Entra ASA
OSE:ENTRA
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Earnings Call Analysis
Q3-2023 Analysis
Entra ASA
Despite operating in a challenging economic environment with increasing interest rates, Entra has delivered a commendable performance in the third quarter. The company reported a 6% rise in rental income, achieving NOK 833 million, signifying a robust 9% year-to-date growth compared to last year. However, net income from property management felt the impact of rising interest rates, totaling NOK 319 million for the quarter. Market volatilities influenced property valuations, resulting in a net loss before tax of NOK 1,894 million. Nonetheless, Entra's focus on balance sheet strength was evident as the management decided to withhold dividend payouts for the first half of the year, with a review for full-year dividends to come before the general assembly in April 2023.
The company experienced positive net letting of NOK 29 million and entered into new and renewed leases totaling NOK 92 million, spanning over 37,000 square meters. These undertakings compensated for the termination of rental income worth NOK 21 million, exemplified by the signing of 3,300 square meters with ABK Qviller and other key renegotiations. The average lease duration stands at 6.2 years with a slight increase in public tenant occupancy from 57% to 58%. Project executions show a deliberate moderation in capital expenditures (CapEx), dropping approximately by half from the average NOK 1.5 billion to NOK 2 billion to NOK 850 million planned for the subsequent years as part of efforts to bolster the balance sheet.
Entra is navigating a slower transaction market, with office transactions dropping to represent just 25% of this year's volume, compared to 40%-50% typically. The company acknowledges challenges in aligning price expectations with market demand amid interest rate fluctuations, insisting on avoiding sales at distressed prices. As experts anticipate prime yields to peak around 4.7% and secondary yields around 5.5% - 5.6%, Entra remains committed to divesting assets only at acceptable prices, leveraging its significant liquidity buffer to endure the market's uncertainties.
Entra boasts excellent ESG performance and reporting, earning top ratings and awards that reinforce its strategic focus on sustainability. With regard to the market, the Norwegian economy displays resilience with GDP growth forecasts of 1.2% for the year, and a low unemployment rate of 3.5%. Although the property letting activity is active, and rental growth has been positive, vacancies are expected to rise slightly due to subdued new construction volumes post-pandemic.
Entra is adapting to the financial landscape by carefully managing property values, having invested NOK 369 million in CapEx for the quarter. This spend reflects a strategic reduction to consolidate the company's financial position. Notably, the portfolio's value declined by approximately NOK 2.2 billion, translating to a 3% reduction this quarter and a cumulative 13% downward revaluation since Q1 2022. The reported net yields correspondingly rose by 78 basis points. Despite these reductions, Entra's management is confident about the company's operational resilience and its capability to reclaim its long-term incentive (LTI) performance in the upcoming periods.
Entra anticipates a slight rise in revenues during the fourth quarter, with a steady outlook for 2024. The projections incorporate an assumed CPI growth of 5%. Although the latest CPI in September was 3.3%, lower than predictions, Entra is prepared for potential upward adjustments in the coming months. This prudent approach underpins the company's strategy to secure financial stability and deliver consistent shareholder value amid market variables.
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Good morning, all, and welcome to Entra's Third Quarter Presentation here in Oslo.So move on directly to the highlights in the quarter. Rental income is up by 6% to NOK 833 million in the quarter. That's a 9% growth year-to-date compared to the same period last year. Net income from property management is affected by increasing interest rates and came in at NOK 319 million in the quarter. And the increasing interest rate is also putting pressure on valuations, net value changes down by NOK 2.2 million in the quarter, leaving us then with a loss before tax of NOK 1,894 million this quarter. In the current market situation, with both property markets and interest rates under change, our Board's priority and focus is to strengthen the company's balance sheet. This means that they have decided not to use the authorization to pay out dividends for the first half of this year. The Board will continue to monitor the situation going forward and put forward the recommendation for the full year of 2023, ahead of the general assembly in April. And our dividend policy remains unchanged. We were very pleased to see that we had a positive net letting with a positive of NOK 29 million in the quarter and also that we have received several honors for our ESG performance and reporting in the quarter.So if you move on to operations. New and