Earnings call transcript: Fabege’s Q2 2025 results show mixed financials

Fabege AB, a prominent player in the Real Estate Management & Development industry with a market capitalization of $2.74 billion, reported its second-quarter 2025 financial results, revealing a mixed performance. The company experienced a decrease in like-for-like income and a negative net letting, while maintaining a strong balance sheet and expressing optimism for the latter half of the year. The stock saw a slight decline of 0.41% in pre-market trading, reflecting cautious investor sentiment. According to InvestingPro, the company has maintained dividend payments for 28 consecutive years, currently offering a 2.37% yield.

Key Takeaways

• Fabege’s like-for-like income decreased by 3.3%.
• The company reported a negative net letting of SEK -12 million in Q2.
• Fabege’s stock price fell by 0.41% following the earnings release.
• The company aims to increase occupancy rates to 95%.
• Unrealized changes in property value amounted to -SEK 650 million.

Company Performance

Fabege AB’s overall performance in Q2 2025 was marked by challenges in rental income and property value changes. The company’s like-for-like income saw a decline, and net letting was negative for the quarter. Despite these setbacks, Fabege maintained a strong balance sheet and expressed a positive outlook for the rest of the year.

Financial Highlights

• Rental income: SEK 1.7 billion
• Net operating income: SEK 1.233 billion
• Surplus rate: 72%
• Profit from property management: SEK 657 million
• Unrealized changes in property value: -SEK 650 million
• Total property value: SEK 78.3 billion

Market Reaction

Fabege’s stock experienced a slight decline of 0.41% in pre-market trading, reflecting a cautious market reaction to the mixed financial results. With a beta of 1.37, the stock shows higher volatility than the market average. Trading at a P/E ratio of 78.77, the stock remains closer to its 52-week low, suggesting ongoing market concerns. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued in the current market.

Outlook & Guidance

Looking forward, Fabege is focused on increasing occupancy rates to 95% and targeting a net letting of SEK 80 million. Despite a revenue decline of ~13% in the last twelve months, analysts expect net income growth this year. The company remains optimistic about the second half of 2025 and is exploring development opportunities in key areas. For detailed financial projections and analyst insights, consider accessing the comprehensive Pro Research Report available on InvestingPro.

Executive Commentary

CEO Stefan Dalbo emphasized the focus on growth in management profit and maintaining a strong return in the property portfolio. He described the results as stable despite a weak market, highlighting the company’s resilience.

Risks and Challenges

• Continued decrease in like-for-like income could impact profitability.
• Rising vacancy rates in the Stockholm office market pose a challenge.
• Unrealized property value changes may affect financial stability.
• Competition in office-intensive industries remains high.
• Economic uncertainties could influence market dynamics.

Q&A

During the earnings call, analysts questioned Fabege’s net letting target and its strategy for reducing vacancies. The company confirmed its focus on existing areas and extending most contracts on existing terms, with no immediate acquisition targets.

Full transcript - Fabege AB (FABG) Q2 2025:

Conference Moderator: And the conference over to the speakers. CEO, Stefan Dalbo and CFO, Asa Bergstrom. Please go ahead.

Stefan Dalbo, CEO, Fabege: Good morning, welcome to our presentation for the first half of twenty twenty five, including the second quarter, of course. With me here in the room, I have CFO, Osa Bergstrom and also Peter Kangert, our IR. And as usual, we will end with a q and a session. Next slide, please. Our strategy, we focus on Stockholm is, of course, still the better.

We believe at Stockholm, we believe on offices, and I will come back to that later in the presentation also why. So, Paul, please also let us talk about the figures first.

Asa Bergstrom, CFO, Fabege: Thanks, Stefan. Yes. Rental income for the first half year amounted to 1,700,000,000.0, just below the same period last year. On a like for like basis, income decreased by SEK 53,000,000, equivalent to minus 3.3%, which mainly related to relocation due to the previous year’s negative net lettings. Occupations in completed projects were offset by reduced income related to divested properties, net plus SEK 40,000,000.

