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Samhallsbyggnadsbolaget I Norden AB
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Welcome to Samhällsbyggnadsbolaget i Norden AB Q1 Report 2023. For the first part of the conference call, [Operator Instructions]. Now I will hand the conference over to the speakers CEO, Ilija Bakin. Please go ahead.
Hello. My name is lija Batljan, and I will present the latest report from SBB, and if -- let me start with our operational performance. We think that our underlying business is doing great. We have a strong operational performance. Net operating income like-for-like is increasing with 13.4%. And on top of that, we have the fact that we have not received income from increased rent within our rent-regulated residential portfolio. Taking that into account, we have a like-for-like of 14.9% on net operating income. On rental income like-for-like 11% and we have a very strong culture of efficiency in our property management and our cost -- property costs on a like-for-like basis have increased with just 1%. We are on the long-term basis, strengthening our net operating income with SEK 700 million. And the important there is given that our leases are indexed that is compounding. So it is a very strong long-term effect from strong operational profit.  If you look at the earnings capacity 12 months rolling, we account to deliver a rental income of SEK 6.9 billion after cost NOI of SEK 5.4 billion and operating profit of SEK 4.2 billion or SEK 2.86 per share. After adjustments for dividends and payments for the shares and hybrids, but also adjustments for results attributable to minority investors. We are expecting SEK 2.6 billion or SEK 1.8 per share in operating profit to ordinary A and B shareholders. As I mentioned, in my CEO letter in the report, we are expecting to get additional SEK 200 million in income from finished projects this year. And in total, we have SEK 365 million in extra income coming from the project. So that will increase operating profit to ordinary A and B shareholders between 15 and SEK 0.30 per share. Another important point from operations are that we have been able to deliver strong growth in NOI much higher than CPI. And part of that is that we have relatively low rents. So if you look at the slide, you will see that, for example, for the leases that are expiring in 2024, our rents are SEK 1,467 per square meter.  And compared to our rents that are expiring 2033 or later, that means 26% difference comparing to another alternative for our tenants, which is newly built premises, the difference is even higher. It is 40%. So we have a strong upside potential to continue to deliver growth in NOI over CPI and compounding over time. We have before guided that we should be able to deliver 1% over CPI, which we have delivered since starting the business in this quarter, that is even much that overperformance is even higher. At the same time, given that the company is doing strong operationally. The Board is continuing to take action to strengthen the balance sheet and to lower financial risk in the business. So the Board has decided, as we announced this morning, to carry out the right issues of these shares of SEK 2.6 billion. We feel comfortable that 12.5% is a good dividend and good return to our shareholders. And this is offered to all existing shareholders through a rights issue of Class D shares and the proceeds will be used to strengthen balance sheet and to reduce the company's debt. #2, we are having a strong position in Stockholm rent-regulated residential market with Sea Faster and the strategic review, including divestments or taking minority investors, but also evaluation of the condition for listing are ongoing. We are proceeding good there and proceeds from that transaction will be used to decrease our debt. We also continue with the disposal plan. We have announced that we are planning to sell assets for SEK 6 billion. We have been doing some smaller sales and we look forward to deliver on that. We have been very successful in selling assets during 2022, and we feel comfortable that we will be able to deliver the SEK 6 billion of disposals. And finally, despite that it seems sometimes that there are not many people that care about sustainability. But for us, that is a core part of our business, we are on track to become climate positive by 2030. And in this quarter, we actually finished construction of our first solar park that is producing -- having producing capacity of 10 JVH. In total, we have now covering in different production initiatives and energy-efficient measure is 5% of our total energy consumption. This slide, a few words about our rating. We have 3 ratings BBB- with a positive outlook from Fitch, BBB flat with stable outlook from scope and BBB- with negative outlook from S&P and I will comment that given that we last 12 months, have reduced our total debt with SEK 16.4 billion, we are expecting to do large divestments in the next 6 months. And on top of that, we are announcing the right tissue of Class D shares. So we are decreasing our LTV and also we clearly show that in this quarter, our net debt to debt plus equity is below 60% and will continue