Wihlborgs Fastigheter AB

STO:WIHL

Earnings Call Transcript 2017-Q4

[Unknown Executive]

[Audio Gap] this presentation with Wihlborgs Fastigheter. Today, as a moderator, we have Tobias Kaj, he will be back later and lead the question session. So I now leave over the speech to Anders Jarl.

[Anders Jarl, Executive Chairman of the Board]

Thank you, and welcome, everyone. Nice to so many here at the lunch, and I hope it's not only the food that is calling you here.I've been standing here 12 times before reporting for the year results, and they have all been stronger each year compared to the year before. And so also this time, and the figures, for now, 2017, is quite much stronger than the year before. And as we see, the rental income is up 12%, and the operating surplus is up 13%. And the income from the property management is up 14% and ends up to SEK 1,179 billion (sic) [million], compared to SEK 1,035 million the last year. This gives us a result, after everything, which is SEK 33.4 per share. And the board has also proposed an increased dividend, for the fifth year to SEK 6.25, which also is in line with the track that we have had before. And we also, for the third time, proposed a split on 2-for-1. And it's a very good guess that this split will be the 23rd of May because that's when we've had all the other splits.The Nomination Committee has also proposed me to be the Chairman after Erik Paulsson. And in line with that, the board has then nominated Ulrika Hallengren, who you will also meet here today to be the CEO after me.Looking at the Q4 figures only, we can see here that the rental income is actually up 16%. And we have -- operating surplus is also up 16%. And after interest, the income from property management is up 12%.We have a change in valuation at close to SEK 1 billion. And on -- over the year, it's actually SEK 1.8 billion, approximately. And this all comes from increased income.So if you took at -- look at the yield that we are -- the initial yield we presented last year, the 1st of January 2017, it is the same initial yield as we have now in 2018. So the valuation growth comes from increased income, plus developments and all that, of course.The letting is, of course, very important for us. We measure every quarter the new leases and the terminations. We have plus SEK 10 million for the fourth quarter and SEK 90 million for the full year. Historically, we have these figures here, as we also normally -- present every time, but you can see it has been positive. The last 2 quarters around SEK 10 million, but before that, a little bit stronger. But still a positive market, and we still see this to continue on the positive side.So if we summarize the figures for the year, you can see it this way as well, that we made SEK 1,179 million from the property management. But on top of that, we also made SEK 400 million in value growth coming from developments only.Rental changes, looking at in different ways. We have first the total rental value was increased by 14% and the rental income was up 16%, as I said before, and that is because the vacancy has dropped a little bit. But here is also included, of course, the development and the acquisitions we did over the year. But if you look at the like-for-like for the portfolio, that means the same assets we had the 1st of January last year and that we still have and excluding the developments, we see here that the rental income has increased with 4.6% and the rental value is up 2.6%.Our office portfolio, is -- now stands for SEK 31 billion. We have SEK 14 billion in Malmö, SEK 4.6 billion in Helsingborg and close to SEK 6 billion in Lund and SEK 6.5 billion in Copenhagen. We have the running yield here on the second right, where you see that the running yield is 5.1% and the occupancy rate is 94% for the whole office portfolio. The same figures for the industrial and warehouse and logistics. We now have SEK 5.7 billion on that side, which stands for about 15% of the total portfolio, and that portfolio is yielding 7.9 -- 7.1%. And adding these together gives us SEK 37 billion, almost, in the running portfolio, and on top of that, SEK 1.8 billion on the land and development. And we have a running yield at 5.4% on the operated portfolio.Our 10 largest tenants are the same as they have been before, and they stand for 20%. And we also have 20% of the income comes from governmental tenants.Over the year, we started the year with a portfolio that was valued at SEK 32.7 billion. We had done -- have done acquisitions at close to SEK 2.8 billion. And on top of that, we did investments of SEK 1 billion -- a little bit over SEK 1 billion. We have sold one small property for SEK 11 million. And we have some changes in the valuation, which is a little bit over SEK 1.8 billion. The Danish kroner has increased compared to the Swedish, which gives us another SEK 176 million on that line and adding up to SEK 38.6 billion. And this is how we historically have been able to grow the portfolio. And so we started at SEK 7 billion and is now up at SEK 38.5 billion.It's spread over Skåne and Copenhagen like this. So Malmö now stands for 45% of the value, 700,000 square meters; Lund stands for 17%, a little bit over 200,000 square meters; and Helsingborg is 20% and 550,000 square meters. Copenhagen has been growing quite a lot last year, and there we have close to 600,000 square meters. We are, by far, the biggest player in all the 3 Swedish markets, and that I have talked about many times before. But we are also picking up on the Danish side.So this is a summary of how the market situation is in Greater Copenhagen as per the end of December this year. So these figures I actually got yesterday evening.So you can see here that we are #7, measured in size-wise. The biggest one is ATP who has 680,000 square meters. And then we have the pension funds, quite a few of them. But yes, you see here how -- so in square meter-wise, we now belong to the 10 largest players also in the Copenhagen markets.To say something about the market, I mean, the talks a lot about the interest cost is coming up and so on, but the main thing for us being an office player is that there is still a strong demand for work -- workspace, and that goes for all the 3 Swedish cities. Of course, Malmö is the strongest one. Companies are still moving to Malmö, and we haven't seen any sign of that slowing down.The Danish market is far behind the Swedish one. As you know, it dropped a lot from 2008 and onwards. The employment figures today is just a little bit above what they were in 2008, but it is climbing. And therefore, we also see the increased demand for space.The vacancy is still rather high. In most of the submarkets, you have vacancies around 10%. And that, of course, gives no opportunities to increase the rent levels. But we are on the very low side. On our portfolio 8 -- approximately SEK 800 to SEK 900 per square meter. We do see increased activity. We do see more tenants asking for bigger space than a smaller space. So we are quite optimistic also going forward on the Danish market.I will hand over to Arvid now, and he will bring a little bit more into the figures. Arvid, go ahead.

