Fabege AB (publ) (FABG) Earnings Call Transcript & Summary

Welcome to Fabege Q4 2023 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers CEO, Stefan Dahlbo; and CFO, Asa Bergstrom. Please go ahead.

Welcome to the presentation of the Q4 and 2023. As usual, it's possible to call in to ask questions or send questions by e-mail. So next is the second slide, please. To summarize the Q4, it was a good quarter. Our operating activities performed well. We increased our profit from property management, and we have also a strong net lettings. But let's summarize 2023 first. And even here, as we said before, we had -- for the whole year, we had very good operating activities, and we performed well, though. We had increased property from the -- profit from the property management. We had improved vacancy rate and we have strong net lettings as well. We also reached our goal for the whole year of a surplus ratio of 75%. We could make a long list of positive things. However, it also was a year with a lot of turbulence. There were concerns about geopolitical developments, concerns about the economic situation and many were concerned about the development in the personal and household financings. A lot of it because of the development of the interest rates, of course, because the year was characterized by raising interest rates, volatile currencies and continued high food and electricity prices. In addition to this, many countries were affected by different kinds of extreme weather, and we had the wars going on. Towards the end of the year, the Swedish krona strengthened slightly, inflation expectations and interest rate came down and share prices went up. So we ended the year better than we started. But now I will hand over to our CFO, Asa Bergstrom, who will go through our results in more details. Please, go ahead, Asa.

