SFF Issuer Profile. Facts

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1 Investment Research 5 June 2013 SFF Issuer Profile Svensk FastighetsFinansiering AB (SFF) is a finance company that is 100% owned by holding company Nyckel, which in turn (via different holding companies) is owned by Wihlborgs Fastigheter, Fabege and Peab. SFF issues bonds that are structured using mortgage securities from its owners. Given its adequate liquidity pool and intermediate leverage, we assess the credit quality of SFF s bonds at BBB in spite of certain concentration risk in its pool of properties. This corresponds to a rating uplift of three notches to our credit assessment of the two owners that have used SFF so far Wihlborgs Fastigheter and Fabege. In the event of us lowering our credit assessment of these companies, we would also lower our credit view on SFF. Strengths SFF s bonds are structured using mortgage securities in properties located in its owners prioritised home markets. There are clearly defined limitations of debt incurrence to limit the risk that the value of the underlying mortgage securities fail to provide full recovery for bondholders (i.e. if SFF s owners were unable to fulfil their obligations towards SFF meaning that the assets would have to be divested). SFF s liquidity buffer would give the company some time to monetize its assets should this be needed. An external market valuation of the properties is carried out on a quarterly basis. Weaknesses Even though SFF s bonds are structured using mortgage securities, the company s cash flows are exposed to the owners credit quality and the value of the mortgage securities is dependent on the property price development. In a scenario whereby several of the owners were to embark on restructuring at the same time as a steep fall in property prices, SFF could face problems fulfilling its debt obligations. Our view of SFF Given its adequate liquidity pool and its intermediate leverage, we assess the credit quality of SFF s bonds at BBB in spite of certain concentration risk in its pool of properties. This corresponds to a three-notch uplift to the stand-alone credit quality of the two owners that have issued bonds via SFF so far Fabege and Wihlborgs. In our opinion, these two companies have stand-alone credit profiles of around BB. While we assess Peab s credit profile to be somewhat lower, at around BB-, we do not currently see Peab s lower credit quality as a limiting factor for our rating on SFF, as SFF so far has not issued any bonds for Peab. In the event of us lowering our credit assessment of Fabege or Wihlborgs, we would also lower our credit view on SFF. Facts Sector: Real Estate Corporate ticker: SFFABA Ratings (secured bonds): S&P rating: NR Moody s rating: NR Fitch rating: NR Danske Bank Markets: BBB Analysts: Louis Landeman louis.landeman@danskebank.com Gabriel Bergin gabriel.bergin@danskebank.com Max LTV per property type % Re Re/Pr Re/Res Pr Wa Di Ca Source: Company, Danske Bank Markets. Re=Residential; Pr=Premises; Res=Restaurant; Wa=Warehouse, Di=Distribution; Ca=Care. Max vacancy per property type % Re Re/Pr Re/Res Pr Wa Di Ca Source: Company, Danske Bank Markets. Important disclosures and certifications are contained from page 8 of this report.

2 Business profile Ownership structure and loan process SFF is 100% owned by Nyckel 0328 AB, which in turn, via different holding companies, is owned by Wihlborgs Fastigheter (33.3%), Peab AB (33.3%) and Fabege AB (33.3%). SFF s operations are managed by Hansan AB. Below we reproduce a summary of the loan process as described in SFF s MTN prospectus. Figure 1. SFF s ownership structure Source: SFF s MTN prospectus When the different property owning companies (named Propco(s) in Figure 2 below) wish to achieve financing, the respective holding company ( Holdco(s) ) finances this by taking a loan from SFF, while in return leaving a promissory note with an attached mortgage collateral to SFF. The respective owner guarantees its respective holding company s obligations towards SFF. Hence, SFF receives both the promissory notes with the attached mortgage and a guarantee from the owner to fulfil the debt obligations in the event of payment problems of the holding company. The mortgage collaterals are placed in a separate pool. An independent security agent (currently CorpNordic) acts as a representative for bondholders. In order to ensure that SFF can fulfil its debt obligations in the event of any of its owners facing payment problems, there is a detailed set of rules that among other things stipulates what liquidity reserve SFF should maintain. The goal is that SFF should have a liquidity buffer of up to 18 months in place to ensure that the company can maintain its interest payments to bondholders until a sale of the secured assets in the asset pool has taken place. Also, a minimum solidity of 30% should be maintained and the assets in the security pool should be located in its owners prioritised home markets. For a more detailed explanation of the loan process and SFF s financial structure, we refer to SFF s MTN prospectus from 21 December 2012 (in Swedish). 2 5 June 2013

