Fastpartner Reason: Post-Results Comment Company Sponsored Research Approaching IG Rating Not Rated

Equity Research - 14 February 2020 13:28 CET

Fastpartner Reason: Post-results comment Company sponsored research Approaching IG rating Not rated

 ‘20e-‘21e CEPS CAGR of 11%  K12 acquisition contributes 5% to rental income ‘20e

 DPS proposal of SEK 1.90 (1.60) vs ABGSCe 1.90 Estimate changes (%)

2020e 2021e 2022e Q4 was a step towards IG rating Rental income RE (%) 2.7% 5.1% na In December 2019, Fastpartner issued SEK 714m of D shares. The main NOI (%) 3.5% 5.9% na purpose was to increase the equity base to get one step closer to an IG CEPS adj (%) 0.8% 3.7% na rating. We argue that an IG rating is desirable, as it gives access to Source: ABG Sundal Collier

capital markets with cheaper funding costs and decreases the Share price (SEK) 13/02/2020 1 0 6 .0 dependency on bank financing. However, the dividend for holders of the D shares reduces CEPS estimates by 5% on ‘20e, all else equal. We Real Estate, Sweden expect CEPS to grow by 11% p.a. ‘20e-’21e, primarily driven by FPAR.ST/FPAR SS announced acquisitions. In November ‘19, Fastpartner acquired NCC’s headquarters (K12) for SEK 1,540m with a rental value of SEK 78m MCap (SEKm) 19,175 (adds 5% rental income to ‘20e). MCap (EURm) 1,827.9 Net debt (EURm) 1,400 EPRA NAVPS growth of ~13% p.a. in ‘20e-‘21e Fastpartner raised its property values by SEK 1,420m, or 5.5% of the No. of shares (m) 181 portfolio value, in Q4 (ABGSCe at 1.0%) and values increased by 12.1% Free float (%) 30.0 in 2019. As a result, reported EPRA NAVPS increased by ~36% y-o-y Av. daily volume (k) 53.2 (adj. for DPS), to SEK 74.5. However, reported EPRA NAVPS came in at SEK 82.6, but we adjust for D shares and preference shares (at current Next event Q1 report: 23 Apr share prices). Fastpartner has a stellar growth track record, with a 5y avg. EPRA NAVPS growth (adj. for DPS) of ~31%. For ‘20 and ’21, we Performance forecast 14% and 13% EPRA NAVPS growth from CEPS contributions of 240 6% p.a. and value revisions of 4.5% p.a., which takes EPRA NAVPS to 220 SEK 85 and SEK 95 in ‘20e and ‘21e. 200 180 Fair equity value range of SEK 76-161 160 On our ’20 estimates with the stock trading at the current P/EPRA NAV 140 multiple of ~1.5x, we get an equity value of SEK 127. If the share were to 120 100 trade at its historical low of a P/EPRA NAV of ~0.9x, we get an equity value 80

of SEK 76, and at its historical high of ~1.9x, we get an equity value of SEK

Apr 17 Apr

Oct 17 Oct

Apr 18 Apr

Oct 18 Oct

Apr 19 Apr

Oct 19 Oct

Jun 17 Jun

Jun 18 Jun

Jun 19 Jun

Feb 17 Feb

Feb 18 Feb

Feb 19 Feb

Aug 17 Aug

Dec 17 Dec

Aug 18 Aug

Dec 18 Dec Aug 19 Aug 161. This gives us a fair value range of SEK 76-161. Fastpartner’s ‘20e 19 Dec Fastpartner OMX STH PI valuation multiples of a ’20e P/CE of~ 25x is ~9% above the sector and the 1m 3m 12m EPRA NAV premium of ~50% is ~25% above the sector. Historically, Absolute (%) 8.4 33.2 58.3 Fastpartner has traded at a premium to the sector. OMX STH PI (%) 4.8 9.6 25.1

Lead analyst: Staffan Bulow Source: FactSet Tobias Kaj 2020e 2021e 2022e SEKm 2018 2019 2020e 2021e 2022e P/CEPS Adj. 24.0 21.4 19.3 Rental Income 1,451 1,687 1,894 2,030 2,170 P/EPRANAV 1.25 1.11 0.99 Net operating income 982 1,173 1,333 1,436 1,544 Implicit yield (%) 3.7 3.9 4.2 NOI margin (%) 67.7 69.5 70.4 70.8 71.2 div.yield (%) 2.0 2.2 2.4 CEPS Adj 3.26 3.98 4.41 4.94 5.50 Net LTV (%) 47.2 45.6 43.8 DPS 1.60 1.90 2.10 2.30 2.50 Source: ABG Sundal Collier, Company data EPRA NAVPS 56.0 74.5 84.6 95.5 107 EPS 9.77 17.19 3.97 4.45 4.96 Rental growth (%) 7.5 16.3 12.3 7.2 6.9 CEPS Adj. growth (%) 3.5 22.3 10.8 12.0 11.3

Source: ABG Sundal Collier, Company data

Please refer to important disclosures at the end of this report This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II. Fastpartner

Opportunities Risks Over the years, FastPartner has developed a portfolio of The main risk for a real estate company is the macro about 200,000 sqm residential building rights and development in the markets in which it operates. The approximately 200,000 sqm commercial building rights. demand situation should be more sustainable in Stockholm The untapped building rights are in different stages, i.e. given the growing population, but historically volatility has ranging from development of zoning plans, approved been higher in the downturns. Moreover, the major zoning plans to established construction. Presently, there shareholder and CEO of FastPartner, Sven-Olof are good opportunities to convert these into leasable Johansson, is very important to the company. areas.

Value distribution by region Occupancy rate and rental income/m2

80% 1,200 93.0% 70% 92.0% 1,000 60% 91.0% 800 50% 90.0% 40% 600 89.0% 30% 88.0% 400 20% 87.0% 200 10% 86.0% 0% 0 85.0% Greater Gävle Uppsala & Norrköping 2012 2013 2014 2015 2016 2017 2018 2019 Stockholm Mälardalen and other Rental income/m² Value distribution/Region Occupancy rate R.H.S Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data CEPS adj., y-o-y change Growth in NOI and CEPS adj., y-o-y

6.0 25.0% 4.5 35.0% 4.0 5.0 30.0% 20.0% 3.5 4.0 3.0 25.0% 15.0% 2.5 20.0% 3.0 2.0 10.0% 15.0% 2.0 1.5 10.0% 1.0 1.0 5.0% 0.5 5.0% 0.0 0.0% 0.0 0.0% 2015 2016 2017 2018 2019 2020e 2021e 2012 2013 2014 2015 2016 2017 2018 2019 CEPS adj. CEPS adj y-o-y change R.H.S Growth in NOI R.H.S Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data EPRA NAV and share price Company description FastPartner owns, manages and develops primarily 120.0 commercial real estate. The portfolio consists mainly of warehouse and production properties, but also offices and 100.0 retail premises. Greater Stockholm is and remains 80.0 FastPartner's most prioritized investment area. About 80% of rental income comes from the Greater Stockholm area 60.0 and 20% from the rest of the country, with Gävle as the 40.0 largest management unit. Moreover, FastPartner's property portfolio includes five properties in Stockholm city. 20.0

0.0 2015 2016 2017 2018 2019 2020e 2021e 2022e EPRANAV/Share Share price Source: ABG Sundal Collier, Company data

14 February 2020 ABG Sundal Collier 2

Fastpartner

Growth strategy Growth from acquisitions Since 2014, Fastpartner’s property portfolio has grown from SEK 12.0bn to SEK 22.3bn (2018), corresponding to an increase of ~85% or a CAGR of ~18%. The growth in the property portfolio has mainly come from acquisitions. Between 2014 and 2018, the company invested SEK 5.7bn through net acquisitions and SEK 2.0bn through investments in its own properties.

Property portfolio, SEKm Investments through net acquisitions and investments in its own properties, SEKm

25,000 30% 3,000

25% 2,500 20,000

20% 2,000 15,000 15% 1,500 10,000 10% 1,000

5,000 5% 500

0 0% 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Property value, SEKm Y-o-y growth Net acquisitions, SEKm Investments in own properties, SEKm

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

As the numbers reveal, Fastpartner’s strategy is to grow through acquisitions. The first pillar of its acquisition strategy relates to location. Fastpartner states that it seeks acquisition opportunities in locations that will “become increasingly attractive over time”. The company owns properties in Sweden’s largest cities, with 83% of the property value (Q3’19) in Stockholm ̶ Fastpartner argues that Stockholm’s GDP accounts for roughly one-third of Sweden’s GDP. Meanwhile, Västra Götaland (which includes Sweden’s second-largest city, Gothenburg) accounts for one-fifth of Sweden’s GDP, and Skåne (which includes Sweden’s third-largest city, Malmö) accounts for ~10%. In total, these regions, which include Sweden’s three largest cities, account for three-fifths of Sweden’s GDP. Fastpartner finds exposure to the largest regions to be attractive, which is why it looks for acquisition opportunities in these areas.

The second pillar of Fastpartner’s strategy relates to its selection of properties. The strategy is to select properties that generate synergies from property management and acquire diverse type of commercial properties. First, the company maintains that there are synergies from acquiring properties in locations where it already has a functioning property management. There may be income synergies from operating in the same locations, as existing tenants tend to stay in properties longer. Second, the company is in diversified real estate segments, ranging from office to warehouses. Fastpartner management says that it reduces risk by generating a diversified rental income stream. This also gives the company flexibility to act rapidly in property segments that it finds most attractive.

Furthermore, its acquisition strategy is flexible in terms of investment budget. For example, in 2015 the company made net acquisitions of SEK 2,100m and the following year the corresponding figure was SEK 8m. Meanwhile, we see that most real estate companies tend to target an annual investment budget while Sven-Olof Johansson’s Fastpartner has an investment budget that is flexible and dependent on the current transaction opportunities.

Finally, the company has a perpetuity perspective on its investments. 14 February 2020 ABG Sundal Collier 3

Fastpartner

Growth from projects Project development Project development encompasses the redevelopment of existing properties and newbuilds. Fastpartner works continuously with redevelopments through investments in its own properties. Project development usually results in higher rents, reduced rentals cost and/or positive value revisions, according to the company.

We argue that projects (as opposed to acquisitions) are attractive given the current climate in the real estate market. With yields at all-time lows and the transaction market competitive, it is harder to close attractive deals. Moreover, newbuilds offer a number of benefits:

 They usually entail higher rents  It is easier to meet tenants’ demands  Development gains Below are some examples of Fastpartner’s current projects.

Fastpartner’s ongoing projects

Remaining Estimated Real estate Project type Area, sq m Investment, SEKm investments. SEKm Completion Aga 2, Diviatorn 1 Elderly care 12,200 179 8 Q319 Ladugårdsgärdet 1:48 Redevelopment 1,300 21 1 Q319 Bomullsspinneriet 3 School 5,300 33 5 Q319 Amerika 3 Redevelopment 3,050 17 15 Q419 Rånäs 1 Redevelopment 8,900 24 3 Q419 Veddesta 5:3 New Build 5,900 29 9 Q120 Pottegården 3 New Build 3,700 40 34 Q120 Syllen 4 Redevelopment 6,200 68 64 Q220 Ringpärmen 4 Redevelopment 4,700 48 47 Q320 Märsta 1:203 Residential 12,000 419 218 Q220 Total 63,250 878 404 Source: ABG Sundal Collier, Company data

Building rights The company holds building rights of 378,000 square metres of lettable area; 161,000 square metres are residential and 217,000 square metres are commercial properties (Q2’19). The building rights are valued at SEK 306m or, on average, SEK 1,136/square metre for residential and SEK 567/square metre for commercial.

