Entra ASA

OSE:ENTRA

Earnings Call Transcript 2021-Q3

[Sonja Horn, Chief Executive Officer]

Good morning, and welcome to Entra's third quarter presentation, brought to you here from Oslo, where we actually walk up to snow this morning. So let's just jump into the highlights. In the quarter, rental income came in at NOK 639 million this quarter versus NOK 589 million same quarter last year. And net income from property management of NOK 402 million. Our external appraisers have increased the valuation of our properties with 1.2% in the quarter, thus leaving us with net value changes of NOK 794 million, and profit before tax in the quarter of NOK 1,126 million. We have finalized 2 large projects in this quarter, both on time and cost. And we also closed on acquisition of the Hotel Savoy also in the Tullinkvartalet this quarter. We have had a solid letting activity, signed leases on more than 51,000 square meters. However, net letting this quarter at minus NOK 44 million, seeing that one of our tenants has chosen not to renew their contracts. We have also received 2 ESG ratings in the quarter from the 2 standards we report on. Very pleased to see that our GRESB rating came in at 92 points out of 100, giving us also this year 5 stars ranking and #10 out of the European listed real estate companies. We're also pleased to maintain our EPRA Gold level rating in both sustainability and financial reporting. After the quarter on October 12, Sir Fastighets Balder announced that they had passed 1/3 threshold that they will put forward and monitor a bit for all outstanding shares in the company, within the 4-week limit in accordance with the Norwegian Securities Act -- Trading Act, sorry. The Board will carefully evaluate the offer when it's put forward and come back with their statutory recommendation in due time to Entra's shareholders. The third quarter is normally a pretty slow quarter in respect of letting, seeing that we have summer vacation as a part of the quarter. However, we have had a quite high activity in this third quarter. As you can see from the bottom graph on the right side, this third quarter was active compared to a normal third quarter. We signed contracts on 51,000 square meters with rental income of NOK 133 million whereof NOK 29 million in the projects. Normally, we work with somewhere between 150,000 and 200,000 square meters of renegotiations every year. And we typically start 3 to 4 years on the large contracts. So we've been working for some time now with 2 large contracts, which expire in 2023. And we were very pleased to see that the municipality of Oslo, with the planning and building authorities in Vahls gate 1-3 have renewed their contract or renegotiated, signed a new contract for 10 years. This building is -- has technical installations, which is reaching the end of their lifetime meaning that we will do a refurbishment of the building. And as a part of the renegotiation, we have agreed to move the tenant into an existent vacancy in our Oslo portfolio, meaning that we will maintain the cash flow from the tenant through the refurbishment. In Brynsengfaret 4-6, we have a multi-tenant building, where the largest tenant is the Norwegian Public Roads Administration. They have been reorganized over the last 3 years and reduced their space requirements, and they have chosen to move out of the building when the contract expires in the second quarter of 2023. So this means that a total volume of NOK 102 million of contracts were terminated in the quarter, whereof NOK 72 million from the contract with the Norwegian Public Roads Administration. If you take a look at the bottom of the slide, you can see some of the largest contracts which were signed in the quarter, a lot of large contracts this quarter, the one in Vahls gate with the municipality, as I already mentioned. Here, next to our main headquarter, the Biskop Gunnerus, that has got the 6 Statsbygg, have renegotiated 9,300 square meters. And in Bergen, Møllendalsveien 6, one of our projects, the municipality of Bergen signed 7,400 square meters. That brought the occupancy of this project up to 95%. In Sundtkvartalet, Fellesforbundet has signed 4,400 square meters. This is actually a tenant, which is currently sitting in one of our buildings, which we are now preparing for projects. So very happy to see that they have chosen to stay within the Entra portfolio. And they're actually taking over a space where we have moved another tenant into our Tullin project. So this clearly shows that the value of having a large portfolio and also having large customers, which want to stay within the Entra portfolio. In Hagegata 22-24, Schibsted has also renegotiated for 3,500 square meters. Our occupancy is currently at 97.3%, an average lease duration of 7.1 years, including projects. So a few words on the Tullinkvartalet again. We've spoken a lot about this area through the quarterly presentations. Very happy to see that 2 of the largest projects in the quarter have now been completed on time in this area. The 2 buildings marked in yellow here. Previously, we have completed the buildings in green in front, the university building, where 4,000 students already have moved in, and our pioneer project Kristian Augusts gate 13, which was the first circular economy project we did. Since we started working with this area, we have seen that the rental levels have increased with some 20% to 25%. And of course, supported by strong markets, but also the fact that we have done quite a big job on creating the right product, and also getting the right F&B concept, food and beverage concepts, service concepts on the ground, meaning that this part of the city is now starting to compete with CBD as being one of