Sveafastigheter AB (publ) ($SVEAF)

Good morning, and welcome to this audiocast and presentation with Sveafastigheter and KlaraBo. Today, we have Erik Havermark, CEO of Sveafastigheter; and Andreas Morfiadakis, CEO of KlaraBo, here to present the proposed merger between these 2 companies. But I'll leave the floor open to you. So gentlemen, please go ahead.

Hello, everyone, and thank you for joining us today for the presentation of this transformative transaction, which creates a scaled residential platform with an improved cash flow profile, stronger credit metrics and broader geographic exposure to markets benefiting from long-term housing demand within the Swedish rent-regulated market. My name is Erik Havermark, CEO of Sveafastigheter and joining me today is Andreas Morfiadakis, Co-Founder and CEO of KlaraBo. Very happy to be here today, and we have a presentation for everyone to listen into and then actually see the presentation on the respective website afterwards, if that is better.

Well, the -- today, we have announced the proposed merger between the companies. And there is a big rationale for this merger. We will be creating a much bigger company, of course, and this company will be 1.6x larger than before, and we'll have SEK 47 billion in assets. And we will also ensure that the income from property management per share will increase by a full 16%. And after the merger, the portfolio will have a total of 26,000 apartments and additional 7,000 apartments in the existing project portfolio, along with having 65% of the standing stock with refurbishment potential. This all in all, provides a very strong rationale for the merger. By growing the company, we will also gain a broader geographical spread and more predictability and resilience in existing cash flow. A mix of newly produced properties, apartments with significant value-add refurbishment potential and a promising project portfolio creates an attractive company that, thanks to its size, will attract domestic and international investors when we now also ensure that the free float and the share liquidity increases in the company. Furthermore, there is every reason to view the company's ability to continue to successfully finance itself within the banking system and the capital market positively. Of course, the size will strengthen our position in this market where we see opportunities to benefit from lower financing costs in line with new and refinancing credits. Something that stand-alone companies have more difficult achieving in today's market. Of course, we also foresee significant efficiency gains in connection with the merger. In total, we expect approximately SEK 120 million annually, of which SEK 85 million of these is estimated to be within property management and central administration. Obvious cost items such as Board of Directors, management, stock exchange, et cetera, reduce costs, but there would also be saving opportunities when we apply best practice from both companies to the organization. If we take a look at the transaction structure, there are a few steps that we need to go through, and it's important to point out that all these steps are conditional on each other. KlaraBo will begin with a decision of making an extra dividend of SEK 1.4 per share to the company's existing shareholders, and this is being done to achieve appropriate exchange ratio when we do the merger. KlaraBo will then acquire a portfolio from SBB of approximately SEK 7 billion in property value. The majority of which these properties are similar to KlaraBo's portfolio and with a similar business model. So they fit very well into our way of managing the company. This will take form of a share issue where the price is set as NAV for both companies. Furthermore, a merger plan will be adopted to merge the company's KlaraBo and Sveafastigheter, which will also be done at NAV. The exchange ratio here will be 9 shares in Sveafastigheter for 22 shares in KlaraBo. In connection with this, Sveafastigheter will create a new unlisted share class that KlaraBo shareholders will receive in exchange for its existing A shares. When the Board of Directors have proposed the merger, both companies, Sveafastigheter and KlaraBo have obtained fairness opinions in connection with these decisions. Sveafastigheter from Stockholm and KlaraBo from Deloitte. A notice of extraordinary general meeting will be issued and is expected to be held end of June this year, where a decision from 2/3 majority of the respective share class present at the meeting is required for approval. For this, both companies have received a number of voting commitments that support the transaction to increase the deal certainty. Regarding financing of the transaction, the companies have received waivers from the majority of the existing lenders, but have also secured bridge financing, thus all financing had already been handled in advance. There's also -- this also refers to the preference shares that SBB has issued to an external party in the portfolio that KlaraBo initially acquires. And then finally, when it comes to governance, the respective voting committee from both companies will propose at the Extraordinary General Meeting in June, a new Board of Directors. The Board of Directors that will be proposed have a short time plan to ensure that the merger and the consolidation of the company and the implemented efficiency gains will be realized. The Board will also afterwards, appoint a CEO for the combined company for the long term. Up until that, me and Erik will, of course, manage our respective companies as business as usual and make sure that we do everything we can to make the merger go as planned. Erik?

