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

Welcome to the presentation of Wihlborgs' year end report 2023. Like an extreme ultra marathon 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 highlight. 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 for the 5 quarters in a row. Rental value continues to increase in line with index, higher financing costs but ECR at 2.8x, stable balance sheet and we see bond market recovering and our product investment gives us good position for the future. The Board proposes a dividend of SEK 3.15 per share. Results for the full year '23. Rental income increased by 16% to SEK 3.881 billion. operating surplus increased by 19% to SEK 2.763 billion, meaning that our focus on cash flow continues to work and income for property management amounted to SEK 1.747 billion affected by higher financial costs. Together with lower valuations of properties and derivatives results for the period amounts to minus SEK 27 million. EPRA NRV is now SEK 89.17 per share, plus 2% compared with 1 year ago adjusted for paid dividend. A comparison of the rental income for full year '22 and full year '23. Acquisition, 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, closed in March gives us minus SEK 33 million and other increase from completed projects, 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 Hoje-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 success, and they have started their refurbishments. A 10 years 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 wide spread of many tenants in many sectors that contribute to our long history of positive net letting. Here are some of our new tenants that we have signed during Q4 on this slide. As usually, it's a mix of different segments, defense industry and animal hospital, University of Lund, 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 million in new leases and SEK 128 million in terminations, only 1 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 the quarter is quite a short period. Smashing 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 alphabetical 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 in the total 23%, and they contribute to long-term stability on our cash flow. Rental value as of 1st of January is SEK 4.408 billion per year and rental income, SEK 4.43 billion, plus 6.1%. A good part is, of course, indexation. Let's remember that indexation in Denmark and Sweden have been quite different during '23, 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 affect these figures. Looking at like-for-like figures, comprising all the properties we owned a year ago with updated figures, we can see that rental value is up 5.2%. Our 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 billion in accordance with our external valuation. We have acquisitions of SEK 134 million. We have invested SEK 1.862 billion, a small divestment, minus SEK 18 million, changes in values and amounts to minus SEK 1.2 billion and together with currency translation, minus SEK 73 million, that summarized to SEK 55.872 million. 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. And 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 '23 been able to increase the value somewhat despite higher yield requirements. And we have seen higher yield requirements the last 7 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 apply the current yield requirements to net operational figures from end '22. But we have significantly improved income, improved operations and have developed a project since then. So it's a part of the daily operations that we're 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. And 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 3.81 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, the market value now is SEK 46.85 billion and overall, the occupancy rate is 93%. It's 95% in Malmo; 92% in Helsingborg; 90% in Lund; and 94% in Copenhagen. And in Malmo, it's very sunny at the moment, I'll say. Improved numbers compared to a year ago, except on Lund, where we have added 2 new projects, Raffinaderiet 3 and Kunskapen 1, which are actually not full occupied yet. The operating surplus from offices summarized to SEK 2.599 billion 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 Malmo, 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 billion. Development of our portfolio 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 1.5 years. And here is the catalog of our value and properties in our 4 cities, 40% of the value in Malmo, 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 Malmo is also a bit higher than in -- and 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 continue 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 statements relating to the fourth 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 minus 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 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 fourth quarter of 2022. And as you know, I mean, the underlying STIBOR rate since spring 2022 has increased from 0 to just above 4%. And that has, of course, affects the financial net. We've had changes in value of properties amounting to SEK 297 million minus for the quarter isolated. And we've had a change of value of derivatives of minus 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 in 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 minus SEK 350 million. Looking at the balance sheet, you can see that the investment properties versus 12 months previously have increased by approximately SEK 0.7 billion. Equity has decreased by SEK 1 billion. But you shall, of course, be -- 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 proposed 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 up 16%. The financial metrics in a historical perspective, you can see on this slide. The decrease in the interest cover 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 10.3x. Our financing sources are basically unchanged versus in the Q2 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. And 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 billion, SEK 1.2 billion, which mature now in February and March. And we have, 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. So since December, we've seen an increased demand for new issuance of corporate bonds, also in the Swedish real estate sector. And 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 there in the past few months. Most recently, now in February, via Svensk FastighetsFinansiering, we issued a 2-year bond at 135 basis points margin. So that illustrates the improvement in the bond market over the past few months. Lastly, from my side, you can 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. And with that, I hand the word back to you, Ulrika.

