Wihlborgs Fastigheter AB (publ) (WIHL) Earnings Call Transcript & Summary

Welcome to the Wihlborgs Fastigheter Q3 2022 presentation. [Operator Instructions] Today, I'm pleased to present CEO, Ulrika Hallengren; and CFO, Arvid Liepe. Please begin your meeting.

Thank you. So welcome to the presentation of Wihlborgs' Q3 report 2022. In turbulent times, the strategy and the ability to have a long-term perspective on a number of parameters is tested. We continue to focus on our strong cash flow, building new and even stronger relations to our customers and keeping our financial long-term strategy. Future development is always difficult to predict, but we see that our letting has never been as strong as now. When we summarize the net letting for the 12-month period, we reached a new record level of SEK 154 million and that is our future earnings, worth to keep that in mind. Let's go ahead straight to our report. A summary of Q3 '22. Strong letting also in Q3; normally a quarter with lower activity, but we and our tenants have managed to keep up the tempo well. Continued increased rent levels at plus 6.1% higher rental value in like-for-like and plus 7.4% in rental income like-for-like means also that vacancy continues down. Record high rental income for 1 quarter SEK 848 million, stable balance sheet and continued access to financing. And the results for the first 9 months '22. Rental income increased by 7% to SEK 2.247 billion. Worth mentioning that we in '21 had a one-off effect of SEK 64 million so adjusted for that, the increase is 10%. The operating surplus increased by 4% to SEK 1.729 billion. And income from property management increased by 4% to SEK 1.425 billion. The result for the period amounts to SEK 1.998 billion, which corresponds to SEK 6.50 per share. And EPRA NRV increased to SEK 89.28 per share, which is plus 16% since Q3 '21 adjusting for paid dividend. A comparison of the rental income between first 9 months '21 and the same period '22. We had the one-off effect minus SEK 61 million, acquisition plus SEK 42 million, currency effect plus SEK 20 million, income from canteens in Denmark plus SEK 13 million, higher debited property tax plus SEK 10 million and indexation plus SEK 40 million and other increase from new leases, higher rents and lower vacancy plus SEK 96 million. On the cost side, we continued to struggle to reach breakeven at our canteens in Denmark. Very good with more tenants at the office and therefore higher income, but costs are also up due to higher prices. Energy costs are also up and at year-end we can compare the preliminary debit to our tenants with the total cost for the year and do the regulation as we always do once a year. We know for a fact that compared to '22, preliminary debit will be higher for '23. But overall, a good growth in rental income and this is before the indexations coming up in October '22 setting the new rent levels for '23. We have signed leases -- new leases for the quarter of SEK 40 million and SEK 202 million for the period. The positive net letting for the quarter is SEK 18 million and SEK 87 million for the period. The activity has been good also in Q3 as mentioned, almost better than a normal Q3, whatever normal is these days. And it's particularly satisfying that we see that same picture for all our 4 cities. And as I always say, it's the large number of many growing tenants from different sectors that built these figures. Here are some of our new tenants that we have signed during Q3, a mix of different segments. Inpac at Tomaten 1 in Lund where we will build a new facility for them; Dogman in the City Center Malmo; Kjell & company, a very small shop at Helsingborg Central Station but with high turnover per square meter; Medarca in the med tech sector at Medeon in Malmo; Busfro working with high quality secondhand in Malmo; and IO Interactive from the gaming industry. Good and interesting mix. Here we have a net letting in a historical perspective, letting in light green and termination in blue and dark blue stacks are the net letting. Now we have 30 positive quarters in a row and only 1 quarter with a negative number for over 14 years. We keep up the good work and together with our customers, we create new opportunities. One quarter is a quite short period to measure and it does not give any good direction of trends. So what happens if we look at a bit of a longer period. Here we have the net letting summarized for a rolling 12-month period and here we can see that we have never had such a strong and high level of net letting before, SEK 154 million last 12 months. And as I mentioned in the beginning of this presentation, this is our future income. A list of our 10 largest tenant in alphabetic order. We have seen them before. They are very stable here. They contribute with 20% of our rental income and, as you all can see, 8 out of 10 are governmental tenants. The rental income from public tenants continues to be high 23% and this of course creates really a strong base for stability over time. Rental value is now SEK 3.757 billion per year and rental income SEK 3.451 billion, plus 15.4%. A good signal of growth partly result of our successful project portfolio, but also being close to the market, knowing the tenants and being willing to make room for their growth and demands for upgrading their workplace. Sometimes we move around in several stages to