Below we provide examples of larger building rights. The table illustrates that a majority of Fastpartner’s building rights are located in Stockholm within the segments commercial and residential. One advantage of working with a building rights portfolio is the potential value gains from the building rights.

14 February 2020 ABG Sundal Collier 4

Fastpartner

Examples of Fastpartner’s building rights

Potential Residential, Commercial Region Area Type Status building start area, sq m area, sq m Total Nr residentials Stockholm Sundbyberg Residential Preparing zoning plan 2023 12,000 - 12,000 185 Stockholm Spånga Residential Preparing zoning plan 2023 3,000 - 3,000 46 Stockholm Årsta Residential, School Ongoing zoning plan 2022 9,900 900 10,800 123 Stockholm Västberga Commercial Ongoing zoning plan 2020 - 33,000 33,000 - Stockholm Bredäng Residential Ongoing zoning plan 2022 13,200 8,800 22,000 165 Stockholm Liljeholmen Residential Preparing zoning plan 2022 4,200 5,400 9,600 140 Stockholm Lidingö Residential Preparing zoning plan 2022 9,000 - 9,000 113 Stockholm Lidingö Residential Preparing zoning plan 2025 3,100 - 3,100 78 Stockholm Bromma Residential, Commercial Preparing zoning plan 2022 42,000 30,000 72,000 420 Stockholm Märsta Commercial Building start 2020-21 - 16,800 16,800 - Stockholm Vallentuna Residential Ongoing zoning plan 2022 25,000 2,000 27,000 294 Stockholm Vallentuna Residential, Retail Preparing building start 2020 2,750 650 3,400 27 Stockholm Täby School Preparing building start 2020 - 2,000 2,000 - Göteborg Högsbo Residential Preparing zoning plan 2022 5,000 - 5,000 83 Gävle Gävle Residential, commercial Preparing zoning plan 2021 10,000 15,000 25,000 143 Total 139,150 114,550 253,700 1,817 Source: ABG Sundal Collier, Company data

14 February 2020 ABG Sundal Collier 5

Fastpartner

Fastpartner vs. the sector In our view, key component for successful real estate companies is sound management. We think that Sven-Olof Johansson, Fastpartner’s CEO, has a number of management characteristics that have proven successful historically.

Looking back, the real estate companies in the Swedish universe that have created most shareholder value, in relation to the sector, are entrepreneurial-driven companies. Evaluating the shareholder value performance of entrepreneurial-driven companies vs. non-entrepreneurial companies shows that the former group has on average outperformed the sector substantially.

We have identified a group of entrepreneurial CEOs in the Swedish real estate universe, the most notable are:

 Erik Selin, Balder

 David Mindus, Sagax  Rutger Arnhult, Corem Property Group and Klövern  Jens Engwall, Hemfosa and Nyfosa  Hans Wallenstam, Wallenstam  Sven-Olof Johansson, Fastpartner We highlight the following common denominators for these entrepreneurs that we believe have created shareholder value:  Incentives: these entrepreneurs have substantial shareholdings in their companies.  Capital allocation: we conclude their capital allocation can be pragmatic, unconventional, contrarian and sometimes pioneering.  Long-term investment horizon: they emphasise long-term investment horizons in their strategy, property portfolios and investments. In the next section, we elaborate on the above followed by a short of each the entrepreneurs1. Common denominators These entrepreneurs all have ‘skin in the game,’ i.e. they hold substantial equity in the company. In other words, their compensation is linked to shareholder value creation. However, we acknowledge the risk with large equity ownership is that it may incentivize owners to create wealth for themselves rather than shareholder value.

1 Note that this report includes information on other companies in ABG Sundal Collier’s research coverage universe. The inclusion of a company in this report should not be construed or used as a basis on which to make an investment decision. Any recommendations ABG Sundal Collier gives on companies are based on a range of considerations and analytical tools not applied nor discussed in this report. 14 February 2020 ABG Sundal Collier 6

Fastpartner

Other common denominators include know-how and expertise in capital allocation. The CEOs can be pragmatic, unconventional, contrarian and sometimes pioneering in their business decisions. Examples of capital allocation strategies include:

 Not paying dividends to shareholders (Erik Selin, Balder).  Relaunching preference shares,2 and launching a new equity instrument called D-shares (David Mindus, Sagax).

 An acquisition strategy with a flexible acquisition mandate instead of a conventional annual investment budget (Sven-Olof Johansson, Fastpartner).

 Reducing a company’s size by spinning-off assets (Jens Engwall, Nyfosa/Hemfosa) and frequent use of buy-backs (Wallenstam).

 Most CEOs aspire to build big real estate empires and therefore a spin-off can be seen as a shareholder-friendly contrarian capital allocation operation.

 Alternative equity instruments used by entrepreneurs3

Hybrid Preference instruments D-shares shares Balder Y N Y Sagax N Y Y Corem/Klövern Y N Y Hemfosa/Nyfosa N N Y Wallenstam N N N Fastpartner N N Y Source: ABG Sundal Collier, Company data

Another key characteristic of the entrepreneurial CEOs is their long-term perspective. Hans Wallenstam has been CEO of Wallenstam since 1991, Sven-Olof Johannson (Fastpartner) since 1997, David Mindus (Sagax) since 2004, Erik Selin (Balder) since 2005, and Rutger Arnhult (Klövern) since 2012. Having this long-term perspective creates more strategic opportunities for value creation, compared with having a short-term CEO, we believe. We note also that these CEOs advocate a long-term investment horizon on their real estate portfolio and investments.

From a strategic standpoint, the entrepreneurial CEOs have a varied approach to asset allocation. Some are concentrated and others are opportunistic in their real estate segment exposure. Regarding the geographic focus, the CEOs have a tendency to penetrate other markets than Sweden. Balder (Denmark, Finland, Norway, Germany, United Kingdom), Sagax (Finland, Denmark, Netherlands, France and Spain), Klövern (Denmark and the United States), and Hemfosa (Finland and Norway) have an international presence. For comparison, there are only four non-entrepreneurial real estate companies under our coverage with international exposure.

In summary, the common denominators for these entrepreneurs are the following shareholder value-creating characteristics: 1) incentives, 2) capital allocation and 3) a long-term investment horizon. However, the entrepreneurial CEOs do not share a strategic view on how to manage their real estate exposures, which are both concentrated and opportunistic.

2 Regarding preference shares, the companies that were quick to use this equity instrument were the entrepreneurial-driven companies: Balder, Fastpartner, Corem, Klövern, and Hemfosa. 3 Fastpartner has announced that it is planning to issue D-shares. If the issuance is successful, the company will issue 7-8.5m D-shares at a price range of SEK 84-88, which implies that the company may raise SEK 588-748m. 14 February 2020 ABG Sundal Collier 7

Fastpartner

Overview of entrepreneur-driven companies

Entrepreneur Company Entrepreneur period TR TR CREX Diff Strategy Capital allocation Balder Erik Selin 2005 - present 3016% 375% 2641% Opportunistic No dividend Sagax David Mindus 2004 - present 13556% 812% 12744% Concentrated Equity instruments Klövern Rutger Arnhult 2012 - present 254% 338% -84% Concentrated High risk Corem Rutger Arnhult 2007 - present 445% 375% 70% Opportunistic High risk Hemfosa Jens Engw all 2014 - 2018 160% 103% 58% Opportunistic Spin-off Nyfosa Jens Engw all 2018 - present 61% 47% 13% Opportunistic Spin-off Wallenstam Hans Wallenstam 1991 - present 8092% 2353% 5739% Concentrated Buy-backs Fastpartner Sven-Olof Johansson 1997 - present 3111% 1912% 1199% Opportunistic Flexible investment budget Source: ABG Sundal Collier

Entrepreneurial stories Erik Selin: Balder Erik Selin founded Balder when the company was listed though a reverse merger in 2005.4 Fourteen years later, Balder is Sweden’s largest listed real estate company, measured in terms of market cap (SEK ~61bn) and property value (SEK ~127bn in Q2’19). In terms of geographical exposure, Erik Selin’s strategy has been opportunistic. He said for a long time that he would never invest outside of Sweden but today the company holds properties in Finland, Denmark, Germany and United Kingdom. Moreover, Balder is one of few real estate companies which does not provide shareholders with dividends, since Selin argues that more value is created by reinvesting earnings. Selin owns 36.4% of Balder’s shares, with 49.9% of the votes. His salary of SEK 0.9m is much lower than the average salary for a CEO of a company with a market cap above SEK 60bn. Since its listing in 2005, Balder has generated a return of ~3,000%, which is 2,600% more than the Carnegie Real Estate Index performance of ~400% for the same period. Balder vs. Carnegie Real Estate Index, 2005-present Balder vs. Carnegie Real Estate Index, 2017-present

3,000 220

2,500 200 180 2,000 160 1,500 140 1,000 120

500 100

0 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 01/2017 05/2017 09/2017 01/2018 05/2018 09/2018 01/2019 05/2019 09/2019 CREX Balder CREX Balder Source: ABG Sundal Collier, Thomson Reuters Datastream Source: ABG Sundal Collier, Thomson Reuters Datastream

David Mindus: Sagax David Mindus (CEO), Staffan Salén (chairman of the board) and Johan Thorell (board member) founded Sagax and listed the company in 2004. At that time, the property portfolio was valued at SEK ~1bn and is now worth SEK ~30bn (Q3’19).5 David Mindus’s strategic model is simplistic and straightforward – Sagax invests in properties that generate stable NOI, and it maintains a long-term perspective on its investments. The company focuses on logistics, warehouses and light industrials.

4 https://www.balder.se/om-balder/historik 5 Bloomberg, November 2019 14 February 2020 ABG Sundal Collier 8

Fastpartner

Sagax was a pioneer within capital structure, which we believe has encouraged other companies in the industry to follow. Sagax was the first to relaunch preference shares in 2006, which at the time was an ignored equity instrument. Several real estate companies followed, and preference shares are now utilised by Akelius, Corem, Amasten, NP3, Klövern, Fastpartner, SBB, and Hemfosa, among others. In 2016, David Mindus introduced a new equity instrument called D-shares (which are like an eternal preference share). The creation of D-shares was a direct consequence of credit institutions changing their view on preference shares from equity to hybrid. The advantage with preference shares and D-shares is that they create another tool for accessing capital, and create a leverage effect on ROE (for a more thorough explanation of preference shares and D-shares, see Appendix – Preference and D-shares explained).

