Samhällsbyggnadsbolaget i Norden AB (publ)

Good morning to you all and I wish you all a very welcome to our quarterly earnings for the first quarter of 2024. My name is Helena Lindahl and I'm the Treasury Director at SBB. The presenter this morning will be myself and our CEO Leif Synnes and Finance Director Daniel Telberg. Leif will share the strategic and financial highlights during the quarter and also give you an overview of the performance of our business unit. Daniel will guide you through our financial statement and I will discuss the state of our financing. We will end the call with a summary and also a Q&A session. Over to Leif, please go ahead.

Thank you Helena. I will walk you through our key financial metrics, our execution on the strategy, as well as on some points of the new group structure. It's our ambition to give a transparent view of our financial position and strategic direction, even though it might be a bit complex. As always, we value your questions and are happy to receive them during the Q&A session. Looking on the highlights from the quarter, I think we continue to execute on the strategy and we have implemented a lot of measures that will improve the financial position over time. We have continued our work with improving financial stability of the group and also the liquidity. In the past 21 months, we have reduced debt with close to 39 billion in order to reach the financial stability that we want to have. We understand that we need to continue to reduce that. I think the operations is steady as usual. We continue to increase the rents and we continue to lift the operating. And I think we will continue to do so in the following quarters. And we also benefit from a low cost on the majority of the debt. We have 2.2% in funding costs on the interest in billing debt, which I think is low and good. I think the proper valuations will start to flat out and over time will continue to be at a higher level. On short term, we saw a further deduction of property values with 2.8% for the quarter. But as I said, we believe that we are now close to the end of this business cycle and a new business cycle will occur and with that comes higher property valuations. in the quarters to come. That is my expectation. If you look on the strategy, we have created three business areas. It's community, residential and education. And if we start with the community, We are structuring all the assets into one vehicle that owns all the assets in the community. And one part of that is in turn owned by a company called PPI, which we successfully listed on the stock exchange in Norway. And it's good to see that we now have access to growth capital in that part of the operation. In the residential area, we continue to take steps, good steps in . We continue to dissolve small joint ventures and to make the structure less complex. And we have decided to dissolve one large joint venture, which we have with Riksbyggen, and we will continue to to solve other structures in order to make the company structure as easy to understand as possible. The goal is to have only fully owned companies in the CFR data structure, and the goal is to raise capital in that entity during 2024. In education, we see a lot of improvement. Most of our assets are in the entity Nordicus, which we part on together with Brookfield. The next step for that company is to get an investment grade rating, and with that rating being able to raise attractive funding. One other thing we did during the first quarter was to buy back bonds. which resulted in a gain of close to 3 billion SEK. We have, in total, an exposure to the real estate business of 104 billion SEK. And it's, as I said, divided into three areas, residential, community, and education. residential we have a total exposure of 37 billion where of 28 is direct ownership and 9 billion is through different collaborations and in community we have an exposure of 47 billion and then in the indications we have 21 billion and the goal here is to create a structure which is transparent and also a structure that enables attractive funding over time. And also I think the last thing is important that we will have a management in each of the area with dedicated focus to improve their part of the operation. If we move on to residential, most part of the assets are placed in Sveafastheter. In Sveafastheter we aim for an IPO or a strategic partnership in 2024. We have elected a new CEO, Erik Hevermark. We have also elected an independent board. and we're taking a lot of steps to improve the operations. I think when we have a dedicated management with the sole focus of improving the financials for Sveafas theater, I think we will be able to increase the rents faster and reduce the cost in a better way than what we have done in the previous years. One example is that we believe that the occupancy rate of 95% will be increased going forward. And also the good thing with residential is the strong fundamentals and also the secure place it is to have regulated rents in Sweden. We believe that over time we will be able to have a faster rental growth and inflation. And if we go on to the community, as you know, community properties are government funded tenants. We have a minimal risk of rent loss. It's a leading platform. It's a scalable platform. And it's a good opportunity for us to develop the business going forward. The rental income is close to 100% inflation linked. The largest part of the assets is elder care with 31% of the properties. In this area and also in the other areas of the business, we focus on sustainability. And as I said earlier, it's the biggest sector for us with 47 billion of assets, directly or indirectly owned. Since last year, we on slightly less than 50% of a large company called Nordicus. This is the main part of the education holdings. I think it's very good for us to have our partner in Brookfield. They are very skilled and they have a lot of capital and I think we will continue with them and develop the business in a good direction. We see the underlying operation in Nordkust developing very well. And we believe that we can continue to build on Nordkust, which is the leading platform in Europe for public education property. And as I mentioned earlier, we strongly believe that we will end up with an investment grade rating in this part of the operation. in 2024.

