Wihlborgs Fastigheter AB

STO:WIHL

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, and welcome to the Wihlborgs Fastigheter Q4 2022 Earnings Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ulrika Hallengren. Please go ahead.

[Ulrika Hallengren, executive]

Thank you. So welcome to the presentation of Wihlborgs' year-end report 2022. And I would like to start with apologies. I know that I, and maybe also Arvid, will repeat ourselves a bit. Please forgive us for that. But the word cash flow is always on our mind, and we think that it's worth mentioning several times every day. But of course, we all know that there's nothing new in it, and it works in all kind of times. But still, we like our cash flow.

Let's go straight ahead to our report. A summary of 2022. It's always nice to find some records. And this year, we have records in income, records in profit, net debting and records in like-for-like rental growth. That means that our historically high net debting is paying off, and our new positive net debting also gives strength for the future. It also means that vacancy goes down seen in the like-for-like portfolio, plus 21.8% rental income in the whole portfolio and plus 13.7% in like-for-like portfolio.

We have a stable balance sheet, access to liquid funds. And all this together also means that we can continue to invest for the future in a wise and balanced way, of course.

Results for the full year. Rental income increased by 9% to SEK 3.335 billion, the operating surplus increased by 6% to SEK 2.331 billion and income from property management increased by 3% to SEK 1.861 billion. The result for the period amounts to SEK 2.288 billion, which corresponds to SEK 7.44 per share and EPRA NRV increased to SEK 90.64 per share, plus 8% adjusted for paid dividend.

We do a comparison of the rental income between the full year '21 and '22 . We had one-offs in '21, minus SEK 69 million; acquisition, plus SEK 87 million; currency effect, plus SEK 33 million; income from canteens in Denmark, plus SEK 18 million; higher dividend property tax, plus SEK 40 million; and indexation, plus SEK 53 million; and the largest part is other increases from new leases, higher rents and higher occupancy, plus SEK 139 million.

The canteens in Denmark are more occupied than '21, but they also take a bit too much of our retention. Therefore, we have decided to outsource this operation from the 1st of March '23. That will lower our income, but also our costs.

Energy costs are also up during '22, and that had added SEK 17 million to cost and income compared to preliminary invoicing.

We have signed new leases for the last quarter of SEK 80 million and SEK 282 million for the full year. The positive net letting for the quarter is SEK 32 million and record high SEK 190 million for the full year. Good activity and most of all a very dedicated and skilled staff. And as I always mentioned, it's in the large number of many growing tenants from different sectors that we build these figures.

Here are some of our new tenants that we have signed during Q4 '22, a mix of different segments, Bygningsstyrelsen with the Police Authority at Ejby Industrivej in Copenhagen; RISE in Lund, both the municipalities in Malmö and Helsingborg; and also SAAB for additional areas in Malmö.

We have a net debting in a historical perspective, letting in light green, termination in light blue and dark blue stacks are the net letting. Now 31 positive quarters in a row, and only 1 quarter with a negative number for over 14 years. This region has opportunities.

Here, we have the net letting summarized for a rolling 12-month period. And here, we can see that we managed very well also without one of the largest leases with Trygg-Hansa, which we signed in Q4 '21. As I said, it's the large number of leases in all our 4 cities that continue to do this work. And even if we now go into a period of more uncertainty with greater cautions as an effect, these leases are our future income and they are already signed.

Here's a list of our 10 largest tenants in alphabetic order. We have seen them before. They are very stable, and they contribute with 21% of our rental income. And 8 out of 10 are governmental tenants. The rental income from public tenants is in total 24%. This brings stability to our cash flow.

Rental value as of 1st of January is SEK 4.170 billion per year. And rental income, SEK 3.810 billion, plus 21.8%. A good part is, of course, indexation, but the rest of it is a good signal of growth, partly a result of our successful project portfolio, but also being close to the market knowing our tenants and being willing to make room for their growth and also the demands for upgrading their workplace.

And looking at the like-for-like figures, we can see that rental value is up 11.8% and rental income is up 13.7%, again, beating our ambition to exceed index by at least 1 percentage point. A part of the strong figures for rental income like-for-like is higher occupancy by 1.6%, and that will continue to improve as a result of positive net debt.

The value of the portfolio has developed, as you can see on this slide, since 2005 without raising any new capital and lately, not with any help from lower yields.

