ANNUAL REPORT 2018 Urban development Fabege develops long-term sustainable city districts. Our concept isn’t primarily about constructing buildings. It’s about creating the conditions to help people and companies thrive. So we like to see ourselves as a key player in boosting competitive edge for our customers. People have so much to fit into their day: fetching, dropping off, taking exercise, running errands. And then on top of that we need to work too. Our aim is to make it as simple as possible for our customers’ employees to achieve a healthy work-life balance. So we can never think small. We have to look at the bigger picture. The whole company. The whole area. The whole person. All the time. Our districts • STOCKHOLM INNER CITY • HAGA NORRA • HAMMARBY SJÖSTAD • SOLNA BUSINESS PARK • ARENASTADEN • FLEMINGSBERG Fabege Annual Report 2018 89 SEK 3.0 billion 1,252,000 sqm PROPERTIES RENTAL VALUE LETTABLE AREA 181 SEK 67. 6 billion every 10th sqm EMPLOYEES PROPERTY VALUE OF OFFICE SPACE IN STOCKHOLM 60 % 71% 428,000 sqm PROPORTION OF PERCENTAGE GREEN LEASES COMMERCIAL DEVELOPMENT RIGHTS GREEN FINANCING OF TOTAL SPACE Fabege Annual Report 2018 CONTENTS INTRODUCTION 2018 in figures 2 Highlights of the year 4 Message from the CEO 6 Value creation 8 2018 in figures Targets and results 10 Business model 13 Employees 14 OPERATING ENVIRONMENT AND MARKET 161 Building a sustainable Stockholm 16 % % Responding to changes in society 18 88 82 Stockholm – Sweden’s growth engine 20 Great Place To Work Environmental certifications 88 per cent of our employees All new builds and major redevel- URBAN DEVELOPMENT would recommend us as an opments are to be environmentally Developing an attractive location 22 employer. certified according to BREEAM-SE. Stockholm inner city 24 82 per cent of the existing portfolio of Hammarby Sjöstad 25 investment properties, excl. develop- Haga Norra 26 ment properties, was environmentally Arenastaden 27 certified at the end of 2018. Solna Business Park 28 Flemingsberg 29 Projects 30 Sustainability performance measures 2018 2017 Change, % OPERATIONS Energy performance, kWh/sqm LOA 108 110 –2 Property Management business area 36 Environmental certification, number of properties 56 36 56 Property Development business area 38 Environmental certification, proportion of total space, % 82 61 34 Transactions business area 40 Energy and environment 43 Green leases, proportion of newly-signed space, % 90 96 –6 Sustainable relationships 46 Green leases, proportion of total office space, % 71 55 29 Green financing, % 60 47 28 FINANCIAL REPORTING Directors’ Report 49 Financing 52 Risks and opportunities 54 Group 61 Statement of comprehensive income 61 Statement of financial position 62 Statement of changes in equity 63 Statement of cash flows 64 Parent Company 65 Profit and loss accounts 65 Balance sheet 65 Statement of changes in equity 66 Statement of cash flows 66 Notes 67 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 Sustainability notes 98 Key ratios 98 GRI index 99 Sustainability Report in accordance with Swedish 101 Annual Accounts Act Limited assurance review of the Sustainability Report 102 Five-year summary 103 Reconciliation of key ratios 104 The Fabege share 106 Property portfolio 110 Property listing 112 Definitions 119 Annual General Meeting and registration 120 Audited financial information Sustainability information reviewed in brief 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.se. Sustainability information that has been subjected to a limited assurance review by the auditors is provided in the GRI index on pages 99–100. Information about Fabege’s sustainability management (MAD) can be found at www.fabege.com/MAD. Cover photo: Architectural rendering of the new roof terrace at Apotekaren 22. 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. 2 TOTAL RETURN ON THE PROPERTY PORTFOLIO, % PROPERTY VALUE SEK 67.6 BILLION 2018 in figures 25 Net operating income plus realised and 20 unrealised changes in the value of properties, 15 divided by market value at the start of the 10 year plus investments 5 for the period. 