Annual Report • Feb 4, 2013
Annual Report
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2012
Year-end Report
Strong net lettings in recent years and the completion of project properties contributed to revenue growth during the year. Somewhat higher expenses, primarily concerning maintenance, resulted in the surplus ratio remaining on a par with the preceding year. Both net operating income and profit from property management rose during the year. Fabege will experience a major increase in revenue when Vattenfall begins paying rent in the first quarter of 2013 and we also expect to achieve the surplus-ratio target of 70 per cent during the coming year.
We invested slightly more than SEK 2bn in the Property Development business during the year. Of the five major ongoing projects, four were completed during 2012 with highly favourable results. The development and sale of the Klamparen 10 property (Fleminggatan) is an excellent example of how Fabege's business model generates value growth that can be realised.We also approved and initiated work on two new projects in Solna Strand and Hammarby Sjöstad. Arenastaden continues to grow with the completion of Friends Arena during the year, the hotel is under construction and work was initiated on the Mall of Scandinavia. Our vision of Arenastaden as the best city district in Scandinavia and a strong alternative beyond the city centre is about to be realised. We have noted an increasing interest from companies in establishing a presence in Arenastaden. In November, 29.9 per cent of Catena AB was acquired. Catena's development rights favourably complement Fabege's development portfolio in Solna.
I am pleased with our net lettings during the year, which were in line with our best ever. All of Fabege's submarkets in Stockholm experienced a positive trend during 2012, hallmarked by declining vacancies and rising rents. Although the highest rents in the central business district may decline somewhat according to certain analysts, average rents in Fabege's portfolio will continue to stable. If anything, the rents in our portfolio remain under, not over, the market average.
In late May, the Supreme Administrative Court issued its verdict in the so-called Cyprus case. While Fabege and its advisors believe that the company's position in the on-going tax cases is right in factual terms, we have decided, in view of the uncertain legal situation, to post a provision of SEK
Fabege's business model
1.9bn. The processes are now being pursued in the Administrative Court of Appeal. A verdict is expected in the first half of 2013. Backed by a strong balance sheet and available credit facilities, Fabege has the capacity to cope with any forthcoming tax payments.
For the past couple of years, we have been conducting regular internal customer surveys aimed at listening to our customers and offering an even more competitive and attractive product. We now have proof that our focus on becoming a more customercentric organisation is paying dividends. I am convinced that, in addition to building a strong brand, this will be one of most important success factors moving forward. We have improved but still have the potential to become even better.
Fabege is financial well positioned with a property portfolio in good locations with favourable development potential. Despite weaker economic conditions and greater economic uncertainty, we look forward to continued strong results in 2013, including:
CHRISTIAN HERMELIN Chief Executive Officer
Property management is Fabege's main business area. The properties are managed by an efficient in-house organisation, which is divided into separate property management areas. Each area has a large degree of individual responsibility to ensure a high degree of commitment and proximity to the customer. The company's customer-facing property management activities are designed to support a high occupancy rate and encourage customers to remain with Fabege. Satisfied customers help to improve our net operating income. Property Management Property Development
Fabege aims to acquire properties that offer better growth opportunities than existing investment properties in its portfolio. As a significant player in a number of select submarkets, Fabege has acquired in-depth experience and knowledge about the markets, plans for development, other players and individual properties. The company continuously monitors and analyses developments with a view to exploiting opportunities to develop its property portfolio. Acquisitions
Adding value
Property development in properties with growth potential is a key element of Fabege's business model, helping to add value. In addition to developing and improving acquired properties, Fabege already has a number of development and project properties in its portfolio, and seeks to develop its potential as market conditions permit. The volume of projects is adapted to market demand. New builds and more extensive development projects are always based on the principles defined in the EU GreenBuilding programme.
Fabege aims to sell properties that are located outside its concentrated property management units or have limited prospects for further growth. Location, condition and vacancies are key factors determining the growth potential of a property. A fully let property with modern and efficient premises that is deemed to have limited potential for rent increases and capital growth could thus become a candidate for divestment. Sales
The quarter in brief1)
During the the year, property management made a significant contribution to Fabege's total profit, as did property development and transaction activities. Following the SAC's verdict in what is known as the Cyprus case, Fabege decided to make a provision of SEK 1,900m for ongoing tax matters, which was charged to the profit in the second quarter.
Profit for the year before tax amounted SEK 2,032m (1,417). Profit for the year after tax amounted SEK –88m (1,141) following a provision of SEK 1,900m for ongoing tax matters. An improvement in net operating income and positive value changes in the property portfolio contributed to a year-on-year improvement in profit before tax. Earnings per share after tax amounted to SEK –0.54 (7.01).
Rental income rose to SEK 1,869m (1,804) and net operating income increased to SEK 1,264m (1,227). The increase in rental income was attributable to positive net lettings and completed project properties. The surplus ratio amounted to 68 per cent (68). In a comparable portfolio, rental income increased with approximately 3.5 per cent and operating income increased with approximately 2.2 per cent. Positive net lettings will continue to generate gradual growth in rental income in 2013 and 2014.
