Entra ASA

OSE:ENTRA

Earnings Call Transcript 2021-Q4

[Sonja Horn, Chief Executive Officer]

Okay. Good morning all, and welcome to Entra's fourth quarter presentation brought to you here from Oslo. So let me start with some highlights from this quarter. Rental income came in at NOK 677 million in the quarter versus NOK 590 million same quarter last year. Net income from property management NOK 392 million, and our external appraisers have increased the valuation of our property portfolio with 5% in the quarter, leaving us then with NOK 2.832 billion of net value changes. Profit before tax, NOK 3.216 billion. Key events in the quarter, of course, the acquisition of Oslo Areal for NOK 13.55 billion was a huge highlight, and the transaction closed on January 12 this year. We also finalized one of our redevelopment projects in the quarter, and net letting came in of NOK 22 million. Our Board is proposing a semiannual dividend of NOK 2.6 for the second half of 2021, leaving us with a total dividend of NOK 5.1 for the full year. This remains to be approved at the Annual General Meeting in April and will be paid out then on May 3. Moving on to an update on operations and the market situation. Pleased to see that we signed new leases and renewed leases on 25,000 square meters, total NOK 63 million or NOK 34 million of that in the project. In the same quarter, we had NOK 27 million of contracts terminated and net letting of NOK 22 million. Occupancy in the quarter is still high, 97.8%; average lease duration of 6.8 years or 7.1, including the project portfolio. The largest contract signed in the quarter was all in the project portfolio. Happy to see that we signed 2 contracts at St. Olavs plass, one with Rebel. This is the technology hub which we have established in the joint venture in the neighboring building. They have had a very positive support in the markets and have now expanded their presence into the neighboring building, signing 2,700 square meters at St. Olavs plass. Also in St. Olavs plass, Red Bull has signed a contract of 1,300 square meters. In Bergen, in Nygårdsgaten, we've signed a total of 3 contracts in the quarter. Two of them listed here, one with Rambøll of 2,100 square meters and also Sopra Steria with 1,800 meters. Pleased also to see that Sopra Steria now has chosen Entra as their landlord in all our 4 cities. In Kongens gate in Trondheim, Microsoft has signed a contract of 1,800 square meters, and this means that we are now also preparing to start a refurbishment of this building. As I said, we had a huge highlight in the fourth quarter when we announced the acquisition of Oslo Areal. This is a total enterprise value of NOK 13.55 billion, total NOK 460 million of 12 months rolling rent coming into the portfolio, 17 properties, 225,000 square meters and also a very attractive development potential coming in with 95,000 square meters currently undergoing zoning. And if you add the long-term potential, we believe that we will see some -- we're up to 140,000 square meters of development coming in. Oslo Areal, we've been describing a bit like a miniature version of Entra. They have had very much the same strategy, investing on the main communication hubs in Oslo and Sandvika. We see that they have high-quality assets with attractive also micro locations within the clusters. It was a unique opportunity for us to increase our exposure in the Greater Oslo region in one large transaction, and also adding to our development portfolio, as already mentioned. The transaction enabled us to utilize our balanced capacity in one large transaction, and it's fully financed through available debt. We also have clearly very positive outlook on the market situation in Oslo, which I will get back to further down in the presentation. Here, you can clearly see the strategic match on geography in these 2 portfolios, where we have been able to increase our presence at our Skøyen cluster in our Tullin quarter around the central station of Oslo and also at Helsfyr in one big transaction. Moving on to a snapshot of the pictures. Here, you can see the 4 assets on the central station. This is also an area which we will see a very huge transformation going on in the next 10 years. So we're also happy to see that a huge part of the development potential in Oslo Areal is in this area. In the Tullin area, we have been working with the transformation for years and we're happy to see that