Net operating income decreased to SEK 1,233,000,000.000. Property expenses include a nonrecurring item of SEK 7,000,000. Other deviations mainly related to high maintenance costs and property tax. And the surplus rate thus amounted to 72%. During the second quarter, the first phase was completed in the housing project in Haganora with the completion of 23 apartments.

This meant that Bibostad reported sales of 128,000,000 and a gross profit of SEK 23,000,000. Central administration costs amounted to minus SEK 59,000,000. Net interest items came in just below the previous year. Higher debt was offset by lower average interest rates during the period. And the result in associated companies amounted to minus 37,000,000 and related to the period’s capital contributions to Ariana Belarget.

Share in profit of other associated companies only amounted to minor amounts. This went to profit from property management of $657,000,000 compared to SEK $659,000,000 in the previous year. Unrealized changes in value amounted to minus SEK85 million in the quarter and minus SEK650 million accumulated in the first half of the year. I will come back to this very soon. We have also written down development properties relating to future project opportunities in Beebollstad by minus SEK 21,000,000.

Realized changes in value of minus 37,000,000 related to the sale of Inglingen, which was vacated in the first quarter. And the valuation of the derivatives portfolio following long term interest rates, which fell during the quarter. During the period, the surplus value decreased by $329,000,000. The tax expense, which related to deferred tax amounted to plus SEK 116,000,000, which plus SEK 128,000,000 related to a reversal of deferred tax in connection with the sale of the property in Lingen. Next slide, please.

During the second quarter, we have independently valued approximately 40% of the property portfolio supplemented with internal valuations of other properties. The average yield increased during the second quarter by a further 0.01 percentage points to 4.56%. This was 4.54% at year end. In the first quarter, we reported negative changes in value of minus $565,000,000. This was mainly related to the fact that the valuers expected longer vacancy periods and slightly lower rent levels primarily in Solna, where we do have some vacancies and longer implementation periods for future projects opportunities in Flemishberg.

Now in the second quarter, the changes in value amounted to minus SEK 85,000,000, net of minor adjustments, both upward revaluations and impairments. Overall, changes in value during the period thus amounted to minus SEK $650,000,000. The total property value thus amounted to SEK 78,300,000,000.0. In addition, there is a property value of development property portfolio in Videobullstad of 900,000,000.0. Next slide, please.

Reported equity amounted to SEK 119 per share and the long term EPRA MRV amounted to SEK 147 per share. The equity asset ratio amounted to 45% and the loan to value ratio was unchanged at 43%. Both of these key performance indicators confirm our continued strong balance sheet. And the interest coverage ratio amounted to 2.5 moving twelve months, which is in line with the previous year. Next slide, please.

Access to and pricing of financing is still very good. This applies both to capital markets and to banks. Since the vacation of the property in England in March, when we received almost DKK 1,000,000,000, our activity has been at a relatively low level. We have refinanced and extended a bank facility of DKK 1,500,000,000.0. During the second quarter, we issued a total of DKK 700,000,000 in new three year bonds at a margin of approximately 1%.

In connection with this, smaller amounts were repurchased in relation to maturities during the autumn. After that, there are remaining bond maturities of 1,700,000,000.0 in the autumn, which we intend to refinance with new bonds. In June, the annual update of the MTN prospectus was carried out. We also launched an updated green framework with a second party opinion from Standard and Poor. Un drawn revolving credit facilities totaled 6,000,000,000 at the end of the quarter.

Overall, we continue to have good preparedness for upcoming financing needs and refinancings. We have facilities in place to cover the upcoming loan maturities. Next slide, please. Of the loan portfolio, 49% is fixed, mainly based on long term maturities and mostly through straightforward interest rate swaps supplemented by some fixed rate bonds. In addition, there are callable interest rate derivatives totaling 7,000,000,000, which are still running.

Straightforward interest rate swaps run with fixed interest rates between 0.112.18% and the callable interest rate derivatives run with an interest rate between one point eight two percent and two point five percent. The average fixed rate term amounts to one point five years adjusted for the estimated maturity of the callable swaps. The fixed rate term increases to two point four years. The BRICS bank cut of its policy rate in June has not yet had a full impact on our financing. We also see potential for lower margins in connection with upcoming refinancing of both bonds and bank loans.

