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Fabege

Quarterly Report Feb 5, 2009

2914_10-k_2009-02-05_1cb6d93e-7546-4655-94b9-2e03694a9b38.pdf

Quarterly Report

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Fabege Year-end report 2008

  • • Operating activities generated strong cash flows:
  • Rental income increased to SEK 2,214m (2,066) and
  • Net operating income grew to SEK 1,438m (1,312)

The stable cash flows are expected to increase

  • • The result was hit by unrealised changes in value, which do not affect cash flow:
  • Properties SEK –1,545m (+893)
  • – Fixed income derivatives SEK –485m (+37)
  • Deferred tax SEK +826m (–247)
  • • The after-tax result was SEK –511m (1,812) and earnings per share were SEK –3.07 (9.98)
  • • Equity per share was SEK 60 (67)
  • • The Board proposes a dividend of SEK 2.00 per share (4.00)
Revenues, SEKm 2008 2007
Rental income 2,214 2,066
Operating- and central expenses –836 –814
Net financial (excl. changes in value) –810 –549
Property management result 568 703
Changes in value –1,908 1,363
Tax 829 –254
Profit after tax –511 1,812
Surplus ratio, % 65 64
Equity/assets ratio, % 32 36

Chief executive's review

2008 will go to history as the year when Sweden moved from strong economic growth to financial crisis and an emerging recession in record time. Hardly anyone has managed to remain unscathed by this rapid transformation of the economic and financial environment for businesses, individuals and households.

In the wake of the problems affecting credit markets and their consequences for the transaction market, yield requirements increased in 2008, putting downward pressure on property values. For Fabege this had the effect of reducing the value of the company's property portfolio by SEK 1.5bn, representing an annual decline of about five per cent. Values were written down, especially in class C locations. Prime, class A locations, where most of Fabege's properties are concentrated, fared better. This is a pattern which I, and several prominent property analysts, believe is set to continue.

Operationally, 2008 proved a good year for Fabege. Rental income increased by about SEK 150m and our net operating income was up by almost 10 per cent on 2007. The occupancy rate was 93 per cent, which is one percentage point higher than last year.

In 2008 we continued our efforts to streamline and concentrate our business while developing our property management units and human resources. An example of successful streamlining is our initiative in the environmental and energy area, where we achieved an 8 per cent reduction in energy use, benefiting the environment as well as the bottom line.

There were large movements on the interest rate market during 2008. Fabege's average interest rate increased from 4.3 per cent at the beginning of the year to 5.1 per cent before the financial crisis culminated and efforts to get to grips with it brought rates back down again. At year-end Fabege's average interest rate had fallen to 3.3 per cent. We have reviewed our funding requirements, and now have good access to long-term capital.

However, the overall result was negative, SEK -0.5bn, due to negative changes in the value of properties and fixed income derivatives that had a direct impact on the profit and loss account.

Fabege was a net seller of properties in 2008. We bought two properties for SEK 201m and sold 13 properties for SEK 2,095m. Overall, activity in the property market was very weak.

The gradual decline in market interest rates is now helping to create an increasingly attractive return on properties, and it is not unlikely that we will soon see a pick-up in activity and a higher rate of transactions.

Fabege has begun the new year with a very large project letting, one of the largest in Sweden in recent years. Vattenfall, a major energy company, will be renting about 43,000 m2 of space in a new office building to be built in

Christian Hermelin, CEO

Arenastaden in Solna. This is a strong confirmation of the growing attraction of the area. In 2009, after completion of the planning process, work will begin on the construciton of the new national arena, Swedbank Arena. The vision for Arenastaden is starting to take shape, and we look forward to a number of exciting years, as a new part of town emerges in Solna, where Fabege has 15 properties.

As we move into 2009 Sweden is heading for a recession but the rental market remains stable in our main markets. When the financial crisis culminated in late autumn market players responded quickly by taking a more cautious approach, and lead times increased. But we can now see signs of a pick-up of activity in the rental market, as there still is a need, and demand, for premises.

However, Fabege is well equipped in the event of weaker economic climate. We have skilled and highly motivated staff and an organisation that can adapt rapidly to changing circumstances. The company's access to capital is good. We already know that we will have stable rental revenues in 2009, and we believe our central locations will also help to ensure stability even in a harsher economic environment. Our focus will be on caring for and maintaining our strong relationships with our customers.

Christian Hermelin

Performance in the fourth quarter

The financial turbulence culminated in the last quarter of the year as indications of an economic downturn mounted. In Stockholm this resulted in a more cautious attitude in the rental market, resulting in longer lead times. New lettings had a total contracted annual value of SEK 33m (72) while net lettings were SEK -9m.