make changes possible. And looking at the like-for-like figures, we can see that rental value is up 6.1% and rental income up 7.4%, again beating our ambition to exceed index by at least 1 percentage point. And this is before indexation from this year in ongoing leases in the Swedish market, some of the leases in Denmark have indexation. And vacancy will continue to improve as positive -- as a result of positive net letting. A summary of our office portfolio. The market value is now SEK 44.294 billion and overall the occupancy rate is 93%; 95% in Malmo, 90% in Helsingborg, 93% in Lund and 92% in Copenhagen. Remember that we also bought some vacancies since last report, but still improved numbers. The operating surplus from offices summarized to SEK 2.207 billion and a running yield of 5%. And worth mentioning again, running yield is not the same as valuation yield. Maybe you can say that we actually perform better in our portfolio than our appraisers' expectations. In the valuation method, there are for example calculation method models for future vacancies, but we work with our properties so that vacancy should decrease rather than increase. When our vacancies increase in the property stock, it's usually because we have bought something with vacancy or emptied a property and created vacancy for development. That's a way to grow. The demand for logistics and production continues also to be good. Occupancy 94% in Malmo, 91% in Helsingborg and 94% also in Lund and Copenhagen; 92% with a running yield at 6.2% and total value of SEK 6,791 billion. And for the entire property stock, the occupancy rate is 93% excluding project and land and an operating surplus of SEK 2.625 billion, which gives us a running yield of 5.1%. Total value of the portfolio SEK 54.488 billion. Changes in market value of our properties. We started the year with SEK 50.033 billion in accordance with our external valuation, which once a year values 100% of the stock at the same time. We have acquisitions of SEK 2.369 billion, we have invested SEK 996 million, divested a small piece of land in Helsingborg for SEK 1 million and change in valuation amounts to SEK 412 million. The increase in value comes mainly from new leases, expectations of inflation during '22 and '23 have gone up and we have increased the yield requirement somewhat. These 2 changes basically offset each other in the valuation, same take as in Q2 and in line with discussions we have had with our appraisers. Together with currency translation of SEK 679 million, that summarized a property value of SEK 54.488 billion. The value of the portfolio has developed as you can see on this slide since 2005 without raising any new capital. A bit flat 2020 due to the large divestment in the North Harbor of Malmo, but now back on track and not with any help from lower yields. A catalog of our value and properties in our 4 cities. 40% of the value is in Malmo, 23% in Helsingborg, 16% in Lund and now after the last transaction, 21% in Copenhagen. We really like the mix of these main cities in the Oresund region. Here people have the possibility to live and work under good circumstances. The differences between the cities are large enough for them to have their own character, but at the same time so close that people can commute between them efficiently. The labor market between Denmark and Sweden can improve further. And more of a story telling example is that one of the termination we had in Denmark last quarter was a job placement office. There are jobs to apply for, but no applicants so no space needed. In Sweden, there is still people to hire and a better match between these needs can improve the market further. So what about acquisitions? We have during Q3 acquired Pilbagen 6 and Snarskogen 1 in Helsingborg, 25,000 square meters for a property value of SEK 333 million and the transaction was made 1st of July. Good location and more to be done for the tenants, which will improve the operating result for the properties over time. July 1 was also transaction day for Lerso Parkalle 107 in the northern part of Copenhagen, small piece 3,600 square meters with an operating cash flow of some SEK 3 million. But the plan is to invest a bit, make it more energy efficient and add some extra modern touch and by that, we can calculate to get a higher operating surplus. Not the largest site, but a good example of how we can add value. The largest acquisition is Hedegaardsvej 188 and Amager Strandvej 390. It's in total 53,000 square meters in South Copenhagen. A new area for us closer to the City Center and just beside 2 metro stations and we can offer good parking as well. The location is also very close to Copenhagen Airport and the Oresund bridge, a good spot to build. Modern and refurbished premises, but 25% vacancy where we can contribute. Further investments are planned in the area which will further strengthen the activity -- the attractivity here over time. Date of transfer was 1st of September and we fully financed this requirement via the Danish mortgage system. The operating surplus and the vacancy that we have bought here impact the results for 1 month in Q3. A few leases have been signed since we agreed on the transaction and we now also have offers and discussions for almost all of the remaining area. So our belief is strong that we can improve results here. And over to you, Arvid, for financials.