Thanks, Stefan. Please turn to Page 4. The year 2023 has been different in many ways with falling property values, higher market interest rates and a tougher situation in the capital market. Despite these challenges, we are exiting the year with a strong balance sheet and an improved profit from property management. It now feels that the outlook for 2024 is better in many ways than the same feeling a year ago. Rental income amounted to almost SEK 3.4 billion, corresponding to an increase of 11% in an identical portfolio. The increase in income was mainly due to the indexations that entered into effect at year-end, higher parking revenue and a positive net occupations during the period, of which Convendum's move into Bocken 39 in Stockholm City was the largest. This was partly offset by a negative effect after the Swedish Tax Agency's relocation from Noten 4 on March 31, 2022. Other income of SEK 11 million refers to Fabege's share of the electricity support that was paid out during the third quarter. Increased operating expenses were mainly due to acquired and completed properties, which entered into operation and higher snow clearance costs. The surplus ratio came in at our target level of 75%. Bostad's gross profit amounted to SEK 4 million as 7 projects were completed and where final recognition occurred during the year. The margins have also weakened for housing development and the result includes an impairment in relation to development rights of SEK 6 million. Central administration costs ended up at minus SEK 97 million. Interest expenses increased compared to the previous year, which was due to a slightly increased loan volume and higher average interest rates. The average interest rate increased from 2.39% at the start of 2023 to 3.13% at the year-end as higher market interest rates gradually had an impact. Our active work with interest rate derivatives have partly offset the effect of the higher market interest rates. The result in associated companies amounted to plus SEK 34 million, of which minus SEK 80 million related to capital contribution to the Arenabolaget company, SEK 100 million -- plus SEK 103 million related to income recognition from the JV project in Haga Norra, the residential housing project and SEK 9 million related to contributions from Birger Bostad's co-owned projects. And we, therefore, reported profit from property management of just over SEK 1.4 billion compared to a little bit under SEK 1.4 billion in the previous year. Improved net operating income and the result from associated companies have offset higher interest expenses. Unrealized changes in value amounted to minus SEK 7.8 billion, and I will come back to this very soon. The surplus value in the derivatives portfolio decreased by exactly SEK 1 billion. The tax expense or the tax income related to deferred tax and was positive and amounted to plus SEK 1.9 billion. The amount includes the dissolution of deferred tax in connection with property divestments of SEK 477 million. Please turn to Page 5. The increased market interest rates have continued to have an impact on yield requirements and valuations. There are still very few transactions in our markets. During the quarter, approximately 70% of our portfolio has been independently externally valued, and the rest of the properties have been valued internally. The average yield requirement in our portfolio increased in the quarter by a further 18 basis points to 4.43%. Since the start of the year, the yield requirement has increased by 44 basis points. The inflation assumptions for 2024 and future years is now 2% per year. The average yield requirement is now back at a level equivalent to what we reported at year-end 2017. Total unrealized changes in value then amounted to minus SEK 7.8 billion. The changes in value in Q4 were almost exclusively due to increased yield requirements. Please turn to Page 6. This stimulation shows that we can withstand further write-downs of just over 15% based on today's market valuation without breaching our internal targets and the margin is even higher in relation to the covenants in our bank agreements. Next slide, please. Reported equity decreased during the quarter and amounted to SEK 125 per share at year-end and the long-term net asset value or the EPRA NRV amounted to SEK 150 per share. The financial key ratios were stable and came in at the same level as the previous quarter. The loan-to-value ratio amounted to 42% and the equity asset ratio was 47%. Both of these key performance measures confirm our strong balance sheet. The interest coverage ratio, as expected, has decreased in line with increased interest expenses and amounted to 2.5x, thus unchanged since Q3. Please turn to Page 8. Financing is naturally still in focus, but the market situation today feels significantly more positive. There is a strong interest from investors in the capital market and the margins have come down to levels that are increasingly in line with bank financing. The commercial paper market is functioning well and the banks continue to show that they have more capital to lend to the sector and to Fabege. During the year, we have repaid bond maturities of SEK 2.7 billion in total, including SFF. We have been active ourselves through issues of just over SEK 1.8 billion in total, mainly during the autumn. The bank financing increased by SEK 1.7 billion and a further SEK 1.5 billion in unutilized financing, which means that we have maintained preparedness in the form of access to unutilized facilities. In October, we received the purchase price from the transaction with NREP, which means that we reduced the volume of outstanding commercial paper and also temporarily invested some surplus liquidity. And this week, we issued or refinanced bond maturities with SFF, a 2-year bond at a price of 135 basis points, which is very low in comparison to what we have seen previously during 2023. With available facilities and improved conditions in the capital market, we feel secure in having the capacity to meet upcoming refinancings during 2024. Please turn to Page 9. As you may know, we have worked for many years to spread our loan maturities. The slide here shows how the maturity profile looks. The strategy of long-term fixed rate periods is unchanged, and we aim for distribution of our loan stock among several funding sources. The short-term funding via commercial paper, the green bar chart is fully covered by backup facilities. We have facilities in place to cover bond maturities in 2024 if required. However, the market conditions are now more attractive, of course, and it seems more likely that we will refinance our bond maturities with new bonds and the bank facilities are continually refinanced through extensions. Next slide, please. 60% of the loan portfolio is fixed, mainly based on long-term maturities and mostly through straightforward interest rate swaps supplemented by some fixed rate bonds. Just over 40% of the current loan portfolio is matched by fixed rate terms beyond 2025. During the spring and autumn, we have worked actively with callable interest rate swaps with the aim of reducing our interest expense. The longer-term plan is to replace maturities with new long-term fixed rate periods. The average fixed rate term amounts to 2.1 years, adjusted for the estimated maturity of the callable swaps, the fixed rate term increases to 3.1 years. The high proportion of fixed rate terms today provides us with protection against rising market interest rates. In the short term, the higher market interest rates will thus have a more limited effect on our interest expenses. For a moving 12-month period ahead, an increase in the market interest rate of 1% will generate higher interest expenses of approximately SEK 123 million or else unchanged. And now back to you, Stefan.