David Mindus holds 19.7% of the capital and 26.6% of the votes. In summary, Sagax value creation amounts to a return of ~13,600% since 2004, which is substantially better than the Carnegie Real Estate Index, the sector benchmark, of ~800%. Sagax vs. Carnegie Real Estate Index, 2004-present Sagax vs. Carnegie Real Estate Index, 2017-present

14,000 350

12,000 300 10,000

8,000 250

6,000 200 4,000 150 2,000

0 100 2004 2006 2008 2010 2012 2014 2016 2018 01/2017 05/2017 09/2017 01/2018 05/2018 09/2018 01/2019 05/2019 09/2019 CREX Sagax CREX Sagax

Source: ABG Sundal Collier, Thomson Reuters Datastream Source: ABG Sundal Collier, Thomson Reuters Datastream

Rutger Arnhult: Corem Property Group and Klövern Rutger Arnhult was the CEO of Corem between 2007 and 2012, and remains a board member and major owner. Arnhult took Corem public through a reverse merger in 2007. After the CEO position at Corem he continued his career as CEO of Klövern in 2012. Arnhult was appointed in a rather unconventional manner. He gradually bought shares in Klövern, eventually becoming the largest shareholder. According to an article in Dagens Industri, Arnhult made sure that Erik Paulsson (a board member and large owner at the time) and Gustaf Hermlin (the CEO and board member) had to leave their positions after the annual general meeting in 2012.6 The common denominator for Corem and Klövern is risk. Arnhult has accepted a high level of financial risk, in terms of a levered balance sheet compared with sector peers. Arnhult owns 15.1% of the shares and 15.8% of the votes in Klövern, and his stake in Corem amounts to 41.8% of the shares and 42.3% of the votes.7 Klövern’s and Corem’s strategies have not been as successful as the other companies we describe. However, since 2012, Klövern has returned 250% vs. the Carnegie Real Estate Index return of 340%. However, Corem’s return of 450% is 70% better than the Carnegie Real Estate Index return of 380%.

6 https://www.di.se/di/artiklar/2015/10/21/paulssons-hamnd-pa-arnhult/ 7 Holdings, November 2019 14 February 2020 ABG Sundal Collier 9

Fastpartner

Klövern vs. Carnegie Real Estate Index, 2011-present Corem vs. Carnegie Real Estate Index, 2007-present

450 600

400 500 350 400 300

250 300

200 200 150 100 100

50 0 2011 2012 2013 2014 2015 2016 2017 2018 2007 2009 2011 2013 2015 2017 CREX Klövern CREX Corem Property Group

Source: ABG Sundal Collier, Thomson Reuters Datastream Source: ABG Sundal Collier, Thomson Reuters Datastream

Jens Engwall: Hemfosa and Nyfosa Jens Engwall listed Hemfosa in 2014, and served as CEO until late 2018.8 He initiated the idea to spin-off the company’s assets that were not social infrastructure properties. Engwall left Hemfosa to become CEO of the spun-off company, Nyfosa, which started trading as a separate entity in November 2018. We argue that the Nyfosa spin-off was a prudent capital allocation strategy, since it reignited the entrepreneurial spirit of the company. Moreover, we view it as contrarian, since most real estate CEOs strive to build a big real estate empire, which is the opposite of a spin-off.

Jens Engwall’s strategy has been opportunistic at both Hemfosa and Nyfosa. At Hemfosa, he focused on the social infrastructure segment. For Nyfosa, his focus ranges from “box” retail to offices in geographic regions from Lund to Kiruna. In summary, Engwall has a preference for buying assets which are out of favour.

While Jens Engwall was CEO of Hemfosa, between 2014 and 2018, the stock yielded a return of 160% (58% better than the Carnegie Real Estate Index performance of 103%). Moreover, since he embarked as CEO of the spun-off entity Nyfosa in November 2018, the stock has returned 61%, which is 13% better than the Carnegie Real Estate index. Jens Engwall holds 2.8% of the shares in Nyfosa.

Hemfosa vs. Carnegie Real Estate Index, 2014-2018 Nyfosa vs. Carnegie Real Estate Index, 2018-present

280 170 260 160

240 150 220 140 200 130 180 120 160 110 140 120 100 100 90 80 80 2014 2015 2016 2017 2018 11/2018 01/2019 03/2019 05/2019 07/2019 09/2019 CREX Hemfosa CREX Nyfosa

Source: ABG Sundal Collier, Thomson Reuters Datastream Source: ABG Sundal Collier, Thomson Reuters Datastream

8 https://nyfosa.se/om-nyfosa/verksamhetshistoria/ and Bloomberg November 2019 14 February 2020 ABG Sundal Collier 10

Fastpartner

Hans Wallenstam: Wallenstam Hans Wallenstam has been the CEO of Wallenstam since 1991. His father, Lennart Wallenstam, founded the company in Gothenburg in 1944.9 The company has maintained a strategy of owning and managing mainly residential properties in Gothenburg and Stockholm. Hans Wallenstam has been CEO for 28 years, which makes him the longest-serving CEO in the Swedish real estate sector.10 From a capital allocation perspective, the company stands out due to its use of buy- backs, which it has utilised several times since 2000. Hans Wallenstam owns 24.4% of the shares and 61.1% of the votes. Since 1994 the company’s return amounts to 8,100% which can be compared with the Carnegie Real Estate Index return of 2,400%.11

Wallenstam vs. Carnegie Real Estate Index, Wallenstam vs. Carnegie Real Estate Index, 1994-present 2017-present

9,000 190 8,000 180 7,000 170 6,000 160 5,000 150 4,000 140 3,000 130 2,000 120 1,000 110 0 100 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 01/2017 07/2017 01/2018 07/2018 01/2019 07/2019 CREX Wallenstam CREX Wallenstam

Source: ABG Sundal Collier, Thomson Reuters Datastream Source: ABG Sundal Collier, Thomson Reuters Datastream

Sven-Olof Johanson: Fastpartner Sven-Olof Johanson has been the CEO of Fastpartner since 1997. At that time it was a small real estate company, but Fastpartner now has a property value of SEK ~26bn.12 Johansson’s 22 years as CEO makes him the third longest-serving CEO in the Swedish real estate sector.13 Fastpartner evaluates acquisitions from a perpetuity perspective, according to the company’s annual report. Moreover, the acquisition strategy is opportunistic, which can be seen in its investment budget. For example, in 2015, the company made net acquisitions of SEK 2,100m. The following year the figure was SEK 8m. Most real estate companies tend to set an annual investment budget, but Fastpartner has an opportunistic investment budget that is flexible and dependent on the current transaction opportunities.

The company has a diverse property portfolio across segments, but it is concentrated in Sweden’s large city regions. Johansson owns 69.9% of shares and 71.8% of votes. This makes him the largest owner, in relative terms, among the real estate entrepreneurs we mention in this report. Since 1997, Fastpartner has generated a return of ~3,100% which is ~1,200%% better than the Carnegie Real Estate Index return of ~1,900%.

9 https://www.wallenstam.se/sv/wallenstam/om-oss/var-historia/ 10 https://www.fastighetsvarlden.se/notiser/lista-se-vilka-som-suttit-i-vd-stolen-langst/ 11 We compare from 1994 due to data availability for the benchmark Carnegie Real Estate Index. 12 https://fastpartner.se/om-fastpartner/organisation/ledning/ 13 https://www.fastighetsvarlden.se/notiser/lista-se-vilka-som-suttit-i-vd-stolen-langst/ 14 February 2020 ABG Sundal Collier 11

Fastpartner

Fastpartner vs. Carnegie Real Estate Index, Fastpartner vs. Carnegie Real Estate Index, 1994-present 2017-present

3,500 220

3,000 200

2,500 180

2,000 160

1,500 140

1,000 120

500 100

0 80 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 01/2017 06/2017 11/2017 04/2018 09/2018 02/2019 07/2019 CREX Fastpartner CREX Fastpartner

Source: ABG Sundal Collier, Thomson Reuters Datastream Source: ABG Sundal Collier, Thomson Reuters Datastream

’14-’18 avg. ROE of ~26%, vs. sector of ~20% The strong ~18% CAGR in the property portfolio has been achieved along with high profitability. In 2018, total ROE amounted to 22.5%, above the sector average of 21.6% (the 5y average total ROE is 25.8% for Fastpartner and 19.7% for the sector). Especially noteworthy is that Fastpartner’s total ROE has outperformed the sector in five of the last five years.

When we break down Fastpartner’s total ROE into (1) cash earnings (CE) and (2) value revisions + other, we find that the most important component of the strong total ROE is the latter. In 2018, the ROE from CE was 6.7% vs. the Swedish sector at 6.3%, while the ROE from value revisions + other was 15.8% vs. the Swedish sector at 15.3%. The five-year average figures support the same pattern. Fastpartner’s five-year average ROE from CE for 2014-2018 was 9.4% vs. the sector at 6.8%, while its five-year average from value revisions + other was 16.3% vs. the sector at 12.9%. Consequently, the five-year average total ROE for 2014- 2018 was 25.8% for Fastpartner and 19.7% for the sector. Moreover, when evaluating the company’s ROE from CE and ROE from value revisions + other, we find that over each individual year between 2014 and 2018 the company outperformed the sector every year.

Fastpartner: ROE from CE and value revisions, 2014- ROE from CE: Fastpartner vs. Swe sector, 2014- 2020e 2020e

40% 14%

35% 12% 30% 10% 25% 8% 20% 6% 15% 4% 10%

5% 2%

0% 0% 2014 2015 2016 2017 2018 2019e 2020e 2021e 2014 2015 2016 2017 2018 2019e 2020e ROE from CE Total ROE (CE + Value revisions + Other) Fastpartner, ROE from CE Swe sector average

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

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Total ROE: Fastpartner vs. Swe sector, 2014-2020e Total ROE: Fastpartner vs. Swe sector, 5y average

40% 30% 25.8% 35% 25% 30% 19.7% 20% 25% 16.3% 20% 15% 12.9%

15% 9.4% 10% 10% 6.8%

5% 5%

0% 0% 2014 2015 2016 2017 2018 2019e 2020e ROE from CE ROE from value revisions Total ROE Fastpartner, Total ROE Swe sector average + other Fastpartner, 5y average Swe sector average, 5y average

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

CEPS CAGR in 2014-2018 of 13% vs. Swedish sector at 14% Between 2014 and 2018, Fastpartner on average has increased CEPS by a CAGR of 12.6%, while the corresponding figure for the Swedish sector has been 13.5%. However, evaluating the CEPS growth over the individual years reveals that the company only reported better y-o-y CEPS growth in 2014 and 2016 for the period from 2014 to 2018.

Fastpartner: CEPS, 2014-2020e CEPS growth: Fastpartner vs. Swe sector

5.0 40% 40%

4.5 35% 35% 4.0 30% 30% 3.5 3.0 25% 25% 2.5 20% 20%

2.0 15% 15% 1.5 10% 10% 1.0 0.5 5% 5% 0.0 0% 0% 2014 2015 2016 2017 2018 2019e 2020e 2014 2015 2016 2017 2018 2019e 2020e CEPS, SEK Growth CEPS (rhs) Fastpartner, CEPS growth Swe sector average, CEPS growth

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

5y EPRA NAVPS growth of ~32% p.a. vs. sector at ~21% Between 2014 and 2018, the company on average increased EPRA NAVPS (adj. for dividends) by 31.7% p.a., while the corresponding figure for the Swedish sector was 20.8%. Evaluating the performance over the individual years shows that Fastpartner outperformed the sector across all years between 2014 and 2018.

