Annual Report 2006

Annual Report 2006

Fabege Annual R eport 2006

Fabege AB (publ) P O Box 730, SE-169 27 Solna Visitors: Dalvägen 8, SE-169 56 Solna

Phone +46-8-555 148 00, Fax +46-8-555 148 01 E-mail: info@fabege.se, Internet: www.fabege.se

Corprate identity no: 556049-1523, Board registered office: Stockholm

After a period of intensive business activity, Fabege has a well- situated property holding in the largest, most dynamic property and rental market in Sweden, and a project portfolio with great potential. Our financial position is strong after a number of

impressive annual results. We have an effective organisation with highly competent and motivated staff.

In summary, there exist good conditions for continued value-added development in 2007.

Christian Hermelin, CEO

Annual Report 2006

Fabege Annual R eport 2006

Fabege AB (publ) P O Box 730, SE-169 27 Solna Visitors: Dalvägen 8, SE-169 56 Solna

Phone +46-8-555 148 00, Fax +46-8-555 148 01 E-mail: info@fabege.se, Internet: www.fabege.se

Corprate identity no: 556049-1523, Board registered office: Stockholm

After a period of intensive business activity, Fabege has a well- situated property holding in the largest, most dynamic property and rental market in Sweden, and a project portfolio with great potential. Our financial position is strong after a number of

impressive annual results. We have an effective organisation with highly competent and motivated staff.

In summary, there exist good conditions for continued value-added development in 2007.

Christian Hermelin, CEO

Norrtälje 24 on Engelbrektsgatan.

Key figures 2006 2005

Rental income, SEKm 2,343 2,778

Net operating income, SEKm 1,401 1,716 Profit after financial items, SEKm 1,863 2,761 Return on shareholders’ equity, % 19.8 24.2

Equity/assets ratio, % 40.5 41.4

Interest coverage ratio, multiple 3.2 3.7 Earnings per share after dilution, SEK 23.47 27.50 Dividend per share, SEK 8.00¹⁾ 7.50

1)Proposed dividend for 2006.

2006 was yet another eventful year of extensive property business transactions for Fabe- ge. Fabege had a property turnover worth a total of SEK 28 billion, of which sales were SEK 12 billion and acquisitions were SEK 16 billion. The year began with the acquisition of Fastighets AB Tornet, with 104 properties, for a total purchase sum of SEK 9 billion.

During the first half of the year, 92 of Tornet's properties, located outside Fabege's prio- rity market, were sold for a total of SEK 6.9 billion. The remaining properties strengthen Fabege's portfolio on its principal markets of Stockholm inner city, Solna and Hammar- by Sjöstad. 2006 was concluded with the sale of 45 properties in Kista and Täby to Klö- vern for SEK 4 billion. The property business transactions during the year, which gave a total income after tax of SEK 967m, resulted in an additional concentration of Fabege's property holdings in a number of centrally located markets in the Stockholm region with high growth and development potential.

At the turn of 2006/2007, Christian Hermelin took office as the new President and CEO of Fabege. He succeeded Erik Paulsson, who left his operative position in order to take office as Deputy Chairman of the Board.

• Income after tax: SEK 2,266m (SEK 2,666m)

• Earnings per share after dilution: SEK 23.47 (SEK 27.50)

• Rental income: SEK 2,343m (SEK 2,778m)

• Equity/assets ratio: 41 percent (41)

• Proposed dividend: SEK 8.00 per share (7.50). Additionally, a transfer of all of the Company's shares in Klövern AB to the shareholders through a redemption offer is proposed.

Summary of the year With the focus upon commercial

premises in Stockholm

Fabege is one of Sweden’s leading property companies, with a focus upon commercial premises and property development.

Its business is strongly concentrated upon submarkets with high growth in the Stockholm region, primarily Stockholm inner city, Solna and Hammarby Sjöstad. Fabege manages and improves a well-positioned property holding at the same time as its property portfolio constantly develops via sales and acquisitions.

At the end of 2006, Fabege owned 174 properties with a total value of SEK 27.2 billion.

Fräsaren 11

in Solna Business Park.

Interior from Dalvägen in Solna.

Lena Holmström, lessor.

Annual General Meeting 2007

The Annual General Meeting of Fabege AB (publ) will take place at 4 pm on Tuesday 27 March 2007 at Moderna Museet in Stockholm. Registration for the Annual General Meeting will start at 3 pm. Notice will be published in Post- och Inrikes Tidningar and Svenska Dagbladet.

Information concerning the Annual General Meeting can be found at Fabege's website www.fabege.se

Financial reporting in 2007

Interim report January-March: 3 May 2007 Interim report January-June: 15 August 2007 Interim report January-September: 30 October 2007

Production: Fabege in collaboration with Löwenberg Media Printing: EO Grafiska 2007.

Photography: Per-Erik Adamsson and Victor Brott.

Norrtälje 24 on Engelbrektsgatan.

Key figures 2006 2005

Rental income, SEKm 2,343 2,778

Net operating income, SEKm 1,401 1,716 Profit after financial items, SEKm 1,863 2,761 Return on shareholders’ equity, % 19.8 24.2

Equity/assets ratio, % 40.5 41.4

Interest coverage ratio, multiple 3.2 3.7 Earnings per share after dilution, SEK 23.47 27.50 Dividend per share, SEK 8.00¹⁾ 7.50

1)Proposed dividend for 2006.

2006 was yet another eventful year of extensive property business transactions for Fabe- ge. Fabege had a property turnover worth a total of SEK 28 billion, of which sales were SEK 12 billion and acquisitions were SEK 16 billion. The year began with the acquisition of Fastighets AB Tornet, with 104 properties, for a total purchase sum of SEK 9 billion.

During the first half of the year, 92 of Tornet's properties, located outside Fabege's prio- rity market, were sold for a total of SEK 6.9 billion. The remaining properties strengthen Fabege's portfolio on its principal markets of Stockholm inner city, Solna and Hammar- by Sjöstad. 2006 was concluded with the sale of 45 properties in Kista and Täby to Klö- vern for SEK 4 billion. The property business transactions during the year, which gave a total income after tax of SEK 967m, resulted in an additional concentration of Fabege's property holdings in a number of centrally located markets in the Stockholm region with high growth and development potential.