As Andreas mentioned, the transaction is based on NRV. All properties across the 3 portfolios have been externally valued with 97% appraised by the same valuation firm, ensuring a consistent methodology and valuation approach throughout. The NRV-based exchange ratio represents a 0.6% premium to KlaraBo's closing share price last Friday. Following completion of the transaction, 65% of the combined company will be owned by Sveafastigheter shareholders, 20% by KlaraBo shareholders, excluding the consolidation shares related to the SBB portfolio and 15% by SBB through the SBB portfolio transaction. Sveafastigheter is already Sweden's largest listed pure-play residential company, a position that will be significantly strengthened through this transaction. The combined company expected to be more than twice the size of the second largest player in the sector. The combined company is expected to deliver a strong increase in profit from property management, increasing by 16% per share, including synergies, which are expected to be fully realized within 12 months following completion of the merger. At the same time, credit metrics improved with debt-to-EBITDA ratio decreasing by 0.8x alongside a substantially larger market cap. Combining 3 portfolios under one integrated platform naturally creates meaningful synergies. We expect annual operational synergies of SEK 85 million, fully realized within 12 months following completion of the merger. In addition, the larger and more diversified company, supported by a higher share of income-generating assets and stronger credit metrics is expected over time to generate annual financial synergies estimated at SEK 35 million. Following completion of the transaction and refinancing of the bridge facility, we believe the combined company will achieve a BBB rating, a view supported by the rating watch positive communicated by Fitch Ratings earlier this morning. We continue to the time plan for this transaction. As Andreas mentioned, we intend to publish the merger information document in June and hold extraordinary general meetings for both companies on or around June 26. The merger is expected to be completed in mid-September. We will now turn to each company and portfolio, starting with Sveafastigheter. Sveafastigheter is Sweden's largest listed pure-play residential company with assets totaling SEK 29.4 billion and NOI slightly above SEK 1 billion. Our portfolio comprises more than 15,000 apartments under management with a focus on 4 key markets: Stockholm-Malardalen, University Cities, Malmo-Oresund and Greater Gothenburg, which together account for 93% of the standing asset portfolio. Sveafastigheter in its current form was established in 2024 and listed on the NASDAQ First North Growth Market later that autumn. In spring 2025, we received an investment-grade rating of BBB- with a positive outlook. And later that summer, we uplisted to NASDAQ Stockholm main market. Since the establishment of Sveafastigheter, we are focused on building a strong and scalable platform capable of supporting future growth. The organization and operating platform have been built to support portfolio growth without increasing the organization at the same pace, thereby improving operational efficiency and creating scalability benefits over time. As a result, Sveafastigheter is well prepared for this transaction and for realizing the identified synergies. And naturally, we also want to show a few examples of the assets in the portfolio. On the next slide, Andreas will provide an overview of KlaraBo.

Okay. Thank you for that, Erik. And KlaraBo was founded in 2017, and we have the business model that we implemented very early, and that was trying to find resi portfolios across the country with refurbishment potential. We pinpointed especially cities that are midsize and try to find good sized portfolios in cities like example, Svalov, Ostersund and Helsingborg that are our main cluster areas today, where approximately 60% of our portfolio is in those 4 cities. So the business model is quite simple. We do see that the apartments inside the buildings have a technical debt when it comes to the standards. And by doing the refurbishment, we can, in agreement with the union of tenants, of course, get a very good yield on cost. And we have historically been receiving yield on cost between 8% and 9% when we do these refurbishments. And we are doing at the run rate today, approximately 200 apartments. And of course, doing the proposed merger, we will be able to scale up that tempo, which will benefit our existing shareholders and of course, also the future shareholders in the combined company. The property value today is SEK 10.8 billion. We have 7,350 apartments under management, and we have a real occupancy rate of 96.8%. Like I started out, we have our 4 main focus areas and those are, again, Trelleborg, Vaggeryd, Ostersund and Helsingborg that are very important cities for us where we have approximately 50% of our portfolio. And I will let Erik talk about the SBB portfolio.