[Arvid Liepe, Chief Financial Officer and Secretary]

Thank you very much, Anders. So I'll walk you through the numbers a bit more in detail than Anders did.Looking at the balance sheets and what has happened over the past 12-month period. I think it's worthwhile noting that our investment properties have grown by almost SEK 6 billion. And on the liabilities side, at the same time, equity has grown by SEK 2.1 billion and borrowings have grown by SEK 3.1 billion. So I think -- those are magnitudes, which I think is worthwhile noting when you see how the balance sheet has evolved over the year 2017.You can also see that we still have a negative value in our derivatives portfolio of a bit less than SEK 1 billion right now.These figures, if you calculate some key numbers on that, you can see that our equity assets ratio, despite the large acquisition that we did in Denmark, which was debt-financed, our equity assets ratio is actually stronger at the end of 2017 than at the end of 2016. And the same goes for our leverage, our LTV, which now stands at 53.5%.The interest cover ratio is 3.4, still on a very strong level, but given the low-interest-rate environment that is, in a way, you could say, to be expected.Looking at some per share numbers. You could see that the EPRA net asset value over the year has grown by 17% and now stands at SEK 228 per share.The board also today announced that they will propose a dividend for the year of SEK 6.25, a fifth year increase, which is pretty much in line with the historic development, as you can see on the chart. And you could see, from 2005 until 2017, we've actually had an annual growth rate in the dividend of 11%. And the EPRA net asset value has grown also, as you can see historically here, with on average 19% per year. It now stands at SEK 228, as I mentioned before.On the financing side, our sources of financing now look like this. Almost half our financing comes from bilateral bank loans, 30% from the Danish mortgage systems, which I know we've talked about before. So we basically finance all of our Danish properties via the Danish mortgage system. And we have almost 1/4 of our financing from the capital markets.The financial position continues to be strong, and you can see the historical developments on these 3 charts. LTV gradually moving downwards, now at 53.5%. The equity assets ratio is almost 35%, well in line with our objective to be above 30%. And the interest cover multiple also historically has basically always been well above the 2x that we set ourselves as targets.Talking about financial stability, we like to highlight another ratio than the LTV, that is borrowings in relationship to operating surplus. And for 2017, that ratio stands at 11x and reasonably well in line with where we have been historically, as you can see on the chart. But I think it's important to follow this metric as well as the LTV when you look at the financial risk in us as a company and other companies in our industry.Our loan portfolio, in detail, looks like this, and I won't go through all of the numbers. But basically, just want to highlight that the average interest rate now stands at 2.49%. And we have an average fixed interest period of 4 years and an average loan maturity of 6.2 years. And you should bear in mind, when it comes to the loan maturity, that we benefit from the Danish mortgage financing system, which can give us very long maturities for those loans.So historically, both the loan maturity and the fixed interest period are on what we feel as comfortable levels.We still have a large interest rate derivatives portfolio amounting to SEK 9.5 billion, almost half of the outstanding loans. And that gives us a good resilience to anticipate changes. What this graph shows you is that if the market rates were to rise by 3 percentage points, it would increase our average interest cost by approximately 1 percentage point. So we feel that that is also worthwhile keeping in mind when we look into the future stability of cash flows.I'll stop the number crunching there, and I'm glad to give the word to Ulrika.

