Speaker #1: Good morning, and welcome to Fabege's Q3 report 2026, together my name is Spencer Østad, and I'm the CEO of the company, and together with me I have Åsa Bergström, our CFO.
Speaker #1: And we are also so lucky to have Viktor Byrenius from Pareto together with us in the studio, as our moderator for the questionnaires afterwards.
Speaker #1: With that, we kick off today's presentation. And I always start to repeat just a short glance over who Fabege are. We are a modern portfolio we have a modern portfolio with focusing on Stockholm, and its occupied by high-quality tenants.
Speaker #1: We own, develop, and also manage all the properties, focusing on creating attractive workplaces and a good living in superb locations in Stockholm.
Speaker #1: Our key strength, which is always important for us, is our customers. We have a very high consumer satisfaction index, and this is highlighted by our strong track record in serving customer needs.
Speaker #1: 95% of the tenants say they will recommend Fabege as a landlord, and that's important for us in the daily work we are doing every day.
Speaker #1: We also have the long-term lease contracts as a foundation, and I'll get a little bit back get a little bit back to that later on in the presentation.
Speaker #1: We have our own employees across the entire value chain, and that also gives us further advantages. While all the properties are also located in clusters, it gives us some economies of scale. We have the opportunity to create engaging meeting places, and by that I mean, more or less, focusing on creating the 15-minute city in all of our core areas.
Speaker #1: We have excellent capabilities to deliver large and complex projects, from start to finish. We have done that several times, and we will continue to do so moving forward.
Speaker #1: Right now, the large projects are a little bit smaller or less than it used to be, but we have the we have the projects in the portfolio.
Speaker #1: And we also have strong capabilities, and we are best in class when it comes to ESG initiatives and environmental results. That's also highlighted by our customers in different surveys.
Speaker #1: So, if I just look at the Q3 numbers separately—not year-to-date figures, only the Q3 figures—the net letting ended at plus SEK 55 million for the quarter. We're happy with that result, and the rental income increased by 2.3% from the second quarter to the third quarter.
Speaker #1: The surplus ratio for the third quarter was 76%, and profit from our residential development ended at plus SEK 33 million. And yet, to date, it's SEK 112 million from the residential development.
Speaker #1: Value changes from the property portfolio—Åsa will get back to that a little bit later—ended at 259 in the quarter, and the occupancy rate stayed at 87%.
Speaker #1: And during the quarter, we also made some changes to the executive management team, and everything in accordance with that is booked in our books and the P&L this quarter.
Speaker #1: So with that, Åsa, I'll hand it over to you.
Speaker #2: Thank you, Bent. To go through the P&L income statement, the rental income came in at 2.7 billion, that's an increase of almost 4%. Divided into separate items, we had a negative rental growth in the identical portfolio of minus 1.2%, relating to previous year's negative net pletting.
Speaker #2: On the other hand, we had positive impact from from projects that were finalized during last year and the beginning of this year, contributing with approximately 132 million Swedish crowns during this period.
Speaker #2: The net operating income, as Bent mentioned, from the residential development came in at SEK 112 million, and the net operating income from property management at almost SEK 2 billion, as you can see here in the P&L.
Speaker #2: Central administration was in line with last year's 78 million, and the net interest expenses increased a little bit to 741 million, mainly due to higher cyber during the year.
Speaker #2: Ground rents in line with previous years, and the share in associated companies also decreased to minus 82 million of which 74 million minus 74 million is related to Ariana Bolaget, and roughly 9 million relating to transaction of building rights, residential building rights within Beje Bostad.
Speaker #2: And thus, we saw a total profit from property management of SEK 1.166 billion, up around 11% in comparison to previous years. As Bent also mentioned, we see unrealized value changes of a total of SEK 120 million during the year.
Speaker #2: We have had now two quarters of positive valuation uplifts, and also this quarter we saw value uplift in the derivatives portfolio relating to increases in long-term interest rates.
Speaker #2: So, a profit before tax of SEK 1.4 billion, and the tax came in at minus SEK 225 million, also impacted by some positive items relating to transactions previously in the year and also the valuation of some carry-forward losses that we could recognize after a court ruling earlier this year.
