Fabege AB (publ)

Welcome to Fabergé's presentation for the first quarter 2023. As usual, we will finish up the meeting with questions and also have an answer session, of course. It's possible for you to submit questions by email to ir.fabergé.se during the question and answer session. But first, I'd like to make a short summary of what we are today. Many of you know this. We are on page two. We are fully focused on Stockholm. We have a very modern portfolio in rail bound locations. We really believe in knowing our market and being close to our customers. And this is why we have this focus on the Stockholm area. and why we also handle all property management internally with our own staff at all stages. Next slide, please. The first quarter can be summarized with increased rental income and increased operating surplus, but also increasing interest rate costs, and that which led to some decreasing management profits. We also have, according to increasing interest rates, increasing yields, negative value chains in the portfolio in the beginning of this year. We had a slightly negative net lending. Normally, the first quarter is quite slow quarter. Unfortunately, we had more negative value chains negative lettings than we had positive in the beginning, so we had no minus 12, slightly negative. But we will tell you more about this, but we started with a focus over to, I will hand over to Åsa to tell you more about the result in financing and do more details. So please go ahead, Åsa.

Thanks, Stefan. Please turn page. As Stefan just mentioned, in the first report, we reported increased rental income and improved net operating income, which, however, is not covered by increased interest costs. Increased yield requirements in the property portfolio have continued to put pressure on property values. Rental income amounted to 829 million, corresponding to an increase of approximately 8% in an identical portfolio. The increase was largely explained by the index adjustment that took effect at the year end. Convendums moved to Kungsgatan last summer, and the Swedish tax agency's departure from Solna Strand at the end of March last year are other major factors that affected the change. Increased operating expenses were mainly due to higher costs for energy and snow clearance. The surplus ratio came in at 72% in line with our budgets for the first quarter, which is always an expensive quarter. Birje Bolstad's current earnings amounted to 22 million as two projects were completed and where final recognition took place during the first quarter. And central administration costs came in at minus 26 million in line with the previous year. Interest expenses increased compared to the previous year, which was due to a slightly increased loan volume and a higher average interest rate. The average interest rate increased from 2.39% at year end to 2.75% as of March 31. An increased loan volume and higher market interest rates are having a gradual impact on our average interest. The result in associated companies amounted to minus 10 million and related to the period's capital contribution to Arenabolaget. And we therefore reported profits from property management of 351 million, a decrease compared to the previous year, which was due to higher interest expenses. Unrealized changes in value amounted to minus 2.1 billion, and I will come back to this very soon. The surplus ratio in the derivatives portfolio decreased by 217 million, and the surplus value in the derivatives portfolio now amounts to almost 1.5 billion. The tax expense, which only related to deferred tax, was positive and amounted to plus 393 million. And now please turn to page five. During the first quarter, the increased market interest rates continued to have an impact on yield requirements and valuations. There continued to be few transactions in our market, and the valuations have also been influenced by transactions that were not completed. We have independently valued almost half of the portfolio during the quarter. Other properties have been valued internally. The average yield requirement in our portfolio increased by 12 basis points during the quarter to 4.11%. The increased yield requirements were partly offset by higher inflation assumptions. Both Newsec and Cashman Wakefield now expect an inflation rate of 5% in 2023. The average yield requirement is now back at a level equivalent to what was reported at mid-year 2019. Total unrealized changes in value during the quarter then amounted to minus 2.1 billion. And the changes in value during the first quarter have been driven by the following factors. Yield, minus 2.4 billion. Cash flow, including inflation, plus 0.8 billion. And project and development properties, including development rights, also mainly due to yield, minus 0.5 billion. Please turn to page six. This simulation shows that we can withstand write downs of a further 20% based on today's market valuations without impacting our internal targets. And the margin is even higher in relation to the covenants in our bank agreements. And now please turn to page seven. Reported equity decreased during the quarter and amounted to 137 Swedish crowns per share, a decrease of 8 crowns, of which 2.6 relates to a book liability for approved but unpaid dividend. And the long-term net asset value, the EPRA NRV, amounted to 166 crowns per share. The loan-to-value ratio increased to 40% and the equity asset ratio decreased to 48%. However, both key ratios continue to indicate a very strong balance sheet. The interest coverage ratio has decreased as expected in line with increasing interest expenses and amounted to 2.6 in the quarter. Calculated on a moving 12-month basis, the interest coverage ratio was 3.4. Please turn to page eight, financing. Financing continues to be a very topical question in the current market situation. The commercial paper market is functioning well, and the banks continue to show that they have more capital to lend to the sector. The bond market is still volatile with high prices. In connection with a bond maturity of 1 billion in February, we carried out a small issue of 250 million in a two-year bond at the margin of 200 basis points. The margins had then come down considerably to a level that, as a first step, felt sufficiently okay to show the market that we would like to be active. In relation to bank financing, however, the spreads in the capital market are still too high The turbulence in the banking sector then once again created turbulence in the capital market with volatile margins as a result. Now the spread seemed to be on the way down again. During the quarter, we have raised new bank loans in accordance with previously agreed credit commitments. We have also signed another new bank facility. All in all, this means that at the end of the quarter, we had 5.7 billion in unutilized facilities, including the backup for outstanding commercial paper. And please turn to page nine. The slide here shows the maturity profile. The strategy of long-term fixed rate period is unchanged, and we aim for distribution of our loan stock among several sources of financing. When it comes to short-term commercial commercial paper, the green bar in the chart, we have a full backup. During 2023, we have remaining bond maturities of 1.4 billion in total during the second half of the year. Our hope is that the bond market will offer more competitive terms and conditions. We are prepared, however, to also replace upcoming maturities with other debt. And the work on refinancing our bank debt that matures within 12 months is continuing. We are now in the process of extending bank facilities that will expire during the first half of 2024. Please turn to page 10. Just over 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. The plan in the longer term is to replace maturities with new long-term fixed rate periods. The relatively 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 generates of 1% generates an increased interest expense of approximately 120 million, all else unchanged. Please turn to page 11.

