Entra ASA
OSE:ENTRA
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Welcome to Entra's fourth quarter presentation here in Oslo. Let's move right on to some highlights in the quarter. Rental income came in at NOK 806 million this quarter versus NOK 677 million same quarter last year. Net income from property management of NOK 320 million in the quarter and value changes with a negative of NOK 511 million, whereof NOK 363 million from property valuations, leaving us with a loss before tax of NOK 206 million in the quarter.
We have had an active quarter in respect of letting, leaving us with a net letting of NOK 4 million. We also finalized 2 redevelopment projects in the quarter and 1 new build project. We have announced that we have also sold 4 properties in the fourth quarter. And the November CPI, which rolls into our rental income from January 1, came in at 6.5%.
Our Board is proposing a semiannual dividend for the second half of last year of NOK 2.50, in line with our dividend policy, leaving us then with NOK 5.1 for the full year. And subject to approval at the Annual General Assembly, the share should then go ex-dividend from April 26 and dividend to be paid on May 4.
As I said, a pretty busy quarter in respect of letting. We signed a total of NOK 131 million in the quarter, 58,000 square meters. And we also kept on in the new year and have seen that we have already signed quite a few contracts in the new year.
In respect of terminations, rental income of NOK 76 million were terminated in the quarter, leaving us with net letting of NOK 4 million. And as you can see from the table below, we signed a huge contract with NRK, the Norwegian Broadcasting Company, for 9,600 square meters in Trondheim. This means that we will also be starting a new project in our development at Holtermanns veg in Trondheim.
The University of Southeastern Norway has also signed 2,600 square meters with us in Drammen, and in Storgata 51, the Student Association signed 2,200 square meters. Our occupancy is currently at 96.5%. That's slightly down from 96.6% last quarter. And average lease duration currently at 6.3 years, including the project portfolio. We have had a very extensive list of ongoing projects over the last couple of years. And this quarter, 3 of these projects came to completion.
And I must say that I'm very impressed with the work our project team has done to ensure that these projects are delivered more or less according to plan and also on profitability according to what we had planned for through these very challenging environments, which we have seen in the last couple of years.
Here, you can see Tordenskiolds gate 12 in Oslo, right on the Seafront, next to the city town hall. Prime CBD location, 13,000 square meters, 92% let to one blue-chip law firm. And we are actually reporting this at completion at NOK 1.182 billion project cost, which is slightly below what we have reported on. Leaving us then with a super-attractive yield on cost here of 4.8% versus the 4.4% we started reporting at.
Moving on to Bergen. Here, you can see the picture of our new build project in Nygårdsgaten 91 to 93, which was completed in December. In Bergen, we've seen that the market has been actually quite favorable over the last couple of years. There's been a surge for attractive high-end quality products in the central Bergen. And we chose to start this project with a very low occupancy of 19%, knowing that there was a strong interest for the project.
I'm very pleased to see that we now, upon completion, have signed 85% with prime tenants in Bergen. And this building is completed with a project cost of NOK 633 million. That's slightly higher than what we started reporting at, seeing that we chose to put in some extra qualities, which also has increased rents in this building, where we actually have achieved the new top rents in the Bergen markets. So leaving us here with a yield on cost of 6% in this project. And the building has been certified BREEAM-NOR Excellent.
Final project, which was completed this quarter, is located also in Bergen in Møllendalsveien, just next -- not far from Nygårdsgaten. This has been completed in 2 phases. First part was completed 1 year ago, and the remaining part of the building now this quarter. The building is 95% let to public tenants. Vacant space is the top floor here on the building. And total project cost here of NOK 677 million, which is a bit higher than we started reporting on. But we're very pleased to see that the CPI has brought yield on cost back to the levels where we started reporting on.
So if you take a look at the ongoing project list, it's a bit shorter than it's been for some time, seeing that we've pulled out 3 of the projects. With the current market dynamics, we will also be more cautious to start new projects, at least in the near term. We will, however, continue to work on maturing our pipeline of projects, seeing that project development is a very important part of our value proposition and has also been a very profitable part of our business in the past.
And we did also announce that we will start a new project following the contract signing with NRK, which I will get back to shortly. We're also working on some other projects, redevelopments, and we hope to be able to get back with some more news on that in due time.