Speaker #2: So, in total, SEK 1.2 billion. This quarter, we have valued roughly 45% of the property portfolio externally, with the appraisers Newsec and Cushman & Wakefield. And as mentioned, Bent mentioned a value change in the quarter of SEK 259 million.
Speaker #2: We saw the yield coming down to 4.55%, a decrease of 4 basis points since year-end. And if we look at how it's divided between the different market areas, we can see that City provided SEK 500 million plus during these nine months, while Solna and Hammarby are still on the minus side. Residential is also a little bit on the positive.
Speaker #2: Side. In total, we have invested 1.5 billion almost in the management portfolio together with projects and also development properties, which are the residential development within Beje Bostad.
Speaker #2: And a few comments to the key ratios: equity per share, 121; and the EPRA NRV, 147 crowns per share. Positive return on the property portfolio, of course, since we now have also recognized positive value changes.
Speaker #2: The surplus ratio in line with last year, also equity ratio and loan to value in line with previous year. And the debt ratio improved to 12.8 in line with our long-term target, and also we could see the interest coverage ratio increased to 2.7, good signs.
Speaker #2: On the financing side, it's continued to be a very good market. We have very good access to financing from both the capital market and from our banks.
Speaker #2: We have refinanced everything that is up for refinancing this year, and we have also initiated next year's refinancing with banks. There's been some volatility in the capital market when it comes to margins.
Speaker #2: But we took a very good opportunity in August to make some new bond issues, where we came out with a five-year bond, 600 million, at a margin of 103 basis points.
Speaker #2: This would be somewhat higher in today's environment, but it's a very good opportunity for us. We have also entered into some new swaps during the second quarter.
Speaker #2: We entered some plain vanilla swaps of SEK 1.9 billion, five-year swaps, and now after the summer we have done some of the new callable interest rate swaps.
Speaker #2: One and a half billion at levels below 2%, which provides us, as long as they remain with a positive cash flow, as it looks now.
Speaker #2: And we are happy with the undrawn credit facilities of SEK 6 billion, which gives us safety, and we feel very secure that we will refinance everything that comes up in the near future.
Speaker #2: So, a very stable financial position. And then, when it comes to interest rate swaps, we have seen an uplift in the average interest cost of 2.191% now, compared to 2.82% at year end, but actually today it's back below 2.9%.
Speaker #2: Around 44% of the portfolio is fixed, and with a fixing period of 1.3 years. If we include the callable swaps, that increases a little bit to 1.6 years.
Speaker #2: So I think we are happy with the situation as it looks today. And I think that's all I have for the time being. So back to you, Bent.
Speaker #1: Thank you. Yes. So, if we look at the occupancy rate in the management portfolio at the end of Q3, it's at the same levels as in Q2.
Speaker #1: So, it's 87% occupied, and we very well know that the easiest way for us to create shareholder value is to rent out the existing vacant premises.
Speaker #1: But if you go over to the net lettings, the net letting for the quarter ended at plus 55 million, the larger new lettings we sent a separate press release on that one during the during July.
Speaker #1: But the new lettings ended at plus 93 million, and terminations at 38 million. And the large termination was more or less more or less mentioned in the media in Q3 25, when SOS Alarm said they would move out of our premises and to a new location in the city.
Speaker #1: And the lease contractor runs out in second quarter 2028. Come a little bit back to that later on. So the renegotiations for the third quarter is total 90 million, is an uplift of 1.9 million.
Speaker #1: But if you look further into the figures, renegotiated rents rose to SEK 60.4 million, an increase of 3%, and prolonged existing terms was SEK 31 million.
Speaker #1: So we're quite happy with the result this quarter. Year to date, the total renegotiated amount is SEK 320 million, and there is a slight decrease of 0.6% for the total portfolio.
Speaker #1: Renegotiated with different terms, SEK 165 million, and prolonged on existing terms, SEK 152 million, totaling SEK 320 million. So that brings the total net lease for the year-to-date figures to minus 7, and as I mentioned in my CEO letter this morning, we have had a nice kickoff for the fourth quarter, so we are quite enthusiastic and ambitious for the last quarter.
