Annual Report 2010 “Our customers and locations are central in everything we do.” Contents 2010 in brief Introduction 2010 in brief 1 This is Fabege 2 Message from the CEO 4 Solna The business Strategic focus 6 Stockholm Opportunities and risks 9 Financing 10 The business 12 Property portfolio 20 Hammarby Property valuation 24 Sjöstad Market review 26 Fabege markets Stockholm inner city 28 Solna 30 Concentrated portfolio Hammarby Sjöstad 32 During the year, Fabege sold 54 properties for List of properties 34 SEK 4,350m. Accordingly, Fabege has concluded Responsible enterprise 40 the streamlining of its portfolio to its prioritised submarkets. The concentration has resulted in 98 per Financial reports The 2010 fi nancial year 48 cent of Fabege’s properties now being located within Directors’ report 50 fi ve kilometres of Stockholm’s centre. The divestments have freed capital with which to increase project in- The Group Profi t and loss accounts 56 vestments in the proprietary portfolio, and to acquire Balance sheets 57 properties offering favourable growth potential. Statement of changes in equity 58 Cash fl ow statement 59 Fabege’s heat consumption is The parent company Profi t and loss accounts 60 Balance sheets 60 40 per cent below national Statement of changes in equity 61 Cash fl ow statement 61 average. Fabege’s climate work began in 2002 with a project to replace Notes 62 old oil-fi red boilers with district heating. After that Fabege initiated Corporate governance report 74 a systematic effort to optimize the use of energy, and Fabege cur- Board of Directors 80 rently consumes 40 per cent less heat than the national average. Group management 81 Taken together, the various measures have cut annual carbon Signing of the Annual Report 82 dioxide emissions from about 40,000 tonnes to 5,500 tonnes. Audit report 83 Read more on page 40. Other information The Fabege share 84 Information to shareholders 87 Key fi gures 2010 2009 Five-year summary 88 Rental income, SEKm 2,007 2,194 Defi nitions 89 Net operating income, SEKm 1,348 1,465 History 89 Profi t/loss for the year, SEKm 1,697 425 Return on equity, % 16.0 4.3 The formal annual report, which has Surplus ratio, % 67 67 been audited, comprises pages 50–83. Equity/assets ratio, % 39 32 Interest coverage ratio, times 3.0 2.6 Earnings per share before and after dilution, SEK 10.38 2.59 Dividend per share, SEK 3.001) 2.00 1) Proposed cash dividend for 2010. 2010 IN BRIEF Modern offices Financial highlights for the Swedish After-tax profi t for the year im- proved to SEK 1,697m (425), National Agency corresponding to earnings per for Education at share of SEK 10.38 (2.59). Kungsholmen Profi t from property manage- ment declined to SEK 782m In September, the Swedish National (838), and rental income Agency for Education signed a lease declined to SEK 2,007m for about 9,000 sqm of offi ce prem- ises in the Klamparen 10 property, (2,194) as a result of net sales which formerly housed the Stockholm of properties. District Court, on Fleminggatan 14/ Scheelegatan 36 in the Kungsholmen Earnings before tax from the district of Stockholm. The property Property Management segment is undergoing an overall interior amounted to SEK 1,562m renovation featuring an exciting (488) and from the Property fl oor plan, new surface layers and Development segment to modern technical installations. SEK 300m (97). Transaction profi t amounted to SEK 237m (57). The Board of Directors proposes a dividend of SEK 3.00 per share (2.00). www.fabege.se More information about Fabege and our operations is available on the Group’s website. Rental income and Net operating income Surplus ratio Equity/assets ratio SEKm % % 2,500 80 45 40 75 2,000 35 70 30 1,500 25 65 20 1,000 60 15 500 10 55 5 0 50 0 06 07 08 09 10 10090807060504030201 10090807060504030201 Rental income Net operating income Outcome Target: 70% Outcome Target: min. 30% 1 The Business Fabege operates in three business areas; Property Management, Property Development and Transaction. FABEGE Property Property Transaction Management Development PROPERTY MANAGEMENT Finding the right premises for a custom- er’s specifi c requirements and ensuring that the customer is content is the essence of what we do. Our approach is long-term and based on a close dialogue with the customer, which builds trust and loyalty on both sides. PROPERTY DEVELOPMENT Qualifi ed development activities that add value to Fabege’s properties is the second cornerstone of our business. Th e company has a lot of expertise and long experience of running extensive property develop- ment and strives to attract long-term ten- ants to properties that have not yet been fully developed and can be redesigned based on the customer’s requirements. TRANSACTION This is Fabege Fabege’s third cornerstone is