0 14 15 16 17 18 n Financial key ratios 2018 2017 Change, % Solna 47% n Inner city 41% Rental income, SEKm 2,517 2,280 10 n Hammarby Sjöstad 9% Net operating income, SEKm 1,875 1,680 12 n Other markets 3% Profit/loss after tax for the year, SEKm 7,699 5,632 37 Return on equity, % 24.5 22.1 11 Loan-to-value ratio, properties, % 39 43 9 Interest coverage ratio, multiple 3.7 3.2 16 Debt/equity ratio, multiple 0.8 0.9 11 Equity/assets ratio, % 51 47 9 Surplus ratio, % 74 74 0 Earnings per share before and after dilution, SEK 23.28 17.03 37 Dividend per share1), SEK 2.65 2.25 18 1) Relates to proposed dividend. GOOD REASONS TO OWN 3 FABEGE SHARES Focus on urban development and commercial properties As a result of recent years’ efforts to concentrate our property portfolio to selected geographical areas and our focus on the office market, we are now one of the most specialised property companies in the Swedish property market. Clear geographical concentration – we are developing Stockholm The fact that we have a presence in a select number of fast-growing submarkets in the Stockholm area creates many advantages. It means we have a good knowledge of the market and efficient management. Stockholm is the Swedish economy’s growth engine and demand for modern offices is expected to rise. Significant potential in project portfolio We are Stockholm’s largest developer of office properties and in recent years we have accounted for over 50 per cent of all new office production in the Stockholm region. We have 428,000 sqm of commercial develop- ment rights left in our portfolio still to develop. 3 HIGHLIGHTS OF THE YEAR Significant events 2018 was an very successful year, with a high number of completions and some major company relocations. This makes us one of the biggest office developers in Sweden. We continued to develop our sustainability work, and 82 per cent of the property portfolio is now environmentally certified, along with all major new builds. PROJECTS FINANCING High degree of completion External rating and numerous relocations from Moody’s 2018 featured a considerable number of company relocations. In Arenastaden, the remaining SEB In February, Fabege received an investment employees moved in, which means that 4,500 SEB employees have now joined the district. Mobile grade rating from Moody’s of Baa3, stable operator Three, Telenor, Migrationsverket and ICA also moved into our properties during the year. A outlook. Fabege has for many years been total of 126,000 sqm of space was reclassified from projects to property management during the year. active on the capital market via both a green unsecured MTN programme and a commercial paper programme. The com- pany is also able to access covered bond financing via Svensk Fastighetsfinansiering (SFF). At year-end, capital market financing amounted to SEK 11 billion, or 42 per cent of total borrowings. The framework for the green MTN pro- gramme was expanded during the year from SEK 5 billion to SEK 8 billion, and at year-end, SEK 6 billion was outstanding with maturities of up to seven years. Our ambition is to increase our capital market financing via the green bond programme, and the credit rating and sustainability requirements allow us to obtain financing on more favourable terms. “Return in our projects 98 per cent.” NEW PROJECT – #PARK 1 ARENASTADEN Modern offices and Solna’s new swimming pool At Signalbron bridge in Arenastaden, right next to Mall of Scandinavia and Friends Arena, Fabege is planning to develop a new office building with modern offices, restaurants, gym and the City of Solna’s new swimming pool. The property will have two spacious atriums that link the various parts of the building, creating plenty of natural light on the office floors. One of the two entrances to the office faces Gustav III’s Boulevard and the other is right next to Signalbron bridge. The large entrance area connects the building’s various hubs: the entrance, the link with Signalbron bridge and the building’s two atriums. The building is being developed in response to the needs of both small and large customers, with opportunities to create their own entrances, staircases, assembly areas for employees and modern, extensive, continuous offices spaces. 4 Fabege Annual Report 2018 EMPLOYEES Continuing to grow We welcomed 28 new employees in 2018 – a record year in terms of recruitment. Growing and new market areas, more major tenant occupancies and ambitious urban development and sustainability tar- gets have resulted in a need to strengthen our organisation and bring in additional expertise. At the start of the year we had 161 employees, and by the end of the year the figure had grown to 181. Our focus is on our customers and on creating the right conditions for their success. An expanded management and operating organisation will enable us to concentrate even more on ensuring a posi- tive customer experience and satisfied ten- ants. Other functions that boost our capacity PROJECTS from a strategic and business perspective have also taken on new members of staff. First zero-energy hotel Fabege is building Scandinavia’s first zero-energy hotel in Arenastaden. Some 21 geothermal energy 28 boreholes along with a total of almost 2,500 sqm of solar panels on the facade and roof will allow us to produce more energy than is needed to run the property.