Thank you, Asa. As Asa said, we have continued to value a lot of the properties externally. And one of the reasons is also that the transaction volumes for offices in Stockholm has been -- remained quite low during the year. So we think it's a pretty good idea to get the external view of where do we find the market today because the values are not only taking into account the deals that have been done, they're also taking account the deal -- the transaction that hasn't been done that they know about. So I think now it was, I think, 70% external value and rest internal. I think that's a strength, right. One of the reasons where the transaction volumes for offices in Stockholm has been relatively low during the year is that it's partly due to the fact that Stockholm has a large and long-term institutional ownership, and we're not, definitely not seeing any distressed sellers in the markets that we are having properties in. We -- as you know, we divested 2 offices -- 2 office properties outside of our prioritized districts during the year for a total book value of SEK 3.4 billion. And on top of that, we also divested some land, for us they were SEK 400 million. So in total, we divested for almost SEK 4 billion this year. And I'm not ruling out that the possibility that we make any more -- that we can do more divestments during the next years if we -- and also to use for future projects. The letting markets is more challenging in general, you can say and the decision making takes longer time. And it's also been -- that has been a mantra for us during the year. At the end of the year, we saw a little bit more decision making, you can say, and that's normal. And in the beginning of this year, we also see -- can see that some discussions that have been going on for there in quite a long time are ending up in new contracts. Our customers, of course, are also naturally affected by the new market situation and the geopolitical turbulence. So this is -- it's -- that's also why it's even more important in this time to be close or even closer than normal to your customers. For the first time, as you can see here in the many years, we have also seen that the number of office workers in Stockholm has decreased slightly and that's over several consecutive quarters. This trend is offset to a certain extent by the fact that the supply of new offices is very low, both in '24 and '25. I think that the market as a whole will be in balance. Our main belief is that there will continue to be good demand for flexible offices in central location and in areas with good communications and that the rents and -- where the rents will also be stable at good levels. However, it can be tougher in certain submarkets where communications support for properties will lack flexibility. The difference between A and B location in terms of vacancies and rental development will probably increase even going forward. Next slide please. Talking about office trends. Together, we are friends and the industry peers, [ Wihlborgs, and Dios ]. We have carried out a major AI study on the offices and their importance. The data consists of 10,800 social media posts from private [ investors ] and Sweden's 50 largest companies and approximately more than 2.1 million google search during the period from October '21 to September '23. There are some conclusions in the report. You can find the report on our home page. But the office -- their conclusions are that the office needs to meet four basic needs; collaboration, socializing, concentration, that you have to concentrate, which may be or can be not in all the case at your home and recovery. A currently managed office can be one of the employers' strongest competitive advantages and a recruitment tool. Companies highlight office primarily as a place for creative collaboration and socializing. They fail to mention other important roles of the office such a place for concentrated work or recovery, which seems to be important for mainly employees who prefer a hybrid way of working. Employees also expect increased autonomy and the opportunity for hybrid work. So maybe this is not a surprise, or not surprises, but I think it's very important for us to discuss this internally and also with our existing and potential customers. There, we can add values and also can show them the best example of how to work for the future. Next slide, please. Part of finding the new ways of working and also to be able to be a good partner for our customers, we have these different flexible solutions we have been talking about before. Co-working is part, but it's not only where we do it ourselves or handle a service ourselves, it's also when we collaborate with other companies specialized in coworking. We had the Work Away From Work. You know about the other concepts. And this week, we also opened up the first Dog Care, VOV in Hammarby but then you will probably hear more about that. It is in the future. Next slide, please. For the whole year, we had a good net letting of SEK 165 million, of course, mainly because thanks to the contract with SEB and in [ probably ] Noten. SEK 165 million is actually the third strongest