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

Welcome, everyone, to Samhällsbyggnadsbolaget's Capital Markets Day, which is the grand finale of what has been a highly exciting first half of 2020. I'm Adrian Westman. I'm the Head of Investor Relations and will moderate today's session, and where you will meet with the full management team of SBB and other selected key people from our organization. Everyone will present themselves when it's time to enter the stage. Looking at the agenda, we will start off with an introduction from our CEO, Ilija Batljan, and COO, Lars Thagesson, followed by a walk-through of our unique business model, which is how SBB creates value. We will then round off with a financing section and conclude with the new targets that were announced yesterday in a press release. And last but not least, we will have a Q&A session with the full team on stage. During the Q&A session, everyone who's here in the room will, of course, be able to ask questions. And for those following the webcast, if you have preregistered, you can write questions in the message board tool, and make sure to use the same name as when you registered in order for the questions to come through. Our aim is to finish the day at 4 p.m. by the latest, and we will try to answer as many questions as possible. If time runs out, we might have to get back to some of the online questions by e-mail. And the full webcast will be available to see afterwards on our website. So I think that's it for the introduction, and I give the floor to Ilija and Lars. Please.

Thank you very much, Adrian, and thank you all for coming and calling and listening. I will give you a short introduction to SBB. I am the Founder and the CEO of the company. And together with me I have Lars Thagesson, that is one of the most experienced professionals in this business, of course, our Chief Operating Officer. Concerning SBB, we do operate in the world's safest real assets classes in terms of social infrastructure in the Nordic countries -- Sweden, Norway, Finland and Denmark -- and Swedish rent-regulated residentials. And please observe the word rent-regulated residentials. Rent-regulated residentials in Sweden are mainly owned by municipalities. And those municipal companies have also an association, which is Public Housing Sweden, and SBB became the first ever private member of Public Housing Sweden in late last year. We have, and as you have -- could see, during the corona crisis, and I will come back to that, among the strongest cash flows in the Nordic regions. As I said, properties in the Nordics, mainly in Sweden, 76% of the total portfolio; then Norway with 15%; Finland, 8% and Denmark, 1%. We have SEK 5.2 billion in running rental income, NOI of SEK 3.7 billion and very strong net yield. We have net yield of 4.7%. And as you can see on the slide, 66% of our assets are located in the Nordic larger cities, with Stockholm and Oslo as our largest regions. We have been performing well last year, and one of the reasons why we are performing well and why we have a strong outlook going forward is here on this slide. We are in the space that is very favorably affected by demographic changes. All of you understand the changes in the increasing number of elderly people and demographic aging. But those are also the regions with strongest demographic development in Europe. And for you that are not familiar, Stockholm and Oslo have been the fastest-growing cities last 10-year -- last 10 years in Europe. If we then look at COVID-19, big crisis that is affecting all of us. Also during this crisis, our assets have shown amazing resilience. Reported in the Q1 report that we in Q2 have only SEK 12 million in deferred payments and only SEK 1.3 million in rental discount, which should be related to SEK 5.2 billion in rolling income. And we also see that those rental discounts, despite that those are very small, that is our way to support society to manage the crisis. Probably one of the most important points of this slide is, at the down of the slide, showing sovereign credit rating. We are exposed to government-backed income from 3 of 10, 3 of 10. There is 10 countries in all of the world that have AAA rating. 3 of those are Sweden, Norway, and Denmark, our biggest markets. So our income is government-backed from AAA sovereign-rated countries. Some of you that have been following us have seen this slide, focusing our pillars of strategy with our unique and difficult to replicate long-term relationship with municipalities and other market participants that, at the end of the day, has been delivering the strongest NAV growth in the sector and in Europe last 3 years. So you can see at the figure below, 73% on yearly average. After the acquisition of Hemfosa, we became the Nordic and the -- Nordic champion in the social infrastructure, the largest company in the space and also the third largest in listed real estate space in the Nordics. You've heard me telling about our safe assets, social infrastructure in the Nordics, rent-regulated residential in Sweden, backed by government-backed income from AAA-rated countries. But probably our most important assets is our team. And I will start with our Board. We have Lennart Schuss, Founder of Catella; Sven-Olof Johannson, founder of FastPartner; Fredrik Svensson, Board member of Balder since 2005, the second largest owner; Eva Swartz Grimaldi, that has been CEO, Chairman of the Board, for both listed and nonlisted companies; Anne-Grete Ström-Erichsen, that has been having long experience from the business and politics, also been a member in different Norwegian governments as both Health Minister and Defense Minister; and Hans Runesten, that was involved when Sagax has been founded. And with me, I have probably the most knowledgeable person in this space in the Nordics. And it is Lars Thagesson, my mentor and my teacher, that have been teaching me almost everything since 2005, 2006, that is now mentoring our young professionals. You will meet some of those here today. You will see that Lars is very successfully transforming his breadth of knowledge to our extended management team and creating new champions in this space. And Lars has actually focused all of his life, since he left primary school when he was 14 years, to today, to work in real estate business. So he's the person that has done the most deal in Nordic transaction market, without anyone coming close. And because of being -- focusing on doing this, he has missed his English. But for you that -- or some of you that are Swedish speakers, you can always reach to Lars, and I'm sure you will get the best insight in this very special asset class. The rest of the team you will meet through the presentation. And you will also heard through the presentation what we are planning to achieve or where we are going forward. But it's always important also to remember how we have delivered of our earlier targets, and we have always overdelivered. One of the most beautiful part of this slide is actually us delivering our first investment-grade rating after announcing target in 2018 and delivering on that in 2019, and in that way creating a lot of value, both for our equity and for our credit investors. Today, we will also focus to explain how we are creating value for both society and for our shareholders. And we have a unique business model, not only to be exposed to AAA credit-rated countries but also in the way that we are delivering income from 4 different income streams, from traditional property management where we have SEK 5.2 billion in almost fully government-backed income from property management, and 3 additional income streams. The first one, property development, where we are also announcing the new goal, Krister and his team will tell you more about that. But I just want -- I don't know if some of you have missed the news yesterday that Veidekke is selling their business, their property development business. They have sold property development business for SEK 7.7 billion. They have 15,000 building rights. I can repeat once more: SEK 7.7 billion for 15,000 -- for 15,000 building rights. Krister will tell you how many building rights we have. But you can be sure that it's more than 15,000. The next is our team working on property renovation and combining that with sustainability, where we have been showing a large decrease in CO2 emissions. And finally, we are a transaction-intense company. And our transaction and M&A team will give you insights in how we are creating the income from our transaction business. And finally, I'm not good -- and I have to admit, my only qualification for this business that I have some grades in mathematics. So I'm not good on real estate. But you will meet many people that are good on real estate. But when you work with mathematics, there is always plus and minus, and then you have the results. So I'd like to focus on results. So on this slide, you will see one case study that is delivering from 4 income streams. We bought almost 500 apartments in 2016. And a short time after, we agreed with tenant association the new rents after renovation to SEK 1,250 per square meters. And we start to renovate. And up to now, we have renovated 154 apartments, creating income from those apartments, both increased rental income and also increased value. At the same time, our property management team, on top of having income from property management, also used actually some -- few liters color to draw the new parking lines. And from that work that took, I think it was 7 liters of color and 10 hours, now they are collecting SEK 0.8 million in income every year. Shortly after our property development team focused on that property, and it's now in planning to deliver 20,000 square meters of building rights. So that means we make money from property management, we have made money from refurbishment and investments, we have made money from property development. And at the same time, we are working with refurbishment, we used our Green Bond Framework to decrease CO2 emissions with more than 50%, and in that way add value to society, make the money. And finally, I was not for that, but our transaction team, they are always lucky to make some money. So they sold it for double the money. So this is how it's working in the real world. And I hope that you will learn more about it and understand more about SBB. Thank you for coming. Thank you.

Great. Thank you, Ilija and Lars. So now we will look into the different parts of the value creation model, and we will start off with the foundation that is the property management. And we have Annika and Fredrik, who will join us on stage, please.