Speaker #1: Also, 136 million of the maturities in 2026 and onwards have already been renegotiated within these figures and earlier quarters. If you dive a little bit further into the renegotiations we have done, it's a healthy mix among all market areas.
Speaker #1: And all segments, very often when you listen to media and you hear different roundtable discussions, it's a lot happening among governmental tenants, etcetera.
Speaker #1: We feel we are in all kinds of markets and segments, and also that's what you see on the right side here. It's a nice mix of different tenants.
Speaker #1: Two contracts above 1,000 square meters during Q3, and the same with the new leases are also in all kinds of categories.
Speaker #1: And one contract above SEK 10 million, and then you all know that's, of course, the DNB Carnegie contract. If you divide it into the different segments we have, different areas, Stockholm is dominated by Stockholm in the city this time.
Speaker #1: But we see activity in all over clusters, and that's important for us. So the rental development, we gave this is not a guiding, but this is what's in our book already decided.
Speaker #1: So the forthcoming quarters and we want to of course accelerate this. And if you have next quarter when you also see fourth quarter here, you have the full effect of the DNB Carnegie contract.
Speaker #1: You have the full effect of the MIMER project, and you have the full effect of of Wennergren Center that we come back to a little bit.
Speaker #1: I've mentioned here slightly drop in Q4 2026. That's a one of effect more or less an IFRS effect auditing effect. Meaning we have had some some rebates to some customer.
Speaker #1: That's been our renegotiated whole contract, and then we take the full effect of the planned discount there. The new contract will increase our cash flow effect, and we'll try to focus on that this time.
Speaker #1: So I mentioned in the beginning that our customers are the most valuable we have in the company. The 10 largest tenants you have on the right side here—still, the DNB Carnegie lease is renegotiated, but this is the old contract because the new one comes into effect from the third quarter 2027.
Speaker #1: So we will update it then, and there will be a number three on this side. The vault on the top ten tenants will then go close to ten years.
Speaker #1: And in total, we have 700 customers, but the 10 largest account for approximately 30% of the total rent. And they have a long, long vault.
Speaker #1: Yeah. I think that takes it. So if you look at the trends and this is Fabege's view and my view on the market trends, what we see market the rental market last quarter I said was slightly strong in the CBD.
Speaker #1: This quarter, I say it's stronger, and it's a good, continued activity in the CBD portfolio. Rent levels have started to increase in areas where there are low vacancies and fewer alternatives on new productions. There is more tempo in the leasing activities as well.
Speaker #1: And we also see a stable rent levels in the greater Stockholm. That's also reflected in the in the figures we showed you here today.
Speaker #1: We still see a mix of tenant behaviors. Some tenants are reducing square meters in existing leases, but we also see more and more tenants changing their policy to be in the office at least four days a week.
Speaker #1: And I see someone do the analysis and say they will be in the office four days, but the policies start to be more and more at least four days in a week.
Speaker #1: So that's also what we see, activity on the ground levels, activity in the parking lots, et cetera, et cetera. So that's a good sign for us.
Speaker #1: Suppliers suppliers to all the industries in Sweden that really growing even if it's in in the space industry, if it's in the data center industry, if it's in yeah different industries.
Speaker #1: Suppliers there have some some of them have quite high activity. And our we see them around now looking for future relocation and opportunities. Not all of them, but some of them.
Speaker #1: And still we see also the growth in startups, AI slash tech companies also being in the market. So feels it feels comfortable and also back back my comment on that we have quite enthusiastic and ambitious for the last quarter.
Speaker #1: When it comes to the construction market, we see free capacity among the construction companies. When we when we are handing out contracts, we see a good competition to to to get our potential building contracts.
Speaker #1: So, we feel the market is healthy for us. Transactions in the market were quite limited in numbers during the third quarter, but we see, as well as I guess most of the cities, increased interest to investigate the potential of market opportunities.
Speaker #1: Sometimes it's from a specific recent company, but even more often from the advisors, and that's their job. So, it should be like that.
Speaker #1: But we see more interest these days. The financing market, just as Åsa has run through, is a healthy activity there. And we see competition among all kinds of investors and different markets.