Thank you. And I promise you, you will get a lot of good questions. So we come back to you.

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, overall, 80% of the offices are submitted for approval. Our goal is that 90% of Swedish offices will be certified in until 2025. And we continue to aim for the highest standard in all our projects. Zero carbon dioxide certification have trained us and we improved our way of working all the time. We cannot afford to invest in anything but the best, which means the lowest impact. And that is what creates the highest value tomorrow. We also continue with energy savings, 6%. The reduction of energy consumption as a total for the full year. Our solar sales produced corresponding 9% of property energy consumption, and we continue with energy saving actions in the existing portfolio. Some examples from '23 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 [ Yane ] 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 improved our way of work in reporting our results, and we have been classified at the GRESB leader with 5 stars and 93 out of 100 possible points. And we also got an A minus in the CDP benchmark. That means that we are a part of the leadership group. And 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, our biggest project. During '23, we have invested SEK 1.862 billion, and it remains SEK 2.664 billion to invest in approved projects. Construction cost continues to stabilize and improve somewhat. We have taken some actions with 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 Blackhornet 1 in Hyllie, and it follows the schedule well. The structure up to Level 5 aboveground 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 '25. In Malmo, we have started the refurbishment of our iconic Borshuset at 6,000 square meters offices, restaurants and co-working in absolutely top location and that will also give us top rents in Malmo perspective. Approximately 60% pre-let and completion in Q4 '25. Posthornet 1, Phase 2, a new build offices of 9,900 square meters right beside of central station in Lund, investment of SEK 448 million, including the value of the land and completion is planned to Q1 '26. 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 center. In Horsholm, Copenhagen, we invest for a new school for NGG, 11,600 square meters and an investment of SEK 390 million. Tomaten 1 in Lund, we built a new facility for [ impact ], 6,400 square meters 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 '24. And here, we have been able to use the first serial carbon dioxide steel in this building. A first test production from SSAB, but it's a start. The facility for the demand with 20 years lease at the Rausgard 21, Helsingborg, we completed in Q3 investment, SEK 420 million. And we also continue with a project for Doka at Snarskogen 5 in Helsingborg. And at Sunnana we are about to start the production of 17,000 square meters logistic 100% pre-let with completion in Q3 '25. That was some of the ongoing portfolio, and let's also mention somewhat about the future investments, which are important for us. Amphitrite in Malmo, where we have signed an agreement with University of Malmo 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 Malmo and we're happy to get the opportunity to work together with Malmo University. Here, are 4 possible projects in Lund and Helsingborg, Science Village area, Ideon area, Polisen 7 in Helsinborg, Osterbro [indiscernible] where we can develop some 70,000 square meters in the future. [ Soil plans ] are approved for the first 3 projects. And some office possibilities in Malmo in the area of Norra Hamnen and Dockan and a few other possibilities from the industrial and logistics segment. Tomaten 1, where we can add on another project, [indiscernible] Gastelyckan and we have more land in Gastelyckan close to [indiscernible] where we can continue with further industrial and logistic projects and the same thing with Sunnana in Malmo. And here are some examples of what we can call fill-in projects on existing land, but when demand increase, we can add on value. And the summary again of Q4, record new letting and net letting positive. Rental value continues to increase in line with index, higher financing costs, but ECR at 2.8x, then 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. And by that, we opened our 100-year celebration and are also open for questions.

[Operator Instructions] The next question comes from Lars Norrby from SEB.

