Fabege. Credit Research. Credit Comment. 16 March, Corporate Ratings Moody s: S&P: Fitch:

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Fabege

Credit Comment



Large portfolio of mostly prime-quality offices real estate in

good locations in targeted rail-bound areas.



Adequate policies: debt leverage of a maximum of 55% and

interest coverage of a minimum of 2x.

BBB- issuer rating, stable outlook, BB+ senior unsecured

Fabege is a growth-oriented real estate company. Its strategy is focused on property management and project development within the area of commercial properties. Fabege’s property portfolio consists of offices and retail property in Stockholm CBD, Arenastaden, Solna Business Park and Hammarby Sjöstad. The portfolio includes development projects, which represent about 14% of the portfolio value.

In our opinion, Fabege’s credit profile corresponds to a “BBB-” shadow issuer rating with a stable outlook. We view the business risk profile as “satisfactory bordering on strong” and the financial risk profile as “significant”. We rate the senior unsecured debt BB+, which is one notch below the issuer rating. Fabege is also one of the owners of the funding vehicle “Ny Svensk Fastighetsfinansiering” (“nSFF”), a secured bond structure that is shadow rated BBB+.

Key rating drivers: geographic concentration, high exposure

to development projects, vacancy rate

Fabege predominantly focuses on high-quality offices in Stockholm in good locations in targeted rail-bound areas. We view Fabege’s business risk profile as “satisfactory” bordering on “strong”. The business risk is supported by the company’s strong position in selected local areas, including Stockholm inner city and Solna. The properties are predominantly clustered in three markets: Stockholm inner city, Solna (Solna Business Park, Arenastaden and other properties within the Solna area) and Hammarbystaden. We view the significant share of the portfolio located in Stockholm (42%) as positive. Fabege focuses solely on the Stockholm area, which implies some concentration risk, but this is partly mitigated by the fact that Stockholm is the largest property market in Sweden with attractive growth. The majority of the portfolio is focused on business-cycle-sensitive offices and industrial/warehouses in good locations, which reduces the vacancy risk. The key risks are related to the high exposure to project development, which currently accounts for about 14% (excluding Uarda completed in Q1 2016) of the market value of the portfolio. We regard this as high. As we view project development as riskier than property management, this is credit negative. However, several of Fabege’s development projects are already fully let and two projects are 50-80% pre-let, which significantly reduces the risk. In summary, we acknowledge that there is significant development risk, but it is currently structured in a prudent manner so that the real risk is lower. In addition, the change in the financial policy towards a more conservative LTV of 55% lowers total risk. We expect the current additions of SEK 2bn in development projects per year to be reduced to SEK 1.5bn.

Overall, Fabege’s credit metrics were stronger y/y in 2015, with LTV decreasing to 52% (60% at the end of 2014) and debt/debt + equity decreasing by 3 p.p., to 56%. EBITDA/interest coverage strengthened slightly from 2.1x in 2014 to 2.3x in 2015. Debt/EBITDA weakened slightly to 15.4x from 13.8x in 2014. This was due to development projects. FFO/debt was stronger at 3.7% (3.5% in 2014). Most importantly, a 20% fall in market value will increase LTV to 65%, which still represents a “significant” financial risk profile and is strong in our view.

Corporate Ratings

Moody’s: S&P: Fitch: Swedbank: BBB-/Stable Recommendations Credit Strengths

 Low industry and country risk

 Holdings in attractive areas in Stockholm

 Predominantly CBD and inner-city locations (42%)

 Large property company with a portfolio of SEK 40.3bn

 Supportive financial policy, including maximum LTV of 55% and minimum EBITDA interest coverage of 2x

 Adequate liquidity

 Can withstand a fall in market values of about 20%, resulting in an LTV of 65%

 Adequate average weighted debt-maturity profile of 4.2 years and

 Experienced, close-knit management team with a proven ability to maintain and develop the portfolio and projects with a clear strategy

Credit Weaknesses

 Market concentration limited to one area

 Majority of the portfolio focused on business-cycle-sensitive offices and industrial/warehouse

 Relatively high vacancy rate of 7%

 Currently short remaining lease maturity, 3.6 years.

 Short interest-fixing period of 3.1 years

 High exposure to development projects

 High refinancing risk, as 33% of debt is maturing within one year

 High utilization of CP paper decreases debt-maturity profile

Maria Gillholm +46 8 700 9153

maria.gillholm@swedbank.se

Bloomberg Equity: FABG SS

Bloomberg Debt: FABGSS

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Fabege’s credit profile

In our view, Fabege’s credit profile is in line with a BBB- issuer rating. We assess

the business risk profile as “satisfactory bordering on strong”, while the financial

risk profile is “significant”. The outlook is stable.

Sources: Swedbank, Company reports

Issuer rating rationale

Our BBB- shadow issuer rating reflects Fabege’s exposure to commercial real

estate (predominantly offices). It also reflects the company’s strategy of focusing on property management and the development of properties in attractive growth-oriented areas in Stockholm City, Solna and Hammarby Sjöstad, all of which are located in Stockholm region.

The company aims to grow in general by SEK 1.5bn per year through project developments, mainly as a consequence of higher cash flow and market values. The company has a portfolio of projects that will gradually come on stream, mostly

fully let. These projects include SEB’s new office building (2017-2018),

TeliaSonera’s building and a project for ICA Gruppen (2018).

Fabege focuses mainly on offices, which are regarded as the most volatile business segment in real estate industry, and the properties are basically located in

one market – Stockholm. We view the focus on Stockholm and its suburbs as a

low-risk strategy due to the attractive growth prospects for the region, even though it implies concentration risk. The other main risks relate to project development and the relatively high vacancy rate at this point in the property cycle. Operations that involve large development projects continue to grow, and project development

currently accounts for about 14% of the market value of Fabege’s portfolio. We

regard this figure as relatively high. At levels above 15%, a company’s business risk profile becomes weighted more towards a “developer” position, which carries a higher risk than property management, in our view. We differentiate between development for the company’s own account, which we view as less risky, and development intended for sale to sell to third parties. The pre-let level is also a positive. Several development projects are already fully let, and two projects are 50-80% pre-let, which reduces the risk.

Our assessment of the financial risk profile is “significant”, and is based on the

company’s financial policies a minimum EBITDA coverage of 2.0x and an LTV

maximum of 55%. Fabege’s credit metrics were stronger y/y in 2015, with LTV

decreasing to 52% (60% at the end of 2014) and debt/debt + equity decreasing to 56% (58.7% in 2014). EBITDA/interest coverage strengthened slightly from 2.1x in 2014 to 2.3x in 2015. Debt/EBITDA weakened slightly to 15.4x from 13.8x in 2014. This was due to the higher share of development projects. FFO/debt was stronger at 3.7% in 2015, which can be compared to the 3.5% seen in 2014. Fabege’s vacancy rate increased to 7% by the end of 2015 from 6% at the end of 2014. The company’s interest-maturity fixing remained at 2.7 years and the debt-maturity profile strengthened in 2015 to 4.2 years.