Thank you, Leif. Let's go more into detail on the financial statements. On a like-for-like basis, rental income for Q1 compared to the corresponding quarter last year increased by 3.9%. Likewise, net operating income increased by 3.0%. As you can see, because of our strategy, the net operating income is increasingly coming from our partly owned business like Nordicus. And as we prepare Svea Fastiheter for an IPO or a new partnership, we can expect this trend to continue. This is a significant achievement, given the challenging market conditions. Quickly looking at our yield and occupancy rates, we can see that our yield stands at 4.9% during the first quarter. Our occupancy rates remains high at 94% for the first quarter. A number that together with who our tenants are give us confidence regardless of where we are in the economic cycle. This puts us in a competitive position for when market conditions improve further. Let's look at some key takeaways from the income statement. During the quarter, net operating income was protected like for like despite reduced income from divestments. There was a decrease in property value following higher yields and we are now seeing greater signs of decreasing valuation leveling off. An increasing number of experts and institutions believe in decreasing rates this year we successfully conducted the repurchase of bonds in march which resulted in a profit of nearly 800 millions and improving in equity with additional nearly 2 billion with that said let's switch over to financing thank you daniel um financing

Our main focus and top priority is to reduce the level of debt, but also on the dependence on individual sources of funding. We believe that our decentralized group structure will aid in that effort by creating financially strong part-owned companies, which can fund themselves on their own merits. Our work to strengthen the financial position of the company continues, and as mentioned, we have implemented several initiatives to accelerate this. We work very hard to improve the liquidity and reduce the level of debt in order to, in the longer term, of course, regain an investment grade rating. As Leif mentioned before, Nordicus is looking at an investment grade rating in the near future. Looking at the bottom on the page, you can see our loan-to-value ratio, and it stood at 55% at the end of quarter. Work is continuously ongoing to address this and improve this number over the medium term. We still have a very attractive long-term funding. We have an interest rate average maturity of 3.2%. two years and still the average interest rate in the company is 2.2%. And also, if you look at the debt maturity profile, we have an average debt maturity of 3.3 and a half years. And I would like to point out that we have 62% of our debt which matures later than 2026, which is a very strong number. And that debt has an average cost of 2.3%. Thanks.

Thank you. Yes, we have been good at reducing debt in the previous years. We understand that we need to continue to improve the financials. We need to lower the debt and also improve the liquidity. We expect after the dividend that was decided last year is paid out, we expect no further dividends. We have been reluctant to enter new investments, so with the current ongoing investments, large investments being being finished we expect there will be low low amount of investments going forward and also we do not sign any acquisitions and these three things is helpful in order to bring the cash flow up in the company we work to refinance uh maturing debt That is mainly bank debt. The bonds will be repaid at maturity. We have the opportunity to sell financial assets and we do so when we think it's fruitful for the company. We can also or intend also to sell properties and we will also do so when we think it's in the best interest of the company. We are working towards an IPO of the residential or partnership, and that will bring in equity to the group, but also we will achieve a better funding situation for the residential properties. And we will also continue to investigate capital sources. for our community properties. All in all, we have a lot of tools in order to improve the financials for the company, and we intend to do a lot of measures in order to strengthen the company. Yes, to summarize, the first thing, and that is very important, is that The underlying business is going very well in SBB. We increase the rents, we keep the occupants high, and we have a very low risk of reducing income. Instead, we expect strongly that the positive trend on revenues on a life-for-life business basis will continue. And if you do the right thing with your assets, that will over time lead to the higher property valuations. In the previous years, the capitalization rate or the discount rates on cash flow in real estate have increased. We believe that that at some point will level out and the growth in revenues will lead the way to towards higher property valuations in the quarters to come. That is our expectation and probably also help by better funding opportunities for us and also for the peers in the market. We are continuing to execute on the strategy. We have taken good steps. in all Aura for Business areas, residential, community and the education. We believe that we have the ability to raise equity in the subsidiaries, which will help the company to stabilize. We have reduced debt and we will continue to reduce debt. In the meantime, we continue to benefit from the low interest rate we have on the current debt. The interest cost for us is at the moment 2.2%. And that is a very helpful level. I think that concludes the presentation. Let's move on into Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Rashid Anwar Anwar from INFAI. Please go ahead.

Hi, guys. It's Ash from Polis here. I'm not sure why I've got that different name on. I had two questions on your Castle Lake JV. The first one was, why has the SBB infrastructure AB entity been deconsolidated? What's it about the governance arrangements there, which means that even though you own 100% of the common equity, it's been deconsolidated? And then the second question was, How do I find the 5.2 billion sec of gross proceeds from the Castle Lake financing in the cash flow statement for the quarter? Thank you.

And the first question is we have a joint control over the entities together with Castle Lake and therefore it is a joint venture. And the second point, all the money haven't been paid out yet at the end of the quarter. and that is due to FDI regulations in Sweden. So we expect the money to be paid out in the second quarter.

