Fabege AB (publ)

Welcome to Fabergé's presentation for the Q3 2023. As usual, we will finish up with a question and answer session. And also, as usual, it's possible to submit questions by email to ir.fabergé.se, and you can do that through the question and answer session. On the first slide, we see a short summary of Fabergé today. As you know, we're still focused on the Stockholm And especially in times like this, I think that is a really strength. Have a local focus with also local property management and we do all that internally with our own staff. The summary for the first nine months is that you increase the rental income and also the operating surplus. But on the other hand, we all know that also the interest cost increased. Despite that, we were able to just have a small, slightly low management profit. And I think that also shows the strength in the daily work that is done by our organization. We will come back to the negative value changes in the property portfolio. We have, so we will tell you more about that later. The net letting, we're doing it the negative will be a little bit more than 20 million. That will mean that for the first three months we have a negative net letting of minus three. We will tell you more about that later on too also. But I'd like to also say that in August we announced that the letter we have signed for note and four, that was with SAAB. The work on that Translating the net of intent into a lease agreement is well underway. And we now estimate when it will be announced, or when it will be completed, and we will also at that time announce more details. And that will be during the fourth quarter of this year. And they will move in during the second half of 2025, but more about that later. We had an increased occupation rate. With that said, I would also like to change things to Åsa, who will report our results and financing in more detail. So please go ahead, Åsa.

Thank you, Stefan. Increased rental income and improved net operating income almost cover, but not completely, the increase in interest expenses. However, during both the second and the third quarters individually, we reported a higher profit from property management compared to the previous year. Increased yield requirements in the property portfolio have continued to put pressure on property values. Rental income amounted to 2.5 billion, corresponding to an increase of 12% in an identical portfolio. The increase in income was mainly due to the index-linked increase that entered into effect at year-end. Higher parking revenue and positive net occupations during the period, of which Conventum's move into Bakken 39 was the largest. This was partly offset by a negative effect after the Swedish tax agency's relocation from Nasdaq 4 on last of March 2022. Other income, 11 million, refers to Farby Gear's share of the electricity support that was paid out during the quarter. Increased operating expenses were mainly due to acquired and completed properties which entered into operation and higher costs for snow clearance. The surplus ratio came in at 75%. The Bostad's gross profit amounted to 23 million, as six projects were completed and where final recognition occurred during this period. And central administration costs came in at minus 81 million. Interest expenses increased compared to the previous year, which was due to a slightly increased loan volume and higher average interest rate. The average interest rate increased from 2.39% at year ends to 3.16% at the turn of the quarter, gradually impacted by higher market interest rates. The result in associated companies amounted to 31 million, of which minus 54 million related to the period's capital contribution to Ariana Bellagio. plus 75 million related to income recognition in the Haganada residential project, and 10 million related to contributions from the Ebolstad's co-owned projects. And we therefore reported profits from property management of 1.1 billion, which is almost the same figure as in the previous year. Improved net operating income has, as stated, almost offset the increased interest expenses. Unrealized changes in value amounted to minus 5.4 billion, and I will come back to this very soon. The surplus value in the derivatives portfolio decreased by 150 million. And last, the tax expense, which only related to deferred tax, was positive and amounted to plus 850. The increased market interest rates have continued to have an impact on yield requirements and valuations. There were still only a few transactions carried out in our market. During the quarter, we have independently valued approximately 55% of our portfolio. The rest of the properties have been valued internally. The average yield requirement in our portfolio increased by a further eight basis points in the quarter to 4.25%. The inflation assumptions are the same as the previous quarter, in other words, 6%. The average yield requirement is now back at a level equivalent to what we reported at mid-year 2018. Total unrealized changes in value amounted to minus 5.4 billion, and the changes in value in Q3 were almost exclusively due to increased yield requirements. 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 covenant in our bank agreement. Reported equity decreased during the quarter and amounted to 131 crowns per share, and the EFRA NRV amounted to 157 crowns per share. The loan-to-value ratio increased to 42 percent, and the equity asset ratio decreased to 47 percent. However, both key ratios continue to demonstrate a very strong balance sheet. The interest coverage ratio, as expected, has decreased in line with increased interest expenses and amounted to 2.5. Financing continues to remain in focus in the current market climate. 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, but has become stronger during the autumn. During the year, we have repaid bond maturities of 2 billion in total. In February, we carried out a smaller issue of 250 million. After that, the market was quiet until September, when we issued 700 million in a two-year bond. at the margin of 200 basis points. Indications from the banks show that the spreads are slightly lower today, and now in October, we issued another 300 million in a three-year bond at the margin of 212 basis points. During the year, we have secured 2.9 billion in new bank facilities, also paid out. In connection with the sale of Origen and Gladion, We redeemed a temporary bank loan, which will be taken out again, however. Refinancing up to and including Q3 2024 are ready with binding term sheets. In October, we received the payment for the sale of Oregon and Gladion. In addition, new bank facilities of 2.6 billion have been agreed upon. Adjusted for this, unutilized facilities amount to just over 8 billion, including the backup facility for outstanding commercial paper. So we feel secure in having the capacity to meet upcoming bond maturities during next year. 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 non-stock among federal funding sources. The short-term funding via commercial paper, the green bar in the chart, is fully covered by backup facilities. And as stated, we have facilities in place to cover the bond maturities in 2024 if required. However, we would still prefer to continue to be active in the bond market. 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 entered into callable interest rate swaps with the aim of reducing our interest expense. In the longer term, we aim to replace maturities with new long-term fixed rate periods. The high proportion of fixed rate terms today give us 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 rolling 12-month period ahead, an increase in the market interest rate will generate an increased interest expense of approximately $133 million. all else unchanged. And then back to Stefan.

