Fabege AB Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Nadir Rahman - UBS - Analyst : Yeah. Hello, good afternoon. Thank you for the presentation. Stefan, congratulations on your career so far, given the announcement of your retirement. The question I had was on the indexation and the contribution of inflation to your rents because you obviously reported 4.5% on the

Question: Nadir Rahman - UBS - Analyst : It was on the topic of the -- so the second part of that question was regarding the CPIF beat today, the inflation in Sweden coming well ahead of consensus. I think it was around 2% reported versus around 1.7% predicted by the market. So how could that affect your leasing momentum and decisions from tenants going forward? And could that have an effect on net lettings?

Question: Nadir Rahman - UBS - Analyst : Got it. Okay. That's very clear. And the second question was, I think on the recent news of SBAB recently downsizing their lease, I think they moved to another property within your portfolio. Is this a trend of downsizing you're seeing across other tenants? And could this, therefore, be a more structural shift in preferences for office space and therefore, have a long-term effect on your vacancy and trying to reach that 5% target?

Question: Nadir Rahman - UBS - Analyst : Yeah, that's very clear. Thanks for the answers.

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : A few questions on my end, please. The first one on slide 18, the rental development chart. I just wanted to check something, please. So you've got four buildings that are being delivered, I think, in 2025. I think you already said Saab and Alfa Laval would only kick in Q4 2025. So outside of this chart, so I just wanted to check because I think they're still slated in to be delivered before that. I think that's the first question on that. But also, what about the 2 other buildings? Are they already included in your light blue bars? Or are they also going to be delivered in -- at the end of 2025, please?

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : So you've got four buildings that are being delivered in 2025, right? I just want to understand if any of these buildings are included in the chart in the light blue bars.

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : But so the question is that line from the SEK847 million is pretty flat, right? So what I'm just trying to assess is how much indexation do you have in there? And also do you have a number of departures that compensate the fact that these buildings are going to be delivered, right?

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : Okay. So that's included. If we take -- so there's essentially two buildings that are being delivered in Q1. What about the Flemingsberg, the Separatorn 1 because that one is 95% let. Is that (inaudible) as well? Or is it Q4 because it's --?

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : November, so that's Q4? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, FABG.ST - Q4 2024 Fabege AB Earnings Call

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : All right. Very clear. If I -- obviously, you're talking about potentially new projects. Just keen to understand your discussion with tenant on that. Do you see any traction? Obviously, you said you wanted to secure a pre-let, which makes sense. Are you seeing good traction on these projects at this stage?

Question: Jonathan Kownator - Goldman Sachs Group, Inc. - Analyst : Okay. That's good. I mean, obviously, maybe one final question. A number of economists expect the economy in Sweden to pick up in 2025. I mean, what are your thoughts there? I mean, is it something that you're seeing already? Or is it delayed? Or what's the story on the ground with sort of --?

Question: Ventsi Iliev - Kempen - Analyst : Hi, good morning. Thank you for taking my questions. First one on the net letting target for 2025. I just wanted to ask you to elaborate a bit more why you're confident that you can reach this target because you also just said that the economy will most likely pick up only in H2. And then second one, on the debt ratio, I see that you're currently at 14%, while your policy is at 13%. And I guess the most likely way to get there is through disposals. So is this -- would you like to get there in the near term? Or do you not mind being above the target? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, FABG.ST - Q4 2024 Fabege AB Earnings Call

Question: Ventsi Iliev - Kempen - Analyst : Okay. Maybe if you just allow me to ask on leverage again. So even if I include the disposal, then I still get to a number before 13%. So yeah, could you just highlight if you're still considering disposals on the near term? Or would it be just more on an opportunistic basis?

Question: Paul May - Barclays Bank - Analyst : Just a couple of quick ones from me. Can you explain how the impact of the Riksbank rate cuts affects your debt cost? Because there's 150 bps of rate cuts that came through, you're about 40%, I think, variable debt exposed, but your cost of debt has only come down 15 basis points. Just wondered what the flow-through is and how that should work moving forward? And I've got a second question after that.

Question: Paul May - Barclays Bank - Analyst : Okay. Have those sensitivities -- sorry, I have to check back. Have those sensitivities materially changed over the last year?

