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

Good morning, everyone, and a warm welcome to our first quarter earnings presentation. It has been an eventful morning and Leiv Synnes, myself, Helena Lindahl and Daniel Tellberg is ready to present the first quarter results. So I will give the floor to Leiv, and he will run the results and the strategy update.

Thank you, Helena. If you look on the period, I think the underlying business in SBB is continuing to perform well. We see an increase in the revenues from a like-for-like standpoint by 2.7% and the like-for-like growth in net operating income is a little bit more than 4%, so stable and positive development for SBB. We continue to develop the income from our properties. And since the starting of 2026, the like-for-like growth in -- from our properties have been 26%. That is very good. We see almost flat valuation on the properties. We see also that we continue to do good steps with our strategy and our strategy and the core holding strategy that we have is going quite well at the moment. And during the first quarter, we set new financial targets. And one of them is that we would like to grow the net asset value by a minimum of 12% per year. And one way to do that is to increase the like-for-like revenue streams, and we need to increase the net operating income by at least 1% above the inflation. And the next target is to -- a long-term goal to go back to investment grade for SBB Group. And first step is to make sure that our core holdings, our large subsidiaries receive investment-grade funding. And we have Nordiqus doing that, and we also have PPI doing that. And also, we believe that Sveafastigheter is in a good position to also issue bonds with an investment-grade rating. So that is quite good. And also one idea, which is nothing new for you guys is that we intend to build efficient and leading companies in all business areas. As I mentioned, we have good progress with our subsidiaries and associated companies. We -- in Nordiqus, we did an additional raise of U.S. private placement. So now we have in total, SEK 17 billion with a 13-year duration. So it's quite good and stable funding, which complement the long-term assets we have in Nordiqus. And Sveafastigheter received an indication from Fitch that they have a good chance to issue bonds with an investment-grade rating. And all our 3 main companies continue to see good opportunities in the market. And at the moment, they are able to catch some of the opportunities, and I'll come back to that later in the call. And we intend to optimize the property management in the Community segment. And one way to do that is to split the holdings into 2 companies. One is called SBB Samhälle and one is called SBB Utveckling. And Utveckling is in English development. And we add specialist workforce for each segment in order to continue to perform above the market. And we know that we have had some high administrative costs in the last years due to various issues that we have had. One is the legal issues with the bondholders. One is that we try to structure the group in a better way. And now it's time to start lowering the administrative costs, and we see a positive trend at the moment and that positive trend, we need to continue. Yes, in short, we -- the long-term goal is, of course, to have a transparent group, with a lot of funding options for the holdings that we manage. And we have then split the assets into 4 different segments. One is community, one is residential and one is education. And now we split it into one subsegment more and that is development. And we will have a more specialist workforce to -- that work with those properties that -- and the people there will turn potential into long-term value. And in the development, we -- it's a properties valued at SEK 4.9 billion. And we limit the properties to 10% of the company's balance sheet. So we don't think at the moment to increase the volume of properties here. It's just to maintain and develop the assets we have and turn them into cash cows. That's the goal. And we believe that this business have ability to generate even higher return on equity than the cash cows that we have. So we have a 15% minimum return on equity in this segment. And as I said earlier, the property valuations was flat during the quarter. And you see it here on the yield as well. The yield is rather flat at the moment. So 4.8% we are receiving from the properties at the moment. And also the required yield on the properties is almost similar as in the end of 2024. And also the economic occupancy is rather stable for SBB. And one part of that is that we hold a lot of properties with long leases, and we also hold a lot of properties in the Residential segment in Sweden, which is a quite stable business.

Thank you, Leiv. All in all, Q1 has been a solid quarter, and our assets continue to perform. On a like-for-like basis, net operating income increased by 4.3%, driven by both rental increase of 2.7% as well as cost control. As Leiv said, admin cost remains a priority area for SBB. And despite SEK 26 million in one-offs in Q1, admin costs are slightly below prior year. Total changes in value amounts to minus SEK 131 million, impacted by some building rights being disposed. In total, unrealized changes in value amounted to minus SEK 36 million. Other financial items amounted to SEK 1.8 million, driven by FX gains of SEK 1.9 billion. In total, we are happy to see a bottom line of SEK 1.6 billion for the quarter.

