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

Good morning, everyone, and thank you for listening in to our presentation of the second quarter of 2026. My name is Sebastian Westberg. I'm the Treasury Director and Head of IR at SBB. Here with me today, I have our CEO, Leiv Synnes, who will walk you through the highlights of the quarter, assets and strategy, the financials and finally, the key investment highlights of SBB. Myself and our Finance Director, Daniel Tellberg, will join Leiv in the Q&A session after the presentation to answer any and all questions that you might have. With that said, I would now like to hand over to Leiv. Please go ahead.

Thank you very much, Sebastian. And good morning, everyone, and welcome. I am Leiv Synnes, CEO of SBB. Today, I will walk you through the second quarter, a quarter where we continue to strengthen our core holdings, simplify the structure and execute the transactions that will build long-term value. Nothing new. That is what we have been doing in the last years. SBB today is a Nordic social infrastructure investment company. Core holdings are Sveafastigheter, Public Property Invest and Nordiqus. These entities represent the majority of our value. They are all market leaders in their respective segment, and this is an achievement to be proud about. Sveafastigheter is Sweden's largest listed residential company. Public Property Invest is Europe's largest listed social infrastructure company and Nordiqus is Europe's largest educational infrastructure company. These platforms have strong assets, access to investment-grade funding, strong demand from tenants and growing cash flows. The companies are young, and they still are improving every quarter at the moment. Non-core assets that SBB hold is good, but they will, over time, be divested in order to support stronger financials and to enable more resources to be put into the market-leading platforms. One example is SBB Residential that will be moved into Sveafastigheter, in line with the ambition to decrease non-core holding and increase core holdings. We, for sure, continue to walk the talk. Independent of the business cycle, we can try to improve the things we can control. This has been done the previous years and much so also during the second quarter. For Sveafastigheter, the second quarter was a transformational quarter with major strategic value creation. Sveafastigheter grows 60% by merging with KlaraBo and SBB Residential. I will come back to this later in the presentation. Sveafastigheter also started to divest newly produced residential assets during the quarter. These assets are sought after by investors and Sveafastigheter can by divesting realize 20% plus in development margin. The capital received can be recycled into new projects or used to repurchasing shares. If we go over to PPI, PPI is scaling fast, strengthening margin and expanding its Nordic leadership. Public Property Invest delivered many strategic improvements during the quarter, demonstrating both operational momentum and financial strength. During the spring, PPI successfully integrated SBB's Property Management and a large part of the central administration. This was a major structural step that strengthens efficiency, margins and platform scalability. The company also completed its primary listing on Nasdaq Stockholm, further increasing access to capital. Finally, PPI continues to execute on the funding part. The company secured EUR 3.6 billion 5-year bank financing and issued EUR 200 million in 5-year bonds, both at very attractive terms. This shows confidence in PPI from lenders and investors. It is also an evidence that SBB's strategy with moving assets into strong companies leads to enhanced access to funding. Operationally, PPI is expanding its footprint with disciplined high-quality acquisitions. During the second quarter, the company acquired 2 health care projects in Finland for EUR 33 million. They add long duration that supports stable cash flow and profitability. With a scalable platform, investment-grade rating and long leases and a diversified Nordic portfolio, PPI is positioned to continue consolidating the social infrastructure market. The company enters the second half of the year from a position of strength, stability and strategic momentum. And now on to Nordiqus. The company's platform is becoming increasingly robust, scalable and strategically important in the Nordic social infrastructure landscape. Portfolio activity is good in Nordiqus. Nordiqus successfully integrated previously acquired educational properties in Stockholm and Gothenburg that were acquired for SEK 1.8 billion. These assets strengthen the company's presence in 2 of Sweden's most attractive educational markets. And they contribute to a scalable and robust earnings base. During the quarter, Nordiqus signed a 15-year lease with Kunskapsskolan for a new school in Sweden, adding high-quality long-duration income. Nordiqus has low financial risk with long-term financing averaging more than 10 years and a strong investment-grade rating. And together, it can be said that Nordiqus has a very solid financial structure. In short, Nordiqus is currently strengthening its Nordic platform and is delivering predictable long-term cash flow based on long leases, essential social infrastructure and long-term funding. And now on to SBB Development. SBB Development shows that focus delivers results. During 2025, SBB put properties which needed more attention into a specialized company, which we named SBB Development. One year after its creation, SBB Development is delivering clear results. Net leasing reached close to SEK 13 million during the quarter, showing strong momentum. One example is a new 10-year lease with Saab for a 9,000 square meter in a previously vacant property. This is also a strong confirmation of the potential in our development assets and show organizational skills to enter agreement with professional counterparts. SBB Development showed property sales totaling SEK 500 million, 12% above fair value. Including the signed sale to KlaraBo, the balance sheet has decreased by 20% to SEK 5 billion during the year. I believe that more value-creating processes are underway, which we hope to be able to present to you in later reports. Sveafastigheter, KlaraBo and SBB Residential merger is a transformational step. Prior to the merger, SBB has become the largest owners in