Samhällsbyggnadsbolaget i Norden AB (publ) (PUBLI) Earnings Call Transcript & Summary

Welcome to SBB presentation of the transaction between SBB and PPI. [Operator Instructions] Now I will hand the conference over to Treasury Director and IR, Helena Lindahl. Please go ahead.

Good morning, everyone, and a warm welcome to our presentation this morning, which will cover all you need to know about the transactions made public yesterday between PPI and SBB. I stand here with our CEO, Leiv Synnes, and he will walk you through the transaction, the strategy behind it and where -- and also where it will lead SBB going forward. After Leiv's presentation, we will host a live Q&A session, and we expect to be finished well ahead of the market open at 9:00. So with that said, please go ahead, Leiv.

Thank you, Helena. I'm very happy with this transaction. I think it is the best solution for SBB. I also think it's a win-win transaction. So it's good for SBB but also for our associated company, Public Property Invest. I think this is the final step in SBB's transformation by selling the Social platform to PPI, SBB completes the strategic road map we set out a couple of years back. And we are simplifying the group. We are reducing the risk, and we are sharpening our focus on core value creation. And as I said, we believe this is the best solution for SBB for a multiple of reasons, including the valuation upside delivered to shareholders, liquidity release and the ability to grow in the future through 3 clear and well-defined strategies. Such deal allows SBB to retain a minority stake in the market-leading brands with investment-grade ratings. The transaction will generate SEK 11 billion in net proceeds. We will be able to reduce that in the near future. And this will create a runway that we will use to build up and grow the subsidiaries and associated companies. The remaining debt in SBB will have low coupons and long maturity, which is a huge benefit for SBB. And all the progress we have now or have exposure to will have attractive cost of funding supported by investment grade rating in each leg. And we will, from SBB side, benefit from the strong cash flow in the core holdings. The business lines will be well defined and clear run by Specialized employees and clear reporting. Over the last 2 years, we have been set to reshape SBB into a simpler, stronger and more focused company. We have been committed to creating 3 distinct specialized platform across education, residential and social assets. We have executed on that plan. Nordiqus, our educational platform is now a market leader and holds an investment-grade rating. Sveafastigheter, our core residential platform, also operate with an investment-grade rating. And now the social properties when moved into PPI can benefit from the BBB+ rating that PPI get through the transaction. The combination of such businesses is to be a clear path for growth underpinned by highly predictable and uniquely stable income streams from the safest economists in the world. All 3 respective strategies benefit from critical mass and becoming the leader in the sector with an appropriate cost of capital and investment grade rating. Each platform now has a clear mandate, a strong brand and specialized management. This page show the transaction structure. The SBB are selling assets to PPI worth of SEK 35 billion. And in return, SBB receives shares in PPI plus cash. And we are able to increase our holdings or share of the holdings in PPI from 33% to close to 40%. And maintaining our role as the largest shareholder in PPI. After this transaction, PPI will become a larger, more institutional platform with SEK 50 billion of assets. That is a huge benefit. And if we look on the holdings in total for SBB after the transaction, we can see that we have 3 market-leading platforms. We will hold 40% in PPI, the #1 listed social infrastructure owner in Europe. We will hold 62% in Sveafastigheter, the #1 pure residential platform in Sweden, and 50% in Nordiqus , the #1 educational property platform in Europe. On top of that, SBB will retain around SEK 5 billion of development properties that see growth into these core platforms. Each platform benefits from stable, predictable income streams, that is backed by public tenants in some of the safest and most resilient economies in the world. SBB is now the only listed entry point into 3 essential social real estate segment, education, residential and social infrastructure. At a scale and with investment-grade funding. In addition, the development arm enables SBB to be selective in investment and to perform value-add investments. On the next page then on Page 8, we will look on the core holdings and also the non-core holdings. We will be able to reduce the debt in SBB in the transaction. And after the transaction, we have core holdings, and we have non-core holdings. And we believe that we -- this transaction will enable us to grow the core holdings so that from 2025 to 2028, we will gain and increase the value of the core assets. And the non-core holdings mainly consist of the loan to Nordiqus, the residential platform joint venture that we currently have with Morgan Stanley and some other assets. And in total, those assets, which are non-core amounts to SEK 14 billion. And we'll use those SEK 14 billion to continue to create a runway, a runway that enables us to continue to grow the core holdings. On Page 10, I think the SBB stakeholders will be usually positively impacted directly, but also in the coming years. The number of strategic and operational benefits driving direct and indirect value creation for SBB shareholders. First of all, there will be a simplified and more transparent structure, and that will reduce also the admin burden and the external costs in SBB. I think it's around SEK 100 million lower cost for administrative topics in SBB going forward. And also we will limit the amount of cost of debt in SBB and reduce the financial costs with around SEK 400 million per year. And the net proceeds of SEK 11 billion will enhance the liquidity quite well, and will enable proactive liability management targeting at delivering and preserving capital growth for opportunities. SBB equity story. We were creating a leading and resilient business profile, position it for future growth. SBB's all 3 segments benefiting from a very resilient position in the market. And the tenant base in the -- both educational and the social arm is supported by AAA-rated public sector tenants. And the residential sector benefits from demographic positive outlook plus a regulated market. We are creating leading brands with significant scale. It's a huge benefit to have the market leading brands among the SBB core holdings. We also benefit from having a diversified corporate structure and into having 3 different segments, social, residential and education. And also, I think we benefit from a transparent and simplified business model and structure, and this will attract investors, both credit investors and equity investors. When reducing the short-term maturities in SBB, we will be able to focus on long-term value creation. And also during that time, we benefit from the low cost of debt that we will have on the remaining bonds. I also think that the management team in SBB have proven itself during the hard times. And now we will have some tailwind going forward. And I'm very confident that we will perform above the market going forward. And in total, I think SBB is well positioned. We will have -- we will be able to show superior growth underpinned by core holdings and good funding situation. Thank you.

