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

Welcome to SBB Q3 Report 2023. [Operator Instructions] Now I will hand the conference over to Treasury Director and IR, Helena Lindahl. This call is being recorded.

Good morning, everyone, and welcome to SBB Earnings Call for Q3. My name is Helena Lindahl, and I'm the Treasury Director at SBB. Today, we will present our quarterly earnings for the third quarter of 2023. The people who will be presenting to you today are CEO, Leiv Synnes and the Finance Director, Daniel Tellberg and myself. Leiv will begin by sharing some of the strategic highlights for SBB during the quarter and give you an overview of the new group structure and business units. After that, Daniel will walk you through our financial statements, and I will discuss the state of our financing. We will end with a summary and a Q&A. With that said, I'd like to hand over to Leiv. Please go ahead.

Thank you, Helena. I will walk you through some financial metrics, recent business developments and our forward-looking strategies in the context of our 3 new segments. Looking at report highlights. Many of you have seen that we have successfully restructured our group aligning our strategy with market dynamics and maximizing future potential. This, to take shift is not just a change, but a significant step toward making the most of our great assets and improving our financial position. In the last 15 months, we have made a significant progress with reducing debt. So above SEK 20 billion in debt reduction. That is very good. And showing our commitment to go to a place where we have a little bit higher financial stability than today. And then hopefully, a recovery of the credit rating that we have. Yes, continue to get a stronger balance sheet remains a top priority for us to be. If you look on the underlying business in the company, we are very proud that we are able to increase the revenues, but close to 10%. And the net operating income like-for-like increase is 12.5%. I think our staff have made a tremendous work and good efforts to produce such numbers. And also, it's good to see that the occupancy rate increases to 96%. I thought it was impossible to [Technical Difficulty]. What we see in the market is continued pressure on property valuations. We value our properties externally. So we have external firms. They're doing all the property valuations every quarter. And for this quarter, we saw a decrease in 2.7% and 9% for the full 9 months. And if you look on the longer time horizon, we have cut the valuation by 13% in a period where the inflation has been 18%, meaning that we -- the real economics of the valuation is that we have cut the devaluations by 31%. And hopefully, we are getting closer to the end of the adjustment of the values of the properties and we can see that -- hopefully, we can see that the good progress we made on revenues will be passed over to continued growth in property valuations from next year. As you've seen in the report, we have an interest coverage ratio of 2.6% -- net 2.6%. And maybe I also should comment then on the topic we have with bond investors. As you know, the spirit of the key figure interest coverage ratio is that you measure net operating income or EBITDA and divide it with interest costs. Now we have 1 bondholder that think that value changes should be included in the key metrics. We have had a legal advice, and we are confident that if the bond investors take this to court we will be in the process. And we think that our way of calculating key figures are the way that the market calculates the key figures in general. So we think that we act in good faith. Move to next page. We have a strategic overview during the quarter. And one thing that came out of that was that we split the company into 3 parts -- into 3 business areas, and that is Education, Community and Residential. And we believe that this will enable us to get a better funding, enable equity raising in subsidiaries. It gives analysts and others better transparency, understanding of the company and the good quality that we have in our assets. And it also give us in a company more understanding on how we should allocate the capital between the 3 business areas. And during the last 15 months, we have actually sold properties for SEK 8.4 billion. We have formed a joint venture with Morgan Stanley. And we will do another transaction with Brookfield, where we get a total cash proceeds of SEK 8.2 billion. And here, we had 2 major things that we needed to fix before we could have the closing. And one was the competition clearance, and that is done. We have got the approval. And then the second one was