At the turn of 2006/2007, Christian Hermelin took office as the new President and CEO of Fabege. He succeeded Erik Paulsson, who left his operative position in order to take office as Deputy Chairman of the Board.

• Income after tax: SEK 2,266m (SEK 2,666m)

• Earnings per share after dilution: SEK 23.47 (SEK 27.50)

• Rental income: SEK 2,343m (SEK 2,778m)

• Equity/assets ratio: 41 percent (41)

• Proposed dividend: SEK 8.00 per share (7.50). Additionally, a transfer of all of the Company's shares in Klövern AB to the shareholders through a redemption offer is proposed.

Summary of the year With the focus upon commercial

premises in Stockholm

Fabege is one of Sweden’s leading property companies, with a focus upon commercial premises and property development.

Its business is strongly concentrated upon submarkets with high growth in the Stockholm region, primarily Stockholm inner city, Solna and Hammarby Sjöstad. Fabege manages and improves a well-positioned property holding at the same time as its property portfolio constantly develops via sales and acquisitions.

At the end of 2006, Fabege owned 174 properties with a total value of SEK 27.2 billion.

Fräsaren 11

in Solna Business Park.

Interior from Dalvägen in Solna.

Lena Holmström, lessor.

Annual General Meeting 2007

The Annual General Meeting of Fabege AB (publ) will take place at 4 pm on Tuesday 27 March 2007 at Moderna Museet in Stockholm. Registration for the Annual General Meeting will start at 3 pm. Notice will be published in Post- och Inrikes Tidningar and Svenska Dagbladet.

Information concerning the Annual General Meeting can be found at Fabege's website www.fabege.se

Financial reporting in 2007

Interim report January-March: 3 May 2007 Interim report January-June: 15 August 2007 Interim report January-September: 30 October 2007

Production: Fabege in collaboration with Löwenberg Media Printing: EO Grafiska 2007.

Photography: Per-Erik Adamsson and Victor Brott.

CEO’s comments to the shareholders 2

Business concept, goals and strategies 6

Organisation and staff 8

Corporate Social Responsibility 11

The trademark Fabege 15

The share and value growth 18

Property overview and market valuation 22

Market overview 24

Fabege’s Operations 30

Sensitivity Analysis and Tax Situation 40

Administration Report 42

Financial Reports

Consolidated income statements 48

Consolidated balance sheets 49

Changes in consolidated equity 50

Consolidated cash flow statements 51

Parent company income statement 52

Parent company balance sheet 53

Changes in parent company equity 54

Parent company cash flow statements 55

Notes 56

Signing of the Annual financial statements 68

Audit Report 69

Corporate Governance Report 70

Board of Directors 75

Group Management 77

Articles of Association 81

Five-year Summary 82

Definitions 83

Contents

The formal audited annual report concerns pages 42–68.

Strong focus creates new opportunities

As the newly-appointed President and CEO for Fabege, I am glad to declare that 2006 was yet another successful year for the company filled with intensive business transactions. My predecessor Erik Paulsson concluded his work of many years as CEO for Fabege by, once again, delivering a strong result to the shareholders.

Fabege’s income after tax exceeded SEK 2 billion for the second year in a row. During the year, return on equity amounted to almost 20 percent. The equity/assets ratio at the end of the year was over 40 percent. After yet another good year, Fabege has a very strong finan- cial position.

The market value of the Fabege share continued to rise for the eighth year in a row.

During 2006, total returns amounted to just over 28 percent. As a result of the positive deve- lopment in earnings during 2006, the Board proposes a cash dividend of SEK 8 per share (7.50) and a transfer of all of the company’s shares in Klövern AB to shareholders through a redemption offer. The Board’s proposal means that a total of approximately SEK 2.2 bil- lion*, approximately SEK 22 per share, will be transferred to the shareholders.

Heavily concentrated operations

Fabege is one of the leading players in the property and rental market in Stockholm. We have long belonged to those property companies that are more transaction oriented and have well developed project and improvement operations. With 1.6 million well collected and attracti- ve rentable square metres, mostly offices, in the Stockholm region, we have a strong market position.

We have chosen to concentrate our operations upon a few dynamic markets in and around Stockholm. The inner city, Solna and Hammarby Sjöstad make up our principal markets, whe- re we have built a holding which is responsible for a total of over 80 percent of the value of Fabege’s total property portfolio. We have striven to collect these properties in units that are administratively effective within our primary markets. In short, after a number of years of intensive business transactions, we have a well positioned property stock in the capital city region.

The development of Fabege will continue according to our well-established business model. In future, Fabege shall also create value through effective, customer-oriented property management as well as the improvement of property. In addition, we shall continue to deve- lop our property portfolio and maintain a high level of awareness in order to take advantage of the opportunities for new profitable property business transactions.

Our core values make a difference

It is important that Fabege upholds the core values characterising our corporate culture:

Speed – Informality – Entrepreneurship – Business orientation – Client based approach.

Fabege shall continue to be a company characterised by the small company’s intimacy and personal customer relationship. At the same time, we shall offer the resources of a major company. We are the company that can quickly, sensitively and creatively meet its custo- mers’ wishes. Since its launch in May 2005, our trademark has become stronger and we have a good position in our primary markets. We shall continue to build and strengthen our trademark and firmly establish a profile among our target group which corresponds to our core values.

2 | CEO’s comments to shareholders

*Upon full participation to the redemption offer and a share price in Klövern of SEK 29.

CEO’s comments to shareholders | 3

”

The development of Fabege will con- tinue according to our well-established business model.

A further strengthened organisation

Fabege’s operations comprise Property Management and Project & Development. We have a very smoothly functioning organisation, but always a high level of preparedness to adjust operations after developments in the market and our property holdings. During 2007, our highly experienced and knowledgeable organisation will be further strengthened in order to be able to develop effectively and take advantage of the potential in the rental market and our project portfolio.

A well functioning administration creates conditions for successful property improve- ment and property trade. This will be further emphasised now that, after restructuring over the past years, we have a heavily concentrated stock of commercial property in Stockholm.

