Fabege (FABG) Q4 2008 earnings summary

Executive summary

• Operational performance improved: rental income rose to SEK 2,214m from SEK 2,066m and net operating income to SEK 1,438m from SEK 1,312m. Higher yield requirements and lower market interest rates drove large non-cash valuation losses.

• After-tax result was SEK -511m versus SEK 1,812m; diluted EPS was SEK -3.07 versus SEK 9.98.

• The portfolio comprised 157 properties valued at SEK 29.5bn at year-end; 89% of rental value was concentrated in Stockholm Inner City, Solna and Hammarby Sjöstad.

Financial highlights

• Rental income increased 7% to SEK 2,214m; comparable-property rental income grew 3% YoY.

• Net operating income increased to SEK 1,438m from SEK 1,312m; surplus ratio was 65%, versus 64%.

• Loss after financial items was SEK 1,340m, versus profit of SEK 2,066m; operating profit was SEK -24m, versus SEK 2,591m.

• Realised property value gains were SEK 143m; unrealised property value changes were SEK -1,545m, while fixed-income derivative value changes were SEK -485m.

• Net interest expense increased to SEK 804m from SEK 609m; tax for the year was a benefit of SEK 829m, mainly reflecting deferred tax effects.

Outlook and guidance

• 2009 priorities: improve tenant retention and surplus ratio, maintain a strong balance sheet, and focus on customer relationships and operational efficiency.

• At the start of 2009, the rental market in priority markets remained stable; post-year-end leases represented contracted annual rental value of ~SEK 120m.

• Falling interest rates and secured long-term capital were expected to reduce interest expense versus 2008 and support cash flow; 2009 was expected to bring significant challenges and opportunities.

• New projects were to be initiated only once fully let; 2009 project focus included securing tenants, marketing Arenastaden and prioritising cost-effectiveness.