Let's look at the changes in market value of our properties. We started the year with SEK 50.033 billion in accordance with our external valuation, which, once a year, values 100% of the stock at the same time. We have acquisitions of SEK 2.438 billion. We have invested SEK 1.580 billion, divested SEK 497 million and changes in valuation amounts to SEK 396 million for the full year.

Expectations on inflation have gone up during the year, and we have increased the yield requirement somewhat gradually over the year. These 2 changes basically offset each other in the valuation, but I know that you will ask about market yield. And as we always want to mention, it's a number of parameters that affects the valuation model. But to give some kind of figure, you can assume that the market yield has gone up approximately 0.5% over the year, a bit less in Copenhagen. Values are a bit down on logistics and production in accordance with higher operating costs and a bit up or more stable on offices.

We have also had some project gains and, of course, a positive impact from new leases. Together with currency translation of SEK 891 million, that summarized a property value of SEK 55.179 million.

If we take a look into our portfolio, we can get some figures about ongoing business right now. The occupancy rate is 93%, excluding project and land, and with an operating surplus of SEK 2.949 billion that gives a running yield of 5.7%. That's an improvement of 0.6% versus the last quarter. It's driven by higher operating surplus and fairly flat valuations.

Total value of the portfolio, as mentioned, SEK 55.179 billion. And worth mentioning again, running yield is not the same as valuation yield. Maybe you can say that we actually performed better in our portfolio than our appraisal's expectations. In the valuation method, there are, for example, calculation models for future vacancies, but we work with our properties so that vacancy should decrease rather than increase. We're now a vacancy increase in the property stock. It's usually because we have bought something with a vacancy or emptied a property and created vacancy for development. This is our way to grow.

In the office portfolio, the market value is now SEK 44.890 billion and overall, the occupancy rate is 94%. It's 95% in Malmö, 91% in Helsingborg, 93% in Lund and 93% in Copenhagen, improved numbers. Improved occupancy rates are, of course, a joy, but we do not hesitate to buy more vacancy when we think that's the right thing to do.

The operating surplus from offices summarized to SEK 2.409 billion and a running yield of 5.6%. This brings stability and resilience when the interest rate goes up.

The demand for logistics and production continues also to be good. Occupancy, 93% in Malmö; 90% in Helsingborg; 98% in Lund; and 95% in Copenhagen. 92% occupancy rate as a whole. With a running yield at 6.9% and a total value of SEK 6.663 billion, a bit lower value than in Q3.

A slide of the running yield in the portfolio since 2013. The yield has gone down for several years bit by bit and now 0.6%, up quite quickly. This shows the effect of our increased earnings capacity in relation to the value set by external appraisers. We get a lot of our value and properties in our 4 cities, 40% of the value is in Malmö, 22% in Helsingborg, 16% in Lund and 22% in Copenhagen.

Copenhagen has now the largest area with 702,000 square meters, but Malmö have a higher value. A higher value in Copenhagen is also an effect from a weaker Swedish kroner. The differences between the cities are large enough for them to have their own character, but at the same time, so close that people can commute between them efficiently.

The labor market between Denmark and Sweden can improve further, and I'm glad knowing that the governmental agreement between the countries are under review. If it can be even easier to live in one country and work in the other, it will give the labor market as a whole, several advantages.

Once a year, we make a summary of our business model where we see that the largest part comes from property management, but also an important part from projects. 2022, the contributing part from project was a bit smaller than normal, affected by higher yields, and it was SEK 150 million compared to SEK 1.861 billion from property management. But still, of course, projects are important part.

Here's a summary of the business model since 2005, where property management have contributed with, in total, SEK 17.7 billion and projects with SEK 4.7 billion. In total, SEK 3.3 billion. And paid dividend during this time, SEK 7.9 billion. The contribution from projects are always a bit tricky to predict since it depends on timing when we sign leases, when projects are finished and, of course, market yield changes during the projects. But over time, we continue to build our portfolio from different sources and projects are very important one as well as acquisitions, of course. Sometimes small and sometimes a bit larger.

During Q4, we have bought Sufflören 5 and Sunnanå 12:26 in Malmö. We can do well both with them, both by adding some love to the building at Sufflören and not at least the land at Sunnanå is attractive for us for future development. We have also, during the quarter, sold Lyngbyvej 20 in Copenhagen, a complex building where we just owned a small part of it.

And now over to you, Arvid, for financials.

[Arvid Liepe, executive]

Thank you very much, Ulrika. Moving to the next slide, we see the income statement for Q4 isolated. Rental income amounted to SEK 888 million, up 15% versus the same quarter of 2021. We have an operating surplus of SEK 602 million, up 12%. And income from property management amounted to SEK 436 million, which is a touch down about 2% versus Q4 2021.