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Fastpartner: EPRA NAVPS, 2014-2020e EPRA NAVPS growth (adj. for dividend): Fastpartner vs. Swe sector, 2014-2020e

40% 50%

35% 45% 40% 30% 35% 25% 30% 20% 25%

15% 20% 15% 10% 10% 5% 5% 0% 0% 2014 2015 2016 2017 2018 2019e 2020e 2014 2015 2016 2017 2018 2019e 2020e Fastpartner, CEPS growth Swe sector average, CEPS growth Fastpartner, EPRA NAV growth adj. for dividend Swe sector average

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

Between Q1 2014 and Q3 2019 Fastpartner performed value revisions of 37.5% which is 2% better than the sector at 35.5%.

Fastpartner vs. sector: Accumulated value revisions, Fastpartner vs. sector: Quarterly value revisions, Q1 2014 – Q3 2019 Q1 2017- Q3 2019

40% 3.50%

35% 3.00% 30% 2.50% 25% 2.00% 20%

15% 1.50%

10% 1.00%

5% 0.50% 0% 0.00% Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319 Fastpartner, value revisions Sector, value revisions Fastpartner, value revisions Sector

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

NIBD/EBIT and net LTV Although the property portfolio saw CAGR of ~18% over the last five years, the company strengthened its balance sheet over the same period. The NIBD//EBIT decreased to 12.1x in 2018 from 13x in 2009, while net LTV fell from 63.4% to 51.4%. The 2019e net LTV of 53% is higher than the sector average of 48%. Moreover, the 2019e NIBD/EBIT of 12.8x is higher than the sector average of 12.3x. In addition, the 2019e interest coverage ratio (ICR) of 361% is lower than the sector average of 454%. Given the values of net LTV, NIBD/EBIT and ICR, we argue that Fastpartner has strengthened its balance sheet over time but the company is still more levered than the sector.

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Fastpartner: NIBD/EBIT, 2014-2018 Sector: NIBD/EBIT, 2014-2018

13.5 13.0

13.0 12.5 12.0 12.5 11.5 12.0 11.0 11.5 10.5 11.0 10.0

10.5 9.5

10.0 9.0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 NIBD/EBIT NIBD/EBIT

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

Fastpartner: Net LTV, 2014-2018 Sector: Net LTV, 2014-2018

65% 51%

50% 60% 49%

48% 55% 47%

50% 46%

45% 45% 44%

40% 43% 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Net LTV Net LTV

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

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Valuation range Below, we present a scenario analysis of the share price for ’19e-’21e based on the level of P/CEPS or P/EPRA NAV multiples given that our EPRA NAVPS and CEPS estimates hold.

On our ’20 estimates with the stock trading at the current P/EPRA NAV multiple of ~1.2x, we get an equity value of SEK 113. If the share were to trade at its historical low of a P/EPRA NAV of ~0.8x, we get an equity value of SEK 76, and at its historical high of ~1.6x, we get an equity value of SEK 151. This gives us a fair value range of SEK 76-151.

Share price at estimated P/EPRA NAVPS multiples Share price at estimated P/CEPS multiples

P/EPRA NAVPS P/CEPS SP 100 80% 100% 120% 140% 160% 180% SP 88 16x 18x 20x 22x 24x 26x 20e 76 95 113 132 151 170 20e 71 79 88 97 106 115 21e 86 107 129 150 172 193 21e 79 89 99 109 118 128

NAV

EPRA EPRA 22e 97 121 146 170 194 219 CEPS 22e 88 99 110 121 132 143

Source: ABG Sundal Collier Source: ABG Sundal Collier

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Risks

Management-related risks In the real estate entrepreneur section, we identify several CEOs, which we believe possess characteristics that can contribute to shareholder-value creation. However, these characteristics can also entail several risks, which we list below:

 Key-person dependency risk: An entrepreneurial-driven company is subject to key-person dependency risk. The company is dependent on the entrepreneur, and if that person leaves it may be difficult to find a natural successor. Typically, entrepreneurs in the sector remain as CEOs over a long period. Consequently, a CEO succession is an unusual event.  Ownership risk: An entrepreneurial-driven company is subject to ownership risk, since the real estate entrepreneurs usually hold a large ownership stake. If a large owner wants to exit a position, and sells the holding, it may put significant pressure on the share price.  Capital allocation risk: Even though we document interesting capital allocation characteristics among the real estate entrepreneurs (such as not paying dividends, spin-offs, flexible acquisition mandates, utilisation of equity instruments etc.), these characteristics may be subject to capital allocation risks. For example, flexible acquisition mandates entail unpredictability, and equity instruments can imply higher leverage.  Risk-taking behaviour: Some real estate entrepreneurs have a tendency to take higher risks compared with other business leaders, in terms of operating with higher leverage and utilising new capital allocation methods with no track record of success.  Historical return is not a predictor of future returns: We document a strong historical return performance among the entrepreneurial-driven companies. However, we cannot be certain that these returns should be attributed to the entrepreneurial skills of the CEOs, since share price performance is dependent on numerous factors.

General risks related to real estate companies Real estate companies are subject to macro risks, supply of premises risk, supply of capital risk, debt availability risk, forex risk, regulatory risk, rental income risk, property cost risk, and property value risk. More detail is provided below:

 Macro risk: GDP, population, interest rate and employment data are important demand factors for real estate.  Supply of premises risk: If real estate companies provide too much supply to the market, in terms of starting and finishing too many projects, it may have a negative impact on real estate values and rental levels.  Supply of capital risk: Investor sentiment regarding real estate affects the supply of capital invested in it. A change in investor sentiment can decrease/increase the value of properties, which affects a real estate company’s income statement and balance sheet.  Forex risk: Changes in fundamentals or sentiment to the Swedish krona (SEK) may affect international appetite for investing in Swedish real estate assets, which consequently may decrease the supply of capital.

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 Debt availability risk: Lender and debt capital market willingness to provide financing affects debt availability. A change in debt availability can decrease funding opportunities and cost of debt.  Regulatory risks: Regulations concerning taxation, lending, interest rate deductions (among other regulation subjects) may affect earnings capacity and investments.  Rental income risk: Rental income may be affected by higher vacancies, counterparty risk and reduced market rents due to supply and demand changes.  Property cost risk: Property costs include maintenance costs (costs related to maintaining the standard of property), which is a cost item that may be subject to unforeseen changes. Consequently, profitability could fluctuate due to maintenance costs. Property value risk: Property values are booked at fair value in the balance sheet. Fair value is derived from the properties’ cash flow generation (i.e. rental income, property costs, vacancies), discounted at a cost of capital based on yield requirements. If the cash flow or yield requirement changes, property values may be subject to negative value revisions, which affect reported earnings and may cause debt covenant breaches.

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Appendix – Company Overview Fastpartner owns, manages and develops commercial properties. The company is listed on Nasdaq OMX Stockholm, Mid Cap.

The company owns 202 properties valued at SEK 28.2bn and a total lettable area of ~1,5m square metres, which implies a square metre value of the portfolio of ~18,600 SEK/square metre. Fastpartner has the largest exposure to Stockholm (78%) followed by Gävle (6%), Uppsala/Mälardalen (7%) and Gothenburg (4%) and Norrköping. The company’s real estate segment spans production/logistics, office, retail, residential, hotel and other. Its largest segment is production/logistics, which comprises 43% of total square metres followed by office of 37% and retail of 9%.

Fastpartner’s five largest tenants are Stockholm Stad (14,600 sqm), Vallentuna kommun (12,700 sq m), ICA Sverige (10,100 sq m), Stockholm läns landsting (8,920 sq m) and Sigtuna kommun (7,900 sq m). Other larger tenants are Aleris, Apoteket, Coop, Fitness24seven, Folktandvården, H&M, Handelsbanken, Hotell Älvsjö, ICA Sverige, Intersport, KappAhl, Lidl, Lindex, Nordea, Hemköp, Systembolaget, and Swedbank.

Property value, by region, Q4’19 Rental value, by segment, Q4’19

3% 2% 5% 4% 10% 7%

6% 13% 48%

78% 24%

Stockholm Gävle Uppsala & Mälardalen Office Production/logistics Retail & restaurants Gothenburg Norrköping Other Care & School Residential/hotel Source: Company data Source: Company data

Segments The company has four segments, called Region 1, 2, 3 and 4. The table below summarizes key financials for the four different regions as of 2019.

Key financials for Fastpartner’s segments, Region 1, 2, 3 and 4, 2019

Nr of Square Rental income, Rental Rental costs, Rental Property 2019 properties metres '000 SEKm income/sqm SEKm costs/sqm NOI value Region 1 53 427 722 1,692 202 473 520 13,635 Region 2 56 420 399 951 121 287 279 6,037 Region 3 78 453 444 979 151 332 293 6,908 Region 4 20 211 122 576 41 192 81 1,593 Total 207 1,511 1,687 1,116 514 340 1,173 28,172 Source: Company data

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Region 1 Region 1 region is the largest property segment valued at SEK 12.5bn (49% of property values). It encompasses properties in Stockholm: Stockholm City, Västerort, Solna, Sundbyberg, Spånga, Järfälla, Kalhäll/Bro, Hässelbygård, Tensta and Rinkeby. In addition, this region includes 10 properties in Malmö, Alvesta och Växjö. Region 1 includes properties in prime locations such as Östermalmstorg with Åhléns and Handelsbanken as tenants, and properties in suburb regions such as Tensta Centrum and Rinkeby Centrum. The company has connections with municipalities, local organisations and police to strengthen the regions’ safety and creating a nice atmosphere.

The biggest part is offices (52%), followed by the production/logistics (36%) and retail (7%).

The five largest tenants in the region are Nasdaq, Stockholm Stad, Dagab Logistik och Inköp, Patent- och registreringsverket and Hewlett-Packard, which comprise of ~20% of the lettable area.

For this region, the average yield requirement is 4.6% compared to the average yield requirement of 5.0% for all segments (Q3’19).

Region 1, lettable area, by segment, 2018 Region 1, largest tenants, % of region’s lettable area, 2018

60% 8% 52% 7% 7% 50% 6%

40% 36% 5% 4% 30% 4% 3% 3%

3% 3% 20% 2% 10% 7% 4% 1% 1% 0% 0% Production/logistics Office Retail Residential/hotel Other Nasdaq Stockholm Stad Dagab Patentverket Hewlett-Packard

Source: Company data Source: Company data

Region 2 Region 2 includes properties in the Stockholm areas: Västberga Bromma, Täby, Lidingö, Älvsjö, Bredäng, Södertälje and Årsta. Outside the Stockholm area, the region covers the mid-sized cities Norrköping, Åtvidaberg, Strängnäs, Eskilstuna and Enköping. The property value of SEK 5.6bn (22% of property values) takes it to the third-largest segment.

The largest part within Region 2 is production/logistics (55%), followed by offices (23%) and retail (13%). Moreover, the five largest tenants in the region are Sandvik, Bileko Car Parts, Antalis, Packoplock Scandinavia and Mio, which comprise ~26% of the lettable area. For Region 2, the average yield requirement is 5.8% compared to the average yield requirement of 5.0% for all segments (Q3’19).