Question about valuation. Once again, just like in the third quarter, 100% external valuation, which is good. I know you talked about that there are many different factors affecting values. But I think, Ulrika, you also mentioned that you have raised the yield requirement of -- some people call it valuation yields now. Did you say 7 quarters in a row?

Yes. We started in Q2 '22.

And by roughly how much have you raised the requirement?

It's hard to give you a figure for that because it's a different -- it's a lot of different parameters. But as I mentioned, our appraisers did this calculation, try to give a number of how much the change in parameters would have affected the income from late '22. And 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. Apart from that jumping to -- you 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 a very low number of transactions that are comparable. I think that we have -- when we are looking at some larger possibilities, I think we have been quite close to each other in assumptions for the newly built projects and good projects, but maybe [indiscernible] 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 comp period for transactions. But we'll see.

And from your perspective, I think back in '22, you were a net buyer of some SEK 2.3 billion or something like that. In '23, your margin on that buyer of SEK 100 billion or something like that. Looking ahead now, would you be a net buyer or a net seller in '24?

We try to expand our portfolio. We prefer to expand by adding on new projects. But we -- I don't see us as a net seller.

The next question comes from John Vuong from Kempen.

I think in Q4, you had 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 wants to decrease. But as pointed out before, as a trend, we see that you ask for higher quality and trying to find the best solutions 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.

So I suppose part of it is driven by the Danske Bank…

No. Danske Bank is not a part of the Q4. Danske Bank and Novo is in Q1.

And what exactly is your plan with these vacated floor plans? Or 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 re-lease them or do you think you can re-lease them as is?

I think the -- you mean the areas where we have received terminations. Do I understand that correctly?

Yes. Exactly on the terminated floor plans indeed.

Yes. Okay. Of course, that depending, I would say that some of the terminations are already newly let to someone else. There is no larger refurbishment needed in the -- in that volume, I would say. We had -- we have, for example, terminations at the [indiscernible] 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. And 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 Hoje-Taastrup with Danske Bank and Novo. So that is a great solution, of course.

And maybe on to Denmark. Indexation has been fairly low in -- on the 1st of January because of the low inflation. But at the same time, we 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 take some time to change that expectation as well.

The next question comes from Niklas Wetterling from DNB.

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 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.

Because last year, it fell back quite a lot and was like 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 has been a quick change, of course, as you know, on yield expectations from projects and -- but we have been able to keep up quite well and have definitely higher yield requirements in our projects today.

And then on yield on cost, for example, for new build offices. I believe you earlier mentioned that you aim for 6%. And I wonder now if you believe that's good enough after this [ Piabanahem ] transaction at 5.6%.

Yes. And 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, very nice building and good leases, but we'd like it to be a bit higher. But yes, we get higher yields than that in our new projects. So some value gain.

So your 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, Borshuset, which is a bit special because it's also renovation and refurbishment and an old building back to we get 6.4% on that, and that is a really good location.

And then lastly, I had a question on the 2 press releases you had last week on lease extensions and renovations for Bravida and Nordea. Can you share any thoughts on like CapEx and rent levels? And will there be like any value creation in these kind of like renovation and extension projects or is it more like just getting the tenants to stay?

No. It's a bit of a value raise. But -- and I think -- I can't really remember the -- I can come back to you with the figures for yield on cost, but it's a positive effect from this project as well.

The next question comes from [ Alexander Totemanof ] from Green Street.

Last week, having a dividend figure maturity [indiscernible] been all the companies, given the solution policy economic environment even as cost. I believe your polices to distribute 50% of earnings from [indiscernible]. And my calculation you propose dividend [indiscernible] above that. Can you [indiscernible] do you foresee a more benign operating environment in the [indiscernible] 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 the -- what we have 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. And 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.

The next question comes from Fredric Cyon from Carnegie.

Congratulations on the first 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 a historically high level.