Yes. So the third portfolio included in the transaction is the portfolio we refer to as the SBB portfolio. The property value amounts to almost SEK 7 billion with NOI of almost SEK 250 million. The portfolio comprises more than 4,100 apartments with an occupancy of 95.3%. The asset complements Sveafastigheter's existing portfolio very well. And similar to Sveafastigheter and KlaraBo, the portfolio has substantial potential for apartment upgrades. An important advantage in this transaction is that Sveafastigheter already manages the SBB portfolio today. This gives us deep operational knowledge of the assets and creates favorable condition for efficient integration and realization of synergies. On Page 14, we present some selected assets from the SBB portfolio. So with this overview of the 3 portfolios included in the transaction, we now move on to the key benefits behind the merger. As previously outlined, the transaction is supported by a compelling industrial and financial logic. The transaction creates a significantly larger and more diversified residential platform with SEK 47 billion in property portfolio and broader exposure to structurally attractive housing markets across Sweden. At the same time, the portfolio composition improves through a higher share of income-generating assets and a reduced share of development properties, strengthening cash flow generation and lowering operational risk. Through increased scale, improved portfolio composition and broader geographic diversification, the combined company is expected to deliver stronger and more resilient cash flows while also benefiting from meaningful operational and financing synergies. The transaction further strengthens the company's financial profile through improved credit metrics, enhanced financing access and the potential for a BBB rating upon completion of the transaction. And this was reflected this morning when Fitch ratings placed via Sveafastigheter on rating watch positive for a potential BBB rating once the transaction has been completed and the average debt maturity extended. In addition, increased free float and stronger share liquidity are expected to broaden the investor base and strengthen the company's market position. Finally, the merger creates a stronger foundation for long-term shareholder returns through sustainable earnings growth and dividend capacity. Let us now take a closer look at the scale of the combined company and the strategic benefits from that increased size. What is already Sweden's largest listed pure-play residential company will, through the transaction, further strengthen its market position and become more than twice the size of the second largest listed residential company by asset value. With SEK 47 billion in assets, the scale of the enlarged company represents a more relevant size for a listed company and is expected to attract greater interest from both domestic and international investors, broadening the shareholder base and increasing share liquidity. The increased scale and strengthened credit profile are also expected to enhance the company's attractiveness in the debt capital market, further diversifying the company's financing options and reducing financing costs over time, thereby creating the condition for a stronger market valuation. Let us now move on to the assets of the combined company. The transaction creates a scaled property platform with a broader geographic footprint, which is expected to reduce operational risk and create a more resilient and diversified asset base while also increasing yield and strengthening cash flow generation. In addition, the share of development properties will decrease from 12% to 8% -- the portfolio will continue to be focused around Sveafastigheter 4 key markets: Stockholm-Malardalen, University Cities, Malmo-Oresund and Greater Gothenburg. University Cities will remain the largest market, followed by Stockholm-Malardalen. The geographic footprint of the 3 portfolios is highly complementary and will be more operationally efficient to manage within one integrated platform, underpinning the expected operational synergies of SEK 85 million. We are confident in our ability to realize these economies of scale, supported by our strong familiarity with assets. As mentioned earlier, Sveafastigheter already manages the SBB portfolio today and around SEK 1 billion of the assets currently owned by KlaraBo originated from Sveafastigheter through the asset swap transaction in December 2025. As a result, nearly 80% of the assets in the combined company are either currently managed or have previously been managed by Sveafastigheter. On the next slide, we present the portfolio's exposure to the 10 largest cities as well as its age profile. The largest exposure will continue to be in Stockholm County, followed by Helsingborg and Linkoping. The 10 largest cities in the combined company account for nearly 60% of the portfolio, creating a level of clustering that supports operational efficiency. Collectively, these 10 cities represent exposure to almost 3 million residents compared to 2.5 million in Sveafastigheter on a stand-alone basis, indicating that the portfolio largest cities exposure are shifting toward larger and more attractive housing markets. The age profile of the portfolio is rebalanced toward a larger share of older assets. As a result, the portfolio's apartment upgrade potential increases, enabling us to continue focusing on strengthening NOI margin and driving value creation through upgrades. On the next slide, we take a broader view of the portfolio's geographic exposure. First of all, the transaction increases the share of income-generating assets in the portfolio, thereby reducing the relative exposure to development assets in the combined company. On this slide, we present the standing asset portfolio totaling SEK 43 billion. Important drivers of housing demand are population growth and income levels. Although the portfolio is rebalanced to some extent across our 4 key markets, the changes in underlying demographic and income characteristics remain limited. This is illustrated in the chart on the left-hand side. In Sweden, micro-locations are commonly classified on a scale from A to D, where A represents prime industry locations and D represents locations on the outskirts of the city. The portfolio remains predominantly concentrated in A and D locations, while the shift within each key market are modest. It is also worth highlighting that only approximately 8% of the combined property portfolio consists of properties with C or D rated micro-locations in municipalities with below natural average growth in both wages and population. Let us now take a closer look at the synergies expected to be generated through the merger. Annual property cost synergies are estimated at SEK 55 million, primarily driven by a larger and more efficient management platform. Increased scale improves operational KPIs such as the number of apartments managed per employee within the property management organization. With a larger portfolio, we are able to streamline processes and optimize the organizational structure. In addition, the combined company will benefit from applying best practices across both organizations. Bringing together 2 strong residential companies creates a strong foundation to leverage operational expertise and drive further efficiencies over time. Annual administrative cost synergies are estimated at SEK 30 million. These synergies are expected to be realized through the consolidation of corporate administrative function and reduction in broader corporate overhead costs. Additional efficiencies are expected from the elimination of overlapping external costs related to IT system and other administrative support function, licenses and consultants as well as the removal of duplicate costs associated with operating 2 listed companies. In total, annual operational synergies are estimated at SEK 85 million and are expected to be fully realized within 12 months following completion of the merger. With a portfolio that is approximately 60% larger alongside the strengthened cash flow profile and improved credit metrics such as net debt-to-EBITDA ratio, the combined company will have a stronger position in the capital markets and benefit from lower funding costs over time. Financial synergies are estimated at SEK 35 million on an annual basis based on the current credit rating BBB- and are expected to be realized gradually in connection with refinancing. Given the strengthened credit profile, an upgrade to BBB is expected following completion of the transaction, further supporting lower funding costs. With that, I will hand over to Andreas, who will on the next slide, Page 22, walk you through the balance sheet and earnings capacity of the combined company.

