Fabege AB (publ)

Welcome to our presentation for the first quarter of 2024. As usual, you will be able to ask questions at the end of the presentation. This year has begun in a relatively stable way, despite the fact that the global scene on the global geopolitical turbulence has not decreased, it has rather increased during the first three months of this year, which is a little bit scary. There are many question marks in relation also to the economic situation. But with that said, the funding market has been functioning better and better since last summer and are now functioning well again. And we're getting closer to the first interest rate cut. There are no shortage of challenges, but FabGate stands strong. And I will now hand over to our CFO Åsa Bergström, who will review our numbers and results in a more detailed way. Åsa, please, Åsa.

Thank you, Stefan. Please turn to page three. The year 2024 has begun in a relatively stable way. Rental income amounted to one billion, which is in line with the previous year. A decrease due to property divestment in the autumn was offset by index increases and the taking of possession in previous project properties, of which Convendum's occupation in the property Hägen-Mindre was the largest one. On a like-for-like basis, income increased by 10%. Increased operating expenses were mainly due to higher heating expenses due to the winter. The surplus ratio came in at 71%. And central administration costs ended up at minus 29 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 3.13% at the start of the year to 3.29%. Our active work with interest rate derivatives has partly offset the effect of the higher market interest rates. And we have actually refinanced loans in the capital market at the same or lower margins during the quarter. The result in associated companies amounted to minus 11 million and related to the capital contribution to Ariana Bolaget. And we therefore reported profit from property management of 329 million compared to 351 million in the previous year. Unrealized value changes amounted to minus 1.4 billion. I will come back to this very soon. We also recognized a small realized profit of 3 million, which was a time lag from the transaction with NREP in the autumn. The surplus value in the derivatives portfolio increased by 230 million due to higher long-term interest rates. And the tax expense at last, which related to deferred tax, was positive and amounted to 137 million. Please turn to page four. Market-related yield requirements continued to increase, although at a lower rate, which has also had an impact on the valuations. There are still very few transactions in our market. During the quarter, we have once again independently valued a large proportion of the portfolio, approximately 70%. The rest of the properties have been valued internally. The average real requirement in our portfolio increased by a further eight basis points in the quarter to 4.51%. Since the values peaked in Q3 2022, we have now written down the property value by about 15% in total. The average real requirement is now back at a level equivalent to what we reported in Q1 2017. The changes in value in Q1 were almost exclusively due to increased yield requirements. The total change in value amounted to minus 1.4 billion, as I mentioned before. And we are now reporting a total property value of 77.4 billion. Please turn to next page. This simulation shows that we can withstand write downs of a further almost 15% based on today's market valuation without impacting our internal targets. And the margin is even higher in relation to the covenants in our bank agreements. Please turn to page six. Reported equity decreased during the quarter and amounted to 123 crowns per share. The long term asset value, the EPRA NRV amounted to 146 crowns per share. The equity asset ratio was unchanged at 47% and the loan-to-value ratio increased by one percentage point to 43%. Both of these key performance indicators confirm our continued strong balance sheet. The interest coverage rate, as expected, has decreased in line with increased interest expenses and amounted to 2.4, a decrease of 0.1 since year end. And now please turn to page seven. Financing is naturally still in focus, but as I said in connection with the Q4 report, the market situation now feels significantly more positive. This positive development has strengthened in early 2024. There is a strong interest from investors in the capital market and the margins have continued to come down to levels that are now competitive compared to banks. The commercial paper market is functioning well. We have reduced the margin in a couple of steps and are now issuing three months commercial paper at a margin of 55 basis points. As stated, the bond market is also functioning well. In February, we issued 1 billion in a public transaction, a three-year bond at a margin of 145 basis points. Since then, the margins have come down further and we see a strong interest from potential investors. The banks are also continuing to show that they have more capital to lend to the sector and to Fabrikeo. Undrawn revolving credit facilities of total 6 billion provide us with continued security ahead of upcoming refinancings. Please turn to page 8. We have worked for many years to spread our loan maturities as shown in the graph. The strategy of long-term fixed rates period is unchanged and we aim for distribution of our loan stock among several sources of financing. The short-term funding via commercial paper, the green bar chart, is fully covered by backup facilities. We have facilities in place to cover the upcoming bond maturities in 2024 and also in 2025 if required. However, the market conditions are now more attractive, of course, and we intend to refinance our bond maturities with new bonds. The bank facilities are continually refinanced through extensions. Page 9, please. Of the loan portfolio, 56% is fixed, mainly based on long-term maturities and mostly through straightforward interest rate swaps, supplemented by some fixed-rate bonds. Approximately 40% of the current loan portfolio is matched by fixed rate terms beyond 2025. During the spring and autumn, we have continued to work actively with callable interest rate swaps with the aim of reducing our interest expense. The average fixed rates term amounts to 1.9 years. Adjusted for the estimated maturity of the callable swaps, the fixed rates term increases to 2.8 years. Fixed rates terms provide us with protection against rising market interest rates. In the short term, the higher market interest rates will thus have more limited effect on our interest expenses. For a moving 12-month period ahead, an increase in the market interest rate will generate a higher interest expense of approximately 139 million, all else unchanged. And the opposite will of course come with decreased interest market rates. And now back to Stefan.