The possibilities for really effective property management have never been bigger in Fabege.

Continued dynamic development

At the beginning of 2007, the property market continues to look strong and the interest in investing in Swedish property, particularly in Stockholm, is great among domestic as well as international investors. With the current interest rate development, this interest is unli- kely to weaken and the transaction volume is, therefore, assessed as high for this year, as well. The rental market generally continues to grow, and primarily on Fabege’s most important market, Stockholm inner city. The strong economic development means that the demand for office space is successively increasing.

Fabege has well positioned property holdings and an interesting project portfolio in the largest and most dynamic rental and property market in Sweden, the Stockholm region.

After a number of years with good results, the company has a strong financial position. Not least, Fabege has an effective organisation with highly competent and dedicated members of staff. In summary, this means that there are good conditions for the continued creation of value in Fabege during 2007.

Solna March 2007

Christian Hermelin

President and Chief Executive Officer

Erik Paulsson Deputy Chairman

Dear shareholders,

On 31 December 2006, I left my position as President and CEO of Fabege. Consequent- ly, I was responsible for Fabege’s operations during the year that this annual report refers to.

As from 1 January 2007, the company has a new CEO, Christian Hermelin. I have worked closely with Christian since the beginning of the1990s and, during his time in the company, he has been involved with the development of our business model. I have the greatest faith that Christian will guide Fabege onwards towards exciting new chal- lenges and increasing numbers of profitable business transactions in the most outstan- ding manner. I wish him all the best of luck and success in his new assignment!

Personally, my time in Fabege, and the company’s predecessors, Wihlborgs and Stor- heden, has truly been interesting and stimulating. When I arrived in Stockholm at the beginning of the 1990s, I was not intending to stay this long – but I simply had too much fun! I have greatly enjoyed the business opportunities that always arise in this dynamic environment.

After a rough start with the merger of Wihlborgs and Storheden in 1998, the situation started to improve as we demonstrated that our business model worked and we delive- red ever improving results. Currently, we can show an uninterrupted positive develop- ment in share price trends which has lasted for a full eight years. If I had to mention one significant event during these years, it would be the acquisition of Drott/Fabege, initia- ted in 2003, which meant that we could make major and important structural changes to our holdings and, simultaneously, present very good results.

During all these years, business has been especially dear to me. If I were to summa- rise all property business transactions, purchases and sales, carried out since 1998, I would arrive close to SEK 100 billion. An almost unimaginable figure which only con- firms the fantastic development of Fabege.

I feel certain that Fabege, with the company’s financial strength and well positioned property stock, has a no-less exciting period ahead of it. The Stockholm market has reco- vered after the difficult years at the turn of the millennium and the interest in property business is at a record high. For a resourceful, strong and nimble player like Fabege, the possibilities are great.

In conclusion, my dearest shareholders, I would like to express my gratitude for all

the support I have received from you in the past years. My heart is still with Fabege and

the company’s talented staff and I will continue to assist the company however I can.

Following several highly intensive business years and structural changes, Fabege’s property holding is now strongly concen- trated in the Stockholm region.

Stockholm inner city, Solna and Hammarby Sjöstad constitute Fabege’s principal markets, with over 80 percent of the Group’s total property value.

Fabege’s operations with property management, project development and property trans- actions is concentrated upon commercial properties in a number of dynamic submarkets in the Stockholm region, mainly central Stockholm, Solna and Hammarby Sjöstad.

General goal

The principal objectives of Fabege are – by virtue of its size, strength and orientation – to create and realise value and provide shareholders with the best total return among the property companies on the Stockholm Stock Exchange.

Business concept

Fabege will concentrate its operations upon commercial properties in the Stockholm region, focusing on a limited number of sub-markets with a high rate of growth. Fabe- ge will create value through management and improvement and by working actively on its property portfolio, with both sales and purchases. Accrued value will be realised at the right time.

Financial goals

Fabege intends to constantly rank among the top listed property companies in terms of profitability (return on equity) and, at the same time, surpass the risk-free interest rate by at least six percentage points. The equity/assets ratio is to be at least 30 percent. The interest coverage ratio is to be at least 2.0.

Efficiency goals

Fabege is to have continued high cost-effectiveness and be the leading Swedish pro- perty company.

Portfolio strategy

Commercial properties and projects in the Stockholm region constitute the core of Fabege’s operations. Fabege seeks to concentrate its properties into units that can be managed efficiently. Anomalous properties that are clearly outside these units should be sold. The portfolio is to be steadily developed and enhanced through the sale, pur- chase and improvement of properties. Market positions are to be bolstered and further strengthened by concentration on selected market segments. Fabege is to have an integ- rated organisation in which the property management organisation works in close col- laboration with the Projects & Development Department.

Property improvement strategy

Fabege is to acquire properties with better growth potential than the existing investment properties. Additional projects are to be financed to at least 35 percent from the com- pany’s own funds and are to provide a return on equity of at least 15 percent. The ave- rage turnaround time for projects is to be 3–5 years. Properties are to be sold off at the right time to realise accrued value. Faberge will benefit from the company’s high level of expertise in project development and great experience in both acquisitions and sales.

Business concept, goals and strategies

The company shall pay a dividend to shareholders comprising that part of the company’s profit which is not required for the consolidation or development of the business. In current market conditions, this means that the dividend will comprise at lease 50% of the profit from the management of the company’s property portfolio and realised gains from sales of properties.

Dividend policy

* Fabege’s Board of Directors proposes a cash dividend of SEK 8.00 per share (7.50) and a transfer of the company’s joint shares in Klövem AB to the sharehol- ders through a redemption offer.

SIX Real Estate index Fabege

0 50 100 150 200 250 300 350 400

0 50 100 150 200 250 300 350 400

2006 2005 2004 2003 2002 2001 2000

Source: SIX / Hallvarsson & Halvarsson

Total return 2000–2006 *

0 10 20 30 40 50

2006 2005 2004 2003 2002 Percent

Equity/assets ratio 2002–2006

0 5 10 15 20 25

2006 2005 2004 2003 2002 Percent

Return on equity 2002–2006

0 2 4 6 8

2006 2005 2004 2003 2002 SEK

Cash dividends per share 2002–2006*

6 | Business concept, goals and strategies

Return on equity amounted to 19.8 percent during 2006.