Realised changes in the value of properties amounted to SEK 167m (173), and unrealised changes in value totalled SEK 1,409m (1,093). The SEK 625m (675) unrealised change in the value of the portfolio of investment properties was primarily attributable to properties with potential for an increase in rent levels and a reduction in vacancy rates as well as a slightly lower required yield. The project portfolio contributed to an unrealised value change of SEK 784m (418), which was primarily attributable to contributions of profit from property development in the major project properties.
Share in profit of associated companies amounted to SEK 137m (9) most of which was attributable to nonrecurring items. Changes in the value of interest-rate derivatives and equities amounted to SEK –237m (–413), and net interest expense increased to SEK –644m (–609) mainly due to an increase in indebtedness and a somewhat rising average interest rate.
Business model's contribution to earnings
| 605 | |
|---|---|
| 581 | |
| 625 | 675 |
| 1,230 | 1,256 |
| 88 | –17 |
| 784 | 418 |
| 872 | 401 |
| 167 | 173 |
| 2,269 | 1,830 |
The expenses for the year amounted to SEK –2,120m (–276), of which SEK –1,900m pertained to a provision for ongoing tax matters. Operating taxes are calculated at a rate of 26.3 per cent on taxable earnings. Property sales resulted in combined deferred tax revenue of SEK 70m. The adjustment of the tax rate to 22 per cent resulted in deferred tax revenue of SEK 134m, which was recognised in the fourth quarter.
Profit contributed SEK 752m (748) to liquidity. After a change of SEK –247m (1,198) in working capital, which varies primarily as a result of the impact of occupancy/final settlement for acquired and sold properties, the liquidity of operating activities changed by SEK 505m (1,946). Acquisitions of and investments in properties exceeded sales by SEK 1,261m (1,527). Accordingly, the total change in liquidity resulting from operating activities was SEK –756 (419). A dividend payment of SEK 487m (489) was charged to cash flow during the period. After the increase in debt, consolidated cash and cash equivalents totalled SEK 200m (74).
2) The comparison figures for income and expense items relate to values for the period January–December 2011 and for balance sheet items as at 31 December 2011.
Fabege employs long-term credit lines with fixed terms and conditions. At 31 December 2012, these had an average maturity of 5.1 years. The company's lenders are the major Nordic banks.
Interest-bearing liabilities at the end of the period totalled SEK 18,035m (16,755) and the average interest rate was 3.80 per cent excluding and 3.93 per cent including commitment fees on the undrawn portion of committed credit facilities.
The average fixed-rate period was 3.4 years, taking the effect of derivative instruments into account, while the average fixedrate period for variable-rate loans was 64 days. After the third quarter's interest-fixing agreements, Fabege's derivative portfolio comprises interest-rate swaps totalling SEK 7,000m with terms of maturity extending through 2021 and carrying fixed interest at annual rates of between 1.87 and 2.73 per cent before margins. Fabege also holds cancellable swaps totalling SEK 7,550m at interest rates ranging from 2.87 to 3.98 per cent before margins that mature between 2013 and 2018. Accordingly, interest rates on 81 per cent of Fabege's loan portfolio have been fixed using fixed-income derivatives.
The derivatives portfolio is measured at market value and the change in value is recognised in the profit and loss account. At 31December 2012, the recognised negative fair value adjustment of the portfolio amounted to SEK 854m (664). The derivatives portfolio is measured at the present value of future cash flows. The change in value is of an accounting nature and has no impact on the company's cash flow. At the due date, the market value of derivative instruments is always zero.
Fabege has a commercial paper programme in an amount of SEK 5,000m. At the end of the year, outstanding commercial paper amounted to SEK 2,740m, compared with SEK 1,719m at the beginning of the year. Fabege has available long-term credit facilities covering all outstanding commercial paper at any given time. At 31 December 2012, the company had unutilised committed lines of credit of SEK 3,955m. At 31 December 2012, Fabege had a total of SEK 1,045m in bonds outstanding within the framework of its bond program, which was launched in December 2011. The programme, which has a limit of SEK 5,000m, was introduced via the co-owned company Svensk Fastighetsfinansiering AB (SFF). The bonds are secured by collateral in property mortgage deeds. SFF is jointly owned by Fabege, Wihlborgs and Peab . Fabege owns 33,3 per cent of the company. The aim is to expand the company's financing base with a new source of financing.
In December, Fabege's co-owned company, Visio Exploatering AB, issued a secured bond in the amount of SEK 1,250m via SvenskFastighetsFinansiering II AB.
Net financial items included nonrecurring expenses totalling SEK 15m, primarily pertaining to mortgage deeds.
The total loan volume at the end of the year includes SEK 765m in loans for projects. The loan volume for the project averaged SEK 1,142m during the year, on which interest of SEK 35m is capitalised.
Shareholders' equity amounted to SEK 11,404m (11,890) at the end of the period and the equity/assets ratio was 34 per cent (39). Shareholders' equity per share totalled SEK 70 (73). Excluding deferred tax on fair value adjustments of properties, net asset value per share was SEK 80 (84).
| Amount SEKm |
Average interest rate % |
Share % |
|
|---|---|---|---|
| < 1 year | 5,129 | 6.16* | 28 |
| 1–2 years | 1,206 | 2.48 | 7 |
| 2–3 years | 0 | 0.00 | 0 |
| 3–4 years | 2,100 | 2.53 | 12 |
| 4–5 years | 6,100 | 3.26 | 34 |
| > 5 years | 3,500 | 2.48 | 19 |
| Total | 18,035 | 3.80 | 100 |
* The average interest rate for the < 1 year period includes the margin for the entire debt portfolio because the Company's fixed-rate period is established using interest rate swaps, which
are traded without margins.