Meanwhile, this is offset by swaps at low interest rates that mature during the year. As I have said earlier, we expect that the average interest rate will remain just below 3%. At the June, we reported an average interest rate of 2.89%. For a moving twelve month period ahead, an increase in the market interest rate of one percentage point will generate a higher interest expense of approximately SEK 153,000,000, all else unchanged. A corresponding reduction in the market interest rate by one percentage point will result in a reduced interest expense of 96,000,000.

And over to the next slide, please. Something new in the second quarter, as I just mentioned, is the updated green framework. The framework is based on third party certified properties and ambitious energy targets. As before, it’s mainly based on the green bond principles adapted to the EU taxonomy. The framework is primarily aimed at the capital market where we have only borrowed using green financing for several years now.

S and P has issued a second party opinion with a median green rating for the green terms and conditions. The framework and associated documentation is published on Faberge’s website. During the quarter, we have otherwise continued to work in line with our environmental and sustainability targets relating to, among other things, property’s energy consumption and reduction of CO2 during project development. We have recently started a collaboration with Mierspuven, Swedish company, to take the next step in further streamlining and managing the energy consumption in our properties. This will be noticeable in both consumption and costs in the longer term.

Another initiative is the dismantling of older properties that is now being carried out along Dahl Wagon in Solna. We have set a high target where at least 80% of the demolition material must be reused or recycled. A lot of material goes back to suppliers for recycling. Other materials are recycled on-site. And we have recently sent 1,600 windows to Ukraine to help with reconstruction.

And so back to you, Stefan. Thank you also.

Stefan Dalbo, CEO, Fabege: The next slide is the transaction market. There have been the transaction market for office in Stockholm has been relatively calm during the first half. There are some transactions that have been announced, some in the CBD, and then more they have been good prices and some right outside the CBD under under in the city, a premium spot, for example, We don’t know exactly the price that have been not been published, but the indications we have all that that are in line with the regulations we have in our different areas. So, please, next slide. The office market in Stockholm or in our area continue to be quite slow.

We have in during the quarter or during the second quarter, we have noted some increased activity in the numbers of inquiries and hearings, and that also make us a little bit more hopeful for the second half of this year. The vacancies rates are continued to go up to to to as it as it has done. The trend is continues for for from the last years. As we all know that the number of employees in the office intensive industries are high in Stockholm. We are more that also means it’s little bit more volatile for for this than the maybe you can see the rest of Sweden because the office related professions in Stockholm are very high in all most sectors, in service sectors, in tech in tech, in life science, in finance, advisories, and so on.

So unless in the industrial related professionals. So but we are a little bit more I think it’s time to be a little bit more optimistic for the next at least for 2026. Next slide, please. The and this is one also one of the reasons. The office space is not there are very few projects going on, and the office space is not supposed to or expected to increase.

And as we know, the the location is everything, and that’s even more clear over this over the last year over the last during the last years that the to have good commuting opportunities and possibilities is very more even more important than it was five years ago. So the trend continues to be strong. Next slide, please. The occupancy rate is our management portfolio is, as you know, one of our challenges, but also one of the future opportunities. The in the management portfolio, we have the 87% occupancy rates.

It will continue to be a little bit lower before it will comes up again. It it is because of, of course, what we have seen in last years of. So next slide, please. In the renegotiations through the first half, we most of the terms were extended you know, most of the contracts were extended unchanged terms. The 100,000,000, we have more close our negotiations with wherein we had to decrease the with a minus 3%.

Some of them are relatively large contracts in where we had a little bit of them with the indexation survey. Some of those, I think, is free free contracts that have quite a big impact on this this figure. But then we still expect most of the written future remunerations to be extended on unchanged terms. The net letting was negative for the quarter and for the first six months with 6,000,000. We had a positive of 6,000,000 in the first quarter and negative of 12,000,000 in the second quarter, which was mainly related to one tenant that decreased the area during during the period.

Very few contracts both were were on the plus or minus, you could say. So it was relatively quiet on the gross level. But we have a lot of, as said before, a lot of discussions that are more optimistic for the second quarter the second second half of the year. Next slide, please. This is we used to show you the rent development for what we know today in the existing lease portfolio, including the projects.

