Fabege AB Unsponsored ADR

Q2 rental income was just under SEK 1.8 billion, up 5.9%. Operating income from property management was just over SEK 1.3 billion, and the surplus ratio was 73% for the half year and 74% in Q2, up 1 percentage point year over year. Residential development profit was SEK 39 million in Q2, with a 21% margin; the residential business contributed SEK 79 million in the first half. Net letting was SEK -86 million in Q2 and SEK -62 million for the first half, reflecting terminations including Max Matthiessen and Telenor. Unrealized value changes were SEK -139 million in H1, but Q2 turned positive at SEK +120 million, or +0.15%, with externally valued yield down from 4.59% to 4.57%. Net interest expense rose as STIBOR increased, and average interest cost moved from 2.82% at year-end to 2.88% in H1. Profit for the first six months was SEK 521 million. Key ratios included SEK 119 per share, EPRA NRV of SEK 145 per share, debt ratio below 13%, and interest coverage of 2.6x in H1 and 2.7x in Q2. Guidance-wise, management said all 2026 bank loan refinancing is done, and the remaining SEK 2 billion of capital market debt is intended to be refinanced with new bond issues in the autumn.

Bent Oustad said the priority remains leasing, occupancy improvement, and staying focused on core assets. He highlighted balance-sheet cleanup, including the sale of smaller plots and a sharper focus on core properties, plus some organizational changes in market-area coverage. His tone was constructive but pragmatic: he described the rental market as recovering, though not dramatically, and said the company is working through vacancies and tenant changes with patience.

Åsa Bergström focused on margins, funding, and valuation support. She said rental income was just under SEK 1.8 billion, the surplus ratio was 73% for the first half, and property expenses were in line with last year; the average interest cost rose to 2.88% from 2.82% at year-end as STIBOR moved higher and some debt rolled. She noted SEK 24 million of positive tax from a property sale and more than SEK 100 million of tax benefit from newly recognized carryforward losses, while also pointing to strong financing access, the SEK 350 million five-year bond at 110 bps, and increased interest fixing through SEK 1.4 billion of new swaps at 2.5%-2.6%.

Analysts pressed management on why renegotiated leases looked slightly weaker and when improving market conditions would show up in the numbers. Bent Oustad said the weaker Q2 was driven by just one or two special contracts and that the company is not guiding on when the mix will turn positive, though he reiterated that CBD activity is stronger. Questions also focused on older, less well-positioned properties and the improvement portfolio; management said the response can be either refurbishment or redevelopment, with targets of about 20% margin for Stratsys projects and around 6% yield on cost for new construction. On occupancy, management said impacts tend to lag by 6-12 months and that some vacancy losses, including Telenor’s move-out in September 2028, are still far ahead.