Fabege AB (publ)

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. And even here, as we said before, we had, for the whole year, very good operating activities, and we performed well there. We had increased profits from the property management. We had improved vacancy rate, and we had strong net netics 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 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 their personal and household finances, mainly because of the development of the interest rates, of course. Because the EU 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 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... 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 convendums move into Bakken 39 in Stockholm City was the largest. This was partly offset by a negative effect after the Swedish tax agency's relocation from Nötan 4 on March 31, 2022. Other income of 11 million refers to Fabergé'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%. Birje Bostad's gross profit amounted to 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 6 million. Central administration costs ended up at minus 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 34 million, of which minus 80 million related to capital contribution to the Arenabolaget company, plus 103 million related to income recognition from the JV project in Haga Norra, the residential housing project, and 9 million related to contributions from Birje Bostad's co-owned projects. And we therefore reported profit from property management of just over 1.4 billion compared to a little bit under 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 7.8 billion. And I will come back to this very soon. The surplus value in the derivatives portfolio decreased by exactly 1 billion. The tax expense or the tax income related to deferred tax and was positive and amounted to plus 1.9 billion. The amount includes the dissolution of deferred tax in connection with property divestments of 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 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 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 two total unrealized changes in value then amounted to minus 7.8 billion. The changes in value in Q4 were almost exclusively due to increased yield requirements. Please turn to page 6. 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 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 FABGN. During the year, we have repaid bond maturities of 2.7 billion in total, including SFF. We have been active ourselves through issues of just over 1.8 billion in total, mainly during the autumn. The bank financing increased by 1.7 billion and a further 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 two-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 123 million crowns, all else unchanged. And now back to you, Stefan.

Thank you also. As also said, we have to continue to value a lot of the problems externally. And one of the reasons is also the transaction volumes for offices in Stockholm has remained quite low during the year. So we think it has been a good idea to get the external view on 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 I think now it was, I think, 70% external value and rest internal. I think 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 not Definitely not seeing any distressed sellers in the markets that we are having properties in. We, as you know, we divested two office properties. outside of our prioritized districts during the year for a total book value of 3.4 billion. And on top of that, we also divested some land for just over 400 million. So in total, we almost divested almost 4 billion this year. And I'm not ruling out the possibility that we can do more investments during the next years and also to use it for future projects. The Latin market is more challenging in general, you can say, and the decision-making takes longer time. And 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 EU political turbulence. So 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 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 locations and in areas with good communications, and that 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, 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 individuals and Sweden's 50 largest companies, and approximately more than 2.1 million Google searches during the period from October 21 to September 23. There are some conclusions in the report. You can find the report on our homepage. But the conclusions are that the 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 the case at your home, and recovery. A correctly managed 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 as 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 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. 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 partners. uh companies specialized and co-working we had the work away from work you know about the other concepts and this week we also opened up the first broker in in in Hammarby but then we will probably hear more about that it is in in in the future next slide please For the whole year, we had a good net letting of 165 million. Of course, mainly because thanks to the contract with Saab and in the project Nöten. 165 million is actually the third strongest number ever for us. I think the Saab letting is 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 151 million were renegotiated with an average decrease in rental value of about 3%. This is not a big surprise since we have been able to increase the rents with almost 18% thanks to the index, indexation clauses over the last, since the 1st of January of 2023. So, of course, there can be some contracts that are over-rented today. But what's also important to realize is that 340 million We have just extended on unchanged terms. So we will have contracts in the future, both with under-rented, but also that can be a little bit too high. So after two years of the high indexation of rents, I don't see any big potential in the renegations during 2024, but we can expect maybe plus minus zero in the But we will also continue to extend most of these agreements on unchanged terms. On the next slide, we're talking 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 long term is still to get an opportunity rate of 95%. And the goal for net letting for this year is, as you saw on the slide, is 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 the existing lease portfolio. This slide is to help you to see the future rental development in the next four quarters. 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. And as you know, for Q4 2023, we divested Oyen and Gladion. And now we have the indexation that helps us. We're coming up again. And we have also at the end of the year, Oprah and Martin moving into the new facilities in Flemingsburg. So next slide, please. For last year, the total investments ended up with 3.1 billion, and we expect it to be a little bit below 3 billion for this year. Last year, if we look at the next slide, you can see more in details how the projects are running. And I think maybe the most important figure on this slide is the off-campus 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 Akkoret, Påsen, Regulatorn and Nöten, of course. So it looks much... It also shows that the... The projects are in good locations and attractive projects for the long term. Unfortunately, the costs, we have seen the construction costs continue to increase. We have hoped 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 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 Nora, the Haga Nora area in the Arena Staden district and we will start the construction of 285 new apartments, which 75 will be rental apartments. 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 think it's a very attractive market. We estimate that underlying demand for apartments is soar now. It's 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 Bravo, also at Haga Nora. Now all 480 apartments are sold, and most of them have moved in too. And that's also why we feel comfortable to start this development. Next slide, please. Here we have a 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 to see what are characterising our areas with a good public transport and 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 been a negative impact not only for us, of course, but for the passengers and a significant problem for the entire region. And we are active on putting pressure on both the government, local government and the that companies that operate the transportation tube, to make sure that the quality will be better, because this is important for the continued development of Stockholm. And that's also why we have an interest of being active in this discussion. Next slide, please. So, Åsa.