31 December 2012
| Credit agreement SEKm |
Drawn SEKm |
|
|---|---|---|
| Certificate programme | 5,000 | 2,740 |
| < 1 year | 8,348 | 3,910 |
| 1–2 years | 710 | 710 |
| 2–3 years | 5,805 | 4,022 |
| 3–4 years | 2,041 | 2,041 |
| 4–5 years | 110 | 110 |
| > 5 years | 4,976 | 4,502 |
| Total | 26,990 | 18,035 |
Jan–Dec 2012
| Properties | Area | Category | Lettable area, sqm |
|---|---|---|---|
| Quarter 2 | |||
| Läraren 5 | Norrmalm | Office | 4,300 |
| Båtturen 1 | Hammarby Sjöstad Land | 0 | |
| Linjefarten 1 | Hammarby Sjöstad Land | 0 | |
| Quarter 4 | |||
| Klamparen 10 | Kungsholmen | Office | 22,530 |
| Berga 6:558 | Åkersberga | Land | 0 |
| Total property sales Jan–Dec 2012 |
26,830 | ||
| Property acquisitions Jan–Dec 2012 |
Lettable | ||
| Properties | Area | Category | area, sqm |
| Quarter 2 | |||
| Islandet 3 | Norrmalm | Office | 4,327 |
| Total property acquisitions Jan–Dec 2012 |
4,327 |
The rental market in Stockholm performed well during the year, hallmarked by declining vacancies and rising rents for modern properties in prime locations. Fabege reported strong net lettings in both management and project properties. The rate of investment was high and the property portfolio continued to show value growth.
Fabege's activities in Property Management and Property Development are concentrated to a few selected submarkets in and around Stockholm. Stockholm's inner city, Solna and Hammarby Sjöstad are the company's principal markets. At 31 December 2012, Fabege owned 95 properties with a total rental value of SEK 2,3bn, a lettable
floor area of 1,1m sqm and a carrying amount of SEK 31.6bn, including development and project properties totalling SEK 2.8bn following the completion and transfer of several major project properties to the management portfolio. The financial occupancy rate for the entire property portfolio, including project properties, was 92 per cent (90). The occupancy rate in the portfolio of investment properties was 93 per cent (92).
New lettings during the period totalled SEK 289m (241), while net lettings amounted to SEK 141m (130). Rents in negotiated contracts increased an average of 7 per cent. Efforts to extend and renegotiate leases with existing customers were successful. During the year, several large leases were signed for premises in our project properties, the largest of which pertained to Skatteverket (net SEK 60m).
Several major leases were signed during the fourth quarter, including ones with Gant and Veidekke Entreprenad. Several minor leases were also signed in the portfolio of investment properties. The termination as expected of Praktikertjänst's temporary lease in the Grönlandet Södra 13 had an impact of SEK –27m on net lettings during the fourth quarter.
During the second quarter, an exchange transaction was completed with Gamla Livförsäkringsbolaget SEB Trygg Liv and the previously resolved divestment of land in Hammarby Sjöstad to Oscar Properties was finalised. During the fourth quarter, the Klamparen 10 property on Kungsholmen was sold to KLP. Another minor plot of land in Åkersberga was divested. During the year a total of five properties was divested for SEK 1,448m and the remaining 50 per cent of an already co-owned property was acquired for SEK 150m. The transactions generated a profit of SEK 167m before taxes and SEK 237 after taxes.
The entire property portfolio is externally valued at least once a year. A total of 32 per cent of Fabege's properties were externally valued at 31 December 2012 and the remaining properties were internally valued based on the latest valuations. The total market value amounted to SEK 31.6bn (29.2).
Unrealised changes in the value of properties amounted to SEK 1,409m (1,093). The average required yield declined slightly during the year, although amounted to an unchanged 5.7 per cent.
The SEK 625m (675) change in the value of the portfolio of investment properties was primarily attributable to rising rents and properties for which the risk of vacancies has declined. The project portfolio contributed to a value increase of SEK 784m (418) which was primarily attributable to earnings from property development in the major project properties.
Fabege's project investments are designed to reduce vacancy rates and increase rents in the property portfolio, thereby improving cash flows and adding value. The development of properties is a key feature of Fabege's business model and should make a significant contribution to consolidated profit. The aim is to achieve a return of at least 20 per cent on invested capital.
In 2012, the ambition was to increase the rate of development in the project portfolio. Investments in existing properties and projects during the period totalled SEK 2,034m (1,457). The investments involved new builds, extensions and conversions. The return on capital invested in the project portfolio was 39 per cent.
During the first quarter 2012 the project in the property Bocken 39 (Lästmakargatan) was completed. The property has been transferred to the portfolio of investment properties. During the fourth quarter, the projects in the Uarda 5 property in Arenastaden, Apotekaren 22 in Norrmalm och Klamparen 10 on Kungsholmen, were completed.