to decrease significantly in the quarters to come, and our interest coverage ratio remains -- remains at good level, exceeding 3x and will be further strengthened by the measure is presented. We also are continuing to strengthen our access to capital, and we finished a large refinancing that were announced at the end of Q1. And we have also done additional financing after the quarter, the quarter was ended.We also, in the quarter, did the majority of the closing of our Brookfield transaction of SEK 9.2 billion. We have done to closing taking in SEK 8.7 billion that has been completing during the first quarter. And the rest is just baking for internal restructuring measures and -- at the same time, it is important to see that SBB has SEK 78 billion of net debt of those SEK 78 million, SEK 21.5 billion is standing at the EduCo level, and in that way, we have also a partner supporting our future refinancing. We are preparing to do rating for EduCo, and we are expecting to have a SBB flat rating. That is a very strong business with long leases and strong underlying fundamentals. We have a very good cooperation with Brookfield and looking forward to develop that further. So to some highlights for the first quarter. Let me start with pointing out that we are delivering 13.4% like-for-like growth in NOI. And important, if you look at our reported profit from property management is to take into account that profit for property management has been affected by changes in currency. So adjusted for changes in currency and one-offs, our profit for property management is landing at SEK 816 million which is strong underlying delivery. Looking at profits from property management. It is also important to recognize that we still have one of the lowest average interest rate in the Swedish real estate market, thanks to the fact that we have 85% of our gross debt with fixed interest rate. And the average period of fixed interest rates for all interest-bearing liabilities is 3.3 years. We are continuing to focus on our core business also by divesting assets with lower margins and a stronger focus on triple net leases. We show ability to adapt. We start to track last year, and we are continuing to act to strengthen balance sheet. And we continue to argue that we have a unique liquid assets, and we remain committed to continue to strengthen our balance sheet. And you see that our reported net initial yield is 4.4% and our valuation yield is 4.83%, which is relatively high for this kind of safe assets. Looking at key ratios, as I said before, important point for comparisons is taking into account -- taking into account that changes in noncash exchange rate fluctuations are affecting our adjusted profit from property management that is adjusted for currency is rounding at SEK 670 million, plus SEK 146 million in on-off cost in total SEK 860 million. As I said before, lower loan-to-value according both reported numbers and also according -- using S&P's net debt to debt-plus equity measure continuing strong interest coverage ratio and even prolonged average fixed maturity now at 3.3 years and average debt maturity at average debt maturity at at 4 years. Important here also that we are continuing to increase our economic letting ratio. Now we are at 95.5%. And we are -- given that we have a part of a portfolio that is projects we are approaching full letting. We also see the strong demand for residential, particularly -- for rent-regulated residentials particularly in Stockholm region. Our margins are continuing to increase, and we will see improvements in the margins also in the quarter ahead of us. Important point is here that increase in rents within rent-regulated portfolio have not been booked in Q1, and it will come in Q2. And those are -- we will also receive payments for Q1. And that will also lead, as I mentioned before, that our like-for-like growth in rental income will go from reported 9.9% to 11% on a like-for-like basis.I mentioned before that our profit from property management has been affected by translation gains and losses and one-off costs. And here on this slide, you see a detailed comparison to the last year and also that profit from property management, excluding FX and items affecting comparability is landing at SEK 816 million for the first quarter. We are presenting a negative profit before tax, and this is, as you can see here, mainly related to changes in value, still basically coming from -- or largely coming from changes in value for rent-regulated residential portfolios and changes in value of financial instruments, those value changes together are standing for SEK 3.5 billion. And on top of that, changes in values in joint venture, including write-down of JM are fully behind our negative profit before tax. Concerning changes in values, we do see that we are approaching a relatively high yield. All our properties are externally valued by external values every quarter. And as I mentioned before, at the end of this quarter, our valuation net valuation yield was 4.23%. Looking at our debt maturities. As emphasized before, we have still a relatively long debt maturity the majority of our euro debt is longer than 3 years. And we have still