Fabege AB (publ)

Welcome to the FOBI GQ2 2025 report presentation. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the speakers. CEO Stephan Dalbo and CFO Asa Bergstrom, please go ahead.

Good morning and welcome to our presentation for the first half of 2025, including the second quarter, of course. With me here in the room, I have CFO Åsa Bergström and also Peter Kengert, IR. And as usual, we will end with a Q&A session. Next slide, please. Our strategy will focus on Stockholm. is of course still there. We believe at Stockholm, we believe on offices. I know we come back to that later in the presentation also why. So please also let us talk about the figures first.

Thanks, Stefan. Yes, rental income for the first half year amounted to 1.7 billion, just below the same period last year. On a like-for-like basis, income decreased by 53 million, equivalent to minus 3.3%, which mainly related to relocation due to the previous year's negative net lettings. Occupations in completed projects were offset by reduced income related to divested properties net plus 40 million. Net operating income decreased to 1.233 billion. Property expenses include a non-recurring item of 7 million, other deviations mainly related to high maintenance costs and property tax, and the surplus ratio thus amounted to 72%. During the second quarter, the first phase was completed in the housing project in Haga Norra with the completion of 23 apartments. This meant that Bebostad reported sales of 128 million and the gross profit of 23 million. Central administration costs amounted to minus 59 million. Net interest items came in just below the previous year. Higher debt was offset by lower average interest rates during the period, and the result in associated companies amounted to minus 37 million and related to the period's capital contributions to Arena Bolaget. Share in profit of other associated companies only amounted to minor amounts. This meant a profit from property management of 657 million compared to 659 million in the previous year. Unrealized changes in value amounted to minus 85 million in the quarter and minus 650 million accumulated in the first half of the year. I will come back to this very soon. We have also written down development properties relating to future project opportunities in BEVO, started by minus 21 million. Realized changes in value of minus 37 million related to the sale of Ynglinge, which was vacated in the first quarter. And the valuation of the derivatives portfolio following long-term interest rates which fell during the quarter. During the period, the surplus value decreased by 329 million. The tax expense, which related to deferred tax, amounted to plus 160 million, of which plus 128 million related to a reversal of deferred tax in connection with the sale of the property Ynglingen. Next slide, please. During the second quarter, we have independently valued approximately 40% of the property portfolio, supplemented with internal valuations of other properties. The average yield increased during the second quarter by a further 0.01 percentage points to 4.56%. This was 4.54% at the year end. In the first quarter, we reported negative changes in value of minus 565 million. This was mainly related to the fact that the valuers expected longer vacancy periods and slightly lower rent levels, primarily in Solna, where we do have some vacancies and longer implementation periods for future project opportunities in Flemish Berg. Now, in the second quarter, the changes in value amounted to minus 85 million. net of minor adjustments, both upward revaluations and impairments. Overall changes in value during the period thus amounted to minus 650 million. The total property value thus amounted to 78.3 billion. In addition, there is a property value of development property portfolio in Birjebostad of 0.9 billion. Next slide, please. Reported equity amounted to 119 crowns per share and the long-term EPRA MRV amounted to 147 crowns per share. The equity asset ratio amounted to 45% and the loan-to-value ratio was unchanged at 43%. Both of these key performance indicators confirm our continued strong balance sheet. And the interest coverage ratio amounted to 2.5 moving 12 months, which is in line with the previous year. Next slide, please. Access to and pricing of financing is still very good. This applies both to capital markets and to banks. Since the vacation of the property Ynglingen in March, when we received almost 1 billion crowns, our activity has been at a relatively low level. We have refinanced and extended a bank facility of 1.5 billion. During the second quarter, we issued a total of 700 million in new three-year bonds at the margin of approximately 1%. In connection with this, smaller amounts were repurchased in relation to maturities during the autumn. After that, there are remaining bond maturities of 1.7 billion in the autumn, which we intend to refinance with new bonds. In June, the annual update of the MTN prospectus was carried out. We also launched an updated green framework with a second-party opinion from Standard & Poor's. Undrawn revolving credit facilities totaled 6 billion at the end of the quarter. Overall, we continue to have good preparedness for upcoming financing needs and refinancings. We have facilities in place to cover the upcoming loan maturities. Next slide, please. Of the loan portfolio, 49% is fixed, mainly based on long-term maturities and mostly through straightforward interest rate swaps, supplemented by some fixed rate bonds. In addition, there are callable interest rate derivatives totaling 7 billion, which are still running. Straightforward interest rate swaps run with fixed interest rates between 0.11 and 2.18%, and the callable interest rate derivatives run with an interest rate between 1.82 and 2.5%. The average fixed rate term amounts to 1.5 years adjusted for the estimated maturity of the callable swaps. The fixed rate term increases to 2.4 years. The Riksbank cut of its policy rate in June has not yet had a full impact on our financing. We also see potential for lower margins in connection with upcoming refinancing of both bonds and bank loans. Meanwhile, this is offset by swaps at low interest rates that mature during the year. As I have said earlier, we expect that the average interest rate will remain just below 3%. At the end of June, we reported an average interest rate of 2.89%. For a moving 12-month period ahead, an increase in the market interest rate of 1 percentage point will generate a higher interest expense of approximately 153 million, all ales unchanged. A corresponding reduction in the market interest rate by 1 percentage point will result in a reduced interest expense of 96 million. And over to the next slide, please. Something new in the second quarter, as I just mentioned, is the updated green framework. The framework is based on third-party certified properties and ambitious energy targets. As before, it's mainly based on the green bond principles adapted to the EU taxonomy. The framework is primarily aimed at the capital market, where we have only borrowed using green financing for several years now. S&P has issued a second party opinion with a median green rating for the green terms and conditions. The framework and associated documentation is published on FabiGas website. During the quarter, we have otherwise continued to work in line with our environmental and sustainability targets relating to, among other things, the properties, energy consumption and reduction of CO2 during project development. We have recently started a collaboration with Myrspoven, a Swedish company, to take the next step in further streamlining and managing the energy consumption in our properties. This will be noticeable in both consumption and costs in the longer term. Another initiative is the dismantling of older properties that is now being carried out along Dalvägen in Solna. have set a high target where at least 80 percent of the demolition material must be reused or recycled a lot of material goes back to suppliers for recycling other materials are recycled on site and we have recently sent 1 600 windows to ukraine to help with reconstruction and so back to you stefan thank you also um um