Okay. Thank you for that, Erik. And on this page, as you can see, we have the balance sheet and the earnings capacity for the combined company. And if we take a look at the earnings capacity, we see that the combined company's NOI after synergy effects increases by a total of 74% and is estimated to amount to SEK 1.7 billion annually. We see that the income from property management increased by a corresponding proportion, thanks to the fact that we also estimate synergy effects within central administration and this even without taking the effect of the financing costs that we will have in the future. This means, as we've mentioned earlier, an increase per share from property management of a total of 16%, which is something that will benefit all the shareholders in both companies, of course. A marginal increase in the loan-to-value ratio and is expected to be at 45% for the group, while the interest cover ratio is expected to be at the current level as has today, which means 2.1x. Take the next page. Well, size matters by the combined company, increasing the property value by 1.6x and now it will be SEK 47 billion. New doors will be open to the capital system. I think we have -- new doors will be open to the capital and bank system by simultaneously increasing the diversification of the portfolio, both through geography, but also through a more balanced business model where the proportion of the cash flow properties increases, we will have a more predictable and resilient cash flow. This creates the conditions for, among other things, a review of the dividend policy while strengthening the possibility of increased shareholder value. The merged company will be more active in the transaction market than before when the volume is now even larger. This aligned with today's portfolio optimization that both companies began last year. KlaraBo and Sveafastigheter have both been active in the transaction market, where acquisition, divestments and swap transactions have been successfully carried out. Next page, please. And not an insignificant reason for the proposed merger is that the combined company should be able to attract both domestic and international capital to a greater extent than today. From KlaraBo's perspective, it is challenging to attract investors to the company's share based on the company's size, market cap and share liquidity. Through the merger, these opportunities increase significantly for KlaraBo, but also for Sveafastigheter. The move that the company is making in this regard should attract a number of new investors at the same time as various equity funds will need to look at the company from an investor perspective. The market cap after the completed deal based on closing price on Friday amounts to around SEK 10 billion, but where the company is still traded with a significant discount to NAV. Finally, if we highlight some key figures on this slide, we can see that the valuation yield that the combined company has and which the transaction is based on amounts to 4.6%. And this is compared to the initial yield of 4.1% after synergy effects. As projects under construction, mainly in the Stockholm area, which is a strong transaction market become finalized and opportunities -- the opportunity to increase the pace of apartment upgrades to a greater extent, the initial yield will increase as cash flow improves. Of the new company's total number of apartments, approximately 17,500 apartments are estimated to have an upgrade potential with a subsequent value adjustment. This corresponds to 66% of the entire portfolio. And historically, this type of investment has given a yield on cost of between 8% and 9%, which should be compared to the valuation yield of 4.6%. Moreover, other key figures appear very stable and with the effects of cost efficiency improvements and lower credit margins, this will be contributing to improve earnings per share for all the shareholders. And with that, our presentation is ended here, and we open up for questions.