Thank you very much, Ulrika, and good morning, everyone. Looking at the Q3 income statement isolated. I'd like to start to highlight that comparing with Q3 2021 is kind of a tough comparison considering that, that was the quarter when we got the early termination payment from Danske Bank of SEK 64 million. Nevertheless, we increased our rental income in the quarter to SEK 848 million, plus 4%. The operating surplus amounted to SEK 594 million, that is down 3%. But adjusted for the early termination in Q3 '21, it was actually up 8%. We have slightly higher costs where I'd like to highlight a couple of items. We have higher property tax in Q3. Versus Q3 '21, it has increased by SEK 18 million. SEK 12 million out of those relates to new fixation values, which have been established during 2022 and which have been charged all of them in Q3 although the SEK 12 million relate to Q1 to Q3, total 3 quarters that is. In addition to that, in Q3 we had higher energy costs compared to last year. The increase in energy cost has been approximately SEK 22 million depending on higher presence in the offices, warm weather leading to higher consumption and also of course higher prices as you're all aware. The income from property management amounted to SEK 475 million after financial net of SEK 98 million during the quarter. We've changed our value in properties plus SEK 40 million in the quarter. And as Ulrika touched upon, already in Q2 we increased the assumptions and the valuation models regarding the index and also increased valuation yields somewhat. And we have in Q3 continued to increase the index slightly more than in Q2 and we've also pushed up valuation yields a few basis points with roughly a net 0 effect of those assumption adjustments. The change in value of derivatives of plus SEK 59 million due to continued rising interest rates as you are all aware. And all in all, a profit for the period of SEK 449 million. Moving to the balance sheet. I'd just like to highlight that during the past 12-month period, the value of our investment properties has increased by SEK 6.7 billion. And in the same time perspective, equity has gone up by SEK 2.8 billion and our borrowings have increased by SEK 3.8 billion. Using the balance sheet numbers to compute some key figures on the next slide. We have an equity ratio which now stands at 41%, we an LTV of 49.2% and an interest coverage ratio of 6.6x. The EPRA NRV now stands at SEK 89.28, up 16% versus 12 months previously adjusted for dividends. On the next slide, you can see the long-term development of EPRA NRV since 2009, we've had an average annual growth adjusted for dividend of 17%. Looking at the financial ratios where we have set targets for ourselves and which we obviously monitor on a quarterly basis. The interest cover ratio, as I said, at 6.6x has gone down somewhat, but from of course very strong levels of just over 7x. Our equity assets ratio over the past 5-year period, as you can see in the graph, has gradually gone up although it has gone down slightly over the last couple of quarters to 41%. And our LTV in the same way has in the 5-year perspective gradually gone down from around 55% to well below 50% and we're still below 50% at 49.2%. On the next slide you can see our net debt to EBITDA, which we feel is a better metric to look at financial stability versus looking at the LTV. Our net debt to EBITDA as of end Q3 2022 stands at 11.0x. Further, looking at our sources of financing. That has changed slightly in the quarter. We have during the quarter repaid bonds, which have matured to a value of SEK 846 million. After that, the proportion of bond financing in our loan portfolio is 10%. And as we have over the past many years, we rely on bilateral bank agreements now accounting for 50% of our financing and the Danish real mortgage system, which now accounts for 40% of our financing. And we're all aware that the bond market is not functioning in a very good way at the moment. The bilateral bank market continues to function and in particular I'd like to highlight that the Danish real mortgage system functions as normal so to speak with basically no change in access to capital and basically no change in margins either. That's worth keeping in mind. Looking at our loan portfolio, you can see that the average interest rate in the portfolio is now 1.7%, 1.72% if you include costs for undrawn facilities. We have approximately SEK 1.2 billion in unutilized facilities and the average fixed interest period is at 2.2 years and the average loan maturity at 6.1 years. On the next slide, you can see graphs showing basically our interest rate sensitivity. As our loan portfolio and our interest rate swap portfolio look like at the end of Q3. The graph to the left shows that if STIBOR momentarily increases by 2 percentage points, our average interest rate would increase by 1.1 percentage points. So that shows you the sensitivity in our average interest rate. In the right-hand graph, you can see a simulation of the interest cover ratio given a change in STIBOR. Our goal for the interest rate cover ratio is not to be below 2x and we can actually cope with a 5 percentage point increase in STIBOR before the interest cover ratio goes down to 2.0. The fixed interest period and the loan maturities in a 5-year historical perspective you can see on these 2 graphs. The fixed interest period is gradually going down, but we continue to work with the financial risk management policy that we established a few years back, which basically stipulates that a certain proportion of interest maturities shall be hedged during 0 to 1 years, 1 to 2 years, 2 to 3 years, et cetera. On the next slide, which I believe is my last slide, you can see the available funds that is our unutilized credit facilities plus liquid funds as of end Q3. It now stands at SEK 1.5 billion. It has decreased as you can see from last quarter due to bond repayments of SEK 846 million as I mentioned previously, but also that we've made particularly the acquisition of Amager Strandvej and Hedegaardsvej in Denmark, which has affected available funds as well. But we are confident with the cash flow generation capacity that we had that this decrease does not in any way jeopardize our ability to finance ongoing expansion. Thank you very much and over to you again, Ulrika.