renewed leases of NOK 92 million this quarter. That's around 37,000 square meters. At the same time, rental income of NOK 21 million was terminated, leaving us, as I said, with a net letting of NOK 29 million. From the table below, you can see some of our largest contracts. We were pleased to see that we signed 3,300 square meters with ABK Qviller in Brynsengfaret 6. This is a building which will be vacated by the Norwegian Road Administration by the end of the year, and seeing that we now have signed several leases on this building, we are preparing the building for refurbishment. In Karenslyst alle 7, SATS has renegotiated 3,200 square meters. The following 2 contracts are renegotiations where both tenants have also taken some additional space. In Schweigaards gate 16, Rejlers signed a contract of 1,700 meters increasing occupancy in that project. And in Christian Krohgs gate 10, this is a building we actually acquired from Oslo Areal. It was vacant at the time we bought it because it had been prepared for a project. We are very pleased to see that we now have re-let the property, seeing that we will postpone the project under the current market situation. So signing this contract and also the contracts we announced yesterday, we have reached an occupancy there of 84% in that building. And finally, in Lokketangen, Ortopediteknikk has renegotiated 1,500 square meters.Our occupancy remains unchanged in the quarter, 95.6%. Average lease duration, 6.2 years and share of public tenants is up from 57% to 58%, seeing that we now have sold some assets with predominantly private tenants.If you take a look at our ongoing projects, you can see that we have 3 red arrows on the completion date. For Stenersgata and Schweigaards gate 15, this is simply the reporting date, which has been extended by 1 quarter, seeing that we give some more time to finalize the settlement with the contractors. There will be no implication on rental income or the rental bridge for these projects. In Holtermanns veg, Phase I to III in Trondheim, we have also postponed the reporting date, finalizing date with 2 quarters. This is due to that we -- when we started reporting on this project, we were still in the optimizing phase and the tenant has asked for some additional requirements, which means that we will extend the project phase with 2 quarters in this project. The occupancy rate is up, as mentioned in Schweigaards gate 15. Pleased to see that we are there at 88% now. Now, from the bottom of this table, you can see that the remaining CapEx on these ongoing projects is now around NOK 850 million for the next couple of years. This is quite a lot below our normal annual spend, which has typically been around NOK 1.5 billion to NOK 2 billion on projects. This is intentional on our part and part of our focus on strengthening our balance sheet. We will start some new projects going forward, but more than of a defensive character to maintain and enhance the value of our existing portfolio.ESG is a fundamental part of our business model, and we have been working with sustainability as a part of our strategy for years. And we continue to work very systematically on our road map towards becoming a carbon-neutral company. And we were pleased to see that we, once again, have been highly recognized for our ESG performance and reporting. GRESB is a very comprehensive framework measuring the ESG performance, both on an asset level, but also on a portfolio level based on our self-reported data. This is by far the most used framework in the real estate sector and a total of 760 companies was included in the assessment for 2022. So we are very pleased to see that we once again got a 5-star rating with a top score of 90% -- sorry, 90 points out of 100, which gives us #1 in our peer group. We've also received a Gold standard from EPRA, both for our sustainability reporting and also our financial reporting. And finally, to the right here, Position Green is the most important framework in the Norwegian market. This is a framework which measures the ESG performance on the 100 largest listed companies on the stock exchange in Oslo. And this is also a framework which actually measures the readiness to report according to the new European Sustainability Reporting Standards. So we're very pleased to see that we also here received a ranking. In all these third-party evaluations of our ESG performance are, of course, important for us in order to really capitalize on our ESG qualities, both in the equity and debt markets.If you move on to the market, a few words first on the Norwegian economy. It is holding up very well under the current interest rate regime. GDP growth is expected to come out around 1.2% this year, increasing to 2% next year. We have a low unemployment rate at 3.5% and employment growth is expected to be around 1.4% this year and also on a positive note for the next year. The key policy rate was increased by 25 basis points in September to 4.25%. At the same time, the Central Bank signaled a new hike of 25% in December, up to 4.5%. After that, CPI has come in significantly below expectations at 3.3% in September. So market pricing now indicates