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Samhallsbyggnadsbolaget I Norden AB
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Ladies and gentlemen, welcome to the SBB Q1 report for 2021. Today, I am pleased to present CEO, Ilija Batljan. [Operator Instructions] Speaker, please begin.
Thank you. Hello, everyone, and let's start with the first slide, Slide #2, showing why we are arguing that we are a social infrastructure champion in Europe.There are 5 highlights that we used to emphasize. The first one, we have very strong and stable cash flows that are amended today, backed by AAA countries in the Nordics. Number two, we are a strong, growing company with growth fueled by 3 value-add strategies that are delivering strong organic growth.Number three, we are -- been very successful to create strong cash flows and continue to increase dividend to our shareholders. So dividend for last year that we'll be paying out this year is on SEK 1 that are A and B shares, which is increased with 900% since 2017. Number four, we have a very strong financial position and have now all the key ratios delivered for BBB+ as we are arguing in the report.And number five, sustainability is the core of our business, and also, in this support, we are giving flavor on this by different examples from all, how to say, different part of sustainability, both from energy efficiency, so that we are running the projects where we successfully decreased energy consumption with 50% to energy productions where we are producing energy from our solar cells. And also, important part that often is not discussed in the public debate, our big focus on building in wood as an important way to continue to decrease CO2 emissions and continue to support renewable growth. And as you also saw -- showing in report, we have wood as a very good material from a life cycle perspective. Next slide, please.Slide 3, you will see our assets. The important message from this slide is that we today are, in terms of gas or property portfolio book value, the second largest listed company in Nordics passing Castellum this quarter and having SEK 105 billion in portfolio book value, strong passing rent of SEK 5.7 billion, still continue to have long WAULT of 9 years with a relatively high net initial yield. And as you can see, 75% of our assets is located in large cities in the Nordics and 91% of the newly built residentials is located in the larger cities in the Nordics. Slide 4, please.On Slide 4, we are showing our income of SEK 5.7 billion. And you will see that on top of the very strong tenant structure with 98% of the income, social infrastructure 9 years old, you will also see that we have increased our income from elderly care homes and LSS. As you know we are targeting to have SEK 1.6 billion in income from this very safe assisted living or assisted residentials. We are targeting increase from SEK 800 million in 2022, SEK 1.6 billion in 2025. Already, this -- already, now, we are passing SEK 1 billion being at SEK 1.086 billion. So continuing increased income from low-risk assets with 5.5% or 98% of the total income coming from social infrastructure.Slide #5. On top of a very strong profit, if you look at our report, and we are delivering strong profits from property management after adjustments for one-off costs, and we are even delivering stronger profit before financial cost of more than SEK 1 billion. And on top of this strong profits from property management, we are continuing to deliver profit from our value-add strategies. And as you know, we are guiding SEK 1 billion to SEK 1.4 billion from property development, SEK 600 million from refurbishments or investments in the current portfolio, and SEK 400 million from value-adding transactions.Slide 6, please. On this slide, you see how this thinking -- holistic thinking that we have where we are applying all of the 4 different business areas: Property management, property development and the establishments and transactions in a holistic model.And at Slide 7, few words about building rights development and new production. We are guiding to deliver SEK 1 billion to SEK 1.4 billion on a yearly basis. We are delivering, in the first quarter, SEK 507 million. And we are also, in this quarter, becoming the largest property developer in the Nordic with 41,700 apartments at the balance sheet.And you can see at Slide 8, Slide 8, please. You can see on Slide 8 that on top of 41,700 building apartments or building rights for apartments at -- on the balance sheet, we have additional 6,100 apartments in joint ventures. And in total 2.9 million square meters of building rights. We have also more than 6,000 apartments that are either in project development for production, or in production from management. And on top of that, we have additional around -- almost 1,000 apartments in production in joint ventures.So this is today, strong recurring revenue that will continue to be delivered in accordance with our guiding -- guidance of SEK 1 billion to SEK 1.4 billion. And as I mentioned, the profit for the first quarter was SEK 507 million. Next slide, please.Investment in existing portfolio with a strong focus on sustainability. We are continuing to invest here, as you will see at Slide 10, that we are, on the partner side, targeting to refurbish 600 apartments. We already, in the first quarter, refurbished 200 apartments, and we have delivered profit of SEK 155 million from this business area to be compared with guiding of SEK 600 million on a yearly basis. That means slightly over the target, also from investments in existing portfolio.On Slide 11, emphasis on, as I said, in the introduction, sustainability is a core part of our business. We are doing also a job on reporting here. We