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

Welcome to the SBB Audiocast with Teleconference Q3 2021. [Operator Instructions] Today, I'm pleased to turn Ilija Batljan, CEO, speaker. Please begin.

Thank you very much, and thank you all for listening. I will present results from Q3 for Samhallsbyggnadsbolaget i Norden or SBB, which today is social infrastructure champion in Europe. And the first slide, you see some of our beautiful buildings among those also Europe's most sustainable building cultural center with 26,000 square meter built in the road and with top environmental certification. And this you will see through our reports that sustainability is core of our business and this building is very good representative on our focus. Next slide, please. On Slide #2, you can see our earnings capacity where we are continuing to deliver an even stronger operating profit than our rolling 12-months. And if you look at our rolling 12-months, you can see that on 12-months forward, we are accounting to have SEK 6.2 billion in rental income and SEK 4.5 billion in NOI and adjusted operating profit of SEK 4.3 billion or SEK 3.04 per share. If you, on top of that, add our income from value-add strategies that also in this quarter are going to-- are showing that they are delivering over plan and exceeding the plan. And we are accounting on a yearly basis, a result from value-add strategies of SEK 3.2 billion. And then, we have some costs related to equity instruments and to profit attributed to minority and you will land in the adjusted operating profit from earnings capacity of SEK 0.67 per share. And including also our project business where we will deliver extra profits from construction and project development. You see that there is additional 0.5% in additional earnings. So, we should be able to deliver between SEK 4.67 per A and B ordinary shares and the SEK 5.24 per ordinary shares. For the first 9 months, we are delivering profit of SEK 13.3 billion, corresponding to SEK 8.56 per share. An important message from this report is our strong underlying increase in rental income. As you know, our income is inflation-linked or CPI linked. And on top of that, we are delivering in for the first-- for this period, 140 basis points over inflation-- over base inflation that last year were 0.3%. And on NOI, we are delivering even better than that. There we are exceeding inflation with 270 bps delivering 3% like-for-like increase of NOI. So, this is affecting our view for all of 2021. And that is why we are increasing our forecast for full-year 2021 and adjusting it from SEK 7.8 per share that we announced in connection to the second quarter to SEK 9.8 per share. So, we are estimating that we will deliver SEK 9.8 per share per ordinary A and B share for full-year of 2021. Next slide, please. Our delivery in Q3 is very strong. And just in order because I saw some mismatches in some comments. So, just so everyone has full picture. And on this slide, you can see that we are delivering a rental income of SEK 1,459 billion. However, in this quarter, we still don't have income from Unobo, which is SEK 110 million. So in total, adjusted numbers including Unobo are SEK 1,569 billion which is exceeding our earnings capacity presenting at the end of Q2 with SEK 35 million. So, on operating income and we are exceeding the SEK 58 million. And this is also an important message for this quarter that we have a very strong increase in margins. So, margin year-to-date is now at the level of 70%. And it has very strong in Q3. And then if you go down to property profits from property management, the adjusted profit from profit management will land at SEK 1,055 billion. And we are delivering SEK 995 million. So, the numbers are actually much stronger and exceeding earnings capacity at every line, even profit from property management, excluding joint ventures, if you take into account the cost for non-recurring costs, even that is exceeding much more than those SEK 6 million shown here. So we are -- our team is delivering very strong at every business line. And Also, if you go to our value-add strategies, I mean, we adjusted our guide just in beginning of September. And already now, we are over-delivering given forward the adjusted guidance. We are almost doubling the profits on our 2 value-add strategies, value-add from property development and from establishments. I also want here to comment 2 other questions when we are at this slide that I have not put in presentation, but I will put them an update after presentation. And that is our valuation yield. Our revaluation yield was 4.55% and that is decreasing for 4.73% in our Q2, I think we wrote that 4.33%. So, that has missed in the report in Q2. So, our yields are coming down 20 bps but still extremely high yields for this kind of high quality low-- high-quality lowering care portfolio. And the second adjustment that is, of course, not significant, but a good lowering. And that is as I said before, we do not focus on earnings and because we think that kind of measure is more adjusted for commercial real estate. And -- but there is actually one misspelling there also because profit attributable to minority interest which is coming in minority interest, all of that profit is coming from value changes has been included in and affecting negatively reported extra earnings, and that is like SEK 151 million that should be there almost 0 because that is mainly related to Unobo and that means that extra earnings for the quarter will land at 0.5% is for 0.39%. And then it's also, of course, wrong for the first 9 months. So, we will update that how to say, table with a alternative measure is, but it is for you to have that so you understand those numbers. And then, we will go to Slide 4. Of course, our NAV is continuing to grow. As you know, we said before that we will have the strongest net asset value growth in 2019, 2021. We are delivering even stronger than expectation we had in for the report at NRV or EPRA NRV per share of SEK 34.55. And on this slide, you can also see our strong building loans on its capacity. And if you look a few years back from Q3 2017, we started with only