Business Risk Profile

Minimal Modest Intermediate Significant Aggressive Highly Leveraged

Excellent (1) AAA/AA+ AA A+/A A- BBB BBB-/BB+

Strong (2) AA/AA- A+/A A-/BBB+ BBB BB+ BB

Satisfactory (3) A/A- BBB+ BBB/BBB- BBB-/BB+ BB B+

Fair (4) BBB/BBB- BBB- BB+ BB BB- B

Weak (5) BB+ BB+ BB BB- B+

B/B-Vulnerable (6) BB- BB- BB-/B+ B+ B

--Financial Risk

Profile--Business risk profile “satisfactory” bordering on “strong“; financial risk profile “significant”

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Outlook – Stable

The stable outlook reflects our assumption that Fabege will maintain an adequate liquidity position, an LTV of less than 55% and EBITDA/interest coverage of more than 2.0x. It also reflects our assumption of relatively favorable market conditions in the near term, which should allow Fabege to moderately grow its portfolio, manage the project developments prudently and reduce the vacancy rate. We also expect the yearly investments in project developments to decrease to SEK 1-1.5bn.

We could raise the shadow rating if the company changes its financial policy towards a more conservative financial standing with EBITDA/interest coverage at more than 2.4x, and debt/debt + equity and an LTV of around 40%. This, in combination with a maximum vacancy rate of 5% and average lease duration of more than 5 years would be positive. Alternatively, the rating may be lowered if the macro picture weakens significantly; the leverage increases or the company significantly increases project development to more than 15% of the portfolio.

Senior unsecured debt – structurally and contractually subordinated

We rate senior unsecured debt BB+, one notch below the issuer rating. This is in line with our approach to other real estate companies with a secured LTV of more

than 20%. For the purposes of the notching analysis, we estimate Fabege’s

secured LTV at around 40%. We rate the senior unsecured

debt BB+ Stable outlook

Several factors may move the rating

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Business Description

Fabege is a large, listed real-estate company active only in the Stockholm area. It is focused on commercial properties, mainly offices and retail. Fabege’s property

portfolio has market value of SEK 40.3bn. The company’s target areas are

Stockholm inner city, Arenastaden, Solna Business Park and Hammarby Sjöstad. Fabege was an active part of Wihlborgs Fastigheter until 2005, when Fabege was formed as a result of a number of property and company transactions. The business in the Öresund area was paid out in dividends to the owners and listed on the Stockholm Stock Exchange’s O-list as “Wihlborgs Fastigheter”. As a result, what was left of the “old” Wihlborgs company group was concentrated in the Stockholm area, and the name was changed to Fabege AB.

Thereafter, Fabege divested its holdings in Täby and Kista, and acquired properties in Solna Business Park (2006). Over the years, Fabege has implemented a transaction-intense. In 2008, Fabege picked up the pace of project developments to increase cash flow and growth. The company has since continued to refine its portfolio towards the selected clusters while maintaining the increased focus on project development.

Fabege focuses on three business areas: management, development and transactions. The majority of the portfolio is management properties, while a significant share of the remainder is dedicated to project development. The third

focus area – transactions – is a result of the company balancing its portfolio

towards higher quality. Property management carries the lowest risk among these three activity areas, while the two other areas may be characterized by high or low risk depending on how they are managed. For Fabege, the transaction part is low risk. The project development part is relative high risk, but it is prudently managed. Fabege’s strategy is to focus solely on four target areas: Stockholm City (42% of market value), Arenastaden, Solna Business Park (50%) and Hammarby Sjöstad (8%). Solna, including Arenastaden and Solna Business Park, are rapidly growing areas with major landmarks, including the Mall of Scandinavia and Friends Arena.

Portfolio by region (MV) – historical

Sources: Company reports, Swedbank

58% _54% 51% _47% 42% 34% 38% _41% 44% _50% 8% 8% 8% 9% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015

Stockholm central Solna Hammarby Sjöstad Sweden other Cluster strategy: Stockholm

City, Arenastaden, Solna Business Park and Hammarby Sjöstad Formerly part of Wihlborgs Fastigheter – evolved to focus on the Stockholm area

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Portfolio by region (tsqm)

Source: Company reports, Swedbank

Arenstaden constitutes about 200,000 square meters of Fabege’s total area. An

ongoing project will add another 180,000 square meters and about SEK 484 million in rent. Solna constitutes about 570, 000 sqm with 196, 000 sqn under production. All else equal, Solna should constitute of a larger share of market value and rents in the future. This will increase concentration risk, but the properties should improve portfolio quality. Moreover, Fabege is expected to sign a large share of expected rental revenues on long-term contracts, which should help balance the development risk.

Fabege has shifted its strategy from acquisitions towards building properties, as the yields are low and prices are high in the company’s targeted markets. Notably, the majority of the portfolio income is the result of the management of investment properties. If the share of project development and extensive refurbishments is high relative to the company’s total market value, then the company is viewed more as a developer. This type of property category is connected with significantly higher risk than property investments.

Breakdown of market value by category

Source: Company reports, Swedbank

Fabege will not build on speculative grounds, which means that its projects generally have high pre-let rates of 70-80%. The company had a pre-let rate of 90% for its ICA project in Solna Business Park. Faberge is more offensive in downturns. For example, it built on speculative grounds in 2008-2009. This significantly elevates the risk, in our view.

0 50 100 150 200 250 300 350 400 450 Stockholms Innerstad Solna Business Park Arenastaden Hammarby Sjöstad

Solna Stand Sundbyberg Bromma

Portfolio by tsqm 81% 7% 12% Investment properties Development properties Project properties Growing through

development projects, most of which have high pre-let levels and can be classified as investment properties In the future, Solna should represent a larger share of market value and rents

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Typical office leases run for three to five years. However, customer-specific adjustments may result in longer tenancy agreements. Agreements for project development are significantly longer (10, 12, 15 or 20 years). In 2015, Fabege signed major lease agreements with such companies as SEB, TeliaSonera and ICA in Arenastaden and Solna Business Park.

Fabege’s main lettings to large tenants in 2015 included SEB, KPMG and

TeliaSonera in Arenastaden, and SBAB in Solna Business Park. Fabege’s net

letting amounted to SEK 74m in 2015. Fabege’s current largest tenants are

Vattenfall and Skatteverket. Together, these two tenants represent about 10% of Fabege’s total rental value.