the most attractive office destinations in Oslo. And we do believe now that with both high-quality large buildings and also the product offering we have put in place on the ground level, this part of the city will definitely trend towards CBD rents and yields going forward. I thought I would just share with you a short clip from a film, which we've used in marketing of this area. It gives you an idea of the look and feel, which we have tried to create in the development of the Tullinkvartalet. So let's see if it rolls. [Presentation]So that was just a snippet out of 2 minutes long film, which we've used to attract the tenants and help them understand the potential of this area. And very happy to see that when you walk around in this area now you can actually recognize what you're seeing in the film. So that's a good story. If you look at the Universitetsgata 7-9 building in Oslo, it's a high-quality building, close to 22,000 square meters. It will be certified BREEAM-NOR Excellent. It's currently fully let. We've started the project at a 25% pre-let ratio. And here, we have attracted more high-quality tenants. We have 3 law firms and also our tenant know it, which moved from our building in Sundtkvartalet. It's a super profitable project, yield on cost, 5.8%, total project cost of NOK 1.3 billion. The other project, which we have completed in the quarter is Universitetsgata 2, where we've put in place the Rebel concept. This is a building where we have worked to create the product, answering to some of the trends which we believe to be most relevant for future workplace solutions. And our ambition has been to create an environment, which adds value to our B2B customers and also their employees. So that it can be used actively also in the employee branding for our customers. So based on our experience from developing Media City in Bergen, and also together with a partner which has a substantial experience in creating arenas for knowledge sharing within the technology industry, hosting lots of events, conferences, et cetera, we launched Rebel with the ambition to become Norway's most important arena for sharing and developing technology competence. And we're very proud and happy to see that upon completion now, 55 companies have decided to move into this building. And it's a good mix of mature technology companies. Its project offices from large corporates, IT consultants, IT communities and also tech-related education. And for Entra, this project also represents a lot of innovation. It's a building of 28,000 square meters. As you can see on the sketch on the right side here, the tower has been rented out as more regular offices, but with a full service offering. And in the base, we have a combination of studio offices where you can rent anything from the office for 2 to 20 people, some co-working space. And then in the lower floors, we have converted the parking into restaurants, events, conference space and a total of 6 different food and beverage concepts, who will be in the building. So if you look at the innovation aspects for Entra, one of the parts has been to create, as I said, an environment which adds value to the customers. As an example, our customers here, when signing the contract, they've actually signed a lease that they will also be obliged to host a minimum of 2 events, which they share and open up for all the tenants on the house. We're also offering full flex or full service lease contracts, example being that the office space is fully furbished. The meeting rooms is equipped. And we will be handling all the -- take care of all the premises in the office space. We're also offering short-term leases, more flexible contracts for an industry, which is in rapid change. This means, of course, that we have put a lot of effort into designing the office space, so that we can rent out the space to the next tenant if one moves out, so standardized products, but with an edge, which should fit most customers. And it will also be our first test at operating these full-serviced offices with both co-working and also a lot of event space. The Rebel house will be operated in a 50-50 partnership with partners, which have experienced in the knowledge sharing part, event conferences. And we've also worked on providing solutions, digital solutions, which support the full service, which has been put into -- and flexibility, which has been put into the building. So one example being that if you -- If you just want to book a meeting room in this building, you will actually get a pin code on your phone, which brings you into the meeting room, which you have booked. And the property has had a fantastic response in the marketplace. We launched it with a 13% free let ratio. However, after doing a premarketing phase where we got very positive response, and we're very pleased to see that we're now at 96% occupancy on the regular office and 86% if you include the project offices and co-working. In respect of the conference base, it's a bit early to say, but we're getting very good attention now as the COVID restrictions were lifted. We have total project cost in this project of NOK 1.65 billion, a yield on cost of 5.7%, which is up from 5.6% from our last reporting. In respect of the ongoing projects, there is not much to be said other than that they're all progressing according to plan on time and cost. We have good progress on letting in St. Olavs gate 5, Tordenskiolds gate 12. Only retail space remains, which will be done closer to completion. In the 2 remaining projects in the City Center of Oslo. They still have a long time to completion. In Bergen, we have very strong interest for Nygårdsgaten 91-93. And we do expect to see that occupancy there will pick up towards 