Thank you. And even if that was your last slide, I know that you will come back on the question part. I'll give you a short update on sustainability. Of course strong financing is a very important part of that, but we also have some extra information of course. First, we continue with our work to classify our running office portfolio in Sweden according to Miljobyggnad iDrift. These are some of the properties that we have succeeded with this year. We will not reach the 80% goal of the total office portfolio this year, but we will keep up that high tempo we have now and reach that goal in '23 and after that, we will just continue in the same speed. The lowest climate impact will always be to use buildings that are already built. Another important action is to continue with energy saving projects. Last report I mentioned our special designed compressor and reversed heat pump where we can exchange needs of cooling and heating in a building at very high levels. We continue with that model and have now installed that in 2 additional buildings, Neptun 6 and Sankt Jorgen, saving over 50% energy and these buildings were good ones already before so this extra reduction of 50% makes them very good to play. Energy cost has been very high lately and there is a large correlation between high consumption and high price. What we have seen is preparedness both from individuals and companies to take real action to save energy, some of them because they have to and some of them as a way of contributing to lower cost for the neighbor. If we can cut the highest peaks, the price per unit will go down. So we can install different maximum power equipments and also allow lower temperatures in collaboration with tenants to reduce their cost for energy and of course we also invest in several new solar service projects. Sometimes work also pays off in official data. This week we got the announcement that we have been classified as Global Sector Leader in listed diversified property companies by GRESB, an improvement from 72 to 91 points in 3 years. It's an important step that we are able also to explain some of the things we are doing and of course we are happy to get some credit for that. But most of all, I'm extremely proud to get the opportunity to work with all the people at Wihlborgs that take these steps to improve what we do every day. That's true joy. Another important sustainability measure is our customer satisfaction index. The results from some weeks ago shows a clear improvement from 75% to 78% and now we get a third place in the category big companies in Sweden. Did I mention that I was proud to work with my colleagues? Our customers like them too. And the last one on this theme, this is also news of the day for the Wihlborgs staff. We are once again certified as a great place to work both in Sweden and Denmark and we improved our results to 86% as a total Trust Index. So the employees at Wihlborgs also seems to be being proud of being a part of Wihlborgs. I'm fully convinced that these factors are connected and I also know that when we are proud to do our work and help our colleagues, we can also transfer that knowledge and help our customers to also create their best workplace. That builds productivity and better results also for them. Another important part of our growth is of course our investments. Let's go to them we have in progress. We have so far during '22 invested SEK 996 million in ongoing projects and it remains SEK 2.385 billion to invest in approved projects. In total, over SEK 3.5 billion in ongoing projects. Overall, the projects in production generally meet both schedule and budget forecast with the same exception as in Q2, Raffinaderiet in Lund. Otherwise despite a troubled world, we are actually quite protected from effects of that in our projects. We have also during this time with risk of higher cost worked very closely with our contractors and tenants finding solutions to stay in line with budget and time schedule. We expected to see a stop of the increase of calls to the building industry later this year, but I was a bit surprised that we got these calls already in August from contractors offering to do their maths again. A quick review of our largest projects. The largest one in production is Pulpeten 5 in Hyllie named Kvartetten. Has a connection to the buildings for different assets. SEK 804 million including VAT for the part where Trygg-Hansa is our tenant. Return on investment 6% and the project includes 16,000 square meters lettable floor area and the highest certification standard with Miljobyggnad growing well and 0 carbon oxide. 