Moving over to Blackhornet. Most of your ongoing projects have a fairly high occupancy rate, but that is not true for Blackhornet. What's the interest level for the project? Do you think we will approach a 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 in early -- starting in late '25 and will continue during 2026. So it's quite far to that point in time. But the good product -- very good products 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 Malmo 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 that lower activity and therefore, it's timing from us that we have possibilities with our projects.

And then 2 more questions from my side. On the material cost of debt. So given the current market interest rate 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 sort of to speak short term that is not covered by interest rate derivatives. And the market now expects the underlying STIBOR rates 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.

And then my final question relates to the valuation yield. I know you don't disclose it, but your running yield was 5.8%. Approximately how much higher is the valuation? Are we talking 50 bps, 30 bps or less than that?

Well, as you state yourself, Fredric, 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.

The next question comes from Markus Henriksson from ABG Sundal Collier.

First, a question on the 2 new ongoing projects we have at Grytan and Borshuset. You mentioned it was 6.4% yield on cost in Borshuset, but I'm also a bit curious on potential rent levels for Grytan and Borshuset 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 Borshuset, it's I would say above SEK 4,000, but at least SEK 4,400 -- 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.

And in Stockholm, it's quite common to get a rent free period when you are a co-working at the high court took most of the majority of the space in Borshuset. So is that the case also down in Malmo.

No. I would say it's not the same thing. Sometimes we have a period, a shorter 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 1 or 2 years, maybe you have some kind of help for the additional area on an early lease period. But otherwise, I would say that -- you get a -- you pay your rent and you have that on a decent level, and it works more like that.

Then I might have missed that, but I saw you enter new derivatives 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 2-year period. So that's 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 the cash flow, et cetera. So we've just entered into plain vanilla interest rate swaps on a few occasions Q4 and the one I just mentioned in January.

Then we had a question before on acquisitions. I'm just a bit curious, you now have are 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 are -- 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.

Then slightly on the 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 higher as a full year number. So I would have to look at it a bit more closely, but the -- I mean, [Technical Difficulty] a quarter is probably a good guesstimate.

I agree. You had the landfall in Q2. So it was more the run rate we've been around SEK 5 million and not SEK 7 million. 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?

Yes. I think the SEK 15 million adjustment for additional charges that we recorded now in Q4. To a large extent, it relates to Q4. But it is, I mean, historically, when we invoiced this to customers or to tenants, we make a preliminary invoice and an estimated 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've had a very high volatility. And if you remember in the Q3 report in 2022, we have suddenly extremely high electricity costs because the market and the weather was such. So normally, when we do this yearly settlement, we end up with charging our tenants a few million more than we have. And this year, it was the opposite. And so mainly relating to Q4, but the variation over the quarters during 2023 have also been larger than normal.

And just a follow-up there. So do I interpret it that has it been an evenly split in Q1 to Q3, the kind of overstatement of the forecast? Or did you do any changes already year -- 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.

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 that you mainly follow CPI ahead as well?

I think that we should expect a low volatility. But of course, we -- there might come possibilities in -- as a follow-up from the lower vacancy in that market. But adjustments take some time, sometimes. So we'll try our best.

We have received a couple of questions via e-mail.

Your next question comes from David Flemmich from Nordea.

I guess you were trying to say something there already.

Not to worry. You go first, David.

It's past 10. But just one very final question. You were talking about the interest, 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 it to go further out the curve?

I mean our interest rate hedging policy basically states that we should have a certain minimum and maximum proportion of interest rate maturities falling due during different time spans, 0 to 1 years, 1 to 2 years, 2 to 3 years, et cetera. And 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. And 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 as 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.

And maybe now you had some…

I'll maybe try again. We had a question via e-mail 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, [ VI SFF ], a secured bond, 2 years, 135 basis points. The latest unsecured bond we did under our MTM 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 to 150 basis points margin on such a facility. To give you a feel for the -- 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. And I believe that the other questions arriving via e-mail have already been answered. Yes.

But 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. So 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.