50% based on the ongoing contracts within the year. In Trondheim, we expect to see that occupancy will pick up closer to completion, seeing that it still is a long time to completion. As mentioned in my introduction, we were very happy with achieving our GRESB score and 5-star rating with a total score of 92 representing an improvement for us of 5 points this year. And the rating makes us #1 in our peer group and #10 amongst listed real estate companies in Europe. GRESB is the most comprehensive ESG reporting framework, which measures ESG performance or excellence on both management and operational level, asset by asset. It's also the most reputed framework and the GRESB ESG benchmark covers more than NOK 6.4 trillion of assets under management. We're also very happy to have maintained our gold level for compliance with EPRA's best practice reporting in the sustainability and financial reporting. This clearly proves our commitment to being an environmental leader and also enables us to capitalize on our environmental qualities in both debt and equity markets. Just a short note on Kristian Augusts gate, this pioneer project, which we did, where we actually took, I would say, joint steps in respect on working with circular economy in the industry. In this project, we have had the entire industry's eyes on the project as well as regulators, both in Norway and EU and very happy to see that it's getting a lot of attention for its achievements. So a few words on the market situation. Norway has fully opened since September. So we're more or less back to normal and very happy to see that both traffic and also activity in our offices have picked up significantly in our own office. We're now back to normal. And during the COVID situation, I would say that we have experienced that tenants clearly have been using more time to assess what kind of office solutions they need. The decision processes have been much more timely. We have also experienced that more contracts have been renegotiated, however, we do expect that to be a more of a temporary effect. Relocations should pick up again once the companies get their heads around what their future solutions will be. And we do note that lease contracts signed during this period have had the same average size and lease duration as before the pandemic. In respect to vacancy, it has picked up from 5.5% and is expected now to trail down again from the peak of around 7% according to Entra's consensus reports. And we also clearly see that the activity level in the letting market has steadily increased over the past 6 months and continued to increase. We have a very positive outlook on the rental market in Oslo going forward. And do you also expect to see a pretty strong demand side in the years to come. In Oslo, we are clearly saying that if you look at all the lease expiries going forward, there's a huge lump of them coming in 2023. And some of those will probably also roll over into '24. There are solid expectations for economic growth also supporting a strong letting market going forward. We saw that [indiscernible] did an analysis on office-related jobs, employment growth within office-related jobs recently. And when they stripped out the sectors within office-related jobs, which were exposed directly to COVID such as culture, education and travel agents. They actually saw that they only had one quarter with slightly negative employment growth. And as of the second quarter this year, the annualized growth for office-related jobs were 3% in Oslo. And on the general note, we're hearing from our customers now that when they're coming back to the office, they're experiencing that it's struggled to find enough meeting room capacity, which would imply that they would need more space for these functions. And at the same time, when you look at service, which have done in the market Akershus/JLL has doneone on an annual basis, asking customers whether they expect to increase/reduce their occupancy, they're also supporting that customers don't really expect to increase -- sorry, decrease occupancy or densify more going forward. We clearly saw before the pandemic that companies were densifying much more the office desk space, but that's been reversed now. And if you look into the work solutions that the companies are discussing more and more are opening up for more flexible work, home office as part of the solution, however, we're clearly also seeing that they are conscious about maintaining a sufficient space or capacity in the office because it is still very difficult to plan when people will come in when they work from home, and also the savings from reducing space is easily outweighed by a loss of productivity, seeing that rent cost is only around 3% to 5% compared to what you pay on average for a total employee cost. The short-term inflation pension in Norway is currently high. In September, we saw inflation come out at 4.1%. On our lease contract, we have November to November adjustments of our leases and more or less 100% of our lease contracts are CPI-linked. The transaction market, we have had record high levels in 2021. Year-to-date, NOK 87 billion of transaction volume. There is very strong competition for attractive office buildings and also for the projects. We continue to see price levels being challenged. The finance market -- the financing market is very competitive, and we're seeing margins are under pressure. So combined with expectations for market rental growth, we do believe that this will have some balancing effects on rising interest rates when it comes to property pricing. Prime yield currently still at 3.25% to 3.30% in Oslo. So I think that's -- it's for me now and I'll leave the floor to you, Anders.