Thank you. My name is Annika Ekstrom. I have 24 years in the industry, 20 years as a Head. I worked at Hemfosa since 2010, where I built up the asset management team to, in my opinion, the best in Sweden. Now I and Fredrik has integrated Hemfosa and SBB into 2 asset management teams: one for community service properties and one for rent-regulated residentials. In this way, we get 2 very efficient teams with high competence in each business. We also increased the GAV with 215%, from SEK 25 billion to SEK 80 billion, and on the other hand the number of employees with 91%. So we gained considerable economies of scale as well. This team and, of course, all employees behind makes my and Fredrik's job very easy. We have taken the best regional managers from Hemfosa and SBB and put together a dream team. I worked with these, a lot of -- many of these for several years, so I know them very well. They are all very experienced, very business-minded. They know their markets and they like to make business: new lettings, renegotiations and, of course, take care of the tenants. [Foreign Language], as we say in Sweden. And we have many local property management offices with dedicated employees who knows their region and tenants and have a strong local contact that generates new business. So with these key employees in place, we are up and running, and we are more than ready to continue to create value. We have a fantastic portfolio of community service properties with a value of SEK 61.5 billion. 93% of the rent comes from government-funded tenants, 93%, meaning very low-risk tenants, very secure rental income. And as Ilija told you before, you see the countries, they are all triple-rated: Sweden, Norway and Denmark. Sweden is the largest market that we have in all Nordic countries, a strong foothold in the metropolitan regions. We have long leases. We have 7 years as average. And we also know for a fact that a majority of our tenants, they renew their leases. They don't move that easy. When we make tenant improvements, we have a lease length of 10 to 15 years. And we of course get higher rent as well. And regardless of the state of economy, schools and elder homes are needed. So the economy only has a small impact on our properties. Fredrik?

Thank you, Annika. Hi. I'm Fredrik Holm. I'm Property Manager for our rent regulation resident portfolio. I have 24 years in real estate business, and more than 15 years was only for residential. As we can see, we have lots of regulated residential in many good location, in medium-size and major cities, especially middle and south part of Sweden. And here is the numbers for our portfolio. And as you can see, especially for the rent, there is still a lot of opportunities for us for activities and good investment for increasing the rent. And my colleague, Peter, will tell you all about our unique residential renovation while working business model later on. And the best part is only 25 percentage of our portfolio is renovated, so we still have the best part in front of us to make business. Thank you.

Okay. The last slide. So to summarize, we have built a dream team in social infrastructure asset management. And you have heard it before, and you will hear it now, and you will hear it later: we have the safest assets in the world and clear economies of scale achieved as well. Thank you.

Great. Thank you. So as stated in the beginning, we will round off the agenda with the Q&A session. If you are following online, you can already now type your questions in the tool, and then we will collect and save them for later. So that was the foundation. Now it's time to start these 3 additive recurring income streams, and we will start off with property development. We have Krister joining us here, and will start off. And then we have Erik and Jenny also joining on stage. Please, Krister.

Thank you, Adrian. Hi, everyone. I'm Krister Karlsson, Head of Property Development. And my experience is 24 years, 22 years in the construction sector within NCC in the Nordic countries and in the Baltics. And then I joined Rikshem at the same time as Ilija, and then I joined Samhällsbyggnadsbolaget when it was founded by Ilija. As Adrian mentioned, SBB has 3 additive recurring income streams, and one of them is the property development. And now me and part of my team are going to introduce you to that one. So what do we see? We see -- I'm sorry, we see a huge undersupply of when it comes to community service properties. And we see -- as we can see, the red one is the needs and the gray one is the plan. So we are now planning and building for less than half of the need when it comes to elderly homes and less than 1/4 of the need when it comes to high schools. On top of that, we see the Nordic region are growing. We're growing with approximately 2.4 million inhabitants within 20 years from now. So we -- this altogether gives us a huge demand. And from SBB point of view, we have the solution to those demands, with our land bank, with our organization and with the balance sheet. And what do we have? Compared to other companies, we have an extremely strong land bank. We have 25,000 apartments within the land bank. As you can see, we are in front of Bonava, JM, PEAB, for example. And as Ilija mentioned earlier, we have Veidekke on 15,000 apartments, where we stand out with our 25,000 apartments. And I will guide you through our portfolio later on. And I would also stress the fact that we are the only company in this picture that works with both development and management. Okay. The past years, we have focused -- on the left side of the picture -- we have focused to create a rock-solid building rights portfolio. And now we have about 500,000 square meters that are legal force. So we think it's about time to move on to the right part of this area, to construct for our own balance sheet and for our own management. Erik will tell you a little bit about that process later. And to mention a little bit about the planning process as such, we are working -- we are -- when we present our portfolio, we are working within 4 phases. The first phase, we are working with the concept and internal decisions to start, et cetera. And then we send this to the municipality and get -- and after that, we get a decision from the planning authorities to start up with the planning phase. And when that's ready, we have soon in place legal force. And for those of you who think this is quite an easy job, when I'm talking about it, I would say that this is quite a complicated process. This is a chart from municipality that describes the same process as I just described. So each and every -- we didn't translate it, but I want to stress the fact that each and every of this bubbles contains a lot of things to be done and acts to be taken. And also, I think it's important to stress the fact that once you have the zoning plan legal force, you could apply for a building permit at the municipality, and the municipality, due to law, must grant this application within 10 weeks. So the crucial part when it comes to property development is the building rights. This is a very important slide, and I'm proud of it. I will stress some facts here. On this row, you see our volume of building rights became legal force. So this is the volume where we can just send in an application to the municipality and get a building permit in 10 weeks. So we have proven evidence that we have done this, so to speak, 400,000 square meters. And if you add the 400,000 square meters to this 760,000, you get 1.2 million square meters. This is the volume that we have an agreement with the municipality to start the zoning work, so to speak. So 1.2 million, we have an agreement with municipality to work with. I would also like to stress the fact that we have, in total, 1.8 million square meters, correspondent with 25,000 apartments that I talked about earlier. And this correspondent with a value on the balance sheet of SEK 1,420 compared to what we have sold for, that you have here. It's nearly 3,500 square meters. So this is the value uplift that we see ahead of us. And the last thing I want to stress on this picture is that we have this 1,380,000 square meters that we can develop for our own management, so to speak. And just to give you some short examples. We have made A,B,C, 3 examples. The first one, if we just act in the area that I told you that we have been in the past, if we sell our building rights 100%, this would -- then we have a result of SEK 3.4 billion. And if we assume that it takes 4 years to deliver this, then we have a result of SEK 850 million per year by selling the building rights that we have already in our portfolio. Then we have the other way to do it, the right way to do it, the right way to do it. And that is if we start to develop for our own balance sheet, and we can do it either 100% or like 50%-50%. And we have made up an example here. Here you have the example, this could be like an ordinary school, an ordinary residential, an ordinary home for elder somewhere in the Nordics. And we have calculated and estimated the profit would be 8,500 per square meter. And if we do it 100% by ourselves, it will correspond with SEK 10 billion in total. And if we assume that would take us 8 years, it will be SEK 1.3 billion per year. And if we do it 50-50, we have it right in between, it will be 6 years and SEK 1.2 billion per year. And I would like to stress the fact that this is only, so to speak, within the building right portfolio that we are working with as is today. So now when we have our building right portfolio under control, I would like to welcome up Jenny who takes the building right portfolio into long-term lease agreements in these projects.

Okay. So short introduction. I'm Jenny Asmundsson, and I'm Head of Business Development in this project development team, and I'm happy to have joined SBB earlier this year. I've been with Hemfosa as a business -- Head of Business Development. And I also have a background as a Property Director at the municipality of Nacka. I have a good orientation around community properties and the challenges facing the municipalities; for example, timing the capacity, financing, and not the least, the process of public procurement. And to give you a short glimpse of our project portfolio, I'd like to highlight 2 of our ongoing projects. We're building for the city of -- for the municipality of Västerås an office for their social department. It's about 8,000 square meters and will be ready until next fall. For the moment, we are also in the making of a new city hall in the municipality of Nykvarn, and that's around 4,000 square feet of new and updated space. And we have -- both these projects are built from our own building rights. Those are 2 examples. We have more projects in the pipeline. And my main responsibility is to transform the building rights into new projects and also to bring in new projects from the start. We see many requests at the moment. And as we have heard earlier, there's a growing demand for expanded capacity and also for reconstruction and modernization. A lot of new schools are needed. There's a huge need for more elderly care and also new police stations. And I'm not sure if you have read or caught that, but I'm happy also that we have just recently landed the opportunity to build a new police station in Sälen. And that's also connected to the Swedish government's new strategy to add 10,000 more policemen until the end of 2024. It also feels good for us because the Swedish police force is one of our large tenants. We have 40-plus police stations throughout Sweden. We're also working with 2 new schools for the moment. We have 1 in Järfälla that's in the zoning phase, and we also have another one on our own building rights in Haninge that's currently under construction and will open up for new students in the fall of 2021. So I have a very positive outlook. I find that we are attractive in these processes. I feel that we have a competitive offer. And our strength is often our local property management. Our head of regions are well-connected and business-driven. And we also build trust with our keen and competent project team, and that makes my job a lot easier, when I have solid colleagues. And so my work is to bring in and to start up these projects. And when the lease agreement is set, the project moves on to the next phase. And it's my time to introduce my colleague, Erik.

