Fabege AB (publ)

Good morning and welcome to FABG's interim report to second quarter for 2026. We have a well-known agenda and we just kick off. We own and develop and also manage our own properties and we have the focus on creating attractive working places and a good living in superb locations in Stockholm. We have a model portfolio occupied by high-quality tenants. We'll get a little bit back to that later on. And the rental value is 4.4 billion, and it's divided here into different segments. And the square meter, 1.3 million square meters. also divided into the different segments, and the property value is 79 billion at the end of the quarter, divided with 37% in inner city, close to 50% in Solna, 10% in Hammarby Sjøstad, and 3% in Flemingsburg. Also, repeat from last quarter, it's important for us that we're also marketing our biggest strength. It's definitely our customers. We have a high consumer satisfaction index, highlighted by a strong track record in serving our customer needs. And 95% of our tenants say they would recommend FabGS and Landlord, and we are very, very proud of that. We have long-term lease contracts as a foundation in the business. We have our own employees across the entire value chain, and we have clusters giving us advantages like economies of scale and creating engaging meeting places, meaning we take the full responsibility for the ground floor, for the offices, for the living, etc. And we also invest a little bit in the community for safety, etc. We have an excellent capability when it comes to delivering large and complex projects from start to finish. We have done it before and we will do it going forward. And also strong capabilities and best-in-class practice within ESG initiatives and environmental results when it comes to CO2 pollutions, etc. So if you just have a short summary of the second quarter standalone, the rental income grew by 5.9%. The surplus ratio in Q2 was 74%. And we had a profit from residential development of 39 million, meaning a margin of 21%. And we are very satisfied with that. The net letting was minus 86 million in the quarter. We have commented on that also during Q1. And it's two large terminations when it comes to Max Mathisen and Telenor represent this figure. Value changes, more or less flattish, plus 0.15%, plus 120 million for the quarter. We have improved our occupancy rate from 86% to 87%. And we have some new large leases in Solna Business Park in the quarter. Get a little bit back to that also. We finalized the acquisition of Garden One in Sveabland from the municipality of Stockholm. And we also press released this morning that we have signed a construction contract for Block 4 in Haga Nora. That's 132 residential units. So with that, I hand over to you, Åsa.

