Wihlborgs Fastigheter AB (publ) (WIHL) Earnings Call Transcript

Hello, and welcome to Wihlborgs Fastigheter Webcast for Teleconference Q2 2022. [Operator Instructions] And today, I'm pleased to present Ulrika Hallengren, CEO; and Arvid Liepe, CFO. Please begin.

Thank you. And welcome to the presentation of Wihlborgs' Q2 Report 2022. If you want to manage well in good and worse times and also be able to reach out far, it's always a benefit to have a strong core. And working with that core gives stability during rough conditions and ability to be flexible and fast when opportunities come by. We continue to work on our core and the results keep coming. Our core is our position in our region, our culture and our dedicated employees. Our core is also our strong cash flow and that we like records. I'll start with some figures. SEK 109 million is the new record for new leases in 1 quarter. SEK 41 million is the net letting for Q2. This continues to build our cash flow. 7.5% is rental income growth in like-for-like, a record and a very strong number, also building our cash flow, and this is before indexation '22, of course. 7.2% is the multiple for interest coverage ratio. The cash flow is behind this strong figure. 10.5% is borrowings relative to earnings, net debt divided by EBITDA, also results from strong cash flow. A part of financial stability is access to capital. As of end of June, we had SEK 3.3 billion in available funds and our average interest rate is 1.35%. Now let's go back to the standard presentation mode, a summary of Q2 '22. As mentioned, strong letting, increased rent levels also in the Industrial portfolio, solid increase in rental income and profits, stable balance sheet, continued access to financing, and by that, also a good position to meet future opportunities. Results for the first half '22. Rental income increased by 8% to SEK 1.599 billion. The operating surplus increased by 9% to SEK 1.135 billion. And income from property management increased by 11% to SEK 950 million. The result for the period amounts to SEK 1.549 billion, which corresponds to SEK 5.04 per share after the split in May. And EPRA NRV increased by 4.9% to SEK 87.60 per share adjusted for paid dividend. A comparison between rental income first half '21 and first half '22. Acquisition, plus SEK 18 million; indexation, plus SEK 27 million; currency effect, plus SEK 11 million; income from canteens in Denmark, plus SEK 10 million; lower vacancy, plus SEK 23 million; and other increase from new leases and higher rents, excluding indexation, plus SEK 33 million. On the cost side, we are still struggling to reach breakeven at our canteens in Denmark, but we have focus on that question and the canteens are an important service for our tenants. But overall, a good growth in rental income, and this is before the indexation coming up for '22. We have signed new leases for the quarter of SEK 109 million and SEK 163 million for the period. The positive net letting for the quarter is SEK 41 million and SEK 69 million for the period. The activity among our customers continues to be high, and we see many new inquiries coming up. And as always, even if we have been able to sign some larger leases, it's in the large number of many growing tenants that build these figures. I will keep on mentioning this every quarter. Here are some of our new tenants that we have signed during Q2 '22, a mix of different segments as usual, and a good contribution from all our regions. Nederman in Helsingborg and the Öresund in Malmö are among the largest. But MAX IV Laboratory in Lund, Nya Vattentornet 4 and Green Landscaping at Snårskogen 1 in Helsingborg are also very important filling up areas that for some time have been a bit more difficult for the market. Here we have the net letting in a historical perspective, 29 positive quarters in a row and only 1 quarter with a negative number for over 14 years. So 58 positive quarters out of 59, a good score, I would say. And I would claim that this has not happened accidentally, and it's not only luck behind this. Letting in light green, termination in light blue, and dark blue stacks are the net letting. The number of new leases is 270 for the period. And as always, no guarantee that we will never be below 0, but Q3 has also started well, even if the number of leases in Q3 normally is lower than rest of the year. A list of our 10 largest tenants in alphabetic order, they contribute with 20% of our rental income and also the rental income from public tenants continues to be high, 24%. And just a reminder, once again, it's the wide diversity across many sectors in a region that is the strength that brings this stability over time. Rental value is now SEK 3.537 billion per year, and rental income SEK 3.239 billion; plus 9%, 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 of course, when they have demand for upgrading their workspace, we are there. Sometimes, we move around in 2 or 3 stages to make changes possible. And looking at like-for-like figures, we can see that the rental value is up plus 6.3% and rental income is up 7.5%. A record high level and again beating our ambition to exceed index by at least 