3 Figure 2. The loan process Source: SFF s MTN prospectus The credit profile of the owners The three companies Wihlborgs Fastigheter, Peab and Fabege have strong ties. Brinova is the largest owner in Fabege and Wihlborgs. At the end of March, it held 14.9% (Fabege) and 10.1% (Wihlborgs) of the voting shares in the two companies. Brinova was de-listed from Nasdaq OMX Stockholm in September 2012 as the company Backahill gained control over a majority of shares in the company. Backahill was formed in 1998 and is 100% owned by Erik Paulsson. The Paulsson family is also the largest shareholder in Peab: Mats Paulsson owns 22.3% of voting shares, Svante Paulsson with family and companies has 13.2% of voting shares, and Fredrik Paulsson with family and companies owns 8% of voting shares. Furthermore, Erik Paulsson is chairman of the board in SFF s service agent Hansan AB. As the Paulsson family also holds a number of board seats in the different companies, it has considerable influence over the three owner companies and their operations. Below we provide a brief description of the three owner companies. Wihlborgs Fastigheter The current Wilhborgs Fastigheter was originally founded in 1924 in Malmö. In 2005, the properties in Stockholm and the Öresund region were separated and the Öresund property portfolio was included in a new company which kept the name Wihlborgs Fastigheter. The company s operations are concentrated in the Öresund region, with properties in Malmö, Helsingborg, Lund and Copenhagen. At the end of March 2013, the market value of Wihlborg s total property portfolio amounted to SEK20.3bn, with an annual rental value of SEK1.7bn. The majority (73%) of the rental value comprises office and shop premises, while industrial and warehousing properties represent some 27%. Malmö and Helsingborg together constitute around 85% of total rental value. Out of the total carrying amount, projects and land accounted for 6% of the total or SEK1.3bn at the end of March Wihlborgs: Properties per category Office/ Retail 75% Industry/ Warehouse; 19% Source: Wihlborgs, Danske Bank Markets Property values as of end March Projects/ Land 6% 3 5 June 2013

4 At the end of March 2013, Wihlborgs total interest-bearing debt amounted to SEK12bn, of which SEK2bn was short term. The average loan maturity including unused credit facilities was 4.1 years, with an average interest rate of 3.7%. At the end of March, Wihlborgs had borrowed SEK1bn via SFF. At the end of March, Wilhborgs solidity stood at 31%, with a reported loan to value ratio of 59% and an interest coverage of 2.6 times. Wihlborg s financial policy includes a maximum loan to value target of 60%, an interest coverage minimum target of 2.0 times and a minimum equity to assets ratio of 30%. In mid-may this year, Wihlborgs market capitalisation amounted to SEK8.6bn. Fabege Fabege is a real estate company formed in 2005 when the old Wihlborgs concentrated on the Stockholm region and changed its name to Fabege. The company s operations are focused on leasing and management of office premises and property development, with a focus on Stockholm City, Solna and Hammarby Sjöstad. At the end of March 2013, the market value of Fabege s property portfolio amounted to SEK32.1bn, with project and development properties of SEK3.2bn. Fabege aims to keep a high rate of development in the project portfolio in 2013 and in Q1 13 the company invested SEK364m in new builds extensions and conversions in its projects. The occupancy rate in the property management portfolio amounted to 93% in Q1 13, unchanged year on year. Fabege s total interest-bearing debt amounted to SEK18bn at the end of March 2013, of which short-term debt accounted for SEK6.6bn. The average interest rate was 3.96%, with an average fixed rate period of three years and an average maturity of five years. At the end of March, Fabege had SEK1bn of bonds outstanding that were issued via SFF. In February this year, Fabege also issued a SEK1.17bn three-year stand-alone bond that was secured by collateral in the Solna Uarda 5 property where the Swedish state-owned utility Vattenfall has its head office. In addition to its on balance sheet debt, Fabege has also posted a provision of SEK1.9bn related to a possible extra tax payment stemming from some previous transactions in the period (the Swedish tax authorities have a total demand of SEK2.5bn although the final size of the payment is still being disputed in the courts). In Q1 13 Fabege s reported loan to value was 56%, with a solidity of 34%. Fabege s financial policy includes a minimum solvency target of 30% with an interest coverage ratio of at least 2.0 times (including realised changes in value). In mid-may this year, Fabege s market capitalisation amounted to SEK12.7bn. Peab Peab is one of the leading construction and civil engineering companies in Scandinavia with some 14,000 employees and an annual turnover of around SEK45bn. The company mainly carries out its operations in Sweden, Norway and Finland and has its head office in Förslöv in Southern Sweden. The company is represented in four different business areas: Construction, Civil Engineering, Industry and Property Development. Peab s business is largely project related, with consequent project-related risks. The company is exposed to tough competition and fairly saturated markets, with resulting strong margin pressure. In Q1 13, Peab s net sales declined by 7% y/y to SEK9.2bn with an EBIT margin of 1.2% (Q1 12: 1.5%). Orders received in Q1 13 amounted to SEK8.8bn, down from SEK13.2bn in Q1 12 although last year s figure included a SEK3.5bn order for the mall of Scandinavia. The total order backlog in Construction and Civil Engineering stood at SEK28.8bn. Wihlborgs: Properties per geography Lund/CPH 19% Malmö 55% Helsingborg; 26% Source: Wihlborgs, Danske Bank Markets Property values as of end March Fabege: Properties per category Project properties 9% Developm. properties 1% Investment properties 90% Source: Fabege, Danske Bank Markets. Property values as of end March Fabege: Properties per geography Solna 38% Hammarby Sjöstad 9% Other 0% Source: Fabege, Danske Bank Markets Property values as of end March Stockholm City 53% Peab: Sales per business areas, 2012 Industry 21% Civil Engineering 24% Property Develop.; 1% Source: Peab, Danske Bank Markets Construct. 54% 4 5 June 2013