Thank you, Bent. Well, the rental income came in at just under 1.8 billion, and looking into rental development in identical portfolio, it was minus 17 million, or minus 1.1%, mainly due to terminations that were previously announced in the negative net lettings from previous years. On the other hand, we had a net of plus 100 million from finalized projects that have kicked in during the first six months of this year. The properties expenses were very much in line with last year and we saw an operating income from property management of just over 1.3 billion with a surplus ratio of 73 percent, one percent up from last year. The residential part of the business was also contributing with 79 million, as you can see here. We have finalized approximately 85, 86 apartments during the period and recognized the income from those finalized projects. So if we look at the net interest expense, it increased a little bit in comparison with last year. The cyber has gone up and it has been to some extent not so much because we have seen also less margins and we have had some interest rates that have matured during the period. But all in all, up from 2.82 to 2.89 during the first half year. And the share in profits from associated companies of minus 42 million relates to contributions to Arenabolaget. Then we saw, in total, unrealized changes in the values of minus 139, but as Bent just mentioned, it turned positive during the second quarter. We saw a plus of 120 million. The tax is a little bit also different from normal. We have sold one property which contributed to a positive tax of 24 million. But we also had a finalization of the outcome in the court that gave us another 550 in... in... I lost myself here. ...in carry-forward losses that we have now taken up to valuation, and that meant a little bit more than 100 million plus in the tax. So all in all, a profit of 521 million during the first six months. During the quarter, we have externally valued 43% of the portfolio, and we saw that the yield in the valuations have come down two bips from 4.59 to 4.57. And thus, we also saw, as I mentioned, the value change of 120 million plus in the second quarter. We had an opening fair value of 78.5 million. We have disposed Paradiset 31 construction for building rights to Beskab. We have bought Gadden 1. The 211 also includes the tax paid. We have invested almost 900 million. We had the value changes of 139 million minus. And we have the reclassifications when we have reclassified Haga-Norra Block 4 from property management portfolio into development properties that will be carried out by Virje Bostad. And all in all, the positive value changes refer to city properties, as you can see here, plus 157 during the first six months, while we also saw positive from the residential part of the portfolio. The key ratios came in 119 Swedish crowns per share compared to the same figure last year, an EPRA NRV of 145 crowns per share, positive total return on the properties, 1.5%, and surplus ratio, as I mentioned, increased, and equity asset ratio and loan-to-value ratio in comparison with last year and also year-end. The debt ratio improved from previous over 14 to less than 13, which is also in line with our internal target for that. And the interest coverage ratio ended up at 2.6 for the full period and 2.7 if we look at the second quarter alone. Financing remains very strong for us. We have very good access to financing both from the banks and the capital market. The margins on the capital market have been a little bit volatile during the period, but ended up in very good levels towards the end of May and the beginning of June. We have refinanced everything that we are supposed to refinance during 2026 when it comes to bank loans. And we are intending to refinance the 2 billion remaining on the capital market with new bond issues during the autumn. The last bond issue was done now in June, where we took in 350 million in a five-year bond at a margin of 110 bps, which I think is a very good level. And we have also increased the interest fixing by entering into new interest rate swaps of 1.4 billion. Five-year terminations and at levels between 2.5 and 2.6%. So we now have an average interest cost of 2.88% compared to 2.82 at the year end and approximately a little bit less than 50% of the portfolio is fixed and the average interest fixation is 1.4 years. But if we also take into account the callable swaps, it increases to 2.1 years. So all in all, I feel confident with the financial situation. And over to you, Bent.