Thank you, Jenny, and hi, everyone. My name is Erik Hävermark, and I am Head of Project Development. Project development is the implementation phase of the property development business, illustrated in the -- on the right side of the figure Krister previously showed you, also shown in the lower right corner in this picture, a phase that ends with a completed, fully leased building for own management. I started at SBB at January this year, and I have previously worked at NCC, at JM, Rikshem and Veidekke. I have 17 years of experience in the building and property industry, both as developer and contractor. At Rikshem, I was responsible for their strategy and implementation for developing new residential buildings and the procurement, which resulted in an agreement with a contractor, including 2,500 apartments built with a modular building system. I'm very happy and inspired to now be part of this very competent and experienced team at SBB and get the opportunity to work with this fantastic building rights portfolio with its enormous potential, which Krister just told you about. At SBB, we are now working on a procurement to find a contractor that, in cooperation with us, can develop several new residential buildings in Sweden with rent-regulated apartments. This approach will give us a lower cost compared to signing an agreement with a contractor for each project individually. And it will also enable us to, in an effective way, focus on sustainability issues such as the completed buildings, energy consumption, building system, building material selection and so on. The project development team at SBB consists of 7 persons. This team has great expertise in developing community service and residential buildings. And our projects are guided by a defined process with established routines for managing and monitoring the ongoing projects. Our projects are on land and buildings that we own, so all the technical conditions are known to us. And the buildings we develop are largely regulated, and therefore basically designed and constructed the same way, so the cost level are known to us for the projects. And in addition to that, the contractors are fully responsible for the project implementation. Finally, our projects in community service properties are based on tenant agreements and our residential projects with rent-regulated apartments are based on the structural undersupply of housing in Sweden. So we are not affected by market fluctuations. So to sum it up, in our project developments, we know the revenue, we know the cost, and we have the tenants.

Thank you, Erik. And to sum up the whole part of Property Development, I would say that we can see that we have undersupply of community service properties and also of residentials. So we don't see any market risk in this. And as I have told you, we have 1.8 million of square meter building rights in our portfolio, whereof 400,000 is already legal forced. So we have a proven track record from zoning. At least, we have skilled and experienced people, so we can manage to develop for our own balance sheet. Thank you.

Perfect. Thank you, team. So while we change some microphones, that was the first recurring income stream. That is the property development. We will now move on to property renovations and sustainability. And I hope that you also -- that we presented new sustainability targets for sustainability vision earlier this year for 2030, which Marika will tell you more about. Then -- but we will start off with Peter, who is our Chief Technical Officer. And he will dig into the details concerning all the renovation related business. And we'll see when he joins us. In the meantime, once again, I can just say that for those following online, you can continue to type questions as we go along, and we will get back to questions in the end. So Peter, welcome.

Thank you, Adrian. Thank you very much. Hi, everyone. My name is Peter, and I'm a CTO at SBB. I joined the company in November 2016. And today, I want to talk about how SBB is creating value in our existing property portfolio. We have a handful of different strategies that we use to increase value. Two examples of that is our renovation process in community service properties and, of course, our apartment renovation program in our rent-regulated residentials in Sweden. But first, let me start here with our residential conversion. This is when we create income-bringing apartments out of non-income-bringing square meters within existing buildings. And of course, this is not possible everywhere, but it is in our DNA to search for this type of potential. And if there is a hidden potential, we will find it and we will execute it and we won't miss the opportunity. Until now, SBB has created almost 70 new apartments within existing buildings without adding any extra square meters. And that is apartments that people, families and students are living in right now. And I think that's quite amazing. But our most important process to create value in our residential building is our apartment renovation program. And for that, we have an industrialized process starting in a new location when the existing tenant is moving out. We take that apartment and we renovate it and use it as a prototype to show the Union of Tenants in the negotiation, where the goal is to set a new normative rent level. And in Sweden, we have a quite unique rent regulation system, which is good for us because it gives us visibility and the new rent levels after renovation is very predictable. But I will go through how this system works on my following slide. But let me first finish this. Once a normative rent level is agreed, SBB proceeds to renovate apartments as the tenants terminate their lease. And by that routine, we minimize the vacancies due to renovations. And our projects in community service properties, we have several projects underway. Some examples is the rebuilding of Arlovsgarden in Malmö region in order to create more elderly care units for private public founded operator, Norlandia, with a 15-year lease. We have a tenant improvement project for the municipality of Haninge, where we modernize a school with a 25-year lease. We have a conversion and extension of the city hall on Nykvarn in Stockholm region with a 25-year lease. And as the Nordic region largest actor in group housing, SBB has multiple group housing units under construction. And we always negotiate the rent levels before we start our projects. But now let me clarify how our unique rent regulation system in Sweden is working. We negotiate a normative rent level, and to calculate the rent level for a certain apartment, the system is building on this formula. And the inputs in this formula is the normative rent level and the apartment points and the apartment size. In this example, we have a 2 room and kitchen of 62 square meters and a rent level before renovation of SEK 850. It gives us annual rent of about SEK 55,000. And if we, in this example, agree a new normative rent of SEK 1,250, we get a new annual rent of SEK 81,000. Most of the company, they are working like this. And most of the company, they think that the apartment size and the number of room in the apartment are fixed figures. But every time we renovate an apartment, we look at the floor plan, we look at the layout, and we try to find ways to make additional rooms. So we are working in this box, and as you can see, if we can make an additional room, we increase the apartment points, and the annual rent will go up even more and still with the same agreed normative rent level. As you can see on this picture, we illustrate from a project we made how the standard of the apartment is. And as you can see, this is new production standard. In Sweden for the last 20 to 25 years, the rent level has increased in average between 1% to 3% or 1% above inflation. And on top of that, if we invest SEK 5,000 per square meter, we can increase the rent level with SEK 300 to SEK 400. And in addition to that, our costs will be lower due to lower maintenance costs. So the NOI will be even better. As you can see on the picture, our average rent level before renovation is SEK 962. And the potential after renovation is SEK 1,383. And if you compare that to rentables for new build apartments, you can see that it is still very cheap. We have a target to renovate 600 apartments a year, and we have still 75% of the stock remaining with this potential. And by this type of projects, we estimate our recurring earning effects to be SEK 600 million per year. Thank you. Now I will introduce my colleague, Marika, who will talk about sustainability.

Good afternoon, everyone. My name is Marika Dimming. I'm Head of Sustainability. I joined SBB in July 2018. Prior to joining, I was at a Swedish bank, where I worked with their green bonds. And prior to that, I was -- I worked for many years as a capital markets lawyer in London. In February 2020, we launched Vision 2030. Our aim is to become the world's most sustainable property company. We're governing the company's operations in line with the following UN Global sustainable development goals: 5, gender equality; 7, affordable and clean energy; 8, decent work and economic growth; 11, sustainable cities and communities; 13, climate action; and finally, 15, life on land. We've selected the following ecological sustainability goals. 100% renewable energy in the entire property portfolio and also minimizing carbon dioxide emissions by reducing the emissions by at least 5% per year. Promoting renovations. We're promoting renovations instead of demolition. All properties held for more than 3 years must be environmentally inventoried at least every 10 years. Increased wood usage. At least 50% of our new production is to be comprised of buildings built of wood. Reduced water consumption. We are continuing to contribute to reduced water consumption in our properties with a goal of 1% water savings per year. And finally, integrating public transport access. We're managing and creating housing in locations close to public transport, which contributes to reducing the transport sector's environmental impact. We're also using sustainable financing sources by issuing green bonds. On the 1st of June this year, we integrated our green bond framework with Hemfosa's green bond framework. Our green bond framework has received a medium green rating from CICERO, and we now have SEK 10 billion eligible for green financing. We issued our first green bond on 14th February 2019, and it received a rating of E2 from Standard & Poor's. The following are our selected social sustainability goals. We are a member of Public Housing Sweden. We will continue to be a member of Public Housing Sweden, and we will participate in the residential social work of the municipalities. Youth employment. We will continue to contribute to young people's occupation by offering at least 100 summer jobs every year to young people who live in our residential areas. Refugee assistance. We will annually contribute at least 10 Better Shelter refugee homes and 100 tents through the UNHCR to help improve the housing situation for refugees. And finally, inclusive employment. We aim to be the most attractive and inclusive employer for the best and most professional employees regardless of gender or background. A few short words about our summer interns. We offer summer jobs to youths living in our residential areas, which connects all of the dimensions of sustainability: nicer external environments in our residential areas; we reduce wastage of our shared resources; and we contribute to our long-term operating net profit and create a link to the youth employment in the market. So to sum up property renovations and sustainability: Sweden has a unique rent setting model based on utility value; we have a large remaining value potential in our portfolio; and we are fully committed to supporting the transition towards a more sustainable world with very clear targets. Thank you.

