We have carried out a number of transactions during the first six-month period and are now in a stronger position financially. The divestments made, to date this year, include assets with total underlying market values of almost SEK 12 billion. At the same time, our core business is progressing well with several good lettings and a number of our bigger projects nearing completion.
Four weeks in after returning as CEO of Corem, it is a gratifying to be able to deliver a report on the intense quarter like the one recently concluded. For Corem, the past six months have been characterised by a high level of transaction intensity, with completion of a number of previously agreed, larger transactions, as well as new agreements signed.
Since the year-end to date we have carried out, or agreed on, divestment of assets with a total underlying market value of SEK 11.7 billion. They consist mainly of properties, but also divestment of our holding in Castellum and part of our holding in Klövern.
For a number of years with a generous bond market, we and other real estate companies have rapidly expanded. In the coming period, we will focus on reducing leverage; and have made good progress in adjusting the portfolio. With these divestments, we reduce our debt and gradually adjust our size to market conditions. We will continue on this path, and plan for further divestments during the remainder of the year, in order to further reduce debt and ensure bond redemption.
The transaction where we reduce our ownership stake in our associated company, the housing development company Klövern, to 17 per cent has many positive aspects. For Klövern, it is crucial to now have financing allowing construction to start, and be able to offer housing to the market without too much delay. That is positive for us in the long term, as a major owner. The transaction entails that the buyer, real estate investor Nrep, has undertaken to invest a total of SEK 6.5 billion in Klövern over a period of time, through the initial acquisition of shares and future directed new issues of shares. For Corem, the transaction brings an essential impact on liquidity, amounting to SEK 1.4 billion during 2023.
With the challenging market situation we are in it is particularly gratifying to see the high level of activity in letting work, with positive net letting in the quarter amounting to SEK 17 million, and SEK 50 million for the six-month period. Our core business is strong. We see that demand is generally strong and have also signed a number of new lettings both during and after the end of the quarter.
Net operating income has decreased in volume due to the divestments but increased for a comparable portfolio by just over 12 per cent. Profit from property management is restrained by higher financial expenses and amounts to SEK 710 million for the period.
We see a continued negative trend in the development of value of our properties. During the quarter it amounted to near two percent, and around four percent since the beginning of the year, which reflects market factors such as interest rates and inflation. The changes in value is mainly driven by changes in yield requirements connected to higher cost of financing, but a positive net letting and strong development in net operating income slows down the negative development in value somewhat. The average yield requirement has increased by 0.2 percentage points and as of today amounts to 5.4 per cent.
We continue in strengthening our balance sheet through reduction of debt and by redemption of bond maturities. In total, our transaction activities during the past year mean we have been able to ensure redemption of all bond maturities this year. We continue our work toward ensuring maturities also during 2024.
We are gradually increasing our share of bank financing and have strong focus on our loan portfolio and limiting both interest rate risk and liquidity risk.
Demand on the letting market continues to be strong, and we have recently reached agreements on a number of lettings, in, among other places, the Globen area, Malmö, New York and Kista/Stockholm North. It is also nice to see that our most recent letting in Kista further strengthens the area as a “Tech hub”. We also keep working to meet demand for climate-smart sustainable offices, for example tenant adaptations using recycled materials.
It is particularly gratifying to see a stedy increase in occupancy rate of our two office properties in Manhattan, which challenges the general picture of the office segment in the US. It also indicates the differences between modern, high-quality offices in attractive locations compared with the market in general.
In regard to projects activities, we are giving priority to completing ongoing projects and being very restrictive about starting new projects. As ongoing projects are completed, investment costs will decrease and we instead start seeing rental income.
It it truly stimulating to be back at Corem, among both old colleagues and new ones. These are challenging times but we are dealing with it well. We continue to focus on property management and on strengthening our finances. We have a well diversified and attractive portfolio and a strong organisation with a high level of commitment. That inspires confidence.
Rutger Arnhult, CEO
Stockholm 14 July 2023