Thank you. So if you look at the occupancy rate in the management portfolio at the end of Q2, it's up to 87%, sorry, up from 86%. And that also includes the remaining vacancies in the previous project that has entered into the management portfolio. And in addition, we have the improvement portfolio, close to 8 to 9 billion. It's 127,000 square meter, of which 71,000 square meter is not let, but is let out to different customers. And the yield on that portfolio is it covers its own debt costs, the interest costs for the debt, 100% financed. That's how it works. The net letting for the first half, minus 62 million. New lettings of 132 million and terminations of 193. And the two large ones there, it comes from more than 80 million, as I mentioned in the beginning. Telenor is moving out in the third quarter, 2028. I think it's September 28. So it's a given notice and a very, very good advance. We have the renegotiations. Totally it was renegotiated 230 million. It was renegotiated with minus 1.7%. 109 million is renegotiated and 121 is prolonged on existing terms. So I think that's also what we see in the portfolio. A lot of the renegotiations are more or less companies now maybe sold off a subsidiary, sold off a division, et cetera, and in that sense also putting on a new lease. And 156 million of the maturities in 26 and onwards, I think it's 26 and 27, has already been renegotiated for the total portfolio. If you just look at Q2 separately, it was a healthy mix among all markets, market areas that we have, and all segments, meaning from hotels, from restaurants to offices. Six contracts above 1,000 square meter during Q1 has been renegotiated. And all the new leases, also a mix of all kind of categories from hotels and everything. And one contract is about SEK 10 million in yearly rent. And we have divided here the renegotiations by area and also the new leases by areas. And as you see, it's a healthy mix all over for us. Just want to mention, since I also had that in the beginning, that a lot has happened in Solna Business Park this quarter. And it's taken more than one year for the puzzle. But the Swedish National Agency and the Swedish work environment authorities have reduced some of the space just to have space for the Swedish Transport Agency. So everything finalized. The Swedish Work Environment Authority leases approximately 4,000 square meters on a six-year lease, and the Swedish Transport Agency leases approximately 3,000 square meters also on a six-year lease. So really, the governmental tenant has cooperated together and leased spaces in Solna Business Park. With that finalized, our property, Fresaren 12, is more or less fully let. Yeah, nice mix of different tenants being active in the market. We also show this every quarter. This is just signed leases today with no further activities in the future. These are the developments on the leases we have signed. I mentioned we have healthy and nice customers. They are definitely one of our key strengths. We have approximately 700 customers. The average lease contract is 5.5 years, and the top 10 largest customers represent 29% of the contracted rent, and we have them on the right side there, all of them. One new is on the list is Tieto, moved into a tent place. They just signed a new seven-year lease contract with us. The top 10 largest customers represent 29% and over actually the real number is 38 largest customers is 50% of the contracted rent and the duration on the 40 largest is 7.4 years. So it's very, very stable revenue stream. We added one new slide this quarter, more or less FabG's view on the market trends. If you look at the rental market first, we see strong and continued activity in the CBD market, especially for larger leases. The alternatives is not that many. We see rent levels slightly started to increase in areas with less alternatives for new production and low vacancies. We see stable rents level in Greater Stockholm. And as I mentioned, a handful of tenants reduced the square meter in existed leases. More or less, if you read in the press, sold a subsidiary, sold a division doing some M&A, there are always some renegotiations. We also see startups and AI companies coming to the leasing market more or less in the city so far. For the construction market, we see free capacity among almost all of the construction companies, good demand to compete for potential building contracts, both in office and in residentials. So far, we mentioned this morning that we have signed a new construction contract for residentials in Haga Norda, and we are happy with that. And so far I will say we see limited or close to non-price implications from the disruptive world outside Sweden. When it comes to transaction markets, it is active, but it's not at the same level as in the more or less old days. Disposes made public during the quarter include both portfolios and individual assets. Buyers, I will say, is dominated by pension funds and insurance companies, and then I'm sure some of the listed companies and the private investors are not happy with me saying that, but I mean, it's dominated by pension funds and investors are being pension funds. But all kind of companies are active in the market. And also commented on the financing markets. We see healthy activity and competition among investors, banks, everything in all kind of financing markets. And it's been a very active financing market when you see the Nordic with all the data centers, massive financing and also in all kind of segments. So, if we look at our ongoing projects, Faro Cairo, investment of 630 million. We are doing the ground and foundation work and construction work up to the ground floor level. The decision for this investment was more or less taken 15 years ago when we went into the Arena Staden. So we have to do this work now because Solna municipality are trying to finalize their work with the roads and everything and just be prepared for the new opening of the metro station at the entrance of this building. The Vennegren Center, investment of 610 million, rental value approximately 58 million. It's pre-lit 30%, and marketing to start more active in Q3 26. But we have started shortly, and we see nice interest in this building coming to the market in Q2 27. And also, MIMR 5 is an investment of 270 million, rental value close to 50 million. It's 100% let on a long, long lease to Academedia, and it will be finalized in August next year. So for the next school year, it will be open. So here you also see some of the growth in the top line the coming year. Completed an ongoing project in Birger Bolstad, a residential builder. Haga Norra Block 5 is right now under construction, and it's progressing according to plan. Total of 288 units. We have completed 193 units, and during second half of 26, the last 95 units will be completed. So far of the total 288 units, 20% are unsold, so meaning 59 units to be sold rest of the year. It feels very comfortable from our side. With that, we also move on to the next phase. The preparations are underway, and as we mentioned in the press release this morning, it will be 132 units in block four. Estimated investment, approximately 360 million. And the moving is planned to start in first half of 2028, and if we are lucky, it will also be the first half of the first half year, so meaning first quarter, I will say. After that, Block 3, we have 260 rental apartments, an elder care facility, and a preschool there, approximately 20,000 gross leaseable areas, with an investment of close to 860 million. Just to mention and show it for you, then we will, with those two last projects, we will finalize the quarter. Block seven and block six are finalized. Block five to be finalized this year and sold out hopefully this year. Accorded one, the offices are completed and part of the management portfolio. And we assign on the construction contract for block four this morning. And then the last one, block three, with both the early care facility and the preschool will come in the last phase. And then we will finalize Haga Norran. Project GADN, it's in Sveaplan, Stockholm inner city. We bought it in June 26, building rights approximately 8,800 gross square meters. Purchase price 202 million plus tax to buy it, so 211 million also. We have a planned move-in during late 29, maybe early 30, in that range. And this is definitely one of ABG's core areas. Also, it's the entrance to Stockholm inner city. We will have approximately 90,000 square meters here, working places, including co-working, ground floor activities, food and beverage, high-class conference center, et cetera, et cetera. Will be everything in this area. And we have a lot of questions from you. What happened with the large Ericsson lease in this area? So just try to put it on a map. The leases that Ericsson made was number one to number six. as building to be constructed. Maybe number two is already constructed or underway, but rest is to be constructed. We, over 90,000 square meters, are number seven to number 12 in the same area. So we see good interest in this area and very happy that Eriksen showed the way and took the decision to move the business into Stockholm. There comes the building rights. Not much has happened since last quarter. Commercial building rights, approximately 500,000 square meters with 65% legally binding and a book value of 8,200 SEK per square meter. The residential building rights has decreased slightly since last quarter because we sold some building rights in Krungsholmen. So it's 435,000 square meters left and approximately 40% is legally binding. Book value is 7,800 per square meter for the building rights. And then other projects, opportunities in the near term. We have talked about it also several quarters now. Tegelterrassen in Kungstholmen, 36,000 leasable square meters. Partly demolition started in January and leasing activity is definitely ongoing in this building and our ambitions are quite high. It's the same in Haga Nordhav. We just went through that. Already produced 611 units, 95 units in production, and the last two quarters is another 390 units, including an elderly home and a preschool facility. So we're looking forward to complete these projects. And these are, like Tegertesen, is booked in improvement properties in our balance sheet, just so you are aware. So if you try to summarize, we have to conclude different leasing initiatives that's ongoing and decrease vacancy is always top priority. And as I said in Solna Business Park, it takes time, took us 12 months. In the old days, it would have taken two months, but that's how it is right now. We want to continue to be the preferred partner for our customers. We have to be available, accessible, and solution-orientated, and I think we are. I have a very good feedback on that, and that makes me proud for whole FabBG. We have to secure value creation in ongoing projects. I hope you see that we are working with the balance sheet, working with the projects that's ongoing, and we have to continue to do that. I also analyze the value creation in our land bank, both commercial and residential, and continue to be active in the financing markets. I had some questions about that last quarter, but that's more or less, of course, I have to say, we are always that, and Osas has already done different things in Q3 already. And with that, let's conclude our presentation. So I hand it over to you, Fredrik.