[Ulrika Hallengren, Chief Executive Officer]

So hi, everybody. I'll just first give a short introduction to where I'm from and what I'm doing at Wihlborgs, and then I'll walk you through the projects that we are managing at the moment.So I've been working with Wihlborgs and with Anders for the latest 8 years. Anders convinced me in the early spring 2010 that my future spot in life would be as CEO for Fastigheter AB the project developer and property owner of the Max IV project in Lund. And of course, Anders was right in this.So from 2010 and forward, I was in charge of this property development, part of this large and most technical high-demand project. The budget was SEK 2.2 billion, and we were actually more than 3,000 persons working at the site, not at the same time actually. But -- although it was a very successful project, not only because we succeeded to construct those 50,000 square meters of highly technical advanced facility, but we also delivered better performance than any other Synchrotron light source in the world, and to a smaller sum than anywhere else in the world.But in my view, we also succeeded to develop our way of working. We have a working phase where we in collaboration work together with both our tenant Lund University and all our contractors. And I'm very convinced that one of our main reasons why we were so successful was that we managed to combine the business case for each contractor and our tenant in the same model. I think that by doing this project, we could actually prove that if you create a platform where people and organizations can be at their best and you also take responsibility for every part's business case, then you actually can climb to the moon together.3 years ago, I got the chance to continue as Director of Project and Development at Wihlborgs. Our main goal during this time has been to get more projects started, to develop and increase our portfolio of future projects and also build a stronger organization for handling all those projects. And I think we have been very successful in this as well.During this time, I also have been a member of the group management team, and I have worked right across the table from Anders during the same time. Open workspaces has its benefits.So now, what do I think about this new proposition regarding our organization? I think it's an opportunity that really makes us stronger. Anders and I have been practicing working together for those 8 years. And if I only once had felt that he went into my area and take decisions above my head or behind my back, this wouldn't, of course, been possible to work like this. But I have never, during this time, had that experience.Anders is, as many of you already know, fast both in figures and decisions, and I'm also quite fast. But maybe I'm a bit more in love with my Excel sheets and maybe I might things -- take things under consideration a few seconds longer, but I promise you that Wihlborgs will continue to be a fast player, close and well-founded in our markets.We have already a strong and well-performing strategy, and we will continue the same way, only having an opportunity to be even stronger together and keeping Anders continuously focused on Wihlborgs' development.So let's go to the investment that we are handling at the moment. We have, during 2017, done investment, just about SEK 1 billion. And from those decisions I've made before, we have remained SEK 815 million of that.In Helsingborg, we continue with this project Hotel Polisen for the District Court. We have a lease of 20 years, and it includes both the new building and also refurbishment of the existing building.In Lund, we are close to completion of Posthornet, 11,000 square meters, right beside the railway station. It's almost fully let to Regional Skåne, Trivector and Veidekke among others. Only a small area on the top floor remains, and we are having ongoing discussions in that area as well.Next step close to this very central part of Lund is finding new projects in the neighborhood. And then it's interesting to see that the Municipality of Lund has made a strategical decision regarding -- to prioritize working spaces in Lund above housing. We couldn't agree more.In the Dockan area, we are almost completion of the framework to [indiscernible] expanding in actually the whole new building to the office areas.And in Hyllie, we are continuing with the work of our first project, Dungen. The customer [ Sweden ] is our major tenant, and we are now discussing with them their possibility of an expansion in the building. If they sign our offer, which we actually believe is likely, we will only have the best top floor left for other tenants.Underproduction is also this project in Stora Bernstorp, which will be MAN's first service center in Sweden. Fully let, of course, in a very long lease. And since Dungen is almost fully let, it's an opportunity for us that we also have this project Origo under production in Hyllie. We have ongoing discussions with possible tenants, but nothing is signed yet. It will be completed in autumn 2019.There was an ongoing project and also a short -- brief investment in pipeline. We have Knutpunkten in Helsingborg, which is complicated, at the least at the framework, the foundation. Under this building, there are 2 tracks for the train. And in the future, we're planning -- [indiscernible] is planning for expanding that to 4 tracks. And of course, that's good for both the building and the other buildings we have in the surrounding area, because the communications will be even better, but it also comes from difficulties in grounding this new building. So we are -- we haven't still decided when to start and how that will be actually done.But very close to that, we have also Nyhamnen, which is -- it could look a bit a spectacular, but the framework is very efficient. And we have here the possibilities of 13,000 square meters, just close to the center of Helsingborg.Hyllie is a strong market. And our next possible project is right next to the railway and also with parking spaces under the building. We are now redesigning this project to get it even more efficient. Still planning for those 18,000 to 20,000 square meters. And at the same time, we are actually negotiating with the Municipality of Malmö to also get the right to build the last plot in this plot. This third block to the left might contain approximately 50,000 square meters office and 6,000 square meters parking.