If you look at the table here, I have 4 key messages. Firstly, you can see that the completion has been postponed slightly in Stenersgata into the third quarter this year. Secondly, you can see that occupancy is up on 4 of our projects. We've had what I would call more or less signing bonanza in Trondheim the last couple of days, working extremely hard to solve the vacancy there. Pleased to see that vacancy now has come down and occupancy is at currently 86%, up from 39% in Kongens gate. In Holtermanns veg, we've gone from 29% to 61%, and we do have a lot of interest on the remaining space. And in Brattørkaia 13, we also are more or less fully let now with 97%. Also in Oslo, occupancy is up in Schweigaards gate 15 to 83%.
The third message is that we can see that the cost has changed in 3 projects. In total, this means that we have increased CapEx with NOK 25 million on these 3 projects. And finally, you can see that the yield on cost is up on several of our projects, explained by 2 factors, letting coming in stronger, and also that CPI has come in stronger than what we had expected.
So the contract we signed in Trondheim with NRK means that we now are preparing to start a new build project in Holtermanns veg in Trondheim. The Trondheim market has developed quite favorably, and we've seen that market rental growth has been as much as 10% over the last couple of years. The vacancy in Trondheim is currently low at around 6% in the overall market. We do, however, see that there are several new build projects coming into the market, which means that the vacancy is expected to increase.
And plus Trondheim assets are very centrally located, most of them in the city center of Trondheim, which you can see at the far end of the picture here towards the fjord, and also in this cluster here in Holtermanns veg, where Entra has developed now a total of -- are developing a total of 48,000 square meters.
And this cluster is located right next to the Norwegian University of Science and Technology. The first phase sales was completed in 2020. Here, you have 2 public tenants. The second phase is now under development and will be completed this year. And the third phase is where NRK will move in, occupying 60% of that building.
And we were pleased to see that they signed a lease contract for 20 years with us. And here, we've actually been working in parallel with the tenant specifications and the construction company in order to manage to find solutions, enabling us to start a project with -- meeting our return requirements in the current market environment.
So very happy to see that we managed to reach commercial terms, enabling us to start this project. NRK will also, as part of the deal, acquire 49% of the section they will be occupying. And we're pretty sure that getting the new media house to this cluster will also enhance the attractivity of this cluster as a whole. So a super deal for Entra getting NRK to this area.
The building will be BREEAM-NOR Excellent certified, Energy class A. As we did mention earlier, we did sell 4 properties in the quarter. We had a total transaction value of these 4 assets of NOK 1.9 billion. That's a bit less than 2% below book values as of September last year. These 4 assets are located in very different clusters, and we also started these divestments more or less during the summer and autumn. Experienced that there was a pretty deep interest for all of the assets and the properties have also been acquired by very different buyers.
The Sørkedalsveien 6 was picked up by a private equity foreign company, and Karenslyst Allé, the 2 buildings by a Norwegian family office, and the Konggata 51 by a Norwegian real estate developer. So demonstrating that there is actually quite a depth in the interest for our assets. The proceeds will be used to strengthen our balance sheet. And the 3 properties to the right were closed in December and Sørkedalsveien 6 will close in the second quarter.
So a few words on the market situation. Firstly, we have seen a very strong market rental growth in 2022 also in Oslo with more than 10%. And as I already mentioned, Entra's rental income is adjusted with the CPI mainly based on November index, meaning that NOK 0.065 CPI rolled in on 98% of our income as of January 1.
We have, through 2022, seen a very solid employment growth, however, slightly lower during the fourth quarter. And the office supply remains tight in Oslo. And as you can see from the graph to the bottom right, there is also very limited new supply coming into the market, meaning that we do expect to see continued rental growth in the Oslo market also going forward, however, at a lower pace.
In Norway, we clearly also have a very solid economy. GDP is expected to come in also above 1% for 2023. And we have not seen any change in the demand for office given the current changes in the macro environment. And that's also supported by the fact that [ ADL Statistic ] came out with their database for fourth quarter showing that the number of lease contracts and also volumes signed were a record high for the fourth quarter this year.
In respect to the transaction market, we saw that the commercial real estate market was pretty normal -- normal activity during the first half and activity slowed down during the second half. But if you look at the volumes, in total, around NOK 100 billion, pretty normal levels over time for the Norwegian markets. And we clearly see also that assets with some kind of value-add dimension or rent uplift potential are in strong demand, which we also experienced with the transactions we closed in December. And we are also now seeing some improving signs in the financing markets and expect to see the financing costs coming down going forward, which Anders will get back to.