The next slide is the transaction market. The transaction market for office in Stockholm has been relatively calm during the first half. There are some transactions that have been announced, some in the CBD, and there are more that have been good prices, and some outside the CBD, and in the city, at Fribergenspark, for example. We don't know exactly the price. They have not been published. but the indications we have are that they're in line with the magnations we have in our different areas. So please, next slide. The office market in Stockholm or in our area continue to be quite slow. We have, during the quarter or during the second quarter, we have noted some increased activity in the numbers of inquiries and viewings. And that also makes us a little bit more hopeful for the second half of this year. The vacancies rates continue to go up. The trend continues from the last years. So we all know that the number of employees and office intensive industries are high in Stockholm. We are more, that also means it's a little bit more volatile for this. Maybe you can see the rest of Sweden because the office related professions in Stockholm are very high in all, most sectors, in service sectors, in tech, in life science, in finance, and so on, so less industrial related professions. So, but we are a little bit more, I think it's time to get a little bit more optimistic for the next, at least for 2026. Next slide, please. And this is also one of the reasons, the office space is not that, very few projects going on and the office space is not supposed to or expected to increase. And as we know, the location is everything. And that's even more clear over the last year, during the last years, that to have good commuting opportunities and possibilities is even more important than it was five years ago. So the trend continues to be strong. Next slide, please. The occupancy rate in our management portfolio is, as you know, challenges, but also one of the future opportunities. In the management failure, we have to 87% occupancy rates, it will continue to be a little bit lower before it returns up again. It is because of course, what we have seen in the last year or so. So next slide, please. In the renegotiation through the first half, most of the terms were extended, most of the contracts were extended unchanged terms. The 100 million we closed our negotiations with, we had to decrease with a minus 3%. Some of them are relatively large contracts in sort on this figure. But we still expect most of the future remigrations to be extended on unchanged terms. The net letting was negative for the quarter and for the first six months with 6 million. We had a positive of 6 million in the first quarter and negative of 12 million in the second quarter. It was mainly related to one tenant that decreased the area. during the period. Very few contracts both were on the plus or minus, you could say. So it was relatively quiet on the gross level. But we have a lot of, as I said before, a lot of discussions, so I'm more optimistic for the second quarter, the second half of the year. Next slide, please. This is, we used to show you the rental development for what we know today in the existing lease portfolio, including the products. We have seen in the beginning of this year, in the second quarter, Alfa Laval moving in. So we have part of that in Q2. We will have Saab in Q3 and Q4, and that's also isolated conditions. what we know about the tenants that are leaving us. But better for next year, and then we'll continue. This is what the trend we are working for, of course. Next slide, please. We also used to show you this slide with the stable customers that are our largest tenants, with SEB still at top, of course. Saab, will be new on the list. Alfa Laval is new on the list. And then according to Convendent and the situation of the reconstruction of the fire, it's still not agreement with them, but it hasn't been legally binding yet because there is a smaller tenant that was still challenging the agreement. But hopefully we will know later today, maybe, or at least during the July, a little bit more, but to be continued, so to say. Next slide, please. We have completed a cohort in Haganora. It's a fantastic building and we still have two floors, but we have still two floors to sign. But we are optimistic that that will be done during the next six months. Alfa Laval has moved in and it's