strong resilience on average interest rates. And as you can see, given where the markets currently is pricing interest rates, we will continue to have compared to peers lower average interest rates. We have full liquidity cover to buy back our bonds and -- we -- in this calculation, we are not added expected proceeds from divestments that will increase available liquidity from SEK 15 billion to over SEK 20 billion because, as I mentioned before, we are expecting to divest for at least SEK 6 billion in the next 6 months. Concerning our bond maturities, you can see that we have SEK 8.7 billion within 1 year. And it is SEK 2.2 billion for 2023. And then within 2 years, including beginning of 2025, we have additional SEK 5.9 billion in maturing loans.And to sum it up, as I mentioned before, our Board has been acting actively since last year to strengthen the company's balance sheet. And in light of that, is the announced site issue of these shares of SEK 2.6 billion. The work with strategic review and different alternatives, including divestments, minority investors and evaluation of the condition for listing of the share facts that are ongoing, our disposal plan of SEK 6 billion is continuing first deals were closed during April. As I mentioned before, we delivered strong like-for-like on NOI, 370 bps better than weighted inflation. And that is before effects from rent-regulated residentials, which will increase like-for-like growth in NOI from 13.4% to 14.9%. 85% of the gross debt has a fixed interest rate. And important also to see that we have SEK 365 million of extra NOI coming in from remaining investment in project portfolio. Of those SEK 200 million will come already this year and the rest will come next year. I will stay there and take questions.
[Operator Instructions] The next question comes from John Wong from Kempen.
Maybe on the first one, on the operating side on your like-for-like number, if I understand it correctly, it's plus 10% on the total portfolio, excluding the 4% rent increase you expect on residential. During my calculations, that implies that it's plus 15% on public properties. Is that the right way to look at it? And if so, what has driven this like-for-like to be much stronger than indexation?
It is -- as I mentioned before, we have a relatively low rents in our portfolio. So prolonging the leases and indexation together are delivering very strong like-for-like.
Okay. That's clear. And maybe on the prolonging of the leases, what reversion are you capturing here?
We are not doing that analysis separately. So in total, we are delivering 9.9% in total rent increase.
Okay. Okay. Maybe then moving on to the Class D shares that you're looking to carry out in terms of rights issue. Could you perhaps highlight why you think Class D shares is the right funding to here and not, for example, Class D shares or just straight debt?
We think that we want to repair company for continuing to grow our business. And we have a strong profit in coming from our projects. And we think that in this situation in the way that issuing Class D shares to our shareholders is delivering the strong dividend to our shareholders. At the same time, we can strengthen our balance sheet and also taking extra NOI from remaining investment in project portfolio. So in that way, we are not diluting future value creation for our shareholders.
Okay. That's clear. But if I look, for example, at the implied dividend yield on the Class D shares, I think it's close to 12.5% considering a ton per share dividend. Is this considered also a fixed charge for the S&P credit metrics, given the ICR, the...
These are not fixed charge. These are common shares. So this is not debt. This is a pure equity component.
The next question comes from Jan Ihrfelt from Kepler Tierra.
Okay. And I start with maybe an integrity question, but you reported administration cost of SEK 157 million. And if I take on the earnings capacity, the line and divided before I get a quarterly number at SEK 126 million. So are there any one-off in the reported admin costs this time?
We are continuing to take down our cost for administration. And there are still one-offs related to EduCo transaction also related to some work after the Nobu transaction. And we are heading to the earnings capacity on our administrative costs.
Okay. And then a question on financing. You mentioned here that the total bond maturities in 2023 is like SEK 2 billion 2.2%, sorry. And what's the figure for 2024? I mean, the total bond maturities for that year?
In 2024, we have a total bond maturity of like SEK 8 billion.
Okay. And could you comment anything upon your bank margins? What kind of bank margin do you have on your bank financing?
We have not commenting that, but we have said before that bank margins, and that is what we see have increased with 30, 35 bps in relation to before the interest rate increase cycle. So that is what we see in the market, then the margins have been different depending on different assets also slightly. But we think that bank margins are still okay.
Okay. And a question on your dividend. You suggested a new plan for that with either cash or in shares. How does this proceed when could you...