[Operator Instructions] The next question comes from Keivan Shirvanpour from SEB.

I have a couple of questions. So the first question is maybe from the perspective of Sveafastigheter and that is, how would you say that this affects this company's strategic direction? And should we maybe expect some revisions to financial and operational targets given that you have had a quite heavy emphasis on new construction in particularly?

Overall, it doesn't change our strategic view. I mean, through this transaction, we will increase the share of income-generating assets that is in line what we have set ambition for going forward. We will continue to focus on realizing the values in our development portfolio. However, the cash flow generated capacity in the new company is substantially stronger. As we have mentioned in the presentation, a new Board will be proposed for the AGMs in June, and they will then decide on the management for the company. Obviously, the new Board and management will have a view on some of the metrics going forward in terms of operational and financial targets. So we will get back to that in due course.

Okay. And then my second question is how much...

Sorry what we are communicating today is that we see a substantial stronger platform to have a dividend capacity going forward. And that is new for Sveafastigheter, I would say, in its present shape.

Okay. Good. And then the second question was related to any types of one-off expenses connected to this transaction?

We expect the expenses to realize the synergies to amount to approximately SEK 5 million.

Okay. And then also my third question is, when it comes to cost synergies, what could be said about savings related to the SBB portfolio transitioning from a management contract to now being wholly owned by the company?

Obviously, it will be more efficient to manage the assets when they are owned by Sveafastigheter. And when we communicate operational synergies of SEK 85 million, we also take into account that we will not have an income from the external property management agreement.

Okay. And just a final question, and that is -- do you see potential for maybe further consolidation? And would you see a rationale for merging additional companies into the new Sveafastigheter?

I think both me and Andreas see the potential to further grow the company going forward. Of course, we will now focus on integration. First of all, we want to have the decision in place in AGMs in June, and then we will focus in the short term to integrate the portfolios and realizing synergies, but we see potential further to grow the company and further consolidation is obviously one option we will evaluate continuously.

I think the investor if I could just add to that. I think the investor market has been looking for a consolidation of the residential companies. We are doing it right now, and we're making sure that our company is going to be by far the largest company of the listed resi companies. However, there is definitely more to do in that area. And I think there could be interesting opportunities that should be able to reach the surface. And if it's other listed companies or private companies, we will just have to see. But the new Sveafastigheter has definitely potential to grow even further.

The next question comes from Philip Hallberg from Nordea.

In terms of the property cost synergies that you state in the presentation, are those mainly related to property admin and thus fairly easy to extract? or is it related to something else?

It's combined, of course, but a big key is to making sure that we have the best practice in each area where we're active. So of course, it's -- some of it is property admin, but you also have lower cost in cost of -- when it comes to the management of the properties, of course, and also IT systems and further on. So it's a mix of everything, of course.

Right. And of this SEK 85 million, SEK 65 million is related to property expenses. And as Andreas mentioned, the majority is property administration and then SEK 30 million is synergies within central administration.

Yes. Okay. And then related to synergies on funding, you described that a bit. It's a fairly small number in your figures. But did I hear correctly that you don't take into consideration a better rating, for instance?

That's correct. We have not taken that into consideration. We are taking -- the only thing that we have taken into consideration is what the -- how the market prices credit margin today. So we are taking that and apply that to the entire debt portfolio.

Okay. And in terms -- just in regards to you're a larger company now, a larger scale, is the synergies for funding cost by being a larger company mainly related to the bond market? Or do you get a similar sort of positive margin impact from banks by being a larger company as well?

