Fabege : Annual and Sustainability Report 2023

ANNUAL REPORT

2O23

Fabege is a property company and urban developer that takes a comprehensive approach via solutions in response to constantly changing needs. The whole person, the whole

company, the whole location. The whole time.

Fabege Annual Report 2023

About Fabege

ThisisFabege .............................................. 3

2023inbrief .................................................. 4

MessagefromtheCEO ............................. 5

Strategy for sustainable growth . . . . . . . . . . . . . 8

Targets that guide our business . . . . . . . . . . . . 9

Stockholm's property market . . . . . . . . . . . . . . . . 10

Urbandevelopment .................................. 13

Ourdistricts ................................................. 14

Interview with Fabege's CFO . . . . . . . . . . . . . . . . . 18

WhyinvestinFabege? ............................ 19

Shareinformation ..................................... 20

Sustainability

Fabege's sustainability work . . . . . . . . . . . . . . . . . 22

Sustainability through the year . . . . . . . . . . . . 23

How to achieve the sustainable city . . . 24

Ourfocusareas ........................................ 25

Districts ..................................................... 26

Properties ................................................. 29

Employees ................................................ 33

Supplychain ............................................ 35

Financing .................................................. 37

Customers ................................................ 39

Businessethics ....................................... 40

Sustainabilitytargets ................................ 41

Directors' Report

Operationalearnings ............................... 44

Financing ..................................................... 47

Risks and risk management . . . . . . . . . . . . . . . . . 50

Corporate Governance Report . . . . . . . . . . . . . 61

Message from the Chairman . . . . . . . . . . . . . . 61

TheFabegeBoard ................................. 69

Executive Management Team . . . . . . . . . . . . . 71

Sustainabilitynotes .................................. 73

Financial reporting

TheGroup .................................................. 92

ParentCompany ....................................... 96

Notes .......................................................... 100

Signing of the Annual Report . . . . . . . . . . . . . . . 116

Auditor'sReport ........................................ 117

Other information

Propertyportfolio ..................................... 119

Projects ....................................................... 123

Propertylist ............................................... 124

Five-yearsummary ................................. 130

ReconciliationofKPIs ............................. 131

Definitions .................................................. 133

Annual General Meeting and

registration ................................................ 134

About this report

The statutory annual accounts are on pages 43-116. The audited Sustainability Report is on pages 73-89. The Annual Report is published in Swedish and English. The Swedish version is the original version. Cover photo: Ackordet 1, Haga Norra.

This is Fabege

We develop safe, aractive and sustainable urban districts in Stockholm. With a focus on commercial property in a number of well-located submarkets, we create offices, workplaces and environments that boost people's wellbeing and enhance their performance. Via our subsidiary Birger Bostad, we are expanding our remit to include the development of residential areas in our neighbourhoods. Fabege is keen to be a supportive partner that puts people front and centre and enables companies, locations and the city to develop. Value is created via property management and the development of existing properties, project development and transactions.

We are a significant owner with a sound knowledge of our market

We are one of the largest property owners in Stockholm with a property portfolio spread across selected districts, all of which are characterised by good rail connections for commuting. We have a sound knowledge of the market owing to our compact portfolio in clusters, and in-house property management. This approach creates a firm foundation for effective property management and a high occupancy rate.

Find out more on pages 13-17

We are a driving force in the development of a sustainable city

Our significant holdings in our neighbourhoods enable us to take overall responsibility for ensuring access to green spaces, restaurants and services. Sustainability is a priority, and we are actively engaged in reducing our carbon footprint, improving energy efficiency and promoting good health in our districts. All our invest-ment properties and projects are environmentally certified to BREEAM-SE or BREEAM In-Use standard.

Find out more on pages 22-42

Vision

The success factor for a new era

We will be a supportive partner that puts people front and centre. Our innovative, responsible and flexible ethos enables companies, locations and our city to develop.

Mission

Turning vision into reality

We help people and companies thrive and achieve their goals. We bring places to life. No dream is too big or too small for us.

Rental value by type of remisesProperty value by areaRental income and surplus ratio

Offices: 82%

Shops/restaurants: 4%

Industry/logistics: 4%Solna: 47%

Inner city: 38%

Hammarby Sjöstad: 10%

Other: 10%

Flemingsberg: 4%

Other markets: 1%

3,500

3,000

2,500

2,000

1,500

%

80

78

76

74

72

1,00070 2021

2019

2020

2022

Rental income, SEKmNet operating income, %

Properties

100

Employees

2023

228

Certified properties, area

82 %

Property value

78.1 SEKbn

2023 in brief

We signed a lease with Saab AB for approximately 66,000 sqm in the Nöten 4 property in Solna Strand, with occupancy scheduled for autumn 2025. The lease runs until 2045 with a rental value of SEK 155m per year, excluding supplements.