85% pre-let and completion will start in Q2 '23. The rest of the tenants will move in during '23. Also in Hyllie, Blackhornet 1, the project we call VISTA. This building will be the new entrance from Copenhagen to Malmo. A large mobility hub with 400 parking spaces and on top of that, there will be 16,600 square meters offices and restaurants. With no other vacancy in the area and [ Smorkajen ] almost filled up, the timing is good to start this project also since there will be a long construction period. Procurement is still ongoing and at the moment, it's a good time to meet the timing in the market also when it comes to building cost. Estimated completion in Q1 '25, but the mobility hub will be little earlier. In total, at least 5.7% yield on cost. Raffinaderiet 3 in Lund will also be state-of-the-art offices right beside central station, but delay and higher cost is expected. First tenants can move in, in Q1 '23 and then with the project continue at least 6 months. Conversion projects in old industrial buildings can come with surprises in several ways, but the result will be very good and we see also that we signed leases at high rent levels. As said before, 5,800 square meters offices at best location might be worth some extra patience. Also in Lund at Science Village ripe with 3 research facilities with MAX IV and ESS, we are in full action with our project SPACE where Oatly will be the main tenant with a research and development team and we have more building rights just beside this one. We invested SEK 244 million and the building will be completed in Q3 '23. Continues to follow the plan very well. This will probably be our second 0 carbon dioxide certified building. And Posthornet 1 Phase 2, new build office of 9,900 square meters right beside Raffinaderiet in the central station in Lund. Investment SEK 448 million and completion is planned to Q4 '24. Procurement is ongoing and we will see good results from that. An industrial project in Lund, which is not the most common. But at Tomaten 1, we will build a facility for Inpac. 6,400 square meters is the first phase and we invested SEK 137 million including buying the land from the municipality. Yield on cost approximately 6.5%. This project also gives us an opportunity to continue our development, invest and grow in Lund, good combination. For Nederman with a 20 years' lease, we have started project of 25,000 square meters at Rausgard 21 in Helsingborg. Investment SEK 420 million and completion in Q1 '24. A real long-term investment that also gives a good boost to the surroundings of this building. And in Helsingborg we also built a multitenant logistic project at Huggjarnet 13, 65% prelet and both bases have now started. Completion starts in Q2 '23. At Snarskogen 5 also in Helsingborg, we build a facility for DOKA. 2,200 square meters, investment SEK 60 million and completion in Q1 '23. A large ongoing portfolio, but let's also mention something about future investment. Here is 4 possible projects in our 3 Swedish cities. Vetskapen 1 just beside Kunskapen 1 at the Science Village area. At Ideontorget, we can build approximately 16,000 square meters just a tram station. And Polisen 7, offices in the City Center of Helsingborg. And at Naboland 3, we can offer 8,000 square meters gross floor area in the Tongan area. So in-plans are approved for all these projects and we can start when we have the right customer. And a few other possibilities from the industrial and logistics segment. Platforadlingen 15 and 18 in Helsingborg; Bilrutan 5 in Landskrona and we also have more land in Landskrona close to Bilrutan where we can continue with further industrial and logistic project at Orja Pedalen for example; and in Sunnana in Malmo where we have built for [indiscernible], we can add on 17,000 square meters logistic park production. If I would take a guess, I think that we will see 1 or maybe 2 projects from this slide on the next ongoing pace. The planning of Hamnen continues, but the municipality still struggles with overall infrastructure planning. However, we can continue with our design and planning for projects in line with ongoing strong plans. For example Smorkajen, a design for 13,000 square meters. Kranen 15, you have seen this before just at the entrance of the Dockan area. Patience is an important ingredient in zone planning that we will get there. Together with JM and Peab, we also continue our joint venture for new zoning plants in the Dockan area. It will be both work spaces, school and housing in a good mixture. And Vasterbro in Lund, as I mentioned, where Inpac is leaving for Tomaten. The work with the zoning plannings continue and we can develop approximately 70,000 square meters in this area. We continue to find and create new opportunities. Here is an image of possible development at Slagthuset. We own the land and have planning permission for housing, but we think the area needs a higher density and will work for that and offices at best location of course. The headline of this report was that workplaces continue to deliver results. We of course practice that conviction in every step we take. So let's summarize Q3 once again. The strong letting continues as well as increased rent levels, record high rental income for 1 quarter and stable balance sheet and continued access to financing. And even if we look a bit blurry at this picture, we are now open for questions and promise to answer as clearly as possible.

