Castellum AB

STO:CAST

Earnings Call Transcript 2019-Q1

[Operator]

Speakers, please begin.

[Henrik Saxborn, Chief Executive Officer]

Thank you. Thank you, everyone. Welcome to the Q1 report then from Castellum. I will start with shortly going through the report so we can just take the next slide, please. We can summarize that this quarter has been a very active one for Castellum. We have done a portfolio shift and started a new businesses in co-working. What we have done? We have done this by actually then buying United Spaces, the co-working company with 20 years of experience in aeronautics. We have sold out [indiscernible] and with that left the northern part of the portfolio in one deal. So that's now down to them. Then we bought ourselves into 50% of that volume into [indiscernible]. That's more or less the same deal, the approximately 5%. We also strengthened our position in CBD of Gothenburg, buying an asset for almost SEK 1 billion next door to our best located asset. And the last part we sold our retail, retail part of Uppsala, and with that have no more malls, and with that also lowered our exposure to retail. That means that we've invested in new services next page, so co-working, whatever you want, and we continue to develop our brand. We moved the portfolio to more growth and lowered the retail exposure and everything is going according to plan. If we look at the market, we can then conclude that the rental market are now more normal than it has been the last year, so that absolutely 2018. But there are backup space and that still creates opportunities for us as a developer and we have today a stronger development portfolio than ever, and I can promise you there is more to come. If we take the next slide, please. Both activity and the market can be seen in our results, of course historically as well as during the last quarter. We're showing this quarter a strong one with a 9% growth of income from property management, that is built up by a rental income increase if we look at like-for-like, it's almost now 5%, and the vacancies are still dropping. [indiscernible] was also affected by the fact that we are also a net seller this quarter and would have without selling absolutely reached our objective of 10% growth on the cash flow side. If we look at increases of property values, our portfolio value increased during the period approximately 1%, due timely by lowering the required yields in the market and the logistics portfolio was describing for the absolute majority of that value change. This contributed so that the NAV now increased by 16% up to SEK 178 per share and even though we paid out a dividend during this period and this affected LTV level that is now on 45% and that we have a total net income for the period of SEK 1.4 billion or if we want to SEK 4.9 a share. And with that, I think we should go through the results in a little bit more in detail. So I...

[Ulrika Danielsson, Chief Financial Officer]

So let's go to the next slide, the income statement. The first quarter this year showed an increase in income from property management with 9% and that is made up by the negotiations that was made [indiscernible], which has increased the rental value. We have lowered the vacancies, we have had a mild first quarter that has kept you could say the OpEx in control despite high unit prices for electricity in Helsinki and lower timing costs. There are 2 lines that shows a little bit higher cost this first quarter compared to last year that is maintenance and administration. For both of them I will say that this year's pace is more normal than the last year's pace. We also showed [indiscernible] of 1.1%, which ultimately due to yield movement in the logistics portfolio, however, we've showed some realized value changes due to selling Sundsvall [indiscernible] Uppsala, which means that the net figure is 0.8. And this negative figure from selling is however observed from a P&L account perspective which also had a positive effect of roughly SEK 0.5 billion due to selling those assets. But the selling of Sundsvall has also started in depreciation a goodwill of roughly SEK 179 million, that goodwill was connected to buying Norrporten in 2016 and the deferred taxes that followed. We have had a negative change in derivatives due to lower market interest rate and finally positive tax of roughly SEK 226 million of which [indiscernible] is paid taxes.The last one can be explained mainly by tax losses carried forward that we still have in the group are locked in the Norrporten and they are not available for the whole group. Worth mentioning this first quarter results are that there is new accounting rules in place, and for Castellum that means that the ground rents that we have, as well as leases in the acquired co-working company United Spaces must be valued and put in the balance sheet both on the asset side and the liability side. And the cost from the ground rent going forward will be looked at as financial cost and not earlier asset profit costs. But we have not made any adjustment of retroactivity regulation throughout the concept but we will apply this going forward. And however, if we go to the NOI on the next slide, please; we can see that that was increased by SEK 39 million and the growth in like-for-like continues to be very strong with the contribution of SEK 48 million. On top of that, our development contributed SEK 21 million, and the transaction [indiscernible] contributed negative with SEK 9 million in the first quarter. And on top of that, we had a new co-working company that contributed with SEK 1 million with the quarter and then the increase of administration compared to 1 year ago. So if we go to the next slide and talk about the rental market and Castellum's rental income, I will go to the next slide again, please. So if we start with the history, the rental market has [indiscernible] been very good the last years and that together with the hard work made by the organization [ leasing ] and renegotiation is doing some for the like-for-like growth of 4.8%, apart from [indiscernible] which is roughly 2%. But if you split that growth in different parts, you can see that 4.9% is from increased rental level. 0.3% is from lower vacancies and the same [indiscernible] given by the group. And however, we do have a negative impact that means that we had income from early termination of leases last year that we don't have this year. And another value of creating parties development pipeline and the projects and so if we add that, the total growth is 6.6%. And taking into account the transaction, we end at 6%. So that is with Castellum results. So we're going to the rental market coming from the next slide.