1 percentage point. And vacancy will continue to improve as a result of high positive net letting. A summary of our portfolio. The market value is now SEK 42.408 billion for the office portfolio. And overall, the occupancy rate is 92%. It's 94% in Malmö, 90% in Helsingborg, 92% in Lund, and 93% in Copenhagen. The operating surplus from offices summarized to SEK 2.086 billion and a running yield of 4.9%. And also worth mentioning again, running yield is not the same as valuation yield. Maybe you can say that the we actually performed a bit better in our portfolio than our appraisers expectations. In this valuation method, there are calculation models for future vacancy, but we work with our properties so that the vacancies should decrease rather than increase. While our vacancies increase in the property stock, it's usually because we have bought something with vacancy or emptied a property and created vacancy for development. The demand for logistic and production continues to be good. Occupancy 94% in Malmö, 91% in Helsingborg and 92% occupancy rate as a whole, with a running yield of 6.2% and a total value of SEK 6.563 billion. For the entire property stock, the occupancy rate is 92%, excluding projects and land, and an operating surplus of SEK 2.493 billion, which gives a running yield of 5.1%. Total value of the portfolio SEK 51.760 billion. And changes in market value of our properties. We started the year with SEK 50.033 billion. In accordance with our external valuation, which we do once a year with 100% of the stock at the same time, we have acquisitions for SEK 377 million, primarily Österport in Malmö. We have invested SEK 568 million and divested a small piece of land in Helsingborg for SEK 1 million. Together with changes in valuation, they amount to SEK 372 million. The increase in value comes mainly from new leases. Expectation of inflation during '22 and '23 have gone up, and we have increased the yield requirement somewhat. These 2 changes basically offset each other in the valuation. Together with currency translation of SEK 411 million that summarized a property value of SEK 51.760 billion. The value of the portfolio has developed, as you can see in the slide, since 2005. A bit flat 2020 due to the large divestment in the North harbour in Malmö, but now back on track, and we continue to be ready for further transaction possibilities once this morning we announced. I'll get back to that. But first, a short summary of our portfolio in our 4 cities. A catalog of our value of properties here. 42% of the value in Malmö, 23% in Helsingborg, 17% in Lund, and 18% in Copenhagen. These are the main cities in the Öresund region. And together, they create a good mixture of possible development and back to business for living, education and work. 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 the towns efficiently. There is still more to be done to integrate the labor market between Sweden and Denmark. But today, there is a strong need for labor in Denmark, while we have unemployment in Sweden. This combination can stimulate our governments to increase cooperation further and make it easier for people who want to live on 1 side of Öresund and work on the other. So something about acquisitions. It continues to be important that we find both the right price and the right location for long-term ownership. We prefer when we can contribute with something, maybe a vacancy to work with or some technical improvements that we can increase the rent over time. We have bought the Österport 7 in Malmö, a very attractive spot, both close to the central station, but also with a good parking possibility. 11,000 square meters today full let to [indiscernible]. Property value of SEK 390 million, but we know that this property needs some technical improvements, a good possibility for us and also for [indiscernible]. We can give them an even better work space for their employees. The building can be used both for single and multi-tenant. We have also acquired Lersö Parkallé 107 in the northern part of Copenhagen, 3,600 square meters, with an operating cash flow of some SEK 3 million. But the plan is to invest a bit, make it more energy efficient, and add some extra modern touch. And by that, we calculate to get a higher operating surplus, not the largest deal, but a good example on how we can add value. And this morning, we announced an acquisition that is a bit larger, but worth mentioning, even though it will affect the accounts of the Q3 period. 52,000 square meters in South Copenhagen, a new area for us closer to the city center and just beside 2 metro stations, 1 each. And we can also offer good parking here as well. The location is also very close to Copenhagen Airport and the Øresund Bridge, a good spot to be, modern and very refurbished premises, but 25% vacancy, where we can contribute. Further investments are planned in the area, which further also will strengthen the activity here over time. Initial rental value of DKK 40.8 million, but we expect improvement. Date of transfer is agreed to 1 September, and we fully finance the requirement via the Danish mortgage system. And over to you, Arvid, for financials.