Speaker #1: So it's up running and well functioning. So going forward, what are we seeing? Yes, we have a lot of projects that will contribute contribute to the top line growth.
Speaker #1: As I mentioned earlier, with full effect from the fourth quarter. 27 Wennergren Center MIMER also with full effect from the fourth quarter, but it starts to kick in during the third quarter of '27.
Speaker #1: And they are running in accordance with the timeline that we started the project with, so it looks good. This year, in June, we bought a land plot from the municipality of Stockholm.
Speaker #1: The Garden one in Sveaplan. This is a fantastic area, and it's very important for us. We have approximately 90,000 square meters here. This new building is approximately 8,800 square meters, and we have done a lot of work in a short period of time. We will have the possibility to start the construction works quite early.
Speaker #1: And total investment approximately 370 million including stamp duty et cetera and all kind of accumulated costs. And yeah we are enthusiastic with this as well.
Speaker #1: It's a positive and attractive location for for possible tenants. Quite quite high interest in a short period of time. Plan move in end of 28 beginning of 29.
Speaker #1: The area just to put it in a bigger picture I showed this last quarter as well. But from now on I will focus on our properties but kind of the interest is also the white circles are where Ericsson signed the contracts for their new new relocation and we have all the red red circles or squares here.
Speaker #1: So in total, 90,000 square meters. Moving over to the residentials, we are creating Haga Norra from being nothing, and making it an attractive meeting place.
Speaker #1: It's parking as a garage underneath the ground floor. We have all the green squares here. We have completed and right now we are doing the last cleaning of the of the of the of the last flats in block four.
Speaker #1: Block five. I mean and so that will be also completed this year. Block four has started up. We have done the planning. We have done the construction.
Speaker #1: We have decided on the construction company, and we will start the sale of the first flats during October, actually. So that's on the way.
Speaker #1: In Block Three, we have done a lot of lease-outs. We have leased out an elder care facility, approximately 5,000 square meters, to Stockholm Sjukhem.
Speaker #1: We will have a preschool that will be rented from Solna municipality. And we are doing residentials that will come after block four is finalized.
Speaker #1: But the construction work will start a little bit in parallel. This is also a potential for a potential office, approximately 20,000 square meters, at the last corner of the quarter.
Speaker #1: So, Haga Norra Block Four will be 133 apartments. The project started during October, as I mentioned. Estimated investment is SEK 600 million, including purchase of land. And the completion will be 2028–2029, somewhere in there.
Speaker #1: With the move in. The next phase block three are underway and then total approximately 20,000 gross leasable areas. Investment up to 860 million. But as I mentioned a lot of the commercial premises are already leased out.
Speaker #1: The last one, Haga Solna municipality, press released this quarter the building rights for more residentials in Arenastaden, on the doorstep to the new metro station.
Speaker #1: All preparations are in place, and the first building will have approximately 200 apartments. This is still in the planning phase. We're doing a lot of calculations, both when it comes to construction costs, pricing of the units, et cetera, et cetera.
Speaker #1: And the metro station is unfortunately one year delayed. So we have to take the time and do all the calculations and try to lock in as much as possible just to finalize the potential in this project for us.
Speaker #1: So to summarize the quarter and what we are looking for going ahead. We are as I mentioned several quarters now. We have to conclude on ongoing leasing initiatives and to reduce vacancy.
Speaker #1: Top top priority. And definitely to continue to be the preferred partner for all of our customers. We have to be available accessible and always solution orientated.
Speaker #1: And when I see all the different service I'm so happy to see we are ranked number one in these questions all the time. And that's valuable for us.
Speaker #1: Second or third point these to secure the value creation in ongoing projects and our land back. We have to do the calculations exactly how to be strict on cost and and how how we are using all our resource resources.
Speaker #1: That's both in commercial building rights and also in the residential portfolio. We will always continue to be active in the financing market. Als I showed a nice picture of the activity during the third quarter and it continues going forward.
Speaker #1: And the last one: search for opportunities to create shareholder value. A lot of investors are asking for that, and believe me, it's a top priority.