Financial costs have gone up, and that has, in the quarter, been an effect partly from an increase in STIBOR and CIBOR. We've also had some expiring interest rate swaps at attractive levels. We've entered some new interest rate swaps at less attractive levels. And we've also increased loan portfolio with slightly higher margins than previously. So there are a few effects, bringing financial costs up in the quarter.

We have a change in the value of properties of minus SEK 16 million in the quarter, and the value of our derivatives portfolio was minus SEK 37 million. All in all, a profit for the period of SEK 290 million.

Looking at the balance sheet. In a 12-month perspective, our property value has increased by SEK 5 billion. At the same time, equity has increased by SEK 1.4 billion, and the loan portfolio or our borrowings have increased by SEK 3.5 billion. And the loans, since we have a significant portion of our loans in Danish kroner, the borrowings are, of course, affected also by the weaker Swedish kroner.

On the next slide, we see some key figures. The equity assets ratio now stands at 41.2%. Our LTV at 48.6 %is up 2 percentage points versus 12 months previously. The currency effect in that number caused by having as much loans in Danish kroner as we have assets in Danish kroner has affected that number by 1 percentage point. So excluding currency effect, the LTV would have been approximately 1 percentage point lower than it is.

The interest coverage ratio stands for 2022 at 5.6x. Despite rising interest rates, still a very strong number, I would say.

Looking at per share data, you can note that the EPRA NRV now is SEK 90.64 per share. Adjusted for paid dividend, that is up 8.5% versus 12 months previously.

Looking at the next slide on the back of our earnings. The Board proposes a dividend of SEK 3.10 per share to be decided at the AGM in April. And that constitutes then a rise in dividend again this year, the 17th year in a row.

Looking at EPRA NRV in a historical perspective. I mentioned that the growth versus the year previously was 8.5%. Since 2009, the annual average growth has actually been 17% in EPRA NRV.

Our financial position continues to be strong. The interest cover ratio on the left-hand side of the slide has gone down slightly as interest rates have, as everybody knows, gone up significantly during the year. But 5.6x is, as I mentioned, a very strong level still. The equity assets ratio has been fairly stable over the past few years at 41.2% now. And our loan to value is still well below 50% at 48.6%, also historically on a strong level.

Looking at our net debt in relation to EBITDA. This ratio stands at 11.0x, which is unchanged versus the number in the Q3 report and a touch above the level a year ago. Our sources of financing is, of course, an important topic these days. We have 10% of our financing from the bond market. And almost half from the Swedish bank system and just over 40% now of our financing comes from the Danish real mortgage system. Total debt, SEK 26.8 billion as of year-end.

The details of our loan portfolio, you can see on this slide. Of our loan maturities in 2023, all of the SEK 986 million are bonds, both via Svensk Fastighetsfinansiering and via our own MTN program. We have actually the -- the first days here in February, we have paid back a small bond loan of SEK 166 million, which is part of that SEK 986 million.

As you can see on the slide also, our unutilized credit facilities amount to SEK 2.9 billion as of end 2022. The average fixed interest period is now 2 years and the average loan maturity is 6.1 years.

Looking at the interest rate sensitivity as our loan portfolio looked at the end of 2022. On the left-hand side, you can see the effect of a change in market rate on our average interest rates, and -- so what the slide shows basically that a 2% increase in the market rate, STIBOR, CIBOR, would mean an increase in our average interest rate of 1.2%. And that is, of course, then starting from the STIBOR, CIBOR situation as of end 2022. The right-hand slide -- or the right-hand graph on the slide shows that an increase in market rates of 4% would mean that our interest cover ratio is still at 2x, which is the stated objective for Wihlborgs not to be under 2x interest cover ratio.

On the next slide, we see how the fixed interest period as well as the loan maturity has evolved over time. The loan maturity is very stable around 6 years, and the fixed interest period has gradual over the past few years gone down to now 2 years.

And on the next slide, my final slide, you can see that our available funds, that is unutilized credit facilities plus liquid funds amount to just over SEK 3 billion in Q4. We had a decrease in that number in Q3 due to amortized bond loans and acquisitions, which we made in Q3, and we have increased loan facilities in Q4 bringing this number back to a comfortable level at SEK 3 billion.

So with that, I want to hand back the word to you, Ulrika.

