Fabege : Interim report jan-jun 2021

Q2

Interim Report 2021

Summary, SEKm

	2021	2020	2021	2020
	Apr-JunApr-Jun	Jan-JunJan-Jun
Rental income	715	696	1,422	1,407
Net operating income	541	526	1,047	1,046
Profit from property management	369	359	715	728
Profit before tax	1,484	6	2,578	1,985
Profit after tax	1,183	-15	2,046	1,559
Net lettings	20	5	56	20
Surplus ratio,%	76	76	74	74
Loan-to-value ratio properties, %	-	-	36	34
EPRA NRV, SEK per share	-	-	160	150

Jan-June 20211

• Rental income totalled SEK 1,422m (1,407). In an identical property portfolio, income was unchanged compared with the previous year.
• Net operating income amounted to SEK 1,047m (1,046). In an identical property portfolio, net operating income declined by approximately 1 per cent (+6).
• The surplus ratio was 74 per cent (74).

¹The comparison figures for income and expense items relate to values for the January- June 2020 period and for balance sheet items at 31 December 2020.

²For key performance indicator definitions, see page 23.

• Profit from property management totalled SEK 715m (728).
• Realised and unrealised changes in value amounted to SEK 1,595m (1,525) in properties and SEK 268m (−292) in fixed- income derivatives.
• Profit before tax for the period amounted to SEK 2,578m (1,985).
• Profit after tax for the period was SEK 2,046m (1,559), corresponding to earnings per share of SEK 6.32 (4.73).

• Net lettings in the first half of the year totalled SEK 56m (20).
• Rent levels in renegotiated leases increased by an average of 12 per cent (16).
• The equity/assets ratio was 51 per cent (52) and the loan-to- value ratio 36 per cent (35).

FABEGE INTERIM REPORT 2021/Q2

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Message from the

CEO

INVESTMENT VOLUME

SEKm

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Target: SEK 2,500m per year over a business cycle

SURPLUS RATIO

%

80

75

70

65

60

55

50

Target: 75%

Winston Churchill's famous quote: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.", captures perfectly the situation in summer 2021. We are seeing a light at the end of the tunnel now that almost 40 per cent of Sweden's adult population are fully vaccinated, the authorities are relaxing restrictions and companies are beginning to plan for a post-Covid future. But we clearly need to respect the fact that the pandemic is not over, and we are in no position to take victory for granted.

What does the future hold for the office market following the pandemic? I am convinced that the office will continue to play an important role in creating strong brands, a sense of community and loyalty among employees; as a place for meetings and creativity and their positive significance for companies' development. That is not to say that everything will return to the way it was before. We will see more working from home, less business travel and more online meetings. There will definitely be greater customer demand for meeting rooms and more open venues for meetings. There will be no one-size-fits-all solution; each customer will find their own unique solution to match their organisation and corporate cul- ture. 'Digitalisation', 'hybrid' and 'flexibility' are all words we will be using more often. Close dialogue and cooperation with customers have never been so important. We need to

be responsive and accept this challenge, but I am confident that with our modern portfolio in prime locations, combined with our agile, customer-focused organisation, we will be able to harness the opportunities that arise.

In identical portfolio, rental income was unchanged compared with the previous year. Vacancies for future projects and discounts were met by moving into completed project properties. Due to the pandemic, we have discounted and reserved a total of SEK 13 million during the first half of the year.

The renegotiations carried out during the period resulted in a 12-per cent increase in rents, which is slightly higher than our expectations at the start of the year.

We had positive net lettings of SEK 20m in the second quarter, while net lettings for the first half of the year were SEK 56m. New lettings have been concluded at good levels, well on a par with pre-pandemic levels. These are positive indications that the mar- ket, which has been somewhat uncertain, remains strong. Rental activity is usually lower in the third quarter compared to the second quarter, due to the summer and holiday periods. However, I am optimistic that the third quarter this year will be an improve- ment, due to the discussions that are underway with potential customers.

Our vacancy rate in the investment property portfolio remains a little too high. How-

FABEGE INTERIM REPORT 2021/Q2

VALUE CHANGE PROJECT

SEKm

2,400

2,100

1,800

1,500

1,200

900

600

300

-

NET LETTINGS

SEKm

250

200

150

100

50

0 -50-100

Target: SEK 80m per year

NEW LETTINGS

Fabege has signed a lease with Elgiganten for Franzéngatan 6 in the Glädjen district. The lease relates to an area of almost 2,300 sqm and will run for seven years. The building will be ready for occupancy in September 2022.

ever, we do not have any structural vacancies in the portfolio. Vacancies relate instead to several smaller premises. We have bolstered our lettings team for the autumn, with a focus on reducing these vacancies and marketing our project opportunities.