I will talk a little bit about the financing. For the eighth consecutive quarter presentation, we reiterate the message that our main focus is to reduce the group's debt level and also to widen the funding sources. We have articulated this aim in the update of the financial targets that we strive to maintain or to gain the investment-grade rating of at least BBB-, and we have also expressed it in the new financial targets. For this quarter, there is a slight decrease in the loan-to-value with 1% down to 60. And the secured loan-to-value is running at 22%. We still benefit from the very attractive long-term funding, which the company set up back in 2020 through to 2022. So the bulk of our maturities are between '27 and '29. The next large maturity we have is in August of 2026. And we -- the management feel very confident that we have a lot of time to execute on the sale of the noncore assets, sorry about that, I lost my line a bit. We have an average interest rate maturity of 2.9 years still, and the average interest rate is very favorable and low at 2.5%. The interest coverage ratio for the quarter is 1.8. And also to go back for all of these quarters, we have amounted to a substantial debt reduction, and we will continue to reduce that. And we will do so by not giving any dividend until we are -- the group can report an investment-grade rating as stated in the financial targets. So hence, we will mainly repay maturing debt. And we will do so by sourcing direct sales of real estate. And also in Q1, we communicated and identified the SEK 10 billion of noncore assets. And should that not be enough, we have liquid holdings and also are able to raise equity in subsidiaries to address the coming maturities. Back to you, Leiv, to summarize the quarter.

Thank you, Helena. To summarize, SBB has decentralized group structure with 4 business areas. And at the moment, I think that some of the companies we invest in is performing very well and also are able to grasp the opportunities they see in the market. Nordiqus is acquiring assets and are growing the portfolio and have access to excellent funding. Sveafastigheter is developing residential properties and see a good profitability in that. And we also have PPI that grows and see a lot of opportunities in the market. And then one transaction that we have mentioned to the market this morning is that we intend to continue to support PPI with new equity. And one way to do that is to -- that we ourselves issue equity. So this morning, we have issued or we have said that we intend to issue shares, and those shares will be hold by Aker Property Group in the end, and the amount is approximately SEK 700 million, and we will use those proceeds in order to buy more shares in PPI and support the growth of PPI, which we think is a very profitable and good company with a bright future. And all of this, we continue to grow our companies within the SBB Group and with the ability to -- for the whole group to go back to financial stability and at the end, go back to investment-grade. And then we can combine very long-term assets with very long-term funding and then provide a safe return to our investors. Thank you.

And from our side, we are ready to have the Q&A session. So I turn this [indiscernible] back to the operator, please.

[Operator Instructions] The next question comes from [ Tarun ] from [ Infy ]

So I have 2 questions. First of all, can you give us any details on any progress on sale of noncore assets? And then secondly, you talked about raising some money from like sale of an equity stake in the community service properties. How much cash could we expect from there? Can you give some color on like, for example, when you did the IPO for Sveafastigheter, I believe like around a 40% stake was sold and the cash generated was only about like SEK 3 billion. So just some understanding around that would be helpful.

Yes, we have an ongoing discussions with divesting mainly residential buildings, which are outside Sveafastigheter. And the aim is to reduce it to 0 in the next coming years. It's not like urgent, but we intend to sell properties here and there and concentrate the holdings or residential holdings only to Sveafastigheter. So that is going well, and we have time on our side at the moment. We -- the next large redemption of debt is in the autumn of '26. So we're not in a hurry to sell properties. We are taking the time and would like to sell to a high price as possible. And the second part of the question, if I just give you like the round numbers, not the exact numbers, but the assets in the Community sector for us is around SEK 40 billion. And if you assume 50% leverage, that means SEK 20 billion of equity. And then at the moment, we are just preparing the company to be a stable company. And if needed or we deem it good for us, we could raise equity in that entity. So it's like we're creating an opportunity, and it's not sure that we will pursue the opportunity. We have other opportunities as well in SBB Group, and that is just 1 alternative that we have. But let's say we sell out 50% of the equity, that would be up to SEK 10 billion that we receive.