So thank you also. As we said, we think this is a strong result from the daily work, from the daily operation, but we are in a very challenging market. It's no surprise for any of us, I think. It's only a little bit more than one and a half years since we left the pandemic, for the most of the pandemic situation, But also that was the same time when Russia invaded Ukraine. It was the same time when the rapid share price started in inflation, when they started large interest rates, when they started to increase interest rates very quickly. Now we also have the situation in the Middle East. So of course, it changes times. And in Sweden, it's mainly been seen in the transaction market. The transaction markets right now, we see very few transactions in the whole market. There's still a very good demand for logistics and light industrials. But in many other markets and segments, it's relatively low volumes right now. We can say that in the CBD or in the most central parts of Stockholm, if there will be a good demand, if there would be anything for sale. During the summer, we announced that we had signed an agreement with Enrep to sell the properties of OEM 7 in Sundbyberg and Gladion 12 in Stadsagen. Enrep has been acquiring both properties for about 3.4 billion Swedish kronor. which also is consistent with the valuation we had. The properties were taken over on October 12th, so now they are in the portfolio of NREP. When talking about the rental development in Stockholm, I think still it's very strong in both demand and level of the rents in the CBD of Stockholm. We have seen some contracts signed in both our own and in some colleagues, competitors, on very good levels and also at some historical record levels. In the inner city, still a little bit more strong, but not as strong as it was in the beginning of before the summer. We see it takes a little bit longer, even if it continues to take a long time for decisions, and we see a little bit less demand after summer, we have to say. In Solna, in our arenas, there's still good demand, but in Solna Business Park, we have a lot of activities. But in some parts of Stockholm, we see more challenging times. And we think if we look at JLM's property clock, I think we are definitely declining rental growth. We have no growth any longer for most of the Stockholm area. But on the other hand, we have a lot of help with the 11% indexation last year. So it's not a surprise, because we think that that indexation helped us to come up to very good levels. But we don't see any big downturn in the rents neither. So it's just okay market, but less, I will say less activity after the summer. And that's also what we see in the rent in our portfolio. The vacancies are still very, very low in the CBD, growing a little bit in the inner city. In some of the suburbs, it's on the relative stable levels. That's the same in Solna and Sjöberg. But in other parts, like Sista, it's continuing to increase. What we're working a lot with, as you know, is flexible solutions. We think that the demand for more flexibility is part of the modern to be modern and also to what we can or what the tenants are looking for. We have also launched a couple of new concepts during the 2023. For example, the moving offices for now, where as for many four or five years whether they work away from work for our existing tenants that they can have an give the opportunity for the employees to sit in other parts of Stockholm if they need to during some hours or maybe a day. We also have some co-working areas in some of our locations and we will start a dog care product called Vov within the next month. Everything to be more Flexible also gets better margins at the end, and also better to be able to attract the tenants for longer time. The net letting for the January-September, as I already said, was negative. And for the first nine months, it had minus 3 million. We have in the CBD, we still have positive. And part of this is that we had one tenant that we had to discuss with to help them to decrease the area because they have financial problems. So we have a large part of the Q3 is actually from one of them, or from that situation. But as we said also, for the rest of the year, we are positive, since we also have the discussion over the contract we are right about that before. Next slide, please. This year, as seen before, we think it's important to have it in the presentation every time, but we have a very few cash tenants. We have very large tenants for representing 40 to 24% of the rent, but they have very stable long-term contracts with stable Swedish companies, mainly Swedish companies. In the renegotiations, since we bought the 11% from the 1st of January, We have said over the year that we expect the renegotiations to be about current agreement, the continued current contracts. And that's also on unchanged terms, so we're just extending them. And that's also what we see for most of the contracts. It's also important to say that we have continued to develop the opposite rates in a positive way. We are right now at 91%. The goal is, as you remember, 95%. But it will take some years for us, a couple of years to come down, to go with that. I also used to show you the forecast for the rental development in the existing lease portfolio, and from what we know today, for the next four quarters. And as you can see here, since we have sold, the two properties to NREP, it will decrease to about 810 million for the next four quarters, but we also have to stress that this is before any indexation, so this is without any indexation, and this is from what we know today. We continue, for the next two slides we'll see on the portfolio, as we said, as you know, we have this year said that we will invest about 2.9 billion and for the first nine months it was a little bit less of 2.2. So we're following the plan. When we see the project portfolio is well known names, we will continue to work with the existing products. We are not right now starting any big new ones. We will hope especially in Hagenora, to continue to develop that area. But we still have problems with the building costs. They've been coming down a little bit, but when the raw material came down, the cost for labour and the cost of some of the other products came up, especially. because of this Swedish Krona. Here we also see NRTN4. That will be updated when we can announce more about the details, the agreement we will end. So this will be updated in the next quarter. as we said before. Talking a little bit about the residentials, we are continuing to, with the projects we have, running since before. They are running as expected. We have completed six projects during that period. We are continuing to sell apartments, both in the area of Oslo and in RGV with Bravo in Håganora. In Håganora, we can say that we have only five apartments left out of 418. So it's continuing to be a very successful project, and that's also where we look forward to hopefully starting the next project neighbor to the first one. Also, please tell us a little bit about the sustainability work and what we're doing right now.