5 Peab s solidity was 25.9% at the end of March 2013, which was slightly above the company s minimum solidity target of 25%. In April 2013, Peab signed a new SEK5bn 3.5-year new credit agreement with its banks. Reported net debt, when also netting out interest-bearing receivables, stood at SEK6.6bn at the end of March. Including unutilised credit facilities, Peab s liquid funds amounted to SEK5.7bn at the end of March. Contingent liabilities totalled SEK4.4bn, of which obligations to tenant-owned association under construction were SEK2.6n. Peab also works on several projects related to the mining company Northland Resources in Northern Sweden, with outstanding accounts receivables to the company of around SEK160m. Northland Resources is currently undergoing a reconstruction but so far Peab has not deemed it necessary to make any write-downs related to its accounts receivable, even though the credit times will be extended on some of the bills. In Q1 13, Jesper Göransson replaced Jan Johansson as CEO of Peab. Peab s board has initiated the search process for a new permanent CEO. In mid-may this year Peab s market capitalisation amounted to SEK10.6bn. Peab: Operating margin, % 15% 10% 5% 0% Construction Civil engineering Industry Source: Peab, Danske Bank Markets Property Development SFF s financial profile At the end of 2012, SFF had total equity of SEK8.4bn, with total debt of SEK2.3bn, of which secured bonds constituted SEK2.1bn. Cash and liquid holdings stood at SEK266m. Interest income was SEK379m in 2012, with interest costs of SEK50m, giving net income for the year of SEK319m (2011: SEK419m). According to SFF, the market value of the underlying portfolio of properties backing the bonds was SEK3.3bn at year-end 2012, equivalent to a loan-to-value ratio of the bonds of 63% (YE 2011: 61%). In total, some 10 properties had been pledged at year-end 2012: four in Malmö, four in Stockholm, one in Helsingborg and one in Lund. Our view of SFF Considering its adequate liquidity pool and its intermediate leverage, we assess the credit quality of SFF s bonds at BBB in spite of certain concentration risk in its pool of properties. This corresponds to a three-notch uplift to the stand-alone credit quality of the two owners that have issued bonds via SFF so far Faberge and Wihlborgs. In our opinion, these two companies have stand-alone credit profiles around BB. While we assess Peab s credit profile to be somewhat lower, at around BB-, we do not see Peab s lower credit quality as a limiting factor for our rating on SFF at this point in time, as SFF has so far not issued any bonds for Peab. In the event of us lowering our credit assessment of Fabege or Wihlborgs, we would also lower our credit view on SFF. 5 5 June 2013