Thanks for the review, Åsa. The stock rental market in Stockholm has for many years been very strong. You can see from almost for the last 10, 15 years, there's been an increase in rents and the vacancies have been, at least in most areas, coming down. So it has been a very healthy market for many, many years. Maybe this was a little bit unexpected during the pandemic that it continued. We have seen a little bit activity slowing down as companies and organizations try to adjust the new ways of working and that also many decisions has been postponed. And I think this has been more obvious the last months. And those probably also have with the economy and all the uncertainty to do. Now, several surveys and a lot of indicates that we have stable rents in most of the areas, especially in the CBD, continue to be at very good levels. We had in the Stockholm area increasing vacancies and also can expect them to continue to increase. But we have to quote, discuss sub-areas by sub-areas. CBD is still very strong. The inner city is relatively strong. In our part, Solna Arena started, for example, or continues to be strong. Some part in the south of Stockholm is a little bit weaker. But in total, I think we have, with all the uncertainty in the economy, the discussions about how we will work, we are expecting the vacancies in the Stockholm region. But this also means... a lot of opportunities since tenants are looking for better and better products in the best locations. And even if sometimes we're using the least areas, they are willing to pay for the products. Next slide, please. We have said it before that if you expect the interest rates or you see the interest rates coming up, we have to also be able to expected the yields to or the requirements to come up and that's what we have been seeing we see the transactions that have been made in and done it down in the markets has been still done at good levels but at a little bit slightly higher years of course it's still um compared to last year it's it's uh and not that huge volumes that we have seen from the last days. It's low volume in the transaction market. Next slide, please. As we said, we had a slightly negative net lasting. It's normally Q1 is quite low activity. It's normally low activity, as we saw this year. Determinations are increasing a little bit, but unfortunately, net letting is not really, even if we have some good ones, new signed contracts, it's not really enough for having a positive. But we have a lot of discussions going on, and for the year, we are still looking for at least 80 million in net letting as a target for 2023. Next slide, please. This slide you have seen before, but we think it's important to show it. As you know, there is very few news in this slide, and that's quite natural since it's long contracts. SEB is our largest tenant. ICA, Telia, all the well-known Swedish companies we have among the top tenants, and the 25 largest. represents a little bit more than 40% of our rental value. If we go to the next slide, please. We're talking about renegotiations for the first quarter. You can see there have been very few active renegotiations. We have, after what we had the help of index last year, or in the beginning from the 1st of January, we have an extended most of the country that has been up for discussions on unchanged terms. And that's quite natural, I think, as it looks like right now. We have 34 million, a relatively small amount, with that we had decreased the rents with approximately 4%. And that's mainly, I think, all of them are in retail. However, as you know, we have very little retail in total. And I think it will be quite natural that we see that instead of renegotiations, we will extend the contract and try to do that on unchanged terms, especially seeing the index for this year also looks to be quite good for us. On the occupancy rate, we're increasing it to 90%. This is one of our focus areas, as you know, for increasing the occupancy up to the goal for 95%. It will take some years before we will reach that, but that's fully focused now with the extended strength and the letting team, and also the way we try to work now. Part of this We have caused ourselves, since we have, during some years, been moving tenant companies from old buildings to new-build properties in, for example, Arena Staden. There are quite a long group of examples of that. But we are now, as we said, focused on this. Next slide, please. Here you see what we have. We tried to forecast the rental development for the existing lease portfolio and what we know from today. And this is for the next four quarters. We are expecting the rental incomes to increase to about 40 million and up to 850 for the next quarters this year and for the first quarter next year. And compared... to the end of 2022, for example, that's quite a good growth in the existing portfolio, including the projects we're going on. And talking about projects, on the next slide, we will see the capex. The first quarter this year, it was almost 700 million. We have said before that we are expecting it to be 2.8 billion approximately this year. Depends a little bit on what speed we will have in some of the projects. We have a long-term target of 2.5 billion, and last year it was a little bit lower. This year we expect it to be a little bit more. If we look at the product portfolio on the next slide, the new build, the new build projects, for example, Regonautum 4 in the In Flemingsburg is the workshops for the Royal Opera and the Royal Dramatic Theatre. We are in full speed right now. They are going to move in in almost exactly one year from now in the Q24. And it's, of course, we have an occupancy rate of 100% already on that one. Separate on one is Alfa Laval, also in Flemingsburg. They will move in two years from now to Q2 2025. It's a project also almost fully with the contract of Alfa Laval. During the first months or the last months of last year and the beginning of this year, I called it one in Haga Norra in Arvenasdalen. we have been able to sign a couple of new contracts. So now it's almost 50% in auction rate, and they will be starting to moving beginning of the second half next year. We signed the contract with GM, and then now we had also a contract we run start, and we had very good discussions going on, I think, I expect this rate to be higher in the next quarters. Then we have some projects that were more redevelopment projects. And it's the fourth example. It's also with the tax authorities left some quarters ago. We have good discussions, but we also will take the investment. We have the ground investments right now. but we will take the more tenant-specified investments when we know more, we will have to sign contracts. And that's also the same with, for example, Ports and One in Hammarby, which we are starting, but we will take more step-by-step when we know more about which tenants will be sitting there. Hägarminn is close to the element in Stockholm, close to the inner part of Stockholm's inner city, and that will be fulfilled right after this summer. But talking about the building rights on the next slide, as you know, we have a huge portfolio. We have been continuing to develop or have the planning process going on to be able to start the projects when we can see both, that we are able to find tenants for it, but also we need, we would say, the construction costs to come down a little bit. they're still too high. But we continue to prepare for the future products. When talking about the residential building rights, it's the same. As you know, it's a very uncertain market right now. But for the products we have been going on, both in Haga Nora, in cooperation with Bravo, we have now sold 388 of 418 apartments. 18 of them has been sold during the beginning of this year. So it's still possible to sell apartments when they are ready for moving in. And that's what we also have seen in Birger Bostad in some of the projects there. And the selling rate for the projects under construction is in Birger Bostad more than 90%. When we talk about the building costs on the next slide, unfortunately, I would say that we saw the price increases in the last year with approximately 10-15%. We expected it to come down a little bit, and some of the prices have been coming down. For example, the steel and wood and some other. And the cost for the ground works may also be coming down. But unfortunately, some of the other ones have been coming up instead. So it's still up since the beginning of last year. We say 10% to 15%. But the order volumes for the construction companies are coming down. So we hope that we could be able to see the order that the prices fall. will be more um uh we will be weaker prices in the in the in the construction before i can constructions cost in the next over the next part of this year and both about the sustainability please and i will leave that to also again