number ever for us. I think that's up letting also the second biggest letting ever in terms of both square meters on rent. Next slide, please. As you know, we show this every time, but I think it's important to show you that we have a very stable customer base. The average lease of those largest tenants are long. Next slide, please. When talking about renegotiations, leases of, in total, SEK 151 million were renegotiated with an average decrease in rental value of about 3%. This is not a big surprise, as we have been able to increase the rents with almost 18%, thanks to the index -- indexation clauses over the last -- since the first of January 2023. So of course, there are some -- there can be some contracts that are over-rented today. But what's also important to realize is that SEK 340 million we have just extended on unchanged terms. So we will have contracts in the future, both with the owner rented, but also that can be a little bit too high. So after 2 years of the high indexation of rents, I don't see any big potential in the renegotiations during 2024. But -- and we can expect maybe plus/minus 0 in it but we will also continue to extend most of these agreements on unchanged terms. On the next slide, we talk about the occupancy rate. Despite the turbulent external environment and a weak economy in both Sweden and globally, we increased our occupancy rate to 91%, which is good. The goal in the long term is still to get the occupancy rate of 95%. And the goal for net letting for this year is, as you saw on the slide is SEK 80 million. It's, of course, a tough target, but it's not impossible, if we offer the right product with the right flexibility and the right location. Next slide, please. Rental development in existing lease portfolio. This is to show you -- this slide is to help you to see the future rental development in the next 4 quarters. It's important to remember that the graph does not represent a forecast, that is only a snapshot of what we know at the year-end. And as you know, for Q4 2023 we divested Orgein and Gladjen, and now we have the indexation that helps us coming up again. And we have also, at the end of the year, Operan/Dramaten moving into the new facilities in Flemingsberg. So next slide, please. For last year, the total investments ended up with SEK 3.1 billion, and we expect it to be a little bit below SEK 3 billion for this year. Last year, if we look at the next slide, you can see more in details, which -- how the projects are running. And I think maybe the most important figure on this slide is the occupancy rate in the project portfolio have increased to almost 86%, I think, 85, 86% from 45% at the start of the year. So we have been able to find new tenants for both Ackordet, Pasen, Regulatorn and Noten, of course. So it looks much -- it also show that the projects are in good locations and attractive projects long term. Unfortunately, future costs, we have seen the construction costs to continue to increase, we have hope that we should be able to fall, but we haven't seen that. They are still high, which means that we, like the entire industry, will be cautious about starting new products. It would take a lot for us to start a new office product in the near future without a large part of being pre-let. On the other hand, we had the ambition in 2024 to continue working with the planning processes in our preferred areas. At the end of the year, we can also say that we decided to continue the development of Haga Norra, the Haga Norra area in Arenastaden District, and we will start the construction of 285 new apartments, which 75 will be rental apartments. I think we are right now starting that development. The apartments are expected to be ready to move in during 2025, end of 2025. And we will work cost efficiently and we see -- we think it's a very attractive market. We estimate that underlying demand for apartments in Solna is still good, and supply of new homes will be low in 2025. We can also say that we sold the last apartments in the joint venture with BRABO, also at Haga Norra, where now all 418 apartments are sold and most of them have moved into. And that's also we feel comfortable to start this development. Next slide, please. Here, we had summary of our company. And it's nothing -- new news for you, but I think it can be always good to show this. And also if you could see what are characterizing our areas starting with a good public transport and that we are close to the commuter train or to the metro. But I also like to here say that during the year, the commuter trains in Stockholm, we had been affected by large disruptions, delays, amount of problems and this have been a negative impact, not only for us, but of course, but for the passengers and a significant program for the entire region. And we are active -- we're putting pressure on both the government, local government and that companies that operate, transporting to make sure that the quality will be better and -- because this is important for the continued development of Stockholm. And that's also where we have an interest of being active in this discussion. Next slide, please, so Asa?