Yes, some sustainability news from Fabia. And I think we have a lot to be proud of. As we mentioned earlier, we have a goal of reaching an energy consumption of 70 kilowatt hours per square meter by 2025. In 22, we were at 73, and now we have come one step closer with an average annual consumption of 72 kilowatt hours per square meter. Our solar cell installations currently produce 1.98 kilowatt hours per square meter in the management portfolio, and we are currently planning for a number of future installations. And some more news during the quarter. Our office project in Haganada, Accordet 1, or Accordet 1, reaches BREEAM SE outstanding. our highest level of certification in our portfolio. The project is also nominated for the brilliant building of the year and award that the project pool and won last year. A few words about our recycling strategy as well. Our goal is that 20% of materials in projects must be recycled. And an important part of that is our recycling hub. which you can see in the photos on the right-hand side in this slide. The Reciting Hub enables smart and cost-effective reciting, which has attracted a lot of interest, not only in the real estate sector, but also from, for example, politicians and other stakeholders. We are on a journey and Fomig is clearly a company at the forefront here. Last but not least, we have the GRESP result for the year. In this year's benchmark we land on index 93 in the management portfolio and 98 in the product portfolio. A top position among listed companies in Northern Europe and something that we are really proud of. And finally back to Stefan who will say a few words about our social initiatives relating to sustainability.

and we will continue to do the work close to the society in the areas where we are active and especially in Sorna and Flemingsburg and it's a lot about activities both in finding more works doing activities but in the later time in the schools and everything to do to work with the areas to do them more safe. That pleasant surroundings you can say. At the end, of course, we are sure that this will increase cost and we will be able to have higher rents in the areas and it will also mean lower yields at the end. So it's a win-win situation and that's what we think it all has to be about. So before going over to the questions, I would like to summarize it with challenging times, but we are standing stable. We have a lot of activities going on. We hope to be able to tell you more about it in the next months. So with that, these questions.

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Hi, it's Sir Jonathan Carnator from Goldman Sachs. Thank you very much for the call. Three questions, if I may. So, on disposal process, do you have more disposals that you want to work on currently, and do you see other buyers that are out there that could be interested? Second question, please. How are your discussions going on with ratings agencies at this stage? Are they expecting to change rating at all? Any color that you can provide would be helpful there. And just on the development program, you pointed out to higher cost. If we look at the yield on cost on the program right now, it's about 4%. Would you start new development, or should we consider that for now the development is on pause? Thanks.