[Anders Jarl, Executive Chairman of the Board]

Thank you, Ulrika. Before we hand over to Tobias, I will just summarize this presentation. We've had a strong cash flow growth over the year. The growth is driven by strong net letting, higher rents, investments and acquisitions. We have also maintained a strong balance sheet despite that we did so much acquisitions. And we know that we will have a continued growth also in '18. And then finally, there will be a new Chairman and a new CEO of the company.So Tobias, shall you take over for the questions?

[Tobias Kaj, Research Analyst]

Yes, my name is Tobias Kaj from ABG Sundal Collier, and I will lead the Q&A here. And if you have a question, please raise your arm and you will have a microphone, so it will be recorded as well. Thank you for a good presentation and congratulations on another strong year. You mentioned that income from property management was up 14%, and I think EPRA NAV was up 20% if you add back the dividend. You also saw a strong development of your occupancy rates. And if you look in a bit more detail, I think it's up from around 91.6% to 93.4%, so a little bit more than the 1% you mentioned. How much of the improvement is an underlying improvement and how much is related to transactions? Did the acquisition in Denmark, for example, improve your occupancy rates?

[Anders Jarl, Executive Chairman of the Board]

All the improvement of the occupancy rate comes from the like-for-like assets. The acquisition we did is very much in line with the occupancy of all of it. It's actually a little bit lower than the -- the vacancy is a little bit higher on the things we bought than what we had before. So it's pulling it downwards.

[Tobias Kaj, Research Analyst]

And you also write -- excuse me, that you had 4.6% like-for-like growth in rental income. Can you help us and break that down, how much is related to CPI revisions? How much is to occupancy rate? And how much is renegotiations?

[Arvid Liepe, Chief Financial Officer and Secretary]

We have -- in like-for-like rental value is up 2.6%, as I said. And that 2.6% is -- about 1% is CPI and 1.6% is then related to newly signed contracts. Not so much renegotiations, because they are mostly just going forward with the CPI index. It's very rare that we notice a tenant to increase the rent. We want them to stay and then be friends with us instead. But when we relet a vacant space, we have lifted that up 1.6% for the whole portfolio. And since that effect is about 10% of the total portfolio that we are signing new contracts on, meaning that we actually got an uplift of 16% when we relet an empty space. And then the other 2% comes from lower vacancy.

[Tobias Kaj, Research Analyst]

And the vacancy rate seems to be improving mainly in Malmö and Helsingborg. Do you also see the strongest momentum for rent levels in those regions?

[Anders Jarl, Executive Chairman of the Board]

Yes. I mean, Malmö has been climbing quite a lot. If -- the market rent today in the new office in Malmö is about SEK 2,700. If we go back 2 years, that was SEK 2,400, SEK 2,500. So there is an increase with about SEK 100, SEK 150 every year and has been for quite many years now.

[Tobias Kaj, Research Analyst]

And if you look at the premises, which is not newbuild in Malmö, do you see the same kind of rental growth in those premises? Or is it mainly related to newbuilds?

[Anders Jarl, Executive Chairman of the Board]

Yes, if you talk about not new buildings, but still modern buildings, I mean 10, 15 years old, we see the same increase, on a lower level though. But because if I look at the ones we have in Dockan now that is 10 or 15 years old, there we get rents around SEK 2,300, SEK 2,400. And that's also up with about SEK 200, SEK 300 over the past 2 years. So they are very much following each other up.

[Tobias Kaj, Research Analyst]

And as you mentioned, in Dockan, you have some buildings which are a bit more than 10-year-old. In total, what kind of vacancy rate do you have if you look at only the Dockan area in Malmö?