We are having a general meeting today that is expecting to take a decision on that, and the layers are working with preparations. So we will come back.
Okay. And a question on your rental apartment rent negotiations, how much of your total rental apartments has new rent for this year. You expect it to come quite much in the second quarter, but are there any effect in the first quarter.
It will be affected in the second quarter. And we are -- in earnings capacity, we have been doing illustrations with 4%. Our assessment right now is that we will be averaging 4.5% extra income for this year coming from rent-regulated residentials. That's mainly booked in Q2.
Yes. And a final question on Sveafastigheter. When could we expect that to be a company to be listed?
We are -- as we emphasized the Board has decided that this process is continuing because we see we see interest in the market, and there are like 3 options, both divestments of Sveafastigheter, but also taking in minority interest and evaluating IPOs. So that shall be ongoing. And we will come back when we have chosen the past.
The next question comes from Niklas Wetterling from DNB Markets.
I got a few questions. I'm starting off with the earnings capacity guidance. I got a question around the profit to minorities, which were down 1% if we compare with the Q4 results. And I wonder why but what's the driver has to be any changes with the deal or any other assumptions made?
No, it is nothing changed. There are no changes in the deal. And it is -- the difference is probably just expecting to close the last part of the transaction after internal restructuring.
Okay. So there is part of the deal left to be made. And after that, it will increase somewhat.
Yes, that is right.
Okay. And then I wanted to ask about cash flow between EduCo and SPB. If there is any like dividend policy or so or what is to expect about cash flow payments between EduCo and STB?
I mean SBB is consolidating -- and the proceeds are now staying within the company.
Yes. In IFRS, I know they are consolidated, but in -- it is 2 different companies and do you expect to pay dividend from EduCo to SBB?
Yes, absolutely. We will -- SBB will have -- will have dividends from EduCo, absolutely.
Okay. But no figure or any guidance on what to expect in cash flow?
No, we have not done -- we have not have any communication. We do not have any communication on that. But important point is also that EduCo is servicing SEK 21.5 billion of debt that is reported at SBB level.
Okay. And I believe I remember regarding the management fees that you stated that you would do a net present value calculation and include that in the P&L in the balance sheet? Has that been the case?
That is the case that SBB is getting paid for that... Absolutely.
Okay. Yes. But is the net present value of it in the balance sheet?
Net present value of that is not in the balance sheet, but the cash paid to SBB is coming into SBB.
Okay. Perfect. And yes, a follow-up on the strong like-for-like figure on NOI. I just wonder if the comparable year has been adjusted following the change of treatment of the property administration costs [Indiscernible] administration.
Following the change of what, sorry?
The property administration costs, I believe, is now in central administration, if I understood it correctly.
We are taking in full organization costs in one line, among others, to be comparable to bolt that as largest business in the space because we think we are continuing to work to strengthen transparency for SBB, and we will try to do more and more as other large businesses in the space. But then the administration changes in administration costs have not affected like-for-like.
Okay. And my last question is just regarding this CD rights issue. And what's your thoughts around having the right price above the current share price for the average [Indiscernible] shares?
When we announced the rights issue, the price announced was below the share price. And we think that giving opportunity to our shareholders to get a dividend of 12.5% is a very good return.
The next question comes from Neeraj Kumar from Barclays.
So my first question is you said that you met all the criteria for leaving negative outlook from S&P behind us. So can we expect a revision of outlook from S&P in next couple of months or so?
That is not my work is to continue to deliver on deleveraging. And as you can see from the report, we are now at 59% of net debt to debt-to-equity level. After a few of the announced specialties, we will be down to 55% on a net debt to debt-equity, which is compared to many other players in the space that are going on in the opposite direction relatively strong. And we also continue to show that we have a strong ICR, and we also present in -- that we are continuing to expand our fixed interest rate coverage. So in total, we have delivered better key ratios and will continue to deliver better key issues. So that is what we can do.
That's helpful. My second question is, do you think S&P may decrease the downgrade thresholds, given the increase in minority interest from full consolidation of EduCo.
S&P has published the rating after the core transaction was announced. And you can find that rating at our web page.