Large contracts (years)

The company’s property portfolio consists of 83 properties with a combined lettable area of 1,092,000 sqm. Stockholm’s total office market consists of about 12 million sqm, meaning Fabege holds about 8.3% of the office segment in Stockholm (as of the end of 2014). About 81% of the portfolio’s rental value is office properties, while 7% is retail, 5% is industry/logistics, 1% is residential and the remaining 7% is “other” (including hotels). Fabege owns three hotels: Kung Karl (Stureplan), Mauds Hotel (Solna Business Park) and The Winery (Solna). Total rental value for the hotel business is approximately SEK 60m per year. This is less than 3% of Fabege’s total rental value,

Total property portfolio by property type

10 10 12 12 15 20 0 5 10 15 20 25 Lease structure 81% 7% _5% 1% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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Total property portfolio (SEK 40.3bn), by region

Investment properties (SEK 32.6bn), by region

Refurbishment properties (SEK 3bn), by region

48% 44% 8% 0% 10% 20% 30% 40% 50% 60%

Solna Stockholm City Hammarby Sjöstad

Fabege's portfolio 50% 41% 9% 0% 10% 20% 30% 40% 50% 60%

Investment properties 72% 23% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80%

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Fabege shares are quoted on the NASDAQ OMX Stockholm with a market cap of approximately SEK 21bn at the end of 2015. Erik Paulsson is the largest owner with 15.1% of the shares/votes. The second-largest owner is BlackRock Inc with 5.4%, followed by Investment Öresund (3.3%), FIM Fonder (2.8%) and Länsförsäkringar Fonder (2.4%).

In 2015, Fabege’s largest tenant was Vattenfall (S&P: BBB+), followed by

Skatteverket, ICA Fastigheter, Carnegie Investment Bank, Evry, Coop Sverige, PEAB Sverige, Svea Ekonomi, Svenska Spel and Lantbrukarnas Ekonomi. Skatteverket holds about 10% of the total lettable area. Fabege has decided to sell

the property leased by Vattenfall. The company’s customer concentration is

significant, with the 15 largest tenants constituting about 28% of the total contracted rent. This represents a concentration risk.

This part of the portfolio has an average lease of approximately 12 years, which means that the risk is transferred to the credit quality of tenants. Many of these major lease contracts will mature in 10-15 years. However, given the long leases, we view the current risk as low. At the end of 2015, the average remaining lease maturity was 3.6 years, which we view as relatively low but in line with industry peers. This figure is expected to rise significantly as the project developments that are coming on stream are included. Fabege’s commercial leases will mature rather evenly over the coming four years, with about 16-17% of rents being renegotiated during 2016-2018. In our view, this is positive and reduces the risk of a 100% market effect at any one point in time. In other words, it reduces troughs and peaks.

Many of Fabege’s tenants are active in the general service sector, but they are not characterized by a specific business type. Tenants contributing more than SEK 100m in annual rents account for about 10% the total rental income in Fabege’s portfolio. For most of the development projects that have been finalized or will be completed in the near future, Fabege has signed long-term contracts ranging from 10-20 years. We view a contract length of more than 10 year as positive. The weighted average remaining lease period for these contracts is 15.6 years. Those contracts include SEB (S&P: A+), Telia (S&P: A-), ICA (BBB-/Pos), Siemens (S&P: A+), KPMG, Svenska Spel and Telenor (S&P: A-). When the contracts are long, the credit quality of tenants becomes significantly more important. Fabege has succeeded in attracting credit-worthy tenants to its projects that have been finalized or are underway, which we view as credit positive.

Fabege has a vacancy rate of 7% (1% refers to project development), which is relatively high at this point in the cycle but in line with some shadow-rated peers. Vacancies have been stable at 7-8% for the last few years. Projects under development are not included in the managed properties, as these are not completed. However, the vacancy rate in projects under development is 6%, which is low. We would view a vacancy of 5% for Fabege’s managed properties as more adequate. However, we do not see the vacancy rate as structural, or as an effect of oversupply, property quality or projects coming on stream. About 10% of the portfolio is of less attractive quality, which is adequate. For Fabege, the 2% higher vacancy rate is due to less attractive.

Significant customer concentration: 15 largest tenants account for 28% of contracted rents

Relatively high vacancy – a level of 5% adequate for Fabege’s portfolio

Relatively low remaining lease maturity but relatively even maturity for the coming four years

High credit quality for tenants in project developments

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Historical average remaining lease maturity (years)

3,5 3,7 3,6 3,4 3,6 3,0 3,1 3,2 3,3 3,4 3,5 3,6 3,7 3,8 3,9 4,0 2011 2012 2013 2014 2015

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Business Risk Profile

We view Fabege’s business risk profile as satisfactory bordering on strong. The business risk is supported by the low country and industry risk as well as the company’s focus on attractive locations in Stockholm with well-functioning public transportation. The relative weaknesses versus peers include; concentration risk, a significant share of development projects, a relatively high vacancy rate and more volatile property types.

Low country and industry risk

Fabege operates only in Sweden, which we view as positive from a country-risk perspective. S&P ranks Sweden as 1 (Very low risk) in its country-risk assessment framework. It lists Sweden’s key supportive factors as a competitive economy, prudent economic policies, a low government debt burden and modest inflation. Other countries with a 1 ranking include Denmark, Norway and Germany. Fabege operates in Stockholm, which is rated AAA/Stable (The city of Stockholm) by S&P

due to the strong economy, strong financial management and Sweden’s

institutional framework, which S&P views as predictable and supportive. However, Fabege has a diversification risk because it focuses its portfolio on one area. We view industry risk in the real estate sector as comparably low, mainly because most business is conducted under long-term, non-cancellable leases. Even if leases are cancellable, as in residential real estate, the demand characteristics tend to be favorable and support cash-flow stability. Key industry risk factors include sensitivity to economic cycles; the potential for asset bubbles; and competition for both tenants and properties, which can be intense. Real estate is a cyclical industry that generally lags the national/local economy. Given the significant amount of capital needed to develop, acquire and maintain properties, the sector is sensitive to funding conditions, refinancing risk and interest-rate fluctuations. The real estate sector is scored as a 2 (low risk) in S&P’s industry risk framework. Other low-risk sectors include healthcare equipment, pharmaceuticals and branded non-durables.