Equity/assets ratio amounted to 41 percent as of 31 December 2006.

* The calculation of total return is based on the dividend paid and the value of the distri- buted shares in Wihlborgs being re-invested in Fabege shares.

In the summer of 2006, Fabege acquired 6 properties with a total of 157,000 sqm lettable area in the Solna Business Park, one of Sweden’s most modern business districts, and is continuing to develop the properties in the area.

Fabege has a comparatively undifferentiated organisation with a short chain of com- mand, enabling us to act swiftly, whether in concluding a property transaction or accommodating tenants’ needs for premises.

The organisation is in a state of constant development as its operations and condi- tions change. During recent years, the rate of change has been very high as a result of larger corporate acquisitions and a powerful reconstruction of property holdings.

Fabege’s 140 or so staff members are highly prepared for change and are always open to new challenges. Organisational adjustments to new situations take place con- tinuously which, not infrequently, mean changes in individual staff members’ profes- sional roles.

Fabege’s corporate culture is characterised by a spirit of entrepreneurship which rewards individual initiatives. The five values of Speed, Informality, Entrepreneurship, Business Orientation and Client-based approach are the foundations that the corporate culture rests upon. Fabege and its staff shall offer the resources of a major company but also the intimacy and personal customer relationship of a small company. Fabege wis- hes to build long-lasting relationships with room to develop and to offer the opposite of an impersonal, “mechanical” reception.

Organisation

Property Management and Project & Development make up the operative organisation.

Property Management includes staff members who work with property manage- ment and a marketing unit for the marketing and rental of existing properties and new projects. Property Management is organised into four management areas: City, Mal- marna, Solna and Söderort. Fabege strives to create a concentrated property stock which enables efficient and customer friendly management. This also brings about good possibilities for optimising the organisation. The management of the properties takes place primarily with the Company’s own personnel in order to quickly and effec- tively be able to meet tenants’ requests and needs.

Project & Development is responsible for new construction and rebuilding projects, environment, purchase and operational optimisation. The unit has a well developed col- laboration with management. Within Project & Development, all the knowledge and experience required for the development and economic control of a project shall be available. Construction services are bought externally.

Apart from the operative units, there also exist those units common to the Group, namely, Business Development, Economy/Finance, and Information/IR/Personnel.

Members of Staff

The Fabege Group’s possibilities for development and success on the market are hea- vily dependant upon its staff’s competence and dedication. Members of staff are there- fore given a lot of freedom to be encouraged to develop new thinking and take their own initiatives. Training and further education are offered via recurring customised and specially-adapted programmes, among other things.

At the end of the year, the number of staff members at Fabege amounted to 145. The average age was 42 years (42) and the average period of employment 5.4 years (5.8).

8 | Organisation and staff

Organisation and staff

Finance

Information/IR/Personnel Business development

CEO

Projects &

Development Property

Management

Fabege’s organisation

The personnel turnover amounted to 32 percent, primarily as a result of the property sales in Kista and Täby.

The proportion of female staff members was 39 percent (32). Among white-collar staff members, the number of women amounted to 52 percent (44). The importance of an equal division of gender is emphasised during recruitment.

Fabege has a profit-sharing foundation aimed at stimulating staff members to deve- lop the Company and to achieve goals. All staff members with conditional tenure are included in the foundation and receive participations equivalent to the scope of their working hours. The company’s provisions to the profit-sharing foundation are based on return on equity.

Absence due to illness

The total absence due to illness within the Group amounted to 3.97 percent (3.65) during 2006.

The proportion of long-term absence due to illness (60 days or more) of the total absence due to illness was 63.84 percent (44.55). Absence due to illness was highest in the age group 30–49. Short-term absence due to illness amounted to 3.4 days (4.8) on average per staff member.

Organisation and staff | 9

Female, 24%

Male, 76%

Proportion of men resp women in management positions

(totally 21 persons)

Employees, distributed by age

Age Women Men

–19 0 1

20–29 8 7

30–39 24 26

40–49 12 34

50–59 8 11

60–69 5 9

57 88

Sofia Sköld, lessor.

Mark Wickholm, property technician.

Per Åsbrandt, Projects and Development.

Health and fitness activities

Fabege shall offer a safe and healthy working environment and works with keep-fit activities in a goal-oriented manner. All staff members are offered regular health checks and, if necessary, may draw up a personal health plan together with corporate health care.

Possibilities for participation in all forms of exercise have been increased during 2006 and are planned to be increased further in the coming years. During the year, tai- lor-made solutions with (for example) alternative treatment methods have been tried with good results. During 2006, staff members were offered work-place reviews which resulted in individual adjustment of many staff members’ work stations.

The company has signed a group healthcare insurance policy covering all staff members.

Training

Discussions on progress are held annually with every staff member and form the basis for the personal training.

During 2006, all staff members were offered the opportunity to participate in the European Social Fund programme “Objective 3”, which is aimed at increasing compe- tition and economic growth. A survey on job satisfaction, communication and training resulted in a situation assessment which formed the basis for educational plans and efforts. During 2006, several staff members began some form of competence develo- ping education. Several have improved their knowledge of English during the year.

For operations managers and property technicians, a special competence develop- ment programme was carried out, focusing on customer service and reception.

The work of establishing and strengthening Fabege’s values (see below) continued in different forms. All staff members undertook a profile analysis for increased self awareness which will contribute to further improvements to communication and team spirit within the company.

10 | Organisation and staff

All Fabege staff are expected to follow a set of values known as the Fabege spirit. The characte- ristic features of Fabege’s corporate culture can be summarised in five items, in no particular order of importance.

Speed

A flat organisation with short decision paths makes it possible to act quickly whether in relation to pro- perty acquisitions or to solving problems for a tenant. Fabege staff do not complicate matters but aim for simple, effective solutions.

Informality

All staff have to be prepared to step in when the need arises. Humility and frank, informal and personal dialogue are features of internal commu- nication.

Entrepreneurship

Entrepreneurship is an important driving force in the Group’s development. This includes a high degree of decentralisation with responsibility.