Speaker #1: So, with that, we hand it over to you, Viktor.
Speaker #2: Thank you very much, Bente. Thank you also for having me. My name is Viktor Berenius. I'm an equity research analyst at Pariet Securities, and I will help you through today's Q&A session.
Speaker #2: I'll have some questions for myself, but then I'll let the audience in for questions through the telephone line. Before jumping into the details of the quarter, could you just very quickly mention one thing that you feel satisfied about this quarter and one thing that you need to improve going forward?
Speaker #1: Leasing activities: I'm happy with that. I'm happy with the enthusiasm among younger talents in Fabege. We are making some smaller changes to the executive team.
Speaker #1: And we see enthusiasm coming up immediately, and that's very, very encouraging for me as a partly new CEO in the company.
Speaker #2: Yeah. And you mentioned that the net letting came in at SEK 55 million for the quarter. Obviously, you had a very positive effect from the DNB Carnegie lease.
Speaker #2: Excluding that lease how would you say that the current leasing market as you mentioned that the CBD is going strong. How is it overall?
Speaker #1: We have done new leases in all areas, but then also, I said we have had a nice kickoff of the fourth quarter. The signing often goes some more weeks or something.
Speaker #1: And if you had closed the books today it will have been positive for the year to date figure. So we have kicked off good.
Speaker #1: We see nice activity in all our areas. So, yeah, I'm quite optimistic.
Speaker #2: Do you have any larger ongoing discussions?
Speaker #1: We always have, some very, very large and some in the more middle range. So the pipeline is, we have a lot to do.
Speaker #2: Good to hear. And about interest rates. You have decreased your fixed rate periods from an average of 2.2 years in Q3 last year. Now down to 1.3 years.
Speaker #2: Given that the market rate curves are rather volatile at the moment, how will you work and operate to minimize the damage from this and to keep the interest costs at good levels?
Speaker #1: Well, we took some opportunities in June to do some plain vanilla interest fixing, as I mentioned during the presentation, to secure some of those earlier taken swaps that are maturing over the years.
Speaker #1: And also, one reason is entering these kinds of callable swaps that are at very good levels for us and provide a positive cash flow.
Speaker #1: We have a number of those swaps that actually provide a good cash flow for us now. And I think today with where you know the long term interest rates are it's a little bit too expensive for us to to do a lot of more fixing.
Speaker #1: So it's always a balance to to see. So we what we do is we follow the markets and when we find opportunities good or good enough then then we take action.
Speaker #2: Yeah. Okay. And one question that you have heard many times before. Some of your sector peers have sold non core assets. Enabling them to use the proceeds to reduce debt and buy back shares.
Speaker #2: Given the current 50-plus percent reported discounted reported NAV, what's the rationale behind not buying back shares at these levels?
Speaker #1: The the rationale is to not buy is that we don't have a lot of excess capital. In in the company these days. So we have to prioritize where where to to invest.
Speaker #1: That said, I will not be referred to as I say, "We will never buy back shares." We ask for a power of attorney to do it.
Speaker #1: And it's on the agenda. And also, this time, as you saw, I changed a little bit on the last slide here. So we are really thinking about creating shareholder value.
Speaker #1: So it's always on the agenda.
Speaker #2: Yeah. And with that, I will open up the telephone conference for any audience questions.
Speaker #3: To ask a question via the phone, press star five (*) to enter the queue. When it's your turn to speak, press star six (*) to unmute your microphone.
Speaker #3: The first question comes from Fredrik Stensved at ABG Sundal Collier. Please go ahead.
Speaker #4: Good morning. Can you hear me?
Speaker #1: Yes.
Speaker #2: Yes.
Speaker #4: Perfect. Very good. First a couple of questions on the forward guidance or or projection of of rental income. Bente you mentioned in the presentation that Q4 was sort of impacted by what I understood at least a rental discount for a renegotiated contract being fully sort of considered in that quarter.
Speaker #4: So is that the full effect for Q4, and I guess Q1 and Q2 2027 also down sequentially? Is that linked to the same change or something else?
Speaker #1: No, the one contract I mentioned for the fourth quarter of '26, that's a one-off. We are changing the tenant in this building, so the future cash flow will be higher.