Thank you very much, Ulrika. Good morning, everybody. If we move to the next slide, you can see the income statement for Q2. Rental income amounted to SEK 804 million, plus 9%. Operating surplus was SEK 578 million, plus 8%. On the cost side, we have had slightly higher costs in our Danish operations than we would have liked to, that relates partly to the canteens, as Ulrika related to earlier, but also that energy costs in our Danish operations have increased, and we are not able to fully pass those along to our tenants. Income from property management amounted to SEK 483 million, plus 9%. The value changes in the quarter was plus SEK 151 million, a positive value in derivatives stemming from rising market interest rates, and a profit for the period of SEK 733 million. Looking at the balance sheet, you can see that the property value versus 12 months previously has gone up by SEK 4.7 billion. At the same time, equity has gone up by SEK 3 billion, despite our paying a dividend of SEK 922 million in Q2. Borrowings are up SEK 1.5 billion in the same period. Translating these numbers into some key ratios. The equity assets ratio now stands at 42.1% and our LTV at 48.0%. The interest cover ratio is still at extremely high levels at 7.2x. Looking at per share numbers, I would like to highlight the EPRA NRV at SEK 87.6 per share versus 12 months previously, that is up 17% adjusted for dividend. On the next slide, we can see the development of EPRA NRV since 2009. And the growth of 17% per year has actually been the same since 2009 on average, which I think is a very strong and consistent number. Looking at the historic development over the past 5-year period of the equity assets ratio. You can see that it has gradually gone up and well above the limit that we've set for ourselves of a minimum of 30%. The loan-to-value has, at the same time, gradually come down. And also that, well below the limit we've set for ourselves of a maximum of 60%. And the interest cover ratio at 7.2x is very much stronger, of course, than the minimum interest cover ratio target that we've set for ourselves at 2.0x. Looking at financial stability. We think it's very relevant to look at how the net debt in relation to EBITDA has developed. Over the past few years, we have gradually strengthened this ratio and this now stands at 10.5x. Looking at our financing situation. We have now just over 50% of our external borrowing from the Swedish bilateral bank agreements, about 36% from the Danish mortgage system and 13% from the bond market. Given the instability of the bond market currently, it's, of course, a strength to have a limited exposure to financing from the bond market. We have bond maturities of just over SEK 800 million in Q3, which we are able to fully repay via existing bank facilities, if need be. And I think it's also worthwhile mentioning that the Danish real mortgage system continues to work in a very consistent way. So that is still a very attractive source of financing for us. Looking at the next slide, you can see the structure of our interest and loan maturities. Our average interest rate is 1.3% -- 1.35% including costs for credit facilities. We have an average fixed interest period of 2.5 years and an average loan maturity of 6.2 years. In the current interest environment, it's, of course, important to look at the interest rate sensitivity. And on the next slide, you can see a graphic picture of how that looks for us as of end of June. The graph on the left, you can basically say that an instant increase in market rates of 2 percentage points would basically affect our average interest rate by 1 percentage point. And on the next slide, you can see the historic development of our fixed interest period and our loan maturity. And we continue to follow the financial policy that we set for ourselves a number of years back in time, the end of 2018. And of course, over time, we will be affected by rising interest rates, but our financing policy and financial interest rate risk management policy gives us a reduced volatility in financing costs. Lastly, looking at available funds, which, of course, also is a very important number to follow in these days, we have unutilized credit facilities plus liquid funds amounting to SEK 3.3 billion as of end Q2. And with that, I hand back the word to you, Ulrika.