that we needed to get the banks for the new funding to stay okay. And we have all the acceptance from the bank at the moment. So we will continue with some small administrative topics before we can close the transaction. And we hope that it will be during November. If you look on the 3 business areas. We have the Residential with SEK 29.4 billion in assets. We have a Community with SEK 46 billion and Education with SEK 42 billion. And Education, we part on with Brookfield. At the quarter end, we owned a little bit more than 50%. And after the closing in the fourth quarter, we will own a little bit less than 50%, meaning that it will not be a subsidiary after Q4. And for the residential part, we are looking to do the same as we do it in Education to see if we can have strategic investor investing in the company or we look to the stock market for that part. And the reason for it is that we would like to raise equity in order to stabilize the SBB Group. And we go and look for a little bit more details on the residential part. As some of you probably know, rents are regulated in Sweden, meaning that we have limited downside risk in income. It hasn't been a year when the revenues or the rent levels for residential properties in Sweden have decreased, meaning that residential assets in Sweden have a stable growth in rents. And over long periods, rents have outpaced the inflation. And we believe that we will be able to increase the rents significantly during next year. On top of this, we have a strong demographic trend in Sweden with population growing, particularly in the areas where SBB operates, you see that the population is growing in the Stockholm metropolitan area and also other big cities. And if due to the current environment and the development of properties is a little bit lower, it will only add to the mismatch of the supply and demand on the residential business, meaning that there is very little risk of increased occupancy, it's likely that the occupancy will be even lower -- higher. And what we do now with residential is that we restructured in an entity, which we will call [Foreign Language] and we hiring a new management and a new Board. And we are setting up all the procedures and policies in this company, in order to be able to attract big investors through a partnership or through an IPO during next year. And then we had a business area, which is called Community, very low risk in this asset class since the income is government-funded tenants, so we have minimal risk of rent losses. We have a leading and scalable platform. And we believe that once we have stabilized the company, there will be opportunities for growth. But that lies at least 1 year ahead. Strong inflation, close to 100%, meaning that the current inflation will be passed over, meaning that revenues will continue to increase. And the property type that have the largest share in this business segment is Elderly Care. And we have seen interest from investors that want to take part of this year in it, too. But we -- at the moment, we have concentrated to close the transaction with Brookfield in the education part and also to set up the Residential business in a good way. And then we have Education, I guess, it's well known to the market by now. It's a Europe-leading platform for public education property. We have a very strong equity partner in Brookfield, which will become the majority owner in Q4. We have a government-backed income with 100% inflation linked revenues. And we will -- we have set up a structure in EduCo which is the company that owns most of the assets, that enable that company to get an investment-grade rating. And on the back of that rating, we expect that the company raised funds from the U.S. private placement market. This is very important. I think big companies in the Nordic at the moment have a supply and demand problem when it comes to funding. They might be too big to the -- for the Nordic bank market, and they struggle with the European bond market. So this is an example where we changed the supply and demand on funding due to company's favor. We are able to tap the market -- another part of the market. And later in 2024, we might do the same with residential business. And then we expect that in 6 to 9 months' time, we have changed the supply and demand for Nordic bank loans. So it will be in our favor. It will be that we can borrow -- we want to borrow less than the banks want to lend, subject to us, of course, stabilizing the financial profile of the company. So that is the key thing to understand from the market perspective. But we will have the upper hand in Nordic bank negotiations 1 year from now.