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Region 2, lettable area, by segment, 2018 Region 2, largest tenants, % of region’s lettable area, 2018

60% 10% 55% 9% 9% 50% 8% 8%

40% 7% 6% 5% 30% 5% 23% 4% 20% 3% 13% 2% 2% 10% 7% 2% 2% 1% 0% Production/logistics Office Retail Residential/hotel Other 0% Sandvik Bileko Car Parts Antalis Packoplock Mio

Source: Company data Source: Company data

Region 3 Region 3 includes properties in Märsta, Vallentuna, Arlandastad, Knivsta, Upplands Väsby, Sollentuna, Kista, Uppsala, Göteborg, Mölndal, Ulricehamn och Alingsås. The property value of SEK 5.8bn (23% of property values) takes it to the second largest segment.

The largest part is offices (43%), followed by production/logistics (33%) and retail (12%). Moreover, the five largest tenants in the region are Bergman & Beving, Momentum group, Vallentuna Municipality, Sigtuna Municipiality, and Alnova Balkongsystem, which comprise of ~26% of the lettable area.

For Region 3, the average yield requirement is 5.6% compared to the average yield requirement of 5.0% for all segments (Q3’19).

Region 3, lettable area, by segment, 2018 Region 3, largest tenants, % of region’s lettable area, 2018

50% 14% 45% 43% 12% 12% 40% 35% 33% 10% 30% 8% 25% 6% 20% 6%

15% 12% 4% 3% 10% 8% 2% 2% 4% 5% 2%

0% 0% Production/logistics Office Retail Residential/hotel Other Bergman & Momentum Vallentuna Sigtuna Alnova Beving Source: Company data Source: Company data

Region 4 The Region 4 segment includes properties in Gävle, Söderhamn, Sundsvall and Dalarna. Gävle is the largest region and comprise of 70% of the lettable area. Region 4 is the smallest segment with a property value of SEK 1.5bn (6% of property values).

The largest part is production/logistics (61%), followed by offices (11%) and retail (2%). Moreover, the five largest tenants in the region are Gavlefastigheter Gävle Municipality, FLB Logistik, Gavlegårarna, Ulno, and LK Prefab, which comprise of ~53% of the lettable area.

For Region 4, the average yield requirement is 6.3% compared to the average yield requirement of 5.0% for all segments (Q3’19).

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Region 4, lettable area, by segment, 2018 Region 4, largest tenants, % of region’s lettable area, 2018

70% 30% 61% 25% 60% 25%

50% 20% 40% 15% 13% 30% 26% 10% 20% 6% 11% 4% 4% 10% 5% 2% 0% 0% Production/logistics Office Retail Other Gävle FLB Logistik Gavlegårdarna Ulno LK Prefab

Source: Company data Source: Company data

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Appendix - Macro overview

Fastpartner holds a diverse portfolio of real estate assets across Sweden’s larger City regions, Stockholm, Gothenburg and Malmö. However, 83% of the property value is located in the Stockholm region. Furthermore, it holds a mixed portfolio of real estate segments including production/logistics, office, retail, residential, hotels etc. Hence, owning Fastpartner is a broad investment in the Swedish (however, tilted to Stockholm) real estate asset class. Therefore, we start from a top-down perspective and argue that the company’s real estate exposure may be attractive due to the positive macro indicators: 1) High yield gap between real estate yields and government bonds 2) Supply of private equity capital On the other hand, there are some macro indicators that are negative: 1) Weaker labour market 2) Leading indicators signal weaker economy

In the next sections, we elaborate on these macro perspectives.

Historical large yield gap

The yield gap between real estate yields and government bonds can indicate price appreciation/depreciation. Real estate yields are at a record low but the gap to government bond yields is at historically high levels on a 10-year perspective. For example, the gap between prime office yields in Stockholm and the Swedish 10-year government bond is 3.3%, which is close to the 10y high figure of 3.9%. In other words, from a relative perspective, real estate pricing appears to be favourable in relation to the Swedish 10y government bond. The graph below illustrates the Swedish 10y government bond, Stockholm prime office yields and yield gap for the last ten years.

Sweden 10y government bond, Stockholm prime office yields and yield gap, 2009-2019

3 % 2

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

-1 Sweden 10y Prime office yield, Stocholm Yield gap

Source: ABG Sundal Collier, JLL, Thomson Reuters

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Money on the sidelines We argue that there is a large supply of capital, which consequently can push yields downwards. The background for our view on supply of capital can be derived from: 1) datapoints on raised capital from real estate private equity funds and 2) market reports that expect high investment activity.

Datapoints on raised capital Screening for all private equity funds in Western Europe with a real estate focus shows 129 funds with available data.14 The screen results in private equity names such as Blackstone, Warburg, Apollo, Morgan Stanley. These 129 funds have currently invested USD 263.4bn and raised USD 345.9bn, i.e. there is remaining investment of USD 82.5bn. In comparison, the property values in Western Europe amount to USD 3,186bn.15 Hence, the ratio of the private equity funds’ remaining investments to property value is 2.6%.

An interesting note on supply of capital is the recent Bråviken Logistik transaction, which was highlighted in a press release on 2019-09-25. Bråviken Logistik divested its entire property portfolio16 at a price of SEK 1,800m (or a square metre price of ~12,900 SEK/square metre). Based on the latest quarter’s NOI of SEK 23.5m, and annualising the figure by multiplying by four, we arrive at a yield of 5.2% (adjusted for SEK 1.1m in ongoing projects). The buyer of the assets is an undisclosed South Korean actor. Hence, this may indicate that there is new Asian money competing on the Swedish transaction market.

Another noteworthy piece of news, released on 24 September, is Blackstone’s launch of European last mile logistics real estate company, Mileway. The firm Mileway has EUR 8bn in assets, according to The Financial Times.17 James Seppala, who is head of Blackstone Real Estate Europe, comments:

“Mileway is a natural evolution of our European logistics strategy, which is one of our highest conviction, long-term investment themes. As the largest last mile logistics real estate company in Europe, Mileway will meet growing e-commerce- related demand for last mile logistics real estate, facilitate faster delivery times and support the growth of small and large businesses.”

In summary, private equity funds’ remaining investments and examples of recently started funds and transaction indicate that there is a continued interest of investing in real estate and a supply of capital, which could push yields downwards.

Market reports Market reports provide additional signals of a continued interest in the asset class. For example, JLL comments on the Stockholm office market and Swedish Logistics market in a report:18

“JLL forecast an active and healthy investment market in Stockholm for the remainder of 2019, with transaction volumes mainly driven by deals within the office

14 The screen was done in Bloomberg’s private equity tool, September 2019 15 MSCI, Real Estate Market Size, 2018 16 Three properties in Nyköping, Norrköping and Jönköping 17 https://www.ft.com/content/3be264cc-de00-11e9-9743-db5a370481bc 18 JLL, Nordic Outlook Autumn 2019.

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and residential sector, and prime office yields remaining low and stable across all sub-markets.”

“The strong investor appetite shows no signs of weakening. There are currently a lot of capital willing to invest in the sector, both international and domestic. Activity on the investment market will be high during the coming 6 to 12 months.”

In addition to the information from the JLL market report, Hemfosa’s CEO Caroline Arehult argues in an interview with Dagens Industri (25 September) that there is an immense interest for real estate, and that everyone seems to be a buyer. In her exact words (ABGSC translation):

“We thought the market was hot before the summer, but when we talk to brokers it seems that the interest is even greater now. But I see no signs that there will be any setback but rather that it will be even hotter. With the low interest rate, I think it will continue for a good while. There is a lot of money to be invested. Right now there is a huge supply shortage of real estate, everyone seems to want to buy, and there is a continued downward pressure on yield requirements. In the hunt for returns, real estate is a good alternative.”19

In summary, we think that market reports provides additional indication of the positive market sentiment for real estate, indicating that a yield compression awaits.

Weaker Swedish employment growth The monthly data points on employment growth and the unemployment rate clearly indicate that the labour market has been weakening in 2019. In February 2019, the y-o-y employment growth decline was -0.2%, which was the first negative figure since 2010. The trend continued in May: with y-o-y employment falls of -0.8%. However, the trend in recent months has been positive.

Declining employment figures are also reflected in the unemployment rate. The trend for the unemployment rate has been increasing since the beginning of 2018.

Employment growth y-o-y, Sweden, 2007-present, Unemployment rate, Sweden, 2007-present, monthly monthly data data

5% 10% 4% 9% 3%

2% 8% 1% 7% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -1% 6% -2% 5% -3%

-4% 4% Employment growth y-o-y 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Unemployment rate

Source: SCB Source: SCB

Another indication of how the labour market has been weakening can be seen in statistics from the Swedish Public Employment Service (Arbetsförmedlingen). Layoff notices (on a 12-month rolling basis) amounted to ~47,700 in September. One year earlier, the figure was ~34,700, which corresponds to a y-o-y increase of 38%.

19 https://www.di.se/analys/fastighetsbranschens-nya-kokpunkt-alla-verkar-vilja-kopa/

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Layoff notices (T12m) have increased every month in 2019. Since February, the y-o-y increase has been more than 25%.

Layoff notices T12m, Sweden, 1981-present, monthly Layoff notices T12m, Sweden, 2016-present, monthly data data

200,000 55,000

180,000

160,000 50,000

140,000

120,000 45,000

100,000

80,000 40,000

60,000

40,000 35,000

20,000

0 30,000 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2016 2017 2018 2019 Series1 Series1

Source: Swedish Public Employment Service Source: Swedish Public Employment Service

In summary, labour market data illustrates a slowdown in employment growth and increasing unemployment rates. The labour market is an important demand factor for real estate companies and can therefore affect several KPIs such as occupancy rates and rental rates.

A weaker Swedish economy An important leading indicator for economic development is the PMI. The Swedish PMI figures for the industry and service sectors have been declining during 2019. The industrial PMI has fallen from 52.2 at the beginning of the year to 51.5 in January 2020. Meanwhile, the services PMI has fallen from 54.0 at the beginning of 2019 to 52.5 in January 2020. Hence, the PMI figures indicate a weaker economy.

PMI Industry, Sweden, 2007-present, monthly data PMI Service, Sweden, 2007-present, monthly data

70 70

65 65

60 60

55 55

50 50

45 45

40 40

35 35

30 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 PMI Industry Sweden Trailing three months PMI service sector Sweden Trailing three months

Source: ABG Sundal Collier, Thomson Reuters Source: ABG Sundal Collier, Thomson Reuters

The Economic Tendency Survey (Konjunkturbarometern) from the Swedish National Institute of Economic Research (Konjunkturinstitutet)20 indicates that confidence

20 The National Institute of Economic Research (NIER) is a government agency operating under the Ministry of Finance which perform analyses and forecasts of the Swedish and international economy. The Economic Tendency Survey is a report that summarises how firms and consumers view the economy. The survey for firms includes new orders, output and employment, while the survey for consumers includes personal finances, inflation and saving. The survey mainly relates to the past three months and next three months for firms (for consumers it relates to the past 12 months and next 12 months).

