Market valuation

After a couple of years of declining values, the market has now recovered. Successful property development and declining yield requirements enabled Fabege to report positive unrealised value changes of SEK 843m in 2010. Realised value changes amounted to SEK 237m.

Property value

At 31 December 2010, the portfolio had an estimated market value of SEK 27.0bn (29.2). The average discount rate for the portfolio was 7.9 per cent (7.9%) and is based on the nominal interest rate on five year government bonds plus a premium for property-related risk. The weighted required yield at the end of the calculation period was 5.9 per cent (6.0).

Changes in value

Unrealised changes in the value of Fabege’s properties in 2010 totalled SEK 843m (–310). The write-up/increase corresponds to a value increase of about 3 per cent during the year. Compared with the preceding year-end, the average yield requirement in the property portfolio declined about 0.1 per cent. The decline in yield requirements in the city centre more or less equals that of the outer and inner suburbs. The net effect of the value changes further increased as a result of improved cash flows from the properties and positive results from projects. Investments in the portfolio will ultimately lead to reduced vacancies and higher rents and thus, increased cash flows and value growth.

Value changes properties, per 31 December 2010

Valuation principles

All properties in Fabege’s portfolio are externally valued at least once a year by independent valuers. Since 2000, the valuations have been performed in accordance with the Valuation Guidelines of the Swedish Property Index. In 2010, the properties were valued by Newsec Analys AB, whose appraisers are authorised by ASPECT, the Association for Chartered Surveying, Property Evaluation and Transactions. Valuations were regularly performed during the year. Each quarter, internal valuations are also conducted of parts of the portfolio, as well as an internal overall value assessment of the entire portfolio. The internal valuation is performed using the same methodology as the external valuations.

Property categories

Valued properties are divided into the following categories:

• Investment Properties in normal operation, for which a cash fl ow valuation is performed.
• Project Properties undergoing major redevelopment with contracted tenants, for which a cash flow valuation is performed.
• Other Project Properties and undeveloped land are valued using a method based on prices in the area where the property or land is located.

Investment and Project Properties

For Investment Properties a cash flow model is used in which the present value of net operating income less reinvested investments over a five- or ten-year period is calculated. The present value of the residual value at the end of the period is also calculated. All premises are subject to an individual market-based assessment of rents. For leased premises, an estimated market rent is used for the cash flow calculations aft er the expiration of the lease. Th e assessment of such factors as market rents, future running costs and investments was performed by external appraisers using information from Fabege’s organisation. Operating and maintenance expenses were based on historical results, and on budget figures and statistics pertaining to similar properties. Cash flow analyses with calculation periods exceeding five years are applied if deemed motivated due to long leases.

Other Project Properties

Valuations of Other Project Properties are based on the prevailing planning conditions and listed price levels in connection with the sales of undeveloped land and building rights.

Fabege's ten largest properties by value, per 31 December 2010

Market value and yields by sub-markets, per 31 December 2010