Thank you, Åsa. As Åsa mentioned, we choose to have an external value of about 70% of our portfolio, even this quarter. And then, of course, the valuations are based on what the transactions they saw in our market. The transaction market as a whole has continued to remain relatively slow. But the transactions that we have seen have confirmed the valuation levels. In the Stockholm market, as you know, we don't see any distressed sellers. Of course, there can be distressed sellers in other markets, in other settlements outside our foreign markets. And some of the transactions we saw, you can see here on the slide. They are in the inner city of Stockholm, for example, at Fleminggatan, east of Kungsholmen. There were some transactions. And also at Vasa Gatan, close to the central station. The yield levels, you can hear, they come from about 4.5 million. And the buyers are mainly the pension funds and some of the funds. The pension funds and the fund managers are still a lot to invest, actually. So there is, and we also see the gap between the sellers and the buyers are closing during the last months. So maybe, and hopefully there will be more transactions during the rest of the year. Will we do any transactions in 2024? Maybe, and if we, we will probably be more on the selling side than on the buying side. That's what we said before, too. Next slide, please. When talking about the stock market as a whole, we continue to see increasing vacancy rates. We, especially in some sub-areas, for example, in Kista, I think it's up to more than 75% now. We have to increase that with taking some new tenants to move into Solna, which is still quite attractive. Even there I can see some vacancies. But we also for the first time see some increasing vacancies in the CBD. There is a stable rent levels, but the increase in vacancies is some companies that are, for example, Not only because of working more flexible, working more from home, but also that has been going from their own rooms to more activity-based offices. So there are a lot of reasons. And some of the tech companies, for example, are decreasing because they have not grown the way they expected some years ago. There is, as a whole, some uncertainty in the rental market. For the first time in many years, we can see a decrease in the number of office workers in Stockholm. At least it's flattening out. And of course, as we said before, many companies and public authorities are thinking about how hard to use your office. I'm a strong believer that they have no doubt about the important role of the office, but they rather discuss how should they use them or how should it look. And that's also why we have an important role as an advisor for them in many discussions. The tenants we see that have been – there are also tenants that have been late. for example, Hopelika Fault is in the journey to reduce the number of square meters per year, and that they're doing so now. This has been a trend throughout the last 20, 30 years, but it's not a new trend. But in general, I think we have a lot of discussions, but they continue to take time, and I think that's true for all our colleagues in the sector, too. Next slide, please. We have a stable, as you know, a stable customer base, which is, it's not something new, but I think it's important to emphasize when we're discussing our figures. And that also means that we have, over the last two years, achieved an inflation of more than 20%, almost 20%. And as I also mentioned, that's also the main reason that our rental income increased this quarter by about 10%. Next slide, please. Net letting was negative. I know it disappointed me this quarter. It was mainly due to the fact that some, I think it was two, public authorities, after many years, chose to leave a property in Stockholm, in a city, and move to Stråkumsom, actually. They also, after more than 20 years, liked to modernize their office, and we couldn't find in our portfolio any good alternative for them, unfortunately. The next slide, please. Renegotiations, as we said before, most of the contracts that we write now are extending as unchanged times due to the big increase we have had by the indexation over the last years. One that has been renegotiated is about zero, but it's only 25 million renegotiated in the beginning of the year, and 250 million more than that has already been renegotiated last year when the current agreement expires. So, when we're looking forward, of course, there are some leases in the portfolio that are below the market rent still, but we also have to be realistic and see that there are some, as we said before, that are above the market rent when we negotiate in the future. Next slide, please. We have said for a long time that the long-term goal is to go back to the level of the rate for 94, 95%. And that's what we're working for. This quarter, we saw a small decrease in the rate. I think it was 0.4 or something. But it looks a little bit bigger here. But the total tendency for all negotiations right now, and it's continued to take longer time, and that there are reluctances to take decisions. And that is nothing what we saw also last year. It has not increased, but we don't see any big improvement of the decision-making. But we have a lot of discussion going on, and that feels positive. What's even more true today is the expression location, location, location. It's about good communication. Public transparency is very important. And also the flexibility is very high up on the agenda. As we said before, vacancies are increasing slightly in Stockholm as a whole, but I think the rental market continues to be fundamentally strong even despite that. Next slide, please. We used to show this to show you how the rental development will be for the next four quarters. And it's, as you said, stable. We will see in the second half of this year that opera and Darmaten, the Royal Opera and the Royal Dramatic Theatre, will move in in the building in Flemingsburg. And if we look even more further on, so we start with 2026 instead, with what we know today, the project portfolio will be The projects going on today will be finished and will increase the rental with about 380 million, I think it is today. So next slide, please. Investments. As we said before, this is 2.8 billion this year. The first quarter was 645 million. We will be very restrictive in terms of starting new projects in 2024. The only way we have been starting, which I will tell you a little bit later on, is in being a boost of our residential project. Next slide, please. Yeah, this is the same products that we have been showing now for quite a while. And as we said, most of them will be finalized this year and next year. The positive is that we have continued to increase the occupancy rate, and it's now 86%. We have announced some new agreements for Posen, a textile toy in Hammarby Sjöstorp. and they also will and so that that is positive we have a good good discussions with them for for the haganora project and we also see increasing the for we have some also for the rest the last square meters in in semaphore so so it looks positive and as i said This will add for the coming 16 months, it would earn another 380 million in increased or in rental income. So next slide, please. In early 2024, we began the next phase in the development of Haga Nora when BAE Bostad started to building 285 apartments, of which 75 will be rental apartments. We see continued interest for housing in this area in good locations. It's a very good location, Haganora. And we will greatly start to sell the apartments during the second half of 2024. And occupation is expected to take place end of 2025 and 2026. So, Åsa, please tell us a little bit more about the sustainability.