[Ulrika Hallengren, executive]

So thank you, and I'll give you an update on our sustainability as of end of '22 and also our new goals until '25 and '30. These are the certifications we achieved during '22, ZeroCO2 at Pulpeten, they certification well at both Pulpeten and Grustaget 1. We have a number of recertifications at level gold. And on the other side, you see a large number of certifications at silver level from Miljöbyggnad In Use. Of course, that's a really good job. Several more was finished from our side during the year, and some of them have also been approved during '23, but this list consists of approvals given '22.

Target on certified properties was to reach 80% of the Swedish office portfolio during '22, and we did not achieve that, as pointed out earlier during the year. We reached 49% year-end and approximately 60% as we speak. But we continue to work, and we have raised the target to 90% until the year '25.

But other important sustainable targets is, of course, of great importance. We have one of the most important ones, customers' willingness to recommend us. We have a target of 75%, and the result is actually 92%. It's very good in my opinion.

Trust index, that's our employees' view of the company. We measure it by Great Place to Work. And the target is 85%, which is a very high target, and result 86%. Sponsorship, we have a target to reach at least 50% shall have community orientation, and the result is 53%.

And carbon dioxide emissions, Scope 1 and 2 result 1.35 kilograms per square meter, and we set a new target on 1 kilogram per square meter. And that will also contribute so that we can continue to grow and still reach our science-based target of absolute emissions of 2,700 and carbon dioxide until the year of 2030. And we have a new target on energy use, maximum 85 kilowatt hours per square meter. 2021, we were at some 95 kilogram -- kilowatt hour per square meter. So we have to continue to improve here. And we do a lot of work, but we have more measurement work to do to be a part of that improvement.

Let's also talk about investments in progress. '22, we invested SEK 1.580 billion, and it remains SEK 2.264 billion in approved projects. Construction costs are stabilizing, and we have so far been able to fulfill our projects with one exception in a very good way, very thankful to our organization, but also to committed contractors and customers. We can also continue with development and investment. But of course, it's a great importance, but we do so in accordance with the market and our customers. Not wild, but wise. Our investments now builds the future, so it's important for us if we can keep the tempo going. And also the smallest thing make importance to be able to do adjustments for customers and keep up property maintenance that creates value ahead.

A quick review of our largest project, the largest one soon to be completed is for Pulpeten 5 in Hyllie. Trygg-Hansa are on their way to move in and -- at 12,000 square meters. And after them, the building will be completed during '23, 85% pre-let; return on investment, approximately 6%, and the project includes the highest certification standards with Miljöbyggnad Gold, WELL and ZeroCO2.

Also in Hyllie, Bläckhornet 1, the project we call Vista, this building will be the new entrance from Copenhagen to Malmö, a large mobility hub with over 400 parking spaces. And on top of that, there will be 16,600 square meters offices and restaurants, with no other vacancy in the area and Kvartetten almost filled up. The timing is good to start this project also since there will be a long construction period. Procurement is completed, and we have a possibility to call off the project in 2 phases. Really good attention for the offices, I must say.

Mobility is, of course, of great importance and train and bicycle is really a good thing. But if you can park your electric car in the same building and just take the elevator up to your office, that has some extra potential. Estimated completion for mobility hub is Q4 '24, and the offices a year later. In total, at least 5.7% yield on cost.

Raffinaderiet 3 in Lund will also be state-of-the-art office right beside the Central Station, but delay and higher cost is expected, as mentioned before. First tenant have moved in, and I think we're already really looking -- longing for the end of this project. Conversion project in all industrial building can come with some surprise and several ways, but the result will be very good. And we signed leases at high rent levels. So patience is a part of this.

Also in Lund, at Science Village, right between the research facilities, MAX IV and ESS, we are in full action with our project, Space, where Oatly will be the first tenant with the research and development team. FoodTech are inspiring and what could suit this place better than that. We invest SEK 244 million, and the building will be completed in Q3 '23. Continues to follow the plan, and this will probably be our second carbon dioxide neutral certified building.

Posthornet 1 Phase 2, a new build office of 9,900 square meters right beside Raffinaderiet, very close to the Central Station in Lund. We invest SEK 448 million, and completion is planned to Q4 '25. Procurement is completed, and production start is planned later this year.

At Tomaten 1, also in Lund, we build a facility for Inpac, 6,400 square meters in this first phase, and we invest SEK 137 million, including buying the land from the municipality. Yield on cost approximately 6.5%, and this project also give us an opportunity to continue our development, invest the borrowing since impact is moving from there. Good combination. Completion, Q2 '24.