Fabege places a strong emphasis on taking good care of its existing tenants, and successfully concluded about 30 renegotiations during the period. Rents in renegotiated contracts increased by an average of 22 per cent, resulting in an annual increase in rental income of SEK 8m.

Overall, rents in Fabege's main markets remained stable in the last few months of the year.

Fabege's rental income increased slightly, to SEK 540m (532). The occupancy rate remained unchanged at 93 per cent, which is one percentage point more than at the same time last year.

The Group posts a loss after tax of SEK -762m (634). The figure includes unrealised changes in value relating to properties of SEK -1,085m (283). Changes in the value of fixed income derivatives were SEK -440m (-1) as a result of sharply falling interest rates towards the end of the year.

The surplus ratio improved by one percentage point to 66 per cent (65%). Fabege has continued its efforts to streamline its property management activities.

The average interest rate in the loan portfolio fell by 183 basis points to 3.27 per cent.

Net asset value per share at 31 December was SEK 67 (76) excluding deferred tax on the surplus value of the properties.

Revenues and earnings

The after-tax result for the full year 2008 was SEK -511m (1,812) and earnings per share after dilution were SEK -3.07 (9.98). The result after financial items was SEK -1,340m (2,066).

Rental income was SEK 2,214m (2,066) and net operating income SEK 1,438m (1,312). The increase in rental income was due to a net increase in properties and higher rents in the company's existing properties. For comparable properties rental income grew by 3 per cent. Realised changes in the value of properties totalled SEK 143m (446). Unrealised changes were SEK -1,545m (893) due to increased yield requirements while the value of the Group's fixed income derivatives fell by SEK -485m (37) as a result of sharply falling market interest rates at the end of year. The net interest expense increased to SEK -804m (-609) due to net investments in properties and higher interest rates.

Tax

The tax expense (current and deferred) for the year was SEK 829m (-254). The large change is due to elimination of deferred tax as a result of property sales and negative changes in value as well as valuations of additional tax loss carry-forwards. The result from property management includes full tax. At 31 December 2008, differences between the carrying amounts and tax bases of the properties were approximately SEK 8.8bn (10.5). At the same date the Group had valued tax loss carry-forwards of approximately SEK 4.7bn (3.8).

Cash flow

The result increased liquidity by SEK 640m (1,142). After an increase of SEK 1,104m (-491) in operating capital, which varies primarily as a result of occupancy/final settlement for acquired and divested properties, operating activities resulted in an increase in liquidity of SEK -464m (1,633). Investments and acquisitions exceeded property sales by SEK 217m (2,653). The total change in liquidity resulting from operating activities was thus SEK -681m (-1,020). Dividends to shareholders and share buybacks totalled SEK 670m (761) and SEK 361m (543), respectively. After the increase in debt, consolidated cash and cash equivalents were SEK 54m (75).

Financing

Fabege employs long-term credit lines with fixed terms and conditions and an average maturity of 5.4 years. The company's

Interest rate maturity structure, 31 Dec 2008

Amount
SEKm
Average
interest rate %
Share
%
< 1 year 12,652 2.94 67
1-2 years 0 0 0
2-3 years 300 4.45 1
3-4 years 0 0 0
4-5 years 2,950 3.85 16
> 5 years 3,000 3.97 16
Total 18,902 3.27 100

This is Fabege

A highly concentrated and focused property company Fabege offers efficient premises that are adapted to tenant requirements, primarily offices but also retail and other premises, in the Stockholm area. The company manages and develops existing properties, and project development plays a prominent role in the Group.

Our portfolio is highly concentrated to a limited number of well located sub-markets with a strong development potential. A majority are located in the inner city of Stockholm and in Solna and Hammarby Sjöstad, where Fabege has strong market positions.

Fabege's business model

Fabege aims to create value by managing, improving and adapting its property portfolio, both through sales and acquisitions. Accrued values must be realised at the right time.

Acquisitions

Acquire properties with better growth opportunities than existing investment properties

Improvement

Realise the potential in our improvement and project portfolios

Property management in close proximity to the client

to reduce vacancy levels and increase net operating income.