have updated our key ratios in accordance with TCFD, and in the first quarter, we also announced our joint venture with Kåpan Pensioner to accelerate housing construction in Stockholm. And focus for the joint venture is to deliver apartments with a high level of sustainability. We are continuing to invest in our portfolio by -- as I mentioned before, we have 22,000 square meters that are other refurbishments where we are halving energy consumptions, and we are running large investments in studying solar cell. As before we are targeting to be climate neutral by 2030, and already, today, we use 100% renewable electricity for all our properties. We are also continuing to do investment in social sustainability also during Q1.Next slide, Slide 12, please, just mentioning our value-add transactions. We are in the market almost every day.At Slide 13, you can see that we, in 2019, we did transactions for SEK 64.5 billion, 2020, with the transaction for SEK 28.1 billion. This year, already, after a quarter, we have done transactions for SEK 16.7 billion. And it's not only that we have done transaction for SEK 16.7 billion. We are also, at the same time, continuing to strengthen our balance sheet. At Slide 14, just an example of our holistic model where we are applying all our value-add strategies on recurring basis and delivering strong profit to our shareholders. Slide 15. Our earnings capacity, we are running rental income of SEK 5.7 billion. Property cost, SEK 1.5 billion. Important here is that we are taking a large amount of money invested in maintenance through our balance sheet. So please, compare our maintenance, for example, with Castellum or other players, and you will see that we are investing much more in maintenance than other large real estate businesses. NOI, SEK 4.1 billion, and operating profit of SEK 3.6 billion or SEK 2.55 per share, after the value-add strategies and after all payments for dividend, for equity instruments, excluding A and B shares of SEK 852 million.Here are some additional B shares that were registered at the end of the quarter and some after the end of the quarter. In total, additional SEK 26 million in costs, that the total profit is slightly more than SEK 5 billion and SEK 3.56 class A and B share. And that is also why we, in this quarter, are launching a forecast, and we are forecasting at -- we will deliver earnings per share for 2021, of SEK 5.15 per share for ordinary A and B class share.Next slide, Slide 16, trying to sum it up for -- as I said, our forecast for 2021 is earnings per ordinary share A and B estimated to be SEK 5.15. We have a strong and stable cash flow backed by AAA countries and our profit of SEK 2.7 billion is increased with 99% compared to the last year. And if you look in the adjusted profit per phase A and B ordinary shares adjusted for non -- or nonrecurring cost, then we delivered profit of SEK 1.91 per A and B share.Next paragraph or next highlight. We continue our growth mainly from -- or with strong support from organic growth, where all 3 value-add strategies are delivering strong profit. We had SEK 507 million from building right development and new production compared to target of SEK 1 billion to SEK 1.4 billion. We have today a portfolio of almost 3 million square meters, building rights corresponding to 42,000 apartments at [ owned ] book, plus additional partners and joint ventures. That makes us Nordic region's leading property developer. We continue to deliver strong profit from investments in existing portfolio through refurbishments. In the first quarter, the profit amounted to SEK 155 million to be compared to SEK 600 million guiding on a yearly basis. We also have strong pace refurbishments of apartments. We refurbished 200 apartments in Q1 comparing to the target of 600 apartments on a yearly basis. And also, at the same time, being able to prepare new apartments for refurbishment.And finally, we have today, one of the strongest balance sheets in Nordics with all key ratios for BBB+ rating delivered. In the first quarter, we strengthened our equity with SEK 5.8 billion. Thus, last 12, 15 months, we are strengthened our equity with a very large amount, almost doubled. And despite competition of SEK [ 10 billion ] transaction to acquire Offentliga Hus, we have been able to significant reduction of our loan-to-value ratio and continuing to deliver.It is also important here that at Offentliga Hus' profit is just affecting our profit with SEK 10 million. So we count profit just only on 1 month. Taking into account all of the income from Offentliga Hus, both our income and our NOI and our profit will be higher. And this is even more clear looking at our earnings capacity numbers.At the end of the Q1, our pro forma net debt adjusted for cash inflows from properties that have been sold but not yet transferred from liquid financial assets and 12 months earnings dividend by total capital in accordance with S&P's definition of the loan-to-value ratio amounted to 48%, which is very strong, in line with the BBB+ rating. At the end of the quarter, we had net debt related to net debt to equity at 51% despite, as I said, consolidating Offentliga Hus transaction.So to summarize on the reported key ratios, we have a strong BBB flat rating today. And given that the rating should be forward-looking according to our calculations, we have fulfilled the key ratios more significant for a BBB+ rating. Here, should be added that our ICR was 4.8x at the end of Q1.To sum it up, strong profit from all business areas, strong financial position and guiding to forecast that we -- for 2021 will deliver earnings -- are estimated to deliver earnings per ordinary share A and B to be SEK 5.15 per share. Thank you. Please, questions.