So thank you. I'll give you an update on sustainability. Strong financing is, of course, a most important part of sustainability. But I will also give you some example of lower cost as an additional part. First, since the last report, another 7 properties has been approved and classified as o Miljöbyggnad iDrift, all of them from the running portfolio and in total additional 45,300 square meters. The forecast is that we might reach 75% of the offices in Sweden in 2022, and then we will just continue. Last report, I talked a bit about Scope 3, which is our largest and most important challenge. Our goal for the highest carbon dioxide equivalent per square meters in all our new construction projects together with a new model where we actually put a price on carbon dioxide impact also in our refurbishment project. There are steps on that path that we all have to go, trying to find the best solutions, but there are also things that we can do in existing buildings. And I will give you a short example of that. Torrdockan 6, 1 of our first buildings in area in the Dockan area Malmö, 12,000 square meters, built in the year 2000. Of course, by working with the control and anti [indiscernible] system for ventilation and heating and cooling in buildings, we can reach good operating values in our buildings, if we design them strictly and we put up the demands for the systems, of course. We always put up the demand for open source and flexible system. It's a basic requirement for us, but there is so much more we can do. We have worked for many years trying to reuse and recycle both heating and cooling in our buildings. And actually, when we have buildings where we have tenants where some of them contribute with extra heat over the year, for example, a restaurant or [indiscernible], and some of them need that heat, we can exchange these needs with reversible heat pumps. But you cannot buy these things at the level of efficiency that we ask for. So we actually design the compressors and the reversible heat pumps ourselves. We have tried this system for some years, and now we can see the results. In Torrdockan 6, we saved 55% of the total energy consumption; heat, cooling and electricity together. The energy class went from Class E to B, better than many new buildings, and with almost no new carbon dioxide impact. A very good model that we hope can improve many buildings in the future and a good investment, of course, even if [indiscernible] for this moment, decided that if we use less energy from the district heating system, they raise the price per unit, but we still get a short payback time for this investment. So let's go to all our investment in progress. We have, during first half '22, invested SEK 568 million in ongoing projects, and it remains SEK 2.576 billion to invest in improved projects. In total, almost SEK 3.5 billion in ongoing projects. Overall, the projects in production generally meet both schedule and budget forecasts with 1 exception at Raffinaderiet in Lund. Otherwise, despite the troubled world with a war in Ukraine, high energy prices, lack of materials, higher prices overall, and problem also with logistics and production times of materials, we are actually quite protected from that so far, working very close with our contractors and tenants that helps us finding solutions and sometimes we can change construction methods or material. Now we see several signs that the price levels go down later on this year, and that is good, of course, not at least for our contractors. We can actually see that the tension drops a bit from their shoulders at the moment. A quick review of our largest projects. The large 1 in production is Pulpeten 5 in Hyllie; Pulpeten, as we call it, SEK 804 million, including VAT for the part where [indiscernible] tenants. Return on investment 6%, and the project includes 16,000 square meters lettable floor area and the highest certification standard with Miljöbyggnad Guld and Zero carbon dioxide. 85% pre-let and completion Q2 '23, and the rest of the tenants will move in from Q2 and forward. Also in Hyllie, Bläckhornet 1, the project we call VISTA, a large mobility hub with 400 parking spaces. Although the block is right beside the train station, parking is still an important sales factor. And on top of the mobility hub, 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 since there will be a long construction period, but also important that we get the best offer from our contractors. Procurement is ongoing. And I can just say that I'm optimistic. We have many trustful and dedicated contractors, good for us in these times. Estimated completion in Q1 '25, but the mobility hub will be ready earlier. In total, at least 5.7% yield on cost. Hindbygården 7, Malmö. We're doing a project we will let to Beckhoff Automation. State-of-the-art office at a good transport location in Malmö. Investment, SEK 59 million, and completion in Q3 '22. Raffinaderiet 3 in Lund will also be the state-of-the-art office right beside the Central Station, but a bit delay is expected. First tenant can move in, in Q1 '23. Conversion projects in old industrial buildings can always give you some extra surprises in several ways, but the result will be very good, and we signed new leases at really good levels. 