For Nederman in Helsingborg, with a 20-year lease, we have started this project: 25,000 square meters at Rausgård 21; investment, 470 -- SEK 420 million; and completion in Q2 '24. A long-term investment that also gives a good boost to the surroundings of this building.

We have a project, Huggjärnet 13, also in Helsingborg, 65% pre-let and both phases in full production. Multi-tenant logistics facility with completion in Q2 '23. Snårskogen 5 also in Helsingborg. We built a facility for Doka, 2,200 square meters; investment, SEK 60 million; and completion in Q2.

And finally, Plåtförädlingen 15, we invested SEK 141 million for Springhill and room for 1 more tenant. So 75% pre-let. Construction phase have just started. And here, we have a short production time, so completion already in Q4 '23.

That was some of the ongoing portfolio, but let's also mention quickly something about the future investment, it's important to plan a long time ahead and be prepared when the opportunities arise.

First, what could be our next newborn old baby, Börshuset 1, planned to be a state-of-the-art office in Malmö. Discussion with possible tenants is ongoing as well as the design base. The last tenant moved out in June. So after that, we can start if everything works out the way we want them to. And otherwise, we continue until they do.

Four possible projects in Lund and Helsingborg, Vetskapen 1 at Science Villare area, Ideontorget, Polisen 7 and Vasterbro. Vasterbro, we have a possibility to develop somewhat 70,000 square meters in the future.

Zoning plans are approved for the 3 first projects here. And a few other possibilities from the industrial and logistics segment, Tomaten 1, additional 2,500 square meters beside the facility for Inpac. We have Bilrutan 5 in Landskrona. And also in Landskrona close to Bilrutan, we have project possibilities for ÖRJA and PEDALEN. And in Sunnanå in Malmö, where we have built for Regional Council of Skåne. And now have built, we can add on 17,000 square meters logistic or production.

We also continue with what we can call some kind of fill-in projects on existing land. But of course, when the demand increases, we can add on value by this. Here are some of these possibilities in Malmö.

And we continue also our dream of Nyhamnen. The work with the whole area continues, but the municipalities struggle with the overall infrastructure planning. Every day seems to bring new ideas. The light blue buildings in this picture are from our running portfolio, and the dark blue is building possibilities on our land.

So we continue with trying to reach higher density at Slagthuset as one of our projects in Nyhamnen. We own the land, and we have planned permission for housing, but we think the area needs a higher density, and we'll work for that. And of course, we need offices at best location.

And here are some other projects in the area. This is project both from Nyhamnen and Dockan and a mix of approved zoning plans, ongoing plans and application for zoning plans.

So let's summarize 2022. Once again, we have record in income, recurring profits, record net letting, recording like-for-like rental growth, stable balance sheet, access to liquid funds. We invest for the future. And I also think that we haven't mentioned cash flow too many times. So overall, and during circumstances, I would say, all good.

And by that, we are open for questions.

[Operator]

[Operator Instructions] Our first question comes from John Vuong from Kempen.

[John Vuong, analyst]

Is there any specific city where like-for-like rental growth was much stronger than the rest, crushing up the average to 14%?

[Ulrika Hallengren, executive]

Actually, I would say that we see a good improvement in all our cities. But of course...

[Arvid Liepe, executive]

Slightly stronger for offices than for logistics production, but all cities contribute in a good way.

[Ulrika Hallengren, executive]

And if we look into the like-for-like portfolio, we have, for example, during the year, several really good new leases in Lund, where we have vacancy before. So of course, that add on in a good way. But the rents -- and also the demands for higher quality, we see that in all cities.

[John Vuong, analyst]

Okay. That's clear. And when you're saying slightly stronger for offices than logistics, what difference are we talking about?

[Arvid Liepe, executive]

I don't have the number off the top of my head. But I would say that if we have an average of 13.7%, you'll probably have a difference of a couple of percentage points between the 2 segments.

[John Vuong, analyst]

Okay. That's clear. Maybe on the reversion then, what are you still seeing in terms of reversion after the strong start?

[Arvid Liepe, executive]

I would say that the acceptance of the indexation among our tenants has been very good, as you can see in the like-for-like numbers. And I think that, as I believe we have discussed previously, I mean if you have the indexation and -- for commercial leases in Sweden, the very vast majority of the leases are linked to CPI. The perceived market rent has gone up basically with indexation.

In addition to that, we, of course, always try to work with our tenants to adapt premises to their changing needs. And we have the opportunity to charge them a bit more for those adaptations.

