Fabege AB (publ)

Good morning and welcome to our presentation of the third quarter.

As usual, it will be afterwards, there will be an opportunity to ask questions. To summarize the third quarter, I would say it was a stable quarter. We had increased rental income, we had increased net operating income, and we had increased profit from the property management. And the net letting was positive with about 9 million. So in a stable quarter. After the summer, we have seen some signs of improvements. Inquires are increasing, and there have been more viewings. So, it's more activity. That's small, but clear signals that we slowly, but surely, hopefully, will be starting to be more active. There will be more activity in the market. And especially, this is true in the Stockholm inner city. So, Åsa, please give us a review of our numbers.

Thanks, Stefan. Please turn to page four. Rental income for the period amounted to 2.5 billion, just above the same period last year. On a like-for-like basis, income decreased by 74 million, equivalent to minus 3.2 percent, which was mainly related to relocations due to the previous year's negative net lettings. The sale of the property Ynglingen meant a decrease of 25 million. Meanwhile, income increased by 103 million related to occupations in completed projects. Net operating income decreased to 1.9 billion. Property costs include a non-recurring item of 7 million. Other deviations mainly relate to slightly high repair and maintenance costs and property tax. The surplus ratio thus amounted to 74%. For the quarter alone, the surplus ratio was 78%. No sales were reported in Bybostad during the third quarter as no projects were completed. The sales were then related to the second quarter when the first phase in the housing project in Haganara with 23 apartments was completed. This means that the residential development in Bybostad reported sales of 128 million and a gross profit of 20 million. Central administration cost amounted to minus 78 million. Net interest items came in at slightly lower level than the previous year. Higher debt was offset by lower average interest rates during the period. And the result in associated companies amounted to minus 49 million, of which minus 50 million related to the period's capital contribution to Arena Bolaget. Share in profits of other associated companies amounted to smaller positive amounts. This meant a profit from property management of 1 billion 50 million compared to 1 billion 12 million in the previous year. Unrealized changes in value amounted to minus 338 million in the quarter and minus 988 million accumulated for the first nine months. I will come back to this very soon. Impairment of the value of development properties of minus 21 million remains from the previous quarter and related to the valuation of future project opportunities in Viljebostad. Realized changes in value minus 37 million related to deductions for deferred tax in connection with the sale of the property Ynglingen, which was vacated in the first quarter. The valuation of derivatives portfolio follows the long-term interest rates, which rose during the quarter. This meant a positive effect during the quarter, but over the entire period, the surplus value decreased by 216 million. The tax expense which related to deferred tax amounted to plus 47 million, of which plus 128 million related to a reversal of deferred tax in connection with the sale of Ynglingen. Next slide, please. During the quarter, we have independently valued approximately 40% of the property portfolio, supplemented with internal valuations of other properties. The average yield requirement increased during the third quarter by a further 0.04 percentage points to 4.6%. compared to 4.54 at the year end. The increase related mainly to Solna, while the yield requirements in the city are unchanged. In the first quarter, we reported negative changes in value of minus 565 million. This mainly related to the fact that values expected longer vacancy periods and slightly lower rent levels, primarily in Solna, where we do have some vacancies and longer implementation periods for future projects, opportunities in Flemingsberg. In the second quarter, the changes in value amounted to minus 85 million, net of minor adjustments, both upward revaluations and write-downs. The change in value in the third quarter amounted to minus 338 million, and as mentioned, were mainly related to higher yield requirements in Solna as a consequence of Vasakrona's acquisition in Arenastaden. Overall changes in value during the period thus amounted to minus $988 million. And the total property value thus amounted to $78.5 billion. In addition, there is the property value of the development property portfolio in Videoborstad of $1 billion. Next slide, please. Reported equity amounted to 120 Swedish crowns per share, and the long-term EFRA NRV amounted to 146 crowns per share. The equity asset ratio and the loan-to-value ratio were unchanged at 45% and 43% respectively. Both of these key performance indicators confirm our continued strong balance sheet. The interest coverage ratio amounted to 2.7 in the quarter and to 2.5 for the entire period, which is in line with last year. Next slide, please. Access to and pricing of financing is still very good. This applies to both the capital market and banks. The capital market is now strong after the summer with high demand and lower margins. Several of the property companies have been active and there is a broad-based demand from investors. In late August, we issued a bond of 1.25 billion. The bond has a term of 3.5 years at a margin of 100 basis points. Remaining bond maturities during the autumn amount to 0.5 billion, and in 2026 we have 4.6 billion maturing, of which 2.3 during the first half of the year. We intend to refinance our bond maturities with new bonds, whereas our bank facilities are continually refinanced through extensions. We have also started the process of refinancing the bank facilities that mature in 2026, which will mostly occur during the fourth quarter. Undrawn facilities amounted to 6 billion, including the backup facility for outstanding commercial paper. In October, the seller's promissory note was repaid from NREP, which meant that we received just over 680 million Swedish crowns. 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. The average interest rate decreased to 2.83% at the end of the quarter. Maturity of derivatives at low levels and entering into new interest rate derivatives was offset by lower margins on refinancing as well as lower cyber rates following the Riksbank interest rate cut in September. During the quarter, we entered into additional 250 million in a fixed five-year swap and 500 million in extendable interest rate swaps that run with fixed interest for two years with the right of the bank to extend for a further three years. 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 and extendable interest rate derivatives totaling 7.5 billion. Straightforward interest rate swaps have a fixed interest rate of between 0.11 and 2.18%. The callable interest rate swaps have an interest rate between 1.82 and 2.5%. And the extendable swaps finally have a fixed interest rate between 1.66 and 1.72% for at least two years then. 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 2.1 years. So, next slide please. News in the third quarter is that we received the result of a travel survey in Arenastaden. 6,500 people responded and we can confirm that public transport has increased and that the climate impact from work-related travel thus has decreased. In addition, separate on one, the Alfa Laval office in Flemingsburg obtained its final certification, BREEAM-SC, excellent standard. And during the quarter, we completed an internal training in Fabergé's code of conduct for all the employees. So all of the employees have now participated in the training and have also signed the code of conduct. This is something that is now a requirement in connection with new hiring. Otherwise, we have continued to work in line with our environmental and sustainability targets relating to, among other things, the property energy consumption and the reduction of CO2 in project development. Last but not least, I tend to say something about this CSRD ESRS. It's now clear that the omnibus proposal will be approved and that Faberge is not covered by the comprehensive sustainability reporting under the CSRD. We will retain the key performance indicators we have reported previously, but we will revise the structure of the sustainability report so that it's more aligned with the ESRS-inspired structure. And so back to you, Stefan.