[Henrik Saxborn, Chief Executive Officer]

Yes. If we look at this now we're talking about offices. We can conclude that there are more or less no big changes, it's a stable market because it's still a good demand and it is still a limited supply of office premises. In the first quarter 2019, the average rent compared with Stockholm and Gothenburg were stable and have increased in average with 5% from the last year. If you look at the retail group and the office rents was also generally stable or somewhat increasing. So as I said from beginning, we are in more a normal rental market at this position and there is still record-low vacancy rates in all of our markets. So that concludes us to see that is a stable to positive market. We can go to the next slide, please. Then the net leasing. Now we're back in Castellum figures again. The net leasing is weaker than it was 1 year ago, but [indiscernible] in the existing portfolio was almost the same level as it was last year. But we have seen larger contracts [indiscernible]. And the leasing of the development are weaker than last year. So this is not you can say [indiscernible] though the potential vacancies are attractive and the development also in the market that generally is still in the lack of space. But we are of course affected that we have less space to rent out than we had 1 year ago. To this, we must add as we had done earlier that we have signed contracts with the Swedish courts, with national courts, and we also have new contract with E.ON that is not in this numbers. These are 2 agreements with net leasing at approximately SEK 150 million rental value. We can take the next one. If you look at the regions, you can conclude that there is no leading stock and actually no bearing market either, and the regional cities for central that we signed here is continue to deliver, like in 2018, a little bit better than the rest of the region. We can also conclude in this quarter that Stockholm and Öresund was [indiscernible] for the drop. But we can also see that this was -- this is not reflecting the market situation, it's more depending on special contracts that are even just promoting than anything else [indiscernible] in this moment. Okay, we can take the next slide, please.

[Ulrika Danielsson, Chief Financial Officer]

And then if we look into the interest rate, the average interest rate, it's still around 2% and the duration is 2.9 years. We are at the moment rather comfortable with the duration, and to this being developed I would say 2.5 to 3 years since our general view is that the interest rates in real time still will be on lower levels. And we have to have in mind also that higher [indiscernible], which increases the interest rate cost perceived in floating debt is compensated by lower total cost or the derivatives as a whole. So if we go to the next slide please, we have another cost item that is the taxes. As you are well aware of the generally this year the new tax legislation around interest rate restriction what was applied and that means that our tax calculation has been changed. So this first quarter we estimate roughly SEK 27 million of our interest rate will not be deductible that can be changed and with this [indiscernible] our tax losses are located, the capitalization of each unit within the group and how changes in derivatives goes. These negative changes will be treated as interest rate cost and positive one as a possibility to get more deductibles so to say. And we pay taxes even if we do have a lot of tax losses going forward, they cannot be used in all of the group so far. So if we leave that and go to the property market on the next slide, please. We talked about the markets that starts both with the balance sheet. So if we turn the page to the balance sheet, I would say that we have still a strong balance sheet with an LTV of 45% evaluation in the 5.1%. And this balance sheet gives SEK 178 per share, and that in 1 year's time indicates a growth of 16% compared to the year at 1%, and then we have to have in the mind that we have new dividends during this time to our shareholders. And if we are on the next slide looking to the portfolio, the valuation. As you know, we focus on office, public sector the logistic warehouses to get 86% of the portfolio from a valuation point of view. And light industry and retail that is smaller part of the business have decreased in Q4 and the last one is driven mainly by selling regional assets the first quarter. If you look at the valuation, yield has come down for some asset classes such as office and public properties is mainly yielded regarding locations, long leases and changes in the portfolio with selling and buying offices. So the reduced statistics is being driven due to transactions made in the market and for the retail part is due to selling assets with high yields. So if we leave Castellum and go to the property market on the next slide.