Yes, we see synergies both within bond market and secured debt in the banking system.

Okay. And in your combined pro forma figures that you have stated, is the KlaraBo divestment to surge reflected? Or is it based on just the KlaraBo Q1 earnings capacity?

That transaction is still conditional on financing. So -- and that is not reflected in our Q1 numbers NAV.

Okay. And just if you could remind us roughly the P&L impact from that. I have assumed some SEK 20 million negative effect on income from property management. Is that reasonable? Or am I totally off here?

I don't have that number right now. But I mean, we did sell those properties 2% below book value.

Okay. Just a quick question here. If I look in SBB's Q1 report, the residential properties had a value of roughly SEK 5.9 billion. I'm just wondering if they have added some more apartments in the quarter or is something else included in the SEK 6.8 billion that you state in the presentation?

So majority of the SEK 6.8 billion is currently in a joint venture structure in SBB. So I don't think you really can extract the exact value from that portfolio. And then there are some additional wholly owned assets, residential assets in SBB.

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

Okay. And we have not received any written questions, but I'll take this opportunity to ask you a few more questions on my own, if I may. Perhaps you could talk a little bit about the combined company's portfolio in terms of property composition and what you're looking at going forward. I noticed you had 14% of the portfolio in what you consider to be other cities. Are those supposed to be noncore? Is that something that you would consider divesting?

I think we're -- both companies have been working in the last year of finding the most optimal portfolio, of course. And that was one of the main factors why we did the swap transaction here 6 months ago. And after that, KlaraBo has done another transaction where we divest Avesta, of course, with assets that were nonstrategic for KlaraBo and then Sveafastigheter divest a new construction here in Stockholm area and where the market is very strong. So I think now we have a total number of properties where we have the opportunity to actually divest the putting together portfolios to divest so we can actually open up for other opportunities and continue to focus on the areas that we are -- our main areas. So of course, that circle with others should be -- could be used as future payment for actually expanding the company.

And the category which you referred to other, it's also worth mentioning that 88% of the properties in that category is in A and D micro-locations. So I mean, core assets for Sveafastigheter these assets in strong location where we see the potential for strong total returns over time.

Okay. And as you do the merger, are there any implications or hindrances that you have in terms of adjusting the portfolio, let's say, if you wanted to divest parts of the portfolio of assets, do you need to wait for, for example, synergies to play through or any legal structure before you can act.

No, no, we can act right away.

And as Andreas mentioned, both Sveafastigheter and KlaraBo has been active on the transaction market focus on portfolio optimization. That will continue to be an important focus area for the combined company.

And so far, you've done share buybacks as part of the capital allocation. Do you think that, that will be a part of the strategy going forward as well? I know that we are still awaiting the AGM and the new Board. But do you think that, that's something that's going to be part of the new entity?

Well, as long as you have companies that are traded with a massive discount to NAV, I mean, that will always be on the table because, I mean, financially, that is it is a good deal for the shareholders. And of course, will the company continue to be traded at that discount? The Board of Directors definitely have to have that as one perspective when they actually set the business plan in the short term.

And the Board in both companies, of course, fully stands behind what we are communicating today, and we are mentioning both increased dividend capacity as well as share buybacks.

Okay. And then perhaps my final question would be, in terms of the synergies that you've mentioned a lot during the presentation, the financial part of things, and I think that was brought up in the Q&A as well. What do you think is a reasonable time line for that? I know you mentioned the operational part is about 12 months. What about the financial part? Because it's also obviously involving refinancing, and that's going to take some time. But could you give us a little bit of what your own sort of planning is for refinancing and the effects of the financial synergies?

I mean the financial synergies will come at the same time we do the refinancing of the credits, of course. And I think the credit maturity today is 2.5 years, if I'm not mistaken. So it's to do the -- that will take some time. It won't be as quick as the more operational cost. But of course, I mean, credit margins will be lower than our company stand-alone can achieve today.

Okay. Perfect. Those were all my questions. And since we have not received any written questions, I just want to double check that we haven't received any more questions from the call.

No, I don't think we have received any more questions. And if you have any follow-up questions, we are, of course, available throughout the day. Thank you for listening.

Thank you for istening, and have a good day.