I'm just a bit curious you now have a net debt to EBITDA of close to 10x. That is low in a historical perspective and you also guide for investments to be in the higher range of historical figures but still down year-over-year. If we just look at property value changes and the investments you're guiding for do you see the possibility for major acquisitions if that would appear or do you feel that you kind of need to safeguard your current metrics and stay a bit below historical average due to higher uncertainty?
Of course it depends a bit on what you mean by major acquisitions but I would phrase it in this way. We feel that we are in a position to look at acquisition opportunities which may come up.
We were not wild and crazy on the acquisition side a few years back and we don't intend to be today. We are picky when it comes to the quality of the property, the location of the property and of course the price but we feel that we have the opportunity to look at things which may come up.
Thank you. Then slightly on JV earnings. It was SEK 7 million in Q4 up a bit from SEK 5 million in Q3 and Q2 and it's a seasonally unfavorable quarter. What should we expect here for 2024? Any help you can give us?
No. I think the full year 2023 let me think for a second. That was affected by one of the JVs selling a piece of land so that was probably a bit high as a full year number.
So I would have to look at it a bit more closely, but I mean SEK 6-7 million a quarter is probably a good guesstimate. I agree you had the land sale there in Q2, so it was more the run rate. We've been around SEK 5 million and now SEK 7 million.
Perfect. Perfect answer. Then a bit on the recharging of electricity costs. You do a reversal now in Q4. Was the overstatement evenly split in Q1 to Q3? I'm a bit curious here to make sense of the quarterly estimates for 2024, or were they well above in, for example, Q2 or Q3 where you adjusted for electricity payment had very good NOI margins if you understand the question there?
Yes. I think the SEK 15 million adjustment for additional charges that were recorded now in Q4 to a large extent it relates to Q4 but it is I mean historically when we invoice this to customers or to tenants we make a preliminary invoice and estimate an amount over the year. During 2022 and 2023 particularly the electricity for the energy markets in total have been very hard to predict and they have had a very high volatility. If you remember in the Q3 report in 2022 we had suddenly extremely high electricity costs because the market and the weather was such. Normally when we do this yearly settlement we end up with charging our tenants a few million SEK more than we have and this year it was the opposite. Mainly relating to Q4 but the variation over the quarters during 2023 have also been larger than normal.
Thank you. And just to follow up there. So do I interpret it that, as it's been, an evenly split in Q1-Q3? The kind of overstatement of the forecast or did you do any changes already earlier in the year and now you still have to?
We did a smaller adjustment in Q3 and in Q2, as you may remember, we also had the adjustment relating to the electricity support which came from the government. So this item had been slightly out of the ordinary during the year.
Yeah. Yeah. Definitely. Definitely. Last question. You had a low indexation in Denmark. Do you see the possibility to have a kind of positive mix in renegotiations in the coming years or should we just continue to expect quite low rental volatility and that you mainly follow CPI ahead as well?
I think that we should expect a low volatility but of course there might come possibilities as a follow-up from the lower vacancy in that market but adjustments take some time sometimes so we'll try our best.
Thank you for that. Thank you for taking my question.
Thank you.
We've received a couple of questions via email.
The next question comes from David Flemmig from Nordea. Please go ahead.
Thank you. I guess that you were trying to say something there already.
Not to worry. You go first, David.
It's past 10:00 but just one very final question. You were talking about the interests and you have 50% floating rate and we saw quite good opportunities to buy swaps in Q4. You did some. Can you just remind us of the hedging policy? What do you aim for in the longer term? Is it 50 we should expect or do you expect to go further out the curve?
I mean our interest rate hedging policy basically states that we should have a certain minimum and a maximum proportion of interest rate maturities falling due during different time spans 0 years- 1 years, 1- 2 years, 2 years- 3 years, etc. Those minimum and maximum levels are then set so to speak on a sliding scale from the shorter time horizon to a longer time horizon. The objective of the policy is not to beat the market because we don't know better than anybody else where the interest rate will go and when. The objective is to get a certain predictability and to reduce the volatility of the interest costs. We feel that the policy that we're working with works.
The extremely rapid increase in interest rates has, of course, as you all know and see in the numbers, affected us, but still, looking both at our liquidity situation and looking at metrics like the interest cover ratio, we are still on comfortable levels. So, from that perspective, our opinion is that the policy that we're working with serves us well.
So we shouldn't expect you to make any dramatic changes to that going forward, even if we see longer interest rates falling from here?
You should expect us to continue working according to the policy that we have.
Okay. Thanks. That was my final question.
And maybe now you had some reading questions.
I'll make it try again. We had a question via email here.
How does the margin on bonds compare to the margin on bank debt and how do you see your financing mix evolving over the year? Well you've seen the bond margins via SFF, a secured bond, 2 years 135 basis points. The latest unsecured bond we did under our MTN program was a 2-year bond at 190 basis points. I would claim that a new bank facility with 3 years maturity we would probably have to pay 145-150 basis points margin on such a facility to give you a feel for how the different markets compare to each other. I had a further question here. How sustainable do you feel your dividend payout is and will it impact your investment ambitions?
We wouldn't propose the dividend if we didn't think it was sustainable and we would not propose the dividend if we didn't feel that we can continue with our investments in projects according to plan. I believe that the other questions arriving via email have already been answered. Yes.
Of course you can all come back to us after this meeting with new questions. We are open for that of course.
Okay. Any further questions from anyone?
No. There are no more questions at this time so I hand the conference back to the speakers for any closing comments.
Okay. Thank you for this time and we will go out there and try our best to continue with our work.
Thank you very much. Bye.