[Henrik Saxborn, Chief Executive Officer]

Yes. And conclude a little bit and we have seen that it is still a great demand in the investment market. If we go to the CBD, Stockholm, Gothenburg, Helsingborg and Copenhagen, we can see that we have at least stable yields or a little bit push still downward on the yields. Properties with secured cash flow in the public sector and combined for properties portfolios has generated a very high attractivity from the investor side so we can also see that more everything is possible to sell in the mortgage market. We have also seen that submarkets outside the Metropolitan areas that yields for the offices have been stable in the first quarter this 2019. If we can take the next slide, please? Moving then to the logistics. Here we can see what has been changed on the yields, and has been proved a very big demand on domestic and international investors, driven largely by the group [indiscernible]. And the required investment yield at this point since the demand on the investor side is high and we are more or less going for the European yields on this side, as you can see also attracted also into our balance sheet. The required yields in Castellum logistics was adjusted downward then on this quarter. And we have seen deals done lower than 5% in large portfolios, on 2 large portfolios done in this quarter. I think we can take the next one, please. Now we're moving into the development side. As we've stated from the beginning, we have a stronger development pipeline than we have had ever. We have projects approximately up to SEK 4 billion that is under production with SEK 1.6 billion that is still to come on that one, but we also know -- already know that we have ongoing large projects that we expect to start with the next coming 2 years that already stands for approximately SEK 8 billion. In this volume of course we also have the large developments in Malmö, for example, that are already leased out 100%. To this, we can add numbers of projects that will be started later. That estimate is that total of that could be approximately SEK 12 billion and including that is of course Säve Airport and the one Hagastaden that we will come to on north part of the [indiscernible]. So we can take some examples on the next slide, please. Here we see a picture of Hagastaden, the future Hagastaden. It's a district of Stockholm, start development in this construction of total 5 blocks They contain both working places and residentials. Castellum committed office of -- we will build approximately 30,000 square meters with an investment of approximately SEK 1.3 billion. This will start, of course, later than 2 years from now because of the construction that are undergoing there at the highway. Hagastaden is on the way to become an inner city district with focus on life science and a plan for 2025 to be holding, fully completed approximately 50,000 working places and 6,000 [indiscernible]. And we can take another investment into the next slide, please. Then United Spaces. What will happen now? We are, right now, continue to develop our new company, United Spaces. We are convinced that this acquisition will gain in tempo and that capital will increase both profitability and growth opportunities for existing operations. The most important part, however, is the possibility of synergies. Now Castellum [ operates ] in a business consumers, both small and large, can be immediately offered a flexible and cost-efficient office and meeting space already in Stockholm, Gothenburg and Malmö and now in coming days also [indiscernible] at the airport. I promise you, this is just the beginning. Can we go to the next slide, please?

[Ulrika Danielsson, Chief Financial Officer]