Thank you, Åsa. About the transaction market, it has been a quite slow market during the last third quarter, which is not that unusual, as you know, over the years. But what we see is continued healthy market when you're talking about the good properties that find good buyers at good prices. And the most important transaction during the last quarter for us was actually when Vasa Kronan chose to invest in Arenastaden. and acquired a Tygen Tor, also known as Sona United, 34,000 square meters of offices for a little bit more than 2 billion Swedish kronor. That price is probably, we don't know exactly the figure, but we know that it's... probably below 5% yield on running yield and a little bit more than 5% yield on exit yield. And that's also what we can also talk about earlier, the valuation in . We saw a little bit uptick in the yields because of this transaction. But we are very happy that we are getting Vasa Krona as a neighbor in . And I think that's good for the area, also for the future. The other transaction on this slide you have seen before, but as you know also that they are in good locations and they are confirming the valuations we have in the books. Next slide please. The Stockholm office market, we have shown this before. is increase continue to be stable and even increasing rents. Vacation rates are continuing to increase in most areas but we see it stabilizing over the during the summer during this time now and of course you know that the vacancies we see right now are from what we the net letting we saw a year ago. And two, so a little bit better market, a little bit probably some of the vacancies are flattening out, flattening and hopefully some of the also we see now in the reports coming from the advisors, a little bit more positive view for 26, 27 and onwards. Very important for the market has been the number of employees in the office-intensive industries, and we have seen it flattening out over the last years. But hopefully we even can see that with a little bit better economy starting to pick up during the next years. But on the other hand, we see very limited new space, office space, and especially there are very few new projects for offices started for this year. So next slide, please. You can also see it in this slide that we expect the market to be relatively flat when we're talking about total office space in square meters for the next year or so. Next slide, please. Our challenge is, and it's well known, it occupies a rate in the management portfolio. It's still above about 87%. And we said it before, but it's too low. And that's what one of our focuses right now is to increase this occupancy rate and decrease the vacancies, of course. We have the highest vacancies in Sona Business Park. We have in the other areas, Hammarby, some smaller spaces, but in total, when we add them up, it's more than 15% of that area. In Arenastaden, we have a little bit, but we now start to see more activity. And those, I think it's important to Remember that the vacancy rates we see now is known already a year ago, so that we will leave. That was when we saw the net letting at that time. That's what we now see in the occupational rates. I'm talking about the net letting, so let's go to the next slide, please. We, for the quarter, we had a positive net letting of 9 million. In total for the, so far this year, is plus 3. We had, so I think it's good signs, and also even if it's small numbers, it's more, as we said, it's lighter after the summer, and we see more discussions and more viewings in September, during the third quarter. And after September, we say that continues, and we have seen a good start of the fourth quarter. Renegotiations also better during this third quarter. We have continued to extend most of the contracts on the unchanged terms. We have also already renegotiated some of the contracts that will mature next year. And we had some negotiations that had been on the positive side. So right now we are still a little bit negative. for the whole, for the first nine months, minus 0.1. But it's better than in the third quarter. So, next slide, please. This one we normally show, and for it to show you what we expect for the next four quarters. And we have an uptick in the incomes. or in the rental development, rental, rent incomes for the next quarters. And that's mainly because of, oh, thanks to Saab. And then we have a little bit slower development for 2026. And that's due to the negative net acting we had 2024 mainly. But hopefully we can see a little bit better figures, and we will see a little bit better figures in the future. For the next slide, please. I think that we have long-term agreements with stable customers is important. It is an important phase for us. And we also know, very often, sometimes we get the question, that large tenants don't like to have long contracts any longer. But that changed. But it's very individual. And as you know now, Saab is a 20-year contract. Alfa Laval is more than 20-year contract. So there are many, it's so individual and many of the large companies like to have or prefer to have long contracts. And I think that's also very good for our, especially the product portfolio. So, next slide, please. We have, during the year, completed the projects. We know that Alfa Laval moving in before summer. And in both Haganora and in Hammarby, we have completed the projects. We have also the new contracts that we'll work on the new contracts in Hammarburga, Farnabéha and Aganora, and I hope we will be able to announce some positive news there for them during the fourth quarter. In the rest of the ongoing projects on the next slide, please. We know that the SARP started to move in in September for the first phase. And now they will, in November, December, they will take over the whole property. And so from we will have the whole project finalized during the end of this year. And then we will have mainly or the big project will be from that, the Venogram Center refurbishment, which will