6 Table 1.Financial key ratios for the three ownership companies SEKm Wihlborgs Fabege Peab 2012 Q Q Q1 13 Turnover 1, , ,840 9,307 Operating result EBITDA 1, , , Operating result EBIT 1, , , Net interest Net income Funds from operations , Working capital changes Operating cash flow after WC Net investments -1, , Dividends Cash flow before financing -2, , Total assets 20,449 20,888 33,709 34,277 32,073 30,808 Property value 19,876 20,303 31,636 32,098 4,443 4,247 Interest-bearing debt 11,786 12,026 18,035 18,021 8,633 8,524 Cash and liquid assets Commitments and guarantees 1,224 1,224 4,024 4,024 2,735 2,803 Operating leases 0 0 1,415 1, Equity 6,138 6,415 11,382 11,524 7,947 7,974 EBIT margin (%) EBITDA net int coverage (x) FFO net int coverage (x) FFO / net debt (%) FFO / adj net debt (%) Net debt / EBITDA (x) Adj net debt / EBITDA (x) Equity to assets (%) Loan to value (%) Adj loan to value (%) Source: Companies, Danske Bank Markets Note: Peab s unadjusted net debt excluding interest-bearing receivables. Peab s adjusted debt including off balance sheet contingent liabilities and interest-bearing receivables. Table 2. Average key ratios per rating category for real estate companies A BBB BB B Interest coverage (EBIT, x) 2,5 1,5 1,1 0,7 Loan to value (%) Share of unsecured loans (x) * >1.5 Share development projects (%) ** <15 <15 >15 >25 Liquidity buffer (%) *** > <1.0 Source: Fitch *Share unsecured assets in relation to unsecured debt. **Share of development projects in relation to the total property portfolio. ***Liquid assets, unused credit facilities and free cash flows in relation to committed investments, short-term debt and free cash flows. 6 5 June 2013

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8 Disclosure This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( Danske Bank ). The authors of the research report are Louis Landeman and Gabriel Bergin. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Services Authority (UK). Details on the extent of the regulation by the Financial Services Authority are available from Danske Bank upon request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank s research policies. Employees within Danske Bank s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Danske Bank, its affiliates, subsidiaries and staff may perform services for or solicit business from SFF and may hold long or short positions in, or otherwise be interested in, the financial instruments mentioned in this research report. The Equity and Corporate Bonds analysts of Danske Bank and undertakings with which the Equity and Corporate Bonds analysts have close links are, however, not permitted to invest in financial instruments which are covered by the relevant Equity or Corporate Bonds analyst or the research sector to which the analyst is linked. Danske Bank, its affiliates and subsidiaries are engaged in commercial banking, securities underwriting, dealing, trading, brokerage, investment management, investment banking, custody and other financial services activities, may be a lender to SFF, and have whatever rights as are available to a creditor under applicable law and the applicable loan and credit agreements. At any time, Danske Bank, its affiliates and subsidiaries may have credit or other information regarding SFF that is not available to or may not be used by the personnel responsible for the preparation of this report, which might affect the analysis and opinions expressed in this research report. As an investment bank, Danske Bank, its affiliates and subsidiaries provide a variety of financial services, including investment banking services. It is possible that Danske Bank and/or its affiliates and/or its subsidiaries might seek to become engaged to provide such services to SFF in the next three months Danske Bank has made no agreement with SFF to write this research report. Parts of this research report have been disclosed to SFF. No recommendations or opinions have been disclosed to SFF and no amendments have accordingly been made to the same before dissemination of the research report. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text. See the front page of this research report for the date of first publication. 8 5 June 2013

9 General Disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) ("Relevant Financial Instruments"). The research report has been prepared independently and solely on the basis of publicly available information which Danske Bank considers to be reliable. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness, and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report. The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgment as of the date hereof. These opinions are subject to change, and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in the research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank s prior written consent. Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to "U.S. institutional investors" as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to U.S. institutional investors. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA, but satisfy the applicable requirements of a non-u.s. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non- U.S. financial instruments may entail certain risks. Financial instruments of non-u.s. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission. 9 5 June 2013