The office project in Uarda 1 (Sjökvarteret) in Arenastaden is proceeding as planned. Several of the tenants have assumed occupancy and the remaining tenant customisations are under way to facilitate occupancy during the first quarter of 2013. The occupancy rate in the project is now 90 per cent. Sjökvarteret comprises part of the overall property. Planning of the forthcoming two phases is under way. To date, no decisions have been taken on investments in these phases.
The project in the Nöten 4 property, Solna Strand, is proceeding as planned. Phase 1 was completed as scheduled in November and the Swedish Tax Agency has assumed occupancy. The conversion and customisation of the remaining phases is currently under way, with occupancy scheduled for late 2013 and early 2014.
In addition, the project involving the construction of the Skeppshandeln 1 property at Hammarby Sjöstad is proceeding as planned . Work is currently under way on excavation and foundation work. The property will be completed during second quarter 2014. The occupancy rate is 83 per cent.
During the year, four major projects were completed. The Bocken 39, Apotekaren 22 and Uarda 5 properties were transferred from Property Development to Property Management. The Klamparen 10 property was completed and sold during the fourth quarter. Two properties (Nöten 4, Solna strand and Fenix 1, Norrmalm) were transferred from Property Management to Property Development following decisions concerning major investments and conversions.
In the third quarter, the Luma 1 property at Hammarby Sjöstad, which has undergone successive development over a period of several years, was transferred to Property Management. Another two properties that had undergone gradual devel-
All properties, SEK 31.6bn
opment were transferred from Property Development to Property Management during the fourth quarter.
The segment Property Management generated net operating income of SEK 1,161m (1,111), corresponding to a surplus ratio of 68 per cent (69). The occupancy rate was 93 per cent (92). Profit from Property Management amounted to SEK 605m (581). Realised and unrealised changes in value totalled SEK 678m (763).
The segment Property Development generated net operating income of SEK 103m (89), corresponding to a surplus ratio of 60 per cent (116). Profit from Property Management totalled SEK 88m (–17). Realised and unrealised changes in value amounted to SEK 898m (503).
31 December 2012
| Property name | Property type | Area | Completed | Lettable area, sqm |
Occupancy rate, area, %1) |
Estimated rental value, SEKm2) |
Carrying amount, SEKm |
Estimated investment, SEKm |
Of which, accrued, SEKm |
|---|---|---|---|---|---|---|---|---|---|
| Nöten 4 | Office | Solna Strand | Q1-2014 | 51,026 | 92 | 96 | 880 | 690 | 328 |
| Skeppshandeln 1 | Hotel | Hammarby Sjöstad | Q2-2014 | 13,710 | 83 | 41 | 154 | 549 | 103 |
| Uarda 13) | Office | Arenastaden | Q4-2012 | 41,079 | 64 | 83 | 920 | 542 | 495 |
| Total | 105,815 | 87 | 220 | 1,954 | 1,781 | 926 | |||
| Other Land and Project properties | 538 | ||||||||
| Other Development properties | 302 | ||||||||
| Total Project, Land and Development properties |
2,794 |
1) Operational occupancy rate at 31 December 2012.
2) The annual rent for the largest projects in progress could increase to SEK 220m (fully let) from SEK 55m in annualised current rent as of 31 December 2012. 3) Information regarding area, rental value and carrying amount pertains to the entire property. The investment amount pertains to only a portion of the property.
31 December 2012
| 31 December 2012 | 1 January – 31 December 2012 | |||||||
|---|---|---|---|---|---|---|---|---|
| No. of properties |
Lettable area, '000 sqm |
Market value, SEKm |
Rental value2), SEKm |
Financial occupancy rate, % |
Rental income, SEKm |
Property expenses, SEKm |
Net operating income, SEKm |
|
| Property holdings | ||||||||
| Investment properties1) | 74 | 1,018 | 28,842 | 2,152 | 93 | 1,956 | –484 | 1,472 |
| Development properties1) | 6 | 37 | 302 | 29 | 62 | 19 | –13 | 6 |
| Land and Project properties1) | 15 | 75 | 2,492 | 79 | 65 | 34 | –12 | 22 |
| Total | 95 | 1,130 | 31,636 | 2,260 | 92 | 2,009 | –509 | 1,500 |
| of which, inner city | 37 | 475 | 16,950 | 1,197 | 93 | 1,089 | –277 | 812 |
| of which, Solna | 37 | 503 | 11,904 | 840 | 90 | 736 | –170 | 566 |
| of which, Hammarby Sjöstad | 13 | 126 | 2,515 | 205 | 88 | 168 | –55 | 113 |
| of which, Other | 8 | 26 | 267 | 18 | 85 | 16 | –7 | 9 |
| Total | 95 | 1,130 | 31,636 | 2,260 | 92 | 2,009 | –509 | 1,500 |
| Expenses for lettings, project development and property administration | –115 | |||||||
| Total net operating income after expenses for lettings, project development and property administration | 1,3853) |
1) See definitions on page 9.