capacity of SEK 0.67 per share and at the end of Q3 this year, we are at SEK 4.67 per share. So, it is an amazing profit and the shareholder value creation that our team is delivering. We are very proud that we also are -- as our numbers for Q3 shows that we are also exceeding on this capacity for the group. Next slide, please. At the end of the quarter, we report SEK 125 billion in property value and also continuing to have long [ vault ]. We are at 9 year and I'm expecting that we will increase the [ vault ] in the quarters to come and we also have even strong advances in the largest Nordic cities. So, next slide, please. Our earnings are more and more concentrated to the core of social interest subject to the rent-regulated residentials to the publicly funded residentials in terms of elderly care homes, especially apartments for people with disabilities and schools. And that is also part of our strategy continue to strengthen our presence in the larger cities in the Nordic and at the same time, continue to focus on core of social infrastructure. We are still the premier buyers from the municipalities and we are seen as trusted partner for municipalities in all 4 Nordic countries. Next slide, please. Our joint ventures, as you can see, we have a very strong position in joint venture space with majority of income coming from social infrastructure and also continuing to increase our shareholding in JM and reporting 25.1% at the end of Q3. So, very nice assets with big potential and potential to continue to deliver strong value creation to our shareholders. Next slide, please. Just to summarize for you that SBB, our business model focusing on value creation and vision to be climate positive by 2030 is delivering profit from property management from the safest real estate assets in Europe and topping up with strong our 3 value-add strategies from building rights development and new constructions from investments in existing portfolio or refurbishments and from value-adding transactions. Next slide, please. Here, we have 2 teams that are delivering strong profits from building rights development and new construction. The one team weakness would be and the second with the name of Sveafastigheter, that is also on the 100% that SBB is today the European largest property developer with 64,000 apartments in product portfolio and with an amazing value still outside of the balance sheet. Building right's portfolio estimated value potential of SEK 34 billion versus book value of SEK 3.4 billion. Next slide, please. On this slide, you can see that we have continued to deliver strong profits in this business. As I said, we increased the target from SEK 1 billion to SEK 1.4 billion as a before in September this year at Capital Markets Day to SEK 2 billion to SEK 2.5 billion. And already for the first 9 months of the year, we are exceeding that delivering SEK 2.7 billion in profit. Next slide, please. Investment in existing portfolio focusing mainly on sustainability and refurbishments. Here, we have a target to renovate 600 apartments already for the first 9 months, we have renovated 562 apartments. Next slide, please. This is matched with our focus on sustainability where we announced in the connection to Capital Markets Day, our vision to be climate positive in entire value chain in 2030. And you will see in the report that we are on a good way to achieve that. Next slide, please. Slide 13, you see more in detail our road to become climate positive. And for us, this is as I said before, core parts of our business. And we feel that we already in this quarter shows that we are on track to continue to deliver to be climate positive in 2030. Next slide, please. This has been also followed up by rating agencies and we have today the highest industry leaders score in social sustainability by ISS ESG, among the highest scores from Sustainalytics where we are also there leading in among the companies our size, and we have a rating from MSCI. But this is not good enough for us. We will continue to invest in sustainability. And as you can see on the next slide, we are succeeding to combine investment in sustainability. It's also having stronger return. And you can see that at Slide #15. Please go to Slide #16. And Slide #16, that emphasizing our experience as #1 real estate M&A team in Europe enabling off-market transaction at attractive valuation also having local presence. But at the same time as I emphasized before being the #1 acquirer of Nordic community sales properties also from municipalities. And I'm sure that you will see through this quarter that us showing excellence in delivering these big municipalities. So, next slide, Slide #17, please. This is just to give you a flavor about the market and also about -- because many people are asking us about how much we can buy in the Nordics. And on this slide, you can see that we probably have just 3% of the total market. And there is continuing a strong opportunity for us to grow the business in the Nordic and the safest place in the world. And at the same time, we are doing some job in Germany, building infrastructure, preparing to be to do the deals there that we have an amazing opportunity to build our home markets in the Nordics. Next slide, please. And this is just to sum it up, as I said before, SEK 6.2 billion approximately in passing rent from property management, strong management of the low-risk real estate risk in Europe, 98% of income coming from social infrastructure and backing by AAA economies and rent-regulated residentials. And on top of that, delivery of SEK 2 billion to SEK 2.5 billion in profits from building rights development and new production, profit portfolio and SEK 4,006 billion in profit from investments in existing portfolio and SEK 400 million in profits from value-adding transaction. Next slide, please. We will try to start to sum it up. SBB, we see ourselves the social infrastructure company in Europe. We have stable cash flows backed by AAA and with long leases. On top of that, we have a growth too held by unique investment platform combining property management with our 3 value-add strategies and building rights development and new