Welcome to Fabege Q4 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing five pound on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Stefan Dahlbo and CFO Åsa Bergström. 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 email. To next, 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. Even here, as we said before, we had a for the whole year, good, very good operating activities, and we performed well there. We had, increased property from the property, profit from the property management, we had improved vacancy rate, and we had strong net lettings as a whole. 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 was also 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 their personal and household finances, and mainly because of the development of the interest rates, of course. Because the year was characterized by rising 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 it started.
But now I will hand over to our CFO, Åsa Bergström, who will go through our results in more detail. Please go ahead, Åsa.
Thanks, Stefan. Please turn to page four. 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 Nöten 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%. Birger Bostad's gross profit amounted to SEK 4 million, as seven 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 -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 SEK +34 million, of which SEK -80 million related to capital contribution to the Arenabolaget company. 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 Bir Bostad's co-owned projects. 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 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 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 five. The increased market interest rates have continued to have an impact on yield requirements and valuations. There are still very few transactions in our market. 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, 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 requirements 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, and the total unrealized changes in value then amounted to -SEK 7.8 billion. The changes in value in Q4 were almost exclusively due to increased yield requirements. Please turn to page six. This simulation 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 125 SEK 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 2.5, thus unchanged since Q3. Please turn to page eight. 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. This week, we issued or refinanced bond maturities with SFF, a two-year bond at the 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 nine. 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 twelve-month period ahead, an increase in the market interest rate of 1% will generate higher interest expenses of approximately SEK 123 million, all else unchanged. And now back to you, Stefan.
Thank you, Åsa. As Åsa said, we have continued to value a lot of the properties externally. And one of the reasons is also the transaction volumes for offices in Stockholm has been remained quite low during the year. So we think it has been a good idea to get the external view on where, 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 into account the transactions that hasn't been done, that they know about. So, so I think even now it was, I think, 70% external value and the rest internal. I think that, that's a strength right now.
One of the reasons why 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 definitely not seeing any distressed sellers in the markets that we are having properties in. As you know, we divested two offices, two office properties outside 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 just over SEK 400 million. So in total, we almost divested for almost SEK 4 billion this year. 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 a user for future projects. The letting markets is more challenging in general, you can say, and the decision-making takes longer time. It's also been that 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 can see that some discussions that have been going on for 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 what this is, it's even.
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 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 2024 and 2025. 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 are poorer and for properties with less 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 with our friends and industry peers, Wihlborgs and JLL, 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 2021 to September 2023. There are some conclusions in the report, which you can find the report on our home page.
But the conclusions are that an office needs to be more to meet four basic needs. You have the collaboration, socializing, concentration, that you have to concentrate, which maybe not can be not all the case at your home, and recovery. Correctly managed, the office can be one of the employer's strongest competitive advantages and a recruitment tool. Companies highlight the 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 many 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, but I think it's very, very important for us to discuss this internally and also with our existing and potential customers. There, we can add value 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. Coworking is part, but it's not only where we do it ourselves or handle the 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 [Procare good] in Hammarby. But we will probably hear more about that 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 Saab and in the project Nöten. SEK 165 million is actually the third strongest number ever for us. I think the Saab letting also the second-biggest letting ever in terms of both square meters and 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 as big surprise, since we have been able to increase the rents with almost 18% for on the thanks to the index indexation clauses over the last since the 1st of January of 2023. So of course, there are some there can be some contracts that are over 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 under, the under-rented, but also that can be, be a little bit too, too high. So, after two years of the high indexation of rents, I don't see any big potential in the renegotiations during 2024, 2024, but we, and, we can expect maybe ±0 in it. But, and we will also continue to extend most of the lease agreements on unchanged terms. On the next slide, we talk about the occupancy rate. Despite the turbulent external environment and the weak economy in both Sweden and globally, we increased our occupancy rate to 91%, which is good.
The goal in the longer 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 earlier slide, SEK 80 million. That 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 the existing lease portfolio, this is to show you. This slide is to help you see the future rental development in the next four quarters. In this, it's important to remember that the graph does not represent a forecast, but it's only a snapshot of what we know at the year-end.