[Anders Jarl, Executive Chairman of the Board]

We have one building that is being a development building at the moment because that was used to be the Malmö University that was there, and they moved out 2 years ago. We are working very hard to get the new police school into that building, meaning that it's actually not in -- it's a 20,000 square meters close, I think it's 18,000 square meters in one building, and we are not working on letting it out just to normal office space. But if we exclude that one, I think we have about 5% vacancy in the Dockan area.

[Tobias Kaj, Research Analyst]

And if you look at the outlook for 2018 in terms of occupancy rates, do you think you are able to continue to improve the figures from the current level?

[Anders Jarl, Executive Chairman of the Board]

It's enough lift to increase with 0.2% will give us another percent, wasn't it, that's what you came to? I think that's where we will end up. We will not see 1% or 2% increase in occupancy rate, but we will see some minor increase, meaning maybe it will come up to another percentage.

[Tobias Kaj, Research Analyst]

And then comes our renegotiations. You indicated that we shouldn't expect too much because, in general, you prefer to keep your tenant and not to push up their rent level?

[Anders Jarl, Executive Chairman of the Board]

That's right.

[Tobias Kaj, Research Analyst]

And if you look at the net lease for 2017, I think it was SEK 90 million, which is the highest level ever. And you say that we shouldn't expect too much of an improvement in the occupancy rate? Does that mean that most of the net lease is in development?

[Anders Jarl, Executive Chairman of the Board]

No. I don't mean so. I mean, there's still some increase on the rent levels on the operating portfolios, of course. We have some move -- there is still some moving around. We know that in a year from now, the Custom is moving out from one of our city buildings, out to Hyllie, which will create about 10,000 square -- 8,000 square meters office in the very city center that have a low rent. I think they pay about SEK 1,300, SEK 1,400 per square meter. And there, with some improvement of building, we will be able to bring that up to at least SEK 2,000, but that comes in '19. We also have another tenant, which is in the gaming industry, who will leave us during end of '19. And that's also in the city center. So we are working very much with those assets.

[Tobias Kaj, Research Analyst]

And those 2 tenants, did they impact net lease already in 2017?

[Anders Jarl, Executive Chairman of the Board]

They -- the Swedish Custom that was when we signed the new lease, that's plus and minus, so to say. But the other one, that was in beginning of '17, I think, it was when they gave notice that they are going to move out. So it's already in the figures, yes, but if it was the first or the second quarter, I don't remember.

[Tobias Kaj, Research Analyst]

And for 2018, do you have any other big tenants where you expect them to leave, to give notice?

[Anders Jarl, Executive Chairman of the Board]

I'm sure there will be other tenants that will give notice, but most of them we already have in our figures. So we don't expect any big negative figures on the way we are measuring the net lease.

[Tobias Kaj, Research Analyst]

And if we listen to consultants and so on, we often get the impression that the rental market in Malmö is far weaker than in Stockholm and in Gothenburg. But we don't really see that in your figures with the strong increase in like-for-like rental income. Is the market not as weak as it's often described? Or do you perform stronger than the market?

[Anders Jarl, Executive Chairman of the Board]

I think the consultants are not in the market. I mean, most of the consultants, they sit Gothenburg or Stockholm. And not really -- they are not really into the market and -- but we are sitting there and we feel that there is a strong growth. There are new tenants coming up all the time. So we are not worried about, also, the future.

[Tobias Kaj, Research Analyst]

And the growth, is it from some specific sectors you see that? Or...

[Anders Jarl, Executive Chairman of the Board]

No, there's no specific sector.

[Tobias Kaj, Research Analyst]

Is it mainly companies growing in Malmö? Or is it companies moving to Malmö from other parts of the country?

[Anders Jarl, Executive Chairman of the Board]

I would say it's both. I mean, we know that IKEA is a very strong player. Today it's the biggest company in Malmö, and they are growing all the time. Most of it is within their own buildings, but they are then attracting other tenants also to grow. And then we have seen some government -- we know Custom is -- the government is bringing out some more from the Custom to Malmö. We also know that there are other governmental and municipality activities that have been growing over the past year. So it's all over the branches, everything.

[Tobias Kaj, Research Analyst]

Thank you. Do we have any questions from the floor?

[Unknown Analyst]

All right. Can you just shed some light on your views on Copenhagen, has it changed from before? Or do you have the same view on how to eventually proceed there?