Thank you, Leiv. Now we will go a bit more into detail of the financial statements. So we signed the EduCo transaction on the 24th of September. Even though the transaction is not yet closed, it still significantly impacts the financial statements as of Q3. Being a major business line that is to be deconsolidated, EduCo has been reported as a discontinued operation for which historical figures have been recalculated. Here, I would like to point out that the discontinued concept only applies on a consolidated basis. EduCo will still be a vital business for SBB. In the table to the right, we try to illustrate how the period may have looked like if we were not to separate EduCo as a discontinued operation. Going forward, EduCo will be reported as a joint venture. As a result from the deconsolidation, the rental income and net operating income will decrease and not include EduCo. At the same time, profit from associated companies and joint venture will increase and the share of profit allocated to the minority decrease. Complex, but the end product is that earnings per share stays almost unaffected excluding the strategic and financial gains that the transaction will generate. Looking at the balance sheet, knowing that EduCo needs to be deconsolidated after the closing, EduCo assets and liabilities has been reclassified to assets held for sale. Even though the deconsolidation has not yet happened, this gives a glimpse of how the future balance sheet may look like. However, not including the effect from the SEK 8.2 billion in cash inflow from the closing. Leiv?

Okay. Net operating income, it's always nice to look on this picture. Revenue is up close to 10% and the net operating income like-for-like is 12.5%. So very strong figures. And if we include the EduCo it will be 9% income and 11% net operating income growth. And we expect going forward that the income will continue to increase and also that we have a good trend in net operating income. That meaning it's for like-for-like figures. If we look on the majority of the assets, the public companies -- public properties to -- with the CPI-linked revenues and long leases, meaning that we can expect also for next year, we can have a high occupancy and increased rent levels, meaning that we will have higher income. And if we look on the residential portion of the company, we see that the rents have this year lagged a little bit from the inflation and that we will be able to catch up in the later years. So we expect that we have good income development, both for the public properties and for the residential properties. And that is also, of course, translated in a continued growth in net operating income. And maybe also a comment there on the other part. And that is -- if we succeed in raising equity, for example, through the Residential part of the business, we will be able also to reduce debt. And of course, we will then reduce the debt that has the highest cost, and that is normally at the moment, the short-term bonds and the bank debt. We have in SBB, a very strong portfolio of long-term funding. So we believe that we will have a strong and good and healthy interest coverage measure also in the coming year. If you look on the yield, it has increased. And one reason is that we continue to improve the money that comes from the properties, but we also have declining property valuations. So on average, we have a yield of SEK 475 million at the end of the third quarter. And if you look on the occupancy, it's 96.3%. And here, you see the stability of the business. It must be great to own and also to be creditors when you see these kind of figures, whether it's limited risk of vacancy and lower rents. Of course, I'm aware of that we need to fix and improve the balance between debt and equity. But looking only from the property operations, it is very solid. And here, you see the consolidated income statement for the period. Again, the important figure here, I think, is the like-for-like figure in the net operating income. And the reason why we have lower income in absolute terms is that we are selling assets. And we have also due to the higher interest rate environment, value changes -- negative value changes on both properties and financial assets. And we see due to the higher interest rate level also increasing interest costs. Maybe one more comment on that slide, and I don't think I'm sure if it's like mentioned in media in a proper way. But it's important to distinguish the profit and loss statement due to deconsolidation of, for example, EduCo and the real economics of the company. We believe that the profit per share or the equity per share will be almost unaffected whether you consolidate or deconsolidate EduCo. You, of course, have a slightly different or a different profitable statement. But you have also in the future, higher income from associated companies or joint ventures, and you have less income that goes to minority interest in the future. So meaning that profit per share should -- due to the likely transaction in -- now that we did in Brookfield should go almost unaffected. And looking on like a longer perspective, you can see that the benefit of this transaction actually helps the revenues per share to the profit per share to increase since we improved the funding possibilities to such a high degree, it's likely that the transaction will lead to higher earnings per share. So I think it's, for me, a very good transaction that we currently do with Brookfield from a strategic point of view.

Yes. As you are all aware, we are looking -- intensely navigating new market conditions, which are, to say the least challenging. We're adapting swiftly to these changes, and I'm proud of the progress that we've made so far. Firstly, we recognize the need to reduce our debt. It is crucial for us to maintain the balanced financial profile. Our actions in actively reducing our balance sheet are a testament to our commitment to strengthen our financial position. Currently, our loan-to-value ratio stands at 53% with a secured LTV at 19%. And that is despite the pressure on property -- from the property values. Moreover, we're focusing on reducing our reliance on individual sources of financing. This strategic shift is key to lower our financing risk. We are maintaining a solid interest coverage ratio of 2.6, which is a strong indicator of our financial health and capability to meet our obligation. Lastly, despite the recent downgrades from the credit rating agencies, our long-term ambition remains to return to investment grade. We are confident in our strategies and the direction we're heading towards. And turning to our maturity profile. The company has a very attractive long-term funding profile. The advantage with long-term financing and a long average interest rate maturity is that interest expense changes very slowly when the interest rate rises. SBB's average interest rate of 2.29% is significantly below current market interest rates. The average interest rate maturity is 3.1 years. Hence, it will take sometime before higher interest rates will feed into the interest cost. The length of the period before interest rates impacts our business gives us a strategic advantage. It allows us to adapt and plan effectively. We have managed to secure a stable capital market profile at low rates. The average debt maturity in this quarter is 3.7 years. This means that we do not have to refinance a large portion of the debt when times are difficult. Over 50% of our interest rate and capital maturity is more than 3 years out. This time frame is pivotal, allowing us to prudently manage changes in our portfolio. This is one of the key reasons we remain confident in our financial journey. We are on a track that allows for not just for recovery, but also long-term stability.