Staff are encouraged to think innovatively and take initiatives.

Business orientation

Staff are results-oriented and aware of costs.

Client-based approach

Staff are to be close to clients, be receptive to their needs and wishes and constantly strive to achieve further improvements in client relations.

0 1 2 3 4 5

Age 50–

Age 30-49 Age –29

%

Illness statistics January – December 2006

Absence in relation to ordinary working hours.

Women Men

The Fabege spirit

Charlotte Liliegren, lessor.

Corporate Social Responsibility | 11

Corporate Social Responsibility

Fabege offers premises that are effective and fitted to tenants’ needs, primarily for offi- ces but also for shops and other operations in a number of submarkets in Stockholm.

The company thereby contributes to create conditions to allow trade and industry, public administration and organisations to function well in Sweden’s most important region. Almost 60,000 people work in the properties which Fabege manages and deve- lops.

As a large property owner and property developer, Fabege strives to be a successful and responsible company. Fabege realises that long-term profitability requires the Company to take economic as well as social and environmental dimensions into con- sideration. For Fabege, responsible business practice includes economic responsibili- ty, environmental responsibility and social responsibility.

During the spring of 2006, the Board of Fabege adopted ethical guidelines for the company. These guidelines shall, together with other policy documents, provide mana- gerial and staff members with guidance during the performance of assignments.

Fabege’s ethical guidelines are well in line with the UN’s behavioural code Global Compact and its principles. For information on this, see www.unglobalcompact.org.

Fabege’s corporate culture and relations shall be characterised by openness, truthful- ness, honesty and responsible action. Through this, confidence and trust are built. The company’s values shall form the basis for a corporate culture which stimulates and encourages workers’ initiatives and creative solutions. A positive, appreciative busi- ness culture promotes the development of the company and shows the path towards suc- cess in business.

Fabege’s overall goal is to create and realise the value and give the shareholders total earnings which are the best among property companies on the Stockholm Stock Exchange.

Fabege’s

environmental policy

Our environmental activity is to be a natural and integrated part of property management, projects and the purchase and sale of properties.

With the aim of preventing and minimising adverse environmental impact, our environmental activity is continuous and targeted.

We conduct regular follow-ups, in which legislation is regarded as a minimum requirement, and we endeavour continuously to improve our environmental activity.

We are to make our operations environmentally sound by being economical with resources and lay- ing down requirements to be met in the environmental activities of supp- liers and contractors. We intend to achieve this as long as it is environ- mentally justified, technically pos- sible and financially affordable.

View over the water from Hammarby Sjöstad.

Hydroelectricity and other renewable sources, 43%

Fossil fuels, 2%

Nuclear power, 55%

Type of energy used

in electricity production Environmental responsibility

Environmental responsibility is aimed at lessening and preventing negative environ- mental impact and thereby contributing to sustainable development.

Fabege’s environmental work is performed in a long term fashion and is integrated into the Company’s daily work and routines.

Fabege does not carry out any activities requiring licensing or notification, but it does have a few installations requiring notification, such as, for example, bedrock hea- ting and seawater cooling plants.

A few of the Company’s tenants carry out operations subject to duty of notification.

Fabege is not involved in any environmental disputes.

The goal of Fabege’s environmental work is to collect all shared routines in an ope- rative management system, in a systematic and structured manner, with its starting point in the environmental management system ISO 14001. Environmental work should be a natural and integrated part of operations, according to the company’s envi- ronmental policy.

Operations are safeguarded by the equivalent of five full time employees within the areas of environment, work environment, security and other remaining social issues.

Various channels and support systems – for example intranets, databases, operational meetings, information meetings and opportunities for education – are used to support operations within these sectors.

The database “Nyckelknippan” (’Keychain’) was launched in 2006, and it contains information regarding Fabege’s properties, including inspections from authorities and other documents, written accounts of the work for systematic fire prevention, radon measurements and the like, internal routines and other remaining inventories.

The energy department has used a web-based energy database with consumption figures for a number of years. With statistics as a foundation, regular follow-ups and evaluations are performed in order to optimise the holdings’ operations.

Energy consumption and waste management were prioritised sectors during 2006.

Optimising energy use in a systematic fashion

The systematic increasing of energy efficiency in the property holdings started a few years ago and is one of the most important areas in Fabege’s environmental work. The aim and ambition is to optimise running costs and energy consumption using each property’s inhe- rent conditions and to form an operational strategy for each property. The work to dec- rease energy consumption via improved management, investments and control has con- tinued during the year and will continue with the conversion to more environmentally- friendly energy sources.

Fabege actively encourages its employees to save energy in the properties for which they are responsible. The ten best and worst properties in the property population are selected on a quarterly basis. The best operating area receives a prize and the worst pro- perties are prioritised in energy efficiency work.

12 | Corporate Social Responsibility

Renewable, 71%

Non-renewable, 29%

Type of energy used in district heating production, total

Total consumption statistics 2006

Water consumption,

cubic metres 1,048,772

Energy consumption, MWh 286,800 of which:

Heating 153,500

Refrigeration 26,300

Electricity 107,200

Renewable energy, MWh 179,266 CO2 emissions, tons

(Heating, electricity,

refrigeration) 10,714

Corporate Social Responsibility | 13

According to Fabege’s car policy, as of January 2006, certified environmental- ly-friendly cars and cars running on electricity, hybrid or alternative fuels will be prioritised. Fabege’s fleet consists of 56 company and repair service cars.

100 percent of the fleet is certified envi- ronmentally-friendly and just over 18 percent of it consists of hybrid/electric or ethanol-powered cars, which were acquired during 2006. The picture show property technician Dennis Landgren with his company car.

Waste management

Fabege began making an inventory of waste management in the properties during 2005 and, in collaboration with the tenants, started identifying and implementing improve- ments to benefit the environment and the economy. Recycling was introduced in the properties during 2006 and follow-ups were made. Out of all properties in which Fabe- ge is responsible for recycling, recycling takes place of an average of nine fractions.

Fabege is currently working with an environmental programme for new construc- tions and rebuilding projects, which includes requirements regarding material, recyc- ling, methods of construction and so on. Demolition plans are drawn up whenever reconstructions or renovations occur. New construction and rebuilding projects requi- re the use of building material and products with a minimum of environmental impact.