Fabege focuses exclusively on commercial properties within the office and retail segment. These are medium- to high-risk properties, where retail is considered to be more stable but depends on location, anchor tenants and whether the property is located in a shopping mall or high-street shopping. In offices, where the risk is higher, leases are often short at three to five years. Moreover, this property type is often capital intensive and with low barriers to entry, and assets are subject to fairly rapid obsolescence and new supply. Properties in central business districts tend to attract tenants with higher credit quality and contracts are often renewed. We view retail, industrial and logistics as economically and structurally more sensitive than many other real estate segments, such as residential, but more stable than offices.

Fabege states that it will continue to focus on offices and on growth through project development in targeted areas. We expect this to imply a refinement towards better quality in combination with fewer acquisitions and divestments of less attractive holdings.

Low country and industry risk

Commercial focus with medium- to high-risk property types

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Fabege’s property portfolio, by region (%)

Our base case assumes continued favorable market conditions for the Swedish real estate companies in the short to medium term owing to continued favorable funding conditions, low interest rates and stabilizing macro factors. Key market risks involve refinancing risks, deterioration in the macro environment and higher interest rates. On the company level, key risks include increased leverage owing to

additional debt or falling market values, shorter maturity profiles,

transaction/development intensity, speculative project development and

oversupply, increased vacancies or a failure to reduce vacancies, large dividends for preference shares, and future potential tax risks. Also, numerous commercial paper programs have emerged since the spring of 2015, which will shorten debt-maturity profiles.

Our stable industry outlook is reflected in the distribution of shadow-rating outlooks, with 19 of 21 of rated entities carrying a stable outlook. Two entities carry a positive outlook.

The Swedish Corporate Tax Committee has presented a suggestion for a change in the Swedish corporate-tax regime. While the statutory corporate tax rate would remain 22% under the suggestion, the effective corporate tax rate would be lowered to 16.5%. This will be achieved by removing the possibility for tax deductions relating to net financial costs and subjecting taxable income to a general 25% deduction. The increase in taxation for the total Swedish real-estate sector is estimated at SEK 3.2bn yearly. We view the suggestion as credit negative given the heightened industry risk. This may be mitigated by incentives to reduce leverage given the new structure. Entities with high leverage (especially high net-interest costs in relation to operating profit) are likely to suffer the most. We do not expect the suggested changes to be adopted in this form, as it treats the residential companies most negatively, which might negatively affect the much-needed increase in residential properties. However, we do not expect any changes in the taxation regulation, if and when adopted, to be implemented immediately on January 1, 2017. Therefore, companies should have some time to adjust.

58% 54% _51% 47% 42% 34% _38% 41% _44% 50% 8% 8% 8% 9% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2011 2012 2013 2014 2015

Stockholm central Solna Hammarby Sjöstad Sweden other

Short-term outlook for the Swedish real estate sector is generally favorable but with clouds on the horizon

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Fabege estimates the potential tax effect at about SEK 80bn based on its 2015 figures according to main alternative. We acknowledge that the proposal was rejected but we believe there will be changes in taxations so we have used this proposal as a proxy even though we do not expect the final. A new proposal has not yet been presented, and there is high uncertainty regarding what will be implemented and what the effects will be.

Asset quality/diversification

In our view, Fabege’s asset quality is on par or above average when compared to

peers in the BBB- category. This is due to the combination of refurbishment activities and project development in attractive areas in Stockholm City and its surroundings. 42% of Fabege’s portfolio located in central Stockholm (25% of the portfolio is located within Stockholm CBD), which is positive. About 10% of Fabege’s portfolio is of less attractive quality. The current average remaining lease contract for commercial leases is 3.6 years, which is relatively low for a company focused on offices but this should significantly increase as SEB, TeliaSonera, ICA and others move into the newly built offices.

The company has a large portfolio (relative to most peers) valued at SEK 40.3bn, and it aims in average to grow its portfolio by SEK 1-1.5bn annually through cash-flow invested in project developments. The diversification of property types is low, with 83% in offices, 7% in retail and 3% in industry/warehouse/logistics. The geographical diversification is also low, but Fabege is focused on Sweden’s largest cities/areas, including Stockholm, City, Arenastaden, Solna and Hammarby Sjöstad. The company does not acquire properties outside of Sweden. We believe Fabege operates in strong locations, but we see some concentration risk in the lack of diversification with regard to location and property type. The office segment is the most volatile business segment in real estate, with market rents fluctuating significantly over time relative to, for example, residential properties, which are in a regulated market. In the future, the risk in office properties should be reduced by the increase in the average remaining lease period.

The absence of diversification can imply risk. However, we also acknowledge the exposure to the most growth-oriented area in Sweden, the importance of enhancing the quality in the portfolio, the success of meeting tenant demands for new efficient space and the current trend toward building instead of buying expensive properties. Fabege selects its clusters depending on how well they are/will be served by transportation links, which is important in terms of cost efficiency and maintaining the attractiveness of the area.

We can draw some parallels with Kista in the early 2000s, at which time Kista was the most attractive market outside Stockholm CBD and the rest of the inner city. The situation in Kista was similar to Solna and Arenastaden – a significant amount of project development took place, including a large shopping mall (Kista Galleria). Rents were high in Stockholm City, so companies chose to move to Kista. The attractiveness was particularly high among IT and telecom companies. Ericsson was one large tenant. The transportation links were adequate at the time. Today, the focus has moved to Solna and Arenastaden, leaving Kista with a vacancy rate of 15%, rising towards 30% in older, more inefficient office space. One important

factor that differentiates Kista and Solna/Arenastaden is that the

Solna/Arenastaden locations are even better served by transportation links. Moreover, the tenant base is more diverse and offices properties are blended with residential properties, which increase the pulse and make the area livelier. For example, Fabege has invested SEK 100m in the extension of the underground which will connect Arenastaden with Stockholm City in 2017.

To maintain its competitive advantage/position in this area, it is important to have few or no close areas that could compete for tenants and significantly affect market rents. Fabege essentially owns most of the land close to current transportation links, the Mall of Scandinavia and Friends Arena, which is important. There are essentially only two land pieces that can be built on, which are owned by Skanska Similarities and differences

compared to Kista Large portfolio and a strategy to grow organically Low diversification but exclusive exposure to Stockholm area

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and BMW. If we look at neighboring areas or areas that could compete with Fabege in terms of location that are currently being built or in the planning stage with new, efficient office space, then Hagastaden, Vasalund, Solna (Humlegården), Hammarby and Västra Kungsholmen are competitors. However, Fabege’s medium-term and long-term term contracts ranging from 10-20 years should offset some of this competitive threat. In addition this should help Fabege withstand a potential the wave of companies wishing to move back to Stockholm inner city in periods with lower rents, at least to some extent.