we now increased our presence with 2 more buildings here. At Skøyen, Entra had 60,000 square meters prior to this transaction. We've been looking to increase our presence and got now 4 new buildings into the portfolio. Helsfyr, we are already the largest property owner and adding an additional 2 buildings, we will further enhance our presence there and CBD, 2 assets; Majorstua, 1 asset and 2 assets in our cluster in Sandvika.Now one of the key attributes about Entra is, of course, the fact that we have a superior cash flow with a very high average lease duration and also high degree of public tenants. Following this transaction, we are happy to see that we still have average lease duration of 6.7 years and also 54% of public shares -- sorry, public tenants. And we will be adding a total of 17% growth on 12 months rental income. And also, we will increase our presence in the Greater Oslo region from 68% to 73% following this transaction.In the quarter, we have also announced the sale of a 50% share in Hinna Park. This is a transaction value of NOK 963 million for Entra, which was then close to 16% about -- above our book values as of Q3 last year. So this transaction, we will receive 15% shares in a new established property company, Stavanger property, as part of the settlement in addition to a small cash consideration. Stavanger property is a newly established company, which will, in addition to the assets acquired from Hinna Park, also acquired 2 large attractive assets in the city center of Stavanger. And we have seen that this was a very good opportunity for us to rotate out our assets at Hinna Park at favorable pricing into a larger vehicle, which will also represent a strong diversification towards the city center of Stavanger. So this also means that the Hinna Park will be deconsolidated from our numbers from Q1 this year. And following this transaction, Entra has 2 buildings in Stavanger, through [ Fyrstikkalléen ] and also [ Lagårdsveien ], which both are rented out on long lease contracts to public tenants. We have also finalized one of our redevelopment projects or refurbishment projects in Hagegata in Oslo. This project was completed slightly below our initial cost, and we were happy to see then that yield on cost has increased to 5.7% on this project. A few words on our ongoing project developments. Starting with St. Olavs plass on the top. As you can see here, we have to green arrows. Firstly, the occupancy has been brought up from 68% to 95% in the quarter. Yield on cost also here up from 4.8% to 4.9%. This is mainly following the fact that we saw that CPI came in stronger than expected. So we're getting a rounding up effect on the yield on cost. In Tordenskiolds gate 12, we have brought down the cost in the quarter with NOK 20 million, seeing that we now are getting closer to completion. And also here then, yield on cost up from 4.4% to 4.6%. No changes in Stenersgata in this quarter. In Schweigaards gate 15, no reported changes either. However, we can clearly see that activity on the letting side is picking up there. And we will also now be able to target smaller tenants as we are getting closer to completion. In Møllendalsveien 6-8, we have increased the cost with NOK 37 million in the quarter. This is mainly explained by 3 facts. Firstly, we have chosen to increase investments in energy efficiency measures, seeing that we then will also meet the EU taxonomy regulations. This is mainly extra cost for insulation and district heating. Secondly, this project has been split into 2 phases following the fact that the second letting process became more timely during COVID, and the second part of the building contract was signed in a market with rising material prices. Thirdly, there is always some unexpected and unforeseen costs in these kind of refurbishment and development projects. And in this project, we have seen that the complexity was higher than we originally anticipated. Moving on to Nygårdsgaten. Here, we can see that we have 2 green arrows also. Happy to see that we have here signed 3 contracts in the quarter bringing occupancy up from 34% to 58%. And also very excited to see that here, we're actually signing rental contracts on new record levels in Bergen; meaning, that we have actually pushed the prime rent in Bergen up to new levels. And also then yield on cost up following these contracts from 5.3% to 5.5% in the quarter. In [ Holtermanns ], there's