A programme for the management of waste products is established for every project in cooperation with the construction entrepreneur and a waste entrepreneur.

Radon inventory

The inventory of the occurrence of radon in properties continued during 2006. 63 per- cent of the properties that house schools and residential housing have been inventoried.

Plans of action have been drawn up in those cases in which higher radon amounts were found. Measures were taken during the winter of 2006 to lessen the occurrence of radon and this work will continue during the spring of 2007. The measuring of radon will continue during 2007 in those properties that have not, as yet, been tested, while newly acquired properties shall be tested continuously.

Fabege’s supplier requirements

For many years, Fabege has wor- ked towards coordinating and cen- tralising the acquisition of products and services for the entire Group.

The Company has high demands on each supplier with which it colla- borates. Following an evaluation, a general agreement is made with the best supplier in each respective field, based upon the following evaluation criteria:

• Business terms

• Competence

• Experience

• Financial stability

• Environmental work and quality

Social responsibility

Fabege is keen to show social responsibility and be a “good citizen” of the communi- ties in which the Company is active. Fabege takes different approaches in order to deve- lop properties and further increase attraction to the areas in which these properties are situated. Towards this end, the Company co-operates with municipalities and institutes of higher education, among others.

In Solna, Fabege has its own initiatives as well as collaborating with other interes- ted parties in a project to renew the local environment and make it more attractive.

During 2006, a project was initiated regarding Fabege’s properties in which entries would be emphasised, facades restored and illuminated, pavements broadened and gre- en areas cleaned and upgraded.

One important challenge regards the future supply of competent employees. Being able to attract competent and well-educated manpower is a strategic issue of the grea- test importance. During 2006, Fabege decided to develop its collaboration with the Royal Institute of Technology and support its new centre for structural engineering with SEK 5m in order to bolster education within building technology. For a number of years, Fabege has offered students at the Royal Institute of Technology the annual opportunity for degree work and summer employment.

Many of these students have been employed by the Company directly following the- ir degree work.

Other examples of social commitment include the Company’s collaboration with Hammarby ArtPort, which, on behalf of Fabege, works with project leadership of public art in Hammarby Sjöstad and the Company’s financial support of the basketball club Akropol, which carries out comprehensive work with youngsters at Järvafältet, where Fabege owns residential properties.

14 | Corporate Social Responsibility

Member of BELOK Fabege is a member of the Swedish Energy Agency’s client group, BELOK, which consists of the Energy Agency and Sweden’s largest property owners. The group runs various development projects focused upon increasing the effectiveness of energy and environmental issues.

The collaboration was initiated by the Swedish Energy Agency in 2001.

For more information, please visit www.belok.se

Collaboration within Agenda 21

In Solna Business Park, Fabege collaborates with the City of Solna, Stockholm Transport and tenants in an Agenda 21 project, an action programme for sustai- nable development, with the aim of persuading workers in Solna Business Park to travel to work in a more environmentally-friendly manner, for example by stimula- ting increased use of public transport.

Another example is the cycling campaign due to start during the spring of 2007. For more infor- mation on the project, please visit www.solna.se and search for agenda21.

Collaboration with Hammarby ArtPort (HAP)

Hammarby ArtPort is a workshop for the production and display of art; a terminal for the import and export of artistic expression; a platform for the construction and promotion of cultural networks.

The trademark Fabege | 15

Fabege has established a simple and clear-cut basis for its trademark, in line with the Com- pany’s core values, to support deals, create value and achieve the aims of the operation.

As a trademark, Fabege shall be associated with the five core values that characterise the organisation and corporate culture (see page 10).

Fabege shall have a clear connection to the Stockholm region, primarily central mar- kets such as Stockholm inner city, Solna and Hammarby Sjöstad where the Company has its centre of gravity.

Fabege shall be experienced as a Company that understands the local needs that com- panies and organisations have in the capital region and can offer a large number of interes- ting and attractive local solutions and locations. The Company’s ambition is to stand out as a self-evident alternative for those looking for premises, primarily offices, within Fabe- ge’s area of operations. Fabege shall confirm existing customers’ choices by being a part- ner who rapidly, keenly and creatively accommodates needs and desires.

In other words, Fabege shall combine the possibilities and resources of a major com- pany with the intimacy and personal customer relationships of a small company.

Employees are the primary creators and carriers of the Fabege trademark. The trade- mark is built from the inside, and it is first and foremost the employees’ competence and actions during contact with customers, owners and other interested parties that constitutes the trademark Fabege.

Additionally, exposure in the media, advertising etc clearly contributes to the image of Fabege.

The Group has chosen to gather its forces in a principle trademark, Fabege. Sub-trade- marks also exist, such as Solna Business Park, for example, but these are clearly subordi- nate to the principal trademark.

Cost-effective activities

Fabege’s operations and market are concentrated in a geographically limited area of the Stockholm region. This brings clear advantages regarding expenses and effectiveness within marketing activities.

In the tactical and operative level, Fabege works with a large number of activities.

Coordination is aimed for in order to achieve the greatest possible communication effect. The Company’s own properties, which often lie in interesting positions regar- ding communications, are utilised in a cost-effective manner as natural sources of expo- sure. In addition to large banners covering building facades, Fabege has used windows in central Stockholm for the exposure of trademarks and messages to a large extent in 2006.

During 2006, Fabege has also invested in its trademark via advertising in both the business and trade press. The Wenner-Gren Center, Lumahuset and other properties in the portfolio have been used in advertisements to associate Fabege with well-known Stockholm properties and strengthen its Stockholm profile. Staff within Fabege’s marketing group have been exposed via both building facades and in advertisements and have literally given Fabege a memorable face in Stockholm.

The trademark Fabege

The key to good business

Fabege’s logo was created in the spring of 2005 in connec- tion with the distriubution of the property holdings in the Öre- sund region under the name Wihlborgs Fastigheter. The

“Old” Wihlborgs at the same time changed its name to Fabege. The logo consists of the company name and a graphic symbol in the shape of a key. The key can, in certain instances, be used separately.