Then we have the large market, and that is the funding market or the credit market. So if we go to the next slide. It's safe to say Castellum likes flexibility. We want to have many tools in the toolbox in order to match the portfolio's need for money and at the same time, have some sort of independency. Therefore, we are active in 3 markets: the banks, the bond market and the CP market. Regarding banks, Castellum experiences good access to funding within the Nordic banks. However, we did a big overview, and we negotiated most of our bank funding last year and to long service SEK 2.4 billion in beginning of this year. Now at the moment, we have no big needs. However, we have said that the credit market after at the moment is stable, but that they may be higher in the future, that is due to that increased margins in the bond market, shares that are over on the banks and third, we are [indiscernible] banks expect to get higher capital requirements for lending to the real estate sector. So our main scenario is, therefore, that maybe bank fundings will have a much increased margin going forward. However, we are still interested to increase our presence of volume in the bond market and have, in March this year, increased the frame for our Swedish MTN program to SEK 20 billion from SEK 18 billion. And on top of that, the Swedish bond market -- on top of the Swedish bond market, we can also issue bonds in other currencies if we find the commercial terms attractive. And the margins in the bond market has gone down after we could say big or major increase in end of last year. However, it is still to be seen how long this trend or levels will continue. But in the short term, it looks rather positive. And today, if I should take an example at the moment, we pay roughly 10 to 15 basis points more for a 5-year bond today than we did 1 year ago. In the CP market, the margin established was not much higher for Castellum than earlier. But [indiscernible] have increased after expansion increasing at the end of last year. And from what we can understand the impact of adjustment requirement for liquidity for Swedish banks, we now pay some higher margins for the future interest, but it's still a very cost-efficient [indiscernible] to have. So if we go to the next slide, please. What have we done? We have, as I said earlier, prolonged SEK 2.4 billion in the bank. We have increased the Swedish MTN program. We have issued, so far, SEK 1.6 billion and had also SEK 1 billion that has reached maturity. We have still SEK 2.3 billion that falls due with different time frame this year. And have experienced right now, the possibility to do the refundings later. We have also more than half in our volume compared to 1 year ago in the CP market, and we calculate to be on SEK 2 billion to 5 billion of outstanding CPs this quarter. It is, like I said, still a very cost-efficient market, and all our outstanding volume is fully backed up by -- on these bank facilities. I earlier said that we are comfortable with our interest rate duration. We still have a very strong focus on prolonging our capital duration and in that way also procure the price of lending, and this is something that we prioritize. So we would like to get our average capital duration up to at least 3.5 years, and we can use [ nook and agro ] associates, but we also evaluate other alternatives. So with that said, we go to the next slide.

[Henrik Saxborn, Chief Executive Officer]

Okay. So we are in 2019 looking into the future. In the short term, we will see a strong to stable rental market growth. That is built up by the -- that we still see an undersupply of this market. We have simply produced too little office space in Sweden. We have a stronger disabled rental market in Copenhagen, and we have positive retail development in Helsinki. So from my standpoint, I see the rental income being stable in the market going forward. We are seeing still, various new large interest in the Nordic in the market from the investors. We can't see anything changing on that side so for the next coming months, we expect that to continue, and we also think that will become stable to attract in the -- on that one going forward. We also know that we will have access at the credit funding to finance it, that gives us opportunity, of course, if that's needed. We will, as said, of course, continue to create shareholder value by achieving growth in the income from property management during 2019. And on top of that, we know that we are having a very strong position now on new developments as well as the existing portfolio going forward and would like to continue to develop our new business. So with that said, I conclude this and leave it all for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Tobias Kaj from ABG.

[Tobias Kaj, Research Analyst]

I would like to start to ask you regarding the net lease and the relatively big terminations in Stockholm and in those regions. Is it some specific tenant that explains the figures? And can you give some more information also about when those tenants are moving out?

[Henrik Saxborn, Chief Executive Officer]

Yes. There are 2 -- they have some large that are moving -- that led to staying naturally in Copenhagen and in Stockholm, if you take the 2 biggest ones. That will be out -- they will leave in 9 months in one case and 12 months in Malmö case. They are due to totally different effects. One is the government tenant in Stockholm that wants to move out CBD areas because of pricing. And that will, of course, not be any problem to lease out. The other one is the [ cotton merch ] in Copenhagen with 2 big international companies that will move in the third quarter that will not either be a problem with leasing out that space here. But of course, we will have [ retirement ] and investment in that. I think though that of course, but majority is of course, normal turnover in the re-leasing portfolio that are -- that we will see in the future. If this is not the time lag that we are experiencing right now in the existing portfolio. And the most important part for us is that the gross net -- gross leasing in the existing portfolio is more or less the same volume that we had 1 year ago.