no reported changes. However, we can clearly state now that the ongoing letting discussions are becoming more concrete and progressed. And as we've stated from the beginning of this project, we are now also coming closer to completion, and we will be able to target smaller tenants which typically represent somewhere between 50% and 60% of the market volume in Trondheim. So we expect to see that activity level will clearly pick up going forward. A few words on the market situation. Firstly, in respect of COVID, we're happy to see that we now have reopened society again in Norway after a short time of lockdown from December to February, following the micro -- sorry, Omnicron (sic) [ Omicron ] virus coming into Norway. And most restrictions have also now been lifted, including also the requirement to use home office. So as we saw in the fall last year, we now do expect to see that the activity in our offices will pick up quite quickly. and we're preparing for that. So another reflection we have seen during the pandemic is that the letting processes have been much more timely. And we're also now excited to see that these discussions are again becoming more firm and concrete, and we expect this pickup to continue going forward. If you look at the total volume of rental contracts, which was signed in 2021, we saw that Oslo -- the total market volume signed was 750,000 square meters. This is actually the highest volume we have had since 2008, only 2 other years we've had similar volumes. And we also have a very positive outlook on the demand side going forward. This is supported by very strong macro fundamentals. GDP growth came in at 4% for last year in Norway, and the outlook for '22 are also strong. Employment growth has been on an accelerating line, a 1.3% employment growth in 2021, and we're back on the same trend line as we saw before the pandemic. And we also know that office-related jobs have had a stronger employment growth than the average. The second part, which also is positive from the demand side, is that we know that we have a lot of lease expiries in 2023 in the Oslo markets. Now on the other hand, if you look at the supply side, you can see from the bottom right graph here that there is limited volume coming into the market in 2022 and also 2023. And in respect to working from home, what we've seen so far is that it has had very limited effect on the volume signed on new contracts from our existing tenants. So the demand -- sorry, the supply side is also clearly favorable in respect of market rental growth going forward. Now if you take a look at our consensus report on the top right picture here, you can see that the market consensus of the market specialists in Norway is expecting to see that we will be above 5% market rental growth in 2022. And we've also seen that some of the leading specialists have been out in media with much more forward-leaning estimates up to 10%. In respect to vacancy, the consensus is that we seem to have peaked at 6.8%, and that it will slowly trail down going forward. And we're also happy to see that the vacancy now is low in all the office segments clusters in Oslo, with the exception of the north fringe. And in the city center of Oslo, vacancies are now also below 5%. A few words also on the regional markets. In Bergen, we've seen strong market rentals growth through 2021, 7%. In Trondheim also, 10% rental growth over the last couple of years. However, these are also markets where you need to come in with the right product in order to attract the tenants. A few words on the transaction market. We have seen record high transaction volumes in Norway in 2021, a total of NOK 160 billion of transactions within commercial real estate relative to NOK 113 million for the previous year. And coming into 2022, the market specialists are also reporting on very high activity, strong interest for office segment and also very competitive markets. There is some concern among investors in respect of interest rates coming up. However, the financial markets are very competitive and open with also downward pressure on margins. And as you can see from our consensus report, the yields are expected to not increase significantly, also seeing that the very strong expectations to market rental growth will have balancing effects on increasing interest rates in respect of property pricing. So I think that's it for me for now. I'll leave you to Anders.