Speaker #1: The yearly rent will be higher than it is today, but it's a long lease contract that we want to end earlier. They have also had a rebate.
Speaker #1: And it's booked rebate for a short period of time. And it's booked all over the total lease length. So that's why it's booked in the booked it is in our books.
Speaker #1: But divided over the total lease length. But we we finalized this lease this lease in advance. When it comes to the other other thing you said you or you ask for their Fredrik.
Speaker #1: As as we mentioned in the press release in in in July. We we have a a large rebuild or refurbishment of our property in in the CBD.
Speaker #1: And the tenants are operating in the premises while we are doing the refurbishment. So, some smaller rebates on those tenants as well.
Speaker #1: You can account for that until third quarter '27.
Speaker #4: Understood. And on the third quarter, which we see in the table, does that fully reflect full rent from DNB, or do they have discounts or some sort of phasing in of rents already as of Q3?
Speaker #1: It's in full effect in Q3 2026, I think. There is a small discount also in Q3. Okay, a small discount. Sorry.
Speaker #4: Okay. Very good. And then Mimer sort of partly in Q3 and then full in Q4.
Speaker #1: Yes. The Mimer first phase is partly in Q3 because we are renovating the second phase in the building. So, the full effect is not until August 27.
Speaker #4: So full effect in the fourth quarter.
Speaker #1: Yeah.
Speaker #4: Yeah. Yeah. Now that's clear. And then I guess Vendegren is the the last sort of large one I think you said Q4. What's your sort of you know expectations on on occupancy trajection in in that property in in in next year and and and looking I guess into 2028 as well.
Speaker #4: Is that going to be, you know, half let at completion and then gradually increasing from there, or what's sort of, you know...
Speaker #1: I I I think I think you're you're projections are quite good. My team is much more much more in a rush. They want to sign it up as quick as possible.
Speaker #1: But yeah, we have to think of this as our total refurbishment. It will be so nice when it's finalized next summer. So we can't be too eager to sign everything now.
Speaker #1: It's 400 square meters per per flat per per per flat. So the decision taking if you want to lease 400 square meters you're not not leasing up now to move in with in in 12 months.
Speaker #1: A lot of viewings there, a lot of tenants looking at the building. And they see the potential, and they know they can make the decision in a much shorter time.
Speaker #1: And I really want to finalize the entrance to the building—the lobby area—to see all the services we are putting in there, and see how it will be.
Speaker #1: I have a good feeling. And then we think it's easy for us to also have to exceed our expectations when it comes to rent levels.
Speaker #4: Yeah, that's clear. Makes sense. And then, second and final topic—you also mentioned, if I'm not mistaken, that you did another SEK 1.5 billion of callable swaps now in Q4.
Speaker #4: Is that correct?
Speaker #1: Q3 and Q4.
Speaker #4: Okay. Okay. So, what's the sort of addition from Q3 that we see in the report?
Speaker #1: Yeah, you see some impact from that, but not so much. It will kick in mainly from Q4.
Speaker #4: Understood. And what's your sort of general thinking on you know how how how much volumes you can you can take in in terms of callable swaps?
Speaker #4: I guess you know there is, you know, some kind of tail risk that the counterparty actually calls them.
Speaker #1: We—I mean, they are—we do not regard them as sort of long-term interest rate swaps, like the plain vanilla swaps. So these are mainly taken to provide a good cash flow in the meantime.
Speaker #1: And if they are closed, they are closed. We see it as the risk we take is that we will stay with these swaps at the levels at which they are taken.
Speaker #1: These latest callable swaps are taken at levels that are a little bit below 2%. That's an interest rate level that we think we can live with for a long time, should they not be called upon.
Speaker #4: And how long do these run if they're not called below 2%?
Speaker #1: Between 5 and 10 years.
Speaker #4: Yeah, that sounds like a good instrument. Okay, thank you very much.
Speaker #2: The next question comes from Nadir Rahman at UBS. Please go ahead. Nadir, please unmute your microphone via star 6.
Speaker #4: Is that working now?
Speaker #1: Yes. Yes.