that this final hike might not materialize.If you move on to the property market fundamentals, they are also very favorable in the Norwegian market, I would say. We have good activity in the letting market. This was also confirmed by numbers, which came out this week from [ IDR ] Statistics. They track the number and volumes signed every quarter in the Oslo market and we saw that activity was also very good in the third quarter.As you can see from the top right graph here, the rental growth was strong in 2022, also feeding into 2023. The market specialists in our consensus report now expect to see that the market rental growth will take a [ wither ], but still remain on the positive note. Vacancies are low, in Oslo, you can see around 6%, expected to increase to 6.6% going forward given the current market environment. And this is, of course, supported by the fact that we have very limited newbuild volumes coming into the market following the pandemic. And we also expect to see limited volumes going forward, seeing that we now experience that the current breakeven rent for new projects is way above market rent in the Oslo market. So I'll get back to that in a few pages.A few words on the transaction market. Transaction volume was -- has been -- the activity has been slow in 2023. Volumes year-to-date came in around NOK 35 billion compared -- that's 55% down compared to same period last year. And if you dig into those numbers, you can see that the office volume represents only 25% of that transaction volume. That's relative to more normal rates for office around 40% to 50% of the total transaction volume. The transactions we have seen have mainly been driven by either value-add or strategic interests. And we believe that we need to see some more clarity on the outlook, both in respect of interest rates and inflations before activity to really pick up again. I would also like to say that we kind of see that the current market environment is rather similar to what we experienced during the financial crisis, where most buyers were sitting a bit -- there were a lot of available buyers there, but they were sitting and waiting a bit. And the deals or the pricing you get in that kind of market environment is typically much more opportunistically driven. We have our divestment program ongoing. We clearly see that we have a lot of interest for our assets. We have sales processes ongoing, but it is clearly more difficult to align price expectations in the market with this kind of interest rate volatility which we have seen in the last months. And seeing that we now also have secured a large liquidity buffer, we have the flexibility to wait. So we will sell if we get acceptable prices, but we are not in the market to sell at distressed prices.If you look at the yields, you can see that market specialists expect to see that the prime yields will top out around 4.7%. And we'll see that secondary yields currently are around 5.5%, 5.6% in the market.Now, if you look at yields in Oslo relative to the global market, what you can see is that, from this evidence by Cushman Wakefield and Union, that the yield expansion we have seen in Oslo is pretty similar to the average levels we have seen globally in most cities around 95 basis points. What is interesting to see, however, is the exhibit on the right-hand side, where you can see that Oslo stands out as one of the cities which has had the highest rental market growth in 2022 to '23, meaning that there clearly is some renegotiation potential there to pick up on in the Oslo market.Now, as real estate people, we also find it interesting to compare valuations to replacement costs from time to time. This exhibit demonstrates or illustrates on the left-hand side, how replacement costs is to the far left for a high-quality asset in the CBD of Oslo, where you can see that the replacement cost is between NOK 100,000 and NOK 120,000 per square meters. Now, the bar next to it shows the replacement costs for a more standard office building in the fringe area of Oslo, typically between NOK 45,000 and NOK 60,000 per square meter.Now, on the right-hand side, we have put forward Entra's portfolio valuation per square meter. On the left side of that graph is our book values, NOK 181 per share, split out on the management portfolio, which is valued at NOK 49,500 per square meter, for ongoing projects, NOK 39,000 per square meter and then the development side slightly below NOK 6,000 per square meter. On the far right, you can see an implicit valuation of our management portfolio based on enterprise value from a share price of NOK 90 per share. This means that we have basically taken the enterprise value, stripped out the valuation in the books of JVs, ongoing projects and development sites, leaving us then with a valuation of NOK 37,000 per square meter for our management portfolio. And keep in mind that this is a high-quality portfolio of assets in the largest cities of Norway with 6.2 lease duration, 58% public tenants and an average age of 8.5-year since this portfolio went through a complete redevelopment or was newbuild.So I think on that note, I will leave the floor to you, Anders.