production investments in existing portfolio in value-add transaction. As you have seen in this quarter, all of these are exceeded the plans and over-delivering, we have also been able to increase our dividends and the Board has announced submission to propose monthly dividend next year of SEK1.32 per the A and B shares. And in terms of ratings, this is additional quarter showing that we have the safest assets in the world. And our assets are continuing to deliver over inflation, over CPI and that we, at the same time, are deleveraging. We are at 12-months rolling numbers at adjusted net debt to net debt plus equity, below 50%, actually 48%. And also, as reported numbers, we are firmly below 55%. And in terms of ICR, we are delivering ICR of 5.7x. In terms of unencumbered assets, we have among the highest ratios. So, unencumbered assets in Europe with more than SEK130 billion in unencumbered assets, very strong position and very-well positioned for BBB+ ratings. And finally, core of our business model, strategic sustainability, you have seen through the quarter announced that we are starting new solar power plants. You will see more of this in coming quarters. We started opened a new school in Haninge municipality, 12,422 square meters with the municipal school as the tenant and that is something that we would encourage everyone to visit and to see also how we have succeeded to refurbish the old buildings to get new building which is environmentally certified with high-environmental certification. And we are -- have different to many institutional investors that are, how to say, turning down buildings in our cities in order to build new buildings to get good environmental certification. That is the biggest job ever. We are refurbishing and in that both using old materials, recycling and also using other businesses around our properties to recycle their energy. And I would like to challenge the institutional investors on this because there is a large part, greenwashing out there. And for us, this is really core of our business. Another part of this is also that many institutional investors are putting their money in tax impact savings and escaping to pay taxes in our countries. And that is also an important part of G in ESG, an important part for all of sustainability. And we are very focused on this and we are going to be a leader in sustainability strategically and will be -- will also continue to lead by example here. Next slide, please. To sum it up. New guidance forecast for 2021. We are increasing with SEK2 per share from SEK7.8 in the second quarter to now guiding that we will deliver earnings per ordinary share A and B to be estimated to be SEK 9.8 per share. SBB is now a well-oiled machine where all segments of the property management business and all our 3 value-add strategies contribute every quarter to deliver and exceed the plan. Profit after tax was SEK13.3 billion, an increase of 132% compared with the first 9 months of last year. The surplus ratio for the first 9 months was 70% for the period. And our return on equity over the past 10 months is the highest in the Nordic real estate market is 33%. We are beating all of the logistics businesses. We are beating everyone in the market on return on execute. #2, our value-add strategies continue to deliver quarter-after-quarter, only the profit from our 2 value-adding strategies, development of the building rights and new production and investments in existing portfolio ended up delivering profit of SEK 3 billion for the first 9 months of 2021. Corresponding to earnings per share A and B ordinary shares of SEK 2.23 for the 9-month period. And for those of you that are not counting this as recurring income, please go back and follow since we start SBB. And you will see that we have been delivering this securing income for every quarter since start of the company. And finally, together with profits for property management, this will sum up to SEK 4.67 in profit in earnings per ordinary A and B shares or an increase with 63%. And when talking about profit from property management, as you know, we have a target that we will-- that we are targeting to deliver on average or cycle of 15% per year, increase in profit from property management at ordinary shares A and B shares. And over the past 12 months, our increase has exceeded 60%. I think it's 62%. So, the increased profit from property management as ordinary shares, A and B shares last 12-months rolling with more than 60%. I think it's 63%. For the first 9 months of the year and this is an import message that I want to -- that we are not being good to emphasize in the past that we are always given our operational excellence delivering stronger rent or stronger income increase than CPI despite our income being linked to CPI. So the -- for the period, our income increased with 1.7% which is 140 bps above CPI which is the principal base for the rent increase. And following this, the net operating income increased even more. It increased with 3%, which is 270% always CPI and it is also seen in the increasing margins. #4, the interest coverage ratio continues to increase at the end of the period, it was 5.7x. We have now SEK 130 billion in unencumbered assets. Long average debt maturity, loan fixed interest rate maturity, and we will be happy to see more inflation. Our ratio of unencumbered assets is among the highest in Europe and we show that we have the condition for BBB+ rating. And our average interest rate was 1.1% at the end of the third quarter which is also on decrease from 1.14% at the end of the third quarter last year and there is still potential here because we have the lowest risk assets in Europe. We should have BBB+ rating and we should have lowest average interest rate. And finally, the quality of our assets, both in terms of the security of the rental flows and the liquidity in the transaction market has proven to be among Europe's most secure in challenging times. Please remember 2020. This commits us to continue building Europe's largest property company focused on secured assets. We continue to deliver strong results and shareholder value. Thank you very much, and please questions.