2) Time-limited deductions of approximately SEK 210m (in rolling annual rental value at 31 December 2012) have not been recognised in the rental value. 3) The table refers to Fabege's property portfolio at 31 December 2012. Income and expenses are recognised as if the properties had been held during the entire period. The difference between recognised net
operating income, SEK 1,385m, and net operating income in the profit and loss account, SEK 1,264m, is attributable to net operating income from divested properties being excluded and acquired/completed properties being adjusted upwards as if they had been owned/completed throughout the January–December 2012 period.
| SEKm | Management properties Jan–Dec 2012 |
Development properties Jan–Dec 2012 |
Total Jan–Dec 2012 |
Management properties Jan–Dec 2011 |
Development properties Jan–Dec 2011 |
Total Jan–Dec 2011 |
|---|---|---|---|---|---|---|
| Rental income | 1,698 | 171 | 1,869 | 1,618 | 186 | 1,804 |
| Property expenses | –537 | –68 | –605 | –507 | –70 | –577 |
| Net operating income | 1,161 | 103 | 1,264 | 1,111 | 116 | 1,227 |
| Surplus ratio, % | 68 | 60 | 68 | 69 | 62 | 68 |
| Central administration and marketing | –53 | –11 | –64 | –51 | –12 | –63 |
| Net interest expense | –526 | –118 | –644 | –486 | –123 | –609 |
| Share in profit/loss of associated companies | 23 | 114 | 137 | 7 | 2 | 9 |
| Operating profit/loss | 605 | 88 | 693 | 581 | –17 | 564 |
| Realised changes in value, properties | 53 | 114 | 167 | 88 | 85 | 173 |
| Unrealised changes in value, properties | 625 | 784 | 1,409 | 675 | 418 | 1,093 |
| Profit/loss before tax per segment | 1,283 | 986 | 2,269 | 1,344 | 486 | 1,830 |
| Changes in value, fixed income derivatives and equities | –237 | –413 | ||||
| Profit/loss before tax | 2,032 | 1,417 | ||||
| Properties, market value | 28,842 | 2,794 | 31,636 | 22,773 | 6,377 | 29,150 |
| Occupancy rate, % | 93 | 68 | 92 | 92 | 75 | 90 |
1) See definitions on page 9.
At the end of the year, the Fabege Group had 129 employees (122).
Sales during the period amounted to SEK 100m (102) and the result before appropriations and tax was SEK 357m (1,389). Net financial items include SEK 800m (2,000) for dividends to the Parent Company. Net investments in property, equipment and shares totalled SEK –336m (5).
The 2012 Annual General Meeting (AGM) passed a resolution authorising the Board, not longer than up to the next AGM, to buy back and transfer shares in the company. Share buybacks are subject to a limit of 10 per cent of the total number of outstanding shares at any time. During the year, no shares were bought back. Following a decision by the Board, 1,330,374 treasury shares were sold on the Stockholm Stock Exchange at the end of the year. At 31 December 2012, the company held 1,836,114 treasury shares, representing 1.1 per cent of the total number of registered shares. In early January 2013, an additional 1,253,000 treasury shares were divested. After this, the Company held 583,114 treasury shares, or 0.4 per cent of the number of registered shares.
The board of Directors will propose that the Annual General Meeting on 21 March 2013 authorise:
• the payment of a cash dividend of SEK 3.00 per share, worth a total of SEK 491m.
• the Board to buy back Fabege shares representing no more than 10 per cent of the total number of outstanding shares during the period up to the next Annual General Meeting.
As previously announced, the Swedish Tax Agency has decided to increase taxation on the Fabege Group concerning a number of property sales through limited partnerships (see Fabege Annual Report 2011, page 61). The transactions derive from Tornet, the old Fabege and Wihlborgs during the years 2003–2005. The combined increase taxation amounts unchanged to SEK 8,368m. The decisions have resulted in total tax demands including penalty and fees of SEK 2,704m.
On 30 May, the Supreme Administrative Court (SAC) announced a verdict in what is known as the Cyprus case. SAC's ruling entails that the Swedish Tax Evasion Act was deemed applicable in the Cyprus case and that the transaction will be taxed. In view of the verdict by the Supreme Administrative Court (SAC) and the uncertain legal position that has arisen, Fabege has decided to post a provision of SEK 1,900m. This assessment is based on a review and evaluation of each individual case. The difference between the demands made by the Swedish Tax Agency (STA) is based on matters that are evidently unrelated to SAC's verdict and erroneous reasoning in the STA's argumentation. The remaining amount pursuant to the STA's total requirements, i.e. approximately SEK 800m, will be recognised as a contingent liability, as in previous financial statements.
In conclusion, Fabege strongly contests the tax demand decided on by the Swedish Tax Agency and the Swedish Administrative Court and the decisions have been appealed. Fabege's belief remains unchanged that the divestments were recognized and declared in accordance with the prevailing regulatory framework. Fabege believes that the Swedish Tax Agency and the Swedish Administrative Court have disregarded several key aspects and that the verdicts are therefore incorrect. Fabege also contends that SAC's verdict in the Cyprus case is not immediately applicable to Fabege's cases, since there are both organisational and commercial reasons for the transactions under review. This belief is shared by external legal experts and tax advisors who have analysed the divestments, the STA's argumentation and the relevant verdicts.
The processes are now being advanced in the Administrative Court of Appeal. A verdict is expected in first half of 2013. Backed by a strong balance sheet and available credit facilities, Fabege is capable of coping with potential forthcoming tax payments.