[Anders Olstad, Deputy CEO & CFO]

Thank you. Looking at the numbers side, there are a couple of sort of key takeaways that we'd like to leave with you. Firstly, on the P&L. Revenues are a tad higher than we actually expected. The Hotel Savoy brings it up. And also, we've seen a very positive development in our co-working relationship or partnerships with IWG and also the positive development in the Rebel concept. So that basically explains the pickup from the NOK 631 million that we sort of expected and the NOK 639 million where we ended up. Second, value changes were also strong this quarter. Thirdly, we see that the financing market has been extremely good this quarter, and we have utilized that to the extent possible. And fourthly, with the development pipeline and the 2 projects we have delivered, we are solidly back on the growth track. I think also the sort of 4 key takeaways from the numbers side this quarter. Okay. Diving into the details. Revenues at NOK 639 million, so we're up NOK 37 million from the NOK 602 million in the second quarter, primarily driven by acquisitions of NOK 27 million and then the introduction of those 2 projects at NOK 6 million. If we compare the revenues to last quarter or the quarter last year at NOK 589 million, we are up at full NOK 50 million. And again, net acquisitions, we acquired 6 assets and divested one, yielded another NOK 37 million in positive revenue contribution in the quarter. And then we've put 4 assets into operations from our project pipeline and took 2 larger assets out of operations, which yielded in total a net of negative NOK 2 million. And then we have a strong -- also this quarter a strong like-for-like growth of 2.1%, which equals NOK 16 million on the knock-on on the quarter. And this 2.1%, as we discussed actually every quarter, has to also be compared with the CPI, which was only 0.7% last year. So there's an underlying very strong like-for-like growth, driven by basically the renegotiations and the increased occupancy on our assets from last quarter. Net income from property management coming in at NOK 402 million, and you see that profit before tax at NOK 1,192 million, primarily driven by the value changes. As you see in the last 3 quarters, the value changes have been between NOK 724 and NOK 781 million, NOK 780 in this quarter while it was in the third quarter last year, the full NOK 4.6 billion. That explains sort of the big uptick in the profit before tax on that quarter alone. Moving into the -- per numbers per share, we see that the cash earnings annualized 4-quarter rolling is picking up at NOK 8.3, which actually has a CAGR of 11% since 2014. Look at the NRV, it comes at 205. This is -- then we have not deducted the dividends that was paid out earlier in October. So it's basically apples-to-apples to the share price as of September 30. Now with a CAGR of 14%, quite solid since 2014. And also if we included dividends that we have paid out at NOK 27, it actually yields a CAGR of 17%. And -- on the number part, a few words on the operating cost coming at NOK 58 million. We said last quarter and the quarter before, we are working on getting our operating costs down. We're currently at 9.1% of revenues. It is in this quarter compared to 9.4% year-to-date. So clearly, we're trending in the right direction, but there's still more work to do from our side. If you compare to the NOK 46 million of the third quarter of last year, please bear in mind that, that also includes those NOK 46 million. That also includes a negative provision of NOK 5 million. So basically, we made accruals in the second quarter for possible COVID-19 effects. And when we saw that it basically didn't materialize, we reversed that in the Q3 of NOK 5 million. So real sort of like-for-like comparisons to it that way would be NOK 51 million, not NOK 46 million. Other revenues are the costs coming in at NOK 8 million with the standard. We see that admin costs coming at NOK 43 million, so basically on line with previous. We will, in the fourth quarter, have triggered some advisory costs due to the Balder -- mandatory offer for all the shares in Entra, which will give us another, give or take, NOK 25 million in additional costs on the fourth quarter. So that means admin costs for this year would be probably slightly north of NOK 200 million, of which total NOK 37 million will be sort of one-off or extraordinary costs. So sort of baseline is that we're okay with the situation being in the sort of NOK 170-ish million range of admin cost, but it will be higher for this quarter -- for this year. I'll come back to value changes afterwards. If you're looking at the rental income bridge, you see that we are now changed the -- we revised the numbers somewhat. The biggest change has been on the CPI, where we had in our Q2 numbers, but in 1.7% CPI. Currently, September to September in Norway is 4.1%, driven by higher electricity prices. We have for -- in this in these figures used 2.5%, so which clearly peaks -- drives up the numbers for Q1 next year and thereafter. Then we put in 2% in Q1 2023, so sort of back to normalized levels. There might be some upside on the CPI adjustment for 2022, but we left it at 2.5% for the time being. And then we're basically seeing that the -- when we put assets into operations from our product development pipeline, it takes about maybe up to 3 quarters to get the full effect. So Universitetsgata 2 and Universitetsgata 7-9 will also yield additional revenues in the fourth quarter and into the first quarter. Then we see that in the third quarter of next year, Tordenskiolds gate 12 and [indiscernible] 5 will add revenues and then which also spills into the fourth quarter of 2022. So clearly, if this plays out, and please bear in mind, this is the summary of sort of known effects, what is known in the market, we will have a revenue growth of 6% from 2020 to '21 and another 11% income growth from '21 to '22. So happy to say that we are clearly back on the growth track for Entra, and it feels good. Looking at the balance sheet, starting off at NOK 62.7 million, adding acquisition of Savoy, another NOK 604 million in CapEx for the quarter and then the NOK 780 million on value changes on the properties. And if you look at the pie chart to the right of the exhibit, you will see that this comes from -- the biggest part is yield effects totaling 41% of the NOK 780 million, which comes from 2 places to be specific, Trondheim and [indiscernible], the area sort of west of the Oslo City Center. Then we have another 21% attributable to the project pipeline, mainly the 2 projects that have been put into operations and also the one project we're doing in, in Trondheim. Then we have another 18% of market rents in -- primarily in Oslo. And then finally, 16% attributable to net letting. So all in all, a very strong rent or sort of value changes development for the -- also this quarter. So adding the portfolio that will be sold to a residential developer and the value of our joint ventures, we now have a total assets of about NOK 66.1 billion. On the financing part, Q1 this year, also a very sort of silent and quiet quarter on the financing side. Basically, given the sort of strategic interest for Entra, we were in a standstill position. It picked up again in the second quarter. We did NOK 3.8 billion in new bonds -- on new green bonds. And then we continued that momentum into the third quarter, basically leveraging a very attractive financing market. So we rolled our NOK 1.2 billion commercial portfolio, CP portfolio. We extended about NOK 8.3 million of bank debt for 1 more year, so we increased duration on our tenant maturity on those. And we -- in 2 major operations, we issued a total of NOK 7.4 billion in new green bonds in 4 new issues and 2 taps and at the same time repurchased a total of 10 different tranches of bonds. So a net increase in the bond portfolio of NOK 2.9 billion -- so -- which also leaves us, as you can see, both with a very solid liquidity position, NOK 8.2 billion, and also sort of maturity profile on the debt, now going from 5 to 6.1 years. So again, a very, very solid quarter on the financing side. The debt mix, you can see on the graph to the left. Interesting enough, due to the number of green bonds issues in the quarter, we now have 67% of the Entra financing that is green, both in terms of bond financing and green bank loans, 6% to 7%. And to the middle graph, with our -- again, tenant quality, the [indiscernible], the assets with we see sort of very low residential -- residual risk and an ICR 3.5 and an LTV of 40.7%. It clearly is a very solid ship we're running with significant sort of fresh gun powder in case we see -- want to explore new opportunities. Interest costs on the very right stable at 2.12%. And we expect that to pick up in the following quarters, mainly following the forward curve on the interest rates. It's dampened by our hedge positions, but still we will feel the impact as you can see. So all in all, on the CP market, open, attractive. We're basically doing them at typical margin of NIBOR plus 20 bps. So even with the fully backstop by bank facilities, it's still a very good, very strong and attractive financing. Bond market has been simply fantastic for the last half year, and we utilized it to the extent possible. And the bank market, again, opened supported from our 5 banks, and flexible in terms of financing. So on the funding side, on the financing side, it's all good from Entra. And I think that concludes the financial part. Thank you.