Property management

Sales

Divest properties offering limited growth opportunities

creditors are major Nordic banks. Interest-bearing liabilities at year-end were SEK 18,902m (17,210). The financial turbulence during the year has not affected the company's access to longterm capital, however, the gradual rise in market interest rates up to November had a negative impact on the net interest expense. The decline in market rates during the fourth quarter has affected

Loan maturity structure, 31 Dec 2008

Credit agreements
SEKm
Drawn
SEKm
Commercial paper programme 5,000 727
< 1 year 867 203
1-2 years 1,500 1,460
2-3 years 4,900 4,700
3-4 years 4,000 3,981
4-5 years 5,800 5,103
> 5 years 4,281 2,728
Total 26,348 18,902

Fabege's average interest rate, which fell by 1.83 percentage points during the period to 3.27 per cent excluding the cost of unused committed lines of credit at year-end, or 3.29 per cent including this cost.

40 per cent of Fabege's loan portfolio is fixed through fixed income derivatives. The average fixed-rate period was 24 months, including the effect of derivatives. At 31 December the company's derivatives portfolio had a value of SEK 7,700m with maturities of up to 10 years. Out of this, SEK 5,950m refers to callable swaps, which are expected to increase to SEK 7,550m in the first quarter of 2009. The derivatives contracts were concluded in summer 2008 with the aim of improving cash flow in a situation where the market was expecting interest rates to rise. The aim was to achieve an interest rate discount or to fix interest rates at a level that was attractive from a long-term perspective.

In compliance with the accounting rules contained in IAS 39, the derivatives portfolio has been valued at market value and the change has been passed through the profit and loss account. Following the sharp fall in market interest rates the value of the portfolio declined during the fourth quarter. At 31 December the deficit in the portfolio was SEK 471m. The derivatives portfolio has been valued at the present value of future cash flows. The change in value is of an accounting character and does not affect cash flow or leverage. The

portfolio had a positive impact of SEK 54m on the net interest expense for the year.

The average fixed-rate period for variable-rate loans is 32 days. Future changes in interest rates will thus quickly affect about 60 per cent of the loan portfolio.

At 31 December the company had unused committed lines of credit of SEK 2,446m. SEK 1,468m was refinanced in the fourth quarter.

Fabege has available long-term credit facilities covering all outstanding commercial papers at any given time. Due to falling demand in the commercial papers market during the period, the company has shifted its funding to these facilities. Outstanding commercial papers had a nominal value of SEK 740m at year-end.

The total loan volume includes loans for projects worth SEK 1,766m, on which the interest of SEK 41m has been capitalised.

Financial position and net asset value

Shareholders' equity at the end of the year was SEK 9,873m (11,415) and the equity/assets ratio was 32 per cent (36). Equity per share was SEK 60 (67). Net asset value per share, excluding deferred tax on the surplus value of properties, was SEK 67 (76).

Property portfolio,

31 Dec 2008 31 December 2008 1 January-31 December 2008
Market segment No. of
properties
Lettable
area,
'000 m2
Market
value,
SEKm
Rental
value
SEKm
Financial
occupancy
rate, %
Rental
income
SEKm
Property
expenses
SEKm
Net operating
income
SEKm
Property holdings
Investment properties 1) 92 1,072 23,769 1,963 95 1,853 –477 1,376
Improvement properties 1) 35 283 3,827 342 86 273 –126 147
Land and project properties 1) 30 99 1,915 64 54 53 –38 15
Total 157 1,454 29,511 2,369 93 2,179 –641 1,538
of which, Inner City 49 551 16,937 1 217 95 1 152 –295 857
of which, Solna 34 493 8,244 722 90 651 –160 491
of which, Hammarby Sjöstad 13 147 1,890 175 83 141 –76 65
of which, South Stockholm 14 46 706 60 89 54 –20 34
of which, North Stockholm 46 217 1,711 195 93 181 –90 91
of which, outside Stockholm 1 0 23 0 0 0 0 0
Total 157 1,454 29,511 2,369 93 2,179 –641 1,538
Expenses for lettings, project development and property administration. –97
Total net operating income after expenses for lettings, project development and property administration. 1,4412)

1 See definitions on page 11.

2The table refers to Fabege's property portfolio as at 31 December 08. Income and expenses are reported as if the properties had been held during the whole period. The difference between reported net operating income, SEK 1,441m, and net operating income in the profit and loss account, SEK 1,438m, is explained by the fact that the net operating income from divested properties has been excluded and acquired/completed properties have been adjusted upwards as if they had been owned/completed during the whole of the period January–December 2008.

