WE CREATE CONDITIONS FOR SUCCESS ANNUAL REPORT 2017 CONTENTS INTRODUCTION This is Fabege 1 Highlights of the year 2 Message from the CEO 4 Employees 6 How we create value 10 Business model 12 Targets and results 14 DEVELOPMENT OF CITY DISTRICTS Market overview 16 City district development strategy 20 Stockholm inner city 22 Hammarby Sjöstad 23 Arenastaden 24 Haga Norra 26 Solna Business Park 27 Projects 28 OPERATIONS Overview of operations 34 Property Management business area 36 Property Development business area 38 Transactions business area 40 Energy and environment 42 Sustainable relationships 46 Valuation of the property portfolio 48 FINANCIAL REPORTING Directors’ Report 51 Financing 54 Risks and opportunities 57 Group 63 Statement of comprehensive income 63 Statement of financial position 64 Statement of changes in equity 65 Statement of cash flows 66 Parent Company 67 Profit and loss accounts 67 Balance sheets 67 Statement of changes in equity 68 Statement of cash flows 68 Notes 69 Corporate Governance Report 82 Message from the Chairman 82 Executive Management Team 91 Board of Directors and Auditor 92 Signing of the Annual Report 94 Auditor’s Report 95 OTHER INFORMATION GRI index 98 Sustainability Report in accordance with Swedish Annual Accounts Act 100 Limited assurance review of the Sustainability Report 101 Five-year summary 102 Reconciliation of key ratios 103 The Fabege share 104 Property portfolio 108 Property listing 110 Definitions 116 Annual General Meeting and registration 117 Audited financial information Sustainability information subjected to limited assurance review Information about Fabege’s sustainability work is detailed under each operating segment and management of sustainability issues is described in the Corporate Governance Report. For further information about Fabege’s sustainability work, visit www.fabege.com. Sustainability information that has been subjected to a limited assurance review by the auditors is provided in the GRI index on pages 98–99. Information about Fabege’s sustainability governance (DMA) can be found at www.fabege.se/DMA. Cover photo: Vision image of the Farao 15–17 property in Arenastaden. This is a translation of the Swedish original. In case of any inconsistency between the Swedish and the English version, the Swedish version shall prevail. THIS IS FABEGE 1 Welcome Arenastaden to Fabege! Haga Norra Stockholm inner city Solna km Fabege is a property company focusing on urban Business Park 5 development and commercial properties. We work with strategic partners to develop attractive and sustainable city districts with modern offices, residential units and a wide range of services. We adopt a long-term perspective and approach to Hammarby Sjöstad ownership, and we are passionate about creating the right conditions for everyone who lives, works and spends time in our areas. We can be found in attractive, well located and fast-growing submarkets in the Stockholm area. “Fabege’s concentrated property portfolio provides us with good • ATTRACTIVE LOCATIONS 90 • CONCENTRATED PORTFOLIO opportunities to influence the PROPERTIES development of entire city districts.” • MODERN PROPERTIES SEK 57.9 billion 1,136,000 sqm LETTABLE AREA MARKET VALUE …WHICH IS ROUGHLY ONE IN SEK 2.6 billion 10 sqm RENTAL VALUE OF OFFICE SPACE IN STOCKHOLM 47% 161 PERCENTAGE OF GREEN FINANCING EMPLOYEES Fabege Annual Report 2017 2 HIGHLIGHTS OF THE YEAR Events in 2017 2017 was an extremely successful year, with several newly-started projects and major new lettings. Over 50 per cent of ongoing new office construction in Stockholm is being carried out by Fabege. That makes us the largest office developer in Sweden. We continued to build on our sustainability work and create favourable conditions to enable our employees to perform to the best of their ability. NEW LETTINGS n According to the journal Fas- tighetsvärlden, Fabege carried out the two largest new office lettings in Stockholm in 2017. The largest was the letting of 16,500 sqm to Swedbank in our Grand Central Sundbyberg project. The second largest was the letting to Skolverket of 13,800 sqm in Solna Business Park. Other significant new let- tings completed during the year were to Naturvårdsverket, 7,700 sqm, and Goodbye Kansas, 5,200 sqm, both in “More new Hammarby Sjöstad. We also concluded several major and projects!” successful renegotiations and our retention rate in 2017 was LARGE PROJECT 84 per cent. VOLUME n We launched two projects in Hammarby Sjöstad during the HAGA NORRA year. Trikåfabriken 9 is being NET LETTINGS extended upwards, which n In Haga Norra, right by the leafy Wijnblad Park, we started develop- means that the property will ment on a new, attractive and sustainable district, including modern offices, double in size to 16,000 sqm. housing and a wide range of services. Haga Norra boasts the perfect The extension will have a wood location, with proximity to services at Mall of Scandinavia, the stunning SEK frame. Naturvårdsverket has natural environment of Haga Park with areas for recreation, fantastic public signed a green lease on 7,700 transport links at Solna Station and a substantial number of job opportunities sqm in the property. The build- at Arenastaden, Karolinska Hospital and KI. Overall, the district will consist ing will be ready for occupancy of 900 residential units, 70,000 sqm of offices and 7,000 sqm of services. 