probably really working very, very well. We still have 500 square meters or 5-600 square meters vacant there. We have an option to to take on the event first. So we will know more about that later, even that later this year. In Hammarby Höstår, Textiltorget is continue to develop very well. It's also a fantastic building. We're now working with everything from the tenants to the restaurants. And we signed this week, or last week it was, a new contract for one of the floors. And now we have just one floor left. I think it's 86% occupied right after that signing. So it's a moving on. So very few, now it's only Saab that is on the, where we were expecting to move in later this year. Next slide, please. And you can see it here, no 10-4. It's almost finalized, finished, and they are starting in September, starting to move in. During the period we have started the renovation of the Vendor Grand Centre. It's mainly the facade, but also everything from ventilation to we will do it at the same time. And then in Arena Staden, we have started to demolish the Tower of Cairo. to make it, first of all, just to be able to start the infrastructure work with the roads and everything to be ready when the subway was opened in 2028, end of 2028, and also make it possible for us to have next for future, like opportunity for future projects. Next slide, please. In Birbostad, they have completed, and that's also said before, set of the completed Alma. And we continue to sell their own apartments and the next pro in the upcoming phases of their apartments. We have sold quite good during the quarter. And the rental apartments, the seven days rental apartments will be completed during autumn 2025. So it will continue to develop according to plan. Please, next slide. Our building rights, just to remember, as you know, we have 1.2 million square meters. Almost half of it is legal binding. And this is for the future opportunities. But of course, today, we are more, it's a weight move to prefer for the future. But we're not starting anything right now on speculation. Next slide, please. Obviously, that could be started in the near term if we can find the tenants. in the Faro-Cairin arenas, maybe more than 75,000 square meters and almost 200 apartments. We have discussions here and we are working with it in the market. So we will keep you informed. In Haganora, we can start the next phase of the development for the residentials, but we will maybe, we will like to be, we would like to send more in the existing project before taking any decisions. Next slide, please. In Västra Kungsolmen, as you know, the plan was legal binding end of last year, after 40 years of work. and we are having discussions how to develop that building for the future. And in Svalbard Business Park, the most positive there is right now that the NCC have started to build the house in the middle that Svenska Kraftnät will move in in a couple of years time and that will also make it possible for us to develop pockets for offices, 24 square meters offices, and for residential. So about the, even here to be continued, it's not any decisions made right now, but we're working to be able to use those opportunities for the future. Next slide, please. So everything this will lead to long-term growth. Of course, our focus right now is to increase the occupancy rates back to the 95%. It will, we have said it before, and of course it's still true, it will take some years, but that's a full focus. It's focused also, of course, on completing the existing products and in the near term to welcome salt. We have the work for making to be able to for the future products. We are continuing to look at the discussion, having discussions for transactions that can create values. And as usual, the cost efficiency is in focus. So to summarize, growth of management profit has been poor for the last years, due to a lot of circumstances, but I'm more optimistic for the next years. And we will long term have the best total return in the property portfolio in companies. It's up for us to show. Generally, I think we can summarize it with it was a stable result. In a continued wheat market, we have right now focus on leptin and on the daily growing of the managing managing our preferred properties so please questions if you wish to ask a question please dial pound key 5 on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound key 6 on your telephone keypad