Distribution of book value/market value

Lettable area,
Property Area Category m2
Q1
Marievik 14 Marievik Office 16,923
Marievik 19 Marievik Office 20,706
Verdandi 9 Vasastan Residential 1,399
Landbyska Verket 10 Östermalm Office 1,266
Krejaren 2 Östermalm Land
Q2
Axet 1/Bladet 1 Bergshamra Office 31,688
Gräddö 2&4 Farsta Office 14,321
Kurland 17 Vasastan Office 1,798
Ånsta 20:17 Örebro Industrial 3,011
Q3
Kallhäll 9:35 Kallhäll Land
Q4
Polacken 25 Norrmalm Office 2,467
Total property sales
January-December 2008
93,579

Property acquisitions

Total property acquisitions, Jan-Dec 2008 5,586
Krejaren 2 Östermalm Land
Uarda 2 Arenastaden Warehouse 5,586
Q1
Property Area Category m2
Lettable area,

Fabege's property portfolio and property management

Fabege's activities in management and improvement of properties and project development are highly concentrated to a few select sub-markets with strong growth prospects in and around Stockholm. The main markets are Stockholm's inner city, Solna and Hammarby Sjöstad.

At 31 December Fabege owned 157 properties with a total rental value of SEK 2.4bn, a lettable floor area of 1.5m m2 and a book value, including project properties, of SEK 29.5bn.

Commercial premises represented 97 per cent of the rental value and residential premises 3 per cent. The financial occupancy rate for the portfolio as a whole, including project properties, was 93 per cent (92). The vacancy rate in the investment property portfolio was unchanged at 5 per cent.

New lettings during the year were SEK 193m (327) while net lettings were SEK -6m (142). Predicted terminations in future project properties, totalling SEK 40m, had a significant impact on net lettings.

Rent levels in renegotiated contracts (94 contracts covering a total area of approx. 65,000 m2) increased by an average of 18 per cent, or SEK 17m.

Developments in Fabege's main markets

2008 was a year that saw both continued economic growth and financial turbulence, dramatic swings in interest rates and an emerging recession. Demand for efficient and flexible office space in Stockholm was good, although lead times in the rental market increased towards the end of the year due to uncertainty about the future of the economy. In Fabege's main markets, the inner city of Stockholm, Solna and Hammarby Sjöstad, the overall market situation is good, and rents remain stable.

Changes in the property portfolio

During the year Fabege acquired two properties for a total consideration of SEK 201m and sold thirteen properties for SEK 2,095m. The sales resulted in a profit of SEK 143m before tax, or SEK 333m after tax. At year-end the company's priority

Projects in progress >50 SEKm 31 Dec 2008, SEKm

Book Of which,
Lettable Occupancy value accrued
area, rate %, Estimated 31 Dec Estimated 31 Dec
Property name Property type Area Completed m2 area* rental value 2008** investment 2008
Risinge 1 et al. Residential Tensta/Rinkeby Q2 2009 53,400 100 53 403 328 256
Retail/Office/
Paradiset 29 (50%) Garage Stadshagen Q3 2009 18,100 58 29 288 390 311
Bocken 35 and 46 Office Norrmalm Q4 2009 15,300 90 55 607 390 186
Päronet 8 Office Solna Strand Q1 2010 24,125 97 39 262 305 51
Rovan 1 Office/Retail Huvudsta dormant 16,400 82 24 163 121 61
Hammarby Gård 7 Office Hammarby Sjöstad dormant 8,900 20 20 121 185 86
Total 136,225 85 220 1,844 1,719 951
Other project & land properties 736
Other improvement properties 3,162
Total project, land and improvement properties 5,742

* Operational occupancy rate, 4 Feb 2009

The annual rent for the largest projects in progress can increase to SEK 220m (fully let) from SEK 77m currently as of 31 Dec 2008.

** The total value of properties was written down by SEK 209m in 2008.

sub-markets, Stockholm's inner city, Solna and Hammarby Sjöstad, represented 92 per cent of the total value of the Group's property portfolio.

Changes in the value of properties

All properties have been externally valued as at 31 December 2008. The total market value at year-end was SEK 29.5bn (30.8). Unrealised changes in the value of properties were SEK -1,545m, of which SEK -1,085m refers to the fourth quarter. The writedown represents a decline during the year of about 5 per cent.

The average yield requirement in Fabege's portfolio has increased by 0.5 per cent since year-end. The increase is larger in the outer suburbs than in the inner suburbs and Stockholm City. However, the net effect is significantly smaller due to improved cash flows from the properties. The investments made in the portfolio will eventually lead to lower vacancy rates and higher rents, and thereby stronger cash flows and value growth.

The property valuation is based on cash flow statements, where the present value of net operating incomes is normally calculated for a five-year calculation period, and the residual value of the property at the end of the calculation period. The discount rate used for Fabege's portfolio is based on the nominal yield on government bonds plus an increment for property-related risk. We can now see that a positive effect on many of Fabege's properties with long contracts and stable customers results in a lower risk increment.