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among firms and consumers is weakening. Values over 100 indicate a stronger economy than normal (below 100 indicates a weaker economy than normal). In January 2019, the Economic Tendency Survey came in at 102.4 while the January 2020 figure was at 97.1. In summary, confidence among businesses weakened during 2019.

The economic tendency survey, Sweden, 1996- The economic tendency survey, Sweden, 2016- present, monthly data present, monthly data 115 130

120 110 110

100 105

90 100 80

70 95 60

50 90 2016 2017 2018 2019 2020 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Economic tendency indicator Economic tendency indicator

Source: ABG Sundal Collier, Thomson Reuters Source: ABG Sundal Collier, Thomson Reuters

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Appendix - Stockholm real estate fundamentals Since 83% of Fastpartner’s property value is located in Stockholm, and office (37%) and production/logistics (43%) comprise of 80% of the lettable area, we focus on property fundamentals (yield, supply, and rents) within these geographical areas and segments. We start by mapping real estate fundamentals for office followed by logistics.

Office The Stockholm office market has been strong (in terms of high demand relative to supply). Real estate companies have documented high occupancy rates, increasing rents and lower yields in combination with a shortage of supply.

Supply Office supply in Stockholm is illustrated in the graph below. New construction of offices as a percentage of total office stock is expected to be at low levels of ~1% for 19e-21e. A report from JLL21 notes the record-low vacancy rate of 5.5% in Stockholm. Moreover, JLL documents that there is 360,000 square metres under construction the coming three years, whereof 50% is pre-let. Office developments in Solna and Sundbyberg are the major volume contributors, followed by the Stockholm inner city and suburbs.

New office supply vs. estimated total stock, Stockholm

300,000 2.5%

250,000 2.0%

200,000 1.5% 150,000 1.0% 100,000

0.5% 50,000

0 0.0%

1997 1998 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013 2014 2016 2017 2018 1995 1996 1999 2000 2003 2007 2011 2015

2020e 2019e New supply Greater Sthlm (lhs) New building of estimated office stock (rhs)

Source: ABG Sundal Collier, JLL

However, we expect an increasing supply. We document total investments in ongoing projects and remaining investments in ongoing projects for Atrium Ljungberg, Balder, Castellum, Fabege, Klövern, Kungsleden, Platzer and Vasaskronan. Since 2014, the total investments in ongoing projects have increased by ~220%. Hence, supply will increase.

21 JLL, Nordic Outlook, Autumn 2019

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Total and remaining investments in ongoing projects, SEKbn, for nine companies

45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014 2015 2016 2017 2018 2019

Remaining investment, SEKm Total investment, SEKm

Source: Company information and ABG Sundal Collier

Rents The prime office22 rent in Stockholm CBD locations amounts to 7,600 SEK per square meter, which corresponds to all-time high levels. Between 2009 and 2019, rents have increased by 100% and the five-year figure amounts to ~70%. Moreover, between 2018 and 2019, rent has increased by 4% y-o-y. In addition, JLL states that it has recorded top rents of 9,500 per square meter. Furthermore, the high rents and shortage of supply in the inner city have also driven increasing rents in the suburbs where there is good access to public transport.

Prime office rents, Sweden

8,000

7,000

6,000

5,000

4,000 SEK/sqm 3,000

2,000

1,000

1980 1982 1984 1986 1990 1994 1998 2002 2004 2006 2008 2010 2012 2016 1988 1992 1996 2000 2014 2018 Stockholm Gothenburg Malmö

Source: ABG Sundal Collier, JLL

22 JLL’s definition: “Prime office rent refers to the optimum open-market rent level that can be expected for a national office unit of the highest quality and specification in the best location in a specific market or submarket”

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However, datapoints from Hufvudstaden’s Stockholm prime rents show that prime office rents have stagnated in recent quarters, indicating that rents have peaked. According to Hufvudstaden, prime office rents increased 18% in 2016, 19% in 2017 and 3% in 2018. In Q1, Q2 and Q3 2019, the average increase was 2%. Hence, we argue that rents in the Stockholm office market have peaked.

Stockholm prime office rents, yearly data, provided Stockholm prime office rents, yearly data, provided by Hufvudstaden by Hufvudstaden

25% 30% 25% 25% 20% 19% 18% 22% 20% 20% 19% 15% 15% 13% 10% 9% 10% 7% 5% 5% 3% 5% 2% 3% 2% 2% 2% 0% 0% 0% 2013 2014 2015 2016 2017 2018 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319 Stockholm prime office rents Stockholm prime office rents

Source: ABG Sundal Collier, Hufvudstaden Source: ABG Sundal Collier, Hufvudstaden

Yields/transactions Stockholm prime office yields of 3.5% are at all-time lows. The last ten years yields have compressed by 210bp from 5.6% to 3.5% and the five-year compression amounts by 75bp from 4.25% to 3.5%, which corresponds to value uplifts of 60% and ~20%.

The Stockholm office market exhibited high investment activity in H1 2019, with transaction volumes amounting to SEK 27.6bn (whereof office SEK 9.4bn) or a y-o-y growth of 9%. This figure amounts to roughly one-third of the transaction volume in Sweden. Moreover, there is a strong appetite from international investors, which accounted for 30% for the investment volume in Stockholm.23

23 JLL, Nordic Outlook, Autumn 2019.

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Prime office yields, Sweden

8.0

7.0

6.0 %

5.0

4.0

3.0

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016 2018 Stockholm Gothenburg Malmö

Source: ABG Sundal Collier, JLL

Implied square meter price In the graph below we have derived the implied square meter price from the above prime office rent and prime yield in Stockholm with an assumed NOI margin of 60%, 70% and 80%. The current implied square meter price derived from the NOI margin of 60%, 70% and 80% is ~130,000 SEK per square meter, 152,000 SEK per square meter and ~174,000 SEK per square meter. An NOI margin of 70% implies that the implied square meter price has increased by 165% between 2009 and 2019 and 105% between 2014 and 2019. Furthermore, between 2018 and 2019 the prices have increased by 4%.

The strong development of square meter prices is a product of increasing rents and compressing yields.

Implied square meter price, by NOI margin, Stockholm

180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 60% 70% 80%

Source: ABG Sundal Collier, JLL

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The matrix below illustrates what happens to the implied share price if rental levels change and if yields increase or decrease, with an assumed NOI margin of 70%, all else being equal. Especially noteworthy from this exercise is that yield compressions have exponential value uplifts compared with yield increases on value depreciation.

For example, if the rent remains the same but the yield compresses by 100bp the implied square meter price increases by 60,800 SEK per square meter. Meanwhile, an increase of yields by 100bp with unchanged rents will decrease the implied square meter price by ~33,800. In other words, the same percentage change of 100bp in yield have different effects.

Implied square meter price if yield and rent change, assumed NOI margin of 70%, all else being equal

NOI 70% Office yield 70% 4.75% 4.50% 4.25% 4.0% 3.75% 3.5% 3.25% 3.0% 2.75% 2.50% 2.25% -10% -51,200 -45,600 -39,341 -32,300 -24,320 -15,200 -4,677 7,600 22,109 39,520 60,800 -5% -45,600 -39,689 -33,082 -25,650 -17,227 -7,600 3,508 16,467 31,782 50,160 72,622 0% -40,000 -33,778 -26,824 -19,000 -10,133 0 11,692 25,333 41,455 60,800 84,444 5% -34,400 -27,867 -20,565 -12,350 -3,040 7,600 19,877 34,200 51,127 71,440 96,267

Rent change Rent 10% -28,800 -21,956 -14,306 -5,700 4,053 15,200 28,062 43,067 60,800 82,080 108,089 Source: ABG Sundal Collier, JLL

Logistics Yields Prime logistics yields in Stockholm have decreased by 275bp from 7.5% to 4.8% between 2009 and 2018, corresponding to value uplifts of 56%. Meanwhile, prime office yields in Stockholm have compressed by 210bp from 5.6% to 3.5% for the same period, which contributed to value uplifts of 60%. Besides favourable macro conditions, the increasing demand for logistics and warehouse premises, and a strong interest from international and domestic investors have contributed to yield compressions.

An example of the international appetite for logistics is Blackstone’s purchase of 30 properties from Corem Property Group in June 2019. The transaction value amounted to SEK 4.2bn and was the largest deal across all real estate segments in H1 2019. Furthermore, the occupancy rate and rental value for the portfolio was announced as 88% and SEK 309m. If we assume a NOI margin of 76%,24 that implies a yield of ~4.9%. Thirteen locations in Sweden are included in the property portfolio including Tranås, Falun, Gävle, Västerås, Halmstad, Helsingborg, Hudiksvall, Uppsala, Katrineholm and Kumla, i.e. mid-size and smaller cities in Sweden. We see the transaction as an indication that the current reported prime logistics yield in Stockholm of 4.8% will compress to lower levels.

JLL argues in its Nordic Outlook Report (2019) that there is a big supply of domestic and international capital willing to invest in logistics. Therefore, JLL expects high transaction activity over the coming 12 months.

24 Corem’s reported NOI margin 2018 in the annual report.

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Prime yields, logistics, 2009-2019 Prime yields, logistics vs. office, 2009-2019

8.5% 8.5% 8.0% 8.0% 7.5% 7.5% 7.0% 7.0% 6.5% 6.5% 6.0% 6.0% 5.5% 5.5% 5.0% 4.5% 5.0% 4.0% 4.5% 3.5% 4.0% 3.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Stockholm Göteborg Jönköping Skåne Stockholm office Stockholm logistics

Source: ABG Sundal Collier, Company information Source: ABG Sundal Collier, Company information

Rents Logistics companies state that rental levels have been weak/flat in recent years. For example, Catena states:

“Despite the limited supply of space, development in rent levels has been weak, particularly in the regional towns.”25

Moreover, Catena has published a chart which illustrates that average rent levels have hovered around SEK 600 per square metre the last years. An additional example of the flat rental level development is provided by Sagax, which states that:

“In Stockholm, the rent level has been moderately rising, with low variation since the mid-1990s and has now recovered to the level of 1990.”26

We argue that logistics and warehouse facilities are in locations where land is abundant, which implies that potential rental growth may be difficult to achieve. However, we see some rental growth potential in city logistics and some complex specialised logistics facilities. This argument is in line with Catena, which states that:

“The rent for well-placed terminals as well as e-commerce warehouses and specialised premises for e.g. food, for which demand is also high, is somewhat higher than for warehouses. In Stockholm, as well as both in and around other major cities, the supply of developable land is decreasing compared with the rest of the country in pace with increasing residential construction for example.”27

25 Catena’s 2018 annual report p. 16 26 Sagax’s 2018 annual report p. 17 27 Catena’s 2018 annual report p. 16

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Appendix – Ownership The CEO and Board Member Sven-Olof Johansson holds ~69.9% of shares outstanding. In addition, the Head of Real Estate Svante Hedström and the Chairman of the Board Peter Carlsson have ownership stakes in the company. The largest owners of non-insider positions are Länsförsäkringar Fonder and Familjen Kamprads Stiftelse, which are the second- and third-largest owners after Sven-Olof Johansson. Länsförsäkringar holds 8.4% of the shares while Familjen Kamprads Stiftelse holds 3.3%. Other big owners are Swedbank Robur (~3%), Nordea (~2%) and Catella (~1%).