5,800 square meters offices at best location might be worth a touch of extra patience, even if I must say, it's not my best skill, to be honest, I keep on practicing. Posthornet 1, Phase 2, new building office of 9,900 square meters right beside Raffinaderiet and the Central Station also, of course. Investment SEK 448 million, and completion is planned to Q4 '24. Procurement is ongoing, but we will give it some extra time also, so that we can make a good plan not to interfering with Raffinaderiet. At Science Village, right beside research facilities MAX IV and ESS, we have started our project, SPACE, where Oatly will be the main tenant. They will have their research and development team here. And we have more building rights just beside this one. We invest SEK 244 million, and the building will be completed in Q3 '23, follows the plans very well. In Helsingborg, we are building a multi-tenant logistic project at Huggjärnet 13, 65% pre-let, and both phases have now started, completion in Q2 '23. And that's Snårskogen 5, also in Helsingborg. We will build a facility called DOKA, 2,200 square meters, investment SEK 60 million, and completion in Q1 '23. Another large 1 for Nederman, and a 20-year lease we signed in Q2, 25,000 square meters at Rausgård 21 in Helsingborg. Investment SEK 420 million, and completion in Q1 '24, a really long-term investment that also gives a good boost to the surroundings of this building. A large ongoing portfolio, but let's also mention something about future investments. Four possible projects in our 3 Swedish cities. Vetskapen 1, just beside Kunskapen 1 at the Science Village area. Ideontorget, here we can build approximately 16,000 square meters just beside the tram station in several phases. Polisen 7, offices in the city center of Helsingborg; and Naboland 3 in Malmö, where we can offer 8,000 square meters gross floor area here in Dockan. Zoning plans are approved for all these projects and we can start when we have the right customer. And a few other possibilities from the industrial and logistics segment. Plåtförädlingen 15 and 18, 22,000 square meters in Helsingborg. Tomaten 1 in Lund, just the lease of the land at the moment, but with the right tenant, we are allowed to buy this property and we can build approximately 17,000 square meters here. Industrial land in Lund is hard to get. So here's a good potential. We also have Bilrutan 5 in Landskrona, 14,000 square meter logistics beside the highway. The zoning plan that will allow us a 20-meter high building. And in Sunnanå in Malmö, where we have built for Region Council of Skåne, and we will build, we can add on 17,000 square meters logistical production. We also continue the planning on Nyhamnen, but the municipality still struggles a bit with the overall infrastructure planning. I think I said something about patience earlier. However, we can continue our design and planning for projects in line with ongoing zoning plans, for example, Smörkajen, a design for 13,000 square meters. And Kranen 15 just at the entrance to the Dockan area from Nyhamnen. We worked with the zoning plan and it's still to be started, as well as the architectural competition for the design that is part of that process. Together with JM and Peab, we also continue our joint venture for new zoning plans in the Dockan area, workspaces, school and housing in a mixture. And at Västerbro and Lund, the work with the zoning plan continues, and we can develop approximately 70,000 square meters here. And we also continue with several city development projects in Copenhagen. At Ejby Industrivej 41, we work with our plan for a new structure at this large area, very close to the new tram station [indiscernible]. We can possibly develop something like 100,000 square meters; housing, school and workplaces. The only thing we can be sure of in this moment is that it will not look exactly like this. It's still in early phase, of course. So let's summarize Q2 once again. Strong letting; increased rent levels; solid increase in rental income and profits, plus 8% and plus 9%; stable balance sheet; continued access to financing; and by that, also a good position to meet future opportunities. I would like to end with another figure, 100. 100 as in 100 years. In 2024, Wihlborgs will celebrate 100 years. It's a long time. Stability and growth have always been in the DNA. We have our strongest time right now, and it's my definite ambition that we will be even stronger at our birthday party. And all of you, of course, will be welcome to celebrate. And by that, we are open for questions.