Yes. We have been active during the last year to reduce debt. We have sold properties. We have taken in equity partners. So we have reduced in total debt in a like-for-like measure with close to SEK 23 billion. And I think that is a good achievement. We need to, of course, continue to reduce that, but we can -- I'd be proud of what we have done so far. And then we will look on the liquidity. We will going forward have a more prudent approach to liquidity. We introduced a minimum level of SEK 3 billion in liquidity and aim to keep the cash sources above cash uses. And this is, of course, with the ambition to become an investment grade company again. So it is more like a long-term target to be able to meet all the criteria, but we -- that is what we work for to continue to have a healthy financial situation. And if you look on the cash use is stable. It's a lot of cash going out. We have a big bond that matures in the first quarter. We have also a dividend decided and we have bank loans. And the bank loans are the upcoming year SEK 6.5 billion, and we expect to -- actually, we think we will be able to increase the bank debt. But you see on the left side here on the -- that we expect to refinance SEK 5 billion. I think that is more like a prudent approach. We -- as you know, we have a low secured loan to value. So we will -- I think we will be able to increase the secured loans or the bank loans a bit. So this is like a prudent approach to liquidity, I would say. And then we have another big item on the left side here is the sale and refinancing of EduCo and that is almost a done deal, but we expect the money in -- hopefully, in November or in worst case December. What we can also mention here is we have other projects as well. We have individual sales of properties. Some of them are signed and included, but we have also unsigned transactions. It can be with small tenants or big tenants. It can be with investors. And then we have also the project with the residential piece of SBB. Of course, we'll an IPO or partnership in that area, make that we get not only liquidity, but also equity in here. So it's not included. So I think we have more opportunities than what this picture tells the reader. And also with a strong partner or our stock listing we will have higher ability to raise debt in the residential business, meaning that the liquidity position for the group is likely to be improved by that transaction -- or such transaction. So if we summarize what will happen in this quarter, we have implemented a new group structure and strategy. It will give the external people a better understanding of the company and the quality of the assets and it gives us a better way to an understanding how to allocate the sources we have within the company. And finally, we believe that the funding possibilities will be heavily improved by the new strategy. What we have done, we have reduced the debt. We will continue to focus on improving the balance sheet. We have very strong assets. After all, we are like a real estate company. And the key element is that the properties perform and they do higher occupancy rate, high rents, 12.5% like-for-like growth in NOI. It isn't a sign of weakness. It's a sign of extremely good properties. And it is good properties throughout the business cycle. If we see a slowdown in the market, we don't expect to be affected by it. We have attractive funding and low cost of debt on a large part of -- we have long-term bonds with low yields, which is quite a big benefit in these days. We see a continued pressure on the property valuations. We believe that over time, rental growth will take the upper hand and produce value growth instead of the current situation where the cap rates increases and we get value decreases. We believe that if you have a healthy and very strong asset pool, the long-term trend of property valuations is always up.

Yes. And that concludes the presentation, and we will go to Q&A.

[Operator Instructions] The next question comes from Fredrik Stensved from ABG Sundal Collier.