Great. Thank you, Marika. Thank you, Peter. We have received a question on the webcast, if the material can be found anywhere, and you can find a PDF file with a full presentation on our website, sbbnorden.se. It's available both in the Capital Markets Day section and in the Reports and Presentations section. So the -- that was the second recurring income stream. And now we have come to the transactions part. So Oscar will start off going through both the market and the transaction recurring income stream. And then we will round of this part with a positioning review of SBB in comparison with some selected reference listed peers in Europe. So -- but Oscar, the floor is yours.

Thank you, Adrian. Hi, everyone. My name is Oscar Lekander. I'm the Business Development Manager at SBB. I have worked for the company since it was founded and previously worked at Rikshem, among others. I'm going to talk about our third income stream, transaction. But first, I'm going to give you some insights into the market where SBB is present. SBB is present in the community service market, where we have a Nordic focus, a focus against some of the strongest economy in the world. Almost all countries are AAA rated. They have a solid GDP growth historical. But at the same time, the countries have some demographic challenges and also a growing population. This gives SBB a great opportunity of growth. If we look into Sweden alone, we see that we need an additional 7.7 million square meters of additional community service properties until 2030. In Norway, we have a need of an additional 6.2 million square meters the upcoming 20 years. And as you can see on the right side here, the market is currently not able to build elderly home cares and the schools needed. Less than half of the elderly care homes needed is being constructed and less than 1/4 of the schools needed. As you all can see on the bottom right side of the slide, these can be constructed at attractive rent levels, also rent levels that indicate that SBB has some rent potential with it in the current portfolio. The community service market is a market with fairly high barriers of entry. Looking to the different companies in the market, we see that several of the largest companies in the market has been built up by SBB employees, such as Hemfosa, Hemsö and Rikshem, among others. If we also look into the most mature community service market, which probably is Sweden, we still see that the municipalities and the states holds almost 80% of the total stock. This also gives SBB a unique opportunity to grow into the market. This is a market where SBB is the preferred buyer and we see an increasingly willingness from different municipalities around the Nordics to make more transaction. And we have ongoing discussions with municipalities in all different Nordic countries. The second market SBB is exposed to is the Swedish rent-regulated market. And this is probably one of the safest assets in the world. As my colleagues previously have pointed out, our book value is less than half of the replacement cost. Our current rent levels is less than 60% of the market and of the rent in new construction. Also here, we see that the large owner of rent -- Swedish rent regulatory residential is the municipal companies, companies where also SBB is the preferred buyer. We did our first municipal transaction just 3 months after the company was started. SBB tries to make win-win transaction with the municipalities, and here, we have a case study of such a transaction. Northvolt, which is going to build the largest battery factory in Europe, was looking to -- for an establishment. They met with several different municipalities around Sweden, which of Skellefteå was one. The demand they put on Skellefteå to choose Skellefteå as their location was that the municipality should build a new culture house and congress hall. SBB, therefore, together with the municipality, created a new culture and congress hall, which has 26,000 square meters and is built completely in wood, which makes it the largest building in Nordics in wood of its kind. In connection to this, the municipality of Skellefteå signed the Nordics' first ever 50-year lease, 5-0. A part of our business model and our recurring earnings is transactions. We are one of the most active players in the market, and we have during the last 2.5 years made transactions for more than SEK 82 billion. We have made acquisitions for approximately SEK 62 billion and disposals of SEK 20 billion. We estimate that we are going to have recurring earnings from these activities of at least SEK 400 million, and we have historical delivered more than SEK 700 million from this income stream. And SBB is a company that we deliver on our promise. And in connection to the Hemfosa offer, we said that we were going to dispose properties for SEK 11 billion. As you all are aware of, we have had some of the most challenging times for decades due to the corona pandemic. However, by the 12th of June, we communicated our latest sale, and we have now achieved sales of SEK 10.9 billion, and all the sales have been done at a lease book value of Q1 or above. This is also something that the rating companies is giving us credit for. And this is also -- the credit is given before we made the last 2 disposals of total of SEK 5 billion. To summarize this part, we are an active player, and we will keep being an active player in the transaction markets, both on the sell and on the buy side. We will keep earning money from these transaction activities. We are the preferred buyers from municipalities around Nordics, and we see a great deal flow coming from these municipalities. We have probably -- or we have the strongest transaction team in the market. Now I'm going to hand over to my colleague, Carl.

Thank you, Oscar. I'm Carl Lundh Mortimer, working with business development at SBB. I joined the company in 2016, and before that, I was at Rikshem, together with quite a few of my colleagues here today. Ilija showed this slide before, but it basically shows SBB's position on the Nordic real estate market. You can see that SBB is the third largest listed real estate player on the market. And we are the champion when it comes to social infrastructure and community services. And due to that very strong position, it's hard for us to find relevant peers on the Nordic market, so we have looked outside the Nordic market to find a relevant peer. And as a relevant peer for community services, we think that the Belgian company Aedifica is a good peer. They are active in community services, mostly elderly care in Belgium, the Netherlands, Germany, U.K. and also in Finland after a recent acquisition. And as a peer on the resi side, we think that the Finnish resi peer, Kojamo, is a good reference. If we look at some quick property metrics, you can see that -- you can see that the property value is quite -- SBB is the largest one, Kojamo SEK 70 billion, and Aedifica SEK 36 billion. In terms of value per square meter, SBB has the lowest value per square meter in the books, and we lie in the middle when it comes to net yield. If we continue on to look at the leverage metrics, the companies are quite similar. LTV numbers of 40% to 50%. We have 2 companies with investment-grade from the rating agencies. It's Kojamo and it's SBB, whereas Aedifica isn't rated. And average cost of debt, you can see that SBB has slightly lower cost of debt compared to the peers. But I would say that the major differences, they come when we start to look at the quality of the assets that these companies hold. If we start with community services, SBB, as Annika told you, we are having government-funded tenants in that portfolio. 93% of the tenants are government funded, whereas for Aedifica, they mostly have private tenants that are partly funded by the public. And on the residential side, I would say that the differences are even more substantial. As you know and as some of my colleagues have told you about, SBB are active on the regulated Swedish residential market. And due to the regulations, the rents are kept low, whereas Kojamo, they are active on the Finnish market where they have market rents, meaning that the rents are higher. And the most obvious consequence of that is that SBB has a rent per square meter of slightly over SEK 1,000 per square meter, whereas Kojamo, they have rents of over SEK 2,100 per square meter. And that basically means that for every Kojamo apartment, you can rent 2 SBB apartments and still have some money left. And to summarize here, I think this is 3 companies. They share some similarities, but also some major differences in favor for SBB when it comes to stability in rental income, predictability in rental income and the quality of the tenant base. It is regulated residentials and is 93% government-funded community service tenants. And on the next slide, we will look at how are these companies actually traded at the market. Yes. I think this slide is quite self-explanatory. It shows that SBB has been able to, over time, over the last 3 years, we have been able to deliver a net asset value growth per share of 42%. Compared to the peers, 14% for Kojamo and 10% for Aedifica. And despite that, SBB traded at an FFO yield of 8.4%. So it's twice the FFO yield compared to the peers. And this is without taking into account what makes SBB truly unique, the ability to create additive recurring income stream. So in this FFO, we haven't included profit from property development, profit from renovations or profit from real estate transactions. And if we are to add those income streams, the picture would look even stronger for SBB. Yes. So if we add those additive recurring income streams, the FFO yield increases to 13.5%. So it's 13.5% despite a proven ability to generate a very high net asset value growth per share over time and despite the fact that SBB are holding the most secure real estate assets in the world. And I think I stop there.

Great. So that was the full section on the income streams and value creation model of SBB. Thank you, everyone. Now we will move into the balance sheet and treasury. And our CFO, Eva-Lotta, will start this section off. Welcome.