[John Vuong, analyst]

And maybe when you're saying perceived market rent has come up, does it also mean that it has come up by double digits?

[Ulrika Hallengren, executive]

Sorry, the last part of that sentence?

[John Vuong, analyst]

When you're saying that perceived market rent has come up, does that also mean that perceived market rent has gone up by double digits? Or is that likely slightly?

[Arvid Liepe, executive]

Yes, by index, basically.

[John Vuong, analyst]

Okay. That's positive signs. And maybe one last one from my side. If you were to start a new project today, on average, what rent level would you be able to ask compared to, say, last year in terms of percentage change compared to last year?

[Ulrika Hallengren, executive]

I would say that we have -- the indexation goes through also in our projects. And the rest of the difference between is depending on the location and, of course, the quality, but at least the indexation. But we also have higher yield demands in our projects today. So of course, that has to balance in a good way.

[John Vuong, analyst]

And -- but then also given that the cost construction was up roughly, say, 10%, does that mean that your yield on cost is also stable for the coming years?

[Ulrika Hallengren, executive]

We expect higher yield on -- a bit of higher yield on cost in our projects. So of course, we have to calculate in a good way and work together with also our contractors to reach that.

[Operator]

Your next question comes from Markus Henriksson from ABG.

[Markus Henriksson, analyst]

Ulrika and Arvid, first off, a follow-up there on the rent reversion. It sounds like the acceptance for indexation has been very good. So could you potentially see increased market rents where you to introduce a solid project to the markets in, say, Malmö?

[Ulrika Hallengren, executive]

Yes. I think the market rents are at a higher level today with the indexation at least.

[Markus Henriksson, analyst]

Yes. Exactly. But in other markets, it is like that the reversion potential might be on the negative side post the indexation, but you sound very confident that the acceptance has been very good among tenants. So a bit more elaboration there would be helpful.

[Arvid Liepe, executive]

But I think if you look at other markets in Sweden and compare that to our markets, historically, we've had a lower reversion potential, and we have, at times, been a bit envious looking at markets where you can go in and renegotiate a contract at 25%, 30% higher rent. The volatility in market rents, in our markets is a lot lower, but we don't see any signs of the reversion turning negative.

[Ulrika Hallengren, executive]

It's possible that we will see a larger spread between good facilities and in lower attractive areas, for example. But I think the good quality products in the right location, they have moved up. And of course, this is a substantial reason for that. Construction cost has gone up. Financial cost has gone up. So the new market rent level is accordance and reasonable.

[Markus Henriksson, analyst]

And Then you have a very impressive occupancy trend here in past 8, 9 quarters. Do you foresee that to increase further from 93.3% here, given that you showcased positive net leasing in the last 12 months?

[Ulrika Hallengren, executive]

Yes. The positive net letting, of course, will improve further, but we not only measure ourselves in occupancy rate because it's important that we also feel free that we can add on vacancy for further things to lease out, of course. So EBIT improvement is possible, but there must be some flow, of course.

[Markus Henriksson, analyst]

Yes. And on that note, do you intend to be a net buyer in 2023, filling up with more vacancy?

[Ulrika Hallengren, executive]

I hope that we can act wise also during '23. If we find things that are right for us in a long-term perspective, I hope that we will be the right buyer for that as well.

[Markus Henriksson, analyst]

All right. Last question here. The property values, they are flat in Q4. Could you share a bit more detail into how the external appraisers have risen regarding property segments? Also geography, do we see large differences in Denmark versus Sweden, et cetera?

[Arvid Liepe, executive]

Shall I go?

[Ulrika Hallengren, executive]

You can go.

[Arvid Liepe, executive]

Okay. I think in Q4, as you say, the net is very close to zero. So the changes have not been great in any segment. We've had a slightly lower values in the industrial logistics production segment, and we have slightly higher values in Copenhagen. But the differences in Q4 has not been great. And as mentioned previously, I mean both in the Q2 and in the Q3 report, we did take into account some assumed yield requirement increases.

[Markus Henriksson, analyst]

One last follow-up. The inflation assumption for 2023 in the property valuation, what's that figure?

[Arvid Liepe, executive]

I believe that the appraisers have used 8%.

[Operator]

Your next question comes from Erik Granström from Carnegie.

[Erik Granström, analyst]

Arvid, I had a few questions as well. We could start off with perhaps where we left off in terms of valuations. You mentioned that you make 100% external valuation once a year now in Q4. Does that mean that basically you did everything externally evaluated now in Q4? And how do you view the external valuators difference between what they see and what you've already done in terms of your internal valuation, meaning is there a big difference between your internal valuation and the external one?