The transaction market remained strong in 2021, with a record number of transactions, although mainly in residential and logistics properties. However, a few transactions have been completed in offices in our areas at highly satisfactory levels. Market analysts believe, as do I, that the market for office properties in attractive locations will continue to be strong.

In Hammarby Sjöstad, we have come to agreement with the City of Stockholm regarding allocation of the leasehold property Korphoppet 6 and adjacent Korphoppet 7 to Fabege. Both properties are part of the ongoing local development planning work for the Sjöstadshöjden area, which aims to connect Hammarby Sjöstad with Hammarbyhöjden. The future size of the permitted building is to be determined during the planning process, but is estimated to be around 22,000 sqm. The project is not scheduled to start until 2026/2027.

In Flemingsberg, Huddinge Municipality has commissioned us to initiate the local development plan for the new town centre in the area. The planning assignment covers approximately 200,000 square metres of office and residential space. The local development plan for the construction of the new

3

studios, workshops and rehearsal rooms for the Royal Opera and the Royal Dramatic Theatre entered into force on 15 June and the public procurement procedure has been completed. Construction will begin at the start of 2022.

In Haga Norra, demolition work has begun on the old Bilia facility to allow for the next phases of residential and commercial development in the area. In the first phase of residential construction, the last 115 apartments were snapped up in record time. There is a considerable amount of interest in the area, and we are looking forward to welcoming the first tenant-owners to their new homes in August this year.

In June, we became the first company in the Nordic region to take out a taxonomy- adapted loan with collateral in the Signalen 3 property in Arenastaden. This is further evidence of our long-term,target-based and integrated approach towards creating more sustainable properties and cities.

During the first half of this year, we made use of our strong balance sheet to continue repurchasing shares in order to create additional shareholder value. Fabege has a strong balance sheet, a stable customer base, a modern property portfolio in prime locations with plenty of opportunities for development projects, and I look to the second half of 2021 with confidence.

Stefan Dahlbo, CEO

Architectural rendering

FABEGE INTERIM REPORT 2021/Q2

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Impact of Covid-19 on Fabege

COVID-19 MEASURES

• Regular discussion in Fabege's crisis management group and Executive Management Team.
• Regular briefings for all staff.
• Support for employees to help them work from home.
• Dialogue and measures for customers with liquidity problems.
• Agreements on monthly payments, and postpone- ments and possible dis- counts.

CONTRIBUTING TO SOCIETY

• 5,300 lunches donated to the Stockholm City Mission in the first half of the year.
  The lunches were pur- chased from restaurants in our property portfolio.

SUPPORT FOR TENANTS

• The government has agreed on a new rent support pack- age for the first and second quarters of 2021, with a simi- lar arrangement to the previ- ous year in which landlords are reimbursed 50 per cent of the rebate that is granted.
• There are also proposals to extend the rent support into the third quarter of 2021.
• However, the first step is for tenants who are in need of support to apply for the reorientation support, which covers fixed costs, and thus rental costs.

PROPERTY MANAGEMENT AND RENTAL INCOME

The majority of Fabege's customers are large, stable companies. Some customers, mainly in the service sector, have asked for postponements and discounts due to the pandemic. All such assessments are made on an individual basis with a focus on transition to monthly payments and postponements with repayment. Discounts and provisions related to the pandemic during the first half of the year amounted to SEK 13 million, which has reduced rental income for the period. We estimate that some of our customers will still need support in the second quarter of 2021.

Rental discussions are taking longer and we have noticed that a few clients have requested less floorspace during renegotia- tions. However, activity has been high in the second quarter, which is reflected in the positive figures for net lettings and net rene- gotiations. Rental levels in the Stockholm market continue to be stable.

FINANCING

Access to financing is good both in the capital market and via banks. Refinancing of bank debt is progressing according to plan and during the period we have been active in both the commercial paper and bond markets. Fabege has effective financial contingency plans in place. Undrawn committed credit facilities amounted to SEK 3.8bn at 30 June 2021.

Fabege is a strong brand, both with the banks and on the capital market, and our strategy of allocating financing across several different sources, spreading refinancing over time and relying exclusively on green financing is a strength.

PROJECTS

All our projects are proceeding according to schedule.

PROPERTY VALUES

The property portfolio is valued on the basis of a well-established process. After having a large proportion of our properties independently valued several times in 2020, we have now reverted to normal procedures. We are not seeing any noticeable impact on property values as a result of the pandemic.

EMPLOYEES

All employees continue to work from home to the greatest extent possible. Technical operations have been divided into teams working in shifts, with the aim being to reduce the risk of spreading infection. Meetings and collaboration are largely taking place digitally and we are providing various forms of support to make it easier for employees to work from home. We conduct regular employee surveys. The latest information shows that our employees are healthy, and that working from home works well, but that we miss meeting each other in the office.

FABEGE IS STABLE

As for so many other companies, the pandemic is having a negative impact on the business, albeit to a limited extent for Fabege. Our stable financial position provides reassurance and a firm foundation.