I have 3 questions on liquidity and the sources and uses table in your report, if I may. Firstly, you mentioned the SEK 3.5 billion of unused credit facilities, which currently can't be used. And I'm wondering what are the sort of necessary conditions you have to fulfill to tap this? And when do you think that will happen? Secondly, you mentioned that sort of market uncertainty and company-specific uncertainty has made it difficult to prolong or to extend existing bank debt and your sources and uses table use -- or show that you expect SEK 5 billion of sort of extension of that and SEK 6.5 billion of maturities. So maybe if you can expand or elaborate a bit on what you hear from your lenders? And then finally, if we assume that the SEK 8 billion of liquidity from EduCo or Brookfield comes through here in November, should we assume that all of that liquidity will be used to cover near-term maturities? Or can you also use that liquidity to buy back slightly longer dated bonds? That's it.

Okay. We start with the SEK 3.5 billion in undrawn credit facilities that we, at the moment, can't use. I think we have had terms in -- on agreement, stating that we need to be investment grade in order to use it. So we are trying to renegotiate that -- those terms so we'll be able to use it. And the other one is that we need to provide -- the other part is that we need to provide other kind of securities to one bank in order to use the facility. So that is -- and when this is done, I think we -- it's uncertain when we will be able to use these facilities. I'm not sure it will be during the fourth quarter. It might take longer time, but we are working on it. And the second question was the uncertainty of the company. I think it's -- to a higher degree depends on the actions by the bondholders, where they have in the media tried to make it hard for the company to obtain new funding and have -- due to this, it made it harder for us to continue with, you can say, low-cost funding opportunities including the ones that I mentioned under the first question there. So I think the actions by the bondholders have -- made it a little bit harder for us to run the business in a normal way. And the extension of SEK 5 billion. We think that we will be able to increase the secured funding, not decrease it. So we're not that worried about that part. If the Nordic banks, for whatever reason, do not want to prolong it, then of course, we have other solutions that we can use, of course, to a higher cost. So what we aim to do is to prolong it with the Nordic banks. But it is not so that the money will go out of the door if the banks doesn't want to prolong, then we can use other sources. And the final question on the SEK 8 billion liquidity. Yes, I think we need to -- a company always need to honor its obligations and the short-term obligations is, of course, priority is paying those if needed in order to run the business. So that will be the answer. We will not jeopardize the business. I think what we -- it's also a tricky question because we, of course, have other solutions that we might have. And so the question is a little bit complex. We have potentially more creditors. We have potentially property sales, and we might also have equity partners. So it's like -- it's a mix of solutions we need to do in order to maintain a solid liquidity position. And then we need to be -- we need to manage how we repay that in a clever way. And one goal is, of course, to reduce the -- repay the short-term debt. Another goal is to reduce the absolute level of debt in the company. So we will, of course, use some different tools to be able to achieve that.

The next question comes from Yi Qian from Atlanticomnium SA.

Can you hear me?

Yes.

Operator will you go for the next question?

The next question comes from Ash Thomas-Watson from Polus Capital.

I have 3 questions, if you wouldn't mind. First is just on the Morgan Stanley transaction. I was wondering whether or not you see similar preferred equity transactions as being part of the financing sources in the future, given the sort of implied cost there? Secondly, I was wondering if you could give us a bit more color on your future dividend plans and your plans for the hybrid coupon? And then thirdly, in your sources and uses table, it looks like there is an outflow related to guarantees. If you could please give us a bit more detail as to what those guarantees relate to? And also if there are any further guarantee related outflows anticipated in future years?