As you know, for Q4 2023, we divested Orgeln and Glädjen, and now we have the indexation that helps us coming up again, and we have also, at the end of the year, Operan och Dramaten moving into the new facilities in Flemingsberg. 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, as if we look at the next slide, you can see more in details, which are 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 35% at the start of the year. So we have been able to find new tenants for both Ackordet, Påsen, Regulatorn, and Nöten, of course. So it's looks much. I want to show that the projects are in good, as good locations and are attractive project for long term. Unfortunately, it's the costs. We have seen the construction costs to continue to increase.
We have hope that they will, should be able to fall, but we haven't seen that. They are still too high, which means that we, like the entire industry, will be cautious about starting new projects. It would take a lot for us to dare to start a new office project 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 the 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 for occupancy to move in during 2025, end of 2025, and we will work cost efficiently, and it is here we do. We think it's a very attractive market. We estimated underlying demand for the 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. We also at Haga Norra, we are now all 480 apartments are sold, and most of them are moved into. And that's also why we feel comfortable to start this development. Next slide, please.
Here we have the summary of our company, and it's not nothing new news for you, but I think it can be always good to show this, and also to see what our core focusing areas that with the good public transport and close that we are close to the commuter train or to the metro. But I also like to say that during the year, the commuter trains in Stockholm we have been affected by large-scale disruptions, delays, and other problems, and this has had been a negative impact, not only for us, but of course but for the passengers in Stockholm, and it's a significant problem for the entire region.
We are active on putting pressure on both the government, local government, and the companies that operate the transportation to make sure that the quality will be better, because this is important for the continued development of Stockholm, and we, and that's why, why also why we have an interest of being active in this discussion. Next slide, please. So Åsa?
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 goals relate to our energy consumption. Our target is to reach an average energy consumption of a maximum of 70 kWh per sq m 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 result, 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.
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 internal. We worked a lot with and developed 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 we also had, as Åsa said, good results for the 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 great place to work, and then continue to improve that, are now one of the more attractive employers in Sweden. The environment are challenging. We have as all the geopolitical the whole European situation, we have the economy, but I must say, I'm a little bit more optimistic today than I was maybe six, 12 months ago. But we also have to be humble and accept that we in Sweden we are 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're well prepared to take the challenges.
Take on and handle them, and also take care, be able to use the opportunities that can be coming up. So in total, I think we are strong and have been working well, especially with the issues that we can impact. So with that said, please, questions. Before the questions, I'll 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 what it was the right level with all the issues we have in the market.
This shows that we still, 1.80 shows that we still have a strong balance sheet, we have a strong business, but we also have our humility for the circumstances in the market. So SEK 1.80 will be the suggestion from the board for the dividend. So please, questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from John Vuong from Kempen. Please go ahead.
Hi, good afternoon. Thank you for taking the questions. Correct me if I'm wrong, but your surplus ratio for Q4 seems quite strong for a typical Q4. Could you highlight the drivers for this?
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.
Also a very good weather.
All right, thanks. Clear. On the lease renewals for this year, maybe I misunderstood it, but you said you were expecting ±0% for 2024. Does that mean that you expect to keep the 6.5%, indexation? And perhaps in other words, do you expect market rental growth to follow indexation here?
Yeah, yeah. We think indexation is from the first of January, and that's included in the figures. But when talking from that level, also the old rent + 6.5 or 6.7%, we prolong from the new level, we prolong a lot of the contracts, and we can't see really. Of course, there are some upside in some of the contracts, but some could also even be over rented. But we see that we are now up at the market level for the rents. But it's. You're right, it include the 6.7%, 6.7 or.
6.5%.
6.5, 6.5%, sorry, is our increase from the first of January.
Okay, that's clear. So you're expected that the portfolio is re-rented after the 6.5% indexation?
Yes. So after that, we think it's We have been helped a lot by the indexation the last 12 months or 24 months since we Now, the rents are up 11. 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 two years. And I think that's, that has helped us a lot with getting the rents up, so it's positive.
Okay, clear. And then does that mean that the decline that you saw on a couple of leases of 3.2%, that those were essentially one-offs?
It was a special situation, and that's not going to see in the, in the rental market. It was a special discussion, a 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 emloyees.
Mm-hmm.
Looking at that one, the number of office employees is stagnating, but the net new space for the coming three years is still positive.
Yeah.
Wouldn't that imply that demand will be still weaker than the supply going forward?