[Operator Instructions] Our first question is Jan Ihrfelt, Kepler Cheuvreux.

I have a couple of questions, and I'll start with the earnings capacity. And if you look at the JVs and the Associates, the combination of these are -- if you divide it by 4, you get a run rate, so to say, for the quarter SEK 161 million and you delivered SEK 187 million on these lines. So, there's SEK 26 million extra there. Are there any extraordinary or could we maybe suppose that will be recurring to some extent?

Yes, we have been slightly conservative in our capacities in joint venture. It may be better than the numbers in earnings.

And the next question in regards rating. Are there any news on an upgrade of your rating? And if you maybe could elaborate a little bit on what kind of positive effects it will have on your average interest rates when it comes.

In the market, I mean, for us and I said before, our job is to deliver the numbers and to deliver good profit and strong financial position. And then there is up for the rating agency to do the job and that is -- I mean, the market is already pricing our instruments and flat. So, it's only rating agencies that are lacking there. And we do think that we still have with just rating 20 bps, 25 bps in next lower in stake. And that is that we all other things like, of course, and that is what we are going to work hard to achieve.

The next question on your cash position is quite high. It's almost SEK 16 billion if you include the cash equivalent. And should we expect that you will stay on these levels? Or are you -- have any target of having a little bit lower cash position going forward?

We will probably have a slightly lower cash position. We are also repaying some debt in this quarter. At the same time, we do think that is in the times that we have like 2020, we were working hard to be prepared for whatever happens. What is high also we did equity raises in the summer of 2020 and that is why we think that this additional strength with our position that we have a strong cash position.

And looking at your guidance for the full year, this SEK 9.8 per A and B share, is there any property uplift including in that? Or how should we interpret that figure?