Yield requirement residual value

Total 6.0 5.5 5.8
Hammarby Sjöstad 6.9 6.3 6.6 6.5–7.5
Solna 6.5 5.8 6.1 6.0–7.0
Inner City 5.6 5.1 5.2 5.0–6.5
2008 Weighted yield requirement, %
2006
Spread

Projects and investments

Fabege's project investments are forward-looking and are designed to reduce vacancy rates and raise rents in the portfolio, thereby improving cash flows and adding value.

A total of SEK 1,391m (966) was invested in existing properties and projects. The investments referred to land, new builds, extensions and conversions. The biggest investments referred to Paradiset 29, Bocken 35, 46 and Marievik 19, of which the latter was sold in April 2008.

Major projects (see also Projects in progress)

The project in Bocken 35 and 46 at the junction of Lästmakargatan-Regeringsgatan in Stockholm City is proceeding according to plan and is expected to be completed in the fourth quarter of 2009. The Paradiset 29/Lindhagen project on Kungsholmen is proceeding according to plan, and the retail area will open in August 2009. The next stage of the lettings process, covering the office areas, is underway. The property has been certified under the European Commission's GreenBuilding programme.

Fabege's Päronet 8 property in Solna Strand is undergoing an internal renovation and conversion. The project will be completed in the the first quarter of 2010. The property has been fully let to the Swedish Tax Agency.

Fabege's principle is that no investment projects should be initiated before the project has essentially been let and fully funded. This means that the previously approved investments in Rovan and Hammarby Gård will now be postponed, since the goal has not been achieved.

Staff

At year-end 148 people (140) were employed in the Fabege Group.

Parent company

Sales during the period were SEK 108m (108) and earnings before appropriations and tax were SEK -25m (1,048). Net investments in property, equipment and shares were SEK -140m (32). The parent company applies Recommendation RFR 2.1, Accounting for Legal Entities, of the Swedish Financial Accounting Standards Council, and the Swedish Annual Accounts Act. (See also the profit and loss account and balance sheet on page 9.)

Share buyback programme

The 2008 AGM passed a resolution authorising the Board, during the period up to the next AGM, to acquire shares. Share buybacks are subject to a limit of no more than 10 per cent of the total number of outstanding shares at any time. 6,441,451 shares (7,635,622) were repurchased during the year. At 31 December 2008 the company owned 4,929,400 treasury shares (7,635,622), which is equivalent to 2.9 per cent of the total number of registered shares. The average price paid for the shares was SEK 55.91.

The Board's proposals to the 2009 AGM

The Board of Directors will propose that the Annual General Meeting on 31 March 2009 authorise:

  • The payment of a cash dividend of SEK 2.00 per share, worth a total of SEK 329m
  • 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
  • The Board to offer Fabege's shareholders the opportunity to buy or sell, free of commission, the number of shares required to achieve a shareholding consisting of round lots

Ongoing tax cases

As announced previously, the Swedish Tax Agency has decided to increase the Fabege Group's taxable income in respect of a number of property sales made through limited partnerships (see also the press release from 7 December 2006). As at 31 December 2008 the total increase in taxable incomes is SEK 4,045m. The decisions have resulted in total tax demands of SEK 1,132m plus a tax penalty of SEK 170m, i.e. a total demand of SEK 1,302m excluding interest. Fabege has strong reasons to contest the Tax Agency's decisions and has therefore appealed the decisions.

Fabege is also contesting the ruling of the Administrative Court of Appeal, which we reported on in our 2007 Annual Report (see pages 40-41).

No provision has been made in Fabege's balance sheet, but the amount has been recognised as a contingent liability, as in previous financial reports.

Risks and uncertainties

Risks and uncertainties relating to cash flow from operations are primarily attributable to changes in rent levels, vacancy rates and interest rates. A detailed description of the effect of these changes on consolidated earnings is given in the sensitivity analysis in the 2007 Annual Report (page 46).

Properties are recognised at fair value and changes in value are recognised in the profit and loss account. The effects of changes in value on consolidated earnings, the equity/assets ratio and leverage are shown in the sensitivity analysis in the 2007 Annual Report (page 47).

Financial risk, i.e. the risk of insufficient access to long-term funding through loans, and Fabege's management of this risk are described in the 2007 Annual Report (page 63).

No significant changes in the company's risk assessments have been made since then.

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 times (including realised changes in value).