Risks and uncertainties relating to cash flow from operating activities are primarily attributable to changes in rents, vacancies and interest rates. A more detailed description is presented in the risk section of the 2011 Annual Report (pages 9–11), and a description of the effect of these changes on consolidated earnings is presented in the risk analysis and in the sensitivity analysis in the 2011 Annual Report (page 60).
Properties are recognised at fair value and changes in value are recognised in profit and loss. The effects of changes in value on consolidated earnings, the equity/
assets ratio and the loan-to-value ratio are also shown in the sensitivity analysis in the 2011 Annual Report. A description of financial risk, which is the risk that the company will have insufficient access to long-term loan funding, and Fabege's management of this risk is presented in the 2011 Annual Report (pages 12–13 and 73).
Except for the decision to make a provision for ongoing tax matters as described above, no material changes in the company's assessment of risks have been made after publication of the 2011 Annual Report. Under its adopted targets for capital structure, Fabege aims to have an equity/assets ratio of at least 30 per cent and an interest coverage ratio of at least 2 (including realised changes in value).
In early January 2013, an additional 1,253,000 treasury shares were divested. After this, the Company held 583,114 treasury shares, or 0.4 per cent of the number of registered shares.
In January, Jernhusen exercised its option to sell part of its holding of Arenabolaget i Solna KB and Swedish Arena Management KB to Fabege. The option entailed an increase of 6.1 per cent in Fabege's shareholding in each company. The transfer of ownership will be completed in April 2013. Following this acquisition, Fabege's shareholding in the above companies will be 22.8 per cent.
Both the rental market and transaction market strengthened during 2012. The development of the portfolio and the favourable net lettings trend enable Fabege to continue to generate and deliver contribution to profit from all parts of its business model, meaning property management, property development and property transactions. Fabege is well positioned with a strong balance sheet and a property portfolio in good locations with favourable development potential. Despite weaker economic conditions and greater economic uncertainty, we look forward to continued strong results in 2013, including:
Fabege prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. The Group has applied the same accounting policies and valuation methods as in the most recent annual report. The parent company prepares its accounts in accordance with RFR
2 Accounting for Legal Entities and the Swedish Annual Accounts Act and has applied the same accounting policies and valuation methods as in the most recent annual report. As of 2013, Fabege will apply the amended IAS 19, whereby the principal change for Fabege is the elimination of the corridor rule. This entails that all actuarial gains and losses will be recognized in other comprehensive income as they are incurred. Another change is that a single interest rate will be applied and calculated on the basis of the net of the pension liability and plan assets, instead of different interest rates for the liability and the assets. The elimination of the corridor entails that the recognized pension liability, including payroll tax, per 1 Jan 2013, increases by SEK 23m (SEK 17m, 1 Jan 2012).
Stockholm, 4 February 2013
Christian Hermelin Chief Executive Officer
This Interim Report is unaudited.
You are most welcome to visit Fabege's website, which is one of our main information channels. The aim is to continuously provide you with relevant, up-to-date information.
The website provides information on the company and its operations and strategies. You can also find financial information, share data, details about our properties and ongoing projects and much more. Visitors to the website can also search for vacant premises, and our tenants are able to easily find contact details or other information related to the property in which they are located.
| Annual report for 2012 28 February 2013 | |
|---|---|
| Annual General Meeting 2013 21 March 2013 | |
| Interim report for January–March 23 April 2013 |
31 December 2012
| Shareholder | No. of shares | Share of capital, % |
Share of votes, % |
|---|---|---|---|
| Brinova Inter AB | 24,691,092 | 14.9 | 15.1 |
| BlackRock funds (USA) | 8,938,454 | 5.4 | 5.4 |
| SEB Funds | 8,509,637 | 5.1 | 5.2 |
| Öresund Investment AB | 7,000,736 | 4.2 | 4.3 |
| Länsförsäkringar fondförvaltning | 6,006,827 | 3.6 | 3.6 |
| Norges Bank Investment Man agement |
4,568,958 | 2.8 | 2.8 |
| SHB funds | 3,788,355 | 2.3 | 2.3 |
| Mats Qviberg and family | 3,576,596 | 2.2 | 2.2 |
| ENA City AB | 2,710,000 | 1.6 | 1.6 |
| Swedbank Robur funds | 2,600,738 | 1.6 | 1.6 |
| Henderson funds | 2,430,000 | 1.5 | 1.5 |
| Fourth AP-fund | 2,257,342 | 1.4 | 1.4 |
| Second AP-fund | 1,780,994 | 1.1 | 1.1 |
| Principal funds | 1,560,654 | 0.9 | 1.0 |
| Nordea funds | 1,434,872 | 0.9 | 0.9 |
| Other foreign shareholders | 40,691,554 | 24.6 | 24.9 |
| Other Swedish shareholders | 41,008,649 | 24.8 | 25.1 |
| Total | 163,555,458 | 98.9 | 100.0 |
| Treasury shares | 1,836,114 | 1.1 | 0.0 |
| Total no. of registered shares | 165,391,572 | 100.0 | 100.0 |
1) Certain shareholders may, through custodial accounts, have had different holdings than are apparent from the shareholder's register.
Source: SIS Ägarservice AB, data derived from Euroclear Sweden AB, as of 31 December, 2012.
Profit before tax plus depreciation-, plus/minus unrealised changes in value less current tax, divided by average number of shares.
Total assets less non-interest bearing liabilities and provisions.