That's assuming there is no discount on the equity value. Can you tell me what the discount was when the Sveafastigheter equity was sold?

I don't have that in my head, but it's a different kind of assets. And you know that some properties (sic) [ companies ] are trading above NAV and some companies are trading below NAV, and it depends on the asset type and Residential is a little bit lower value than other kind of properties. And in the past, we also sold -- before we sold shares in Sveafastigheter, we also sold shares in Nordiqus. And if my memory is correct, that transaction was at NAV. So you should not assume that we will sell at discount and also not sell at the discount at the current market value. If we sell, let's say, next year, it's a good probability that the property prices are higher than today.

Yes. Okay. Clear. And if I just may ask one other question? Can you explain this transaction with Aker? It's all in kind, right? There is no cash inflow for SBB. So what was the -- what does SBB get out of this transaction?

Yes, we like to help to PPI to become a larger and even better company. It's already a good company, but it can be even better. And we like to support that journey by injecting equity into PPI. And one way for us to be able to do that is that we, in turn, raise equity. And that now we have sent a message to the market that we intend to issue shares to -- that will end up with Aker Property Group in the end. And then we get more equity and one of our core holdings will also get more equity and both SBB and PPI will be better companies in my -- according to my understanding. And also SBB will benefit from a new strong owner in Aker, which will be helpful in the future for us. And if you look unlike the numbers for us, it will mean that SBB will have a decrease in loan-to-value and also that one of our holdings will generate more dividend up to SBB because PPI Group will be a larger company, and we will hold more shares, meaning that the potential for a dividend and the cash flow from PPI will be increased, and that will help SBB.

[Operator Instructions] The next question comes from [ Afman ] [indiscernible] from [ Fidelity International ].

Just a question on your discussion with the rating agencies, where do you stand today? I mean you are making some very good progress. Do you have a time line in mind in terms of when the rating agencies will react or anything like that? It'll be interesting to know.

I think that we have a very, very, very good discussion with both of the rating agencies, Standard & Poor's and Fitch. And I think it's -- regarding rating agencies, they won't give you a time line of how quickly they can raise your rating. But I think that is -- I hope it's apparent to everyone that we are working as hard as we can in order to find the financial stability and reduce the debt level in the firm. So I don't think it will be within the next quarter, but you have to be on the longer-term horizon when looking when we can get back our investment-grade rating if you have sort of like realistic expectations, which we have. But I would like to reiterate that we have a very good discussion and a very constructive discussion with both of the rating agencies.

Also, I think if you read at least the S&P rating report, I think it's clear that once we raise liquidity, the rating will improve from the CCC area we are at the moment. So that can be rather fast. It's, of course, up to the rating agencies to do the judgment. What we have done at least 2 big steps now since year-end. One is, of course, that the risk for -- with the bondholders heavily decreased the financial risk by -- in SBB, meaning that the discussions or the legal topic with the bondholders doesn't exist anymore. So that is very helpful in being able to raise liquidity and also the judgment by the rating agencies. And also now we show that we can attract equity. And that should also be read that if we need to or if we want to, we can always issue more equity. So then have like a clear path to both debt and equity is very helpful when you do the judgment of the rating in a company.

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

Thank you. Thank you for listening. I think we are in SBB very happy about the development in the ongoing business. The like-for-like revenues grows in a good pace. And even higher pace is the net operating income growing due to a strict cost control in SBB at the moment. And also, we think the financial market is improving for us. Gradually, we get more access to capital, both debt and equity, which is helpful. And I think we're taking step by step in the right direction, and we will bring SBB back to financial stability. Thank you.