I think it's a balance, and then we have to discuss different submarkets maybe. There could be There's so much focus right now on the good locations with good flexible locations, new, modern offices in the good commuting locations. And I think we are well off with CBD, the inner city and Solna, for example. But it's a lot of focus on where to find the locations. Submarkets can be much more difficult, but so difficult to talk generally. But in
That's clear.
In the big picture is so relative imbalance on the whole.
Okay, thank you very much.
The next question comes from Bart Gysens, from Morgan Stanley. Please go ahead.
Yeah, hi. Good afternoon. Bart Gysens from Morgan Stanley. I had two questions, if that's okay. The first one is on interest payable. You, you've clearly 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? Thank you.
Well, I would say there are two reasons for that. One is that we were paid the purchase price for the two 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 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.
SEK 20 million-SEK 50 million.
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 nine-month figure, it happened to be just a figure for one 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 reporting Q3.
Ah, okay. Thank you very much. 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 feels that things are getting better out there in the market. Yet, you've cut the dividend again by 25% to now below your dividend policy. Can you help us understand a little bit the consistency of that thinking?
Yeah.
Thank you.
Yeah. It's very easy. 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, as 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 the in the product portfolio and so on. So the board for this was a good this year-
Balanced
balanced between the how much do you pay dividend, the dividend, our strong balance sheet, the opportunity and risks in the market. It was a discussion about the balance between all those issues.
Okay, thank you.
Okay, let's see the questions here from
The next question comes from Jonathan Kantor.
Okay
from GS. Please go ahead.
Good afternoon. Thank you for taking my questions. Three questions, if I may. Just coming back to the occupational markets, I think you're clearly, you know, saying things are quite okay. Obviously, you've signed a big lease contract with some, 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, like this quarter, like, occupancy was in line, this is the trend that we have to think about for the time being? Now after more, go on.
I think, we see good interest. We see long periods for making decisions. We see also, the people are cautious about what's happening in the world, for the economy and so. So long decision-making, interest, also how 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, helping with those discussions. But mainly, long decision-making time periods, periods for decision-making. I think that continue. We see a little bit better in the beginning of the year.
We announced today, this week, a lease agreement in Hammarby with discussions that have been going on for long as well. So, there are some positive signs, but still we have respect for what's happening in the economy and the world.
Yeah. So just as a follow-up to that, I think your retention rate was a bit lower this year than since last year. Are you expecting, you know, increase in releases, or is that something temporary or?
Okay, sorry, about the renegotiation, you said?
No, I'm saying just that this is, this is new signing, obviously, but the dependent is departures, and I think your retention rate was a bit lower this year than since last year. So just
A bit, yeah.
asking whether you're seeing your 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 now
Mm-hmm
but I think. We have. So I think it is difficult to say. It's not a trend, no.
Okay, very clear. The two following questions are perhaps slightly connected, but effectively, the first one is on the derivative portfolio, again, maybe following a bit Mark's 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. I wanted to understand whether part of that was cash or whether it was all non-cash, and, you know, question being behind it, you know, it was there a cash cost
No, sorry.
as to the work on the derivative portfolio you were talking about?
It's not cash. It's only valuation.
Okay, very clear. Thank you. And so we then come back to the next question, which is, obviously, you're showing 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 changing the working capital, which shows 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're trying to talk about now, it's very, very difficult to understand what kind of question. So, could you maybe please just email the question to me, and I can look into it?
I can. Yeah, I mean, I have the numbers in front of me, so if you look at
Yeah, but I don't have all the numbers in front of me, and it's, it's difficult to sit here during this call just to try to reconcile one's one, one, figure with another one. So maybe it's easier to give a good answer if you just email.
Okay. Well, maybe 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.
Those were positive, I guess?
No, they are negative. I mean,
Oh, okay. Sorry.
Yeah.
So what do they correspond to? Are these cash loans?
They correspond to different kind of cost relating to taking up new loans that are activated over the time of the capital maturity of each loan. So there are different
Okay
costs.
Okay.
Mm-hmm.
That, that's clear, actually.
Mm-hmm.
I'll follow up, in case there's more, but thank you very much. That's very clear. Thank you.
The next question comes from Paul May from Barclays. Please go ahead.