And according to our consensus report, you can see that the Norwegian market specialists are expecting that the prime yield will top out around 4%, and most of that is already incorporated in valuations, and the strong CPI and rental growth which we have seen and continue to see clearly also has balancing effects on valuations.
So moving on to you, Anders.
Thank you. I think you should all agree that 2022 was a very intense year indeed. And we think it was a Goldman equity strategist that put it quite nicely. He said last year was like playing 3D chess on a shaking board aboard a boat that is taking on water. So clearly bleak. When we look at Entra and Norway, we do find support in just the fundamentals of Norway itself. It's a country benefiting from actually the higher energy prices in total. The Norwegian Central Bank was one of the first banks to start hiking the rates. And they did some weeks ago, so you know that we were now close to the peak on the interest rates. We're currently at a key base rate of 2.75%.
Employment is still strong. CPI growth, as Sonja mentioned, and also supported by a strong government with a financial muscle to initiate and to keep the business society going. Adding to that, Entra is in a unique position in terms of, it has AAA tenants that are paying. We got long walls, and we have very high-quality assets with low residual value. So all in all, we're clearly on a more positive tangent than we were only a few months ago. Nevertheless, our investors have felt the pain, our bond investors have felt pain, and also the company has felt the pain over the last year.
On the numbers part, there's really no big surprises on the operational part. So I will focus the presentation on the key topics of value changes in balance sheet and the financing and funding part.
As Sonja said, revenues came in at NOK 806 million, so we're NOK 18 million above the third quarter in 2022 and NOK 8 million above the NOK 798 million that we sort of expected for this quarter, as was in our sort of revenue bridge that we always show.
The reason we're overperforming is twofold. First, we had a one-off settlement with a tenant that's paying us -- it's being acquired by another company and is moving its head office. So they're basically paying us for the fourth quarter and first quarter for the remaining of the duration of the contract for 3 years. So that added NOK 14 million to the top line revenues for the fourth quarter.
Then we had a postponement of especially 1 project of NOK 5 million that was offsetting that. So all in all, NOK 8 million above what we had expected. If you compare that to the fourth quarter of '21, we're NOK 129 million above. NOK 110 million Of those come from the acquisition of Oslo Areal, offset by NOK 26 million in divestments over the year. Projects added another NOK 20 million to the revenues in the fourth quarter. And then we had a 2.7% like-for-like growth, which is low compared to the CPI adjustment of 5.1, the reason is that the occupancy has come down by 130 basis points from Q4 '21 to Q4 '22.
Still, we're on a high level. And as Sonja said, running a company like this on an occupancy rate between 95% and 97% is fully satisfactory for us. So it was abnormally high during the Q4 in 2021.
Net income property management coming in at NOK 320 million, impacted by the financing cost in particular. And then finally, the profit before tax at minus NOK 206 million. As you can see, there are large variations on the profit before tax on the quarters during 2022. And the reason is, of course, the value changes that were positive of NOK 2.8 billion in the first quarter of 2022, and then negative with [ 1, 4 ] now NOK 363 million for the fourth quarter.
Okay. Cash earnings per share coming in at NOK 8.8 fourth quarter, 4 quarters rolling, which is also basis for the dividend decision of paying out NOK 2.50 on May 4. We'll go ex-dividend on April 26. NRV at NOK 207. NTA at NOK 205. So 12% and 14% increase or CAGR depending on if we take the dividends into account or not. So still a solid development on the underlying book values. I'll come back into the balance sheet on the following in a bit.
P&L, we discussed the revenues. On the cost side, we're on OpEx of NOK 74 million, NOK 263 million for the full year. The NOK 263 million for the full year is 8.2% of revenues. We have stated that running a company like ours at around 8.5% OpEx is satisfactory. So all in all, for the year, we are well within our expectations, even though there was some timing difference between the second and the third quarter in particular and the fourth quarter.
Net revenues, other revenues and costs coming in the NOK 50 million plus. So no surprises there. In terms of the admin costs, we're coming at NOK 57 million. So we're then at NOK 210 million for the full year. Please bear in mind that in those NOK 210 million, we have NOK 15 million in one-off restructuring costs after the acquisition of Oslo Areal, and also NOK 2 million in other one-off costs. So taking those NOK 17 million out of the NOK 210 million, we're at an admin cost percentage of revenues at 6.1%, which we are comfortable with.