[Anders Jarl, Executive Chairman of the Board]

No, I have not changed my view of it. We believe that there is an economic growth in Copenhagen, in Denmark, but especially Copenhagen. And the growth is a little bit slower than we expected. It takes longer time, but there is growth. It's not -- the growth is not up to 2% yet. The economical growth is something between 1%, 1.5%. But we believe that comes -- looking at the next 3, 4 years, we will see the economic growth there being stronger than it has been. But still, we have vacancies around 10%, so it will take some time. The vacancy, first, has to come down a few percentage before we see increase on rent levels. But it's -- the down risk is very small and the upside opportunities are much stronger in Copenhagen than in all of Sweden.

[Tobias Kaj, Research Analyst]

Can I ask if we have any questions from the telephone conference?

[Operator]

[Operator Instructions] And there are currently no questions registered, so I hand back to you in the room.

[Tobias Kaj, Research Analyst]

Thank you. I'll continue then with some question regarding your developments. You managed to invest more than SEK 1 billion in developments in '17. Do you think you will be able to do that for this year as well?

[Anders Jarl, Executive Chairman of the Board]

Yes. I mean, we have been there for the past few years, and I'm quite convinced that we will be around SEK 1 billion also going forward. We would like to be a little bit more up to SEK 1.2 billion, SEK 1.3 billion, but SEK 1 billion is what we will achieve.

[Tobias Kaj, Research Analyst]

Do you think it will be a stable level or even growing?

[Anders Jarl, Executive Chairman of the Board]

For now, I think it will be a stable level, yes, but I hope it will be growing going forward now when we have a new CEO. She will be able to bring it up even more.

[Tobias Kaj, Research Analyst]

And you mentioned returns, around SEK 400 million, from your development operation, which implies roughly 40% return on invested capital. And I think it's -- that's well above your target, and I think it's also a little bit higher than the historical level. Is it some temporary effect in that profit? Or should we expect a similar return in coming years?

[Anders Jarl, Executive Chairman of the Board]

I think, we have been around SEK 300 million to SEK 400 million every year. '16 was even higher actually. It was a little bit lower in '14, '15 because we didn't start too many developments then. But I think we had close to SEK 500 million in '15 -- in '16, I mean. So I think you could estimate going forward that we should be between SEK 300 million and SEK 400 million that should be added on to our profit every year coming from the developments.

[Tobias Kaj, Research Analyst]

And going forward, which markets do you think you will be most active in, in terms of developments?

[Anders Jarl, Executive Chairman of the Board]

In the short run, it's Malmö. We are starting some in Helsingborg, as we show here. But I still believe the Malmö is the strongest market. Malmö is where most of the growth will come. Development in Copenhagen will take some more years because the rent levels are too low to be able to get the yields that we need to be able to do the development. So in Malmö.

[Tobias Kaj, Research Analyst]

Okay. And I think Copenhagen, it seems like there are lots of developments ongoing by your competitors, but you are not willing to start developments because you don't have the right land opportunities? Or because the returns are not good enough?

[Anders Jarl, Executive Chairman of the Board]

The developments that are being done there now -- I mean, they build new offices in the rather city center location and you have rent levels below SEK 2,000, giving you a net initial yield maybe at 3.5%, and that's not enough for us.

[Tobias Kaj, Research Analyst]

And in terms of acquisitions, I mean, for developments, Malmö being the largest market for a long time. But in terms of acquisitions, Denmark being the largest market in the last couple of years at least. Do you think that that will continue for the next years as well?

[Anders Jarl, Executive Chairman of the Board]

It all depends on where the opportunities are. Last year and the year before, we saw a lot of opportunities in Copenhagen, therefore, we also did the acquisitions there. But we have strong organizations in all the 4 cities, and if there are opportunities, we can take them in any of those cities. Last year, we were able to do some quite good acquisitions, especially this one with Danica that we did last summer. Because we had a strong organization, we have now 60 people employed and a lot of assets -- I mean, the assets we took over, you need to work with them. It's a lot of multi-let buildings, meaning that you need to have people on-site to take care of it. And I think that was one of the -- one of the reasons that we were able to do those deals. But I mean, I will tell you when we've done a deal next time.

[Tobias Kaj, Research Analyst]

Looking forward to that. And in terms of Denmark, is it only Greater Copenhagen where you're looking for acquisitions? Or could you also consider other parts of Denmark?

[Anders Jarl, Executive Chairman of the Board]

It's only Greater Copenhagen.

[Tobias Kaj, Research Analyst]

Then if we look at the value revisions for the full year, you took up your values by around 5%. And I think development was roughly 20%, 25% of that. So like-for-like, it seems like your values are up 3.5% to 4%, while you mentioned that your rental income was up 4.5%. How come values are not growing at least in line with rental income?