We have seen in the beginning of this year, in the second quarter, Alfa Laval moving in. So we have part of that in q two. We will have saw in q three and q four, and that’s also why it’s a little bit better in the beginning of next year. The negative is, of course, is that the the what we know about the the tenants that are leaving us. But better for next year and then because we’ll continue on business with the trend we are working for, of course.

Next slide, please. We also used to show you this stable cuss this side slide with the stable customers that are our largest tenants SMB still at top, of course. Saab will will be new are new on the list. Alfa Laval is new on the list. And then they’re according to condemn them and the situation of the reconstruction of the the fire, the the they’re not it’s still not settled.

We have an agreement with them, but it hasn’t been legally binding yet because of that. It’s a smaller channel that are still challenging the agreement. But, hopefully, we will know later today maybe or at least during the July a little bit more after to be continued, so to say. Next slide, please. We have completed a quartet in Haganora.

It’s a fantastic building, and we still have two floors, but we have still two floors to sign. But we are optimistic that that will be done during next six months. Alfa Alfa Alfa Alfa Alfa Alfa Alfa and it’s it’s really working very, very well. We still have 500 square meters or five, six hundred square meters. And they can tell if it’s we we have an option to to take take on take on the event first so we will know more about that later even that later this year.

In Hamburg, we’re still fixed in for it. It’s they continue to develop very well. It’s also a fantastic building. We’re now working with everything from the tenants to the restaurants, and we signed this week or last week it was a new contract for the one of the floors. And now we have just one floor left.

And he said, it’s I think it’s 86% occupied right there after that signing. So it’s moving on. So very few. Now we can resolve that we send on the when we were expecting to move in later this year. Next slide, please.

And you can see it here, net and four. For last run, it’s almost finalized or finished, and they are starting in September, starting to move in. During the period, we have started the renovation of the center. It’s mainly the facade, but also everything from ventilation too. We we will do the same time.

And then in Armenistan, we have started to demolish part of Cairo to make it first of all, just to be able to start the infrastructure work with the roads and the I think to be ready when the subway was open 2028, end of twenty twenty eight, and also make it possible for us to have next to to future like, opportunity for future projects. Next slide, please. In beer, have completed, and as also said before, settled the we completed the Alma, and we continue to sell the owner apartments and the next next probably in in of of in the upcoming phases of the apartments. We have sold we do we have sold quite good during the quarter. And the rental apartments, the seven day rental apartments will be completed for during autumn twenty twenty five.

So it it will continue to continue to to develop and continue to plan. Okay. Well, according to plan. Please next slide. Our buildings rights, just to remember, at least that we still we have or as you know, we have 1,200,000,000 square meters, Almost 40 almost half of it is legal binding, and this is for the future opportunities.

But, of course, today, we are more it’s way, anyway, we move to to prepare for the future, but we’re not starting anything right now on speculation. Next slide, please. But, obviously, that could be started in the near term if we can find the tenants or the 40 Kairina area, that’s about $75.70 maybe more than 75,000 square meters and almost 200 apartments. We are we had discussions here, and we are working with it on in in the market, of course. So we will we will keep keep you informed.

In Haganora, we can start the next phase of the development for the residentials, but we will maybe we will like to be we would like to send more in the in the existing product for before taking any decisions. Next slide, please. In the, as you know, the legal legal the triangles by the end of last year after fourteen years of work. And we are having discussions how to to develop that that that that that building in for the future. And it’s one of the business park, hence, the the most positive areas right now that the NCAA have started to build the house in the middle that will will move in in in a couple of years time, and that will also make it possible for us to develop packages for offices, 24 some square meters office, and for residential and some some so but then to be even here to be continued, it’s not any decisions made right now, but we’re working to be able to use those opportunities for the futures.

Next slide, please. So everything this will lead to long term growth. Of course, our focus right now is letting to increase the occupancy rates back to the 95%. It will, as I said before, and this call of course, it’s still true. It will take some years, but that’s a full focus.

It’s focused also, of course, on completing the existing products and in the near term to welcome some. We have the work on the for making to to be able to for new for for the future products. We we are continuing to look at the discussion having discussions for transactions that can create values. And as usual, the cost efficiency is in focus. So to summarize, growth of management profit is in focus.