Transac- tion development. Acquisitions and sales are an integral part of Fabege´s business Fabege is one of Sweden’s leading property companies, model and makes a signifi cant contribu- focusing mainly on letting and managing office premises tion to consolidated progit. Th e company as well as property development. continuously analyses its portfolio to take advantage of opportunities to increase capital growth. Fabege off ers attractive and effi cient closer to its customers, which, coupled premises, mainly offi ces but also retail with Fabege’s extensive local expertise, Operational key fi gures 2010 2009 and other premises. Th e company’s creates a solid foundation for effi cient Property value, operations are highly concentrated to property management and high oc- Management, SEKbn 21.5 23.3 Property value, development a number of fast-growing sub-markets cupancy. projects, SEKbn 5.5 5.9 in the Stockholm region, as the inner Fabege’s vision is to be the most Invested in the company property city of Stockholm, Solna and Ham- proactive, innovative and competent portfolio, SEKbn 0.9 1.1 marby Sjöstad. commercial property company in Acquisitions, SEKbn – 0 Fabege manages a well positioned Stockholm as well as an important Sales, SEKbn 4.4 1.2 property portfolio that is continually partner for its clients and society in being developed through development general. At year-end 2010, Fabege www.fabege.se projects, sales and acquisitions. Th e owned 103 properties with a total More information about Fabege and concentration of properties to well market value of SEK 27.0bn. Rental our operations is available on the contained clusters brings the company revenues in 2010 were SEK 2.0bn. Group’s website. 2 Fabege 2010 THIS IS FABEGE Fabege’s sub-markets Stockholm inner city Solna Hammarby Sjöstad Most of Fabege’s inner city properties Arenastaden and Solna Business Park Fabege owns the majority of commer- are located in the area around are Fabege’s main sub-markets in Solna. cial properties in Hammarby sjöstad, Kungsgatan and Drottninggatan, Fabege is one of the initiators and part- the largest being the Luma building. in the Norrtull area and in western owners of the new Arenastaden district, The district is one of Stockholm’s most and eastern Kungsholmen. The port- which will be home, not only to a large exciting development areas, and it has folio includes the DN building and part of offi ce buildings, but also to the become a highly attractive residential Wenner-Gren Center, two wellknown spectacular new Swedbank Arena, an and offi ce location area. Stockholm landmarks. extensive retail complex, hotels and residential buildings. Read more on page 29. Read more on page 30. Read more on page 33. No. of properties 42 No. of properties 34 No. of properties 12 Lettable area, ‘000 sqm 501 Lettable area, ‘000 sqm 462 Lettable area, ‘000 sqm 132 Market value, SEKbn 16,215 Market value, SEKbn 8,333 Market value, SEKbn 1,987 Rental value, SEKbn 1,167 Rental value, SEKbn 0.685 Rental value, SEKbn 0.175 Financial occupancy rate, % 90 Financial occupancy rate, % 86 Financial occupancy rate, % 82 Breakdown of rental value Breakdown of rental value Breakdown of rental value Office 86% Office 82% Office 70% Retail 7% Retail 7% Retail 8% Industrial/ Industrial/ Industrial/ warehouse 2% warehouse 5% warehouse 19% Other 5% Other 6% Other 3% 3 Message from the CEO All vital key figures improved The property market turned upwards during 2010, and Fabege’s sub-markets strongly developed. Through the central locations of our properties, along with our market knowledge and hard work, we generated strong growth and highly favourable earn- ings in 2010. We increased the concentration of our property portfolio through a large number of property sales. With a strengthened balance sheet, our potential to increase the rate of project development and capitalise on acquisition opportunities is substantial. 2010 – A VERY GOOD YEAR number of sub-markets characterised by high growth. Fabege reported stable property management earnings Since the overall portfolio provides us with the best while earnings from transactions and the development potential to create value, our own work eff orts have portfolio also rose sharply. It is gratifying to report that become critically important in order to reduce our risk all segments in our business model, aft er a two-year exposure and sensitivity to economic trends. During interruption during the fi nancial crisis, are once again 2010, 54 properties were sold, primarily in non-prior- generating signifi cant contributions to our total earn- itised areas, for just over SEK 4bn. As a result, 98 per ings. Our employees contributed their strong commit- cent of Fabege’s property portfolio is now concentrated ment to this favourable trend.