[Anders Olstad, Deputy CEO & CFO]

Thank you. This quarter concluded sort of another good year for Entra. And what we have seen, as we're now getting towards the last phase of -- what we hope is the last phase of the pandemic, is that it's really had a very marginal impact on our numbers. Total -- if you look at total revenue impact over these last 2 years, it's less than 0.3%. So it's been a sort of a lot less impact than we expected. And as Sonja said, we are positive regarding the outlook for Norwegian offices and Oslo in particular, where we just increased our exposure to the acquisition of with Oslo Areal. The numbers are pretty straightforward. I will focus a bit on the revenue side because there's a -- there are few things actually needs to be mentioned and also on the cost side and not the least on the financing of Oslo Areal that was closed now on January 12. Firstly, on the revenue side, we ended up at NOK 677 million. And in our revenue bridge last quarter, we expected it to be at NOK 656 million. So a total of -- actually NOK 21 million above the expectations. The reason is primarily an accounting effect of one of our contracts, which had a step-up in revenues over the first 3 years and then flat. And according to IFRS, we have to take that, the average rent over the full contract period and allocate that to each quarter. And that means we had to adjust for the third quarter. And as such, giving us an extra NOK 19 million in revenues for the fourth quarter. In addition, we had 1 small tenant that moved out prematurely and paid out their rent in advance, which gave us another NOK 2 million in revenue effect for this quarter. So that explains the NOK 21 million. Comparing to the third quarter, we're up by NOK 38 million, primarily by projects. If we compare to the fourth quarter last year, by year 2020, we're up for the full NOK 87 million. And as normal, there are 3 main reasons. Firstly, acquisitions. We have a net of NOK 38 million coming from acquisitions, of which the large acquisition at Helsfyr , Fyrstikkalléen 1 is the main contributor. Second, we're starting to see that the projects are delivering. They're coming online and it yields revenues. So that's another NOK 41 million in additional revenues coming from the projects. So we're back on the growth rate, driven by the internal operations and the project development. Thirdly, we have a like-for-like growth in the quarter at 0.85%, which might seem low, but please bear in mind that on the Norwegian contracts, on Entra's contracts as well, we have a full CPI adjustment every year in the contract period, and it's only the renegotiations and the new contracts that drive the like-for-like growth. So when we have a 0.85% like-for-like growth for the quarter, it's 15 bps above the CPI, which was 0.7%. For the full year, with a like-for-like growth of 2.3%, i.e., 1.6 percentage points above CPI, which is very strong. Again, saying that the 15% that we've negotiated in new contracts drive the full like-for-like growth for the entire portfolio, which the remaining 85% is driven by CPI. So 1.6 percentage points above CPI like-for-like growth is very, very strong. And in that way, the Norwegian market differs a bit from other continental European markets. The CPI in 2022 was very strong for Norway, ended up at 5.1% and put into all our contracts in -- starting on January 1. Net income property management coming in at NOK 392 million. I'll come back into that in some detail on the P&L. But on the cost side, it's primarily the extraordinary one-off, call it, strategic interest cost that we paid out of NOK 25 million in the quarter that drives it. Plus, also, we have more debt and also higher interest costs driving the financing cost. Profit before tax at NOK 3,216 million and as you can see, there's quite a big difference between the previous 3 quarters. And the main reason is, of course, the value changes. For the preceding 3 quarters, the value changes were in the range of NOK 800 million per quarter. Now we came in at NOK 2.8 billion for the fourth quarter. And if you compare to the fourth quarter 2020, we came at a full of NOK 4.5 billion. So that really drives the volatility in the profit before tax.Moving on to the key numbers per share. Cash earnings coming in at NOK 8.4 annualized 4-quarter rolling. It's 11% CAGR since we were IPO-ed back in 2014. NRV at strong development at NOK 218. Again, 15% CAGR since 2014. If we include that we paid out the full dividends of NOK 29.65 since 2014, the CAGR is 17%. So again, a strong value growth for the -- in this period. Moving on to the P&L. We spoke a bit on the last presentation about our operating cost currently at NOK 62 million for the quarter and NOK 234 million for the full year 2021. The cost percentage is 9.3% for the full year, 9.2% on the quarter. So we're on a positive trend in terms of taking our -- reducing costs, but there's still some way to go. Our ambition is to be -- to take the company cost efficiency further down. A quick comment on the admin cost coming in at NOK 71 million for the quarter and NOK 210 million for the full year. Please bear in mind, for the full year, we had extraordinary one-off costs of a full NOK 37 million. For the quarter, it was only NOK 25 million, given the strategic interest in Entra. It was in advisory fees to the Board of Directors that was triggered by the mandatory bid from Balder. So -- but if you come back, sort of the underlying admin costs were at NOK 173 million for the full year. If you compare to the same sort of cleaned out of any strategic interest cost of Entra for 2020, we ended