In September, Sven-Olof Johansson increased his ownership and bought 500,000 shares at SEK 80, which corresponds to a value of ~SEK 40m.

Top five insiders

Owner Title Value, SEKm % shrs outs. % votes

Sven-Olof Johansson CEO & board member 13,034.1 69.9% 71.8%

Svante Hedström Head of Real Estate 5.7 0.03% 0.03%

Peter Carlsson Chairman of the board 3.4 0.02% 0.02%

Daniel Gerlach CFO 1.6 0.01% 0.01%

Patrik Arnqvist Regional manager 0.8 0.00% 0.00% Source: Holdings, February 2020

Top five institutions

Owner Value, SEKm % shrs outs. % votes

Länsförsäkringar Fonder 1,646.8 8.4% 9.0%

Familjen Kamprads stiftelse 639.4 3.3% 3.3%

Sw edbank Robur Fonder 516.7 2.6% 2.8%

Nordea Fonder 379.9 1.9% 2.1%

Catella Fonder 233.4 1.1% 0.1% Source: Holdings, February 2019

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Appendix – preference and D-shares explained In this section, we describe the definition and advantage/disadvantages of the alternative equity instruments preference shares and D-shares from the shareholders’ perspective.

Definition Preference shares are an instrument which have preference to dividends. The instrument is senior to common equity but subordinate to bonds/debt owners. i.e. in the case of liquidation they have preference to assets over common shareholders.

Sagax’s CEO, David Mindus, explains D-shares in the Sagax annual report28 in conjunction with the issuance of the class:

“In 2016, Sagax issued a new common share class, known as a dividend share or a Class D share. The Class D share has a financial character that resembles the company’s preference share but, according to the rating agencies’ criteria, it exclusively constitutes shareholders’ equity. The reason for issuing a new share class is to adapt the company’s financial profile so that it fulfills the criteria for being classed as investment grade, which is the credit class that institutional bond investors focus on.”

There are different views on whether to classify the instrument as debt, hybrid or equity. McKinsey Valuation29 argues that preferred equity resembles unsecured debt more than equity and therefore views it as a hybrid instrument. Rating institutions typically view preference shares as a hybrid between equity and debt. On the other hand, several entrepreneurs argue that preference shares are equity since the company is never obliged to pay back the issued money.

Advantages/disadvantages The advantages of preference and D-shares are access to capital and leverage on profitability. A disadvantage of preference and D-shares is that they are subordinate debt, which implies that the instruments have capped upside, but limited risk protection.

One view of shareholder value creation is to create as much profit as possible for as few shares as possible, without excessive risk. Preference shares and D-shares are a tool to achieve this view of value creation. The issuance of these equity instruments implies that the company leaves some of its profit today and keeps the future profit i.e. the holders of preference shares/D-shares receive a dividend yield today but a capped upside to the company’s future profit. This is well suited for investors who prefer money today in the form of yielding predictable coupons. On the other hand there are ordinary shareholders which are not interested in today’s profit but the rather the future potential from the company’s value creation. These different views, short-term/low-risk seeking shareholders (preference/D-shares) and long-term/high-risk seeking shareholders, create a powerful source of value creation to both type of shareholders. In summary, we think that Mindus condenses our argument in the 2013 annual report:

28 Sagax annual report, 2016, page 4. 29 Koller, Tim, Marc Goedhart, and David Wessels. Valuation: measuring and managing the value of companies. Vol. 499. John Wiley and sons, 2010.

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“Preference shares enable Sagax to reach investor categories that value a steady stream of dividends. The preference shares diversify Sagax’s capital base and allow the company to increase the Group’s capital without increasing the number of common shares.”30

Furthermore, investment grade ratings can be facilitated with preference shares and D-shares. Once again, we turn to Mindus for a suggestion of why such a rating may be attractive:

“Why is such a credit rating desirable for the company? Sagax is and will remain a considerable net borrower. By being a borrower with an investment grade rating, Sagax will improve its access to the capital market and obtain more advantageous borrowing terms.”31

It is vital for real estate companies to have access to financing, have a sound risk profile in their financing, and have a low cost of financing in order to create attractive returns for shareholders. Preference shares and D-shares are another tool in the toolbox to achieve this goal.

30 Sagax annual report, 2013, p. 7 31 Sagax annual report, 2016, p. 4

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Appendix – Financial targets The company has formulated the following targets:

 Achieve income from property management of SEK 950m (on a R12m basis) by the end of 2020. ABGSCe at SEK 942m 2020e.  ROE > 15 % over a 5y period. ABGSCe at 18.7% 2020e.  NOI margin > 70% (unspecified time frame). ABGSCe at 69% 2019e.  Payout ratio of 1/3 of profit after tax and after unrealized value changes. ABGSCe at 52% of cash earnings.  Growth in profit from property management per share of 10% p.a. over a 5y period. ABGSCe at 12% growth 2019e. The graphs below compares the company’s target with the outcome.

Fastpartner’s ROE target vs. outcome Fastpartner’s NOI Margin target vs. outcome

40% 75%

35% 70% 30%

25% 65%

20%

60% 15%

10% 55% 5%

0% 50% 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Outcome Target Outcome Target

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

Fastpartner’s growth from property management Fastpartner’s income from property management target vs. outcome

40% 800

35% 700

30% 600

25% 500

20% 400

15% 300

10% 200

5% 100

0% 0 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Outcome Target Income from property management

Source: ABG Sundal Collier, Company data Source: ABG Sundal Collier, Company data

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Fastpartner

Income Statement (SEKm) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020e Q2 2020e Q3 2020e Q4 2020e Rental income 396 409 428 454 461 463 476 494 Other income 0 0 0 0 0 0 0 0 Operating costs -138 -116 -121 -138 -156 -127 -132 -146 Net operating income 258 292 307 316 305 336 343 349 NOI margin (%) 65.2 71.5 71.6 69.6 66.2 72.5 72.1 70.6 Administration costs -8 -8 -9 -10 -9 -9 -9 -11 All other income & costs 3 -2 25 -1 0 0 0 0 Recurring EBIT 253 282 323 305 296 326 335 338 Net financial items -75 -80 -78 -77 -75 -74 -74 -73 Recurring Pretax Profit 178 201 245 228 221 252 261 265 Value change realized 0 0 350 0 0 0 0 0 Value change unrealized 577 241 423 1,420 0 0 0 0 Value change derivatives -26 -37 -29 59 0 0 0 0 Pretax profit 730 405 989 1,707 221 252 261 265 Deferred profit tax -131 -61 -84 -314 -18 -20 -21 -21 Current tax -20 -26 -29 -19 -27 -30 -31 -32 Net profit 579 318 876 1,375 177 202 209 212 Minority interest (including pref dividend) 0 0 0 0 0 0 0 0 Net profit to shareholders 579 318 876 1,375 177 202 209 212 Other income statement related infor. Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020e Q2 2020e Q3 2020e Q4 2020e Cash earnings 158 175 216 209 195 222 229 233 Tax rate (%) 20.6 21.6 11.4 19.5 20.0 20.0 20.0 20.0 Rental growth (%) 7.5 3.2 4.7 6.2 1.5 0.4 2.7 3.9 NOI growth (%) 19.5 19.5 19.5 19.5 13.7 13.7 13.7 13.7 CEPS adj. growth (%) 22.3 22.3 22.3 22.3 10.8 10.8 10.8 10.8 Source: ABG Sundal Collier, Company data

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Income Statement (SEKm) 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Rental income 766 921 1,135 1,271 1,349 1,451 1,687 1,894 2,030 2,170 Other income 0 0 0 0 0 0 0 0 0 0 Operating costs -270 -310 -364 -418 -413 -469 -514 -561 -593 -626 Net operating income 496 611 771 853 936 982 1,173 1,333 1,436 1,544 NOI margin (%) 64.8 66.3 67.9 67.1 69.4 67.7 69.5 70.4 70.8 71.2 Administration costs -21 -24 -27 -30 -29 -32 -35 -38 -40 -42 All other income & costs 9 0 12 29 17 23 24 0 0 0 Recurring EBIT 484 587 756 852 923 973 1,162 1,295 1,396 1,502 Net financial items -192 -214 -241 -244 -225 -235 -310 -296 -289 -280 Recurring Pretax Profit 293 373 515 608 699 738 852 999 1,108 1,223 Value change realized 1 1 12 14 34 1 350 0 0 0 Value change unrealized 25 284 952 1,478 935 1,199 2,661 0 0 0 Value change derivatives 59 -71 98 -100 61 174 -33 0 0 0 Pretax profit 378 587 1,576 2,000 1,728 2,111 3,831 999 1,108 1,223 Deferred profit tax -28 -78 -284 -326 -185 -195 -590 -80 -89 -98 Current tax -27 -42 -62 -75 -92 -110 -94 -120 -133 -147 Net profit 323 466 1,231 1,599 1,451 1,806 3,147 799 886 978 Minority interest (including pref dividend) -19 -38 -38 -38 -38 -38 -38 -81 -81 -81 Net profit to shareholders 304 428 1,193 1,561 1,413 1,768 3,109 719 806 898 Other income statement related infor. 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Cash earnings 285 369 415 495 569 589 720 798 894 995 Tax rate (%) 14.6 20.5 21.9 20.1 16.0 14.4 17.9 20.0 20.0 20.0 Other investments na na na na 0 0 0 0 0 0 Divestments na na na na na na na na na na EPS 1.91 2.69 7.42 9.41 7.81 9.77 17.19 3.97 4.45 4.96 CEPS 1.79 2.31 2.58 2.98 3.15 3.26 3.98 4.41 4.94 5.50 CEPS adj. 1.79 2.31 2.58 2.98 3.15 3.26 3.98 4.41 4.94 5.50 Dividend per share Adj 1.03 1.17 1.25 1.33 1.43 1.60 1.90 2.10 2.30 2.50 Payout ratio of CEPS (%) 57.8 50.4 48.4 44.7 45.5 49.1 47.7 47.6 46.5 45.4 Rental growth (%) 19.8 20.2 23.3 12.0 6.2 7.5 16.3 12.3 7.2 6.9 NOI growth (%) 26.4 23.0 26.3 10.7 9.7 4.9 19.5 13.7 7.7 7.5 CEPS adj. growth (%) 40.9 29.5 11.6 15.6 5.5 3.5 22.3 10.8 12.0 11.3 Balance Sheet 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Properties 9,563 12,046 15,466 17,394 20,116 22,330 28,172 31,280 33,288 35,386 Deferred tax asset 0 0 0 0 0 0 0 0 0 0 Receivables 66 70 88 87 461 453 106 106 106 106 Cash and liquid assets 176 276 165 806 216 676 264 264 264 264 Other assets 179 183 220 170 191 70 1,444 1,621 1,737 1,858 Current liabilities 0 0 0 0 82 94 127 127 127 127 Total assets 9,983 12,574 15,939 18,456 20,983 23,529 29,987 33,272 35,396 37,614 Shareholders equity 2,945 3,271 4,315 6,435 7,607 9,114 12,632 14,076 15,680 17,410 Minority 0 0 0 0 0 0 0 0 0 0 Deferred tax 529 608 892 1,209 1,394 1,589 2,179 2,299 2,432 2,578 Interest bearing debt 6,194 7,911 9,938 10,116 11,194 12,157 13,395 15,040 15,429 15,777 Short-term debt 0 0 0 0 0 0 0 0 0 0 Derivatives 0 0 0 0 82 94 127 127 127 127 Total liabilities and equity 9,983 12,574 15,939 18,456 20,983 23,529 29,987 33,272 35,396 37,614 Other balance sheet related infor. 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Net IB debt 6,018 7,636 9,773 9,311 10,978 11,481 13,131 14,775 15,165 15,513 Rental area m2 (000) 986 1,139 1,295 1,388 1,406 1,443 1,511 1,511 1,511 1,511 Rent per m2 777 808 877 915 959 1,005 1,116 1,254 1,344 1,437 Equity ratio (%) 29.5 26.0 27.1 34.9 36.3 38.7 42.1 42.3 44.3 46.3 Net loan to value (%) 62.9 63.4 63.2 53.5 54.6 51.4 46.6 47.2 45.6 43.8 ICR real estate (%) 247.9 274.5 308.5 337.6 404.0 404.0 367.5 436.9 483.7 537.1 Interest rate on debt (%) 3.4 3.0 2.7 2.4 2.1 2.0 2.5 2.2 2.0 1.9 Occupancy rate (%) 88.4 88.4 88.5 88.1 88.5 90.3 92.5 92.5 92.5 92.5 BVPS 18.49 8.17 13.20 26.60 30.28 39.31 58.76 77.81 86.68 96.24 EPRA NAV per share 17.80 20.05 28.43 39.25 46.58 55.95 74.46 84.55 95.48 107.28 Valuation 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Shares outstanding adj. 159 159 161 166 181 181 181 181 181 181 Share price 23.89 35.46 49.56 45.33 48.83 60.34 99.15 106.00 106.00 106.00 Market cap. (m) 3,805 5,649 7,970 7,517 8,834 10,916 17,936 19,175 19,175 19,175 P/E 12.5 13.2 6.7 4.8 6.3 6.2 5.8 26.7 23.8 21.4 Net IB debt/share 38 48 61 56 61 63 73 82 84 86 P/CEPS 13.4 15.3 19.2 15.2 15.5 18.5 24.9 24.0 21.4 19.3 P/CEPS adj. 13.4 15.3 19.2 15.2 15.5 18.5 24.9 24.0 21.4 19.3 EV/Recurring EBIT 20.3 22.6 23.5 19.8 21.5 23.0 26.7 26.2 24.6 23.1 Implicit yield (%) 4.7 4.5 4.4 4.6 4.5 4.3 4.0 3.7 3.9 4.2 Yield on BV (%) 5.2 5.1 5.0 4.9 4.7 4.4 4.2 4.3 4.3 4.4 Dividend yield (%) 4.3 3.3 2.5 2.9 2.9 2.7 1.9 2.0 2.2 2.4 P/EPRA NAV 1.34 1.77 1.74 1.15 1.05 1.08 1.33 1.25 1.11 0.99 P/BVPS 1.29 4.34 3.75 1.70 1.61 1.53 1.69 1.36 1.22 1.10 EV/NOI 19.79 21.76 23.01 19.72 21.17 22.81 26.49 25.47 23.91 22.46