Question: Paul May - Barclays Bank - Analyst : Okay. What's the reason for the changes? Sorry, just so I can understand thinking forward.

Question: Paul May - Barclays Bank - Analyst : Sorry, apologies. And just to check, these sensitivities are if your weighted average cost of debt changes? Or are these sensitivities if the underlying Riksbank rate changes?

Question: Paul May - Barclays Bank - Analyst : Okay. Cool. And are you expecting any sort of a delayed reaction effectively, if we look to the sensitivities in the past and obviously we've had a 1.5% move. It didn't all happen at the beginning of the year, you'd expect some of that to flow through? Or is that reflected already in your average cost of debt as of the year-end?

Question: Paul May - Barclays Bank - Analyst : Okay. Cool. And the second question, a separate question. In terms of the outlook for '25 and I think you mentioned it's going to be a tough start to the year, but you expect it to pick up as we get into the second half and I appreciate the view on -- from economists in terms of the pickup. But is there a concern or a risk or have you considered that the increase in your occupancy rate over the last basically two years is a result of the structural changes of office use and you'll just structurally have a higher vacancy rate moving forward? Or is that not something that you consider to be an issue?

Question: Paul May - Barclays Bank - Analyst : Cool. And just to say enjoy your retirement and we'll miss your candid responses to questions.

Question: Alexander Totomanov - Green Street - Analyst : Good afternoon. Thank you for taking my questions. It's three questions for me. So I think one at a time is probably best. First one, on the SBAB Bank news that came out yesterday, if I'm not mistaken, the new lease is for the same property in the inner city where two government agencies are departing at the second half of this year. I assume that the net letting figure quoted in the press release yesterday, which was about SEK21 million pertains to the SBAB Bank currently in Solna Business Park. Could you please confirm that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 2:30PM, FABG.ST - Q4 2024 Fabege AB Earnings Call

Question: Alexander Totomanov - Green Street - Analyst : Do you have a comparable net letting figure for the SBAB Bank versus the two government agencies which are departing?

Question: Alexander Totomanov - Green Street - Analyst : Okay. And in terms of the increase in rental income for SBAB Bank versus the government agencies, would you be able to comment?

Question: Alexander Totomanov - Green Street - Analyst : And in terms of the investment you mentioned, I can see that I think that's about a 6-month void or so. Would you have a figure in mind for the investment, either per square meter or the overall amount?

Question: Alexander Totomanov - Green Street - Analyst : Okay. Then second question, on the SEK29 million provision for Convendum, would you expect to take an additional about SEK30 million over this quarter, first quarter of '25? If I understand Fabege's exposure to the Convendum restructuring process correctly, that should be limited to about SEK60 million, I think, in total, that's about six months' rent and you've taken about half of that.

Question: Alexander Totomanov - Green Street - Analyst : Okay. And my third question on the 5% negative re-leasing spread, I think on SEK86 million worth of rent roll, if I'm not mistaken, given the figure reported in the third quarter, that would imply that about SEK25 million in the fourth quarter was renegotiated at about 30% down. Could you please give us an indication on what submarket in Stockholm this was relating to and whether it was isolated to a single tenant or whether it's multiple tenants?

Question: Alexander Totomanov - Green Street - Analyst : Great. And were those tenants primarily concentrated in a single market, let's say, Solna Business Park? Or were they spread throughout your portfolio?

Question: Paul Gorry - CTI - Analyst : Alex actually just asked a couple of my questions, but just maybe one quick follow-up on Convendum. The -- so we know that it's going to be a lower rent, but I'm guessing you can't comment on where it will be. But given that's known already, is that in the rental income bridge that you provide, so the quarter-by-quarter that Jonathan Kownator was referencing, is the lower Convendum rent already in there or --

Question: Paul Gorry - CTI - Analyst : Okay. Okay. So in April, so in Q2, we'll know where the new sort of level is --?

Question: Paul Gorry - CTI - Analyst : Yeah. Okay. Okay. And just on the accounting, so the SEK29 million that was recognized in this quarter, again, there's no way that that can be kind of unwound if -- I don't know if the agreement was reached with Convendum, kind of is more positive than you expected? Is there a way that that can be -- that you can see a positive impact and that gets unwound? Or are we saying that that's a sort of definite write-off and we should just take that as kind of --?