We expect for 2023 to be in the range of NOK 200 million to NOK 210 million in total admin costs. NOK 17 million in negative associated companies. The reason is primarily that we own a residential -- 50% of a residential developer. And they only recognize profits when they sell apartments -- not selling, when they're actually delivering apartments, to be specific. And when they're not delivering apartments, which they shouldn't do now, it's basically only operating cost and financing cost that's going through the P&L.
Then finally, on the financing at NOK 386 million (sic) [ NOK 368 million ]. I'll come back to that later. The big pickup from previous quarters and last year is due to increased debt. We've got NOK 14.2 billion more in debt in this quarter than we had in the fourth quarter '21. And also the increased interest cost at 145 basis points above fourth quarter in 2021. I'll come back to that later as well.
Moving on to what we call the income bridge. Basically, taking everything that is known to the market, new acquisitions, divestments, new project coming in, assets taken out to operations, and the net letting. You see that, going into the first quarter, we will lose NOK 5 million in revenues stemming from the 3 of the 4 assets that we signed and sold in December. The last one will be taken over by the new buyer at the end of the second quarter.
Then the 3 new projects that were put into operations in the fourth quarter will add some NOK 21 million to revenues in the first quarter. And then finally, strong CPI growth of NOK 49 million. And we have been asked specifically by the non-Norwegian investors, do we get the full CPI adjustment of our rents? And the answer is yes. The full CPI is being put into our numbers. And also, yes, it's being paid by the tenants. We started invoicing the new CPI on end of December and then it's been paid as normal. And also the same applies, of course, to the energy cost that is borne by our tenants.
Now moving into the second quarter. We basically deduct the additional one-off revenues that we had in the fourth and the first quarter, we told about that company that was acquired and basically paid off a one-off settlement. Then we have a decline from the first to the second quarter, driven by 2 factors. One is the divestment of that final large asset that we signed in December, and also that we have one tenant that is on a large asset that is moving out from our asset at the end of the second quarter. There might be some prolongment on that contract. So we might be a bit pessimistic on that one, but we'll sort that out in this quarter.
And then we start picking up again, coming from the projects being sort of put into operations over the year. And also then we have expected a CPI adjustment of 4.5% from 2023 to 2024. They're currently at 7%, by the way, on January, that came in this morning. So there is uncertainty in this, but that is basically our best estimate on what will take place on the revenue side into 2023 and the first part of 2024.
On the property values, we have invested NOK 661 million. So in total, we had CapEx of NOK 2.7 billion for the year, which is significantly higher than normal. We had sort of a very large product portfolio over 2022. That is now trailing off. And we expect to be in the range of NOK 1.5 billion for 2023 and more like NOK 1-ish billion in 2024.
Then it's the 3 assets that we have divested of NOK 617 million. And then finally, you can see the write-down on our assets of NOK 363 million. Please bear in mind, we peaked our valuations after the first quarter. Then we wrote down the portfolio by NOK 1 billion in the second quarter, NOK 4 billion in the third quarter, and now NOK 363 million in the fourth quarter.
All of Entra's assets are appraised or valued by 2 external appraisers doing a DCF calculation on each asset each quarter. And we basically take the average of those appraisers into our books. When we look at the net yield on our portfolio, at peak valuations in Q1, it was at 3.88%. Now we're at 4.3%. So a 42 basis points uplift in the net yield.
And please bear with me on this sort of thinking. But back in Q1, the CPI expectation was 2.5%. We ended up at 6.5%. So basically it's a 4% additional net revenues that's coming into the equation of net yield.
So simplify, but keeping that constant, if we knew that the CPI had been 6.5% back in Q1 or if the appraisers knew that, then basically, actually, the uplift in the net yield is 57 or between 55 and 60 basis points. So a significant part of the value decline has been taken into Entra's books already.
Okay. I'll move into the financing part. The second and the third quarter were clearly very turbulent. Higher base rates, wider credit margins and limited access to funding. Nevertheless, during the second quarter, we extended NOK 2.5 billion in bank debt, and we secured NOK 5 billion in new bank funding during the third quarter. Coming into the fourth quarter, we did not find the great margins on our bonds attractive. So we didn't issue any bonds. But we extended another NOK 4 billion in bank debt, and we issued a total of NOK 820 million in commercial papers, which leaves us now, as of the end of the fourth quarter, with a total debt level of almost NOK 41 billion.