[Operator Instructions] Our first question comes from the line of Markus Henriksson from ABG.

A few questions from me. First off, looking at the NOI margin, it decreased around 0.8 percentage points year-over-year; at the same time, occupancy rate is up at 92.4% versus 90.8% last year. You highlight the increases in energy costs and also increased cost for the canteens. On the back of that, how should we view operating costs going into the coming quarters?

I think, as Ulrika said, we are working hard on getting a balance in the results of the canteens in Denmark. They are important in our offering towards tenants, but we can do better in improving profitability. We have, in our Danish operations, what we call warm rents, so to speak. I don't know if that is the correct English expression. But basically, where we cannot pass on energy costs to the tenants. In our Danish operations, that type of contracts account for between 15% and 20% of our total contracts. That means that with rising energy costs, we can assume that we will have a few million higher costs per quarter from the Danish operations, presuming that energy costs remain at the levels where we are at present.

Very clear. Then regarding the recent transactions. First off, I haven't seen when the deal in Helsingborg is closed, so that would be good to get that date? And then also regarding the...

1st of July.

1st of July. Okay. Then also on the acquisition you press released this morning, you highlight a vacancy of around 25%. And then you also mentioned that both properties are modern. So are you able to start with the leasing activity directly?

Yes.

Very clear. Then on your balance sheet, net debt to be slightly above 47% now, increasing a little bit more now with the announced acquisitions. You mentioned during the conference that you are ready for more acquisitions. So should we expect you to continue to be a net buyer here for the rest of '22? Or how do you view the transaction market versus your balance sheet at the moment?

We will continue to look at every possibility and make long-term good decisions.

Do you see a lot of deals in the market?

No. Not significantly different in any way. I think it's important for us to be true, as we mentioned before, that we will find the right spot to be and the right quality we can add value and find the right price for that. But I hope that there will be more possibilities, of course, but we will do it in a sustainable way.

Last question. You mentioned that bilateral bank market and the mortgage system in Denmark remains stable. Could you give us some details or flavor regarding margin spreads and what they are saying to you?

I'd say, if you look at the Danish real mortgage system, recent financing discussions indicate stable margins, basically where we've been before, around 70 basis points. Swedish bilateral bank agreements during the quarter, we've had a couple of discussions, and I'd say you've seen a marginal increase in the margins from the banks in those discussions, say, 10 basis points or something. I think our average bank margin in our Swedish krona loan portfolio is around 130 basis points.

And the next question comes from the line of Staffan Bulow from Nordea.

Yes. I have a couple of questions on transactions as well. You have done a couple of acquisitions in the last month. And is this a consequence of less competition or that the yields have become more attractive, i.e., increased? Or how come that you've increased the pace in the last month?

I think it's more of a timing effect, actually. If you look at Österport, we can add some value there. But it's not for everyone to go in there, I think. So it was a good deal for us and also for the seller. At the same time, we have seen other transactions at higher prices, of course. So I would say that those deals we have done now, it's more of a kind of a before the summer effect, I would say.

Okay. I understand. So I interpreted that yields are relatively stable compared to previously. And what is the outlook for yields given that the interest rates have come up so much? We see a transactor market which appears to be rather stable, but for how long do you think that it can sustain?

It's, of course, only speculations. But I think that the yields could be quite stable, but we might not see the wildest deals to be done in the future for some time. And I think that it's good for everyone that we have a stable market, but healthy. And we still see deals that we think is very high prices, definitely.