all 3 entities with a clear ambition to make all 3 entities stronger by a merger. The outcome of the merger will be a more robust and scalable platform, a stronger credit profile, more interesting for investors and a more stable and predictable cash flow platform. And it creates a company with SEK 47 billion in combined property value, which is an increase of 60% for Sveafastigheter. We will be able to get SEK 120 million in annual synergies. And regarding the benefits for SBB, SBB will gain a 20% earnings uplift due to improved cost of funds. This is a clear example of how far SBB actively built up market-leading platforms in improved capital allocation. Sveafastigheter is now positioned as a clear market leader among listed entities in a regulated residential housing market in Sweden, a sector with strong demand, resilient valuations and profitable growth. And due to the transaction, SBB capital structure will be more transparent and more cost efficient with less administration. Evidence of the reduced costs we hope to be able to present in the later financial report. This page illustrates the assets post the Sveafastigheter,KlaraBo and SBB Residential transaction. Our core holdings have become even stronger and more clearly defined, and there is a reduction in non-core holdings. It's even more clear that we now hold 3 Nordic market-leading platforms within social infrastructure, educational infrastructure and multifamily residential. Each platform is scaled with SEK 42 billion to SEK 52 billion in size, resilient with low downside risk in revenues and backed by investment-grade funding and also located in geographies with positive economic and demographic trends. This structure gives us a balanced transparent foundation for long-term value creation. This page illustrates the buildup of net asset value in SBB. First, we have the core holdings and the non-core holdings and then we have the debt in the parent. The majority of the gross asset value comes from Nordiqus Public Property Invest and Sveafastigheter, rather even position in each company with SEK 9 billion to SEK 10 billion in each company. The position in Sveafastigheter will be larger once the merger with KlaraBo and SBB Residential is complete. The number of holdings will be gradually reduced and more and more focus is solely put on developing the core holdings. The net asset is SEK 14 billion or SEK 7.94 per share, a slight decrease since year-end. Property valuations across our holdings are stable. For Sveafastigheter, there is a slight lower required yield in the best location, and the company has carried out sales at fair value, a clear signal of where the transaction market is. Nordiqus have had some isolated events in a few assets, which lowered the value growth. The same story goes for SBB Development, however, mitigated with good progress in development gains. For PPI, the higher interest rates in Norway has had a negative effect on transaction market and thus the values. But as a whole, a stable situation regarding property valuations. And if we move over to the financials of the quarter. The net operating income was stable, which basically is a result of a growth in Sveafastigheter and lower income in SBB Development due to divestments. The like-for-like net operating income is up, which is the key long term. The results from the associated companies and joint ventures came in at [ SEK 91 million ]. This is a figure that will be much higher in the future when property values have a normal growth pace. Negative foreign exchange effects and currency affect the result negatively with [ SEK 728 million ]. This is an effect of the debt in the parent being in euro and due to the stronger euro during this year. All in all, a negative result, but we have good hope to turn this around during the second half of the year. And now we come to the liquidity position. This has been much improved during the last years, and we have now a clear and well-defined path for managing upcoming debt maturities. We have funds for all maturing debt during 2026. For 2027, we have several options for managing the maturities and plenty of time on our side. One clear possibility is monetizing the SEK 5 billion claim that we hold on Nordiqus. The market value of our listed holdings add further flexibility from a financial standpoint. And overall, we have a strong confidence in our ability to navigate the maturity profile in a disciplined and controlled manner. Financial results for the period were negatively affected by adverse currency movements, which reduced net asset value and have an impact on reporting earnings. These effects are temporary and no cash. Operationally, the business remains strong, and we continue to deliver strategic improvements, which support long-term results. The property exposure increased mainly due to the growth in core holdings. This growth is expected to continue during the upcoming year. The interest coverage ratio is lower due to lower income from receivables from joint ventures. We expect to lower the debt in the parent and will also benefit from a larger [ Svea ], which is consolidated. So we are confident to maintain a good debt coverage in the future. Loan-to-value remains at a manageable level at 54%, but we have a clear ambition to lower the financial risk. This is expected to be done by good development in core holdings and divestments of non-core holdings. Let me summarize where SBB stands. SBB is a Nordic social infrastructure company. Our strategy is clear and consistent, build and develop the market-leading players in social infrastructure. These platforms benefit from strong market position, access to financing and a streamlined organization. We continue to strengthen our companies through strategic transactions, including the Sveafastigheter merger and through liquidity generating divestments that reinforced the balance sheet. Our corporate structure is now significantly simplified with focused platform and reduced central administration. Core holdings are retained long term, while non-core assets are monetized to create value and support for delivery lower leverage. This model positions us for net asset growth and long-term value creation. Thank you for listening in, and we will now move over to the Q&A session.[ id="-1" name="Operator" /> [Operator Instructions] The next question comes from Rebecca Clements from JPMorgan Asset Management.