Thank you very much, Leiv. Leiv has just walked you through the logic of the transaction, and we will move on to the Q&A session.

We have a lot of listeners to the call -- in the call, and we expect many questions. So will you please refrain yourselves from asking questions that has already been asked.

[Operator Instructions] The next question comes from Mary Pollock from CreditSights.

Congrats on the deal. I was hoping you could help me understand how some of this is going to impact consolidated IFRS figures for SBB. Starting on the debt side, you talked about SEK 15.3 billion of debt leaving the group. How much of that debt is at the Castlelake JV, so it's not consolidated and how much is consolidated? And also, what do you expect the impact on total value to be? I assume it's consolidated community properties, it's like SEK 19 billion at 3Q. And then also the receivables are really the bulk of value you have from the Castlelake JVs. But what else -- am I missing anything in those?

We are experiencing some technical difficulties to move to the Q&A session. Please stay with us.

Mary Pollock, your line is now unmuted. Please go ahead.

Congrats on the deal again. Can you hear me now?

Yes. Thank you very much, Mary. Now we are in sound mode again. Thank you for that. So please go ahead with your question, and we will answer it.

No worries. So I was hoping you could help me understand how this deal is going to impact consolidated IFRS figures for SBB. So you talked about SEK 15 billion leaving the group. How much of that is the debt at the Castlelake JVs? And how much is consolidated in your accounts? And if you could provide like a mix of how much of that is secured. That would be really helpful. And also on the asset side, what are you deconsolidating as a result of this transaction?

Yes, the Castlelake funding at the moment is combined in the 2 portfolios we have with them is around SEK 10.5 billion. And if we add the local banks funding into the portfolios, we add up to SEK 15 billion in total. So you can say that the secured debt that moves with the properties or are repaid in connection with the trade is SEK 15 billion. And we will not consolidate PPI.

Yes. And in terms of what it you deconsolidate, obviously, the community assets, which is SEK 19 billion and then the receivables from the 2 Castlelake JVs, and then you'll increase, I guess, your holding of PPI on the asset side? I'm thinking about that the right way?

You're correct.

Okay. And also just -- I'm pretty sure this is the case. Obviously, there's a few different steps in this transaction. Aker is paying you to transfer shares. You're getting shares in kind from PPI, which then Aker is buying from you. That cash from Aker that's like about SEK 4 billion, I think, that's included in your SEK 11 billion proceeds. It's not in addition to, yes.

It's included.

The next question comes from Othman from El Iraki (sic) Othman El Iraki.

Just a question on the rating agencies. Have you been in touch with S&P and Fitch? And do you expect them to react positively to the news?

Othman. Yes, we have been informing the rating agencies about the transactions. I have not read the report yet after the conclusion of the -- on the trade. So at the moment, I don't know how they will react. But we have well informed them about the transaction details.

The next question comes from Fredrik Stensved from ABG Sundal Collier.

Congrats. I have one question on the administration costs that you referred to. I think you mentioned a SEK 100 million cost saving. And I'm trying to sort of understand what is the base here? I mean last week in the Q3 report, there was one figure in the earnings capacity, and there was also a comment from you that maybe it should approach 10% of NOI towards the end of 2026, and looking at the press release from yesterday, it seems like PPI will incur another SEK 150 million in admin. So what is sort of the base? And where will SBB end up in terms of administration costs, do you think going forward?