Sustainability continues to be a prioritized issue at Fabriker, and we are gradually working to contribute to a more sustainable Stockholm. On the energy side, we have set the target to reach an average energy use of a maximum of 70 kilowatt hours per square meter by 2025. We are currently at an average of 73 and the goal is to reduce this by one kilowatt hour per year over the next three years. During the first quarter, we were able to note a saving of approximately 4% compared to the previous year. Our sustainability house in Haga Norra, which is constructed using 70% reused material, has attracted a lot of attention and also awarded for sustainability prizes. Technologies for retention of materials and reuse are being developed and we have a lot to learn from each other in the industry. So we are very much looking forward to taking this further in other new production projects.

Thank you. Of course, that was a short list of all the activities that we're doing. We have a lot of, as you've seen it before, a long, long list of both. and the mental products, but also energy products, but also social initiatives. So we will be happy to tell you more about that if you're interested in other meetings. So thank you for listening, and please, questions?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Again, if you have a question, that's star, then one. Our first question comes.

Okay, perfect. Thanks.

First question comes from Alexander Dallar from Green Street. Please go ahead.

Thank you for taking my question. Looking at fabric and disposals over the past five quarters, I don't believe there have been any. Also, I think in a previous event, you mentioned the potential disposal of a non-core property in Ostermal, if I'm not wrong. Would you more generally consider disposals as a means to deliver? And if so, do you plan to be a net seller for the year, and do you have any potential volumes in mind?

I think it was very difficult to hear your question, but I think it referred to disposals and net investment over 2023, right? Indeed. Yeah. We are on the market with one property in discussions today. We sold some building rights to JEM that were vacated in April, so just after the end of last quarter. And we have also said that we have... an estimation of investment of around 2.8 billion in our property portfolio over the year. And whether there will be any further transactions, we will give notice when we have something to inform. So it's nothing that we are sort of discussing at the moment now. You want to add something, Stefan?

Thank you. No, I think that's a good point.

Again, if you have a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Stefan Dabo for any closing remarks.

Thank you and thank you for listening and joining us at the meeting. You're always welcome to give us a call, Åsa, Peter or myself, and we'll be happy to have discussions and we hope to see you soon in real life too. So have a nice day and thanks for joining us.