That’s been poor for the last years during two lot of circumstances till but I’m more optimistic for the next years. And we will long term have the best total return in the property portfolio in listed companies. It’s up but but that yeah. For us it’s up for us to show. Generally, I think we can summarize it with it was a stable result in a continued weak market.

We have right now focus on letting and on the daily grid of managing managing our preferred preferred properties. So, please, questions.

Conference Moderator: If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Stephanie Dossmann from Jefferies. Please go ahead.

Stephanie Dossmann, Analyst, Jefferies: Good morning, and thank you for this presentation. I had a question regarding the net lettings target for this year because at the end of twenty four, you were guiding on 18,000,000 for this year, positive, of course. And of course, it doesn’t seem to be the trend. So could you give an update on that target and see how you how confident you are to improve net lettings in the second half? And would it be possible also to give a breakdown of your like for like rental growth between inflation, negative reversion and so on?

And more generally speaking, what is the reversionary potential on your portfolio, please?

Stefan Dalbo, CEO, Fabege: Thanks for the question. First, the net acting target of EUR 80,000,000 is still valid, and that’s what we target going for. I’m looking forward to a better second half of the year. And as we said during the presentation, we see more activity during for showings and different discussions in the end of this quarter. So I’m looking forward to the second quarter with some self confidence.

Then you asked that about the

Stefan Dalbo, CEO, Fabege: The breakdown

Asa Bergstrom, CFO, Fabege: of the development of

Stephanie Dossmann, Analyst, Jefferies: The like for like.

Asa Bergstrom, CFO, Fabege: Like for like growth, yes. And there are some information in the presentation and also in the slides. So as we said, the like for like was negative by EUR 53,000,000. This is due to companies leaving and a result of the negative net letting of last year. So that was equivalent to minus 3.3%.

Indexation was only a very small number in the beginning of this year. So it didn’t really have a large impact. And then there was one property sold, Gladian, which had a negative impact. But on the other hand, as we also mentioned, there is a positive impact from companies moving in into finalized projects. And the net of those two last ones is plus 40,000,000.

Stefan Dalbo, CEO, Fabege: And I think also we also have the vandegrand center that we are

Asa Bergstrom, CFO, Fabege: That’s part of vacation, yes. Yes. And also, when it comes to renegotiations, the net was minus 3%, but this has not really had impact on rental income yet because there’s a time lag between the negotiation and the signing of a new contract and when it comes into effect. But there is also a graph in both the presentation and in the report that reflects the rental income in the coming four quarters.

Stephanie Dossmann, Analyst, Jefferies: You. But maybe if I may

Conference Moderator: follow-up Stephanie Dossmann, your line is now unmuted. Please go ahead.

Stephanie Dossmann, Analyst, Jefferies: Thank you for that. Just a follow-up maybe on the reversionary potential. I mean, could you give some colors on your if your portfolio is over rented currently and by how much? And what is, in your view, the negative reversion we can expect on the market as a whole because there has been strong indexations during the last three years. So what is the reversionary potential on the market, both on the market and your portfolio, please?

Stefan Dalbo, CEO, Fabege: I don’t

Stefan Dalbo, CEO, Fabege: think that our portfolio is over rented. Most of the contracts are prolonged on existing terms, and that’s also what we see in the market that we are the market level the market rents are above the contracts contracted rents. Some still we also have some potential in some contracts, some old contracts that are maybe signed ten years ago. So that that we have because since our areas are even more attractive maybe. So with the it’s a higher rental level on in the area.

So but in general, for the market, I would say it’s about about of course, there are some contracts that are over rented after after as we as we can see about but most. And I think I think that’s true even for the other companies that we and our colleagues in the sector. In the CBD, we even see maybe an uptick on on the best locations. You can see higher rents than that have been in the existing contracts, but but that’s in some parts of the CBD. Did that answer your question?

Stephanie Dossmann, Analyst, Jefferies: Yes. Pretty much. Thank you.

Conference Moderator: The next question comes from Adam Shapton from Green Street. Please go ahead.