That is pure profit from earnings capacities. So, there will be probably better than one. But we always want to give our shareholders like basic guidance and then they can make their view.

And you stated here that your valuation yield is 4.55%, if I remember correctly. And could you maybe give us a split between your different segments here, the residential part and the community service partners? Are the community service up on about -- is it around 5% or so?

Yes, absolutely. And the residential part is below 3%. But below 4% this is still how to say this is still of course wrong. And as said before, that this would be how to say, adjusted by this time. And every time people listen at me, I said that it will be adjusted for this time. And then when the quotes come and we get just part of that valuation that people ask why you've got valuation increase. So it's -- but I mean you cannot bind those kind of assets at yields of 4.55%. And this is even difficult for our people that are writing the report, it's difficult to understand. That is why the last quarter list and rose 4.33% instead of 4.73% or 4.77%, but it was because those are still strange numbers given the market and given the lower risk in our assets.

My final question regards your building right value potential of SEK 34 billion. Is that anything of it included JM? Or is it just what you have on your balance sheet?

That is just on our balance sheet. Thank you.

Next question is from Staffan Bulow, Nordea.

I have 3 to 4 questions. Starting off with a clarification question. When in Q3, did you start to consolidate the rental income from the Riksbyggen Unobo acquisition?

We did actually not introduce -- not include any income from Riksbyggen, the rental income will start from 1st of October. So it's a contrast in the fourth quarter.

So no income consolidated here from Q3. Clear. And you mentioned in the report that your rental income is linked to CPI and that you have historically outpaced CPI. But do you think in a high inflation environment that rental income from rental apartments can be fully compensated for CPI given negotiations with the tenant association?

Absolutely because that is the system that is stuff that I particularly for our -- how to say, from for people from abroad and this is very important. One, this idea that we have low rents on average, it's exactly connected to that but the system is called for, I would say, the utility cost system or you should be paid for if there is a higher inflation or if there is -- or if water costs more liquidity cost more. So I'm expecting that we will always have full in negotiations, full coverage for inflation, no matter how large inflation leads. So that is the basic of the system. But on top of that we have been reaching for the year, this below machinery that is working to refurbishment, to working with both with the refurbishments and community sales properties or inflation working negotiations and being able to deliver stronger than inflation. So inflation in basic and we have shown that we can deliver more than 100 bps of inflation since starting the company.

And speaking of lease structure, how large share of your community services properties is triple net leases.

And that is I think it is around 70% but there are also sub-leases where we are just taking in cost and then sending directly to the -- but we will look at that in our Q4 report and put the numbers out because we need to just go back and also take into account those that are where we are just intermediate where we are just sending the invoices for earning. An important point here is also, if you ask that because now we have a discussion about high electricity prices. And we have actually booked in our electricity prices we did it in the first half of 2020. So we have booked everything up to 2023. And that has, of course, not been because we have been expecting anything like it's happening now but that is more our long-term focus on always securing cash flows when there is good opportunity and then how to say, insurance premium prices. So loan as it was in 2020 to buy contracts on electricity and that is also why we have booked in our interest rate and we have a fixed interest rate duration between 4 and 5 years and we will continue to increase that.

And finally, a question regarding the Property Development segment. Have you noticed any delays or impact from cost deflation or foresee any delays for that matter cost inflation impact given the inflation we see supply chain problems, cement issue, etc.?

We have been managing that well and that we are probably not comparable because we are well in our business. I mean, if we've been the 3,000 apartments that thinks that we are among the largest businesses buying the services. So we do not still see any larger effects. However, we are of course, expecting that those issues will be dealt and we're also focusing to build in good and that is also likely both 15% in a factory that so we make sure to have guarantee to get 1,000 partners on a yearly basis from there. So we have done something cautionary measure is but we still not see an asset. Thank you.

Next question is Fredric Cyon from Carnegie.

So SEK 2 billion to SEK 2.5 billion is your target on building right the new production profit per year. I noticed in the table on Page 24 in the report, you make an illustration of potential results based on a 3% yield. Is that the assumption that you used to get to the SEK 2 billion to SEK 2.5 billion? And if not, what kind of average yield assumption do you assume?