Thank you, Sonja. In terms of the financial figures, it's pretty straightforward on the operational side. So we won't spend too much time on that one. We will spend some time on the value changes, which was also quite large this quarter and also on the financing market. Revenues coming in at NOK 833 million. So we're pretty much there on where we expected to be at NOK 821 million as we signaled last quarter. It's NOK 21 million down from the second quarter last -- this year, reason being that we divested 3 assets, which had a revenue impact of around that amount. If you compare to the third quarter last year, we're up some NOK 45 million.The property portfolio contributed about NOK 50 million, then offset by NOK 33 million as we have sold and divested assets throughout the year. Remember, we have sold 9 assets now of about NOK 3.9 billion with a total annual gross revenues of about NOK 170 million, which will, of course, impact our top line. The like-for-like growth came in at 3.6%. So lower than the CPI, which was 6.5%. The reason for the underperformance to CPI is that, the occupancy in the portfolio, it was stable from Q2 to Q3. But if you compare to the third quarter last year, it's down by 1 percentage point. If we basically take the pure like-for-like, i.e., excluding the reduced occupancy in that -- throughout the year, we're up 1%, which is -- so we're happy with the renegotiations we are doing.In terms of the net income from property management coming in at NOK 319 million. So we're NOK 31 million down from the second quarter. Again, NOK 21 million lower revenues and also NOK 10 million in increased financing costs. We're a total of NOK 87 million down from the third quarter last year. Again, revenues are up by NOK 45 million, but the effect of financing costs is a negative NOK 130 million impact to our numbers. Clearly, coming from, again, we've got about NOK 1.5 billion less in debt or less debt, but the average cost of debt has come up by 110 basis points from last year to this year.Profit before tax at minus NOK 1.9 billion. Again, the impact of the value -- negative value change of about NOK 2.2 billion, as Sonja explained.Cash earnings at NOK 7.50 per share annualized 4-quarter rolling and the NRV down to NOK 181. So, of course, when we write down the portfolio by about NOK 2.2 billion, it has an impact on the NRV. So that amounts to about NOK 12 per share. We're still 9% CAGR since 2015. If we take into account that we paid out the dividends in that period, we're up some -- a CAGR of about 12%.On the P&L side, we talked about the revenues. On the operating cost, we're at NOK 70 million, which is about 8.4% of revenues. We have been trending between 8.2% and 9%. So that's sort of in line with our expectations. Net other income, other costs at NOK 6 million, no surprises there either. Admin costs coming in at NOK 44 million, which is a tad below actually where we expected. We did express an expectation of coming in at slightly north of NOK 200 million for the full year. Now we'll probably be slightly south of that one. And I will come back to the financing cost and the value changes afterwards.Going forward, we expect -- we're going to be a bit up on revenues in the fourth quarter, expect about NOK 26 million increase. Then we will have a fairly flattish development throughout 2024. In this assumption or in this graph, we have made the assumption of a CPI growth of 5%. The Central Bank of Norway is in their latest report stated 5.2% CPI. Statistics Norway is about 1 percentage point higher. As Sonja said, the CPI for September year-on-year ended up at 3.3%. So lower than expectations, primarily driven by lower energy prices or 0 energy prices, more to say, and also reduce the prices on food. The market expects that to come up also in October and November, partly also driven by the base effects from 2022 higher than monthly change from September '22 until November '22, which has an effect on the CPI also for 2023. So it was only about 0.3 percentage points in base effects from 2022. So we kept with the Statistics or the Norwegian Central Bank's estimate or slightly below that for 5% for next year. And then we had a 3.5% in -- coming into 2025. So we will know that in early December on the CPI adjustment for next year. And as you might recall, Entra is pretty much 100% linked directly between the CPI indexation from November the previous year and into the next year, as we've done throughout the history.The property value development in the quarter. We invested NOK 369 million in this quarter in CapEx. So in total, for the year, year-to-date, we're about NOK 1.3 billion, NOK 1,319 million to be exact. As Sonja showed, the -- we are reducing the amount of CapEx in our portfolio. We will do continued defensive CapEx, but the newbuilds will be taken down. We've got 2 newbuilds starting up. That's all. We have invested for the last 2 years with NOK 2.2 billion and NOK 2.6 billion in CapEx. This year, we're going to end up around NOK 1.6 billion, as we previously had announced. And next year, we're probably trending towards NOK 1 billion. So we are taking down the CapEx part, partly because to strengthen -- we want to strengthen the balance sheet and partly because also we want our project to be profitable. And with the current environment with higher building cost of construction, it is more difficult to make more profitable projects. But the ones we are starting will be profitable.But then on the value changes, negative NOK 2.2 billion, that which is about 3% reduction this quarter. If we look at the -- going back from Q1 2022, we've taken down the portfolio now by about NOK 10.5 billion. So -- which corresponds to about 13% of portfolio value reduction. Yields in our portfolio has come from 3.88% back in Q1 2022 to 4.66% now. So it's a 78 basis point increase in our net yields, reported net yields. But if we take -- as we also explained in the last quarterly presentation, during this period, the CPI has