Yes, with transaction with Morgan Stanley, it had, I would say, 2 components. One is that we got in a new equity partner and it's now like a joint venture and also to being able to do transactions with strong institutions is good, which can also enable more transactions in the future and not necessarily in the format of preferred capital. It can be other sources of capital as well. In general, I think we would like to make the company more transparent to have less associated companies and to have a cleaner debt structures. I think this transaction was something that we felt that we needed to do during the market that was a bit close for us during the third quarter due to the -- particularly due to the hostile actions by certain bond investors. And if we move to the second question here, we decided our dividend during the spring Annual General Meeting. And legally, we need to pay out the dividend before the next Annual General Meeting. So that we will do. After that, we expect to be a little bit more prudent when we come to dividends. And it could also be that we are prudent when it comes to the hybrid bonds coupons. It all depends on the ability we have to raise liquidity. If you have low liquidity, we, of course, need to be prudent with the cash outflows.

Yes. On the third question, the one you're asking for is called Valerum and that was a transaction made in 2020, when SBB sold the large portfolio of assets, and went into a contract guaranteeing the funding that was made for the acquisition through a bond called Valerum. And the initial size of the transaction was SEK 710 million. And in -- on the 5th of October, Valerum made a halt on its coupon payment, and the subsequent event was that SBB had to own a risk guarantee for the bond. And we are honoring our obligation under that contract after the due settlement costs, which will end in early December. However, even though the initial size of the transaction was SEK 710 million, it's been amortized during the way. So the total amount due is somewhere around SEK 280 million. And also to clarify, the company has no further obligation or has not given any guarantees in any such manner as the Valerum bond. So I think that will be the end of that.

The next question comes from Jonathan Kownator from Goldman Sachs.

One small question, I was having, please. In your liquidity chart, you have a line on construction credit. Could you just comment on what is exactly -- what's the cost of this kind of facility, please? And perhaps another question maybe on liquidity, slightly beyond top line. What is your plan for the Euro 2025 bonds?

Yes, Yes. We will not go out with the specific cost of the credit facilities because that's a bilateral agreement. But general risk cost of capital is a little bit higher than the normal mortgage loan in Sweden, which is about 150 basis points above stable. So it's not that expensive, but it's not that cheap either. And the Eurobond 25, of course, we will repay it when it's mature.

Could you -- are you thinking that it's rather going to come from refinancing of debt in Scandinavia or you rather need -- obviously, you've highlighted a number of measures, whether it's finding partners of the Residential. Do you think that's more going to come from equity as opposed to that?

It will be a mix of cash outflows and cash inflows, but if we just talk big picture, we believe that we will get a healthy amount of cash coming in from either to take a partnership or an IPO of the Residential business.

The next question comes from Peter Kawada from Man GLG.

All of my questions have been answered.

We are good.

The next question comes from Ankit Gupta from Goldman Sachs.

Just a couple from my side. Again, and then the same liquidity sheet, it's mentioned that -- have you guys refinanced almost SEK 1 billion of debt during the quarter. And if it's that, can you just talk about the terms and condition of that in terms of funding cost and LTV for that part? So that's the first one. And second one, I will just follow up.

Yes. We have refinanced approximately SEK 1 billion with the Scandinavian bank. And the terms and conditions are presently between the bank and us, as a lender.

Great. So anything on the LTV, like whether that has increased from previous secured debt or it has been broadly the same line? Anything on that?

I think we can -- you have the average secured debt level in the company. So I think it was below 20%. So -- and also the bank market -- the margin in the Nordic bank markets, which is between 100 and 200 basis points. And you can expect that SBB is in the upper range of that one until they get investment grade again.

Fair enough. And just second one is your total debt has -- looks to come down by SEK 6.3 billion, like including the EduCo part, like SEK 75 billion you have disclosed versus on a sequential basis. Can you help me with -- where that SEK 6.3 billion has come from? Like I can see that SEK 1.3 billion is probably the repayment. But where is the another SEK 5 billion of -- in terms of the total debt?

We have repaid bonds, but not here. I think it's in Swedish bonds, and we have repaid bank debt and the bank that we have repaid is mainly facilities -- that was backup facilities to the commercial paper programs that we have, the more like short-term funding that we have. So we -- as you see from the report as well, we have reduced the amount of -- issued in commercial papers quite heavily, and we have only, I think it's SEK 55 million left.

They have all been repaid by now after the quarter.