Yes, that is as you-- that is a part of assumption that we are more in terms of illustration. But we are, at the same time, also selling building rights in the market and making very, very nice profit. Every year, we are like more than SEK 1 billion in cash from selling building rights. And now top of that we are also the situation when we have a joint venture with Kapan also paying us to hold the building rights and for the profit development. So we have also strong cash flows on that side. So the part of that is evaluation for the final product to the construction process and the part that is coming from cash.

Now I see your point of the building right getting a very impressive returns. What I my question is the return assumption you use on 3% flat for new production. And I would argue that you're probably assuming a higher yield assumption on new production and 3% flat, but perhaps some room there.

That is for the illustration processes, if you look at those numbers, if you look at the price per share, you will see that the prices per share are still very modest. So it is because we do not want to see that as the guidance, it's more an illustration. So if you compare numbers to the square meters which are the numbers that we are -- I mean we are fundamental focus points. So we focus on cash and we focus on delivery and we focus on residual value and that means that we are very focused on the price per square meter.

Our next question is from [ Axel Ohlsson ].

I have a few questions. First of all, we're about to enter an election year in Sweden. Will this mean that there will be a more SBB focused towards the other Nordic countries in the coming year?

Slightly, yes. We have -- they have actually, if the ongoing deals in the [indiscernible] sector that we hope to close before the year-end or in the beginning of the next year. But already now, we are refocusing to do more in Norway and more in Finland. So -- and then we have -- let me say, good for us in this slightly that we have very strong organic growth. We are delivering a few elderly care homes and like building 3,000 apartments. We will have in the season strong organic growth.

And looking at the other Nordic countries, you've entered JVs and become a part owner of Solan and Origa Care and PPI in Norway. Will we see more -- you enter more companies as an investor? And what are you looking for if you look to enter a new company?

No, we will do more straight deals on the having 100% control over the cash, those joint ventures that you mentioned are just supporting our strategies. Sometimes in some places, we want to take position in other strategies. We want to support our business that is already in place there. So that is-- it may see like few billions at the same time, we have a balance sheet of SEK 160 billion. So it's still minor.

And looking at SBB as champion of Europe, do you have a plan for when you will go outside of the Nordics and enter a new European market? And what European markets you view as most interesting at the moment?

Yes, we have been doing -- I mean as you know, we are always first building infrastructure before doing anything. And we have done that says in Finland and Norway and also Denmark. And now we are building infrastructure in Germany. We have had our people there just a week ago. And I've seen the comfortable that we may see the first deals in Germany already in next year.

And last question. I've seen sometimes on Twitter that you talked about SBB having over 100,000 as shareholders and is becoming sort of a people share? Is that an important view? And why would that be important to have that status?

That is very important. That is very important for me and for the team, I think we have today more than probably 130,000, 140,000 we have more than 130,000 shareholders sometime of Q2. Now we have probably closer to 140,000 shareholders. And we think that is showing the strong entering that we have in the Nordics because we believe in social infrastructure. And that is also why I see you that I'm criticizing the companies that compete with us and having the owners in tax havens. There are also institutional investors that send money to private entity firms in tax saving. And I don't think that that is fair competition. So I'm happy to have putting the tax money in our business and delivering some focus on sustainability. Thank you.

Our next question is Oliver Carruthers from Goldman Sachs.

I've got 3 questions. So I'm on Page 49 of your release. And on your point of the results misspelling you referred to earlier on the call. First, can I confirm that the full 9-month number for minority interest of SEK 993 million relates to either realized or unrealized value changes? That's #1, meaning that for the 9-month period, you reported EPRA earnings should have been SEK 1.2 billion or 5x higher than the SEK 247 million that you reported.

Yes. It is -- and those, as you know, those figures are for us, alternative performance measures is not in that is our focus. And to give you the straight answer in terms of earnings per ordinary A & B shares after dilution according to earnings will be SEK 0.91 per A and B shares for the first 9 months of this year and SEK 0.49 per A and B ordinary shares for the 3-months period.