Persistent top ranking in GRESB

JM relocates its head office to Haga Norra

JM has signed a lease for 6,500 sqm for its headquarters in the Ackordet 1 property, with occupan-cy scheduled for 2025. We also sold building rights for just short of 42,500 sqm in Huvudsta to JM, corresponding to roughly 450 apartments.

We signed an agreement with Nrep on the sale of the Orgeln 7 property in Sundbyberg and Glädjen 12 in Stadshagen, in a transaction worth SEK 3.4bn.

CSI rating of 81

We exceeded our target and increased from 79 in the last survey conducted in 2021. 95 per cent of customers say they are likely to recommend Fabege as a landlord. All our market areas improved their performance.

The Poolen block is an innovative building featuring a swimming pool and office building. Swedish Build-ing of the Year is the construction industry's most prestigious com-petition that highlights all aspects and stakeholders involved in a successful construction project.

We advanced to 20th place among Sweden's Best Workplaces™ for medium-sized organisations in Great Place To Work's annual employee survey, with a Trust Index score of 88.

Reuse hub in

Solna Business Park

Around 2,000 sqm in Solna Busi-ness Park are assigned for the collection of building materials, fixtures and fiings, equipment and furniture for reuse, and every-thing is documented in a digital marketplace. The reuse hub is an important cornerstone of Fabege's reuse strategy and contributes to the company's goal of halving its CO₂ emissions from construction projects by 2030.

Green share

We were awarded the

As we enter 2024, we leave behind yet another year of turbulence and uncertainty. In 2023, we had to oper-ate with a backdrop of war in a region that is on our doorstep, persistently growing geopolitical uncertainty and greater insecurity and violence in our society.

Meanwhile, the economic situation has deteriorated, interest rates have been extremely volatile, the housing market has been and remains nervous, and the Swedish krona has continued to weaken. Naturally, this level of uncertainty and unrest makes decision making more of a challenge. This is particularly reflected in investment decisions. Towards the end of the year, we saw indica-tions of a slight recovery in the krona, infla-tion began to fall, as did interest rates, and the stock market improved.

We have enjoyed several years of extremely favourable conditions for our industry. A strong economy and low, one could even say ridiculously low interest rates have boosted the property market. But it's not as simple anymore in the current market, and we're back to a reality that requires balanced finances, reduced risk-taking and in particular, effective cost control. Rising interest rates are reflected in rising yield requirements, which in turn is reflected in the figures, as our earnings aſter changes in value were negative for 2023. The rental market is weaker, our projects are struggling with profitability, construction costs have not fallen, yields are rising and the capital market is tough. Clearly our customers are affected by market conditions and uncer-tainty, so it is more important than ever for us to maintain our presence.

Plenty of positives

Given this long list of concerns and chal-lenging external conditions, I believe we have done well to get through this year. We

"It is good to be an optimist, but it is also important to be a realist."

STEFAN DAHLBO

have had to struggle with important issues, yet still been able to continue our internal work with a focus on the day-to-day management of our properties, the develop-ment of our major projects, our profitability and in particular, sustainability, which is an area of which we can be justly proud. What we can work on - and influence - moved in the right direction. We have made some of the largest leings of the year, and net let-tings amounted to SEK 165m, which is one of the highest ever figures. On a like-for-like basis, rental income increased by 11 per cent, largely fuelled by the index increase that came into effect at the beginning of 2023. The surplus ratio increased to 75 per cent, while earnings from property manage-ment were largely unchanged from the previous year, despite the rise in interest rates. Our vacancy rate fell to 9 per cent. We have strengthened and developed the organisation and were named one of

Sweden's best employers by Great Place To Work (GPTW). We made some significant sales and have a fundamentally strong bal-ance sheet. The list of positive events and strengths is long.

Our strategy is a strength

Although conditions are tougher, like most of the major property companies, we are equipped with manageable risks and rela-tively low leverage. During the year, I have taken issue with the fact that too oſten, property companies and the property market are referred to in terms that are over-ly general. The property market is diversified, as is the companies' financial exposure. To understand the challenges and opportuni-ties facing the various companies and markets, the issues must be broken down

"Things aren't as simple any­more. We are back to reality, but we've managed to navigate our way quite well."

STEFAN DAHLBO

company by company, segment by seg-ment and submarket by submarket. Our strategy of focusing on Stockholm and selected submarkets in the region rep-resents a strength in this regard. We know our areas; we are on the ground every day. We know local businesses and work closely with municipalities.