Yes. Thank you. Some new developments on the sustainability side from Fabege. We are continuing to work intensively on improving the basis for sustainable Fabege and the impact that we have on our surroundings. And here are a few examples. One of the more important of those relate to our energy consumption. Our target is to reach an average energy consumption of the maximum of 70-kilowatt hours per square meter by 2025. An interim target along the way was to reduce our consumption from 73 to 72 during 2023. But in 2023, we already came in at 71, and we have, therefore, sharpened the goal to already reach a maximum of 70 in the present year 2024. This result is an achievement that involves many of our employees and particularly our property management operations that monitor and initiate energy-saving measures. I already during the last quarter referred to the GRESB results, but I think that it's worth mentioning again. With an index score of 93 points out of 100 in the investment property portfolio and a score of 98 points out of 100 in the project portfolio, we are in a leading position. A new development in the fourth quarter is that our share was approved as Green by NASDAQ according to their NASDAQ Green Equity Designation system. The criteria is that at least 50% of the turnover and at least 50% of the investment must be classified as green. We are also achieving a very good outcome in the reporting according to the EU taxonomy, which imposes even stricter requirements about what is green. A full 66% of our turnover is classified as green. And now back to you, Stefan.

So before I open up for Q&A, I'd just like to summarize the year and saying that I think in total, it was a year where there were -- everything we could impact all our -- internally, we worked a lot with -- to develop our internal processes. We increased our surplus ratio. As you know, we increased our profit from the property management. We had a lot of focus on the cost control. And it also had, as Asa said, good results for sustainability. For the GRESB, we worked a lot with the energy saving. We had a recycling project, we also had a very improved and good result in the CSI survey in all our areas. We had a good -- A Great Place to Work index and continue to improve that, are now one of the more attractive employers in Sweden. The environment are challenging. We have all the geopolitical whole year [indiscernible] the economy. But I must say I'm a little bit more optimistic today than I was maybe 6, 12 months ago. But we also have to be humble and accept that we, in Sweden we are a small economy and also very dependent on the external factors. There can be some black swans flying out there, but what we know today, we have a strong balance sheet, so we are well prepared to take the challenges -- take on and handle them and also be able to use the opportunities that can be coming up. So in total, I think we are strong and have been working well within -- especially what the issues that we can impact. So with that said, please questions. And before the questions, I'd also like to add that the Board today suggested a dividend for the annual meeting for SEK 1.80. It's a little bit below last year. It's a little bit below our dividend policy, but it's also what the Board think was the right level with all the issues we have in the market. And this shows that we still -- it shows that we have a strong balance sheet. We have a strong business, but we also have a humble for the circumstances in the market. So SEK 1.80 will be the suggestion of the Board for the dividend. So please, questions.

[Operator Instructions] Next question comes from John Wong from Kempen.

Correct me if I'm wrong, but your surplus ratio for Q4 seems quite strong for a typical Q4. Could you highlight the drivers.

It was a strong quarter, but there are also some specific events during the quarter. We had also this question in the Swedish presentation. And so I would just like to give the guidance that the target for 2024 is 74%, more in line, 74% is the budget possibility of reaching 75%, but there was some one-off items in Q4 this year.

And also a very good weather.

All right. Very clear. On the lease renewals for this year, maybe I misunderstood it, but you said you were expecting plus-minus 0% for 2024. Does that mean that you expect to keep the 6.5% indexation? And perhaps in other words, do you expect market onto growth to follow indexation here?

Yes, indexation is from the first of January, and that's included in the figures. But when talking from that level, the old rent plus 6.5% or 6.7%, from the new level, we prolong a lot of the contracts, and we can't see really -- of course, there's some upside in some of the contracts but some could also even be over-rented. But we see that we are now up at a market level for the rents. But it's -- you're right, it's including the 6.7%.

6.5%.

6.5%, sorry is our increase from the first of January.

Okay. That's clear. So you expected that the portfolio is rack-rented after the 6.5% indexation?

Yes. So after that, we think it's -- we have been helped out by the indexation of the last 12 months or 24 months since we now -- the rents are up. I think it was 11.7% last year and then 6.5% this year, and that makes it 18% something in total for the last 2 years. And I think that has helped us a lot for getting their rents up. So it's positive.

Okay. Clear. And does that mean that the decline that you saw on a couple of leases of 3.2%. Those were essentially one-offs?