be, during the last year, the largest project we will have, and that will be finalized in beginning of 2027, as it looks right now. And it's mainly the facade, but we also do something. upgrade the whole building when we do the next year. In Arenastaden, we take the next step with the investment of Faro of Cairo, which is the entry of Arenastaden. The demolition is almost finished, and the next phase is to start to build and construct a new infrastructure, mainly a bridge that will be the new Antje Thorsson Torrensvaren, which also will be finalized when the subway will be open some years from now. So we also will construct the groundwork or do the groundwork for the big future project of Faro-Cairo. But that will be later on. Next slide, please. Birgerbostad has no projects finalized this quarter, but it will be a better fourth quarter with some projects finalized. And especially with the 78 rental apartments will be There will be tenants moving in during November. And for time being, we will keep that property. But long-term, I would guess that it will be, we will not, you shouldn't see that as a strategic decision building a residential portfolio. It's more that it's so closely linked to the rest of the development. So, but it's good that we started to generate cash flow, even that part of the project. For the rest, we have started to convert the agreements for the owner-occupied apartments. We have sold 34 with final agreements. There were a little bit higher numbers after Q4. But they were not finalized agreements that there were at that time. Now there will be 34 that we have also had final agreements on. So we will sell. We are right now in the process of selling the rest. And we have had another 52 apartments reserved in the total of the upcoming phases. We see a little bit better. Even here, activity after summer, a little bit better market. It start to be mainly, and that's where we say we're mainly driven by Riksbankens interest rate cuts. Next slide, please. We are not talking that much about the building rights right now, but I think it's important to say that many of those building rights we have in the portfolio, both for offices and residential, and mainly the one we have in Solna, has been developed during the, within the, over many years in our portfolio. It has been in the Solna plans developed by us, together with the municipalities. But in Q3, we decided to sell about 8,000 square meters of building rights for approximately 200 million to Beska at Kumsholmen. We think that was a natural transaction for us to get that. We think they are very good for developing that, and it's not really in our prioritized areas. And we think especially it was a good deal. Next slide, please. When talking about future opportunities in the portfolio, we see, as we were talking about before, the Faroe Cairo, the more than 70 or almost 80,000 square meters of office space, its apartments, and it will be next door to the new subway, and that's where we have now the first step when we are starting to build the infrastructure. And that infrastructure investments are also important for the whole Up in Hagenora, we have the opportunity to build another 130 apartments next door to the project BioEbusa has today. We haven't decided when to start that. We would like to sell more in the existing product or the ongoing product before making any decisions for the future. At Kungsholmen on the next slide, please. We have, as you know, after I think it was 12 or 14 years of planning processes, we got it legally binding at the beginning of this year. And we had one there where we sold the Bill of Rights for Residential to DUSCA. It was part of this block. And then we also have another 36,000 square meter offices, where we have actually good discussions with some potential tenants. And in Solna Business Park, NCC is right now developing the building in the middle for Svenska Kraftnät, the great company of Sweden. And we have the building rights for offices to the left, but especially also for more than 20,000 square meters of residential. And we haven't made any decisions when, but it will, I think that is very attractive and will be a great opportunity for the future. For, next slide please. For all of those discussions, of course, how can we create values? How can we increase the How can we increase the management profit for a series of courses? And how can we get the best total return in the portfolio of the companies on the stock exchange? We will continue to complete the existing projects, of course. We have a strong focus on the getting the occupancy rates up. We look at finding opportunities to invest in future new products, but we will not do that much on speculations. We are looking on value creating transactions, and we have a close eye on cost efficiency and efficiency of course. And I would say that in the management portfolio, we have a good cost control. And that's also what we have seen in the figures. So to summarize. Next slide, please. This is probably not a surprise, but we continue to believe in Stockholm and what Stockholm, the long term opportunities in Stockholm and also that Stockholm is and will be the engine of growth for Sweden. And next slide. we continue to believe in offices. And I think that's also what we have seen during the year. Even if it has been a tough market over the last years, we see that offices are important for the companies, but the product will change and has changed. So we have to be proactive and we have to respond to the office and be in front line of developing the products. So with this said, I think we summarized a quarter, we see more activity, we see a little bit better market, we have the strong financial position, we have a good control and we see better numbers. And we see also future opportunities, especially for decreasing the vacancies and using the land bank for future products. 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 John Bong from Van Lanchet Kempin. Please go ahead.