Stated as an annual value. Index-adjusted basic rent under the rental agreement plus rent supplements.
Interest-bearing liabilities divided by shareholders' equity.
Properties in which a conversion or extension is in progress or planned that has a significant impact on the property's net operating income. Net operating income is affected either directly by the project or by limitations on lettings prior to impending development work.
Dividend for the year divided by the share price at year-end.
Shareholders' equity (including minority share) divided by total assets.
Parent company shareholders' share of equity according to the balance sheet divided by the number of shares at the end of the period.
Contract value divided by rental value at the end of the period.
Profit after financial items plus financial expenses and plus/minus unrealised changes in value, divided by financial expenses.
Properties that are being actively managed on an ongoing basis.
Land and developable properties and properties in which a new build/complete redevelopment is in progress.
Interest-bearing liabilities divided by the carrying amount of the properties at the end of the period.
New lettings during the period less terminations to vacate.
Parent company shareholders' share of profit after tax for the period divided by average number of outstanding shares during the period.
Contract value plus estimated annual rent for vacant premises after a reasonable general renovation.
Profit before tax plus interest expenses-, divided by average capital employed. In interim reports, the return is converted to its annualised value without taking account of seasonal variations
Profit for the period/year divided by average shareholders' equity. In interim reports the return is converted to its annualised value without taking account of seasonal variations.
In accordance with IFRS 8, segments are reported as viewed by management, i.e. broken down into two segments: Investment Properties and Development Properties.Rental income and property expenses as well as realised and unrealised changes in value including tax are directly attributable to properties in each segment (direct income and expenses). In cases where a property changes character during the year, earnings attributable to the property will be allocated to either segment based on the period of time that the property belonged to the segment. Central administration and items in net financial items have been allocated to the segments in a standardised manner based on each segment's share of the total property value (indirect income and expenses).
The property asset is directly attributable to each segment and is recognised as of the closing date.
Net operating income divided by rental income.
| SEKm | 2012 Oct–Dec |
2011 Oct–Dec |
2012 Jan–Dec |
2011 Jan–Dec |
|---|---|---|---|---|
| Rental income | 480 | 458 | 1,869 | 1,804 |
| Property expenses | –169 | –140 | –605 | –577 |
| Net operating income | 311 | 318 | 1,264 | 1,227 |
| Surplus ratio, % | 65% | 69% | 68% | 68% |
| Central administration and marketing | –23 | –16 | –64 | –63 |
| Net interest expense | –168 | –149 | –644 | –609 |
| Share in profit/loss of associated companies | 137 | 8 | 137 | 9 |
| Profit/loss from property management activities | 257 | 161 | 396 | 564 |
| Realised changes in value of properties | 21 | 90 | 167 | 173 |
| Unrealised changes in value of properties | 345 | 321 | 1,409 | 1,093 |
| Unrealised change in value of fixed income derivatives | –57 | –134 | –190 | –397 |
| Change in value of equities | –26 | –8 | –47 | –16 |
| Profit/loss before tax | 540 | 430 | 2,032 | 1,417 |
| Current tax | 0 | –1 | –1,900 | –1 |
| Deferred tax | 80 | –16 | –220 | –275 |
| Profit/loss for year | 620 | 413 | –88 | 1,141 |
| Comprehensive income attributable to parent company shareholders | 620 | 413 | –88 | 1,141 |
| Earnings per share, SEK | 3.81 | 2.55 | –0.54 | 7.01 |
| No. of shares at end of period, millions | 163.6 | 162.2 | 163.6 | 162.2 |
| Average no. of shares, millions | 162.9 | 162.2 | 162.4 | 162.7 |
| SEKm | 31 Dec 2012 31 Dec 2011 | |
|---|---|---|
| Assets | ||
| Properties | 31,636 | 29,150 |
| Other tangible fixed assets | 1 | 1 |
| Financial fixed assets | 1,398 | 1,124 |
| Current assets | 474 | 362 |
| Cash and cash equivalents | 200 | 74 |
| Total assets | 33,709 | 30,711 |
| Equity and liabilities Equity |
11,404 | 11,890 |
| Provisions | 731 | 585 |
| Interest-bearing liabilities1) | 18,035 | 16,755 |
| Derivatives | 854 | 664 |
| Non-interest-bearing liabilities | 2,685 | 817 |
| Total equity and liabilities | 33,709 | 30,711 |
| Equity/assets ratio, % | 34 | 39 |
| Contingent liabilities | 2,124 | 3,376 |
| SEKm | Equity | Of which, attributable to parent company shareholders |
Of which, attributable to minority |
|---|---|---|---|
| Equity, 1 Jan 2011 | 11,276 | 11,276 | – |
| Share buybacks | –38 | –38 | – |
| Cash dividend | –489 | –489 | – |
| Profit/loss for the year | 1,141 | 1,141 | – |
| Equity, 31 Dec 2011 | 11,890 | 11,890 | – |
| Transfer of treasury shares | 89 | 89 | – |
| Cash dividend | –487 | –487 | – |
| Profit/loss for the year | –88 | –88 | – |
| Equity, 31 Dec 2012 | 11,404 | 11,404 | – |
1) Of which short-term SEK 6,650m (3 219).