increased significantly more than what the appraisers expected when they made the valuations as of Q1 2022. So taking that additional CPI, the unexpected CPI into account, our portfolio basically has increased the net yield, not from 78 basis points, which is what we reported, but 104 basis points. So if you compare that to the graph that Sonja showed earlier, we are pretty much with the market on that one. So we feel now that the balance sheet reflects the current market environment and any changes to the current market environment in terms of transactions will then impact our portfolio. But at least the appraisers now provide their feedback saying, we now feel we are not lagging anymore. We are basically in line with the market, which is important. And as we also told before, all of Entra's assets are being valued by 2 external appraisers every quarter, and then we basically take this simply the average of those 2 appraisers. So it's a slightly different methodology to many other companies where they use their internal valuations as the baseline.On the financing part, the second quarter was rather hectic in terms of we extended a total of NOK 5.5 billion in bank debt. This quarter, we extended another NOK 1 billion. So all in all, a total of NOK 6.5 billion for the last 2 quarters of extended bank debt. We have not been active in the bond market. We do find the pricing not to be attractive. It has come up significantly. So a typical 5-year bond in -- for Entra now will be trading at a credit margin of about 275 basis points. Bank financing is cheaper and it's also available for us.If you look at the debt metrics, in particular, the LTV and the ICR, we see that the -- both have deteriorated during the quarter. The LTV is at 54.7%, which is reported EPRA LTV. If we look at the Moody's definition, which takes total asset into account, the LTV is 51.6%. ICR coming down to 1.9x. We expect it to be -- with the fourth quarter coming in pretty much in line with this quarter, we expect it to be sort of bottoming out at about 1.8x. If -- and the debt metrics are important for us, not in terms of the bank covenants and how we run the business in that way because as you can see, the bank covenants on LTV is 75%, on the ICR is 1.4x. So still significantly leeway on those ones. But it is a topic for our credit rating.We have a credit rating for Moody's, which was changed in May this year to Baa2, corresponding to BBB flat with a negative outlook. And the negative outlook basically came because -- and Moody's and expectedly for us, changed and tightened the rating triggers during the process. So that came as a rather surprise both to us and the market. In Moody's credit opinion, they said there were 3 things important for them in their next review of us, given that we have a negative outlook. Firstly and most importantly, we needed liquidity. We should have sufficient liquidity in terms of available undrawn RCFs to cover our debt maturities. We should have an LTV of higher than 2.5 and -- sorry, ICR at 2.5x, an LTV of 45%. The most important one, the liquidity part is fixed in terms of what we did during the -- after the Moody's gave the review where they are extending NOK 6.5 billion bank debt. We still have a challenge on -- a significant one in terms of the ICR and the LTV according to Moody's. So we will be up for review in some time during this quarter or we expect to be approved some time during this quarter. And we see that the market is pricing to a downgrade of Baa3. We don't have a firm opinion on -- or basically a signal from Moody's on where we're going to end up, but that's how the market sees it.Important to note, if we should get a downgrade, it will not have an impact on our cost of debt. There are no links to our credit rating and to our cost of debt. It's important. Of course, IG rating is very important for issuing new bonds, but it does not impact our cost of debt or any covenants or anything.Good. Looking at the interest rate, it's been a rough ride for the -- in the last couple of quarters or the last quarters. In this graph, we're basically showing the average nominal interest cost for Entra at the end of each quarter. That is the firm line going up to 4.27% in this quarter. Then in the light green line, you will see the forward curve. It's a 1-month/3-month ever NIBOR forward curve because we have a mix of interest rate settings on 1 and 3 months, which basically is also enriching a top during 2024 according to the market. And then you see our expected average cost of debt from here and from here on. And as you can see in this graph, we basically used existing debt levels, which is a fair assumption. It will get better if we sell more assets because then we'll pay off the more expensive debt and on the floating NIBOR, of course. So that will help.We have also put in our interest rate hedges. It's about 56%, taking all the hedges into account. And we have assumed when we renew the existing agreements or bonds we paid, we have used sort of the new bank credit margins as a basis. So this is a fairly realistic or is it we feel it's a realistic view on our interest cost going forward. And as you can see, we are getting close to the top. And then it will gradually trail off over the quarters and years to come.And also worthwhile noting the -- our average cost of debt, given the changes in the interest rate on the forward curves, it has also come down about 15 basis points since we showed a similar graph in the second quarter last year -- in the second quarter this year.Okey-dokey. Now, to the -- I think the most positive exhibit that I'm going to show today. It's -- and this is our debt maturity profile, basically saying, when do we need to -- or when we need to repay our debt. And as you can tell, this is about for the next 4.5 years. So this is a fairly long period. Bearing in mind that the average bank debt in Norway is about between 3 and 4 years. And the average sort of bond debt duration is typically around 5 