[Anders Jarl, Executive Chairman of the Board]

But you also have to bear in mind that even if the building is vacant, it's not worth 0. So -- and 2.6% was the value of the increased level, rental level. So that, of course, goes directly into the valuation. And then the vacancy doesn't affect 100% on the valuation when it comes into the figures.

[Tobias Kaj, Research Analyst]

And in terms of yield requirements, obviously, we haven't seen any yield compression in '17, while we, in the previous long period, had a slight decline in yield compressions. Today, we see some uptick in market trends, do you think it's a risk that yields will move up during 2018?

[Anders Jarl, Executive Chairman of the Board]

I think there's still a very big spread between the yields and the long interest rates. I mean, we still talk about 10 years' interest rate, about 1.2% up to 1.5%. And yields are now, at our office portfolio, is 4.7% up to 5.2%, and I think there's still a big spread. So it will take some time before the increase of interest rates will bring up the yield requirements. What's more important is the expectation of where will the rent levels go, when you do your cash flow going forward. And since we have seen historically in the Malmö or in our markets that there is a stable growth on the rent level. It's not like in Stockholm where you have 100% up 1 year and 50% down in a few years later. The market is much more volatile in Stockholm than our markets. Therefore, I am not so worried about that there will be any big yield shifts in the markets.

[Tobias Kaj, Research Analyst]

And in terms of a value uplift for '17, are there big differences between your different markets where you operate?

[Anders Jarl, Executive Chairman of the Board]

No, not really.

[Tobias Kaj, Research Analyst]

And between offices or industrial properties, is it a big difference?

[Anders Jarl, Executive Chairman of the Board]

No. What we've seen is the valuer has gone through our logistics building a little bit more. And he had, in his valuations, he had too high costs. I mean, if you look historically, our cost level has been lower than he had in his calculations before. So that's the only change and that's also affected the value, of course.

[Tobias Kaj, Research Analyst]

Do we have any further questions from the floor? Jan?

[Jan Ihrfelt, Senior Equity Analyst]

Yes, Jan Ihrfelt, Kepler Cheuvreux. Actually, 2 questions. The first one is regarding your surplus ratio, which has been quite stable the last 2 years. Do you have any hopes for a high -- raising it this year when you have better occupancy ratios?

[Anders Jarl, Executive Chairman of the Board]

I think we are already on a quite good level on the surplus level. Maybe you can see a percentage up or down, or something like that. But -- and then, of course, the vacancy are affecting it. When the occupancy rate is going high, you'll also get higher figures, but -- surplus ratio. But we should not be thinking of -- that we will come up to 80% or something like that.

[Jan Ihrfelt, Senior Equity Analyst]

Okay. And the second question is regarding the 2 projects that were finalized in the fourth quarter. When were they finalized? That's Sirius and Hordaland. Was it early in the quarter or late?

[Anders Jarl, Executive Chairman of the Board]

Sirius is an office building, and there, the tenants moved in during December. So there was very little income from that during the Q4. And Hordaland, that's a parking garage, and that was actually completed the 1st of January or last of December last year. So there was nothing last year, and it is -- so that's a parking garage in the Dockan area.

[Tobias Kaj, Research Analyst]

And a question from Erik here as well.

[Erik Granström, Financial Analyst]

Erik Granström, Carnegie. I had a question regarding your loan maturity. You have SEK 2.7 billion of credit or loan maturity for this year. Could you tell us a little bit of your expectations in terms of renegotiating that? Should we expect any changes to the costs in terms of margins? Or do you expect your current run rate to be what '18 is going to be about at the end?

[Anders Jarl, Executive Chairman of the Board]

In the negotiations we have today with the banks, we see no sign that they will increase the margins. And so our expectation is that we will be able to renegotiate them at the same level as before.

[Niclas Hoglund]

Niclas Hoglund, Nordea. Just a couple of questions if I may. Firstly, on the cost for construction, we've seen well a rather turbulent residential market with declining starts and also some turbulence in Malmö although less than in Stockholm, of course. Do you see any signs for lower construction costs in the projects that you are developing right now?

[Anders Jarl, Executive Chairman of the Board]

I hope so, but we haven't seen it yet. I mean, of all the years I've been working in the real estate business and also in the construction business before, I've never seen the construction costs fall from one year to another. It might be 0 increase. But yes, we can always hope, but I don't think so.

