Fabege Q2 2025 slides: Improved bottom line despite negative rental growth

Introduction & Market Context

Fabege AB (STO:FABG) released its interim report for the first half of 2025, revealing a mixed performance as the company continues to navigate challenges in Stockholm’s office market. While rental growth in identical holdings declined by 3% compared to an 8% increase in the same period last year, the company showed signs of stabilization with improved bottom-line results and continued focus on long-term development projects.

The Stockholm-based real estate company, which closed at 84.35 SEK on July 4, down 0.88% for the day, maintains a portfolio of 99 properties valued at 78.3 billion SEK, primarily concentrated in key Stockholm submarkets including Arenastaden, Solna Business Park, and Stockholm’s inner city.

Quarterly Performance Highlights

Fabege reported a net loss of 267 million SEK for the first half of 2025, a significant improvement from the 682 million SEK loss recorded in the same period of 2024. Earnings per share improved to -0.85 SEK from -2.17 SEK a year earlier, despite continued headwinds in the rental market.

As shown in the following comprehensive financial summary, rental income decreased slightly to 1,717 million SEK, while property costs increased to 484 million SEK, resulting in a marginally lower surplus ratio of 72% compared to 73% in the previous year:

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Property values continued their downward trend, though at a slower pace than in 2024, with unrealized value changes of -671 million SEK compared to -1,461 million SEK in the first half of 2024. The total value change for the period amounted to -650 million SEK, representing a decline of 0.8%.

Detailed Financial Analysis

The company’s key performance indicators remained relatively stable year-over-year, with equity per share at 119 SEK and EPRA NRV (Net Reinstatement Value) per share at 147 SEK. The loan-to-value ratio held steady at 43%, well below the company’s target of less than 50%, while the interest coverage ratio remained unchanged at 2.4 times.

The following table illustrates Fabege’s performance against its financial targets:

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Fabege maintained strong access to financing, with 99% of its debt classified as green financing. The company’s total debt stood at 34.2 billion SEK as of June 30, 2025, with unused credit facilities of 6.0 billion SEK. The average interest rate decreased slightly to 2.89% from 2.98% previously, reflecting the Swedish central bank’s decision to lower the key interest rate to 2%.

The company’s financing structure is detailed below:

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The interest rate maturity profile shows that 49% of Fabege’s debt portfolio has fixed interest rates, providing some protection against potential future rate increases:

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Strategic Initiatives

Fabege’s occupancy rate in the management portfolio stood at 87% as of June 30, 2025, with approximately 119,000 square meters leased out of a total 137,000 square meters. The company reported negative net leasing of 6 million SEK for the first half of 2025, with new leases of 124 million SEK offset by terminations of 130 million SEK.

The company maintains a stable client base with long-term contracts, with the 25 largest clients accounting for 45% of rental income. The average contract length is 4.8 years, providing visibility on future cash flows. SEB remains the largest tenant, representing 6.8% of rental income with a contract running until 2037.

As shown in the following breakdown of major clients and property types, office properties dominate Fabege’s portfolio, accounting for 84% of total rental income:

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Fabege completed several development projects during the period, including premises for Alfa Laval in Separatorn 1. The company continues to invest in ongoing projects, with total investments of 1,044 million SEK during the first half of 2025, distributed across management portfolio (408 million SEK), refurbishment portfolio (26 million SEK), and project portfolio (610 million SEK).

Forward-Looking Statements

Despite current market challenges, Fabege maintains a positive long-term outlook on Stockholm’s office market. The company highlighted Stockholm’s attractiveness as a business location, citing accolades such as CNN’s "Best place to visit 2025" and noting that 30% of Sweden’s GDP is created in the region.

Fabege’s growth strategy focuses on completing existing projects, increasing the occupancy rate to 95%, investing in new projects, executing value-creating transactions, and improving cost efficiency. The company believes that offices remain crucial for successful businesses, pointing to a trend of employees returning to office environments despite ongoing efficiency measures.

The company also emphasized its commitment to sustainability, with initiatives including an updated green framework with a second opinion from S&P (medium green), collaboration with Myrspoven for energy efficiency improvements, and recycling at least 80% of materials from demolition projects.

While the Stockholm office market continues to face headwinds, Fabege’s improved bottom-line results and strategic focus on prime locations and sustainable development suggest a gradual stabilization as the company positions itself for long-term growth in what it considers one of Europe’s most attractive real estate markets.

Full presentation:

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