"The secret of change is to focus all of your energy, not on fighting the old, but on building the new."

SOCRATES

Changing conditions

However, we must respond to the new con-ditions prudently and responsibly, while ensuring the wellbeing of our customers and employees. We have been good at han-dling challenges, while managing to capital-ise on opportunities. The rental market is generally tougher, and decisions are taking longer. For the first time in many years, we have seen a decrease in the number of office workers in Stockholm for several quarters. Meanwhile, this trend is partly off-set by the fact that the supply of new offices both this year and in 2025 will be very low. There has been much discussion about the future of the office in the post-pandemic era. What we call offices play a central role in many people's lives. Offices are important for creating community, a sense of belong-ing and dedication. However, it is important for all of us to be responsive and open to development, particularly with regard to new technology. I feel there is more interest than ever in the design and function of offices, which is why we also developed new services to remain at the forefront when it comes to advising our current and potential tenants. All to help create forums for bring-ing people together, for dialogue, concen-tration and the development of individuals and companies. During the year we also invested more in our flexible concepts: NOW, CoW, RUM, WAW and VOV. Creating flexible solutions with different lease terms and ser-vice content is a significant part of our offer. Collaboration with other operators, such as coworking specialists, is also important.

Unfortunately, communications and trans-port have gained even more of a focus during the year, and not in a positive sense.

Traffic in Stockholm was severely disrupted during the year. We have raised the prob-lems this creates for individuals and busi-nesses with decision-makers at regional and national level, but unfortunately it is a recur-ring theme. The long-term development of Stockholm requires a major overhaul in this area, and investment in new infrastructure should be a priority.

Largest leing of the year in Sweden

In the fourth quarter, we were able to com-plete one of our largest rental transactions ever with the signing of a lease with Saab. The company is now renting the entire Nöten 4 property; a total of 66,000 sqm, at an annual rent of SEK 155m excluding supplements. Occupancy is scheduled for autumn 2025. This leing is both very posi-tive and significant for us in general, but particularly for Solna Strand.

Cautious transaction market

Overall, the transaction market was signifi-cantly down on previous record levels. How-ever, the transactions in our markets have been completed at good levels, but the market is fragmented and can vary greatly between blocks or districts. In central Stock-holm, most of the properties belong to long-term institutional owners, none of whom appear to be under pressure to sell.

We sold two office properties outside our prioritised districts at a total carrying amount of SEK 3.4bn, and land for an additional SEK 400m. All of which is consistent with our long-term strategy of creating scope for investment.

In light of the market situation and the low level of transactions we have seen on the

"You are not here merely to make a living. You are here to enrich the world."

WOODROW WILSON

market, we have chosen to have a larger than normal proportion of our properties independently valued since the end of 2022 and in 2023. 70 per cent of the portfolio was independently valued in the fourth quarter, while other properties were internally valued in discussion with external partners. We have wrien down our values by around 13 per cent since the third quarter of 2022. A higher yield requirement has to some extent been offset by higher rents.

In 2023, in our joint venture with Brabo, we sold the last apartments in Arenastaden/

"Our balanced financial strategy has given us continued scope to invest."

STEFAN DAHLBO

Haga Norra's first phase. This means that all 418 apartments have now been sold. At the end of the year, we decided to continue the development of the area and began con-struction on a further 285 apartments, 75 of which are rental apartments. The apartments are expected to be ready for occupation in 2025. Underlying demand for housing in Solna remains good, while the supply of new housing is low. Birger Bostad has also achieved healthy sales in its smaller projects.

The market's concerns about financing opportunities in late 2022 and during 2023 now seem somewhat unjustified, at least in the case of Fabege. We enjoy a high level of confidence from our banks and the financial market, owing to long-established relation-ships. Bond market liquidity is again good,and margins have moved in the right direc-tion. We have taken advantage of this, and since last autumn we have been issuing bonds again as part of our financing. The interest rate trend is of course the main rea-son for the sharp rise in interest costs. Over the years, we have actively worked with fixed-income derivatives to manage interest rate risk prudently.

Customer front and centre

District development is an essential part of our business and has created the frame-work for how we conduct our business, with a focus on the environment in which we live and work - our living environment. The cus-tomer is front and centre, and it is important for us to have a local presence and maintain a constant dialogue with our customers to be able to further develop our properties in response to their needs. The Customer Sat-isfaction Index (CSI) score for the year was high at 81, up from 78, confirming our com-mitment to our customers.