It was a special situation. And that's not going to be seen in the normal -- it was a special discussion, negotiation.

Okay. And also on this topic, I think you mentioned that the office market is in balance, looking at the slide with the chart on office employees. Looking at that one, the number of office employees is stagnating, but the net new space for the coming 3 years is still positive. Wouldn't that imply that demand will be still weaker than supply going forward?

I think it's in the balance. I think we have to discuss different submarkets maybe that could be -- there's so much focus right now on good locations with -- in a good flexible location, new or modern offices in the good commuting locations. And I think we are well off that we are with CBD, the inner city and Solna, for example. But it's a lot of focus on where to find the locations. Submarket can be much more difficult, but -- so it is difficult to talk generally -- but in the big picture, it is relatively imbalance on the whole.

The next question comes from Bart Gysens from Morgan Stanley.

Bart Gysens from Morgan Stanley. I had 2 questions, if that's okay. The first one is on interest payable. You've cleared on net interest expense, you've been very successful in managing those costs. But can you please help us understand maybe a little bit more how you've done that. If you look at the fourth quarter net interest expense, it's about 11% below the third quarter net interest expense. How have you managed to reduce that expense to such an extent.

Well, I would say there are 2 reasons for that. One is that we were paid the purchase price for the 2 properties sold to NREP in the middle of October, which means that debt was reduced by almost SEK 2.5 billion. And the other part is that we have been working with the derivative portfolio and been able to reduce interest costs by that.

And the increase in capitalized interest, does that have anything to do with it? Because I think it's gone up from ...

No. I know we have actually had that question, so I will try to explain that. But since the figure in the Q3 report was not a 9-month figure, it happened to be just a figure for 1 quarter. So it's been -- it's not been so clear. So the activated interest cost, which is SEK 63 million for the full year has increased a little quarter-by-quarter, but it's not the big increase that you saw from the reported figure in Q3 until Q4. So that was a mistake in the report in Q3.

Okay. And then my other question is on the dividend. I appreciate at the end of the call, you referred or you provided a concise explanation as to why the dividend was reduced again. But I just wanted to reconcile the relatively constructive outlook for the market where the management team clearly feel that things are getting better out there in the market, yet you've got the dividend again by 25% to now below your dividend policy. Can you help us understand a little bit the consistency of that thinking?

It's very easy. It's -- you can say, respect for the circumstances in the market with all the -- if you take all -- everything into account with how -- where we came from last year, we feel very comfortable with that. As we also said with the refinancing and so on. But we have respect for that, it can change. We also like to be prepared for different scenarios about -- in the project portfolio also. The Board for this has approved, it was this year balanced between the -- how much to pay dividend or strong balance sheet, the opportunities and risks in the market. It was a discussion about the balance between all those issues.

The next question comes from Jonathan Kownator from GS.

Three questions, if I may. Just coming back to the occupational market. I think you're clearly saying things are quite okay. Obviously, you've signed a big lease contract with -- which is, I guess, the majority of your net lettings at this stage. How do you think the occupational market is going to evolve? Are you seeing a bit more interest for the assets? Or do you think like this quarter, like occupancy was in line. This is the trend that we have to think about for the time being.

I think we see good interest. We see long periods for making decisions. We see also some -- that people are cautious about what's happening in the world for the economy and so a long decision-making interest also were hard to use their offices. It's not a question if they should have an office. It's more how should it look like, where -- is it right location and how to use the space. So a lot of discussions. And as I said, we also have some specialists now prepared -- helping with this discussion. But mainly long decision-making period -- appears for decision maker, I think that will continue. We see a little bit better in the beginning of the year. We announced the day this week lease agreement in Hammarby where discussion has been going in for long. So there are some positive signs, but still we have respect for what's happening in the economy on the world.

Yes. And so just as sort of that -- I think your retention rate was a bit lower this year versus last year. Are you expecting increase [ in the leases ]? Or is that something temporary or ...

Sorry about the renegotiation, you said?