Yes. I'm Eva-Lotta Stridh, I'm CFO of SBB, and I've been with SBB from the start. I have about 20 years experience from the property sector from companies such as Akelius and Rikshem. I, together with my colleague Lotta, will talk about balance sheet strength and also give you a treasury update. SBB has a strong financial position and a solid platform for growth, as you can see in the balance sheet for Q1 on the screen. On the asset side, yes, the assets are mainly consists of properties, of course, about SEK 80 billion in Q1. SBB also have investments in joint ventures and associated companies. That was SEK 2 billion in Q1, including the loans to the companies. Some of these companies carry out property development projects, but the largest holdings are in companies that owns investment properties. In the balance sheet is also a goodwill position of SEK 6.7 billion, which is connected to the Hemfosa transaction. SEK 2.4 billion of this is deferred tax, and that will decrease as a result of the property disposals which we have announced, and the remaining part are synergies. These assets are funded by diverse sources of funding, such as bonds, bank loans, commercial papers, shares and hybrid bonds. However, SEK 50 billion of the properties are unencumbered. As you can see, hybrid bonds are reported as equity to 100%. There are rumors in the market that SBB has bridge loans in JPMorgan and from Goldman Sachs. I'm telling you now, SBB has never had bridge loans from JPMorgan and Goldman Sachs, and LTV was 50% in Q1. SBB has been successful in deleveraging over time, and this work continues after the Hemfosa acquisition. This is a key factor for our rating. SBB calculates loan-to-value by taking gross debt less cash equivalent in relation to total assets. This is different from how the rating agencies, including S&P, calculate loan-to-value. S&P's loan-to-value is a debt plus -- in relation to debt plus equity ratio, and another difference is that SBB only consider 50% of the hybrid bond as equity, and the rest is debt. In Q1, the loan-to-value by S&P was 64%. But after the announced property sales, we anticipate a lower rating, which enables a higher rating. You can see the pro forma of the disposals number in the upper right on the screen. Let's now focus a bit on the hybrid bonds. SBB was one of the first companies in Sweden -- property companies, I mean then -- to issue hybrid bonds. They are quite common in Europe. SBB's hybrids are perpetual and are an attractive source of funding since they are 100% equity. They are also non-dilutive. We think hybrids is cheap equity. In our last issuance, in the beginning of the year, the coupon was 2.624%. SBB also has a number of different share classes. The A shares are not listed, but has a higher voting right than other shares. The B and the D shares are listed, and the difference between them is that the D shares only has the right to SEK 2 per share per year in dividends. A, B and D shares are ordinary shares and are classified as 100% equity, also according to rating agencies. To simplify the capital structure, we have decided -- we have the intention to redeem the preference shares, which has been announced yesterday. I will now give the word to my colleague, Lotta.

Thank you. Hello. My name is Rosel Ragnarsson. I'm also called Lotta, and I started at SBB in January 2017. And prior to SBB, I was Deputy CEO for a Stockholm region finance company. And before that, I had several positions in Swedish, Nordic and international investment banks. I'm going to -- not to talk about this, I'll take next slide here. I hope -- I'm going to read from the screen here. So I hope that you can see here or at least, if not, you have this compendium in front of you. We have a very strong -- I'm going to talk about treasury, and we have a very strong balance sheet with a low cost of debt, and we have a very long-dated maturity profile. Our debt portfolio or debt structure is very diversed. We have non-secured bonds, which is 61% of our debt portfolio; we have 29% bank loans; we have 8% commercial papers; and we have 2% secured bonds. And if we look at the capital structure, we have 36% equity; we have 34% bond loans; we have 16% liabilities to credit institutions, that would say bank loans; and we have 4% commercial papers. And others is 3% and deferred tax of 7%. And up to the right, you can see our long-dated maturity profile. Important here is to see the gray numbers with the ring in gray and the red numbers with the ring in red. It's inclusive and excluded -- it included and excluded commercial papers. And the highlighted area shows that most of our bonds and our loans mature beyond 4 years. And another important thing here, it's the first, the maturity below or under 1 year, it's SEK 1.298 billion. Quite a high number. But remember that this number includes commercial paper of over SEK 4 billion. And the chart under here, you can see the increasing debt maturity and progressively lower cost of debt. You can see our weighted average maturity has always been quite high, started at 4.5 in 2018 in Q3 and is now 4.3. And important to see here is that Q4 2019, when we have -- when we acquired Hemfosa, and we calculate the numbers, Hemfosa numbers in this, we -- the average maturity was at 3.4%. But at that time, the portfolio was SEK 56 billion. And then you can see 2020, the first quarter, the portfolio is SEK 52,225 million. So we have bought back bonds and we have paid back loans for more than SEK 10 billion in a quarter. Latest development, which was last week. No, it was 5th of June, I'm sorry. SBB added a new credit revolving facility of SEK 2 billion into our commercial lines. And this means that SBB now has a total of SEK 9.1 billion credit limit. And that means that all loan matures, including commercial papers, are covered for next 24 months. And then some information about the combined business profile, Hemfosa and SBB and together with rating agencies, which leading us towards lower financing costs. I will start at the text to the right-hand side. As you can see, S&P emphasize in the text our safe assets in their latest rating report, which was due -- which was out on 12th June 2020. And also important in S&P's report was that they point out that our anchor rating is actually BBB flat. And please also note that this report was published a week ago and prior to announcement of our disposals of properties, which was SEK 4.892 million 10th of June, and add to that SEK 282 million, 12th of June -- or SEK 4.892 billion, I'm sorry. And some important events in the capital markets, apart from BBB- rating with stable outlook affirmed by S&P in the report. We updated our green financing framework eligible for green financing instruments up to SEK 10 billion, which Marika told you about before. We have issued SEK 50 million, 20-year unsecured bond at fixed interest rate of 2.75% in a stressed market in March 2020. We repurchased most of the unsecured bond issued by the SBB and Hemfosa, which mature until May 2021, and the amount was SEK 3.362 billion repurchase of the total issue amount of SEK 3.724 million. We issued an unsecured bond of EUR 750 million with a fixed coupon of 1% and maturity 7.5 year in February. And we started the year to issue a perpetual hybrid bond of EUR 500 million with a fixed coupon of 2.624% in January 2020. And all these activities has led to a lowering cost of debt from 1.75% in Q3 2019 to 1.52% Q1 2020. And here, some numbers of the capital market activities. As you can see or as you hear, we have a very robust access to funding. You can see in 2017, we started at 4 -- to issue SEK 4.4 billion, and that was equities, hybrids and bonds in red. In 2019, we issued bonds, hybrids and equities for SEK 38.6 billion. And then year-to-date today, is SEK 14.5 billion in unsecured bonds, hybrids and equities. So the activity, you can see that in numbers here, unsecured bonds, in total, we have issued SEK 32.9 billion, and we have issued equity and hybrids for SEK 29.8 billion. And the highlighted text, I've already mentioned all this issuing we've done. So to summarize, we have a very strong financial position. We have a diversified funding. We're deleveraging according to plan, and we have full speed ahead to BBB+. Thank you.

Great. Thank you, Lotta. And that means that we have reached the last section of the presentation, which is the new goals that were presented yesterday. So Ilija, you will once again come up here. And then when Ilija is concluding, we will go to the Q&A session.