up at NOK 177 million. So we're actually down by NOK 4 million in nominal costs, taking into -- which is we're sort of happy with the run rate that we're running on the admin cost part. I'll come back on the financing on the next pages. Again, looking at the -- how well revenues develop, given that everything we know that is open in the market now. Starting off at NOK 677 million for the quarter. We're taking out NOK 19 million in revenues from Hinna Park that the assets that we sold off in Stavanger, which will then -- our share in the syndicate will be booked as a financial income. That takes out NOK 19 million on cost base and will also have some effect in the second quarter, of course, because the closing was done on January 20. Then we see the effect of Oslo Areal, NOK 102 million for the quarter. We expect to have revenues -- total gross revenues from Oslo Areal around NOK 460 million, NOK 468 million in 2022. Then it's good to see on the project side another project being put online. That's the first phase of Møllendalsveien 6-8, which yields another NOK 5 million. And then on the other part, it is the net of the CPI adjustment, which came in at, again, 5.1%, so NOK 34 million for the quarter. And then offset against that same accounting effect that we discussed -- that I explained earlier about the buildup of the revenues from the Rebel contract. So which means we are approaching -- so high NOK 700 million and passing through NOK 800 million in the -- in that -- towards the end of the year. So if we look at the revenue growth for 2021, we're up 7% compared to 2020. If we look at the revenue growth from 2021 to 2022, we're up a full 27%, again, driven, of course, primarily by the acquisition of Oslo Areal, but also the strong product development pipeline that will be coming online during 2022 and the CPI effect, of course, of 5%. And just a word on the project development part. When we put a new asset into operation, it usually takes up to about half a year before the tenants move in because they need to sort of match their expiry contracts with the new contracts. So that means they will continue to build up revenues from the projects normally during the first half year.Looking at the balance sheet, starting off at NOK 64 billion. We invested NOK 668 million in CapEx for the quarter, about NOK 2.2 billion for the year. So we're pretty much on target in terms of our CapEx projections, and we expect to have something similar levels also in 2022. Then we have the value development of NOK 2,771 million. And if you look at the pie chart on the right-hand side of the exhibit, you see that 63% of that comes from yield effect. There is a strong -- the transaction market in Norway is very strong, and we see that it also has continued into 2022. And we are regularly getting bids for assets that we acquired from Oslo Areal at the same levels or higher than what we paid for. So at least the market fundamentals have remained strong in Norway. If we're adding the value of our joint ventures and the land bank up at outside [indiscernible] Oslo that will be re-zoned for resi and sold, we have a full now balance of NOK 69.4 billion. This is not including Oslo Areal, by the way. So that will add another NOK 13 billion during this quarter. Okeydoke. On the financing side, we -- it was an active quarter also in this quarter. We rolled about NOK 900 million of CP. We entered into a contract with the Nordic Investment Bank of another 10-year green NOK 1 billion bank loan at very attractive rates. So we're happy to see that also Nordic Investment Bank continues to drive the environmental agenda for Norwegian real estate.So -- and not the least, we secured the financing of the Oslo Areal transaction. We decided to go with our -- 4 out of our 5 partnership banks and secured a total funding of more than NOK 10 billion with an average tenure of 2.9 years at attractive rates. So we're very happy to have this long-standing, extremely good relationships with these banks, and they were able to turn around on short notices and provide the facilities that we needed to fund Oslo Areal. Looking at the debt side. This -- again, this is excluding Oslo Areal. I'll take into sort of the pro forma numbers as we speak. But clearly, we have a total debt now NOK 27 billion. 69% of that debt is green, in terms of green bank loans and green bonds. With Oslo Areal, the loans -- the total amount of debt will increase to about NOK 40 billion. LTV at 38.4%. Please bear in mind that in here, we have changed the definition to be aligned with how Moody's calculates LTV. So it's basically the investment property -- sorry, the debt divided by total assets. And this is also because we have a fairly significant amount invested both in and Oslo [indiscernible] and also in the Stavanger syndicate. If we include pro forma Oslo Areal, the LTV would end up around 47%. So still well with our target of being south of 50% over time. And the ICR, currently at 3.4%, would come to around 3.2%. So still a very, very solid financing situation, even taking account for the full debt financed acquisition with Oslo Areal. Interest rate average coming out at 2.25%. And as you see, there are expectations on the increased interest rate in Norway as in most other countries and taking into account of sort of existing [ bank ] facilities, the forward curve and existing swaps and hedges, we will sort of level out at about 2.6% in some time. So still clearly higher than it is, but still a good margin to our -- the running yield on the -- on our portfolio. So I think that concludes on the financing part. Thank you.