[Tobias Kaj, Research Analyst]

And can you say anything about the start in Q2 when your backlog for Q2, whether you expect to catch up in net lease for this quarter?

[Henrik Saxborn, Chief Executive Officer]

I'm sorry, we don't give prognosis in that respect but that said, it's that of course, we will now increase our activity on the portfolios -- on the leasing out, but no.

[Tobias Kaj, Research Analyst]

Okay. Regarding transactions after your acquisition in Helsinki, at least I had the impression that you would like to continue to buy more and build up a larger portfolio, but we haven't really seen anything since that. Do you -- should we expect that they will find some acquisitions in Helsinki in the near term or what's your view on that?

[Henrik Saxborn, Chief Executive Officer]

Well, our view is that we shall expand in Helsinki and as we have always said, we are cautious, biased. We have also seen that it's a very important to buy the right stock, and we haven't had the opportunity to do that yet. So we are not strict. We have changed a little bit strategic in Helsinki and have started our own office that will be one project. But we will be definitely active in the Helsinki market going forward and hopefully, we will be -- both of us that we will have a portfolio coming at [indiscernible].

[Tobias Kaj, Research Analyst]

And can you indicate something about what kind of yields you want to be able to acquire at?

[Henrik Saxborn, Chief Executive Officer]

We can't change the world so we need to buy at market yields, and that's one aspect. But it's also important that what we buy, we would move in now with our experience. So what I've seen from the news that using the existing teams when we do the acquisitions as well as knowledge from the asset management in Sweden and Denmark, to use that knowledge when we buy and when we start set up the team. That means that we want to bring value in the portfolio that we're buying. So the deal is one question, it's another one what we can achieve. We aim 2 to 3 years' time on the lease side.

[Tobias Kaj, Research Analyst]

And one final question regarding your paid tax. Should we expect that, that will at roughly the same level as the percent of your recurring income going forward or will it increase further?

[Ulrika Danielsson, Chief Financial Officer]

That is a good question, and it's a little bit pretty [ topic ]. It is due also to how the change in value of derivative goes according to the new regulations. So I could say if you have the same trends or the same developments rest of the year, then you could expect the same development or percentages.

[Tobias Kaj, Research Analyst]

And with the same development, does that mean the continued decline in derivatives or stable from this level?

[Ulrika Danielsson, Chief Financial Officer]

If you have even further -- if the derivative is not more negative, then it will be better. But if the derivatives will get more negative, so to say, more negative change in value, that means that, that will have an impact on taxes. But if it goes positive, that will have -- means that I will pay -- lesser pay taxes also. So that is the connection, the more complex percent. So we will see that further we go down into this year, the more we can share the capitalization within each unit in the group. Or we'll struggle to have no paid taxes but this is the first quarter. So it's an assessment based on how it looks like now.

[Operator]

Our next question comes from the line of Andres Toome from Green Street Advisors.

[Andres Toome, Research Associate]

I just wanted to ask whether you can elaborate more on the office rental market and more particular, is the comment about the weaker office rental market broadly applicable to all markets that Castellum is present? Or is it more of a specific city or a soft market story? And additionally, if you look ahead, which markets or submarkets do you see as the weakest? And conversely, where do you see the best rent outlook on a relative basis?

[Henrik Saxborn, Chief Executive Officer]

Yes. I will try to do this shortly, it's a very interesting question and we could spend an hour on this one. But yes, you can see it like this. The first and most important part is about this is the plot. What we have here on the vacancy rates index is in town, and we have never been lower than look at in generally, that's the first part. Then I should say, it's a more general question all over Sweden, looking at the tenants. And we can see that one part is for us that becomes supplies, sometimes we want to have growth with new spaces. At the same time, you also see that a lot of changes is done -- has been done, for example, by mergers that we are affected by. And the third part is that if you see that the government is in this case is both [indiscernible] and restructuring their office portfolio. There's a lot of offers that's ongoing but from the standpoint -- from my standpoint, generally, I am very calm in this because we have a so undersupplied market on the office side for the last 5 years. And the last part, I mean, we know that the most volatile part in Sweden is vis-à-vis in Stockholm, we are more or less not there. We have 1 portfolio in Stockholm, the rest of Sweden is a stable market [indiscernible] and so that's what also we have in mind going forward.