[Sonja Horn, Chief Executive Officer]

Okay, thank you, Anders. So some closing remarks. The market fundamentals are very solid. In Norway, most people seem to be now coming back to life and also into the office post COVID. The letting activity is picking up, and we have a limited near-term supply, which is positive for the market situation right now. And we believe this is preparing the ground for further rental growth going forward. The transaction market continues to be strong and very competitive. And on the other hand, we are progressing on our highly profitable project pipeline according to time and cost. We completed 2 large projects in the quarter, with yield on costs of 5.7% and 5.8%. This is also enhancing the attractiveness of the Tullin area. And we have ongoing projects of 125,000 squared meters, which when completed will be delivered at a yield on costs between 4.4% and 5.7%. We are also progressing on our shadow pipeline according to plan. And we continue to have a very strong balance sheet and the capital structure, which supports a potential to add significant also further growth in the years to come. So that concludes the presentation from our side, and I think we're ready to move to Q&A. Tone?

[Tone Kristin Omsted, Head of Investor Relations]

We have received some questions. The first one being, when will the Board make a statement on the Balder offer?

[Sonja Horn, Chief Executive Officer]

Okay? Well, first, Balder has the 4-weeks period before they have to put forward their offer. And the offer has to be in the market for between 4 and 6 weeks depending on the amount of American shareholders we have. And the Board is then inclined to put forward their recommendation within 1 week prior to the expiry of the mandatory offer.