Thanks, Adrian. It has been amazing to listen to my colleagues. And as you mentioned, the Board decided yesterday to put some more pressure on us to be working even harder. And the new goals are also shifting focus in two areas, and I will emphasize both of them. The first one is the new growth target, which is expressed in terms that we will grow profit from property management with more than 15% on average over 5 years period and yearly growth of more than 15% on average. The other shift has been also on property development because you know, before, we were focusing more on selling building rights. Now, as you have been aware from Krister, Erik and Jenny, we will be delivering stronger profit from property development. And the new goal is, on top of profit from property management, additional SEK 500 million to SEK 700 million per year on average. Our LTV targets -- target is to achieve below 50% LTV measured as debt -- adjusted debt to debt plus equity, which is in that way both clarification and also strengthening credit metrics by lower leveraging. It means counting hybrid as 50% debt and 50% equity. And secured LTV below 30%, as Eva-Lotta mentioned before. We have more than SEK 50 billion in unsecured assets. Or for Swedish audience, [Foreign Language]. Then continuing on the rating, the new specified target is to achieve BBB+ in first half of 2021 with having A- as a target in the long term. Interest rate coverage ratio over 3x. Those targets together are also -- been summarized in that we will continue with growth. We will have new target of having a property portfolio of SEK 125 billion by 2025, with retained BBB+ rating. Marika told you about our Vision 2030 and emphasizing our focus to be 100% climate neutral by 2030. Peter told you about, and Fredrik, about our amazing low-risk rent-regulated residential portfolio with good upside from renovations. We are -- there was a target to renovate at least 600 apartments per year. And finally, dividend policy. We have been increasing dividend strongly all years since start. And the dividend policy is to generate a steadily increasing annual dividend per A and B shares. And then just to sum up the day with a few closing remarks. The first one, our target to achieve profits from property management based on world's safest assets, with, as I mentioned before, counterparties that are AAA governments and us having government-backed income from AAA governments and targeting an average growth of more than 15% per year that are A and B ordinary shares. The important message from today is also our unique model with 3 additive recurring income streams, including new focus on using our building rights not to sell, as before, but to deliver and construct social infrastructure with safe cash flows, or as Erik emphasized in his presentation earlier, we know the tenants, we know the revenue and we know the cost. That is a unique position. And one message that I hope that you have been able to take in today is actually breadth and experience and knowledge in our team. Some of the persons that I've been learning a lot and some of the persons that are today and tomorrow's stars that I look forward to continue to work with together. However, being a trusted partner to municipalities is impossible without, also today, also being important part of the society is impossible without not being fully committed to supporting the transition towards a more sustainable world with clear targets. And Marika gave you our targets not only on being 100% climate neutral, but also on focusing on society by delivering summer jobs or as we have been doing throughout corona crisis, financing together with others food for heroes that has delivered food to health care workers, to elderly people and to charitable organization. And finally, our goal of BBB+ is actually not something that is, how to say, a long way from being reached. As you could see from Eva-Lotta's pro forma calculations, already now, we are at the levels of adjusted debt to adjusted debt plus equity of 56.7%. And if you just use some math and apply that we are, according to our earnings capacity, making yearly profit of about SEK 3.9 billion. And if you apply those SEK 3.9 billion, then with some additional planned sales of SEK 2 billion, then you will arrive at LTV measured as adjusted debt to adjusted debt plus equity below 50% during first half year of 2021. So to sum it up, walk the talk, we will continue to deliver. And now I want to invite my team so -- in front of you for Q&A section, please.

Great. Thank you, Ilija. Everyone will come up on stage. And as I stated in the beginning, we will start off with any questions from the audience here, then we will -- I will read out the questions that we have received online, and we'll try to focus on questions not already asked. We'll try to distribute the questions to the best way possible. We have received quite a few questions on the new targets. I think those will end up with you, Ilija. But apart from that, we'll try to distribute as we go along. But any questions from the audience? We'll start there.

I wonder that if you next year get the rating BBB+ with stable outlook, what is the consequences? Can you elaborate on that with cost of debt? Is it going -- can it go from 1.5% to 1%? Or what will happen? Can maturity be longer? Can you have more share buyers? So what is the consequences? If you can -- if someone can elaborate on that.

Can you hear me? Yes. Yes, I can say some words about it. BBB+, no, we aim into BBB+ or even more or even a higher rating, A-, because that's we have done so far. We have looked at good-rated corporate companies, and we've seen what spreads they issue at and what they pay to banks and so on. So therefore, we think that the financing costs will come down or at least the credit spreads. But then we don't know about the market of course, the market risk investment...

It's the same. It can be 0.5% down or something.

Yes, that's right. But we will compare -- we will be compared to the good, to the high-rated companies.

Maybe I can follow-up on that. The 1.52% is from the situation in the last quarter, and it's been a little bit of the turbulence in the market. And I know this is a very difficult question. But just if you were to refinance as things look today, what kind of direction are we looking at? And how big a change will that be?

It's very difficult to say, and to say where rates will be. But we have not -- of course, the market is closed for us. We will not issue in this market, and we don't need to issue in this market. And we have our RCFs or we have our commercial lines that we can draw on if there is a crisis and so on. But there we know our highest interest rate level, so we will never go over that. And then, of course, now in this stressed market, it has been some problems with the commercial papers. And -- but we can see now that the market is starting again. So we actually issued today commercial paper for -- and paid 60 basis points. So that's very good because we have paid more than that during this period. But you will see that in our report in 14th of July, Vive la France!

Okay. And then another question. I mean looking at the public sector, just guessing for the next few years, most likely the financial situation will be a little bit worse. Tax rates might -- I'm not looking -- sorry if I'm looking at you. You look nervous there. Maybe Ilija is one who will take this one. I'm just thinking on the public sector in general, both high and low, there will be a little bit of a distress and financial difficulties, of course, maybe tax rates coming up. And in my world, there would be opportunities as well as risks. So maybe if you could elaborate a little bit on how you view that, what kind of opportunities you see, and if there is any risk, how you could mitigate those?

Thank you, Staffan. And as Lotta mentioned, we actually have a very strong position in the financial market. We issued the 10 years bonds in a market when no one in Sweden could issue any money at the end of March. And that is often forgotten. And as she mentioned, she is today able to issue commercial papers at 60 basis points. And you can compare with other BBB, BBB-flat and even higher ratings, they probably pay a little bit more. And this strong financial position is -- and the strong access to capital market -- is also giving us opportunity to be supportive to, as you said, Staffan, that is very important, the corona crisis has also emphasized that there are needed new investment in, among others, elderly care homes. And as Oscar mentioned, there is also lack of schools. There is lack of the space that is good for our children and at the same time, municipalities have to meet a new condition with, how to say, worsening public financing. And that is already creating opportunity for us. And I think Oscar mentioned that we are actually right now dealing with, I think, 3 municipal deals in Sweden and 1 municipal deal in Finland, where we are actively helping municipalities to manage their balance sheet in order to deliver new social infrastructure. So this situation, it's very unfortunate for everyone. However, we see that we can be the ones that are also helping municipalities to bridge to better economic conditions.

And then the last question on -- to Krister, probably. Looking at the book value of your building rights and then comparing that to the market value, it's a big difference, and it's significantly bigger than I see in Bonava, Veidekke or JM. Could you maybe elaborate a little bit on that? Why there's such a big difference? And maybe the key answer is in phase 1, phase 2, especially phase 1, we have quite a lot of building rights. What kind of situation are those in? Are they -- the zoning is not done, but is it -- I mean we could go all the way to just farm -- is it farmland, so it's a big risk to get them zoned? Or is it -- maybe if you could elaborate a little bit on what kind of land that is, just to explain the big difference between market value versus book value?

Yes. Thank you for the question. Starting up with the last question, the building rights within Phase 1 and 2. I would say, and connected to what Marika told us about, we are never zoning like rural land or something like that. We are looking at center places where you have commuting possibilities and where you can live your life without cars, et cetera, et cetera. And then we do our homework and look into the possibilities and reach out to the -- first of all, we often meet the municipality and have a first discussion if our idea is possible, et cetera. So I would say that the building right portfolio within phase 1 and 2 are to be decided to start up soon. But I would like to stress the fact that it's a very important decision, especially when you look at it from a valuation point of view. Then I feel much more safe when we have this decision from the municipality. And regarding the book value, I'm not here to answer for Bonava and our competitors, it's up to them. But from our point of view, I think we're quite conservative when we look into our values.

Great. Any other questions from the audience? Yes, in the back.

Bertil Nilsson from Carlsquare Equity Research. First of all, you made a transaction of SEK 11 billion and one of the largest deals with Nyfosa recently. When there is this kind of crisis, you could compare with, for instance, last Lehman crush, could you see any changes or project any changes in -- if the process has changed in fully let, secure, long lease properties and/or vacant properties or coming vacant properties due to leverage or debt financing from the banks? That's my first question. And the second question is if you look under operational goals, you say that you should be climate-neutral in 2030, and that's unchanged. But I assume that there is an income stream linked to that as well. Thank you.

I'll answer your first question. We don't work that much with vacant properties. I cannot give you any insights there. But looking into our properties, we see a great demand of the secured cash flows that we have, and we see an increasing part of investors wanting to buy this state-backed cash flows. So from my opinion, I will say the prices are likely slightly more up post-corona than pre-corona. And I think if you look at the real estate market as a whole, I would still say that the yield spread has increased, that you are giving more credit to the good properties with the good tenants.

We can add, and as Marika's shown, that is, of course, sustainability is also delivering money to us. And Peter has shown in our refurbishment projects that we have been in some places decreasing our energy consumption with 50%. That is great upside, both on value, but also on NOI on a yearly basis.

Are we missing any answer there? Or is it good? Any other questions? Shall we go to the online participants then? We can start. I think this will be for you as well, Oscar. This were received by e-mail before. How big is your current acquisition pipeline?