[Niclas Hoglund]

And on the development and this distant outlook for the -- hope for some acceleration, we have seen competitors in the market pursuing some projects in Hyllie and across the region. Do you see any risk that the higher supplier growth that is now coming back to the market will act as a limiting factor to rental growth and your opportunities on development in '18, '19?

[Anders Jarl, Executive Chairman of the Board]

The developments being completed in '18 and '19 is very limited. There are quite a lot more in the pipeline to be started now, and they will be completed in 2020 and onwards. And all the rent levels in the market has followed the construction cost every year. So -- and when there is a new building, it is most of the time fully let, meaning that the market rent for the new building is very much in line with the increased construction cost. And 4, 5 years ago, I was worried that that would happen when Hyllie really started. That's why we were a little bit more cautious out there in the beginning. And I was wrong. And the growth in the Malmö market was stronger than I expected. And I think it will be the same this time back in 2020 that there will be new companies coming in. And we've seen that IKEA has meant a lot to Malmö. And I mean, it is their main hub today. And there will be other companies like that, for sure.

[Niclas Hoglund]

And a final question on taxes. We're seeing that your paid tax is coming up a little bit, which is probably related to Copenhagen and Denmark. What about your thoughts of the new proposals in Sweden on EBIT or EBITDA? Your earnings are up, which means that you will have good deductibility at the same time. But what should we expect on taxes, in your view, going forward in Sweden also?

[Anders Jarl, Executive Chairman of the Board]

I mean, of course, if there is -- but we have a tax proposal, we don't know exactly which one of them that will come. If it comes on EBITDA, we are not so worried because we have so much development and so much write down in the new developments that we are doing, so that will not affect us, only with a few million. If it comes from the EBIT, of course, there will be a little bit higher tax for us to pay. But on the other hand, the main reason is not how much tax we pay, the main reason is that the employment figures will continue to grow and that means that we can increase our income more than our costs, so we are not so worried about this. But of course, we have to -- when we know the rules, what will happen, then we will follow the new rules, but -- yes. The effect will not have been too much last year, if we calculate it. Back in 2016, we calculated on those figures on the different alternatives that were on the table last summer. And -- but of course, going forward, when the interest rate comes a little bit higher up, it will affect. The cost for the interest will then be about 20% higher than it wouldn't. I mean, if it's 1%, it will be 1.2% instead.

[Tobias Kaj, Research Analyst]

Do we have any more questions or do we have any questions from the telephone conference?

[Operator]

There are currently no questions registered over the phone.

[Tobias Kaj, Research Analyst]

Thank you. And Anders, you've been CEO of Wihlborgs since the listing in 2005, and I think that income from property management has increased by some 270% since 2005 and the EPRA NAV by some 500%. So it's really impressive growth figures you have achieved. But in this period, what are you most satisfied with that you have achieved in the company?

[Anders Jarl, Executive Chairman of the Board]

I think it is that I've been able to build an organization that's very strong and very capable of taking over all of this. The first few years, we were a much smaller organization, and I was working much more hand-on, so to say. I was in most of the negotiations, and I was pushing everyone very hard. But we have built an organization now where we have 4 regional managers on each of the sites. And we also have a strong, like Ulrika, now on the project development, but there's also another one coming up taking over her seat. And so it is a very strong organization and all the people are very much having this Wihlborgs thinking of that we should be optimistic, we should be close to the tenants and all that. So I think that's what I'm most proud of is I've been able to maintain that and maybe even make it a little bit stronger than it was before.

[Tobias Kaj, Research Analyst]

Your income growth of roughly 10% per year in the past, how much of that is related to you? And should we expect that to come down in coming years?

[Anders Jarl, Executive Chairman of the Board]

I think it will be growing even more without me.

[Tobias Kaj, Research Analyst]

And as you will stay on as Chairman for the company, what do you see as the largest potential for coming years for Wihlborgs?

[Anders Jarl, Executive Chairman of the Board]

It is very much to follow the same business concept as we've done. And I'm quite convinced that we will be able to grow the company with approximately 10%. At least 7% or 8% if it comes into a little bit not so favorable market. But that will -- in the end, it will grow, and I look forward for the next split that Ulrika will do. And so -- yes, I will hand the company to do that, come up to double the value one more time.

[Tobias Kaj, Research Analyst]

Thank you very much. It's been a privilege to cover you.

[Anders Jarl, Executive Chairman of the Board]

Thank you.