Project portfolio

Fabege currently has six properties in the development stage. Of these, two are in an advanced stage and account for SEK 1.9bn in expected investments. In Arenastaden, Fabege has six office-development projects with an estimated investment of SEK 6.3bn. In 2015e/2016e, project investments will amount to approximately SEK 2.5bn per year, after which investments should decline. Fabege’s stated strategy is to grow by SEK 1-1.5bn per year, which will lower the proportion of project development in relation to market value. The company states that divestments of properties will balance the investments in the projects to ensure a strong balance sheet.

Currently, total project development totals SEK 6.3bn, or 16% of SEK 40.3 bn ,

which is very high in our view. However, one large project – Nationalarenan 8 –

with an expected investment of SEK 1.3bn should be finalized in Q2 2016. Uarda 7, with an investment of SEK 570m, should be completed in Q1 2016. The completion of these two projects should lower the project-development share to SEK 4.4bn, or 11%. Nevertheless, SEK 2.9bn has already been reprocessed. The 11% is still somewhat high, as we view 10% of market value as elevated risk but manageable. Nevertheless, we view the strategy to invest in project developments in the current property cycle when yields are compressed as more attractive than acquiring if performed prudently. We take a different view when development is for the company’s own account than when it is intended for sale to third parties. However, the level of pre-letting is a positive factor and helps mitigate the development risk.

The investment in Nationalarenan 8 is proceeding according to plan. The property is fully let to TeliaSonera. Similar projects include Uarda 7 (Arenastaden) for around SEK 570m, which will house KPMG, and Pyramiden 4 (Arenastaden) for around SEK 2.3bn, which is fully let to SEB. Uarda 6, with an investment amounting to slightly more than SEK 500m, is 70% pre-let (about half of the space is pre-let to Siemens). In August, Fabege initiated the construction of Signalen 3 in Arenastaden, which is expected to require an investment of SEK 1.1bn. The property is pre-let (75%) to ICA. Hornan (part of Lagern 2) has an investment of SEK 503m and is 63% pre-let to Telenor Sverige.

The Winery Hotel (Järvakrogen) is finalized. The investment of SEK 300m was higher than expected due to more difficult land circumstances. The Winery Hotel tenant moved into the building in January 2016. We view lodging/hotel properties as carrying a high risk. The operating business characteristics are important. This property type is particularly sensitivity to economic conditions, and net operating income is volatile due to daily movements in occupancy and room rates. In addition, capex is often high, but there are modest barriers to new construction. Moreover, this part of industry is management and capital intensive. Often, the hotels focus on diversity in terms of location/attractiveness for guest, flag/brand, operator, lodging subsector and modernity of asset. Also, the Winery Hotel is not located in central Stockholm but next to the E4 freeway near Frösunda.

High degree of project development, but should be reduced in the future

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With a large project portfolio and yearly investments of about SEK 1.5-2bn, this

business segment implies risk sensitivity for Fabege. Fabege’s

project-development risks are related to the risk of time plan changes and cost levels when purchasing building services. Apart from the risk of cost overruns, there is a risk when pre-letting is low and projects occur on more speculative grounds. In this situation, there is a risk that the company could have low or no cash flow depending on the property cycle or the location’s attractiveness, which would have a severe negative financial impact. An operational risk is that it the company is engaged in several projects, such that it can be difficult for management to maintain an overview of risks.

We view Fabege’s recent track record in project development as solid, and see this risk as manageable as long as the share of property development does not increase from current level of 11%. We view 15-20% as very high. We also note that the company has previously built on speculative grounds, which represents a high risk in our view. Fabege’s recent development projects have rather long leases with TeliaSonera (15 years), SEB (20 years), ICA (15 years), and Telenor (15 years). The company is committed to maintaining a high level of pre-letting, which is essential in our credit assessment, as are leases covering more than 10 years.

Peer comparison/profitability

We view Fabege’s business risk as in line with industry peers with a one-notch

stronger rating, such as Castellum. Castellum (SWB: BBB/Stable) also focuses on office and retail properties in Gothenburg and Stockholm, and it has a slightly larger portfolio of SEK 41.8bn. Castellum’s financial risk profile is significant bordering on intermediate with somewhat stronger credit metrics than Fabege. However, Fabege has a lower vacancy rate than Castellum (7% versus 10%). Kungsleden is currently at a BB/Stable rating due to the negative outcome in the tax rulings in December 2015, meaning that Kungsleden has moved away from Fabege in our rating universe. Kungsleden’s portfolio is smaller and the company’s credit metrics are more leveraged.

An adequate rated peer is the French property company Societe Fonciere Lyonnaise S.A. (SFL) when it was rated BBB- in July 2015. It has since decreased its vacancy rate to 6% (from 14%), which partly contributed to an upgrade as this strengthened cash-flow and consequently improved EBITDA intrest coverage to 2.4x. The previous BBB- rating on SFL was based on the large portfolio size of SEK 36.4bn (EUR 3.9bn), which included premium-quality office real estate. SFL has a strong presence in the central Parisian office market, resulting in rents and value resilience in recent years. The CBD in Paris accounts for 82% of the portfolio which is strong. Fabege’s portfolio size is similar (SEK 40.3bn) and the company focuses on the Stockholm area. However, one important difference is that Fabege has significantly less (42%) in CBD Stockholm than SFL has in CBD Paris. S&P views the limited supply of large premium-quality office buildings in Paris's CBD district as a factor that supports a high occupancy ratio. SFL's retail portfolio mainly consists of ground-floor shops in the group's office buildings, which generally provide steady footfall and stable cash flow due to their prime locations. This is also similar to Fabege’s largest market Stockholm CBD.

SFL is among the four largest owners of office space in Paris, which S&P believes gives it a key competitive advantage in addressing the needs of its core tenant base. The weaknesses include SFL's focus on the office market and its limited number of assets (18 as of March 31, 2014) compared with peers assessed by S&P in the "strong" business category. This means that its portfolio is generally subject to business-confidence-related volatility. SFL seeks to mitigate this exposure by limiting the share of leases expiring in any given year to about 15% of its total portfolio. Fabege has 84 properties, predominantly located in CBD or Project development risk in

general

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central Stockholm, which is strength. About 16-17% of Fabege’s leases expire per year in the next four years.

On the financial side, SFL’s financial risk ranks as “significant” due to the

company’s capital structure. The company is moderately leveraged with LTV and debt/debt + equity of 50% and 55%, respectively. Partly offsetting factors to this are the somewhat weak EBITDA/interest coverage and funds from operations (FFO)/ debt of about 2x and 4%, respectively. SFL's low cash-flow coverage metrics relative to its moderate leverage are partly caused by its business model, which focuses on the low-yield prime property market in Paris. SFL has historically generated negative discretionary cash flow and will likely continue to do so after investing in a new property pipeline. This represents an additional negative rating factor. SFL's ability to generate strong returns on its continuing investment program will remain a key factor behind our business risk assessment. S&P believes SFL's delivery of committed projects, combined with a controlled cost of debt, should result in a slightly improving debt-coverage ratio in the medium term.