Due to the fact that we are an active player in the transaction market and in the real estate space, our pipeline changed on a daily basis, more or less. But if we look into the transaction pipeline as a whole, both disposals and acquisition, I would say that we have the pipeline of around SEK 7 billion, including both acquisitions and disposals, and where we see an increase in the interest for our state-backed tenants, especially [ willing ], then we will keep selling properties and office properties with state contracts.

Good. Then we received a bunch of questions relating to the new financial targets. So I think we'll direct them to Ilija, and then you can include anyone if you want to. So first off, also by e-mail ahead of this. In the context of the SEK 125 billion portfolio target, what is SBB's ideal capital structure, including LTV, hybrids, share classes?

The answer to that is very easy. The capital structure is not our target. Our target is strong financial position, that is in terms of having BBB+ rating, and that is why the growth is conditional by retaining BBB+ rating. And then that combined also with continuing strong growth in the cash flows through profit from property management, because we are not here to play. We are here to deliver, and we are delivering value to the shareholders, and the capital structure and the rest is just a function of that.

Following up to that, can you please explain how to reach your growth target for 2025 with the rating of BBB+? What will it mean to your equity needs?

We do not need any new equity. It is actually a relatively easy mathematics. If you make SEK 4 billion in profit and have as a target LTV of below 50%, that means that you can acquire SEK 8 billion the year 1, probably slightly more the year 2, a little bit more the year 3 and so on. So SEK 125 billion is not a number that has been, how to say, guessed by Lars Thagesson or by Eva-Lotta Stridh. It is actually pure mathematics. That is possible to build up without issuing any new A&D shares through delivering of ordinary profit.

Good. And I think that answered also another question here, if you plan to reach new goals without new issues of equity. So I'll discard that one.

We are always ready to issue new equity, but at premium. So you are welcome. You can just call Eva-Lotta, and we never have -- I mean we are not afraid of issuing new equity, but we will always make sure that our shareholders are fairly treated and getting the best opportunity to get best return. So this is an important message. We are showing what we can do given the profit that is from organic growth. But we are always ready to access capital markets.

Great. This one, I think will take for you, Krister. Why shifting annual guidance from building rights disposals to property development gains? Is there any change expected in the level of construction costs you may accept to take?

Okay. Thank you for the question. I mean the change is due to what we have been seeing and talking about today; we have seen that we have a shortage of residentials and shortage of elderly care homes and shortage of schools. And we also have seen that we have 400,000 square meters of building rights, legal force, and we have 1.8 million in total, and we also have a skilled team. So from my point of view, it's for us not to give away the profit to Skanska or NCC or anyone else.

Good. You have divested SEK 10.9 billion since December, but now state plans to grow assets to SEK 125 billion, which gives a bit of a mixed picture. Can you please elaborate on this strategy? Maybe, Oscar, do you want to take that one? Or...

Yes. I can take that one. As we said, when we made the Hemfosa acquisition. We said that we were going to sell properties of SEK 11 billion. And Hemfosa had a lot of office properties with public tenants. And our core focus is on elderly care homes, preschool, schools and LSS housing and such other specialized community service properties. So we will keep doing disposal of office properties related to the Hemfosa portfolio and keep acquiring community service properties such as elderly care homes, preschools and schools as well as residential properties.

Excellent. And then on the LTV target, how come you define the adjusted net debt without hybrids bonds or D shares when there are payment commitments on this capital? Then how does this impact your LTV targets?

That is someone that is probably trying to play, or not understanding how Swedish share classes works. D shares are ordinary shares. And the only difference between A, B and D shares is in participating in profit generation. And that means that if that A and B shares get profit from value creation and small dividend on top. D shares get larger dividend but don't participate in the value creation. However, the dividend on D shares is conditional that company has profit to give the dividend to A and B shares. So that can never be a debt. So I understand that the person is not from Sweden and has not, how to say, studied how the ordinary share structure may look in Sweden. Concerning the hybrid, that is a different situation. And the hybrid is an amazing instrument for growing company because hybrid as a perpetual estimate is never needed to be paid back. And we are always, of course, because we have a strong balance sheet and we have strong value creation, we will always pay back our hybrid at first call day. But in a crisis situation, you never need to pay it back. And that is, I should say, the big difference in treatment between ordinary debt and hybrid. To sum it up, I do think that S&P and also other rating -- we are also rated by Fitch, and both S&P and Fitch count hybrid as 50% debt and 50% equity. And I do think that is a fair way to calculate LTV in order to understand and to compare to other companies that are not having that kind of instrument. But these shares are pure equity.

Great. I think the last question then on the targets, then let's move on. But that's from the release where you stated that the Board has decided to divert from the previous method of targeting growth by NAV and instead focus on profit from property management. What does this statement entail for NAV and NAV growth plans?

That means that we don't care about NAV. And that is very important here because NAV is more for the company that don't have cash flow. But we are the strong cash flow company. We have a yield of 4.7%, net yield of 4.7%. And for our international listeners, please compare it to German offices that are valued at net yield of 3%, and I can assure you that our income from AAA sovereign credit rated countries -- Sweden, Norway, Denmark -- is much more safe than German offices. And at the same time, we are having a yield that is more than 50% higher, which means that our prices on the book are like 2/3 of the assets that should not be comparable with our assets. So in that way, I do think that it's very important to leave NAV and to focus on cash flow because at the end of the day the people are investing in the company in hope to get the dividend. And you cannot get dividend from valuation and from an NAV. You get dividend from cash flow. And that is -- I'm very happy that our Board is, how to say, forward-looking and focusing on cash flow.

Great. Okay. So here's a question on the portfolio composition. 18% of the portfolio is residentials. How will this change going forward? Any takers on this? Oscar, maybe?

Yes, sure. I can take that one. And I would say that the residential share of the total portfolio will be around 15%. And I think we will grow the same speed as the community service properties. We will buy some residentials from the municipal housing companies. And we will also see an increasing part coming from Erik and Krister with new construction.

Perfect. Next one, this might be for Lotta. How do you hedge your debt?

Yes. Good question. Thank you. We are very active in FX risk -- managed FX risk. And we hedge -- the part of our FX risk that not is natural, we hedge with FX swaps.

Perfect. Shall we stay with the capital activity? Can you clarify how SBB generates recurring income from its capital activity? Are acquisition yields higher than disposal yields?

Yes. I think yes, I will take that question then. We try to provide some profit from our transactions. So we try to sell our properties, at least our book values. And when we make acquisitions, we are on the market, and we have to pay the market price, and we have to be fair against the municipalities and pay accordingly.

Great. Are there any questions from the audience? Follow-up? Yes, we can -- let's mix it up a bit.

Yes, I got curious about the D shares when you say that -- I know it's not the debt. But what happens? Suppose that you have a year when you have reduced property values and you still have a good cash flow, but the net result at the end of the year is 0. Does that give dividend to the D shares then? Or if it's not any dividend, does it accumulate, so it's doubled the year after? Is it back to 50% or?

It is not at all. It is -- that is the important -- and that is why I would just -- let me just start with the point why the only companies with strong financial position and the strong cash flow are issuing D shares, because people understand that those companies will pay dividend. But in a crisis situation, the dividend for D shares is expressed as 5x total dividend on A and B shares. If the dividend on A and B shares is 0, 5x multiplied with 0 is a 0. So this is very important because D shares are good for fixed income investors, and they are good in the way that if you have the stable cash flows as we have, because then you know that this company is going to give the dividend and you will have the dividend. But there is no pressure on you if there is like Lehman Brothers or whatever it is.

No, I understand when you don't get anything. But the year after, when you have an excellent cash flow, you have an excellent net profit, you don't get twice on it. You're back to 50%.

I will explain that, too. And that is also -- there is also a difference towards preference shares. And I agree. I agree on that with rating agencies that often give 0 equity to preference shares because they treat it as debt. Because in a situation where you postpone the dividend, if you have preference shares, then you will have some, how to say, punishment in [indiscernible]. But for D shares, you don't have any punishment. So in that way, that is really pure equity instrument that is good for fixed income investors. And at the same time, shielding the company in a way of Lehman Brothers or that kind of very deep crisis.

Great. Any other questions from the audience? We have a few more online questions as well. I like this one. So we'll see who -- I guess Ilija will take this one. But we will see if anyone will want to add something. So I do mainly miss -- thank you for a very clear and well-structured CMD. Great. I do mainly miss your assessment of the actual risks. I would like you to show what can go wrong and how you try to mitigate. Great people are key. But please do not answer by repeating low risk. I want to understand the risks of the underlying assets.