Project investments totalled SEK 1,902m for the full year. Unfortunately, the cost trend for projects remains challenging. The cur-rent market situation with high costs and current interest rates has also meant we have had to postpone some planned projects. In Flemingsberg, work is underway on the new building for the Royal Swedish Opera/Dramatic Theatre, with occupancy scheduled for June. Alfa Laval's new office is also under development and is expected to be occupied in 2025. Also in 2025, Ackordet 1 and Påsen 1 are set to welcome new ten-ants, which will have a positive impact on rental income and cash flow.

Continued focus on sustainability Sustainability has long been at the heart of everything we do, and it is an important ele-ment in driving business development. I am very proud of the work we are doing and have achieved in all areas of sustainability. The fact that all employees are involved in one way or another means a great deal, and it is a vital task in building a strong and prof-itable company.

All our project properties and investment properties have been BREEAM-certified since 2019. This year, our Ackordet 1 property in Haga Norra also won the BREEAM Building 2023 award. The award is given to proper-ties that are leading the way in sustainability. The property is currently Sweden's largest recycled brick project. Reuse is something that is close to our hearts, and during the year Fabege launched a reuse hub as part of our reuse strategy. For major renovations, our target is for the circularity index to be 20 per cent, which is an important step towards achieving our goal of being carbon neutral by 2030. We have received extremely valu-able and positive feedback on our work with hållbarhetshuset (the sustainability house) and the reuse hub.

The Nasdaq Green Equity Designation, which we received at the end of 2023, is fur-ther proof of our targeted work in areas such as climate impact, environmental certifica-tions, energy efficiency and green financing. The aim is to ensure greater visibility for investors seeking sustainable investments.

To create aractive neighbourhoods, it is important that we invest in wellbeing and safety. We dedicate much of our time to areas such as security measures, general living environment and outdoor seings. I

"Always expect the unexpected."

JAMES PATTERSON

feel it goes without saying that as an indus-try we should be making a positive contribu-tion to social development in the areas in which we operate, including location devel-opment and the physical environment, but also via social engagement in cooperation with other stakeholders and operators. This ultimately leads to beer and more aractive neighbourhoods, lower costs and higher revenues. We have a considerable number of social initiatives that we implement and invest in aimed at improving conditions for education, leisure, health and work. The starting point is cooperation and collabora-tion in our neighbourhoods. For example, we need to talk to - and not about - the people who live and work in our various districts.

Realistic view of the future

I am hopeful about 2024, particularly because of lower interest rates, but I am realistic about how long it will take to see a recovery. Con-flicts and war around the world, trouble spots and geopolitical unrest are having a negative impact. We also need to be prepared for new, unexpected challenges.

There are many possibilities. We need to harness them with knowledge, passion, curi-osity and drive, so that we make Fabege a success factor for the future. We will, quite simply, turn visions into reality. At the same time, we continue, as always, to look aſter our customers, employees, partners, properties and neighbourhoods.

Stefan Dahlbo

President and CEO

Strategy for sustainable growth

We are one of the leading property owners in Stockholm. Our proximity to our customers creates the conditions to maintain and continue to strengthen this position as we continuously develop to meet our customers' shiſting needs and ways of working. We closely monitor market developments, adapt our offering and capitalise on emerging business opportunities. Together with municipalities and other stakeholders, we help direct the long-term planning of the street environment. High on the agenda is the continued develop-ment of our neighbourhoods into more sustainable, low-carbon places for everyone who spends time in them. We are operating on the basis of a number of strategic initiatives, which we can use to capitalise on our leading position in our districts, while considering the bigger picture in collaboration with our partners.

Targets that guide our business

Our goal is to give our share-holders a total return that is the best among property companies on the stock market, and to contribute to the sustainable development of Stockholm.

Our property portfolio, strategy, business model and expertise combine to enable us to create and realise value.

We follow a number of strate-gic objectives and key performance indicators that guide our activities.

2019 2020 2021 2022 2023

6065

2019 2020 2021 2022 2023

1) sqm Atemp. Atemp is the total internal area for each floor, loſt and basement that is heated to more than 10°C.

Debt ratio

Target

Minimum 13.0x.

2019 2020 2021 2022 2023

10

Stockholm's property market

Stockholm's property market is largely driven by relocation to the region and increased employment. The trend was cautious in 2023, with a decline in the number of people employed in office-intensive industries. This had a negative impact on office demand and led to a slightly higher vacancy rate compared with 2022, except in CBD (Central Business District) locations. Rising inflation and the resulting higher interest rates have also affected the number of transactions, as well as investments in new construction. The market has remained hesitant at the beginning of 2024, but we believe there will continue to be healthy demand for offices in aractive locations.

1)Source: Citimark

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Fabege AB published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 13:54:03 UTC.