On the financial side, the situation is similar for Fabege, where we view the financial risk profile as “significant” due to the adequate policy for EBITDA/interest coverage of a minimum of 2x and a maximum LTV of 55%. In addition, debt/EBITDA of 15.4x and FFO/debt of 3.8x are weak for Fabege, just as for SFL. As for SFL, the distorted debt/EBITDA and FFO/debt are due to Fabege’s relatively high share of development projects.

Peer comparison – Q3 2015

Sources: Swedbank, company reports

Fabege’s profitability margins are relatively strong among Swedish peers, but they are weaker from an international perspective. The NOI margin has averaged 70% for the last three years and is currently at 72%. Fabege’s new policy is to improve this to 75% with a five year time horizon. The EBITDA margin has averaged 67% for the last three years and is currently at 68%, which means that the company has experienced a slight upturn in profitability.

Issuer Atrium European Real

Estate Ltd Fabege Sponda Balder

Societe Fonciere

Lyonnaise S.A. Citycon OYJ Rating S&P: BBB-/Stable SWB: BBB-/Stable SWB: BBB-/Stable SWB: BBB-/Stable S&P: BBB/Stable S&P: BBB/Stable Business risk profile Satisfactory Satisfactory/Strong Satisfactory Satisfactory Strong Strong Financial risk profile Intermediate Significant Significant Significant Significant Significant Portfolio Size** SEK 25bn SEK 37.6 bn SEK 30bn SEK 39.9 bn SEK 36bn SEK 37bn Composition Shopping centres Office, retail Office, logistics, retail Residential, office, retail Office Retail Geographic focus Poland, the Czech

Republic, Slovakia Stockholm, Solna

Helsinki, Tampere, Russia Stockholm, Gothenburg, Öresund Paris Stockholm, Helsinki, Tallin EBITDA interest coverage 3.7-4x 2.3x 3.8x 3.8x 2.1x 2.9x Debt/EBITDA 4x 14.9x 12.3x 14.8x 12.7x 12.9x LTV 35% 55% 55% 65% N:A 50% Debt//debt+equity 26-32% 57% 55% 61% 39% 47% FFO/debt 19% 3.8% 4.5% 4.9% 4.2% 5.1% Vacancy N.A 8% 13,7% 5% 4% 4%

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Profitability

Peer comparison – profitability

62% 63% 64% 65% 66% 67% 68% 69% 70% 71% 72% 0 200 400 600 800 1 000 1 200 1 400 1 600 2011 2012 2013 2014 2015

NOI NOI margin EBITDA margin

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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Financial Risk Profile

We view the financial risk profile as “significant” due to the adequate policy for a

minimum EBITDA interest coverage of 2x and a maximum LTV of 55%. This implies an adequate level for debt/(debt + equity) of 57%. However, the debt/EBITDA is weak, as is cash flow, but is mostly due to project development. FFO/debt is still weak, as is the case for many real estate companies, although it is improving. Nevertheless, strong bank relationships and an established presence in the capital market support the liquidity position, which is stronger than adequate.

Sources: S&P, Swedbank

Financial policy and ownership

We view Fabege’s financial policy as supportive from a rating perspective. Its financial policies include minimum interest coverage of 2x and a maximum LTV of 55%, which we feel is adequate for the rating. However, the current LTV of 52.3% is close to the policy. Fabege is committed to maintaining these policies over time, and it is willing to dispose assets to maintain the determined limits, which we view

as supportive. Fabege’s current ratios are at a safe distance from bank-loan

covenants, which broadly require EBITDA interest coverage of 1.5x and solidity of 25%.

We view the ownership structure as neutral. The largest shareholder is Erik Paulsson with family, who hold parts of Fabege both privately and through companies totaling 15.4% of the shares and votes. Erik Paulsson is involved in several property companies through his investment company Backahill. The holdings include Wihlborgs, Platzer, Diös, Catena, Brinova and Skistar. Second in line is BlackRock Inc with 5.4%, followed by Öresund Investment AB at 3.3%. Foreign shareholders constitute about 43.6% of equity and votes. Other Swedish owners amount to 28%. Institutional investors account for most of the ownership at about 28%. Concentrated ownership can be problematic from a strategic perspective or if the company needs a capital injection. However, we believe that

the majority owners are committed to ensuring the company’s survival and

maintaining the strategy, which is important for credit quality. Nevertheless, we think there might be limited scope for them to significantly support the company in a constrained situation. One issue could be that the majority owner also has holdings in other property companies. In a downturn, several of these companies might need support, which would give rise to competition among these companies for support. However, as the majority owner is of limited size, this is neutral in our view.

Capital structure

Fabege’s debt structure is diversified. However, it primarily consists of bank loans secured against properties (about 40% of market value). The group has complemented the traditional bank funding by issuing senior secured bonds through nSFF totaling about SEK 1.3bn. In addition, Fabege has established an SEK 5bn commercial paper program and has to issue about SEK 3.8 bn. Furthermore, the company has signed a bank facility with EIB for EUR 100m (SEK 927m). In October 2015, Fabege decided to call the BBB- rated secured bond of SEK 1.170m, maturing in 2016.

Core ratios Supplementary ratios

Debt/EBITDA(x) EBITDA/interest (x) FFO/debt (%) Debt/debt+equity Debt/debt+equity (fair value basis) (%) Minimal Less than 2.5 More than 4.5 Greater than 20 Less than 30 Less than 25

Modest 2.5-4.5 3.8-4.5 15-20 30-40 25-35

Intermediate 4.5-7.5 2.4-3.8 9-15 40-55 35-50

Significant 7.5-9.5 1.8-2.4 7-9 55-65 50-60

Aggressive 9.5-13 1.3-1.8 Less than 7 65-70 60-65

Highly leveraged Greater than 13 Less than 1.3 Less than 7 Greater than 70 Greater than 65

Ownership is credit neutral

Debt structure consists primarily of bank loans, but also includes bonds and a commercial paper program

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Ny Svensk FastighetsFinansiering (nSFF) is an indirectly owned joint venture run by Fabege, Wihlborgs, Platzer, Catena and Diös, each of which hold 20% of the common stock in nSFF. These five companies are well established on the Swedish real-estate market. Apart from the minimum 50% mortgage certificates at inception, a high degree of debt protection for the bond holders lies in the pledged shares in the property-holding company; the issued guarantee from the sponsor; the springing lien mortgage, which is triggered at 70%/75% LTV; and the issued promissory notes. The guarantees also mean that the bonds are ultimately backed by the general capacity of the sponsors. Fabege is the strongest rated peer, with the other sponsors having ratings from BB+ to BB-.