Thank you. Thank you for having me. My name is Fredrik Stensved. I'm an equity analyst with ABG. I will walk you through the Q&A of the day. I'll ask a couple of questions myself, but also let the audience in through the web conference. If I may, before we sort of jump into the Q2 numbers and the Q2 results, you started six, seven months ago. What have you... I think we're all aware that leasing, leasing, leasing, that's top priority, but... If we think about portfolio composition and strategy and capital allocation, is there anything that you have learned during these six months that is different from what you thought when you took the CEO position?

Luckily, I learn something every day, so that's a good thing. I think we have done quite a lot as well. We have looked through the balance sheet. We have sold off different smaller plots that's been part of the balance sheet. We have also signed some LOIs on different plots we have across Sweden. when it comes to elderly care, elderly care facilities, etc. So we'll see if we do more of that. Just try to clean up the balance sheet and just focus on the core assets for us. We have done some organizational changes when it comes to the market area. We have said that Flemingsburg and Hammarby Sjøstad being one market area for us. that will come into effect in Q3. And we are focusing on costs all the time. So, luckily to see also the surplus ratio going up to 74%. So... Yeah, you could be sure. I think about and also think about that every day. So I think we're on the right path. Still, of course, a lot of things to do, and it should be in a company like this. When it comes to the capital allocation, we are a developer as well as an operator. And like I tried to say here in Arenastaden, the decision was taken to do some investments when we entered the area 15 years ago. So more or less, we have to do what we need to do in our areas to comply with what we have promised the municipality. We are hunting for new tenants and I think the pipeline looks promising, I will say.