The key is often used as a sym- bol for knowledge and opportu- nities. For an entrepreneurial and a business oriented proper- ty company like Fabege, the key fits perfectly as a symbol of opening doors, metaphorically and literally. But maybe, above all, it should be seen as the key to good business – for both our clients and our shareholders.

The Fabege trademark is also exposed and strengthened via sponsorship. Fabege’s lar- gest sponsorship commitment is the internationally well-established Polar Music Pri- ze, of which the Company has been a main sponsor for three years and has performed customer and marketing activities in connection with the awarding of prizes. Fabege has also opted for exposure at high-profile and attractive events such as the Swedish Open in Båstad 2006 and the Alpine World Ski Championships in Åre at the start of 2007 in order to gain access to individuals who have major significance in decisions regarding choice of premises.

Fabege’s new rentals are, to a large extent, carried out by a marketing group who, together with a marketing coordinator and in collaboration with the information depart- ment, also develop plans for marketing communications.

The Fabege trademark has become established on the market in a short time. Rese- arch shows that knowledge of Fabege has increased successively since the trademark reappeared on the market a few years ago.

16 | The trademark Fabege

Fabege readily uses its own properties for marketing initiatives. The messages and members of Fabege’s marketing group are seen here at Orgelpipan 4 located on Klarabergsgatan in central Stockholm.

Advertisements in the business press.

Important Events

1990Wihlborgs B shares are listed on the Stockholm Stock Exchange’s O list.

1993Bergaliden becomes the new principal owner of Wihlborgs.

1996In December Wihlborgs B shares are listed on the Stockholm Stock Exchange’s A list.

1997In the spring Wihlborgs completes the acqui- sition of M2 Fastigheter. In September the Board of Wihlborgs makes a public offer for acquisition of Klövern Fastigheter AB.

1998At the beginning of the year Wihlborgs completes the acquisition of Klövern Fastigheter AB.

On 13 April Wihlborgs makes an offer for Fastighets AB Storheden, and the merger takes place during the late summer of the same year.

1999Wihlborgs acquires Svedeg GmbH’s 50 percent share in the company that owns the property Blåmannen 20/Klara Zenit in central Stockholm.

Wihlborgs thereafter owns 75 percent of the joint company, in which Peab AB continues to hold 25 percent.

2000There is a conversion of high-vote A shares into B shares.

2001The principal owner Bergaliden sells its entire shareholding of 30.2 percent of Wihlborgs.

Wihlborgs acquires Postfastigheter with 73 proper- ties. In December Wihlborgs shares are listed on the Stockholm Stock Exchange’s O list.

2002Wihlborgs sells 60 properties in non-prioriti- sed locations to Adcore, which is converted into a

property company under the name of Klövern AB. In June a reverse split is performed, which means that five Wihlborgs shares are combined to form one. In December Wihlborgs acquires the remaining 25 per- cent of the shares in Klara Zenit.

2003Wihlborgs acquires shares in Drott AB (later split into Bostads AB Drott and Fabege AB), and during the year becomes the major shareholder in the company. At the end of the year, Klara Zenit is sold for SEK 2,950m, at a profit of SEK 400m.

2004The acquisition of Fabege AB is completed after a public offering to the company’s other share- holders, which means that Wihlborgs’ property port- folio grows by around 150 commercial properties. In December the proposal to distribute the Öresund properties to the shareholders and thus concentrate operations on the Stockholm region is published.

2005The Öresund operation is distributed and quoted on the Stockholm Stock Exchange’s O list under the name of Wihlborgs Fastigheter AB. The

”old” Wihlborgs at the same time changes its name to Fabege AB. Fabege sells properties during the year for a total of SEK 14bn. In December an agreement is signed to acquire 82.4 percent of the shares in Fastighets AB Tornet.

2006Fabege acquired Fastighets AB Tornet with a total of 104 properties. Among this acquisition, Wenner-Gren Center and Solna Business Park can be named. The property stock in Kista and Täby was disposed of to Klövern for SEK 4bn. Total turnover properties amount to SEK 28bn, of which SEK 12bn is sales and SEK 16bn is purchases.

FABEGE THEN & NOW

The registered trademark and the company name Fabege have both a young and old his- tory.

When the present Fabege was created in the spring of 2005, it was the third time the name was given to a property company. The company name Fabege had its origins in a company created by one of the 1980’s leading property players, Birger Gustavsson. Ori- ginally Fabege was an abbreviation for Fastighetsaktiebolaget (Property Share Com- pany) Birger Gustavsson.

However, the present-day Fabege has very little to do with Birgir Gustavssson’s creation. The original Fabege was acquired by Näckebro, which in their turn was bought by Drott. Drott was then split up into two companies, one of which was given the name Fabege. This company in turn was acquired in 2004 by Wihlborg’s Fastighe- ter, which changed its name to Fabege the following year.

The present-day Fabege has the same Corporate Identity Number as the former Wihlborg’s Fastigheter and, in this manner, the Company can trace its origins back to the construction firm started by master builder O. P. Wihlborg in Malmö in 1924.

The trademark Fabege | 17

At a market value of SEK 18.5bn (14.4), Fabege is the largest listed property company in the Nordic region. The company’s shares are included in the Large Cap segment on the Stockholmsbörsen (Stockholm Stock Exchange).

Fabege’s development on the stock exchange

During 2006, Fabege’s shares increased in value from SEK 150 to SEK 183.50, corre- sponding to 22.3 percent. Assuming a reinvestment of the dividend of SEK 7.50, the total return was 28.3 percent. This development is comparable with the stock exchan- ge which showed a total return (SIX Return Index) of 28 percent for the year. The SIX Real Estate Index, which measures total return for companies dealing solely with pro- perty and listed on the Stockholm Stock Exchange, increased by slightly more than 40 percent during 2006.

Share turnover and trading

During recent years, turnover in Fabege’s shares has increased steadily and, in 2006, 107.8 (67.4) million shares in Fabege were bought and sold for a total value of SEK 16.7bn (10.1). This is equivalent to a turnover rate of 108 (71) percent of the average number of outstanding shares. The turnover rate on the Stockholm Stock Exchange during the year, as a whole, was 145 percent. An average of 430,000 (267,000) Fabege shares were bought and sold in 400 (280) deals on each day of trading. One trading block of Fabege shares amounts to 100 shares.