Yes. I was just wondering because I think sometimes rating agencies take longer time. So are you worried on that side or not?
Absolutely. But my answer to that is that the latest notes from S&P have been published after the EduCo transaction has been announced and nothing has changed in that transaction.
The next question comes from Sylvia Garanti from GSAM.
My first question is about the liquidity. In the report, we see that there are unutilized credit facility around SEK 2.4 billion, down from SEK 4.7 million. But then in the presentation, we see that there are new credit facilities, which are also SEK 2.4 billion. So is the total liquidity now around 4.8%? And are these the 2.4 new facilities that are signed after the reporting period.
Thanks, Sylvia, for the question. Given that we have been doing the large refinancing there have been -- as you have rightly seen in the report that have been some movement between -- before the end of the quarter and after the end of the quarter because at the same time, we have been doing the large refinancing as we announced when also, at the same time, restructuring the EduCo. So your math is fully right.
Okay. And then still on the liquidity, how much of this outstanding unutilized credit commitments are subject to covenants related to downgrade to high yield? Meaning how much can actually be revoked if the company is outrated to high yield to the extent you can comment.
We do not have -- we do not -- we have, as we wrote in our -- wrote in our annual report, there is only the one commitment and that was SEK 1.3 billion and is partly being exchange to the SEK 670 million and the part of that has been done as term loans. So it is a relatively marginal effect.
Okay. So the rest are basically unrestricted from that perspective?
Exactly.
Okay. And then another question on the disposal. Can you give us the breakdown of the remaining 2.1 disposal that you agreed in Q2? I understand SEK 1.7 billion is left from the Brookfield transaction. So is...
Yes, we have not been given more details on that, but those are committed disposals where we are just stating to get payment in.
Okay. Perfect. And so you cannot comment to how much has been disposed of this SEK 6 billion so far.
We have not announced that, I mean some transactions, small transactions have been published in the [Indiscernible]. We think that it's always better to deliver everything and then said now we have delivered this and this is how it is.
Okay. Okay. And last question, just to confirm, what is the amount of the secured debt that you have maturing in 2023? And how much has been refinanced as of Q1, just to confirm?
We have a relatively small amount of debt maturing or secured debt maturing. We have not published the split, but you can see from maturities on our bonds that is a relatively small amount of bank debt and bank debt in Sweden is usually prolonged.
The next question comes from Daniela Costa from Goldman Sachs.
It's Jonathan Kownator actually from Goldman Sachs. A couple of questions, if I may. You highlighted in the report that you want to -- you're reducing investments, obviously, given the context. How much should we pencil in going forward? This SEK 1.9 billion, I think, of investment for Q1 '23. Is there a run rate that we can look at that is going to be recurring, that would be helpful. And the second question would be in the change in cash collateral, there's still a change for Q1. Is that related to a position that is now being closed? Or is that still a position that you have that is ongoing and it was planned a further disposals?
First, Jonathan, let me take the last question. Cash product was related to TRS that has been closed in Q1, as we have reported before. And concerning investments, you can see from our reports that we actually stopped the new investments last year. And that means that remaining investments are decreasing quarter after quarter. And in this report, we are presenting that in next 2 years, the total rest remaining investment is [Indiscernible] million high -- Yes. So that means that our run rate on an investment basis is falling down very fast.
I apologize, the line cut. I'm not sure that was only for me or for everyone. But can you please just restate the numbers that you've given? I understood it's coming down quite fast as what you said, but I just didn't get the numbers. Apologies for that.
And in report, Jonathan, you can see that for the next 3 years, for the next, how to say, rest of '23, '24 '25, the total investment volume remaining is SEK 2.3 billion of those SEK 1.4 billion externally financed.
Okay. Okay. Very clear. Great.
Thanks, Jonathan, and thank you all. I will start just to finish this. And if there are any other questions, please send those to our Investor Relations, and we will be happy to answer -- we'll be happy to answer everything. As I said, we think that we are delivering strong operational profit like-for-like among the highest in the sector on an NOI basis, and we are continuing with strategic measures through...