Capital structure, end-2015, percentage of capitalization

In our view, the expectations for the key capital structure credit metrics are in line

with a “significant” financial risk profile. These include an LTV of 50-60% and

debt/debt + equity of 55-65%. Rating agencies debt/debt + equity on fair value tends to be close to LTV, but not always. Especially in the Nordic countries, a high level of deferred tax liabilities usually leads to weaker debt/debt + equity versus LTV. We expect debt/EBITDA to hover at less than 15x, which is weak but a result of project development. The consequence is that debt rises, but EBITDA gradually increases when the property is completed, and the tenants move in and start paying rent. In addition, LTV should be below 55% and debt/debt plus equity should be around 60%.

Fabege’s current LTV level was at 52.3% at the end of 2015, which is adequate and in line with the stated policy. The debt/debt + equity of 56% is in line with peers, such as Castellum (56%). Fabege’s FFO/debt is weak at 3.7%, which is at the lower end relative to peers. The FFO/debt should be at least 7% to be adequate.

44% 43% 10% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sr secured bonds CP program Secured bank debt Common equity

Moderate levels of LTV and debt/(debt + equity)

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Supplemental credit metrics

Weighted average debt maturity and interest fixing (years)

Fabege maintained its debt maturity profile but increased its interest maturity fixing period. Fabege has also called the 02/15/2016 senior secured bond of SEK 1.170bn, including a floater of SEK 870m and fixed SEK 300m. Fabege’s debt maturity is adequate at 4.2 years, and the interest fixing period is weaker at 3.1 years. (We calculate the debt-maturity profile by used credit facilities. Fabege has a more detailed information regarding maturity.)

Cash flow and leverage

The debt/EBITDA of 15.4x is more in line with a “highly leveraged” financial profile. However, Fabege has had relatively highly leveraged debt/EBITDA in recent years due to project development. The consequence is that debt rises but EBITDA gradually increases when the property is completed, and tenants move in and start paying rent. This ratio is expected to improve when the company decreases its investment to an average of SEK 1-1.5 bn.

46% 48% 50% 52% 54% 56% 58% 60% 62% -10,0% -8,0% -6,0% -4,0% -2,0% 0,0% 2,0% 4,0% 6,0% 2011 2012 2013 2014 2015

Debt / Debt + Equity LTV FFO / Debt

FFO/Debt Debt/Debt+Equity / LTV 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

Interest fixing period (yrs) Debt maturity profile (yrs)

Majority of ratios in line with “significant” financial risk profile

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The current credit metrics in terms of EBITDA/interest coverage (2.3x) are in line with a “significant” financial risk profile. This EBITDA/interest coverage significantly exceeds the bank covenant of at least 1.5x. Fabege’s policy for EBITDA/interest coverage of 2.0x is adequate. The EBITDA/interest coverage is also partly influenced by the current favorable low interest rate environment. As interest costs are one of the greatest expenses for real estate companies, the current low interest rate environment has a strong, positive effect on this business segment.

Core credit metrics

Stress test – LTV level

The LTV stress test shows that the Fabege’s market value can fall by 20% and still remain in line with a significant financial risk profile. This is strong, in our view, and

is one factor we will follow, as the market value for most real estate companies’

currently increases significant or even large.

0,0x 0,5x 1,0x 1,5x 2,0x 2,5x 13,4x 13,9x 14,4x 14,9x 15,4x 15,9x 2011 2012 2013 2014 2015

Debt/EBITDA (x) EBITDA / Interest (x)

Debt/EBITDA EBITDA/Interest 52% 55% 58% 62% 65% 0% 10% 20% 30% 40% 50% 60% 70% LTV LTV (MV -5%) LTV (MV -10%) LTV (MV -15%) LTV (MV -20%) LTV

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Stress test – increase in interest cost (1-7%) and effect on ICR (x)

The interest-cost stress test shows that the Fabege can withstand an increase of 4% on total debt excluding any hedges. This interest cost increase is tested against a situation in which the EBITDA/interest costs reach 1.0x, which is essentially when the company would be bankrupt. The current level in the portfolio has an interest rate of 2.58% (2.67% including unused committed bank lines), which indicates a marginal rate of 2.23% based on a repo rate of -0.35%. This means a total interest-rate increase of more than 6.5%.

We undertook a sensitivity analysis of all our shadow rated companies without hedges. This test indicated that most companies could withstand interest-cost increases of 4-6%. In a normalized interest-rate environment, a repo rate of 2-4% would be expected. After adding in a spread due to companies’ credit quality, we believe this mirrors a more normalized interest-rate environment of 4-7%. Consequently, we conclude that the real-estate companies require a significant degree of hedging due to the high leverage level. Today, in terms of the average STIBOR + margin, the companies pay 3%. As this includes all hedging, it is not a perfect proxy for short-term spreads. However, if interest costs increase, then spreads will most likely widen, especially for companies with weaker credit quality.

Liquidity position

Fabege’s funding is diversified in terms of banks, and we believe Fabege has good access to the capital market. Fabege’s main funding sources are SEB, Nordea, Handelsbanken, Nykredit and Realkredit. Fabege has about SEK 3.8bn in a commercial paper program.

Fabege has SEK 1.7bn in committed bank lines, as well as SEK 3.5bn in secured revolving credit facilities. Fabege states that it therefore has about SEK 3bn to invest if opportunities arise.

Fabege is a part of nSFF, which means that it has another source of funding. Fabege could issue a maximum of SEK 4bn, meaning 50% of the SEK 8bn of the nSFF program. Fabege currently has SEK 867m in outstanding bonds through nSFF, which adds diversification to the capital structure. All bonds issued by nSFF share securities in a pledged security pool, which is basically the heart of the nSFF structure. No single borrower may account for more than 50% of total outstanding loans, but Fabege’s current outstanding amount is well below that threshold.

2,3x 1,7x 1,4x 1,1x 1,0x 0,0x 0,5x 1,0x 1,5x 2,0x 2,5x EBITDA/Interest coverage +1% +2% +3% +4% EBITDA/Interest coverage (x)

Sensitivity for interest cost of 4% is on par with peers but weak in a normalized interest-rate environment

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Fabege’s bank covenants require an equity ratio of 25% and minimum EBITDA/interest coverage (ICR) of 1.5x. Fabege’s equity ratio at the end of 2015 was 39.5% and ICR was at 2.3x.