Hi, everyone. Apologies if you've answered one of these questions, a couple of these 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 sort of 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. Thank you. Just on the year-over-year movement, and I suppose slightly similar to Jonathan's question, but on the year-over-year movement in your profit from property management, how much is the year-over-year growth due to the provision that was taken in the residential business last year as a negative? Because I think the year-over-year is broadly flat
Um.
If you adjust for that. Is that correct?
Yeah. Actually, there is a section in the report where we divide the result from associated companies into the different parts.
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 Bir Bostad, the residential project in Solna. That's more one-off, so that will not occur again in 2024.
Okay, perfect. The rental income chart that you provide, I think it's on slide, 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 I think it says at the balance sheet date, which would assume that's before indexation is applied. I'm just trying to see whether indexation is in those numbers.
No, these, these different bars, they include the indexation for 2024, which is known
and which is also, I mean, regarding Q1, it's already been paid by the tenants.
Yeah.
That's included. Mm.
Okay, and so the year-on-year sort of flat is just, just simply due to the disposals. Is that, is that right?
Yes. Mm.
Yeah. Cool, and then very final one, which, just as a sort of slight housekeeping. On the developments, the rental values that you, you highlight, is that, gross or should we do we need to net anything off that, in term? Or is it net income, the, the SEK 384 million?
Sorry, can you take your question again? Was it in the projects table?
Yeah, in the projects, the SEK 384 million of rental value
Yeah.
Is that a gross number or is that after, sort of Surplus Ratio?
No, no, that's the, that's the gross number. That's the rental value.
Okay. Cool. And just, sorry, just following on from that, on Nöten 4, obviously highlighting you've got an additional rent that's come through from Saab, but I, and I appreciate you mentioning this in October, but a quite material increase in the cost.
Yeah.
If I work it through, it's costing you 400 something, 480-odd million of additional cost for SEK 250 million of additional rent over the 10 years. Is that correct?
Yeah.
relative to your original underwriting?
I mean, yes. Yes.
Yeah.
The previous numbers that were given regarding Nöten 4, they were based on a multi-tenant building and from the best knowledge. After we signed the contract with Saab, all these figures have been updated to what they actually will be.
Yeah. Okay.
This is, this is how it's going to look.
We also, we also said it's 10+ years.
Contract.
Contract.
Yes.
Right.
Mm-hmm. Mm.
Okay. Are you able to give some color on what that additional cost is or is that commercially sensitive? Just wondering what Because it's quite a big increase in the cost.
It's a big increase
but there are. Saab is a very special tenant with a lot of security.
because it's in the defense industry. So there are
Mm-hmm
specific adjustments for Saab, to be invested.
Yeah.
Saab 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.
Yeah. We made it, it's theirs and everything, like some other investment to make it. So,
Yeah.
it's a long, long list of different investments.
Cool. That sounds perfect. Good to know the long lease is there. And very final one. You mentioned, I think, in the report, apologies, one last one. You mentioned in the report, property value is down, I think 13%, and yields back to 2017 levels on a, on a sort of valuation basis. I mean, if we look at where cost of financing is, we're still kind of back to 2009-2012 levels. And at that point, your property yield was in the high fives, I think 5.8, if you look at an average over those years. What sort of gives you the confidence? Because I, I appreciate you highlight there's been some transactions, but there's not been many transactions.
Yeah, 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
Yeah
but that's a best guess as well, by the valuers.
Well, you're answering the question yourself, aren't you? That it's,
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 account the deals that has been done or 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 values by 13% from the top. The yields are up, but then also the cash flow in the portfolio is better according to the rental development, rent development. But it's so. But we have, I think, if we, the transaction we've seen in the market are good indications for what are the values. And we evaluate using Cushman & Wakefield and Newsec, and we also had a third from some in some making a third opinion for some of the properties and that service.
So we have been doing as much as we can to ensure that we have the best that we can have today for what expected values are.
Perfect. Thank you very much.
The next question comes from Alexander Totomanov from Green Street. Please go ahead.
Good afternoon. Thank you for taking the question. You mentioned that, in the Q1, you'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 are there specific industries that potentially you're having pushback from, in specific submarkets that you have more worries on?
No discussions.
Okay, thank you.
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?
Yeah, 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 -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. You're always welcome to give us a call or to even meet us here in Stockholm or the other way, or another meeting. Have a nice day. Thank you.