[Operator Instructions] And our first question comes from the line of Fredric Cyon of Carnegie.
A couple of questions. Starting off with the surplus value that you mentioned post -- you did an external evaluation post the end of the first quarter. And you're stating that it's additional SEK 1 billion to be added to the book value within the next 12 months. That number was SEK 1.2 billion, if I'm not mistaken, following the Q4 report. How much of that SEK 1.2 billion has already been taken account in Q1? And how much is new additional surplus value?
I think it is -- it has been taken into account, like SEK 300 million, and it is like SEK 100 million that is new one.
Okay. Okay. So the majority is from what you already taken in Q4, right?
Yes. From the last quarter, we had SEK 1.2 billion, and SEK 900 million is left, and SEK 300 million is taken into account in this quarter.
Very clear. And moving over to results from [ the other day ], it was SEK 244 million in the first quarter. How much of that is actual cash flow? I would assume that it's perhaps SEK 40 million, approximately. Is that accurate?
The cash flow from our joint venture is around -- slightly above SEK 40 million for the first quarter. Then, we also have some dividends that will come in second quarter.
And then regarding paid tax going forward, what are you guiding towards on actual paid tax with the current portfolio?
I mean, we have been -- we have -- if you look for the first quarter, we paid SEK 92 million in taxes, and we should be paying around, if we have -- on rolling, I can just -- in order to be very clear, we have our profit from property management of SEK 3.5 billion. And our tax will be, on a yearly basis, around SEK 270 million, SEK 300 million.
Perfect. And then 2 additional questions, if I may. Moving over to rating outlook. You stated that based on your calculations, you're up for an upgrade. Have you gotten any indications of when that might occur from the rating agencies? Or is it just based on your own calculation, so to speak?
I mean, our job is to deliver our work and then it's up to rating agencies to act on that. And we have seen last 2 quarters both Fitch and S&P upgraded us to positive outlook. And now, we are waiting for reaction to report.
Okay. But you don't have a clear time line on when we should expect something happening from that side?
It is always difficult to -- the only time line we used to have is for ourselves, we can never have time line for other people.
Okay. I understand that. And then finally, on goodwill, I couldn't see much change related to the Offentliga Hus acquisition. Why is that? It didn't seem things [indiscernible] goodwill position.
Offentliga Hus is asset acquisition. So that is the difference. As you know, Fredric, this is -- we always want to do the asset acquisition because that is what we actually do. But in terms of Hemfosa, we needed to have it as, how to say, company or ongoing business acquisition, which is then resulting in goodwill. So all of that is because we are acquiring assets, we will not have any goodwill.
Our next question comes from the line of Oliver Carruthers of Goldman Sachs.
Just to follow up on that first question there on the taxes. So you're saying this should be SEK 270 million to SEK 300 million per annum. Is -- so that cash tax is paid or -- and will that include taxes on asset disposals as well in there?
We don't pay taxes on asset disposal. So that is total paid tax here.
So there's no realization of the deferred component coming through in that SEK 270 million to SEK 300 million?
No, that we don't -- that is just, how to say, accounting the deferred tax and realization of deferred taxes just account.
Okay. So you will be -- so to confirm on a cash basis, you think you will be paying SEK 270 million to SEK 300 million?
Yes, that is my -- we used to publish in our reports this sensitivity analysis at Page 46, Appendix 4. And then, we have just as illustration, that we'll be SEK 347 million. But my assessment is that it should be around SEK 270 million to SEK 300 million. So it's solved.
Okay. Okay. And on the central administration costs, when -- in the context of your, I guess, SEK 63 million recognized for this quarter, and the earnings capacity guidance of SEK 153 million. When should we expect to get down to this, I guess, quarterly level of SEK 37.5 million per quarter?
This is mainly -- that is -- SEK 150 million -- or [ SEK 150 million ] on a yearly basis is our big level in [indiscernible], and that is what our costs are. However, given the transactions, it is good for us, and you have some transaction cost through centralizations. So that -- we are not -- how to say, we are not worrying about that or -- so our view on that is that our -- that difference should always be matched with much higher profit from either sales or from value changes. So if, for instance, it's -- let me -- just to be clear, the difference is only related to transaction business. And this quarter, we did transactions for almost SEK 70 billion.