Okay. Yes. So it's banks and Swedish bonds that we have repaid.

Got it. No, my question is, like in terms -- have you paid out any bank or truly bonds, which were like par and it has got reflected -- and you have paid out at a discount? Because the total debt has come down by SEK 6.3 billion. And as per your cash flow statement, you have repaid around SEK 1.3 billion. I'm not able to complete the math. So that's why the question is.

I think it's a good idea for you, write your question to an e-mail, and we will answer in more detail.

Great. And just a final question. Is the SEK 3.5 billion of liquidity facility you mentioned here, was it like you had this previously also? Or is it something new you have tried to disclose it here?

We had -- the material part of it, we have had both in the last quarter. One of them was -- is 2 agreements. One was unused in the previous quarter as well and one became unused during the third quarter.

Got it. And just a final question. Like in terms of LTV, I can see that in denominator, you have now -- you guys have now excluded cash. Any change in the terms and condition with the banks? Or why have you changed the LTV calculation versus second quarter?

When it comes to banks, you see the secured loan-to-value. The banks are not worried at all about the financial situation with SBB, we have a solid position. So we are not close to breaching any covenants with the banks.

The next question comes from Iwang from AA.

I'm not sure, I think this is Niklas. I had 2 questions, if that's okay. I'll ask them separately. The first one is can you legally pay the equity dividend in shares rather than cash? And if so, do you consider doing that?

We need -- we cannot force the shareholders to accept that we need to pay out cash, but they -- we can offer them to choose to get the shares instead of course. But it's up to the individual shareholders.

Okay. And the second question is by putting assets as you are into joint venture structures, like the one like negative that I could see from that is that you lose direct control over the cash flow, both the operating cash flow and the ability to sell assets. In your deal with EduCo or ones that you consider going forward, do you have any guarantees or protections that your share of net cash flows will be paid out to you as dividends? Or is that just decided at the JV level and you don't control it? And secondly, are there any protections against the majority owner of the JV, so Brookfield from kind of doing equity raises to buy assets and you like the liquidity to participate in your share of the equity, so you just kind of get progressively diluted down?

Yes. The first question, in general, I think you are right that there is a risk that cash flow will get trapped and they also higher probability -- higher problems with investing assets inside the JV. I think you're right. In this case, we have a very strong relationship with EduCo or with Brookfield. So we don't think it's a material risk. And also, many of the large institutions in the world, they tend to calculate IRR, and they want the dividend as soon as possible. It can be that they are REITs or whatever reason they have. But I feel that it is not SBB that are pushing for dividends from EduCo at the moment. So I don't think in the future, it will be a problem discussing this topic with Brookfield.

Okay. So an ongoing basis, you think is like bonds mature at the corporate level and you need to get cash from these joint ventures, you think it will be easy to get the cash out?

Yes, at least the normal EBITDA, you can say. Divesting assets inside EduCo is, of course, harder if you need to agree with the counter party. But it is also that we are a key element in this transaction because we hold the knowledge of the operations in the Nordics. I think it's a joint venture with 2 partners that are friends. So if we have a problem, I think they will help us. I don't think they will act unfriendly in a way because mutual agreements and friendship is the best for both of us on long term. It can also be that they -- something happened with Brookfield, even if it's unlikely at the moment, but things change in the world, so it can be so that they need to do something for whatever reason. And then, of course, we will help them.

The next question comes from Emanuele Arnoldi from Barclays.

Very quickly, I couldn't hear very well your comment about the investment credit rating of EduCo. Is it something that you think is going to be obtained? Or were you saying that it's already -- has already been obtained? And the second question is, if you can give us a bit more color behind this smart solution that you found to find an agreement on EduCo. If the driver was that effectively having Brookfield as the majority shareholder, the whole bank financing was becoming easier? And if it's something that you think is applicable to the other 2 divisions that you talked about?