Hi, good morning. You were talking about increased activities. If I understand it correctly, it's mostly in the inner city. So is it fair to say that demand is more skewed towards smaller floor plates and any specific sectors that are looking to take up space again?

Good morning. You can say, yes, it's the first phase. No focus is in the city, you could say, but we even see higher activities for questions about Arena Starter, for example. The sectors, it differs. It's everything from auditors, lawyers, but also AI companies in Stockholm now are growing quite fast. We have seen a couple of them growing very fast right now. So it's a mix. But I would say that the main reason is that people are a little bit more optimistic and also about the economy and the development. But it's a mix. But it normally starts in the inner city and then we see more activity even in Solna.

That's good to hear. And the discussions on rent levels, how does that compare to current market rents or ERVs, if you will?

We are about the current market rents, and some are a little bit higher, some are the same level, and some are even also a little bit lower, but it's about the level of what we expect.

Okay, that's clear. And just on the positive reversion that you're getting in Q3. I think you captured 4% on roughly 80 million of leases. Could you provide a bit more color? Is this coming from a specific asset that was hugely under-rented, or do you see a turn in market here?

I would say it was a couple of different tenants, but it's one larger ones. But that we should also notice that it will come with some investments. But it's a good deal in total, but there will be some investments in that for getting the higher rents. But we see... more stabilizing, and as you also know that we are just prolonging a lot of contracts on existing terms, so that's the main, but about the same level.

Okay, that's clear. And in terms of investments, what size are we talking about?

We will, that will be, but in total it's, you can say, plus 100 million. Okay.

Thank you. That's clear.

The next question comes from Nadir Rahman from UBS. Please go ahead.