We have an LTV of 52.5%, or 50% if you use the effective leverage method that Moody's and the rating agency uses, it is too high in our view, and we are working to get that down. LTE and the ICR at 4 quarters rolling coming in at 2.5%.
And then we had a very positive start of this year. So we have done 2 bond taps, totaled NOK 900 million. Our credit margins are still expensive compared to sort of historic levels, but they are 50 basis points down from the fourth quarter. So on average now, we will do a 5-year bond on about 170 basis points credit margins. So again, still expensive, but significantly down and on the way down towards sort of acceptable levels for us.
Also, we have done a total of 5 commercial paper taps and issues and where the credit margin is down to 40 basis points. These are typically 1 to 3 months' duration or term to maturity, but still a very attractive short-term funding of 40 basis points credit margin, and then fully backstopped by available RCFs in the banks in case that market should dry up.
So all in all, on the financing side, we do see that banks are supportive. Commercial paper market is on attractive margins, and the bond market is opening up and moving in the right direction. So clearly, also on a positive tangent for the financing side. This is a very important and interesting graph. And it shows Entra's nominal all-in cost of debt at the end of each quarter going back. That is the fixed line.
And then we have the dotted line saying what is our expectations of the average interest cost at the end of each quarter in the next 3 years. And this graph is based on 3 core assumptions. Firstly, the forward curve, or the 3 months NOK forward curve that you can see on the greenish dotted graph below. Again, that was taken out on Wednesday, coming strongly down towards the end of the year.
Then we have put in place all our hedges. And you can see that on the text on the right-hand side. 49% of the debt is hedged, averaged at 4.7 years. And the third part of this graph is credit margins. And we have assumed here that all our existing credit margins are kept as is also into the next 3 years.
In some cases, for example, on the bank extension that we did in December, that was done on the same margin, as is margins. But even -- nevertheless, we do expect margins to come somewhat up on the new facilities. And you can see that even though taken into account we'll do that on higher margins than as is, there is only a small margin pickup in the total cost of debt. So this is an important graph to bear in mind. And again, uncertainty, particularly on the forward curve. But at least so far we have -- this quarter, we ended up at 3.7%, and that was exactly where we guided for in the third quarter presentation as well.
Okay. My final exhibit on the financing part is on liquidity. And liquidity, it is always important for those kind of balance sheet heavy companies like really commercial real estate, but even more so in difficult times.
As of December 31, Entra had NOK 6.7 billion in available undrawn RCFs and cash as of December 31. After that, we have issued another NOK 900 million in new bonds. So we actually could add the NOK 900 million to the NOK 6.7 billion.
Worthwhile noting is that in 2023, we have maturities of NOK 2.4 billion that will be repaid. Those are bonds and commercial papers. Then we have NOK 7.5 billion in 2024. But of that NOK 7.5 billion, only NOK 900 million is bonds. The rest are bank facilities. And it is part of our sort of day to day work to extend those bank facilities. We did that in the second quarter in difficult times, we did it in the fourth quarter in difficult times, and we expect to continue working on that together with our 5 partner banks. So all in all, on the liquidity part, Entra is in a comfortable situation. Thank you.
Okay. Thank you, Anders. So seeing that we are at the end of year, we would also like to give you a few closing remarks also summing up how we are performing according to our strategic objectives.
As a fundamental for our business, we work with sustainable business development and operations, and we've been working with 3 same strategic pillars over the last 15 years, providing profitable growth, having a high customer satisfaction, and also being an environmental leader within our industry.
Now in respect of profitable growth, we had very strong rental growth in 2022 of 26%. And as you can see, 80% rental income growth since 2015. In 2022, of course, rental income growth was strongly driven by the acquisition of Oslo Areal. However, also strong letting and market rental growth and the projects are feeding well in.
Our dividend policy of distributing 60% of cash earnings has been unchanged since the IPO, providing our shareholders also with a steady dividend. And asset valuations and thus EPRA NRV has had a slight decline in 2022. However, since 2015, it's still up 123%.