The next question comes from Stephanie Dosman from Jefferies. Please go ahead.

Good morning and thank you for this presentation. I had a question regarding the net lettings target for this year because at the end of 24 you were guiding on 80 million SEC for this year, positive of course, and of course it doesn't seem to be the trend. Could you give an update on that target and see how confident you are to improve net listings in the second half? And would it be possible also to give a breakdown of your like-for-like rental growth between inflation, negative reversion, and so on? And more generally speaking, what is the reversionary potential on your portfolio, please?

Thanks for the question. First, the net acting target of 80 million is still valid, and that's what we're going for. I'm looking forward to better second half of the year. And as we said during the presentation, we see more activity for showings and different discussions in the end of this quarter. So I'm looking forward to the second quarter with some self-confidence. Then you asked that about the...

of development of like-for-like growth, yes. And there are some information in the presentation and also in the slides. So as we said, the like-for-like was negative by 53 million. This is due to companies leaving and a result of the negative net letting of last year. So that was equivalent to minus 3.3%. Indexation was only a very small number in the beginning of this year. So it didn't really have a large impact. And then there was one property sold, Gladjan, which had a negative impact. But on the other hand, as we also mentioned, there is a positive impact from companies moving in into finalized projects and the net of those two last ones is plus 40 million.

And I think also we also have the underground center that we are... That's part of vacation, yes, yeah.

And also when it comes to renegotiations, the net was minus 3%, but this has not really had impact on rental income yet because there's a time lag between the negotiation and the signing of a new contract and when it comes into effect. But there is also a graph in both the presentation and in the report that reflects the rental income in the coming four quarters.

Thank you, but maybe if I may... Stephanie Dassmann, your line is now unmuted.

Please go ahead.

Thank you for that. Just a follow-up maybe on the reversionary potential. I mean, could you give some colors on your, if your portfolio is over-rented currently and by how much? And what is, in your view, the negative reversion we can expect on the market as a whole because there has been a strong indexation during the last three years. What is the reversionary potential on the market, both on the market and your portfolio, please?

I don't think that our portfolio is over-rented. Most of the contracts are prolonged on existing terms, and that's also what we see in the market. The market rents are above the contractual rents. We also have some potential in some contracts, some old contracts that are maybe signed 10 years ago. because since our areas are even more attractive maybe so with a higher rental level in the area so but in general for the market I would say it's about of course there are some contracts that are over rented also after as we as we can see but most and I think that's true even for the other companies and our colleagues in the sector. In the CBD, we even see maybe an uptick on the best locations. You can see higher rents than there have been in the existing contracts, but that's in some parts of the CBD. Did that answer your question?

Yes, pretty much.

Thank you. The next question comes from Adam Shapton from Green Street. Please go ahead.

Good morning. Thank you for the presentation. Just one on balance sheets. If we look at your key ratios, debt ratio and ICR as well, you're either beyond or close to your self-imposed targets. Can you talk about how comfortable you are running, for example, with a debt ratio more than one turn above your target and how you see the trajectory for that over the next year or two and how you're going to get, for example, a debt ratio back below 13, assuming that remains your target?

Just to begin with, the development of the net debt ratio is really depending on the repurchase of shares that we did a couple of years ago that took this metric in line with our internal targets up to where it is around now, around 14. I think with less project investments going forward, there will be an improvement in this metric. It's not the main metric for us. We are more looking into LTV level and ICR. Those are the two that matters the most for us.

And for the banks, you could say.

And for the financing sector too, yes.

Okay, so the debt ratio target is a bit of a soft target. Okay. And I just wanted to clarify on the previous question on the reversion in the portfolio. You made quite a number of comments and I wasn't sure I completely followed them. Did you say, Stefan, that most contracts are over-rented?

No, I say that most contracts are in line with market rents. Most contracts are prolonged on existing terms.

Okay. That's what you expect going forward. Okay. That's very good.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Yeah, we have one question here from Kempen. Or two questions, really. You've signed an LOI with the city of Solna for the disposal of Hörnan. There's been some opposition in the local government. In case this falls through, would you be willing to sell other assets instead?

Actually, Hörnan was at Solna's start. They contacted us to ask if we were able to or if we could discuss if they could acquire it. Now, as you said, it's more opposition and it probably will not be a sale right now. And we were not outselling it, so we don't like it. So we can discuss other solutions for that with the City of Solna. in a situation that we have need to sell. So the short answer is no.

And the second question is, as we've discussed before, you likely need more projects in the pipeline to reach your SEC 80 million target in net letting. What is the outlook for that? And are you confident on signing more pre-lets?

You should never be sure before it's on the printed sign. But yes, I'm optimistic, yes.

And there's also one question from Goldman Sachs. What actions are you taking to improve occupancy to 95%? Unemployment rates are still high in Sweden.

The unemployment rate, you're correct, but we have a lot of activities and I think the areas we have are attractive. So we have even more people working with the letting. We have a lot of showings, activities in the market, but the main At the end, I think it's about attractiveness for our areas, and I think that's positive. So a little bit better also the demand in the market will help us a lot. Even there, I'm optimistic for the future.

The next question comes from Stephanie Dossman from Jefferies.

Please go ahead.

Yes, sorry to be a pain, but another follow-up question. Maybe you touched upon looking at transactions. So what would you target in terms of assets, location, yields for acquisitions, please?

We haven't any targets for faculty reasons right now. We are focusing on the existing areas. We are focusing on especially vacancies and to take the opportunity for the future projects because we think that's the best way of creating values for us and even over the next years. So that's the main focus right now.

Thank you.

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

So thank you very much for joining us this morning. And if you have any more questions you'd like to have any discussions with us, please give Peter or also myself a call. And have a nice summer. Thank you very much.