I'm saying just that this is a new signing, obviously, but the tenants' departures and I think your retention rate was a bit lower this year versus last year. So just asking whether you're seeing tenants leave at a faster pace or that's just temporary or maybe I didn't read it properly actually.

I think it's -- you can say it's difficult to say a trend. We had last year some larger ones that we had moved also internally. We are some not. But I think we have -- so I think it's difficult to say. It's not a trend, no.

Very clear. The 2 following questions are perhaps slightly connected. But effectively, the first one is on the derivative portfolio, again, maybe following a bit mass question. But effectively, if I look at the P&L, there's SEK 888 million, I think, of losses relative to the derivatives and financing. And I wanted to understand whether part of that was cash or whether it was all noncash? And the question being behind it, was there a cash cost between the work on the derivative portfolio you were talking about?

No. It's not cash. It's only valuation.

Okay. Very clear. And so we then come back to the next question, which is, obviously, you're sharing a 6.2% growth in profit from property management, which is great. But there's a slight difference when we look at the cash flow before change in working capital, which was actually 12% decrease. That seems to be due to a higher interest paid -- but I struggle to reconcile with the capitalized interest we were talking about of SEK 60 million because the difference is -- well, noticeably higher than this. So could you help us reconcile those differences, please?

I think from what you are trying to talk about now, it's very, very difficult to understand what kind of questions, so could you maybe please just e-mail the question to me, and I can look into it.

Yes. I mean I have the numbers in front of me.

Yes, but I don't have all the numbers in front of me, and it's difficult to sit here during this call just to try to reconcile one figure with another one. So maybe it's easier to give a good answer...

Let me rephrase the question, just to try to make it simple. The interest paid in the cash flow was substantially higher than the interest cost in your P&L. And this balance is higher than the SEK 60 million capitalized interest by at least SEK 100 million. So that's the question.

But the interest according to the P&L also is including other financial costs. So that's probably the difference.

And those were positive, I guess?

No, they are negative. I mean...

Okay, sorry. Yes. And so what do they correspond to. Are they...

They correspond to different kind of costs relating to taking up new loans that are activated over the time of the capital maturity of each loan. So there are different costs.

That's correct actually. I'll follow up in case there's more, but thank you very much. It's very clear.

The next question comes from Paul May from Barclays.

Apologies if you've answered one of these [ small ] companies questions before I was able to join late. Just wondered if you could highlight the -- why the admin costs were down quite materially in Q4 relative to prior years? Is there anything that we should take into account there?

During the year, we make provisions for bonuses and also for the profit sharing system that we have. And in Q4, it was apparent that all the targets were not met. So there was a reduction in the provision and that makes the largest part of the difference in Q4.

Cool. Perfect. And just on the year-on-year movement and slightly similar to Jonathan's question, but on the year-on-year movement in your profit from property management, how much is year-on-year growth due to the provision that was taken in the residential business last year as a negative because I think the year-on-year is broadly flat if you adjust for that. Is that correct?

Yes. Actually, there is a section in report where we divide the result from associated companies into the different parts. And in 2023, SEK 80 million was the cash sent out to Arenabolaget. This SEK 80 million is more or less a recurring figure that will be more or less the same in 2024. Then on the positive side, we had a little bit more than SEK 100 million coming from the JV project with BRABO, the residential project in Solna that's more one-offs. So that will not occur again in 2024.

Okay. Perfect. The rental income chart that you provided on slide -- on Page 13, which shows the quarterly rental income expected over the coming year. Does that reflect the indexation -- or is that before indexation is applied because it says at the balance sheet date, which would assume that before indexation is applied, but just trying to see whether indexation...

No. These different bars, they include the indexation for 2024, which is known, which is also -- I mean, regarding Q1, it had already been paid by the tenants. So that's included.

Okay. And so the year-on-year sort of flat is just simply due to the disposals, is that right?

Yes.