Events after the end of the reporting period

Major new letting to Vattenfall in Arenastaden

Vattenfall has concluded a rental agreement with Fabege for 43,000 m2 of office space as well as garage and parking space in Arenastaden in Solna. Vattenfall's Nordic business area will be moving into a new office building located next to the Swedbank Arena and Mall of Scandinavia. Construction is scheduled to begin in 2009, subject to completion of the planning process .

The contract runs for 12 years and has an annual rental value of about SEK 100m. The total cost of the project is SEK 1,150m and funding has been arranged through a new SEK 875m facility. Vattenfall Nordic's new office building is expected to be completed in the third quarter of 2012.

Outlook for 2009

At the start of 2009 the rental market in Fabege's main markets in Stockholm remains stable, and Fabege has since year-end 2008 concluded agreements on the rental of premises representing a contracted annual value of SEK 120m. With falling interest rates and good access to capital, a strong cash flow, a high occupancy rate and properties and premises that will remain attractive regardless of the state of the economy, Fabege is in a good position for 2009, which will be year of big challenges as well as interesting opportunities. Overall, there are good prospects for a balanced development of Fabege's operations and earnings in 2009.

Accounting principles

Fabege prepares its consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). This yearend report has been prepared in accordance with IAS 34 Interim Financial Reporting. The Group has applied the same accounting principles and valuation methods as in the last annual report.

The parent company prepares its accounts in accordance with RFR 2.1, Accounting for Legal Entities, and the Swedish Annual Accounts Act and has applied the same report principles and valuation methods as in the last annual report.

Stockholm, 5 February 2009

Fabege AB (publ) The Board of Directors

Review report

Introduction

We have made a partial review of the year-end financial statement of Fabege AB (publ) for the full year 2008. Responsibility for preparing this interim statement in accordance with IAS 34 and the Annual Accounts Act rests with the Board of Directors and Chief Executive Officer. Our responsibility is to express a conclusion on this interim statement based on our review.

Focus and scope

We have performed our review in accordance with the SÖG 2410 Standard on Review Engagements, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists in making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is significantly more limited in scope than an audit performed in accordance with the Auditing Standard in Sweden (RS) and generally accepted auditing standards. The review procedures taken in a review do not enable us to obtain a degree of certainty that would make us aware of all important circumstances that would have been identified if an audit had been performed. The conclusion based on a review therefore does not have the same certainty as a conclusion based on an audit.

Conclusion

Based on our review, we have not discovered any circumstances that would give us reason to consider that the interim report has not, in all material respects, been prepared, in respect of the Group, in accordance with IAS 34 and the Annual Accounts Act and, in respect of the parent company, with the Annual Accounts Act.

Stockholm, 5 February 2009 Deloitte AB Svante Forsberg Authorised Public Accountant

Questions concerning the report will be answered by:

Christian Hermelin, CEO Phone: +46 (0)8-555 148 25, +46 (0)733-87 18 25

Åsa Bergström, CFO Phone +46 (0)8-555 148 29, +46 (0)706-66 13 80

Mats Berg, Director of Corporate Communications Phone: +46 (0)8-555 148 20, +46 (0)733-87 18 20

Profit and loss account, SEKm

2008 2007 2008 2007
Oct-Dec Oct-Dec Jan-Dec Jan-Dec
Rental income 540 532 2,214 2,066
Property expenses
Net operating income
–186
354
–188
344
–776
1,438
–754
1,312
Surplus ratio, % 66 65 65 64
Central administration and marketing –14 –15 –60 –60
Realised changes in value, properties 0 239 143 446
Unrealised changes in value, properties –1,085 283 –1 545 893
Operating profit/loss –745 851 –24 2,591
Dividends 2 60
Net interest expense –201 –165 –804 –609
Share in profit/loss of associated companies –8 –8
Change in value, fixed income derivatives –440 –1 –485 37
Change in value, equities –8 –9 –21 –13
Profit/loss after financial items –1,402 676 –1,340 2,066
Current tax 6 –3 3 –7
Deferred tax 634 –39 826 –247
Profit/loss for period/year –762 634 –511 1,812
Attributable to parent company shareholders –762 634 –511 1,812
Earnings per share before dilution, SEK –4.63 3.67 –3.07 10.03
Earnings per share after dilution, SEK –4.63 3.65 –3.07 9.98
No. of shares at end of period before dilution, millions 164.4 170.8 164.4 170.8
No. of shares at end of period after dilution, millions 165.4 171.9 165.4 171.9
Average no. of shares before dilution, millions 164.5 172.6 166.5 180.7
Average no. of shares after dilution, millions 165.6 173.7 167.5 181.8