The liquidity position is supported by our view that Fabege has strong core bank relationships and an established presence in the capital markets. This type of newly efficient modern offices with long contracts also makes Fabege of interest to pension funds and insurance companies.

Short-term liquidity profile assessment

Source: Swedbank, company reports

Financial adjustments/accounting

We apply standard adjustments to Fabege’s reported accounts. For example we reclassify items reported under operating income or expenses if we deem them to be non-operating in nature. This applies, for example, to gains and losses.

We typically exclude items from EBITDA that do not directly stem from property management. This could include gains and losses in property transactions or property development. This is to allow for comparisons between the profit-generating abilities of the underlying property portfolios of various companies.

Estimated liquidity sources 12m test 24m test Comment

Cash on balance sheet at end-2015 32 164 As reported and plus some cash from Vattenfall divestment

CP backups 5000 5000 Program assumed to be longer than 12 months. Will always be covered by back-up lines. Overdraft facility incl. EIB 1739 1739 Overdraft facility, assumed to have an expiry beyond 12 months, EIB expiry year 2025 Estimated FFO generation 800 1400 Analyst estimation

Bond issue 0 0

Divestments 2200 2200 Net cash SEK 2.2 bn bond already redeemed with cash. Proceeds to repay on revolving credit line. Availability under unencumbered assets 4 678 4678 Analyst estimation- Price fall 15%, bank covenant LTV 75% (60-75%) minus SEK 21 bn

Total sources 14448,75 15180,75

Estimated liquidity uses

Debt maturities -3254 -6695 Debt maturities for 2016-20178 CP programme -3800 -3800 Utilized in end-2015 Investments -2000 -3000

Dividends -579 -1158

Working capital / other -250 -250 Analyst estimate

Total uses -9883 -14903

Sources/Uses 1,46x 1,02x

Adequate liquidity supported by strong core bank

relationships and presence in capital markets

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Financial statements and analysis

Income Statement, SEK m 2011 2012 2013 2014 2015

Rental income 1 804 1 869 2 059 2 087 1 998

Operating expenses -577 -605 -648 -602 -569

NOI 1 227 1 264 1 411 1 485 1 429

SG&A -63 -64 -62 -67 -65

Other operating income/expenses 13 23

Operating incom e 1 177 1 223 1 349 1 418 1 364

Result from associates 9 137 -30 -72 -94

Interest income 1 1 0

Interest expense -623 -668 -705 -664 -582

Other financial items

Incom e from property Mgm 564 693 614 682 688

Writedow ns/other non-ops

Realised gains/losses 173 167 135 319 21

Revaluation properties 1 093 1 409 739 1 339 3 252

Revaluations - derivatives, etc -413 -237 504 -473 272

Incom e before tax 1 417 2 032 1 992 1 867 4 233

Extraordinary items

Current tax -1 -1 900 -116 -61 -2

Deferred tax -275 -220 -346 -68 -999

Net incom e 1 141 -88 1 530 1 738 3 232

Balance sheet, SEK m 2011 2012 2013 2014 2015

MV proporties 29 150 31 636 33 384 32 559 40 279

Other tangible fixed assets 1 1 1 1 1

Holdings in associates 591 810 778 0

Financial fixed assets 426 431 766 1 542 923

Other non-current assets 107 157 39 0 446

ST Financial assets 34 70

Cash 74 200 98 23 32

Other current assets 362 474 365 1 859

Total assets 30 711 33 709 35 431 36 018 41 751

Equity 11 890 11 382 12 551 13 783 16 479

Deferred tax liability 390 588 923 1 084 1 936

LT debt 13 521 11 385 16 830 12 480 14 010

Interest rate derivatives, other LT liabilities 812 974 582 920 658

ST Debt 3 234 6 650 2 208 7 071 7 058

Accounts payable 151 176 147

Other current liabilities 713 2 532 2 190 680 1 610

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Cash Flow, SEK m 2011 2012 2013 2014 2015

Net operating income 1 407 1 431 1 573 1 485 1 429

D&A and adjustments -63 -64 -62 -66 -65

Interest received 14 29 39 19 25

Interest paid -610 -644 -738 -724 -689

Taxes paid -465 -1 607

Dividends received

Operating cash flow 748 752 347 -893 700

Working capital changes 1 198 -247 88 -1 021 1 042

Net operating cash flow 1 946 505 435 -1 914 1 742

Acquisitions of properties -1 986 -105 -985

Acquisitions of PP&E 0

Investments in existing properties -2 191 -2 036 -1 233 -2 770

Sale of properties 756 1 236 1 001 3 259 604

Sale of financial investments Sale of PP&E

Acquisition of shares in ass. companies -203

Other investing activities -297 -103 -133 -100 440

Cash flow after investing activities 419 -756 -733 -93 -969

Share issue / ow n shares sold -38 89 122 0

Dividends paid/share repurchases -489 -487 -496 -496 -538 Financial fixed assets, net

Debt issues 109 1 280 1 003 514 1 516

Debt repayments Other financing activities

Net cash flow 1 126 -104 -75 9

Key ratios 2011 2012 2013 2014 2015 Adjusted ratio elem ents

EBITDA 1 177 1 223 1 349 1 418 1 364

FFO 527 -1 379 511 693 780

Debt 16 755 18 035 19 038 19 551 21 068

Interest -650 -703 -722 -664 -582

Core financial ratios

EBITDA / Interest (x) 1,8x 1,7x 1,9x 2,1x 2,3x

Unadjusted EBITDA / net interest (x) 1,9x 1,8x 1,9x 2,1x 2,3x

Debt/EBITDA (x) 14,2x 14,7x 14,1x 13,8x 15,4x

Supplem ental financial ratios

FFO / Debt 3,1% -7,6% 2,7% 3,5% 3,7%

Debt / Debt + Equity 58,5% 61,3% 60,3% 58,7% 56,1%

LTV 57,5% 57,0% 57,0% 60,0% 52,3%

LTV net of cash and liquid fin. assets 57,2% 56,4% 56,7% 59,9% 52,1%

Equity ratio 38,7% 33,8% 35,4% 38,3% 39,5% Profitability NOI margin 68,0% 67,6% 68,5% 71,2% 71,5% EBITDA margin 65,2% 65,4% 65,5% 67,9% 68,3% Property related Implied Yield 4,2% 4,0% 4,2% 4,6% 3,5%

Implied Yield, adj. 4,7% 4,3% 4,5% 4,9% 3,8%

Vacancy rate 10% 8% 7% 6% 7,0%

Lettable area (t sqm) 1 107 1 130 1 142 1 030 1 092

No. of properties 97 95 92 80 83

Lettable area per property (sqm) 11 412 11 895 12 413 12 875 13 157