[Tone Kristin Omsted, Head of Investor Relations]

What are your plans for Brynsengfaret 4-6 following a termination by the Public Roads Administration? Will there be need to refurbishment? How long has the tenant been in the building? And how old is the building?

[Sonja Horn, Chief Executive Officer]

Okay. Well, we've already started working with the letting. We do expect that we will have to do a refurbishment. The building is -- will be 20 years old when they move out. So we will probably see that we'll take that part of the building out to refurbishment. And hopefully, we will have signed contracts before we get to a 2 years ahead of time into the future.

[Tone Kristin Omsted, Head of Investor Relations]

What can you say about the estimates for the 2022 CPI adjustment? And what is valued into the books?

[Anders Olstad, Deputy CEO & CFO]

Well, we have used 2.5% in our sort of communication on the known effects on the next 6 quarter revenues. It's, again, September, all our contracts -- or 98% of our contracts are 100% linked to the CPI in Norway from November to November, the previous year. Last year, I said it was only 2.7%, mainly driven by lower electricity prices in Norway. Now the opposite -- for this year, the opposite has happened. So electricity prices are skyrocketing, and September, December is 4.1%. So somewhere north of 2.5%. I think we are on the safe side on 2.5%. I think that's the way it looks like right now. On our appraisers, they actually use different estimates on the 2022 CPI expectations, one has 2% another has 2.9%. So I guess on average, they feel we're quite happy with that. So there's also taking a sort of a slightly conservative view on the CPI. But going forward, we expect 2% standard CPI in Norway. And if you look at the CPI from 2020 on average, it's been 1.9%. So 2% seems like a fair figure. So it was extraordinarily low last year, and it's probably going to be extraordinary high this year.

[Tone Kristin Omsted, Head of Investor Relations]

Should we expect Rebel or Universitetsgata 2 to result in negative contribution from associates and JVs in Q4 as well? And what do you expect for 2022 in terms of contribution from associates and JVs?

[Anders Olstad, Deputy CEO & CFO]

Yes. Our JVs are basically 2 companies. The question was about Rebel, right? But it's -- the 2 companies, let me just take both of them. One is Oslo Utvikling, the sort of residential developer in Bjørvika in Central Oslo, which we own 50% now. We acquired the -- went up from 33% to 50% last quarter. As a residential developer, they will recognize the profits when they sell the apartments. So that means -- and right now, they basically have just done or finished off selling one chunk and not selling -- actually taking over the apartment by the new owners, not selling. And we're now into sort of another stage, and we expect them to be negative for the full 2022 because basically -- and then there will be a big chunk of profits coming in, in afterwards. They were on our books about NOK 3 million to NOK 4 million negative for the third quarter, and we expect that to pretty much to continue in the coming quarters. On Rebel, as Sonja said, there were -- we own the asset, the building. And then we have a 50-50 partnership with another company that which is basically running the asset with -- and they -- our revenues from that asset is we expect to be, give or take, in a full sort of run rate scenario, pretty much about NOK 80 million or so. We expect that of those NOK 80 million, NOK 20 million or so comes from the base of that building being the events and the sort of the flexible part of it. And that has not picked up yet. And until that picks up, we will have -- we will not make a profit in that joint venture. We expect it to be negative also in the fourth quarter. And -- but the underlying trend is positive. They are getting sort of business and events coming in now. So we expect them to sort of -- make a sort of breakeven in 2022. But it will not be your mongers profit on that because that will be on our books because we are on the asset.

[Tone Kristin Omsted, Head of Investor Relations]

And then the final question being, you mentioned the margins you are seeing on bonds and commercial papers, but you did not say anything about the bank margins. What are they?

[Anders Olstad, Deputy CEO & CFO]

We deliberately did not say anything about the bank margins. It's -- we had a business with 5 of the top 6 Nordic banks. And on a 5-year bond, now we'll be in the sort of the low 70% margins. I think it's fair to say that -- go into details on the bank financing, but I think it's fair to say that we have the cheapest bank financing in Norway. So there -- it's more expensive than the bond market, but it's significantly cheaper than what our peers and customers and friends are getting. But sorry, I cannot go into details on that one.

[Tone Kristin Omsted, Head of Investor Relations]

Thank you. That concludes the Q&A for today.

[Sonja Horn, Chief Executive Officer]

Okay. Thank you. Thanks.