to 6 years. What you will see, we have significant liquidity available for us, total of NOK 6.8 billion. Then you look at the debt maturities and the green ones are the bond maturities falling due. And clearly, bond debt must be repaid. If we add up everything that we need to repay in the next 4.5 years, it amounts to some NOK 7.1 billion. And if you compare that to the NOK 6.8 billion in available liquidity, we're getting another NOK 430 million from vendor notes coming in next year from 3 assets that we sold and we provided some vendor note to the buyers. We are well -- we are really in a very [ conformed ] situation.Then you will see on the lighter green colors, that is the bank debt. And, of course, with an average sort of duration on a bank of 3 to 4 years, there are some banks that's falling due. What we have done, in the last 5 quarters, we have gotten NOK 5 billion in new bank debt, and we have renewed and extended a total of NOK 13 billion. So we are comfortable about being able -- we are able to work with our banks and also extend this bank debt. We are not asking the banks for new funding. It is important. We're not asking the banks for new funding and also because new funding -- bank funding must be secured. In Entra, we do not have any more secured assets to pledge. So -- but we are asking the banks to renew their existing fatalities. And as shown now in the last 5 quarters, again, evidenced by NOK 13 billion in renewals, we are comfortable with the situation.So I think that is also good to end up with a positive exhibit. And then finally, as announced by the -- or to the market yesterday, I -- after 8 years in Entra, I have decided to leave the company. It's never a good timing to leave a company, but I do believe and honestly believe that with the financing situation that we are in, clearly, we are pressured on the debt metrics, but we -- Entra is in a solid position. On the financing side, we have time. We can -- we work things through. We have a stellar portfolio. We have excellent tenants, and we have a very, very good organization. So I am -- I will -- I have committed to remain in the company during my resignation period, which is 6 months. And during that period, we will -- I will continue to do my job as I have done. And I will also participate in finding a replacement for me, and we will initiate a search, both internally and externally in the -- rather immediately. So we believe that will work out just good.Thank you.
Okay. Thank you, Andres. So I think this was Anders' 33rd quarter, and he's going to be up here for a couple of more of them before he's off the hook. So don't you guys worry.Closing remarks then. First of all, the Norwegian economy is holding up very well. Secondly, interest rates are expected to be at or near by the top. Thirdly, we see a very good activity in the letting market with a solid demand for centrally located offices. Fourthly, the market conditions in the property markets in Norway are favorable with low vacancies and limited newbuild volumes expected to come in, in the near future. Entra has secured a large liquidity buffer, as Anders mentioned. This will cover all bond maturities for the next 4.5 years. And we have an ongoing divestment program with a lot of interest for our assets and ongoing sales processes. It is more difficult to align prices in the current market, but seeing that we now have secured sufficient liquidity buffers, we are also in no rush to sell.So I think on that note, we are ready for a Q&A session. I believe we have some questions for us coming in. So, Anders, why don't you join me?
Okay. So we have 3 questions. The first being, 3 of the development projects are now stated to be completed one quarter later and stated earlier. What is behind this? Is it delays?
As I said, the first 2 projects on the list are simply the fact that we need to -- some time to settle the final negotiations with the contractors. So it's just for us to be able to do a final reporting after that. No effects on the rental income. The third project, we started reporting on it while we were still in an optimization phase with the tenant, and they wanted to do some alternations. So we've given some more time, but it's not going to affect the business case on that project. It's just that we've given some more time for the project phase.
How is the deviation between the valuers in Q3? How much does the value changes differ?
Normally, the difference is -- if you go back in history -- sorry, long answer, but if you go back, it's been between 0.6% and about 9.5% with typically the quarters where we had COVID coming in, and there was -- difference were quite big. Now it's 2.9%. So that is sort of what we find well within the acceptable [ orders ]. When there has been like large relations, we have discussed with the third appraiser, but 2.9% is well within. I mean, if you sit looking at -- doing a value of a transaction, we do value of one asset, I mean, 2.9% is pretty miniscule. So that is well within 2.9%.
There has been some changes in the swaps. Is there some hedging adjustments in Q3 impacting realized financials?
Not really. There has been no change in the actual swaps. What we have done is, we did get some questions because when we reported the amount of fixed versus floating debt or hedges, we did not include forward starts that started 1 year out. And in the quarterly report, we filed a table with sort of the full list of hedges for restarts and everything. And what we now decided to do is basically take the -- we just list up the full amount of any hedges, divided by the total debt portfolio and then we get to the 56%. So it's -- I think we reported about 51% last quarter. And now -- so, it's basically the swaps are unchanged. It's basically that we made it more transparent in terms of taking -- these are all the swaps divided by the total debt, and we get to 56%.
Very good. That concludes the Q&A today. Thank you.
Okay. Thank you. Thank you. Have a nice day, everybody.