Source: ABG Sundal Collier, Company data

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FastpartnerFastpartner

Analyst certification I/We, Staffan Bulow, Tobias Kaj, the author(s) of this report, certify that not withstanding the existence of any such potential conflicts of interests referred to below, the views expressed in this report accurately reflect my/our personal view about the companies and securities covered in this report.

Analyst valuation methods ABG Sundal Collier analysts may publish valuation ranges for stocks covered under Company Sponsored Research. These valuation ranges rely on various valuation methods. One of the most frequently used methods is the valuation of a company by calculation of that company's discounted cash flow (DCF). Another valuation method is the analysis of a company's return on capital employed relative to its cost of capital. Finally, the analysts may analyse various valuation multiples (e.g. the P/E multiples and the EV/EBITDA multiples) relative to global industry peers. In special cases, particularly for property companies and investment companies, the ratio of price to net asset value is considered. Valuation ranges may be changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of a company's assets changes (in the cases of investment companies, property companies or insurance companies) or when factors impacting the required rate of return change.

Important Company Specific Disclosure ssss The following disclosures relate to the relationship between ABG Sundal Collier and its affiliates and the companies covered by ABG Sundal Collier referred to in this research report.

Unless disclosed in this section, ABG Sundal Collier has no required regulatory disclosures to make in relation to an ownership position for the analyst(s) and members of the analyst's household, ownership by ABG Sundal Collier, ownership in ABG Sundal Collier by the company(ies) to whom the report(s) refer(s) to, market making, managed or co-managed public offerings, compensation for provision of certain services, directorship of the analyst, or a member of the analyst's household, or in relation to any contractual obligations to the issuance of this research report.

ABG Sundal Collier has undertaken a contractual obligation to issue this report and receives predetermined compensation from the company covered in this report. w mo

ABG Sundal Collier is engaged in providing liquidity in Fastpartner’s securities at the time of this report’s publication.

ABG Sundal Collier is not aware of any other actual, material conflicts of interest of the analyst or ABG Sundal Collier of which the analyst knows or has reason to know at the time of the publication of this report.

Production of report: 14/02/2020 13:28 CET. All prices are as of market close on 13 February, 2020 unless otherwise noted.

Disclaimer This document has been prepared by ABG Sundal Collier which is the marketing name referring to all or any of ABG Sundal Collier ASA, ABG Sundal Collier AB or ABG Sundal Collier Partners LLP and any of their affiliated or associated companies and their directors, officers, representatives and employees.

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.

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This research report does not, and does not attempt to contain everything material that there is to be said about Fastpartner.

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it will not distribute this research report to any other person. Any U.S. major institutional investor receiving this report who wishes to effect transactions in any securities referred to herein should contact ABG Sundal Collier Inc., not its affiliates. Further information on the securities referred to herein may be obtained from ABG Sundal Collier Inc., on request.

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ABGSC Research Department

Joint Global Head of Research John Olaisen +47 22 01 61 87 Christer Linde +46 8 566 286 90

Strategy Metals & Mining Christer Linde, Quant/Technical +46 8 566 286 90 Martin Melbye +47 22 01 61 37 Derek Laliberte +46 8 566 286 78 Bengt Jonassen +47 22 01 60 98 Bengt Jonassen +47 22 01 60 98 Petter Nyström +47 22 01 61 35

Capital Goods Oil & Gas Anders Idborg +46 8 566 286 74 John Olaisen +47 22 01 61 87 Olof Cederholm +46 8 566 286 22 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Karl Bokvist +46 8 566 286 33 Oil Service Chemicals John Olaisen +47 22 01 61 87 Martin Melbye +47 22 01 61 37 Haakon Amundsen +47 22 01 60 25 Bengt Jonassen +47 22 01 60 98 Lukas Daul +47 22 01 61 39 Petter Nyström +47 22 01 61 35 Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65

Construction & Real Estate Online Gaming Tobias Kaj +46 8 566 286 21 Aksel Øverland Engebakken +47 22 01 61 11 Bengt Jonassen +47 22 01 60 98 Erik Moberg +46 8 566 286 87 Laurits Louis Kjaergaard +45 35 46 30 12 Stefan Knutsson +46 8 566 286 37 Consumer Goods Jesper Birch-Jensen +46 8 566 286 13 Petter Nyström +47 22 01 61 35 Pulp & Paper Morten Raunholt Eismark +45 35 46 30 16 Martin Melbye +47 22 01 61 37 Ludvig Kapanen +46 8 566 286 91 Øystein Elton Lodgaard +47 22 01 60 26 Credit Research Rikard Magnus Braaten +47 22 01 60 86 Renewable Energy Andreas Johannessen +47 22 01 60 31 Casper Blom +45 35 46 30 15 Haakon Amundsen +47 22 01 60 25 Petter Nyström +47 22 01 61 35

Glenn Kringhaug +47 22 01 61 62 Retail Karl Fredrik Schjøtt-Pedersen +47 22 01 61 65 Fredrik Ivarsson +46 8 566 286 95 Eric Wahlström +46 8 566 286 25 Ludvig Kapanen +46 8 566 286 91 Financials Seafood Magnus Andersson +46 8 566 294 69 Martin Kaland +47 22 01 60 67 Mads Thinggaard +45 35 46 30 18

Patrik Brattelius +46 8 566 286 64 Services Jan Erik Gjerland +47 22 01 61 16 Morten Raunholt Eismark +45 35 46 30 16 Jonas Bru Lien +47 22 01 61 71 Victor Forssell +46 8 566 286 92

Food & Beverages Shipping & Transport Morten Raunholt Eismark +45 35 46 30 16 Dennis Anghelopoulos +47 22 01 60 37

Healthcare Casper Blom +45 35 46 30 15 Rickard Anderkrans +46 8 566 286 73 Lukas Daul +47 22 01 61 39

Viktor Sundberg +46 8 566 286 41 Telecom Operators Daniel Thorsson +46 8 566 286 82 Peter Kurt Nielsen +44 207 905 5631 Victor Forssell +46 8 566 286 92 Jannick Lindegaard Denholt +45 35 46 30 13 Utilities Martin Melbye +47 22 01 61 37 lnvestment Companies Petter Nyström +47 22 01 61 35 Derek Laliberte +46 8 566 286 78

Small Caps IT Daniel Thorsson +46 8 566 286 82 Aksel Øverland Engebakken +47 22 01 61 11 Laurits Louis Kjaergaard +45 35 46 30 12 Daniel Thorsson +46 8 566 286 82 André Thormann +45 35 46 30 19 Simon Granath +46 8 566 286 32 Jesper Birch-Jensen +46 8 566 286 13

Media Aksel Øverland Engebakken +47 22 01 61 11 Derek Laliberte +46 8 566 286 78

Norway Sweden Denmark United Kingdom USA Germany Singapore Pb. 1444 Vika Box 7269 Forbindelsesvej 12, 10 Paternoster Row, 5th fl 850 Third Avenue, Suite 9-C Schillerstrasse 2, 5. OG 10 Collyer Quay NO-0115 OSLO SE-103 89 STOCKHOLM DK-2100 COPENHAGEN LONDON EC4M 7EJ NEW YORK, NY 10022 DE-60313 FRANKFURT Ocean Financial Center Norway Sweden Denmark UK USA Germany #40-07, Singapore 049315 Tel: +47 22 01 60 00 Tel: +46 8 566 286 00 Tel: +45 35 46 61 00 Tel: +44 20 7905 5600 Tel. +1 212 605 3800 Tel +49 69 96 86 96 0 Tel +65 6808 6082 Fax: +47 22 01 60 60 Fax: +46 8 566 286 01 Fax: +45 35 46 61 10 Fax: +44 20 7905 5601 Fax. +1 212 605 3801 Fax +49 69 96 86 96 99

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