The first question is that we have very strong assets in EduCo, it's a long-term leases with strong tenants. And then you just need to set the leverage so we get the investment grade. I think it's very easy to do this. And I think we are -- we and also Brookfield are expert in this field. So I would be surprised if we don't succeed in getting the investment grade. So it's nothing that we have at the moment, but it's -- you lean on your expertise and your knowledge from past and then you have a -- you can say it's a higher low likelihood. In this case, I would say it's a high likelihood that we did succeed.

When do you think -- what's the expectation, is the process going to 9 months or a couple of months or as a note of mandatory?

Yes, it's -- I think -- I don't think we need to rush things. I think we have a facility with the banks in place or EduCo has. So it also depends on when the timing is to take it out in the market. It's not like not to force everything out in the market before Christmas or something, even if we could, maybe in theoretical, you will do it in a proper way, in a strategic way and wait for the opportunity in the market to place this capital. We're not in a hurry. So it doesn't matter if it's in 6 or 9 months, we have the bandwidth. And the second question, of course, we have the -- and the issue with the bond dollars and then -- which is one key thing. And then we have the supply and demand for bank debt in the Nordics. So in a situation where the bond market doesn't really work that well, it can be in general for all the real estate companies in Europe or it can be specific just to be and you need to search for other capital sources, and we do it in EduCo. In this case, we go for the USP placement, most likely. But for other parts of the business, we could try to get more local bank debt. And then to get that in a secure way, we might be able -- it might be better that we do it in independent company outside the group. We might get better terms. And we also -- that company will have a better supply and demand situation in the Nordic bank market than SBB has at the moment.

The next question comes from Edoardo Gili from Green Street.

Three questions from me, please. My first question is around the consolidation of your holding with Morgan Stanley. Why do you deconsolidate it when you own 62% of it? Will it be written at cost or at fair value going forward?

I think it's accounting rules. So if you have joint control, then it's joint venture.

Understood. And then my second question on the cash flow statement. There is a SEK 3.8 billion outflow around your JVs. I'm sure you've disclosed that before, but could you remind me what it pertains to?

Maybe we could answer that as well in an e-mail or do we have that figure here.

We can come back on that one.

So you can send us an e-mail to -- and then we will answer it.

And maybe, my last question around the SEK 5 billion potential refinancing of your bank loans. Is that sort of your assessment of where the values are going to be from the lenders' perspective? Or how do you come up with the SEK 5 billion that you have in the report?

We took a prudent approach to it. So as I said before, we expect to increase the bank debt, not to decrease it. So one key of information that I haven't given so far in this presentation is that when we -- if we succeed in taking in an equity partner or we do IPO of the Residential piece, it's very likely that we will be able to increase the -- secure that in that part of the operation to very good terms.

The next question comes from Maggie Cheng from Indosuez Wealth Management.

About the SEK 2 billion dividends, when will it be paid? And I just want to see the timing between the dividend payment and the mix of hybrid coupons decisions?

It was announced during the summer after the Extra General Annual Meeting that was held in June that the last date of payment is end of June 2024 for the withheld dividend of SEK 2.1 billion. The hybrid coupons are mostly due during the first half of the year.

Okay. Okay. That is theoretically, you cannot delay the deferred hybrid coupons. Otherwise, you will not be able to pay dividends. Am I right to say that?

Yes. It's a technical request. I think you're correct that we're not allowed to decide new dividends or pay out new dividends if you don't pay the coupons on the hybrids. We will do with this in a correct way. And we, of course, have read the agreements, so we will honor the agreements.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you, operator. I think that we have answered questions from all people who have applied to ask questions. But if you have any more questions, please feel free to e-mail us at [email protected]. I now leave to Leiv to conclude.

Thank you. From a like a property standpoint, revenue, increasing revenue, increase net operating income. SBB has very stable assets and unique platforms for Community properties, for Education properties and Residential properties. And we have established a new group structure. So you all will be able to see that. Our path to reducing debt continues. So far, we are down SEK 20 billion and we will continue until we get financial stability. We are positive on the future for us to be. We believe that the trend with growing income will continue.