[Operator]

Our next question comes from the line of Niclas Hoglund from Nordea.

[Niclas Hoglund]

A couple of questions, if I may. If we come back and discuss the rental market again. I mean, you are seeing a couple of contracts, you're losing some contracts right now and you're talking in your year-end report that you have a pretty big share of renegotiations ahead of you in 2019. Could you elaborate on the sort of potential here also with the contracts which you've seen cancellations? And what are the sort of downtime in rental levels in the ongoing renegotiations and the sort of magnitude in the portfolio?

[Ulrika Danielsson, Chief Financial Officer]

If I take the renegotiations then the profit -- I think this is too -- it maybe sound strange but it's 2 different things because renegotiations is still going very well. And we don't figure -- I mean, we still have a good headroom from existing rental levels up to existing market levels, so to say. So there is a lot of renegotiation that is being made and so far, we have the same trend this quarter of the deals we have done approved to last year. So that is not slowing down, however, we don't see that the market level increased so much as [indiscernible]. So even we're having negative lift there since we don't see it spilling over, so to say, on renegotiations that are what we're doing.

[Niclas Hoglund]

Can I have a follow up on that? You're talking about one of the large tenants moving out in the Stockholm is the government tenants, that one to get to get their rate down from moving out of the CBD level. What kind of rental levels do you have today? And what did they not want to sort of pay when you try to renegotiate it?

[Henrik Saxborn, Chief Executive Officer]

To start with the normal case is that the tenants stay, you have to stop that, and work with their efficiency per square meter and employees. So there also, United States is coming and that serves as a complement to Stockholm. We could take this special case, they didn't want to create approximately around 6,000 ground square meter. They could find more efficient space just outside the CBD area, and that is, of course, because the Stockholm has the large square -- kilometers per square meter [indiscernible] and if we change soon after. But this is extremely unusual, but it's -- I'm not quite -- it's pretty unusual that we have this. Normal decision is some tenants will stay to work with efficiency, and here we have let them out. But for to give you data, the 6,000 ground square meter.

[Niclas Hoglund]

Yes. And Henrik, what are they paying today? Whether they're coming from 4,000 down up to 6,000 or...

[Henrik Saxborn, Chief Executive Officer]

Yes, I think it's approximately so far as 4% to 5% uplift at least is what we [indiscernible].

[Niclas Hoglund]

And then in new tenants they have to pay 7,000 or something like that?

[Henrik Saxborn, Chief Executive Officer]

No. I think you should look at the 6,000 as that it's objective over this as base. But that's -- who is depending on what we're pushing into that space and what we have to invest. Even if we let it there, we have to do some investment.

[Niclas Hoglund]

And then I would like to move to the external valuations. You mentioned very basically in your report that it's very much in line with external valuations while the internal were slightly ahead of the externals in the fourth quarter. Could you share some numbers on sort of are evaluators catching up to your numbers or do we still see this sort of discrepancy there?

[Ulrika Danielsson, Chief Financial Officer]

We said in the year-end report and the year-end call that we were ahead, you could say, on the external valuators on the -- or we were more positive towards logistic and more negative towards retail. And I think that the transactions that have been made in the market this first quarter shows that we are -- our belief was very strong. So its external value seems distant. Now, I really don't know, but the market has shown that our statements are true.

[Niclas Hoglund]

Fair enough. And then moving over to the credit portfolio, you're talking about increase in duration and portfolio while it's actually -- or duration on the credit side is coming down a little bit in the first quarter. So all else equal, what would be the cost of sort of reducing the refinancing risk coming up today? So you're going to have here a compare with current 3.2 or are we talking about below 10 basis points or what's your feeling?

[Ulrika Danielsson, Chief Financial Officer]

On the portfolio, we're on a single transaction on a portfolio level.

[Niclas Hoglund]

No, no, on portfolio level.

[Ulrika Danielsson, Chief Financial Officer]

Yes, it's of course the timing question and which markets will accept which tools because we're also evaluating the possibility to have long integration outside the so to say, the bond market or the capital market. But maybe 10 basis points on a portfolio level, that is maybe a good spot at the moment.