In respect of customer satisfaction, it's a key part of us being able to maintain the very high occupancy rates, which we have had in Entra over time, the combination of how we work with our customers and also the attractive assets we have. So very happy to see that we once again also came in with 85 points in this year's customer survey.
Sustainability is in the core of our operations and environmental leadership has been part of our strategy for 15 years. And our target is to become a net zero carbon company within 2030.
And to achieve this, we have set ambitious targets for both our management portfolio and also our development projects. And if you look at the management portfolio, energy use constitutes of some 67% of the emissions. And in the property management, we have set the pathway to reduce our energy consumptions towards 2030, and at the same time looking into how we can add renewable energy production.
We're very proud to see that we have reached a level of 121 kilowatts per square meter, that's a 40% reduction. And given the high energy prices we've seen in the last year, of course, this has also become very valuable from a customer perspective. And we have continued to certify our portfolio as this is a broad way of measuring our environmental performance.
The green line here, you can see that we currently have 58% of our values certified. And if you add the ongoing certification processes, we will reach 77% when they have been completed. In respect of the project portfolio, we have ambitious targets of reducing the life cycle carbon emissions with 80% by 2030.
Giving a full overview of how individual projects life cycle emissions are in the systematical way, which we are illustrating in the graph to the right, is rather innovative for us, and we're very proud to see that we are able to put forward this kind of data. By life cycle emissions, we refer to the carbon emissions within a project through its lifetime, taking into account the emissions going into the development of a project construction, 60 years of operations, and then demolition after end of use.
And Entra's targeted pathway of 80% reduction is illustrated by the green line on the graph to the right. The blue line shows where we expect that you have to be in order to be in compliance with the adoptions to the new Norwegian regulations going forward. And in the graph, we've also plotted in 2 of our most innovative projects, Kristian Augusts Gate 13 and Powerhouse to show you how well they have performed in respect of carbon accounting.
And you can see that the 4 dark green lines are the projects which we currently completed in 2022. You can see that 2 of the projects are well below our green line, while 2 of the projects are more in line with the Norwegian regulations. And it's been very interesting for us to see that very different reasons for the 2 projects being above the line, 1 being Tordenskioldsgate 12, which is a yellow listed company, where we clearly see that when we can't work on insulating the facade, it makes it very difficult to reach reduced energy consumption over the 60-year lifetime, which explains why that building is a bit higher up.
The project in Nygårdsgaten, which was completed in the quarter, is a super energy-efficient building. But there the planning was done before we started with our carbon accounting, meaning that the materials we have chosen in this project brings carbon emissions above our green target line. So we clearly see that the ability to use and measure carbon accounting in project development is an important path for us going forward to ensure that we develop buildings for the future.
Okay. So let's sum it up with some closing remarks. First of all, we are in a strong Norwegian economy. And we have seen no signs of the changed macro environment affecting the demand for office so far. Office market dynamics continue to be favorable with low vacancies, particularly in the Oslo markets, and very limited new build supply coming into the market.
The prime yields are expected to top out around 4%. And the strong inflation and market rental growth we have seen is having also a balancing effect on valuations. We are seeing some improving signs in the financing markets as Entra's financing cost has likely peaked based on the forward curve, as Anders described.
Entra has a solid balance sheet with NOK 6.7 billion of liquidity available. And the planned divestments we are working on will further strengthen our balance sheet going forward. I think that sums it up for now. And we can do some Q&A now, if you join me, Anders.
Given the limited supply being added, what has caused market vacancy expectations to change towards growing vacancy?
I think that refers to the market consensus which we provided in one of our graphs. And I would expect that that's mainly based on changed macro environment and that you would expect that demand might slow down a bit going forward.
Could you provide some color on the 167,000 square meters of space being delivered in 2025 in the market? How much of this is pre-let and how much is speculative?
Okay. Again, that's based on the consensus report where our market specialists in Norway provide their estimates for the new volumes coming in. In Norway, we've had a tradition where we have very little speculative building, meaning that a project would typically be at least 50% pre-let, I would say, before it starts. So if you look into that volume in 2025, I expect that at least half of it is probably pre-let.
As CPI comes down and economic activity slows, is this not a big risk to property values? And so could we see further value declines as rates come down and economic activity slows?