Okay. And so to be clear on that, the SEK 150 million essentially assumes no transactions. And if you are to do transactions in a given quarter, we should assume that it comes in at an elevated rate?
Assume transaction level of the normal Swedish or normal European countries. SEK 150 million, we should be able to do average. If you do better than average, then it's -- it is beneficial for us to have some costs that are higher than that.
Okay. Okay. And then one final question on the SEK 244 million JV income line. So you mentioned earlier that just above SEK 40 million of that was cash flow. Can you give context on what the remaining SEK 200 million was?
It is -- the remaining is actually realized sales and unrealized value gains. And our actual profit is higher than this, I think it's SEK 40 million, SEK 50 million that is, how to say, cash-related. But we have also dividends from some of these joint ventures that are coming in the next quarter.
Our next question comes from the line of Fredrik Stensved of Pareto Securities.
So I would like to start off with a question related to your CEO statement. So you mentioned that, obviously, growth opportunities in the Nordics remain, but it also seems like it indicates sort of an opportunity to be a European player. Do you look to expand outside of the Nordics? And if so, which countries are...
Yes -- thanks, Fredrik. Yes, we are currently building infrastructure outside of the Nordics and looking at largest European countries. And our core businesses, which are assisting living for elderly people and people with disability, and that is absolutely so. And for us -- I mean, in this quarter, we passed Castellum as -- to becoming the next largest player in Nordics, and that means that we should be able to continue our growth and to strengthen our position as a European champion in social infrastructure.
All right. So should we interpret that as -- do you expect any acquisitions out of the Nordics in 2021? Or is this further ahead into the future?
I mean, we will always do acquisitions. So we will come back to that. But you should interpret that, that we are saying that we are building infrastructure in Europe and when we do that, that is at least [indiscernible], but we should continue to grow.
Okay. That's fair. And then on the like-for-like rental growth amounted to 0.2% in the quarter. Is it plausible to...
[indiscernible] We don't have the increase in rents in our residential portfolio and some switches to property development. So we should be back on track in, I think, already in the next quarter or in Q3 by passing inflation plus 1%. That is what our -- how to say, that is what our like-for-like growth is, it's at least, inflation plus 1%.
Okay. So final question then, we have an election coming up in 2022 in Sweden. When is the sort of window of opportunity to acquire properties from municipalities and similar actors closed?
Yes, that is a very important point, and that is why our organic growth is very important in 2022 because municipality will close already in November this year and then it's -- because then they start the internal processes and then it's closed in 2022.So for us, our position with strong building rights portfolio and the strong organic growth and also infrastructure in other countries will make sure our growth will not be affected. But the growth in Sweden will be probably less from acquisitions in 2022. It will be mainly from organic growth and acquisitions in other countries.
Our next question comes from the line of Bertil Nilsson of Carlsquare.
Yes. My first question relates to what's already been mentioned around -- there was -- around SEK 1 billion, which is identified value changes after 31st of March this year. Is that mainly the effect of, let's say, underestimation of the long rental contracts? Or a yield shift? Or both?
No, that is not related to that. It is related to that we are -- that those are the properties that we will be -- that will be finished in terms of that -- the building of the property will be finished or that the contract -- that the new contract will start. So it's mainly related to the assets fully coming in on balance sheet.
Okay. A second question, if you look at slightly down in the report, it's a comparison of yields 4.3% for SBB with some transactions. And for instance, police houses of 3.4%...
I mean, I said that before, and it is really a crazy thing that SBB is having 4.3% in net initial yield when the transactions are gone at 2.5% or even elderly care homes at 2.2%, or if you look at our German counterparties that are averaging 2.75%. And I will argue that we have better -- in many positions, both better assets, stronger cash flows, stronger loan leases. However, given our strong growth, the values are not catching up. So if I have to value my portfolio today, I should value that, at least, 100, 125 basis points, more or less. That means in that we have very strong value upside going forward. And -- but we are in this in long term.So we are not rushing. We have seen before the company's changing valuers and doing everything in once. We have seen before people buying out companies because of being -- how to say, being disturbed with this. And we have the largest real estate businesses in Sweden are valuing -- doing valuations by themselves. But the -- as a young company, we have decided to do external valuation every quarter. And that is, of course, punishing us. But we think this is long run issue.
Okay. Last question. How about, let's say, investment prospects for like the police, you mentioned police houses and so on. How's the outlook there?
The strong pipeline in organic growth there. I think we are currently building 4 police stations at our owner book and one in joint ventures, and we are also rebuilding one in Finland. But particular growth that you see, is in elderly care homes where we are continuing to strengthen our position. So I think we should be able to do more transaction in elderly care homes, schools continuing to derisk portfolio and continue to build this kind of very secure income from most demanding assets.