Share capital

The total number of shares in Fabege increased during the year due to the acquisition of Tornet, while the number of shares outstanding decreased somewhat as a result of the repurchase of shares.

Fabege offered the Tornet shareholders the choice of selling their shares for cash or exchanging these for newly issued Fabege shares. Many of the Tornet shareholders cho- se the share-exchange alternative and, therefore, 4,381,376 new Fabege shares were issued and used as payment for an equal amount of Tornet shares.

During 2006, a number of convertible bond holders continued to convert bonds to Fabege shares. Through this conversion, the number of Fabege shares increased by 62,435 shares.

The Board of Directors received a buyback mandate from the Annual General Mee- ting during 2006. The mandate authorised the Board to acquire and transfer the compa- ny’s own shares during the period until the 2007 Annual General Meeting. The acqui- sition of shares must take place via purchase on the Stockholm Stock Exchange, and the Company may hold a maximum of 10 percent of the shares in the Company. At the 2007 Annual general Meeting, the Board will propose that this authorisation be rene- wed for another year. The purpose of the authorisation is to continuously adapt the com- pany’s capital requirements, and in so doing to contribute to increased shareholder value. The possibility for the acquisition of shares provides the Company with additio- nal ways of financing any acquisitions of properties and companies. During 2006, the

18 | Fabege shares and value growth

Fabege shares and value growth

* The calculation of total return is based on the dividend pald and the value of the distributed shares in Wihlborgs being re- invested in Fabege shares.

0 50 100 150 200 250 300 350 400

0 50 100 150 200 250 300 350 400

SIX Return index SIX Real Estate index Fabege

2006 2005 2004 2003 2002 2001 2000

Source: SIX / Hallvarsson & Halvarsson

Total return 2000–2006*

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb 4 000 6 000 8 000 10 000 12 000 14 000

Share turnover per month 100

120 140 160 180 200 220 240

OMX Stockholm SX4040 Real Estate Fabege

I I I I I I I I I I I I I I

Source: SIX / Hallvarsson & Halvarsson

SEK ’000 shares

Share Trend 2006

Read more on Fabege’s shares and development at:

www.fabege.se

The landmark Wenner-Gren Center at the northern entrance to Stockholm City was acquired in the summer of 2006. The property is made up of one high-rise and one low-rise building and contain in total about 18,000 sqm lettable space, whereof 15,000 sqm office space.

20 | Fabege shares and value growth

Board acquired 5,435,400 shares for an amount of MSEK 706 (average share price SEK 129.66). At the end of the year, Fabege held a total of 5,441,100 of its own shares, cor- responding to 5.4 percent of the total number of Company shares. By the end of the year, Fabege’s share capital totalled MSEK 5,030 (4,808), with a total number of sha- res of 100,599,382 (96,155,571). All shares provide the same voting rights and an equal portion of the Company’s share capital.

Convertible bonds

When “old” Wihlborgs acquired “old” Fabege in 2004, many shareholders opted for the alternative of being paid for their shares in the form of a convertible debenture loan, known as a convertible bond. A total of 6,055,578 convertible bonds were issued, equi- valent to MSEK 639. The convertible bonds have a par value of SEK 105.50, run at a rate of interest of 5.25 percent and fall due for payment on 1 October 2009. A conver- tible bond can be converted to a Fabege share during its term.

During 2006 a total of 62,435 convertible bonds were converted to shares and an equal number of Fabege shares were newly issued. At the end of 2006, there were 541,073 convertible bonds outstanding.

Dividend and transfer of Klövern shares to the shareholders

Fabege is to pay, as a dividend to its shareholders, that part of the company’s net profit which is not needed to consolidate or develop the business. In the present market con- ditions, this means that the dividend is expected to remain consistently above 50 per- cent of the profit from current property management and realised profits from proper- ty sales.

The Board’s proposal to the Annual General Meeting 2007 is for a cash dividend worth SEK 8.00 (7.50). In addition, the Board proposes to transfer Fabege sharehol- dings in Klövern AB to the shareholders of Fabege. This will be conducted through a so-called redemption offer in which Fabege offers shareholders the opportunity to rede- em lots of 16 shares in Fabege and as a payment receive 8 shares in Klövern. Redemp- tion is proposed to occur during April and May 2007.

The proposition for the payment of cash dividends, together with the transfer of the Klövern shares to the Fabege shareholders, is, in total, worth about SEK 22 per share (based on a Klövern quota of SEK 29 per share).

0 5 000 10 000 15 000 20 000 25 000 30 000

Wihlbo rgs Kungslede

n

Castellum Hufvu

dstad en Fabege SEK bn

The largest listed property companies

Markets capitalisation at 31 December 2006 Market value properties at 31 December 2006

Source: SIX och bokslutskommunikéer för 2006

Swedish institutions 25,3%

Foreign shareholders 37,1%

Swedish equity funds 7,2%

Swedish private individuals 30,4%

Distribution of shareholding per Category at 31 January 2007

Geographical distribution at 31 January 2007

Proportion of capital Countries and voting rights, %

Sweden 64.1

USA 16.7

Luxembourg 3.6

Holland 3.3

United Kingdom 2.8

France 1.9

Belgium 1.5

Switzerland 1.5

Germany 1.0

Other countries incl.

owners of >500 shares 3,6 100 Source: SIS Ägarservice/VPC

Source: SIS Ägarservice/VPC Source: SIS Ägarservice / VPC

Distribution of shares at 31 January 2007

Proportion of number Proportion of capital Number of shareholders of shareholders, % Number of shares and votes, %

1–500 29,234 81.7 4,304,736 4.5

501–1 000 3,292 9.2 2,529,743 2.7

1 001–5 000 2,572 7.2 5,291,887 5.6

5 001–10 000 294 0.8 2,090,302 2.2

10 001–100 000 301 0.8 9,387,575 9.9

100 001–1 000 000 100 0.3 29,133,914 30.6

1 000 001– 10 0.0 42,426,831 44.6

Total number of

outstanding shares 35,802 100 95,164,988 100