I have a couple. The first one is related to some comments this morning on the [ Sveafastigheter ] call talking about capital allocation and share repurchase was mentioned. Do you have a preference as to whether or not if they do actually deploy cash for shareholder purposes, do you have a preference for share repurchase versus dividend? And what would a share buyback mean for the liquidity of the shares? I would think that, that would be a bit of a drag on the shares given that you hold a large proportion of those. So that's my first question.

Okay. I think we will try to increase the dividend received from our core holdings. And at the moment, we don't receive dividends from Sveafastigheter, and we hope to be doing so in the future. And we are receiving dividends from Nordiqus and PPI as of today.

Right. But they were asked about from a capital allocation perspective. I was personally surprised, given I know they haven't been paying dividends, I was surprised that they were asked about share repurchases. But would your preference be -- if it were up to you, would your preference be to receive dividends as opposed to a share repurchase effort on their part?

Yes, Sveafastigheter is like an independent company. But I think we, from our position, would welcome that the company start to give dividend. And this can, of course, be share buybacks could, of course, be a complement to that. That is our view.

Okay. And then what will be the pro forma stake that you hold in Sveafastigheter post the KlaraBo transaction?

[ 57% to 58% ], if I remember correctly.

What percentage?

58%.

Okay. And then the SEK 657 million receivable from PPI, will that actually end up being cash to SBB? And when do you expect to receive that?

We expect to receive it tomorrow, and it will be in cash.

Great. And then that leads into my last question. You mentioned that you had your 2026 maturities covered with existing liquidity, but it exceeds your reported cash balance as of the second quarter. So what will be the -- what will fund the remainder there?

Good question. That's correct that the liquidity on the balance sheet is not enough, but we have undrawn facility. And we have our own definition of liquidity where we add liquidity and unused facilities in the term. And together, that amount is larger than the maturing debt.

Okay. So we should assume that you would use your credit facilities to fund any sort of remaining portion that isn't covered by existing -- I mean, presumably, you want to hang on to some existing cash as well and then the receivable from PPI is the differential then you expect to draw that on the credit facilities?