Good morning and thank you for taking my questions. Congrats on the positive reaction to the results. My first question is on the rent negotiations. So you mentioned at Q2 that you were seeing 3% declines and now at Q3 you're seeing Dems think rather flat, I think it's around minus 0.1%. So could you give some color on where this is concentrated? Are there any particular office sub-markets for this? And then I'll save my following questions for afterwards. Thank you.

No, as we said, it's a couple of different tenants, but there is one larger one. It's a mix in the areas. It's mainly inner cities. And as I said before, the larger ones is also coming with some investments, but in total, the deal is good for us.

Okay. Very clear. Thank you. And I see that like-for-like rents and values are still declining. So, curious to know when these will bottom out and when you think the market will start to turn in favor of rents and value. And the same question as well for vacancy, because it has been flat for a couple of quarters now around... So do you think that the vacancy is now bottomed out and it will start to trend towards your 5% targets and also your guiding towards reaching this 5% vacancy by 2030? I think that was mentioned in your Q2 report. Is that still the case or do you think you can achieve this 5% ahead of 2030?

many, many questions in one question. But let us try to sort it out. When it comes to vacancies, yes, hopefully we will see that we are at the bottom now and will improve from now on. I mean, the science on the rental market and the positive net letting is pointing in that direction. On the other hand, we have to be, you know, anything can happen. It's Some positive signs and a turning point, hopefully, but there is not a big rush, I would say. The target for 95% is still there. It will take some years to reach it, but there is absolutely full focus in the organization of ABG in reaching to get to that target. Did you also say something about yields?

No, so I mentioned the like-for-like rent and value declines. I think we've still seen the values declining the past few quarters. I was curious to know if you think this will bottom out in 2026 or whether this will continue for the coming quarters?

Hopefully it will bottom out and we will see also hopefully some improvement in the coming quarters. In the last quarter, the yield shift in Arenastaden related to a transaction where Vasakronan bought the property on Gårdsvägen in Arenastaden at somewhat higher yields than was previously seen in the valuations in that area. But that's now reflected in the books. And I think what we see from transactions on the Stockholm market, they are supportive of the valuations that we have in the books.

Okay, very clear. And on the Saab lettering. How did this impact the net lettings? What contribution did that particular net netting have?

The Saab net nettings was recognized last year, or was it even 2023? So it's not recognized in the net netting this year. However, they moved into part of the property in September, so they have started to pay some rent. and they will move in the rest of the property in November. So it will be fully occupied from November and onwards.

As I also said, it was 2023, we had a very positive net, I think one of the best years ever, at almost 160 million from Saab, and the rest was almost neutral, so that's why.

I see, okay. And on the topic of the rents, I see in one of your slides you mentioned that contributes 4.7% of your total rental income share. Is that only including the current one-third rented out, or are you taking the entire building in that calculation?

That's the entire building, which is also in the notes. We don't know just to make it. We would set it what it will be when they have the whole building.

Okay. That's very clear. Thank you. That's all. Thank you both for taking the questions.

Thanks for asking.

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

Hello. Good morning. Just one question on your slide 15, which relates to the rental development. What are your assumptions in terms of indexation, rental uplift, the underlying assumptions, I mean, please?

Sorry, did you say slide 15? Rental development? Yeah, right. So this slide reflects what we know about tenants moving in and tenants leaving. So it doesn't include any assumptions on new lettings that have not been signed, for example. So this is just a picture of what the portfolio looked like by the end of September.

All right, and what about the indexation impact then?

Indexation is probably going to be around 1%, kicking in from the 1st of January for the majority of the contracts, although we have some contracts which are indexed on a more quarterly basis now. So indexation will have a very limited impact on this.

Okay, thank you. And regarding your financing, is the ITR a concern for your credit rating? And what is currently your marginal cost of refinancing?

Marginal cost is, it depends on the maturity you choose, but for a three-year financing, the margin is less than 100 basis points. And then you have the cyber on top, which is a little bit less than 2%. So marginal cost of financing around 3%, a little bit less than 3%. When it comes to the rating, Moody's are happy where we are today. We just had a management meeting with them a couple of weeks ago. So they have all the information, and we expect to maintain the rating level where we are today.

Okay, thank you very much.

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 closing comments.

Okay, thank you very much, and thank you for listening to us and for asking the question and for following us. If you have any, as usual, you're always welcome to give us a call or to come and visit us here in Stockholm, and we hope it will be for a little bit more sunny times than we have had in the past. So have a nice day, and thanks for listening.