Balance sheet summary, SEKm

2008-12-31 2007-12-31 2008-09-30
Assets
Properties 29,511 30,829 30,169
Other tangible
fixed assets
3 6 3
Financial fixed assets 586 387 378
Current assets 388 458 471
Cash and cash equivalents 54 75 93
Total assets 30,542 31,755 31,114
Equity and liabilities
Equity 9,873 11,415 10,646
Provisions 624 1,393 1,063
Interest-bearing liabilities 18,902 17,210 18,552
Derivatives 471 31
Non-interest-bearing liabilities 672 1,737 822
Total equity
and liabilities
30,542 31,755 31,114
Equity/assets ratio, % 32 36 34
Contingent liabilities 1,901 1,735 1,696
Statement of changes
in equity, SEKm
Share
holders'
equity
Of which
attributable
to parent
company
shareholders
Of which,
attributable
to minority
Shareholder's equity, 1 Jan 2007 12,177 12,156 21
New shares, conversion of
debt instruments
2 2
Change in minority share through
pre-emption rights to the shares in
Fastighets AB Tornet
–21 –21
Redemption of shares paid in the form
of shares in Klövern
–1,251 –1,251
Cash dividend –761 –761
Share buybacks –543 –543
Profit/loss for the year 1,812 1,812
Shareholders' equity, 31 Dec
2007
11,415 11,415
New shares, conversion of debt instru
ments
0 0
Cash dividend –670 –670
Share buybacks –361 –361
Profit/loss for the year –511 –511
Shareholder's equity,
31 Dec 2008
9,873 9,873

Cash flow statement, SEKm

Key figures1)
---------------
2008
Jan-Dec
2007
Jan-Dec
Operating profit/loss excl.
depreciation and changes in
value of existing properties
1,517 1,706
Net financial items paid –880 –557
Income tax paid 3 –7
Change in other working capital –1,104 491
Cash flow from
operating activities
–464 1,633
Investments and
acquisitions of properties
–2,164 –4,984
Property sales, book value of
divested properties
1,942 2,231
Other investments (net) 5 100
Cash flow from
investing activities
–217 –2,653
Dividend to shareholders –670 –761
Share buybacks –361 –543
Change in interest-bearing liabilities 1,691 2,235
Cash flow from
financing activities
660 931
Change in cash and cash equivalents –21 –89
Cash and cash equivalents at beginning of period 75 164
Cash and cash equivalents at
end of period
54 75
2008
Jan-Dec
2007
Jan-Dec
Financial
Return on capital employed, % –1.7 9.9
Return on equity, % –4.8 15.4
Interest coverage ratio, times 1.9 2.8
Equity/assets ratio, % 32 36
Leverage properties, % 64 56
Debt/equity ratio, times 1.9 1.5
Share-related
Earnings per share for the period, SEK –3.07 9.98
Equity per share, SEK 60 67
Cash flow per share, SEK 4.33 6.32
No. of outstanding shares at
end of period before dilution, '000
164,382 170,823
No. of outstanding shares at
end of period before dilution, '000
165,449 171,893
Average no. of shares
before dilution, '000
166,459 180,730
Average no. of shares
after dilution, '000
167,526 181,801
Property-related
No. of properties 157 167
Book value of properties, SEKm 29,511 30,829
Lettable area, m2 1,454,000 1,546,000
Financial occupancy rate, % 93 92
Surplus ratio, % 65 64

1) Dilution effects of potential ordinary shares have been taken into account in calcu- calculating key figures per share. As at 31 December 2008, Fabege has a convertible bond loan with a book value of SEK 47m (nominally SEK 45m). The loan has an interest rate of 5.25 per cent and matures on 1 October 2009. Bonds may be converted into shares up to 1 September 2009. The conversion price is SEK 41.80. Full conversion would result in an increase of 1,066,558 shares.