Speaker #4: Hello, sorry. It just took me a bit of time to work that out. So thank you for taking my questions. I've got two.
Speaker #4: And I'll ask them in turn. So, the first one is rental levels on the leasing you've seen year-to-date and also in Q3.
Speaker #4: How does that compare between Solna and the inner city? And a follow-up to that is, how much discounting are you offering, and how many rent-free incentives underlie these rents?
Speaker #4: That's my first question.
Speaker #1: It it's difficult to say some percentage or or or differences. Just within in Solna in Arenastan it varies from building to building and and micro location within Arenastan as well.
Speaker #1: So, in Arenastan, you have rents higher than we have in CBD. But when it comes to the CBD, it's of course higher. More or less, twice the rent in CBD as we see in Solna.
Speaker #1: Yeah, more or less that. You said incentives to move in. Did you ask about that?
Speaker #4: Yes, correct. So, what sort of incentive levels are you offering at the moment across your leasings in the past quarter? Has that changed since the start of the year?
Speaker #1: I haven't really looked into it—just my feeling now. I'm a little bit even closer to the operations, so I think I have some feeling on it.
Speaker #1: It's not increasing. Maybe a little bit tightening. But I would say, and if you do instrumentalize this, it's the same level.
Speaker #4: Okay, no, that's fair. Then my second question would be on your sector allocation. Of course, you mentioned towards the end of your presentation earlier that shareholder value is important to you, and you're looking at ways to optimize and maximize that.
Speaker #4: When you look at your sector allocation now, of course the majority is offices; there's some residential as well. Which of those two sectors do you see the most value being unlocked for shareholders?
Speaker #4: And do you consider any other sectors as an opportunity, given the way the macro environment has changed—perhaps to everyone's surprise this year—due to various geopolitical events?
Speaker #1: Yes. It's it's a little bit less risk on the on the resty side since they were doing full full what do you call it in in names full enterprise contract we lock in all the costs.
Speaker #1: We we do the drawings of the separate flat. We do all the planning in advance before we we handle up the handle up the the the the building contract.
Speaker #1: So they're more or less the sales risk. And if you do lease out leases, we also know more or less the rent level before we start the construction work.
Speaker #1: On the other side, the potential is maybe more in what you mentioned—now, offices. We see more and more creating workplaces. So it's not pure offices; a lot of tenants have some special needs. Could be labs, could be some data centers, some special— they also all have some special needs.
Speaker #1: And what what we see in the contracts maybe 10 to 20% in in average are some special needs and we feel quite happy with that because they they lock themselves into the buildings for for longer time.
Speaker #1: And I think we really really that give us excess value because because the position has the preferred partner for over over tenants. So I I see that as a as a good strength for us.
Speaker #1: And we try to focus on that in all the lease outs we are doing.
Speaker #4: Okay, sure. That was the second part of the question, which is about maybe other sectors as well, and if they look more attractive now, given that the macro environment has changed.
Speaker #1: Yeah. It's always—you see the companies really kicking off here in Sweden. They are, of course, attractive. Some of them have more production in their businesses.
Speaker #1: But for us, the short-term value creation is to lease out the vacant space. So we're focusing more on that, and then just considering what kind of tenants we are approaching.
Speaker #1: But yeah, we are approaching all kinds of tenants that want to have a place to create a new work environment for themselves.
Speaker #4: Got it. Okay, very clear. And my third question relates to your point on leasing. So, Ben, you've been in the seat for nearly a year now.
Speaker #4: And a year on now, have you had any surprises to where you expected it to be at this stage? Perhaps in occupancy or lettings—has it been slower or better than you expected in the last 10 to 12 months?
Speaker #1: My ambitions are sky high, so I will not say we are ahead of my plan. But we are taking it step by step. I think we have an organization being ready to run, and they are running a lot.
Speaker #1: But it's it's we can always be around talking about what we what we intend to do. But we try to focusing on signing lease contracts and and do the work.
Speaker #1: That's that's job number one one for us.
Speaker #4: Got it. Very clear. Thanks for taking my questions. That's all from me.
Speaker #2: The next question comes from Philip Hallberg at Nordea. Please go ahead.