Very final one, which is just as a sort of slight housekeeping. On the developments, the rental values that you highlight, is that gross? Or should we -- do we need to net anything off that in -- or is it net income, the SEK 384 million?

Sorry, can you take your question again? Was it in the project?

Yes, in the projects, the SEK 384 million of rental value. Is that a gross number? Or is that after sort of surplus ratio?

No, no, that's a gross number. That's the rental value.

Cool. And just -- sorry, just following on from that on Noten 4, obviously highlighting you've got initial rent that's come through from SEB, but I appreciate you mentioned this in October, but a quite a material increase in the cost. If I work it through it's costing you, something SEK 400-something, SEK 480-odd million of additional cost for SEK 250 million of additional rent over the 10 years. Is that correct?

Yes. I mean, yes. Yes. The previous numbers that were given regarding Noten 4, they were based on a multi-tenant building and from the best knowledge and after we signed the contract with SEB, all these figures have been updated to what they actually will be. So this is how it's going to look.

We also said it's 10 years plus.

Contracts, yes.

Okay. And are you able to give us some color on what that additional cost is or -- or is that commercially sensitive? I just wondered what -- because it's quite a big increase in the...

It's a big increase, but there are -- SEB is a very special tenant with a lot of security because it's in the defense industry. So there are specific adjustments for SEB to be invested. And SEB will also invest a lot of money in the building. So as you said, the rental contract is more than 10 years, actually, it's a 20-year contract. They will be there for a long time, but they have an option to leave part of the area after 10 years.

It stays on everything like some other investment to make it -- so it's a long list of different investments.

Good to know the longer lease is there. And just very final one. You mentioned, I think in the report probably just one last one. You mentioned a report property values down, I think, 13% in yields back to 2017 levels on a sort of valuation basis. I mean if we look at where cost of financing is, we're still kind of back to 2009, '12 levels. And at that point, your property yield was in the high 5s. I think 5.8, if you look at an average over those years. What sort of gives you the confidence? Because I appreciate you highlight there's been some transactions, but there's not been many transactions, what kind of gives you the confidence or the comfort that you're at the right level now? Because at the end of the day, I mean, I appreciate you've had things externally valued. That's a best guess as well.

You're answering the question yourself, don't you, that it's -- we have -- that's one of the reasons why we also choose to value so much external today. And as we said, they take into the deals that has been done, what have been done and the deals that haven't been done also. So they are the best we can and then also maybe in our areas, now we have, as you said, reduced the value by 13% from the top. The yields are up, but also the cash flow and the portfolio is better according to the rental development -- rent development. But it's so -- but we have -- I think the transaction we've seen in the market are good indications for what are the valuers and we are using Cushman & Wakefield and Newsec and we also had a third -- making a third opinion for some of the properties and that is [ Savills ]. So we have been doing as much as we can to assure that we have the best that we can have today for what expected values are.

The next question comes from Alexander [indiscernible] from Green Street.

You mentioned that in the Q1, we've already received index rent with a 6.5% indexation as of October last year. Have you had any pushback from existing tenants? And if so, is there a theme like other specific industries that potentially you're having pushback from any specific submarkets that you find worrisome?

No discussions. I think we have some questions by mail. Peter?

Yes, we do. What's your expectation for cash requirements and cash earnings from the share in profit of associated companies for the next few years.

Yes. I think I partly answered that question before, but the capital contributions to Arenabolaget will continue in line with what we have seen in recent years. In 2023, that was minus SEK 80 million, and that will continue. And the rest of the cash earnings on the positive side in 2023 was from the JV residential project in Haga Norra, and that is a one-off. So that will not occur again. So going future, it will be only the capital contributions to Arenabolaget.

Okay. Any further questions? If we don't have any more questions, thank you for joining us. Thank you for listening to us, and thank you for your questions. And you're always welcome to give us a call or to even meet us here in Stockholm or the other way for another meeting. So have a nice day. Thank you.