Our next question comes from the line of [ Axel Olson ] of Nordic Properties.
Looking over the report and the property value by geography, you're still quite significantly smaller in Denmark than the rest of the Nordic countries. How do you see yourself developing the company in Denmark going forward?
We are building our position in Denmark for every day. Actually, I think I signed yesterday evening -- I mean, we are doing transactions every day. So sometimes it's -- I mean, we are a team of 300 professionals. And despite many people thinking that we are sending out a lot of press releases, and we could send 2 press releases per day. I think I signed yesterday evening a small deal in Denmark. And I think, this morning, I signed a LOI in another small deal in Denmark, and I think there are some news in Danish real estate media in today or tomorrow.So we see that we are building, for every day, larger and stronger position in Denmark, both on the school side, but also on the side of assisting living in terms of elderly care and LSS.
Okay. But for 2021, do you have a figure of where you think your property value in Denmark will be when -- at the turn of the year?
I think we should be able to double our portfolio in Denmark. You saw that, at the end of Q1, we had SEK 1 billion in assets in Denmark. We should be able to pass SEK 2 billion in this year.
Great. And looking at the Danish geography, is it Copenhagen or some other regional cities that are the most interesting to you?
Of course, Copenhagen is the main city for us, as for everyone. But you have in Denmark -- and that is like almost in all countries, you have 3, 4 large cities and that is where we are. So that is where we have infrastructure, and that is where we do all transactions.
Our next question comes from the line of Simen Mortensen of DNB Markets.
I have 2 questions on my side. Most have already been asked. But I saw on the report that in terms of cash and cash equivalents, it now included listed shares, most likely the SEK 6 billion included in Entra. Is there a strategic reason why these are now considered as in cash and not as financial investments?
That is not, Simen -- that -- those cash equivalents are not including, of course, Entra. As you know, we have a flag that we are past 5%, but they are also including other liquid investments. And this is related to that all of that shares are on possible to be sold every day. We don't have any Board representations. We don't have any long-term view on those assets. It's pure financial placement that can be turned to cash every day.
Okay. My second question was about what you said about the CapEx and maintenance levels in the portfolio. If you just can repeat. I fell a bit off when you told it. Because when I look -- you said you had a very high level, and you -- did you take it over the P&L, your maintenance cost? Because when I look at your earnings capacity, you have SEK 287 million, was it, which is roughly 27 basis points of your asset values or just below SEK 60 -- SEK 63 per square meter. Could you just tell us how you -- what -- how do you actually account for maintenance and CapEx, and how it flows through the balance sheet, say, cash flow and P&L?
Always easiest to compare with the peers. So please compare with Castellum. That is the easiest because it is the same amount of the assets.
[Operator Instructions] And at this stage, we currently have no further registered questions. I'll hand back to speakers for any further remarks.
We have received one written e-mail. Again, it's been touched upon earlier. When do you expect BBB+ to be achieved?
Our assessment is that we have key ratios for BBB+ already today. So we are expecting to be upgraded as soon as it's possible. But at the end of the day, it is the rating agencies, and it is also for our investors to see what the kind of key ratios we are delivering and then we have to wait. How rating agencies view this important message from our side is that we are going to run our business with key ratios for BBB+. That is our take.So we are business -- we are running business, having strong balance sheet with the highest -- it is actually one of the highest unencumbered ratios in Europe. We are 3x covered, which is like 100 -- it is compared to a carriers that is below 2x or we compare to some other U.K. players that are slightly above 2x and have -- get strong recognition for that. We have more than 3x. We have an ICR of 4.8x. We have the safest cash flows in Europe being the only company in Europe, in 2020, delivering almost 100% of income. So we think this should be acknowledged by rating agencies.And on top of that, we also derisked the portfolio by increasing the level of income coming from residentials, elderly care homes and LSS. And therefore, elderly care homes and LSS increased from 2020, SEK 800 million to 2021, first quarter, SEK 1.1 billion. So we have to wait.
Thank you, Ilija. Then, I would ask Ilija to sum up this first quarter 2021 results.
Thanks, Marika. And summing up is that we are estimated and having forecast for the full year 2021 to deliver earnings per ordinary share, A and B, of SEK 5.15 per share. We are also emphasizing that we have achieved all key ratios for BBB+ rating, and we will continue to grow, delivering income from property management and our value-add strategies and continue to build a larger portfolio but still having strong key ratios for BBB+ rating. Thank you very much.
Thank you all. Bye.