[Arvid Liepe, executive]

You could say apparently not, given that the changes in Q4 were just minus SEK 16 million. You're quite correct that the external appraisers have gone through all of the properties during Q4. And we believe it's a prudent way of doing it because it gives -- at that point in time, it gives them the same sort of valuation for all properties. And as mentioned previously, we did take some changes in assumptions and the valuations already in Q2 and Q3, and the outcome in Q4 was then very small changes.

[Erik Granström, analyst]

Okay. And if we think about the fact that you mentioned, I believe, that external appraisers use future vacancies and that makes -- that sort of brings the fact that their yield requirements might be slightly different to what they come up with versus your own. Just to be clear, from what I understand, the yield requirements within the valuation is slightly lower than the running yield that you have currently on the books. Could you say something about how big the difference is? Are we talking a percentage point here? Or is it closer to a few bps?

[Arvid Liepe, executive]

I mean, as usual, we don't think that it's very relevant to specify a number as some companies do with 2 decimals of the average valuation yield because you have to factor in your assumptions on vacancies, your assumption on index, your assumption on market rent development, your assumption on the costs. So if you don't have all the assumptions, just looking at the average valuation yield with 2 decimals, it doesn't really tell you anything.

[Ulrika Hallengren, executive]

But it's correct that the market yield is lower than running yield. It's also good to know that when we do our internal valuations, we use the same kind of method that the external appraisers do. So we also calculate with vacancy year 6 and such. The same method where we do the valuation. But in the operation, we expect more of us.

[Erik Granström, analyst]

Okay. I'll move on. In terms of investments, you invested a little more than SEK 1.5 billion in '22. I believe you have a little more than SEK 2 billion running in just the larger project. What can you say about investment volumes planned for '23? Is it about same level as '22 or higher or lower for some reason?

[Ulrika Hallengren, executive]

I think you could expect that we will invest somewhere between SEK 1 billion and SEK 1.5 billion. And we have some flexibility in the projects, but we really try to keep up the tempo in a good way, but in accordance to the market, of course. So responsible, but -- moving forward.

[Erik Granström, analyst]

Okay. And then my final question regards the maturities that you, Arvid, mentioned in '23, SEK 986 million in bond. From what I understand, it was SEK 160 million something that had already been taken care of here ahead of the report. Could you tell us something about how you plan on handling the maturities for this year?

[Arvid Liepe, executive]

Of course. We have maturities in Q3 and in Q4. And basically, I mean, if the bond market looks as it does today, we will pay back those bonds using existing credit facilities. In the best of worlds, the bond market will start functioning again. So I mean, over time, we would like the bond market to be a source of funding also going forward. But given the way the bond market functions today, we are not willing to pay the margins required to issue bonds. And we have available credit facilities to pay back the bonds that we have. So from that perspective, we'll take that decision towards the end of the summer.

[Operator]

Your next question comes from Eleanor Frew at Barclays.

[Eleanor Frew, analyst]

Just following up on that SEK 1 billion to SEK 1.5 billion of development. How much of that would be on maintenance? And how much will be on new though?

[Ulrika Hallengren, executive]

Usually, we have a figure that says that we invest about approximately 1% of the value in maintenance. But actually, I think it might be a bit. We often do maintenance together with other projects. So actually, I think that figure is a bit lower. But it's an important part, of course, that we keep up the maintenance as well. I don't see -- we do that all the time. So there's nothing special in 2023 in that. But I can see that colleagues in the city, maybe slow down their tempo a bit. And I think it's important to point out that we don't. We keep up the tempo so that we also can keep the value ahead.

[Eleanor Frew, analyst]

Great. And then given the high rate environment, are you anticipating any further pressure on yields? And if so, how comfortable are you with your current LTV?

[Arvid Liepe, executive]

We are comfortable with the current LTV at 48%. But I think it's important to bear in mind that the LTV is most important when we go to the bank and borrow money, and we do have collateral to give to the bank to finance our credit facilities. More important to look at net debt in relation to EBITDA because as repeated previously already, look at the cash flow the cash flow is the most important factor to assess the credit risk or the refinancing risk of us and our type of companies.

[Operator]

[Operator Instructions] Your next question comes from Stefan Andersson from Danske Bank.