[Sonja Horn, Chief Executive Officer]

Okay. Thank you, Anders. So some closing remarks from me and seeing that we are at the year-end, we would also like to give a short update on our 3 strategic focus areas: to provide profitable growth, to provide the best customer experience and also being an environmental leader within our sector. Starting with sustainable operations and environmental leadership. For many years, one of our KPIs and measuring this has been to bring down our direct emissions in the management portfolio through investing in environmental qualities in the property portfolio. And as you can see, we have achieved pretty strong results through hands-on energy management. And in 2021, the result was 123 kilowatts per square meters, which, of course, is slightly lower than it would be with a typical normal activity in our buildings. Our focus on certifying the portfolio has continued, and we're happy to see that we now have as much as 73% of our rental income certified to BREEAM Very Good or better, and that is also 69% of the values in our portfolio.During 2021, we have also revisited our environmental strategy and setting new targets and also action plans. We have a clear ambition to become a net-zero carbon company by 2030. And this means that we will also increase the focus on our Scope 3 emissions through our development projects going forward. And our target is to bring down the CO2 emissions in our project developments by 80% before 2030.In 2021, we have also performed an in-depth climate risk analysis and impact together with Norconsult. And we were also very pleased to see that our GRESB Score increased to 92 points in 2021 and that we're also continuing to achieve several environmental prizes for our innovative development projects through the year. In respect of providing the best customer experience, we are extremely proud to see that we once again scored high on the Norwegian tenancy index with 87 points. This is, of course, a very important driver for us to maintaining the high occupancy rate in our portfolio. And through the past couple of years, we have clearly seen that workplace strategies is much higher up on the agenda of all our customers. And we're also seeing that they are clearly experiencing that using the office as a tool to both attract talent, to retain talent and now also to get talent back into the office is becoming more and more important.This also means that our customers are more open for changes in how they use the office; and more than ever, it's important for us to be really tight on the dialogue with our customers. So through the year, we have also invested in our -- built up our team of advisory within workplace strategies and now have a very strong team working alongside our letting team with workplace strategies. So in total, with the high-quality portfolio we have, the right location, also the right skills in our people, we are very well set to meet the future requirements of our customers going forward. Finally, in respect of profitable growth, the most important focus area, of course, for us. As you can see from the graph to the left, we have a steady growth in rental income over these years with 47%. In 2019 and '20, the growth was flattish, seeing that we had several of our large assets taken out of management portfolio to be redevelopment. We're now happy to see that these are coming back into operations. And together with also the acquisitions we have done and market rental growth, we are now all set for further growth going forward. We have a policy to pay out 60% of cash earnings as dividend. And this has been unchanged over these years and pleased to see also that we've provided steady growth in dividend. In respect of value growth, NRV growth has been 134% over these years, driven, of course, by strong operations, by high letting activity, our project development and also, of course, needless to say that there has been a nice substantial yield compression over these years. The profitable growth is, to a very big extent, driven by our project development in Entra. And we are happy to see that we have a very large and exciting project portfolio with securing also future growth for the company. Currently, we have ongoing projects, which will feed in with NOK 380 million of rental income once they are fully let. In addition to that, we have 73,000 square meters, which already has been zoned and now can -- we are working on -- in the marketing phase. So these projects can be started once we have reached sufficient pre-let ratios. You can see that the green ones here at the top are the projects which were from the Entra portfolio and the blue ones on the lower row have been now added through Oslo Areal acquisition. In addition to that, the long-term shadow pipeline with projects which currently are undergoing zoning should add somewhere between 320,000 and 420,000 square meters in the long run. And this picture here is from the Oslo Areal acquisition, where you can see some new high-rises which are planned around the central station in Oslo, and we look forward to be part of that then through the acquisition of the Oslo Areal portfolio. So finally, we have had a very solid performance and growth through 2021. Rental income was up by 16% in the quarter, 7% year-on-year. NRV growth of 15% through 2021. We completed projects of 65,000 square meters in '21 and started new projects of 33,000 square meters. And we've been very active in the transaction market with a total of 305,000 square meters acquired, with a value of NOK 17.5 billion. We are expecting solid income growth from completed acquisitions, the project developments ongoing and also rental growth going forward. As Anders already said, at least 25% in 2022, and we clearly see very strong market fundamentals going forward, both in respect of rentals and also transaction markets. And we do have a large and attractive development pipeline, which now also have been further enhanced through the acquisition of Oslo Areal, which will also provide future growth prospects for Entra. So I think that concludes my presentation for today. And we can open for some questions, Tone.