Okay. And despite this I think that you wrote in the report that you have changed your yield requirements a bit and also the inflation assumption and that the net effect was 0 from this. So how come that you increased the yield requirement, if I understood correctly?

The valuations, we've generally done those internally as went Q2 as usual. We have, of course, given the changing market conditions, had a dialogue with our appraisers as well, not to get any future surprises and also use their input in our internal valuations. As I believe we also wrote in the report, making the assumptions in the valuation model today is -- I mean, putting in the right assumptions is probably more tricky than it has been for many years. And we have adjusted the inflation assumptions in the models. But given what we see in the market and the transactions we've done ourselves, we felt that it's been prudent also to change the deal requirement somewhat, not to get any extreme valuation changes. Again, you should -- or the way we think, the momentary valuation changes is actually not the primary focus. Our primary focus is to do well in our core operations and to continue to generate strong cash flow.

And the next question comes from the line of Niklas Wetterling from DNB.

Firstly, I wonder if the 3 press releases on new lettings that you sent out in the beginning of July, if those are included in the Q2 net letting figure?

We assume it's part of it. I think -- what was the other one?

IO Interactive. that's also in Q2.

Yes. And what was the last one?

Luckily enough, there have been plenty of new lettings. So it's hard to keep track of them.

I'm not sure if we have announced any from the Q3 actually. We have 5 new leases in Q3, but I think we haven't announced them yet.

Okay. Great. And then I want to go back to Staffan's question there on acquisitions. among peers, you've been much more active on acquisition lately. And I just want to hear your view if you believe the market prices has adapted over the 6 months here following what has happened in the funding market?

As I said, I think that the most wild investors that we have seen maybe will have a period where they are a bit calmer. But we still see things that we think is out of our league, of course.

Okay. And perhaps a theoretical question here, but how much more would you have been willing to pay for, say, 6 months ago for these assets?

No, it's the same price, I would say.

The same price. Okay.

And the next question comes from the line of Erik Granström from Carnegie.

I would also like to ask a few questions about the latest transaction that you announced this morning. 25% vacancy, you mentioned that you're working with leasing now. Has this been a structural problem with this asset? Or is this something that has come up recently, the increase in vacancy? And in terms of lease terms, are there any other leases that you expect to run out going forward short-term?

If we start with the Danish, those 2 assets, they have been working with these assets and modernize them for some time. So we continue that work. I think it's more of a -- there's more to do and the market will be stronger there. So I think it's just a matter of timing in that. The COVID period has, of course, affected the ability for these assets a bit. But as soon as we take over, 1st of September, we will put a lot of energy there. And I know that 1 new lease is signed just a few weeks ago. So the assets are attractive, definitely. And the other question was?

Lease term risks into the acquisition...

Okay. Yes, I would say that, of course, in Denmark, many tenants have shorter periods, so they can make terminations in 6 months announcement, yes, but that is a part of that market.

Okay. Fair enough. And in terms of financing, I assume this is financed through the Danish mortgage system and what's kind of...

Yes, both.

Both. Yes. Okay. So the terms for financing, could you say something -- you mentioned that you have about 70 basis points margin, but sort of what would be the all-in cost in the Danish system for these 2 assets? Just to get an understanding for what kind of yield spreads you're working with?

Adding to the 70 basis points, you have the 6-month KIBOR or in some cases, a 3-month KIBOR.

Okay. All right. And then I was just wondering, in terms of going back a little bit on what you mentioned about increased assumed inflation as well as higher deal requirements in your internal valuations. In terms of increased inflation, could you mention where you started from or where you ended up, meaning how much did you change? And to what did you change your inflation expectations or CPI?

We increased the inflation assumption for the October '22 number to approximately 6%, bringing that down to, I believe, it was around 3% or 3.5% the year after. We increased the yield requirements and the valuations by approximately 20 basis points.