• We have a strong balance sheet with a high equity ratio.
• We have a stable customer base.
• We have good access to financing through capital markets and banks.
• We have dedicated employees who make a difference.
• We have a modern and attractive property portfolio in prime locations.

FABEGE INTERIM REPORT 2021/Q2

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Earnings Jan-June 20211

Profit after tax for the period was SEK 2,046m (1,559), corresponding to earnings per share of SEK 6.32 (4.73). Profit before tax for the period amounted to SEK 2,578m (1,985). Profit from property management was slightly lower, however positive changes in value for both properties and derivatives meant that profit before tax increased in comparison with the year-earlier period.

SECOND QUARTER IN BRIEF

• Greater activity on the rental market, with more viewings and negotiations.
• The continuing effect of Covid-19 is that the renegotiation and contract- signing processes are taking longer.
• New lettings totalled SEK 42m (28).
• Net lettings amounted to SEK 20m (5).
• Rental income totalled SEK 715m (696).
• The surplus ratio was 76 per cent (76).
• Profit from property management totalled SEK 369m (359).
• Realised changes in value totalled SEK 56m (0).
• The property portfolio exhibited unrealised value growth of SEK 1,025m (-304), of which projects accounted for SEK 130m (44).
• Unrealised changes in value in the derivatives portfolio totalled SEK 34m (-49).
• After-taxprofit for the quarter amounted to SEK 1,183m (-15).

OPERATIONAL TARGETS

• Investment volume of approximately SEK 2,500m per year.
• Net lettings at least SEK 80m per year.
• Surplus ratio 75 per cent.

REVENUES AND EARNINGS

Rental income amounted to SEK 1,422m (1,407) and net operating income to SEK 1,047m (1,046). Reduced income due to vacancies for project development and provisioning of bad debts due to the pandemic were offset by increased income from occupancy of completed project properties. The increase in property costs mainly related to winter costs such as heating and snow removal. Net operating income in an identical portfolio decreased by approximately 1 per cent (+6). The surplus ratio was 74 per cent (74). The increase in central administration was attributable to one-off costs for Fabege's new head office.

Net interest items amounted to SEK - 240m (-227). The increase was mainly due to a higher volume of loans. Ground rent amounted to SEK -18m(-14).

The share in profit of associated companies was SEK −12m (−29) and related primarily to the period's capital contribution to Arenabolaget.

Realised changes in value amounted to SEK 56m (25) and related mainly to gains on the transfer of Selfoss 1 to the joint venture company that developed housing at the property.

Unrealised changes in the value of properties amounted to SEK 1,539m (1,525). The unrealised changes in the value of the investment property portfolio of SEK 1,297m (1,339) were mainly attributable to improved cash flows and lower yield requirements. The average yield requirement declined by

0.02 percentage points to 3.86 per cent (3.88 at year-end).

The project portfolio contributed to an unrealised change in value of SEK 242m (186), primarily due to development gains in the major project properties.

Unrealised changes in value in the derivatives portfolio totalled SEK 268m (- 292).

SEGMENT REPORTING

The Property Management segment

generated net operating income of SEK 1,004m (1,038), representing a surplus ratio of 78 per cent (77). The occupancy rate was 92 per cent (92). Profit from property management totalled SEK 716m (754). Unrealised changes in the value of properties amounted to SEK 1,297m (1,339).

The Property Development segment generated net operating income of SEK 43m (8), giving a surplus ratio of 33 per cent (14). Profit from property management totalled SEK -1m(-26). Unrealised changes in the value of properties amounted to SEK 242m (186).

Earnings from transactions totalled SEK 56m (25).

TAX

The tax expense for the period amounted to SEK −532m (−426). Tax was calculated at a rate of 20.6 per cent (21.4 per cent) on taxable earnings. The interest deduction limitations are not expected to have a material effect on taxes paid in the current year.

FINANCIAL POSITION AND NET ASSET VALUE

Equity at the end of the period amounted to SEK 41,911m (41,542) and the equity ratio was 51 per cent (52). Dividends decided upon but not paid have been expensed and therefore reduced equity. Equity per share attributable to Parent Company shareholders totalled SEK 130 (127). EPRA NRV was SEK 160 per share (155).

CASH FLOW

Cash flow from operating activities before changes in working capital amounted to SEK 707m (756). Changes in working capital had an impact on cash flow of SEK 42m (−64). Investing activities had an impact on cash flow of SEK −1,011m (2,110), while cash flow from financing activities amounted to SEK 501m (−2,544). In investing activities, cash flow is driven by property transactions and projects. Overall, cash and cash equivalents increased by SEK 239m (258) during the period.

1The comparison figures for income and expense items relate to values for the January-June 2020 period and for balance sheet items at 31 December 2020.