At least during the winter. If I take the first question also, we have as part of our DNA and part of our business that from time to time we sell some of the properties we think we can't develop or we can't add some more value on and of course that can be some of the other ones we have that we can do in the future now we sold them to to unwrap the Gladion and Orion in In 2020 we sold the DN building here and also another building in Stockholm. I think we will do that from time to time. The demand in the market in the inner city, the CBD, is very good. In general, You can say there is quite a lot of money in the market, but NREP has a lot of new funds. There are some other fund managers that also are looking for new money into their funds. We have also the pension managers or the pension companies that have quite a lot of liquidity to continue to buy. by real estate. We know that they are looking for potential objects but they are very picky right now. They like to be in the best locations and the best location is in the CBD for example. I think if anything is for sale it will be a lot of potential buyers for that. On the other hand, I think it's difficult to talk general about the market because it's very big about area for area or at least city for city. It's different markets in the whole of Sweden. But Stockholm is good and I think we could see future demand, at least in the areas where we are. But also the second question.

Yes, the second question about the contacts with the rating agency Moody's. We are in contact with Moody's but there is no information from Moody's on any rating activities so far. I think we got the negative outlook on the BAA2 rating approximately one year ago, November last year. So there will probably be some more activities from Moody's before year end. But for us there is no new information at this moment.

Okay, thank you. Just to follow up on disposal, just from a strategic perspective, I mean, would you consider at all selling any CBD assets or are they strategic for you? And obviously, you may want to hang on to those. How do you think about that?

What kind of assets did you say? We didn't hear. So CBD assets. CBD assets.

Okay. see potential for adding value long term in the most of the CBD portfolio.

Sorry, you were far away from the mic at the beginning. You said you can or you cannot see long-term potential. We can see. We can see. Just confirming.

Exactly.

I thought that would be the answer, but sorry, I didn't.

In most of it, it doesn't say that there can be some smaller ones. Okay. Of course, we can discuss, but most of it we see very long-term potential.

Okay, that's very clear, thank you. And just so, sorry, the third question, you may have started first, but I couldn't hear the answer for some strange reason, so...

The third question was?

That was on development, essentially. I mean, obviously, you're pointing out to the increased cost and the yield on cost has become a bit lower at this stage.

You can say we are looking to start some projects in Haga Nora, for example, where we can see we continue to develop that area. And we hope that we will, during the winter, be able to, for example, announce that we continue residential. We have now sold, in the first project, We have five apartments left from the 418 so we see a good demand there. It's still a little bit too high cost for the building but we hope we will be able to find out a way to how to start them in a good way.

And so the Aganora, that's office, right, I assume, and that would be on a speculative basis, or are you waiting for a predate to be able to start that?

On the residential part, which now we will finish the first part of commercial, but then the residential will be on speculation, but we think we have a good margin and good... Okay, so that's residential. And I think we were talking about the residential market in Sweden and for the commercial, developers, I think you have to take some risk. You can't sell everything. It's more back to a normal business, in my way, to see it. Okay. Very clear.

Very helpful. Thank you.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. Please state your name and company. Please go ahead.

Hi, good morning. This is John from Kenton. Thank you for taking my questions. Just on the LOI of Saab, I understand you cannot give more details on the lease as of yet.

Sorry. Sorry, you're from Kenton. You have to speak louder because we can't hear you.

Can you hear me now?

Yes.

Yeah, sorry. So just on the LOI with Saab, I understand you cannot give more details on the lease, but could you provide a bit more color on what is causing the delay there in the timeline?

um it's of course a complex um agreement since it's the business they have you cannot probably understand all the security questions that we are discussing so it's uh i think it's where we it's no no big um it's a large building it's so it's more the complexity that it's a many questions that we have to like to solve before when signing the contract so But we are planning to announce it, as we said, during the Q4.

Okay, thank you. And on the customer leaving, could you provide a bit more color on that one? In which region was this tenant that... It was a tenant in Hammarby.

And as we said, I think that's... We said also in the Swedish presentation that it's a prime... negative net letting into this quarter was primarily to that we did that settlement with the customer and they have it wore their business developed the development of that business that had to have to do some some and we think we so we took that area back and prolonged the contract on the rest of the area with them and we took this area back and we think it would be a good deal in at the end for us

Okay. And I think in an English press release, you also mentioned something of a settlement. Is that the cash settlement or is that the prolonging of the other lease?

prolong the other lease and pay a little bit more rent for that one and then we take the part of the area back or most of that back to be able to let it out to new tenants and we think that would be good for us. Best way of certainly taking care of the situation.

Okay, thank you. And do you see any risk with other tenants that could be giving back space?

They were not giving back. It was an agreement on whether they also cost them or something. We have in some of the larger, with some of the larger tenants, they have also some flexibility in the contracts in the long term. But we don't have any, I don't see any big risks in it.

Okay, thank you. That's it from my side.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

As usual, you're always welcome to call Åsa, Peter or myself to ask further questions or have discussions. Thank you very much for joining us this morning. Have a nice day. It's snowing in Stockholm, first day of the year. Have a nice day. Bye.