In the parent, we estimate around SEK 60 million to SEK 80 million in administrative cost after the transaction. But let me come back to you in writing about the starting level. I don't have it in my head. But in general, when I said 10% of the administrative cost should be 10% of the -- of the rent. But now we have a limited amount of properties left. So that will be not like a target going forward. It's more that we will have some unnecessary costs for maintaining the development portfolio on top of managers running the company outside the development portfolio. So maybe SEK 60 million to SEK 80 million in total cost there. And the cost reduction, if I elaborate a little bit on that, it will be synergies between us and PPI, meaning to some staff optimation, but we also likely don't need cost structures anymore. It is costly to run joint ventures, both from like a legal perspective, but also from an accounting perspective and reporting perspective. And also, we don't need to have as much ratings as we have today. Today, we have ratings both in the parent and in the holding company. So there are a lot of different costs that we'll be able to cut if we're able to streamline the corporate structures and not live in such a complex environment that we have been during the last years.

Yes. Yes, that certainly makes sense. I have one more question, if I may. On Page 8 in the presentation, you show the asset side, core holdings versus non-core holdings. Can you split the investment holdings of SEK 5.9 billion that you include in the core holdings. What is that? What are sort of the main pieces in that SEK 5.9 billion?

Yes, we have different holdings in various companies and most of them are unlisted, but we have also listed assets in that portfolio. But the larger part are smaller joint ventures and also some equity stake in larger entities, which are private. So there is not one big holding, it's a number of small to mid-sized holdings in various companies.

Okay. But all of those are sort of core holdings going forward as well then?

Okay, you mean the [ SEK 5.9 billion ]?

Yes, the SEK 5.9 billion.

Sorry. Sorry, I misunderstood you. That's mainly the development portfolio.

The next question comes from Emanuele Arnoldi from Barclays.

Congratulations for the transaction and I have to say, for the whole journey since you joined the company because you really told us every time what we were going to do and you did it. So well done. It doesn't happen very often. The questions that I had are very -- so fairly detailed, but hopefully simple to answer. So on this Page 8 of the -- Page 9 of the presentation, sorry, which is the same one we were looking at now for the previous question. Am I right to say that when we look at the equity, which is SEK 14.1 billion in the chart for 2025 post transaction, we need to then keep in mind that, that includes also the minority into, for example, Sveafastigheter.

Yes, you're correct.

Okay. Perfect.

I think it's only our holding there. So it's not like -- it's not the minority part of the equity is on our part.

Because Sveafastigheter is there for SEK 9.2 billion, which I assume is the total assets you're consolidating into the balance sheet. And then SEK 14.1 billion, I would have thought it's more or less [ SEK 9 billion ] of your own equity, so to say, and [ SEK 5 billion or SEK 6 billion ] is noncontrolling interest into Sveafastigheter and other entities.

Let me see if I'm correct here, but I think the equity in Sveafastigheter, the total equity should be around SEK 15 billion plus, so the SEK 9 billion here is 60% out of that SEK 15 plus billion.

It's our share.

Yes. So it's not the minority interest.

Okay. Yes. Okay. Now because I had to mind the market cap, which was obviously a much lower number. So that's why I had the question. Okay. Understood. And so it's just a matter of how one looks at it. And the other question is use of proceeds because obviously, it's a -- if I understand correctly, you are getting more or less EUR 1 billion, which is this SEK 11 billion, and you are using more or less EUR 300 million between the reinvestment that you have to make and in shares of PPI and paying redeeming more or less at par, the bonds at the whole top all co-level, the original holding company, the ones that were not exchanged, which I think, if I remember correctly, roughly speaking, leaves the company without any security carrying a financial covenant because I guess the whole transformation here obviously is not compatible with that. Is that fair? So that will mean that you have EUR 0.7 billion that you can then use to tackle the 2026 maturities and any...

Can you please ask your questions in the interest of time?

Yes. I understood the question. So yes, it's -- out of the SEK 11 billion we have already taken care of initial debt, that you mentioned, the only debt that we repay with SEK 11 billion that is concluded already is the debt in the parent, the bonds in the parent. So that is around SEK 1.7 billion and SEK 1.8 billion something around that. number. So that would leave us with roughly SEK 9 billion left to spend on other debt reductions. Yes. And also, you're correct that it will remove all the historic covenants. And the only remaining covenant is in SBB holding now, and they are quite flexible, enable us to manage the company in a good way, both for equity investment, but also for debt investors.

And that concludes the Q&A session. We promised that we would finish ahead of the market. And please, if you have any further questions, please contact us at the [email protected], and we will be able to answer your questions there. Thank you all so much for listening in this morning. Have a great day.

The host has ended this call. Goodbye.