244 m by spring 2019. The objective is for the entire area to be completed by 2025. For further At the Båtturen 2 property, information, visit www.haganorra.se. an office is being created with a floor space of 5,200 sqm for Goodbye Kansas. At Lagern 4, Solna, work began on a 5,100 sqm council SEB RELOCATED property for Solna Stad, which TO ARENASTADEN is scheduled for completion n In May 2017, around 3,000 SEB em- in Q3 2018. The property ployees moved into their new offices in will include a school, several Arenastaden. The building is Sweden’s preschool departments and sup- biggest newly built office premises, with ported housing for people with a lettable area of 72,200 sqm, and it physical or mental disabilities. will be the workplace of around 4,500 At the end of the year, our SEB employees. The office is environ- project portfolio included mentally certified according to the rating 206,000 sqm and the occu- BREEAM-SE Excellent, and was named pancy rate was 88 per cent. Sweden’s most attractive office space in For further information about our 2017 by the property journals Lokalnytt projects, see pages 28–33. and Fastighetssverige. Fabege Annual Report 2017 HIGHLIGHTS OF THE YEAR 3 FINANCIAL OVERVIEW TOTAL RETURN ON SATISFIED EMPLOYEES, THE PROPERTY PORTFOLIO, % PERFORMANCE RATING 25 4.4 20 4.0 15 3.6 10 3.2 5 0 13 14 15 16 17 2.8 15 16 17 FABEGE’S MAJOR n Employees n Industry average n Managers Net operating income plus realised and 99 per cent of Fabege’s employees participat- HEALTH DRIVE unrealised changes in the value of proper- ed in the employee survey in 2017. The re- n We take a comprehensive approach to employee health, considering ties, divided by market value at the start of sults for employees show a performance rating the year. of 3.8. The average for the sector is 3.5. the wellbeing of the whole individual, both physical and mental. During The performance rating for managers is 4.1. the year we have been proactive about boosting our employees’ knowl- edge within a broad spectrum of health issues, to encourage long-term healthy lifestyles and motivated individuals. One initiative is a series of CUSTOMER SATISFACTION INDEX CARBON DIOXIDE EMISSIONS, TONNES information sessions featuring compulsory talks within four key aspects of health: Physical Activity, Diet, Rest/Recovery and Relationships. All 85 5,000 employees also have the opportunity to train with their colleagues during working hours once a week. Besides the physical benefits, these training 4,000 sessions also help bring employees together as a team. All our offices 80 have changing rooms to make it easier for personnel to combine work 3,000 with keeping fit. These initiatives are based on the premise that if your em- 2,000 ployees feel good, then the company feels good too and its performance 75 is enhanced as a result. 1,000 “Significant positive effects are already 70 14 15 16 17 0 13 14 15 16 17 Fabege’s customer survey resulted in a CSI Since 2002, Fabege’s carbon dioxide emis- of 78, which shows that our customers sions have fallen by more than 95 per cent. being appreciated by our employees.” continue to be satisfied. GREEN KEY RATIOS 2017 2016 Change, % LEASES PERCENTAGE Rental income, SEKm 2,280 2,105 8 Net operating income, SEKm 1,680 1,507 11 n A green lease means GREEN LEASES Profit/loss after tax for the year, SEKm 5,632 7,107 –21 that both parties agree OF TOTAL NEWLY Return on equity, % 22.1 36.1 –39 on a shared environmental agenda LET SPACE for the building. Materials selection, Surplus ratio, % 74 72 3 renewable electricity, flexible design Equity/assets ratio, % 47 46 2 and recycling are just few examples Interest coverage ratio, multiple 3.2 2.7 19 of commitments that can be covered Earnings per share before and after dilution, SEK 34.05 42.97 –21 by such leases. Green leases are Dividend per share1), SEK 4.50 4.00 12.5 an important basis for environmental 94% certification of the building. Percentage of green financing, % 47 19 147 1) Relates to proposed dividend. Fabege Annual Report 2017 4 MESSAGE FROM THE CEO We are proud, but not surprised Our decision dates back to 2008. We would be a success, and we would achieve this success by turning the organisation into a strong team.