| SEKm | 2012 Jan–Dec |
2011 Jan–Dec |
|---|---|---|
| Net operating income and realised changes in the value of existing property portfolio excluding depreciation |
1,431 | 1,407 |
| Central administration | –64 | –63 |
| Net financial items paid | –615 | –595 |
| Income tax paid | 0 | –1 |
| Change in other working capital | –247 | 1,198 |
| Cash flow from operations | 505 | 1,946 |
| Investments and acquisition of properties | –2,191 | –1,986 |
| Sale of properties, carrying amount of divested properties |
1,236 | 756 |
| Other investments (net) | –306 | –297 |
| Cash flow from investing activities | –1,261 | –1,527 |
| Dividend to shareholders | –487 | –489 |
| Transfer of treasury shares | 89 | – |
| Share buybacks | – | –38 |
| Change in interest-bearing liabilities | 1,280 | 109 |
| Cash flow from financing activities | 882 | –418 |
| Change in cash and cash equivalents | 126 | 1 |
| Cash and cash equivalents at beginning of period |
74 | 73 |
| Cash and cash equivalents at end of period |
200 | 74 |
| 2012 Jan–Dec |
2011 Jan–Dec |
|
|---|---|---|
| Financial | ||
| Return on capital employed, % | 9.0 | 7.2 |
| Return on equity, % | –0.8 | 9.9 |
| Interest coverage ratio, times | 2.3 | 2.2 |
| Equity/assets ratio, % | 3.4 | 39 |
| Loan-to-value ratio, properties, % | 57 | 57 |
| Debt/equity ratio, times | 1.6 | 1.4 |
| Share-related 1) | ||
| Earnings per share for the year, SEK | –0.54 | 7.01 |
| Equity per share, SEK | 70 | 73 |
| Cash flow per share, SEK | 4.52 | 4.49 |
| No. of outstanding shares at end of period, '000 |
163,555 | 162,225 |
| Average no. of shares, '000 | 162,391 | 162,719 |
| Property-related | ||
| No. of properties | 95 | 97 |
| Carrying amount, properties, SEKm | 31,636 | 29,150 |
| Lettable area, sqm | 1,130,000 | 1,107,000 |
| Financial occupancy rate, % | 92 | 90 |
| Surplus ratio, % | 68 | 68 |
1) No dilution effect arises, since there are no potential shares (such as convertibles).
| SEKm | 2012 Jan–Dec |
2011 Jan–Dec |
|---|---|---|
| Income | 100 | 102 |
| Expenses | –180 | –193 |
| Net financial items | 627 | 1,877 |
| Change in value, fixed income derivatives | –190 | –397 |
| Change in value, equities | 0 | 0 |
| Profit/loss before tax | 357 | 1,389 |
| Tax | –21 | 158 |
| Profit/loss for year | 336 | 1,547 |
| SEKm | 31 Dec 2012 | 31 Dec 2011 | |
|---|---|---|---|
| Interests in Group companies | 12,992 | 13,328 | |
| Other fixed assets | 42,061 | 39,090 | |
| of which, receivables from Group companies |
41,311 | 38,815 | |
| Other current assets | 58 | 161 | |
| Cash and cash equivalents | 199 | 69 | |
| Total assets | 55,310 | 52,648 | |
| Equity | 10,320 | 10,382 | |
| Provisions | 67 | 68 | |
| Long-term liabilities | 38,200 | 38,892 | |
| of which, liabilities to Group companies | 27,126 | 25,156 | |
| Short-term liabilities | 6,723 | 3,306 | |
| Total equity and liabilities | 55,310 | 52,648 |
Fabege, which is one of the leading property companies in Sweden, conducts opera tions that are primarily focused on letting office premises and property development.
The company's portfolio is highly concentrated to three sub-markets offering robust growth in the Stockholm area; Stockholm's inner city, Solna and Hammarby Sjöstad. Fabege offers attractive and efficient premises, principally for offices but also for retail and other operations.
Fabege manages a well-located property portfolio, which is developed continu ously through improvements, sales and acquisitions. By collecting properties in clus ters, increased customer proximity is achieved which, combined with comprehensive market knowledge, creates conditions for efficient management and a high occu pancy rate.
At 31 December 2012, Fabege owned 95 properties with a combined market value of SEK 31.6bn. The rental income amounted to SEK 2.3bn.
Christian Hermelin Chief Executive Officer Phone: +46 (0)8-555 148 25, +46 (0)733-87 18 25
Åsa Bergström Deputy CEO and Chief Financial Officer Phone: +46 (0)8-555 148 29, +46 (0)706-66 13 80
More information about Fabege and its operations is available on the Group's website. The website also includes a webcast presentation from 4 February 2013, in which Christian Hermelin and Åsa Bergström present earnings for the quarter.
The information contained in this report is such that Fabege is legally obliged to disclose under the Securities Market Act and/or the Financial Instruments Trading Act. The information was released for publication on 4 February 2013.
Fabege AB (publ) Box 730, SE-169 27 Solna, Visit address: Pyramidvägen 7, SE-169 56 Solna, Sweden Phone: +46 (0)8-555 148 00 Fax: +46 (0)8-555 148 01 E-mail: [email protected] Internet: www.fabege.se Company registration no: 556049-1523 Registered office of the Board: Stockholm
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