PARENT COMPANY Profit and loss account, SEKm

2008
Jan-Dec
2007
Jan-Dec
Income 108 108
Expenses –181 –196
Net financial items 554 1,112
Change in value, interest rate derivatives –485 37
Change in value, equities –21 –13
Profit/loss before tax –25 1,048
Tax 254 –10
Profit/loss for the period/year 229 1,038

Balance sheet, SEKm

2008-12-31 2007-12-31
Interests in Group companies 14,987 15,116
Other fixed assets 21,246 32,313
of which receivables from Group comanpies 20,788 32,089
Other current assets 39 3
Cash and cash equivalents 43 58
Total assets 36,315 47,490
Equity 10,282 10,831
Provisions 63 62
Long-term liabilities 24,980 32,776
of which liabilities to Group companies 6,725 19,244
Current liabilities 990 3,821
Total equity
and liabilities
36,315 47,490

Profit and loss account by segment, SEKm

Investment Project/improvement Total
Fabege
properties properties
2008, Jan-Dec 2008, Jan-Dec 2008, Jan-Dec
Rental income 1,886 328 2,214
Property expenses –595 –181 –776
Net operating income 1,291 147 1,438
Surplus ratio, % 68 45 65
Central administration and marketing –48 –12 –60
Realised changes in value, properties 49 94 143
Unrealised changes in value, properties –1,489 –56 –1,545
Operating profit/loss –197 173 –24
Dividends 2 2
Net interest expense –680 –124 –804
Share in profit/loss of associated companies –2 –6 –8
Change in value, fixed income derivatives –391 –94 –485
Change in value, equities –17 –4 –21
Profit/loss after financial items –1,285 –55 –1,340
Current tax 3 3
Deferred tax 646 180 826
Profit/loss for period/year –636 125 –511
Occupancy rate, % 95 81 93
Market value, 31 Dec 23,769 5,742 29,511

As of 2009 companies are required, under IFRS 8, to present financial information by segments, as viewed by management. In its briefings to market participants in 2008 Fabege has presented earnings figures for two segments, Investment properties and Project/ Improvement properties. This form of reporting by segment will be included in forthcoming quarterly interim reports.

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). This applies also to tax that is not directly attributable to earnings from property management or sales.

Largest shareholders, 31 December 2008

Share of capital
Shareholder No. of shares and votes, %
Brinova AB 23,291,092 14.2
Maths O Sundqvist 19,527,800 11.9
Öresund 11,050,036 6.7
Danske fonder 5,176,427 3.2
Swedbank Robur fonder 4,535,074 2.8
Mats Qviberg and family 2,703,636 1.6
SEB fonder 2,208,114 1.3
Länsförsäkringar fonder 1,639,924 1.0
Sjunde AP-fonden 1,368,358 0.8
SHB/SPP fonder 1,250,296 0.8
Other foreign owners 47,557,641 28.9
Other owners 44,073,756 26.8
Total 164,382,154 100.0
Share buybacks 4,929,400
Total no. of shares 169,311,554

Financial reports 2009

Annual Report 2008 week 11 Interim report Jan-Mar 28 April
Annual General Meeting 31 March Interim report Jan-Jun 10 July
Interim report Jan-Sep 27 October

Definitions

Return on equity

Profit for the period/year divided by average shareholders' equity. In interim statements the return is converted to its annualised value without taking account of seasonal variations.

Return on capital employed

Profit before tax plus interest expenses, divided by average capital employed. In interim statements the return is converted to its annualised value without taking account of seasonal variations.

Leverage, properties

Interest-bearing liabilities divided by the book value of the properties at the end of the period.

Yield, share

Dividend for the year divided by the share price at year-end.

Equity per share

Parent company shareholders' share of equity according to the balance sheet divided by the number of shares at the end of the period.

Financial occupancy rate

Contract value divided by rental value at the end of the period.

Investment properties

Properties that are being actively managed on an ongoing basis.

Improvement properties

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 improvement work.

Recently acquired properties (last twelve months) in which work is in progress that is aimed at significantly improving the property's net operating income compared with the time of acquisition.

Rental value

Contract value plus estimated annual rent for vacant premises after a reasonable general renovation.

Cash flow per share

Profit/loss before tax plus depreciation, plus/minus unrealised changes in value less current tax, divided by average number of shares.

Contract value

Stated as an annual value. Index-adjusted basic rent under the rental agreement plus rent supplements.

Land & project properties

Land and developable properties and properties in which a new build/complete redevelopment is in progress.

Net lettings

New lettings during the period less terminations to vacate during the period.

Profit/earnings per share

Parent company shareholders' share of profit after tax for the period divided by average number of outstanding shares during the period.

Profit/loss from property management

Profit/loss for the period after financial items and reversal of changes in value.

Interest coverage ratio

Profit after financial items plus financial expenses and plus/minus unrealised changes in value, divided by financial expenses.

Debt/equity ratio

Interest-bearing liabilities divided by shareholders' equity.

Equity/assets ratio

Shareholders' equity (including minority share) divided by total assets.

Capital employed

Total assets less non-interest bearing liabilities and provisions.

Surplus ratio

Net operating income divided by rental income.

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