Adam Shapton, Analyst, Green Street: Good morning. Thanks for the presentation. Just one on balance sheet from there. Just your if we look at your key ratios, debt ratio and ICR as well, you’re either beyond or close to your self imposed target. Can you talk about how comfortable you are running, for example, with a debt ratio more than one turn above your target?

And how you see the trajectory for that over the next year or two? And how you’re going to get, for example, a debt ratio back below 13%, assuming that remains your target?

Asa Bergstrom, CFO, Fabege: Just to begin with, the development of the net debt ratio is really depending on the repurchase of shares that we did a couple of years ago that took this metric from in line with our internal targets up to where it is around now, around 14%. I think with less project investments going forward, this will be there will be an improvement in this metric. It’s not the main metric for us. We are more looking into LTV level and ICR. Those are the two that matters the most for us.

Stefan Dalbo, CEO, Fabege: And for the banks, you could say.

Asa Bergstrom, CFO, Fabege: And for the financing sector, too, yes.

Adam Shapton, Analyst, Green Street: Okay. So the debt ratio target is a bit of a soft target. Okay. And I just wanted to clarify on the previous question on the reversion in the portfolio. And you made quite a number of comments, and wasn’t sure I completely followed them.

Did you say, Stefan, that most contracts are over rented?

Stefan Dalbo, CEO, Fabege: Or No. I said that most contracts are in line with in line with market rents. That we most contracts are prolonged on existing terms.

Adam Shapton, Analyst, Green Street: Okay. And and that’s what you expect going forward. Okay. That’s very good. Thank you.

Asa Bergstrom, CFO, Fabege: Yes. Yes. We have one question here from Kempen or two questions, really. You’ve signed an LOI with the city of Sorna for the disposal of Hernan.

There’s been some opposition in the local government. In case this fall through, would you be willing to sell other assets instead?

Stefan Dalbo, CEO, Fabege: We don’t we actually, the the Hernan was the was at. They contacted us to ask if we were if they were were able to or if we could discuss if they could could acquire it. Now, as you said, it’s more opposition, and it probably would not be a sale right now. And we don’t do we we were not outselling it, so we don’t have any we don’t like it. So we can discuss other solutions for that with with the city city of.

We are we we’re not in a in a situation that we have need need to sell. So so no. The answer the short answer is no.

Asa Bergstrom, CFO, Fabege: And the second question is, as we’ve discussed before, you likely need more projects in the pipeline to reach your SEK 80,000,000 target in net letting. What is the outlook for that? And are you confident on signing more pre lets?

Stefan Dalbo, CEO, Fabege: You should never be sure before the it’s on the printed and is assigned. But yes, I’m optimistic, yes.

Asa Bergstrom, CFO, Fabege: And there’s also one question from Goldman Sachs. What actions are you taking occupancy to 95%? Unemployment rates are still high in Sweden.

Stefan Dalbo, CEO, Fabege: The unemployment rate, you’re correct. But we have a lot of activities, and I think the areas we have are attractive. So it’s we have even more people working with letting. We have a lot of showings, activities in the market. But the the main the main at the end, I think it’s about about attractively attractiveness for our areas, and I think that’s positive.

So a little bit better also, the demand in the market will will help us a lot. So even there, I’m optimistic for for the for the future.

Conference Moderator: The next question comes from Stephanie Dossmann from Jefferies. Please go ahead.

Stephanie Dossmann, Analyst, Jefferies: Yes. Sorry to be a pain, but another follow-up question. Maybe you touched upon looking at transactions. So what would you target in terms of assets, location, yields for acquisitions, please?

Stefan Dalbo, CEO, Fabege: We haven’t any targets for acquisitions right now. We are focusing on the existing areas. We are focusing on especially, vacancies to to make it make sure make the take the opportunities for for the future projects because we think that’s the best way of creating values for for us even over the next years. So that’s the main focus right now.

Stephanie Dossmann, Analyst, Jefferies: Thank you.

Conference Moderator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Stefan Dalbo, CEO, Fabege: So thank you very much for joining us this morning. And if have any more questions you’d like to have any discussions, will you also please give Peter or also myself a call? And have a nice summer. Thank you very much.

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