If we talk about that, you added some slides during this presentation showing sort of the geographical split of the renegotiations and the new leases. My impression, and correct me if I'm wrong, but has been during the past couple of quarters that City has been working, Arenastan has been working, but this graph shows a fairly broad picture. Is that something new? Do you think sort of the rental market recovery is spreading?

It is recovering, but not in a dramatical way. But of course, when Ericsson say they will move 100,000 square meters into the Hagastaden area, of course, something happens. It's not a lot of available premises there going forward. So we see a better leasing market in that area immediately. Of course, it's a little bit more difficult maybe for Kista, But they will probably be moved out in 35 or something. I don't know. So it's a lot of time. But I think that's also some reason why we took Flemingsburg and Hammarby Sjøsta into one market area. Then it's close to the same area, same size as Solna Business Park. And as soon as you have competition within the company, it's perfect. Then you see activity in both areas. shouldn't be in Arenastaden and look at City. They should try to fight for City looking at Arenastaden.

Speaking of Ericsson, you showed a picture of Hagastaden. I think it's pretty obvious to everyone that this is a positive for Hagastaden. How do you think about Svana Business Park or Arenastaden for that quite dramatic change?

It's in the same neighborhood. It's not far away. And the leases in Hagastan and Sverreplan, it's at totally different levels than in Solna Business Park. So I think also that's why you see all the municipalities, the governmental tenants, et cetera, moving to Solna Business Park. When you come to Arenastaden, it's another story. The largest lease last year ended in the middle of Arenastaden. AFRE moving in there. You have all the activity. You have the Målåsken Navia. You have the arena. A lot of things ongoing and happening. And right now, we have a construction site in one end of Arenastaden, and Skanska is building on the other one. So we just had to finalize those. I think it looks nice going forward.

One of your colleagues or peers, competitors, was out last week saying that there is maybe more so than in the past a large amount of large tenants looking for quite significant space. We have seen in the media five to 10 different companies may be searching for six to 15,000 square meters each. Are those looking at all of your areas or any specifics?

It's difficult to say they're looking at all of our areas all the time. But as you saw, the mix here was a quite nice mix between all the different market areas. I follow that insight that a lot of, if you say that six to 15,000 are large tenants, a lot of activity ongoing in the market. And we are also part of the discussions.

All right, I will open up the telephone conference and also you have the opportunity to write questions and I will try my best to read them.

If you wish to write a question, use the form below. If you wish to ask a question at the phone, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Paul May from Barclays. Please go ahead.

Hi, guys. Thanks for taking questions. Just a couple of quick ones. When you talk about the investments on the ongoing properties, I think you highlight things on slide 17. I assume that figures you're quoting is marginal investment and don't include the existing value of the buildings. If you could give us a color on what is the kind of total cost, that would be great on that. And then the second one just around the like for like NOI and the renegotiated lease is obviously getting slightly worse quarter on quarter. When do you see that changing? You talked to a slightly more positive market. When do you see that feeding through into your operational performance in the business?

Thanks. When it comes to the investments, that's the remaining capex that we showed on the slides here. I don't have the in-going balance right now. We can come back to that. Yeah, this quarter was slightly more negative on the renegotiations. I think it's one or two leases, a little bit special leases when it comes to that. So I don't think you should think of that as something ongoing in the market.

I'm not sure about your question about the investment, but if you take the remaining investment and add it to the book value or the market value, that's the value that is going to be recognized once the investments are finalized. And we have the end valuation, which includes also hopefully some uplifts in valuation. towards the end. So there will not be any negative valuations relating to ongoing projects.