[Operator Instructions] And our first question comes from Markus Henriksson at ABG.

Unfortunately, we cannot hear anything.

Can you hear me now?

Yes, loud and clear.

Sorry, there was something wrong on my end. So first off, you never mentioned the valuation yields what you have increased here. But for CPI assumptions, could you give us the figure for Q2, Q3 and 2023?

In Q2 we raised the CPI assumption to 6%. We've increased it another 1.5% approximately relating to income in 2023 and so we've changed that upwards slightly. And valuation yield, we brought it up 15 basis points to 20 basis points in Q2 and in Q3 the change has been roughly 10 basis points.

Okay. And I didn't clearly get for 2023, what CPI assumption do you have in the valuations? Do you have 2% or 3% or...?

I think it's 3%.

Okay. Then on energy cost, you highlighted it increased around SEK 30 million excluding acquisitions. Could you give us how much you're able to transfer to tenants?

Yes, I'll try to explain how that works. The comparison versus last year is of course relevant and part of the truth. But we charge our tenants on a preliminary basis a certain amount for the supplements that they are supposed to pay for example for energy, but also for potentially other things. That preliminary charge is basically set before the year and is evenly spread over the quarters. After the year-end we check what has the actual consumption been, what the actual price has been and we make an adjustment to reality of the preliminary charges. That is how we've always worked and how we continue to work. Depending on what happens in Q4 with prices for energy, with volumes for energy, et cetera; I mean we don't know what the annual adjustments would be, which means that we have not taken that into account in the income in Q3. But to relate to full year figures for 2021 just to put things a little bit into perspective. Looking at that full year figure, approximately 90% of all our energy costs were passed on to tenants.

And do you see any hindrance why it would be much more below that 90% figure when you are doing your final calculations for what the tenant should pay?

I mean the system we'll work with is the same.

Very clear. Then a bit on the share of leases with index clauses. Could you highlight any differences between Denmark and Sweden and also highlight the share in rental income that is not affected by index, for example service income that you split up in the report?

Indexation works slightly differently in Denmark and Sweden. In Sweden I think we're all well familiar with the October CPI figure is the most important figure. There are of course examples of a few contracts also on the Swedish market, which do not have full indexation. But the vast majority of all our contracts have full indexation relating to October CPI taking effect from the following 1st of January. In Denmark the index, you also have a corresponding indexation but the timing of the indexation relates to when the contract is entered into. So indexation can actually take place in different contracts at different points in time during the year. The largest proportion of Danish contracts indexation will take effect in January. But we have of course a number of contracts where indexation takes effect gradually during the year.

Very clear. And could you also highlight a bit if we look at the service income where I assume that you won't be able to lift with CPI? Do we have any other income in top line where we should be a bit more cautious in our index assumptions?

Apart from the service income, no, not really.

Our next question comes from Erik Granstrom at Carnegie.

I would like to start off with passing on cost to tenants, but moving on towards the property tax situation. You mentioned that you had a bigger impact in Q3 because of the fact that you actually paid for most of 2022 up until this point. How is that passed on to tenants? Has that already taken place or is that something you do on a yearly basis as well?