And on the second point on the 3-month period, can I ask why there were no costs associated with your hybrid bonds recognized in the third quarter?

That has booked in fully booked in Q2.

So you recognize this in your EPRA earnings on a cash basis and not an accrual basis?

That was fully booked. And we will-- we have been lagging with this extra treasure. Me myself, I saw it was more adjusted for commercial real estate and because those metrics are even taking cash then we are selling building rights. And I have looked at other companies that are put in the numbers. And so I have historically and our CFO, historically, we have not put focus on this. But in connection with our annual report, we will look how the other company is doing because those numbers are still not fully representing our business. So we will put some more work to develop those self-accruing measures.

And that was going to be my third question that you've answered on why EPRA earnings was not a key metric for you. But maybe on the dividend, can you give us some guidance as to what kind of -- in relation to the dividend you're going to pay and look to pay in the future years, what key metrics are you anchoring that to, if not at prior?

No, we didn't banking on to earnings. We are looking at -- that is why we are not having any automatic connections because the Board has said that our goal for SBB dividends is always that SBB business will develop in the way that we can increase the dividend every year. And I have said in my comment that we will increase it at least in the next 100 years. And saying that, that means that we are being focused on to be long time. So when the Board is analyzing and these decisions are usually how to say it's a large work behind it, then the Board is looking how much money we are delivering from our underlying income from property management, how much fine we are delivering from the selling of the building rights, how much money -- and of these numbers, how much we should use to continue to grow? How much we should use the if we want to use and to combine with stronger rating. And then after all of these iterations, I should say, the Board is deciding the dividend. And I mean, if you look, we are guiding the market that we will after everything paid that we will deliver between SEK 4.67 to SEK 5.20 shares in our earnings capacity. And then and this is still without any growth, this is still without any income increase in next year if you just take inflation of 2% and we put 100 bps that we have always delivering more than that, that is 3% and the 3% on the SEK 4.67 that is additional 15 bps. So already there you are at SEK 4.8 to SEK 5.4 per share. So I'm just trying to give you the favors how we are trying to combine all of our business before the Board decides what kind of dividend they want to propose. Thank you.

And our next question is Markus Henriksson, ABG.

I just have one question regarding the NOI margin. It's very strong in the quarter, 74.6%. Do we have any one-offs here? Or how do you think we should view this figure relative to your earnings capacity of 71.9%?

I think actually, there are no one-offs here. We should be-- we should deliver according to earnings capacity of 71% to 72% mark. So then we can have some stuff sliding between the cores but this was strong quarter and our guiding there is some change, we should be at 72.1% to 72%.

Because historically, you've been quite sort of vastly under your earnings capacity. So is this something that is filtering through some kind of synergies? Or how should we review it going forward?

Markus, that is exactly right. And that is a part of what as I said in the comments earlier today, now we can see operational excellence across the board and our property management has been improving strongly under the leadership of Annika Ekstrom that started that half tenure in last year to last year. So that is -- we are very happy on the work that is being done there.

And one question on the direct market also, what's your view now on the deal flow in SBB and overall in the transaction market, what are you seeing right now? And what's your thoughts there?

I mean, right now, everyone is chasing these assets. It's I mean, you saw the start then buying in Bamako. You saw instate buying Koyama at the levels of 45% cash flow. I mean either Bamako if you will take that into account when you look at our numbers, but we are delivering much, much higher profit. Thank you.

And there are no more questions. Speaker, do you have any follow-up comments?

No. We have -- we will have just from the web, Annika.

Yes. We have a question here from one person who asks you-- ask us to comment on Denmark, it's currently 1% of the total property value. How much do we want to grow in Denmark going forward?

Denmark is still a mature market in terms of social infrastructure. The almost all assets are controlled by government in terms of local municipalities. So we will continue to grow in Denmark, but it takes some time. But we -- Denmark is strong Nordic economy and we will be happy to buy more elderly care homes and schools in Denmark. Now we have answered all of the questions and we want to say thank you very much and enjoy the day. Thank you.