Yes. Investing in commercial real estate is basically investing in macro. So yes, there's always a risk on the downside if the macro should sort of deteriorate significantly. I do think it's important to state, though, that the current valuations -- and Entra has taken its book down by 6.6%. The divestments that we have done -- of the 4 different divestments to 3 different buyers were done 1.7% below book value of Q3 or 2.8% below book value as of the Q1 on peak valuations.
So that is a strong sort of signal that Entra's balance sheet is strong. We are in several divestment processes now. And at least what we're seeing now in the market is that our balance sheet holds up well. But in terms of what will happen in the future, it's difficult to predict. But at least for now, it seems that the appraisers have taken sort of a full view on the asset values, and that has been put into our books on sort of the value decline over the last 3 quarters.
How do you propose to bring loan to value below targets?
Well, we're currently at -- well, depending on the use of effective leverage, the definition at 50%, or the EPRA at 52.5%. We plan to take the LTV down towards the mid 45%, and that will be done through asset divestments. And we are working on that as we speak.
So as we mentioned, our CapEx will be lower in the years to come, seeing that the project pipeline is slowing down a bit.
To follow up, what are the covenants on Entra's debt?
Entra's debt is mainly based on negative pledge, where there's covenants on the bank facilities which are the same. And then there are sort of cross default with the bond. So the same covenant applies to the full debt portfolio. And the covenants are an LTV of 75%. So way up there. And the ICR covenant is at 1.4%. So covenants is not a worry for Entra on the existing agreements. And those agreements are the same that we now use for all new bond issues and also new bank facilities.
The Oslo Areal transaction added NOK 110 million in the quarter, run rate NOK 440 million, whereas run rate at acquisition was NOK 464 million. Two words on what has happened with the portfolio to Oslo Areal since the acquisition.
Yes. The question is correct, that is around NOK 460 million. There were terminations in that portfolio during the first and the second quarter that we knew about. And actually, one of the large ones moved into one of Entra's buildings.
So the Oslo Areal portfolio is performing according to expectations. So basically the run rate as of the Q3 was at NOK 460-ish million, and we're now at what we expect it to be. Nothing more, nothing less.
Can you give any indication on the yield on cost on the project, the new project in Holtermanns veg in Phase III?
I think we'll get back to that when we start reporting in the second quarter. But it's meeting our return requirements.
And then some. I mean, in today's environment, with increasing construction cost, we only start profitable projects and new builds. So the hurdle rate is significant, and this is one of a very good project.
What are the major changes in tenant behavior and requirements following COVID?
What we have clearly seen is that the demand for space has not declined, but how our customers use the space is changing. Meaning that there's much more emphasis on collaboration and collaboration space and less individual desk space. So it's very interesting discussions we have with our customers on an ongoing basis, and we see that the advisory services which we have also put in place is pretty highly appreciated by our customers, because they're really seeking for advice in how to use the office more as a strategic tool and how to get both their employees back to the office and also use it as some kind of stickiness towards their employees.
Can you provide some more detail on the transaction metrics regarding the transactions done in the quarter?
Sonja went through sort of the headlines. But I guess the question is more on the financial part. All parts of those contracts were market-based. I mean -- sorry, let me take one step back. In Norway, we sell not individual assets, but we sell SPVs that own individual assets. And that means the buyer is compensated for taking the negative tax effect for buying a company sort of an asset. Same atmosphere in Sweden actually as well.
And all the ingredients or all the parts of this transaction were market-based. We did provide NOK 180 million vendor note on one of the assets, but the interest rate on that loan was 4.5%, so actually higher than the net yield on that asset, because the net yield on that asset was 4.14%. So for us, it was marked. We actually got the money, but no risk on that one. And the maturity on that loan is only 1 year. But all parts of that, all the financial figures on those transactions are market-based in terms of tax rebate, value of land, and everything else.
And then the final question. You have been vocal on further divestments. Any comments on process or timing?
We stated earlier that our target was around sort of NOK 5.5 billion, NOK 6 billion of asset divestments. NOK 1.9 billion was completed or signed and sealed in December. And we are on track in terms of the remaining target.
So DD processes on 4 assets right now. So we'll probably, as soon as things are -- we never go out with anything before it's signed, and we guess to have signed this -- some of them towards the end of this month, early next month, at least for 2 of them. But we will come out when we are ready and we have income paper on those.
That's the last question. Thank you.
Okay. Thank you so much for joining us here in Oslo and have a beautiful weekend.