Speaker #5: Yes, hello. Can you hear me?
Speaker #1: Yes.
Speaker #5: Yes, yes, thank you. So I had a question regarding—does this Q3 negotiated volume include the old DMV Carnegie contract that you had, or is that to be taken later?
Speaker #1: No, it's not included. So we didn't include that area. We just put in the net lease effect and added them on the former area that Max Matthiessen rented from us.
Speaker #1: So it's not included. It would totally dominate the whole overview. So a little bit more is, or quite a bit more, is renegotiated.
Speaker #1: But then it's on the existing terms. We haven't divided the rent levels among those 17,000 square meters.
Speaker #5: Okay, and also in regards to the Meaner Phase Two, will that have any positive impact on net letting in Q4, or did you take that effect already in 2025?
Speaker #6: It was taken when the contract with Academedia was signed.
Speaker #5: Okay. Both phases. Yeah.
Speaker #6: Yeah. Yes.
Speaker #5: Okay. And Ben, you mentioned in the CEO letter, of course, that you still have a lot of focus on letting out vacant space, and I appreciate that.
Speaker #5: But you also have a lot of focus on the cost of tenant adjustments. Does that mean that you are more flexible in terms of rental levels to rent out vacant space, or how should we view that comment?
Speaker #1: You should review it, like we try to create an even clearer responsibility within our firm when we have a tenant, a TI we have to do.
Speaker #1: One person is responsible and has the total budget. And we have a lot of enthusiastic employees with a lot of specialties. But when we have done the calculations and we have said yes to a project, we close all the discussions there and we move on and do the work and have the tenant in.
Speaker #1: And if we can save one month of work, or if we can stop one further survey on the work we're doing, it helps us to create better value going forward.
Speaker #5: Okay. So should.
Speaker #1: When it comes to the flexibility that you asked for, please, tenants come to us. We will always discuss and find solutions.
Speaker #5: Okay. That's clear. And also just in regards to have you reviewed the former TIs and sort of seen seen that you have a low return on invested capital on those sort of improvements or or is this just ongoing focus in the business?
Speaker #1: It's an ongoing focus. But I know how to calculate that just as well as all of you do. And we are not satisfied with all the returns we have had the last years.
Speaker #1: But over a period of time we are we are we are we are proud of what we have achieved. But we want to get back to those historically levels.
Speaker #5: Okay. And my final question is just regarding the potential divestment of Hernan One to the Solna municipality. What is the current status of that deal?
Speaker #1: That was more than one year ago when it was stopped there, and I don't have any further comments on that, actually.
Speaker #5: Okay. But is it, is it still an ongoing discussion in the municipality, or has it been called off entirely?
Speaker #1: If they're interested, please call me.
Speaker #5: Yeah, okay. Thank you very much for taking my question.
Speaker #1: Thank you.
Speaker #2: We have no more phone questions in line, so I hand the word back to the speakers.
Speaker #1: Thank you very much. Just one final question from me. There has obviously been some turmoil internationally, and a very uncertain geopolitical environment. What is your view on this, and how will you be working going forward to minimize the negative impact from this?
Speaker #1: That's, yeah, different angles of that question. When it comes to financing, of course it influences. When it comes to operations, we try to focus on what's happening in the company.
Speaker #1: And we are not that much affected by what's happening in other places. That's also why I went through the construction work, or how we see the construction market.
Speaker #1: And of course, we are very well aware of what can happen there. We haven't seen the signs yet, but it's always on the agenda.
Speaker #1: We see a lot of industries doing well in Sweden. Try to focus on them and see their future needs. We see more effect from companies changing their policies to maybe require at least four days in the office. That means more for us in the short period of time.
Speaker #1: But I think everyone in Fabege is looking at the news every day and seeing what's happening. But we try to stay focused on Fabege and our areas.
Speaker #5: Sounds great. Well, I think we are beginning to run out of time. Thank you very much for taking my questions, and over to you for any closing remarks.
Speaker #1: Oh, but with that we conclude the third quarter presentation. And we are already well, well, well on our way in the fourth quarter. Thank you for taking your time to be with us today.