[Tone Kristin Omsted, Head of Investor Relations]

Thank you, Sonja. We have several questions. after now closing the Oslo Areal transaction, what will be your capital allocation strategy going forward?

[Sonja Horn, Chief Executive Officer]

Well, we've just made a large investment of NOK 13.55 billion in Oslo Areal. So short term, our focus will be clearly on reviewing these assets and getting them into the Entra portfolio. And our focus continue to be to provide growth on the communication hubs in our existing clusters. And our pro forma LTV will be somewhere around 47% with the acquisition of Oslo Areal. Long term, we would expect to be around 45%. And we continuously continue to work on estimating, evaluating our portfolio, considering potential rotations, but have no existing plans for divestments, but of course, open to look at opportunities if they should arise. Would you like to add something?

[Tone Kristin Omsted, Head of Investor Relations]

To follow up then, how does Entra think around the long-term financing of Oslo Areal in terms of rating?

[Anders Olstad, Deputy CEO & CFO]

Yes. We currently have a BAA1 rating from Moody's with stable outlook, equivalent to the BBB+, which is one of the strongest ratings in the Nordic real estate market. The rating consideration or rating triggers from Moody's is typically like the fundamentals, share of public tenants. ICR should be about 2.5. LTV should be below 45%. Plus a few others also above liquidity -- available liquidity more than 5 quarters forward. The rating is very important to Entra, and we will maintain our current rating with Moody's. The only sort of trigger point where we're currently above is on the LTV where we expect to be at 47%, while the trigger is 45%. So all in all, we should be already now be well within the rating criteria for continued BAA1 rating. But we have a good dialogue with Moody's. And we have discussed any sort of a grace period of 12 months is a -- if anything should be changed, we have enough ample time to adjust. So -- and as I said, there are more offers for our assets than ever before. So if we should decide to divest assets, that would be very fairly looked at by the transaction market and priced aggressively. So in that way, we are not concerned about the rating of credit rating, and we will continue to keep the BAA1 going forward.

[Tone Kristin Omsted, Head of Investor Relations]

Does the revaluation of the portfolio in Q4 include the impacts from the Oslo Areal and Hinna Park transactions?

[Anders Olstad, Deputy CEO & CFO]

It include the Oslo and the Hinna Park. It does include the revaluation of the Hinna Park transaction. We did -- we'd sold that at a 16% above book, and that has been taken into the books already. Oslo Areal is not included in our books and will be on -- during the first quarter. So there's not been any sudden change from the acquisition itself. Clearly, the acquisition was aggressively priced as a number of other transactions in the Norwegian traction market. There were in the commercial real estate market in Norway transactions of about NOK 160 billion. And we saw actually a downward pressure on yields and then, i.e., an upward pressure on valuations on assets. And we see that our appraisers -- we use 2 appraisers, and 1 has taken more of the effect of the new sort of new yield levels in Norway during the quarter, while the other 1 has been lagging. So I think it's fair to conclude Hinna Park has been fully taken into account, Oslo Areal has not been taken into account in our books.