[Niclas Hoglund]

And this 3.5 year a starting point or would you be comfortable with that level?

[Ulrika Danielsson, Chief Financial Officer]

I would be rather comfortable but of course, I have talked about refunding we've got -- the funding with for a very long time and since the portfolio is bigger and bigger. And the price of lending is more expensive than the interest rate in itself. So I think this is an important question to address and as I said last year, that was our main driver to access the eurobond market also.

[Operator]

Our next question comes from the line of Fredric Cyon from Carnegie.

[Fredric Cyon, Research Analyst]

Three questions from my side, starting off with going back to Finland. Now you have at least 2 boots on the ground and over there and today at 45 for the group. How much wiggle room do you have for acquisitions? And are you primarily looking at portfolios rather than single buildings?

[Henrik Saxborn, Chief Executive Officer]

The headroom, I think you're referring to the balance sheet, headroom. That we are really going to be very cautious, of course, of the balance sheet, on level going forward, to start with that. And I think the most efficient way of growing the Helsinki portfolio is doing both. We need this portfolio because the government goes too slow to buying back asset by asset. But to do some complete -- but to complete that, we would [ sound ] single digits but absolutely need to be at least a small portfolio acquisition to get the volume up because otherwise, we're going to [indiscernible] for a long time and for that scenario.

[Fredric Cyon, Research Analyst]

Okay, and then moving over to value changes. Almost [indiscernible] exchange was driven by yield in this quarter. And considering the like-for-like effects, like-for-like was close to 5% in the first quarter, I would have anticipated that we would have a larger contribution from Castellum. Is this accrual effect and we should expect more built into from like-for-like in the next couple of quarters?

[Ulrika Danielsson, Chief Financial Officer]

Yes, but the like-for-like growth in the income top line is made by leases signed and leases renegotiated as CPI known at the year-end when we did the valuation. So we did know the cash flow at the year-end valuation, so to say.

[Fredric Cyon, Research Analyst]

Okay, but if you maintain this kind of level and are able to increase rents throughout the year, then I would expect that there would be more effects.

[Ulrika Danielsson, Chief Financial Officer]

Yes. I would say that if we do further renegotiation, now it's the time lagging, the fixed time, that is true. And if we get more, you could say profit in [indiscernible] things, then you should expect everything of equal valuation of this driven by cash flow.

[Fredric Cyon, Research Analyst]

That's clear. And then my final question on project investments. We have gotten used to project investment level in the last 2 years of about SEK 2.8 billion to SEK 3 billion annually. In the report, you're stating that the target is to increase that further. Should we expect that the level will be materially different from SEK 3 billion in the next couple of years?

[Henrik Saxborn, Chief Executive Officer]

I should say, you will have an effect of course that [indiscernible] looks like the possibility that we think is possibly in the Q4 or in the Q1 by the time we start the last project in Malmö, for example. It could be something we have gone through that will of course affect that investment pipeline. Part of that, we have the normal investments, you can call it, that we'll also increase. So yes, I should say look at that project for more next year than 2019. But yes, they will slowly increase during the quarters.

[Ulrika Danielsson, Chief Financial Officer]

I got a question here on the web regarding the duration and the bank's demand higher margins, and how that will have -- which seems that will maybe have in the coming 2 years for Castellum. And I would say that you don't need to have doing a lot of speculation and I don't think that is the best way, so I'll pass on that question.

[Henrik Saxborn, Chief Executive Officer]

We got another question. What are your thoughts on entering Norway? That has been affected by new Norwegian tax laws. We have stated earlier that we would like to focus in the Nordics, that still remains the same, and we want to be at Nordic there. We have also stated that we will focus on Helsinki first and this need to be very interesting if we look for another city, and this is still the same. So focus Helsinki on the expansion outside Sweden right now. Is there any further questions?

[Operator]

There are no questions registered over the phone lines at the moment.

[Henrik Saxborn, Chief Executive Officer]

Okay. Should we then complete this? Yes. So thank everyone for listening, and have a nice working day. Thank you.

[Operator]

This now concludes.