[Stefan Erik Andersson, analyst]

Just a follow up on the bond market there. Could you maybe indicate what kind of levels of spreads where you would be comfortable to use the bond market? I know the screens for BBB, for instance, say, 300 basis points or so. But we heard from Fabege and Atrium saying that there have been indications to them that they could do stuff at 225 or something at the moment. So just an indication of where would you be comfortable to actually reenter that market.

[Arvid Liepe, executive]

I don't want to say. But to still reason a bit around the question, I would say that, I mean, currently for a new bank loan secured, we are paying approximately 140 basis points for a 3-year bank loan. We've been a number -- during a number of years in the kind of strange situation that we've been able to borrow cheaper, unsecured in the bond market than we've been able to borrow in the bank market. The bank margin has probably gone up about 20 basis points or something during the past year, and bonds were even cheaper than a bit over a year ago. I think it's not unreasonable that unsecured bonds should actually require a slightly higher margin than a secured bank loan. But I don't want to put a number on at which level we would make a bond issue at the moment.

[Ulrika Hallengren, executive]

So you don't negotiate in the webcast.

[Arvid Liepe, executive]

Nope.

[Stefan Erik Andersson, analyst]

I think your answer is good enough. Just to clarify on the canteen business. So I understood that correctly. There's no commitment to the new supplier here. So you expect to save roughly the SEK 11 million into '23?

[Arvid Liepe, executive]

We will probably have a few costs associated with the canteens in 2023 as well, but it will be small numbers.

[Stefan Erik Andersson, analyst]

Yes. Good. Then on the building side, I mean I guess you're in constant dialogue with the construction companies. What is your experience at the moment? Are you seeing improving prices? Are they easier to negotiate with? If you could give some flavor there, I would be happy.

[Ulrika Hallengren, executive]

Yes. As mentioned before, we saw that quite early in the autumn actually that they were more eager to -- and find good ways to also find the right price. So even though the material -- the cost of materials for the full area, it hasn't gone down, but in some parts it has and more stabilized definitely. And we can work together with our contractors in a good way. Choosing the right organization. They are not so overbooked as they were a year ago or so. So I think that we have quite good possibilities to fulfill our project and, of course, continue with the new ones. We have, for example, well, good deals both at Vista and Posthornet in Lund, which we lately signed.

[Stefan Erik Andersson, analyst]

Are they all fixed prices now?

[Ulrika Hallengren, executive]

We work in kind of our collaboration method where we have a maximum price, but we also have a goal. And we have some incidents in that so that we can work together with open books, and we are -- have the ability to actually make changes during the project together with our customers. So we think that method works very well as we have a cap.

[Stefan Erik Andersson, analyst]

Yes. Good. And then if I got the impression right from your comments, even though you didn't spell it out, should we expect a little bit softer on the net letting side going into '23? Or are you confident you would have a good 23% as well given the negotiations you are currently seeing yourself?

[Ulrika Hallengren, executive]

I think we are in a good position at the moment. But who knows what's coming. And we saw that during the pandemic that people and companies were more cautious, of course, not knowing what the future should bring, and that might come now as well. So we are prepared for that. And that only means that we work harder. So -- but of course, I can't give any promises about continue with positive net lettings forever and ever, but I see good potential, definitely. But I also expect the possibilities that we will see a bit of a slower tempo, that's possible.

[Stefan Erik Andersson, analyst]

Yes. Okay. My final question then is really your thinking on your strategy to the fixed interest rate period. Are you -- do you want to keep it on this level? Or do you see -- do you -- would you rather let it to come down further given what you're seeing on the interest rate market at the moment?

[Arvid Liepe, executive]

I don't think it will come down further. But the interest rate risk management policy that we have and follow does not take the average interest period as its objective, but rather we define that a certain minimum and maximum proportion of interest rate maturities shall fall due during 0 to 1 year to 1 year to 2 years, 2 to 3 years, et cetera. So we will continue to work with that strategy, and -- but when doing that, I don't expect the average interest maturity to come down further.

[Operator]

That concludes our question-and-answer session. I would like to turn the conference back for closing remarks.

[Arvid Liepe, executive]

If I may jump in. We've actually had a question via e-mail, which I can briefly answer. And the question relates to which costs we have for our unutilized credit facilities. And the approximate answer is 40 to 45 basis points per annum. Just to clear that question as well. And that is the only question I've seen via e-mail.

[Operator]

Confirming no further phone questions at this time. Thank you.

[Ulrika Hallengren, executive]

Okay. So by that, thank you for listening. And see you next presentation, I hope.

[Arvid Liepe, executive]

Thank you very much. Bye.