I was just trying to get a sense for the return on investment, because obviously the numbers on remaining capex look very high in terms of rent versus remaining capex, which I wanted to get a sense of the total investment. And then on the operational side, you mentioned it's not something to be concerned about, I appreciate it's just one quarter, but occupancy is still relatively low. The market still remains weaker despite the commentary that it's going to be better. So I just wondered when you see that actually feeding through into positive numbers.

We are not guiding on that, but what I try to comment on is that this quarter, the renegotiations were a little bit more negative than it had been the last quarters. And it's one or two contracts, a little bit special contracts, just this time. So... That was my comment. When it will turn to be positive, it's another question. As I commented on in the CEO letter as well, if the new leases and renegotiations are in the CBD, it will be more positive and some other spaces can be more flattish.

Perfect. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad.

All right, so no more questions from the telephone. We have a couple of written questions. You comment in the report on older and less well-positioned properties attracting lower rents. What is the strategy for these properties? Is it just a refurbishment that is needed, or is it more material redevelopment to close the gap to prime assets?

It's both, actually. I think you saw in the project you showed up here that we are doing some major refurbishment of some of the buildings. And the development in the leaves when we do that is very nice. So we are looking at our portfolio and see what are the potentials. We are always looking at our properties and see, should we divest something or should we do something special with them? But that's also a question about returns we could receive. And I think it was the question here as well, but when it comes to resis, I think you should account for approximately 20% margin on those. And when it comes to new construction, we have a target of yield and cost around 6%. and sometimes we get much higher and sometimes we get slightly below that, but that are the targets we are trying to achieve.

And then there's a follow-up on that question from the same person. Would you be able to quantify the share of your assets that you think is to be considered as older and less well-positioned, and any sub-markets where they are particularly concentrated?

No, I think we do that every quarter, and that's what we call the improvement portfolio. It's approximately 9 billion in the balance sheet. 2 billion of that are the Vennigren Center and the Mimer, as we just showed here. So I think we have quite good control of that portfolio. That's including the land bank we have. It's 9 billion. So if some properties should be in that portfolio, we put it there, and we see what to do.

That's clear. One just dropped in. Given the improving demand but also buildings being vacated, where do you see occupancy at year-end 2027? Or year-end this year and going into 2027?

Yeah, it's a lag on the occupancy rate. So the last quarters, the previous quarters, we had a positive net lease. So that means they are moving in after we do the lease. And we have a negative netlease this quarter. But as I commented on, Telenor are moving out in September 28th, so it's more than two years ahead. I also commented on Q1 that Max Mathisen is moving out during 27th. But we have high ambitions for that space, so it should go in the right direction.

All right, very good. That's it for the written questions as well. I think we are sort of running out of time, but maybe if I can just finalize with one last one. Also, I think in the last conference call, in the Q1, or in conjunction with the Q1 report, You talked about Fabio taking a sort of hit to property values in Q1, but you sounded quite optimistic on leasing those in the upcoming quarters and that would translate into positive property value changes. Did we see enough of that materialize in this quarter, or is that potential still remaining for the second half?

I think most of that potential is still remaining for the coming quarters. The value uplift that we saw this quarter was mainly related to city properties and to lower yields.

And if you manage to lease those, is that sort of the normal move in a year from now?

Normally somewhere between nine months and upwards. It depends very much on what kind of premises and what company.

The latest one in Solna Business Park, they took over premises there. That happens quite fast because they were nice and easy to just move right into. But as Åsa said, six to 12 months is more normal, I would say.

All right. Then thanks for having me. Thanks for listening. Any closing remarks?

I just want to wish everyone a good summer. Hope to see you in Båstad. And those of you not being in Båstad, probably see you in Miami in the quarterfinals in the World Championship next weekend. It'll be great. Have a nice summer.