Okay, thank you very much.

In relation to your question regarding the cash flow from the Castle Lake during venture, you can see in the cash flow analysis that disposal of subsidiaries less cash and cash equivalents amounts to 4.0 billion. 3.7 of those are coming from Crossalate. 0.3 is coming from other disposals.

Understood. Thank you very much. That's really helpful.

The next question comes from Anders Dankvard from Pareto Securities. Please go ahead.

Hello, everyone. So a few questions on liquidity from my side, starting off with the underlying reasons for the tender that you did here earlier this year. And maybe if you could elaborate a bit on the trade-off here going for longer dated maturities and hybrids instead of your more near-term maturities.

Yes, it's... In the fourth quarter last year, we did a tender, and then we chose 24 bonds. It was a prudent way to do it, and we took care of the short-term maturities. This time when we did a tender, We believe that we were in a stronger financial position from a liquidity standpoint and therefore could choose a little bit longer instruments. And that was the rationale.

Understood. And then maybe going into that liquidity position and looking ahead. So if I remember correctly, last time around, you mentioned that you had varying different opinions on the ability or the requirement to pay these deferred dividends. Now if I interpret you correctly you are planning to do these deferred dividends here in June or July. Are there any sort of conflicting views on your side whether you should do it still given the relatively limited liquidity at present or Or do you see that this will be something that is conducted here in conjunction with this Agile general meeting?

It was not like an internal discussion about paying the dividend or not. What I meant was that it was different avenues to interpret the law in Sweden. But we believe that we need to pay the dividend and we have plans to pay the dividend. And my opinion is that we have the ability to pay the dividend when it comes due and it needs to be paid before the end of June. So that is what I have been working towards and that is what I intend to deliver.

All right, I understand. And then final question. So starting off at the current liquidity position now, what are the sort of key items among those you listed that you see as the most near term in terms of adding this additional liquidity? Is it primarily divestments or do you see additional debt deals being sort of the main sources here in the near term? Of course, a lot of listed sources for these but it would be interesting to hear your thoughts on what sources are the most near-term.

A couple of points here. One is that we see that we get more in balance with, you can say, the flow, and also if we include investments and so on in that. short-term financing that we used in the previous, maybe like commercial and so on. Much better balance between signed acquisition investments, short-term financing, and operating cash flow. So that is very helpful for us, and we see that the measurement we have taken the previous is fruitful this year. And I've also found the tools to manage the maturing debt. If there are debts from banks, for example, that mature, we have solutions to deal with that. We don't necessarily need to sell assets when debt is maturing. We find ways to raise capital. And at the moment we have many tracks which we are working on towards raising additional capital. And it's too early to mention which one we've come first. I think if we look forward one year, it's likely that we have continued to sell some assets and also that we have been able to raise capital from the market.

Understood. And then maybe just final follow-up on those points that you mentioned. So primarily when looking at these different solutions for maturing debt, are you primarily looking then to just refinance the existing bank financing or do you see the ability to also raise additional proceeds?

Yeah, you see from the numbers that the secure debt isn't extremely high so that is also of course a capital source so if let's say a local bank will not prolong the debt it's not the end of the world because the properties are not highly leveraged so likely we can get a similar amount of cash elsewhere if you need it all right understood that was it for me

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Mary Pollack from Credit Sites. Please go ahead.

Good morning. Thanks for taking the questions. If you are paying the dividend, should we assume that you'll also be paying the hybrid coupon after that?

Yes, usually expected.

Thanks. And regarding the transactions after period and the UNOBO deal and the PPI IPO deal transaction, From either of those, is there any cash inflow to SBB?

On the PPI?

On both PPI and Junobo.

No, there isn't.

Okay, thanks. And then can you provide any guidance on what you expect on your dividends from JVs and Associates in 2024? Just so we have an idea of what the cash is coming up to the parents.

I don't have the figure now, but we expect to receive dividends from Nordicus, which is the main investment. And the other partnership which we have, we are likely to, meaning that this in the residential area, we will probably dissolve it instead of getting dividends. I don't have a figure on the total amount of dividend that we expect to get from the joint ventures and so on. But I don't think it's that material from a liquidity standpoint. So at least I think we need to do other things in order to improve their liquidity position, and that could be investments or raise of equity.

Great, thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Closing comments, I think it's helpful for us and not surprising that the underlying business continues to develop in a fine matter with rent increasing and net operating income increasing. We also see that we get help from the markets and we expect to get more help from the market. We see that peers can fund themselves at the lower and lower cost of capital at the moment compared to last year. And we see that the property transactions start to increase. And this is very helpful developments in order to get some tailwind in the recovery of our financials, which we think is needed.