That has taken place and that has affected both income and costs. So the SEK 12 million, which is the new property taxation -- the effect of the new property tax values, the SEK 12 million have affected the costs in Q3, but basically also the income. I'm not quite sure. I believe the number on the income side was probably SEK 10 million or so because we don't pass on the 100%.

Yes, SEK 10 million.

We have some vacancies, we have some -- et cetera.

Clear enough. And also one way of looking at the energy cost situation was obviously that the NOI margin printed in Q3 was clearly lower than last year. But on a yearly basis if we look forward, do you see any reason why your NOI margin for next year should be significantly lower or anything different from the 72% that we saw in 2020 and 2021?

Big picture, no. They have of course a few minor -- I mean when property tax increases, it basically erodes the surplus margin slightly. When income from our Danish canteens increase, it basically erodes the surplus margin slightly. So I mean you have a few small effects. But big picture, no, we should be able to maintain the surplus margin.

And at the same time, you're also completing projects also.

Correct.

Okay. And then speaking of sort of coming into the projects, you mentioned the Blackhornet in Malmo, you're doing the procurement now. I believe you mentioned a yield on cost of 5.7%. I assume that's based on the SEK 884 million investment you're expecting. How sure are you of sort of maintaining that cost level? Is this in conjunction with the discussion of the procurement already or is it based on a sort of estimate of what your production cost will end up?

Of course we make an estimate when we made the decision to start the project and now we can see that the contractors gives us offers in line with that. So fully convinced that we will reach a good project there and also with actually higher rents possible than we have calculated with.

Okay. And also I have a question. Ulrika, you mentioned the fact that you always aim for having a like-for-like that's at least a percentage point higher than inflation and you're maintaining that at this point. Obviously next year is going to be a little trickier because inflation is and CPI is going to be higher. Do you still think it's possible to aim for a like-for-like of more than 1% above CPI?

No promises, but we will do everything we can of course.

Okay. And my last question was regarding the unutilized facilities, Arvid, that you mentioned of SEK 1.2 billion. You also have about SEK 1.2 billion maturing next year. Could you tell us something about how you plan to handle your maturing debt for '23 and perhaps also '24? Is this to a vast extent bank maturities that you simply expect to push forward and renegotiate or how is your thinking in terms of maturity?

Regarding our bilateral bank agreements, we most often have yearly renegotiations and prolongments of those and the signals from the banks are basically positive in the way that they say that they are happy to not only continue the relation with us, but also happy to expand their relation with us if we so want. So from that perspective, I think the situation is very stable. You should also remember that we continue to generate the cash flow, which is basically the foundation of our business. Regarding the bond market, I believe we have SEK 166 million maturing in Q1 and we have the next maturities in Q3 2023 of SEK 400 million something. If need be, we will repay those bonds as we have repaid bonds in Q3 this year. Hopefully, the bond market will start to function again. I mean we have over the past -- I mean we've been active in the bond market since 2014 I believe. We've always had the aim to continue to have the bulk of our financing from bilateral bank agreements or the Danish real mortgage system. But the bond market is a good complement as a source of financing. Now we're down to 10% bond financing in our total loan portfolio and I think that's a reasonable level to be at. Hopefully, the bond market will function a bit better again so that we can continue to be active for a smaller portion of our financing in the bond market. But if it doesn't, we're quite confident and comfortable with the bank relationships that we have.

Our next question comes from Eleanor Frew at Barclays.

So firstly, on your interest rate sensitivity, I recall previously a 3% rate rise with a 1% increase, now it's 1.1%. I know that's minor and it foreclosed a clarified loan. But has your fixed exposure decreased or is that just a more accurate calculation?

No, our fixed exposure has -- or the proportion of interest rate swaps has gone down slightly during the quarter and time has also elapsed so to speak.

Do you know the overall proportion of your debt floating now then?

Well, we have -- is it 10 point something billion of interest rate swaps I want to say as specified in the report. We have interest rate swaps of SEK 10.327 billion. We have in addition to that a few -- we have some fixed rate loans in Danish kroner as well. I don't have that number in my head to be frank, but that has been taken into account in the interest rate sensitivity calculation.

Next one, yesterday [indiscernible] development pipeline given increased costs on materials and funding. Am I right in saying you're less concerned with them and what's making you more confident on developments in the future?

I didn't quite catch the question. Was it on our future development projects?