[Tone Kristin Omsted, Head of Investor Relations]

Could you please clarify the NOK 19 million positive impact on rental income in Q4? Will it also form a base or be included in the Q1 2022 rent?

[Anders Olstad, Deputy CEO & CFO]

Yes. Sorry if I wasn't crystal clear on that one. It's -- I'll try to summarize. This is one contract we have with what you call Rebel, which is an IT cluster based on a concept that we have together with a partner. Entra has rented out that asset on a 10-year contract with a buildup of revenues from around NOK 55 million, up towards around NOK 80 million over 3 years. So NOK 55 million, NOK 65 million and 80s and then flat NOK 80 million for the rest of the period. What this -- the booking of these revenues, according to IFRS, has -- should be flattened out. That means the reduced level in rentals in the first 3 years should be spread out on the remaining 7 years thereafter. That means the total average rent level will be equal throughout the 10-year period instead of a buildup of revenues. Some people like IFRS, some people don't. This is the interpretation of how distributed in IFRS, which basically means that we need to treat our revenues as fully flat for the full 10-year period. This has been taken into account in the revenue bridge that we've shown. So it brought up the revenues for the fourth quarter by NOK 19 million compared to what we expect it to be, which is for Q3 and Q4. And then we took it down again on the sort of the other effects. So it will be flat for the remaining quarters of the remaining 9 years. So it has been fully taken into account our books as of end of fourth quarter, and it is taking into account on the revenue bridge for the coming 6 quarters and another 8 years thereafter. Sorry, it's IFRS. It's the way we have to abide into laws and regulations even though maybe not in the most -- yes. It's a way we should do it.

[Tone Kristin Omsted, Head of Investor Relations]

Based on today's situation in the debt capital markets, would it be a major difference compared to the 31st of December for interest cost of finance?

[Anders Olstad, Deputy CEO & CFO]

Say again, please.

[Tone Kristin Omsted, Head of Investor Relations]

Based on the situation today in the debt capital markets, would interest cost of finance be majorly different today for new financing?

[Anders Olstad, Deputy CEO & CFO]

Yes, yes. In terms of the -- if you look at the underlying base rate, it has come up quite a bit since December 31, where -- and our graph saying this is the way it looks going forward is based on December 31, the way the world looked at that way. Since then, we see that the underlying interest -- the base rate has come up, particularly driven by the long-term interest rate in the U.S., which impacts the long-term interest rate in Norway directly. And also the margins on our debt has come up in terms of if we issue new bonds in the market. The graph that basically plateaued out at about 2.6% is based on December 31, and we see that margins have slided upwards and also the base rate. If we -- this is -- we need to do the numbers again on this one, so I'll revert to the analyst that asked the question if there's any sort of difference to what I'm saying. But it should be, give or take, 20 bps higher on average than what we showed in that graph.

[Tone Kristin Omsted, Head of Investor Relations]

The last question then. With an LTV at 38%, are you still looking for potential sale of assets to reduce this ratio? Or is this a more normalized or good level?

[Anders Olstad, Deputy CEO & CFO]

Yes. Well, with 38%, we would definitely not sell anything. But if we had -- if we take into account the acquisition of Oslo Areal, the LTV would be around 47%. And -- so that means at 47% -- and I mean, ICR, net debt to EBITDA and others are debt metrics, we feel we're fully comfortable with that situation. We do not have to sell anything. We might sell anything. We might sell something. And the -- and I mean that is a part of any well-run real estate company. You should look at your assets. You should evaluate. Can we add value to these assets? Or can somebody else bring more value? Or if they cannot -- well, actually, if not, they can bring value. But if they believe they bring more value to it, I think, is a more correct word. So no, we don't have to sell anything. We will consider divesting certain assets and which is a part of our everyday job.

[Tone Kristin Omsted, Head of Investor Relations]

Thank you. That concludes the Q&A.

[Sonja Horn, Chief Executive Officer]

Thank you so much, Tone. Thank you all for following the stream, and we look forward to seeing you again next quarter.