That is very good question. And I can -- first, let me start with the assets. If you own 1 building, then you have an amazing risk despite that that building is NK here in Stockholm. If you own 10 buildings, then you have a slightly lower risk. But if you own 1,500 buildings with 90% of income government-backed by AAA countries, then that risk is very minimal on the asset side. However, our biggest risk, and that is always risk as soon as you have any loans, is refinancing risk. And that has been very clear in this COVID-19 situation. You have had the companies that have had difficulties to refinance itself. And that is the risk that we are trying to manage, not only by having Eva-Lotta, that is our CFO, and coming from Smaland and then keeping all money very hard, but also working hard to prolong our maturities. And that is what Eva-Lotta and Lotta have been doing by showing before when we issued our latest bonds in capital markets, we did it at 20 years. And before that, at 7.5 years. So that is our way to manage our main risk.

Perfect. Then some questions on the tenants. So please elaborate on the value-add above and beyond the financing solution that SBB brings to its municipal clients.

Annika can tell you anything about that.

Annika, that's one for you.

I did not get the question. Could you take it, please?

What value does SBB bring to the municipalities beyond the financing solutions?

Okay, beyond financing. It's about the team. Again, it's the management team. We work very close to our tenants. And we have regular meetings with them. We always try to be ahead of the tenants, not a step behind. So we have a lot of contacts with the tenants and with the municipalities as well. And the regional managers, and together with Jenny, we have very lot of meetings with them.

Excellent. So this one, I think this is a question that we meet sometimes reading the papers. Please explain why the state does not ask for lower rents? Given the rating, why do they hand over value to property companies so freely?

And that is continuing on the points that Annika mentioned. I mean it is not easy to employ this kind of very knowledgeable employees that Annika has succeeded with. To build a team of 250 persons that are serving municipalities is delivering extra value. And sometimes, we are also delivering to the municipalities our numbers, so they can benchmark and compare with the other part of portfolios that they are managing themselves. Also in order to decrease their cost and also save taxpayers' money. But on top of that, we have the work that has been done by Krister, Erik, Jenny and the property development team, working very closely with construction company to get lower costs for new constructions. And I can tell you, Lars Thagesson, me and Oscar, we had the meeting with some large municipality in Gothenburg region. And actually, in very frank discussion, we shared our numbers with the municipality. And it has shown that we are building LSS buildings, like it was 25%. So our price of the new LSS building was 25% lower than the price municipality is paying to the construction companies. So as just said, the -- sometimes people are focusing on the numbers and on the buildings, but I should say the people and the teams' experience and competency is the most important part. And that is what we are offering to the municipalities.

I think that ties into a question that we just received. What happened to SBB if something would happen to Ilija? And I think the answer is on the stage. But do we want to elaborate anything more on that?

I think we had actually -- that is elephant in the room. We had actually an accident here a month ago and -- where the team and the Board showed in a very stressful situation that they managed the company very professionally. So I'm happy to work with those many amazing people as long as Board want me to do it. But I can assure you, this company is very strong and with amazing people.

Great. Anything more from the audience? Yes.

Niklas Wetterling, DNB. A short follow-up on the hedging cost. I wonder if the FX hedging cost is included in the average interest rate of 1.5%.

Eva-Lotta can answer.

The 1.52%, that's the interest costs at the balance sheet date. And of course, I mean, that's the interest for the euro loans or NOK loans, they are converted into the balance sheet exchange rate.

Okay. So the FX is included in the...

Yes, more or less. Yes.

Okay. And you are doing a lot of transactions. So it's pretty hard to keep up with your assets. And I can't find a property list in the annual report or on the website. So I just wonder if that's something you could provide to the market.

We have discussed it, and maybe we will.

We would like to do so. We cannot do that because the reason why we have not been -- when you grow as fast as we are growing, there is a large risk that someone forget to take away something from the website or -- so you need to deploy a new administrative resources to have it. If you have it, then you have to be updated. And that is why Adrian is clarifying that we are working and trying to look at if we can have good automatized digital resources to have it as updated as it's possible. So that is the reason why we don't have it at that place before.

Thank you. 2 questions. In my opinion, S&P tends to be -- and also other rating agencies, tends to be slow-moving in upgrading ratings, particularly in the market conditions we are under right now. How are you going to be able to persuade them to move fast on your rating?

Our view of that is, first, we agree with you. However, we do see that there is a lot of investor community also that during the last week has been engaged and also directly contacting S&P because already today, there is -- I mean at least we have talked to a few of the largest credit players that are not understanding why we have not been moved already to BBB flat. Because as I could show, according to all metrics, it's relatively easy to show that we will be there in next 12 months, and the rating should be 12 to 18 months forward-looking. So I do think that we, together -- we do have good dialogue with rating agencies, and I would think that we, together with the investor community, will get there.

Okay. And one more question regarding refinancing that you touched briefly upon. What is your preference when you return to the market? Is this going to be in Swedish krona? euro? Other currencies? And what maturities do you prefer?

I actually got the question because a lot of us working here preparing for presentation. So it was someone that reached out to me in the meantime earlier today. And our answer was very straightforward. We will never issue at levels that are below BBB flat. So the same way as I said before concerning the equity, we are always open to discuss with investors, but we need that the price is fair to our earlier investors, because we have the large investor community that was invested in our bonds and we are not going to issue the new bonds, because we don't need any money, and we are not going to issue the new bonds at the conditions that are worsening conditions for our secondary market. So if we -- and we can issue both in Swedish crowns, in Norwegian crowns, in euro, but it has to be at BBB flat level. And then finally, also important because we often get the questions about euro, but I want to tell you that euro is our main currency, at least for SBB. And you know why? Just look at the market. Norwegian market crushed, the Swedish bond market crushed, the only liquid market that had straightforward support by the Central Bank was euro market. So if you are a large player in real estate business today and you are not understand that you have to be exposed to the euro market, then you have a big risk. So hedging, that is also part of the math, and that is the work that has to be done, but that is very important for liquidity and very important work for having low long-term risk.

Okay. Staffan, did you have a question as well?

Yes. Sorry. No, it's a question on the transaction with Nyfosa. You also bought a property from them, which is SEK 400 million, I think, for the -- I think it's the SKF headquarter, if I'm not incorrect.

Yes.

Maybe need of renovation, maybe they are leaving in 2 years, I think. I know that people has been thinking about residential in that area because it might fit. So my question to you, what is your thinking behind buying that property?

Can we -- I would be very happy if Lars can tell you about that area in Swedish. And in Swedish, I would think that will be good also for our international viewers. But I will start, and then Lars will tell you about all of the area. But I can start by telling you that Lars already had a bid to sell it at SEK 450 million, and he said no. So please explain why do you like the area.

[Foreign Language]

And you are not building any additional -- you're just converting the whole -- that building, that's the whole plan? Or are you adding... [Foreign Language]

[Foreign Language]

I can just clarify that the building right there is not only the existing property, but there is additional building rights. And with the plan that has been ongoing for the long time to get broad usage, including rent-regulated residentials.

Great. I think time is almost running out. We might have 1 more question from the online tool. Anything else in the room here? No? Not at this stage. Then we'll take the last one. And we have received a lot of questions, and some of them are very technical details. But we can see who asked them, and we will try to get back to you online with a more detailed calculation. So I don't think that really suits here on the stage. So just maybe then a clarification on the recurring profit from transactions. The guidance was for SEK 700 million per annum in recurring profits from acquisition and selectivity, but my understanding is that there is not much difference in the yield. So please explain where the profits are projected to come from in this activity.

This is expected to come from -- that you have a yield shift compared to what we are buying for and what we are selling for. And as we said, we had done SEK 700 million historical, and we believe that we can at least do SEK 400 million going forward.

Excellent. So Ilija, would you like to say a few concluding remarks? You already did before going into the Q&A session. But [indiscernible]

Yes. I can just emphasize that few words that I started with. And the main one is actually presented here. I mean I'm always -- I'm not, as I said also before, not so knowledgeable on buildings and real estate. But I'm listening many times, many very smart people telling me that the assets are important, and it is important if you are in the city of Stockholm or if you are in city of Linköping. And I should say, finally, and that is my real message for you that want to make money from real estate or whatever business you are invested in. The most important is here. It is the people. So that is my main message. The people, that is what counts. Thank you.

Thank you, everyone.

Thank you very much. Thank you.

Thank you.