Interim Report Q3 2021

Samhällsbyggnadsbolaget i Norden AB (SBB)’s income comprises secure cash flows from property management of social infrastructure, which are supplemented with three income-generating value-adding strategies: building rights development & new production, investments in existing portfolios and value-generating transactions.

Our focus is on generating the greatest-possible risk-adjusted return for our shareholders, who currently number slightly more than 130,000. Accordingly, the Board of Directors introduced new targets in connection with our capital market day in September. The target scale of the SBB property portfolio has been adjusted to SEK 300bn by 2026, and all of our operations are to be climate-positive by 2030. The Board also reiterated the target of generating growth in profit from property management per ordinary series A and B share averaging at least 15 percent annually over a five-year period and raising the target for earnings from property development to an average of SEK 2.0-2.5bn annually over a five-year period.

Targets are good, but results are what counts. Our return on equity over the 12 months is 33 percent. At the same time, growth in profit from property management per ordinary series A and B share on a rolling 12-month basis exceeded 60 percent.

SBB’s rental income is linked to the CPI and is therefore hedged for inflation. Given SBB’s active property management and property refinement work, our internal target is for our average annual increases in rental income in comparable portfolios to exceed the CPI by 100 basis points. We have exceeded the target every year since the company’s inception and the average outcome on a 12-month rolling basis for the past three years is about 120 basis points above the CPI. For the first nine months of the year, the increase in rental income in a comparable portfolio is 1.7 percent compared with the corresponding period last year, which is 140 basis points above last October’s CPI, which is the principal reason for the increase in the year’s rental income.

SBB’s earnings capacity increased by 63 percent to SEK 4.67 per series A and B share

SBB’s 12-month rolling earnings capacity rose by 83 percent compared with the third quarter of 2020 and amounted to SEK 6,658m (3,633) at the end of the first nine months of 2021. As of 30 September 2021, the earnings capacity per series A and B share was SEK 4.67 (2.86), an increase of 63 percent over the past year.

Profit after tax was SEK 13.3bn, an increase of 132 percent compared with the first nine months of last year. Adjusted for non-recurring costs for the repayment of expensive loans, for example, and deductions for earnings attributable to preference shares, series D shares, hybrid bonds and minority interests, profit for the period amounted to SEK 8.80 per series A and B ordinary share. For the 2021 full year, we forecast earnings of SEK 9.80 per series A and B ordinary share. This is based on SBB’s current earnings capacity and profit for the first nine months of 2021.

Profit from property management increased by SEK 851m, corresponding to 44 percent…

Adjusted for non-recurring costs, profit from property management increased by 44 percent to SEK 2,761m (1,910) in comparison with the first nine months of 2020. In addition to loan-repayment costs, non-recurring costs also included costs for loan redemption (SEK 171m), restructuring costs (SEK 40m) and unrealized FX effects (SEK 113m). Profit from property management does not include revenue from Unobo. Completion took place on 1 October.

… and continued strong profit growth from our value-adding strategies

Our value-adding strategies continue to deliver on all levels. By itself, the profit from our two value-adding strategies Development of building rights & new production, and Investments in existing portfolio ended up at SEK 3.0bn for the first nine months of 2021, corresponding to earnings per series A and B ordinary share of SEK 2.23 for the nine-month period.

  • Profit from Building rights development & new production for the first nine months of 2021 amounted to SEK 2,714m, compared with the target of SEK 2.0-2.5bn on an annual basis. At the end of September, SBB’s building rights and production portfolio, including joint ventures, amounted to approximately 64,000 apartments. Adding the 36,000 apartments in the JM portfolio, SBB would, with a total exposure of 100,000 apartments, be the European company with the greatest potential from future housing production.
  • Profit from investments in the existing portfolio in the first nine months of 2021 amounted to SEK 324m, compared with the target of SEK 600m on an annual basis. In the first nine months of 2021, SBB completed renovations improving the net operating income generated by 562 apartments. A further 142 apartments are currently being renovated and the leases on 224 apartments have been terminated, with renovation planned to commence within a three-month period. In addition to apartment renovations, SBB is continuously upgrading the company’s portfolio of community service properties. The total volume of these projects is approximately SEK 2,660m and, when these are completed, they will contribute to an increase in net operating income of SEK 146m on an annual basis. At the same time, the yield on cost for these value-generating projects is 5.5 percent, paving the way for strong value growth.
  • The transaction team continues to deliver with property transactions for a total SEK 37bn in the first nine months of 2021. An important part of the company’s social sustainability initiative is to contribute new elderly care units and LSS housing. The number of elderly care units to be managed in-house is set to increase sharply, with the target of doubling the total rental income from elderly care and LSS housing between 2020 and 2025, from the level of slightly more than SEK 800m to SEK 1.6bn annually. By the end of the third quarter of 2021, our income from elderly care units and LSS homes had increased to SEK 1,193m.

It is gratifying to note that our goal-oriented efforts regarding Project and Property Development are again delivering. As of the third quarter, we have 3,114 apartments and 102,556 m2 community service properties currently in production and 14,023 apartments currently in project development. Combined with our progress with our building rights portfolio, this has generated a quarterly profit of SEK 1,262m. The persistent need for housing and community service properties, combined with our building rights portfolio, means that profits from project and property development can be equated with profit from property management in our business model. Unobo, the company we own jointly with Riksbyggen, continues to grow with new properties from Riksbyggen. Among other events during the quarter, we opened the new Söderbymalmsskolan school in Haninge, outside Stockholm, opened Kulturhuset Sara, the cultural centre in Skellefteå, Europe’s most sustainable property, and broke ground on new apartments in Uppsala (162), Skellefteå (161) and Höganäs (80).

Key ratios for a BBB+ rating have been delivered

At the end of the period, our pro forma net debt, adjusted for cash inflows from properties that have been sold but not yet transferred, liquid financial assets and 12 months’ earnings divided by total capital, in accordance with S&P’s definition of the loan-to-value ratio, amounted to 48 percent. We continue to raise our interest coverage ratio, which was a multiple of 5.7 at the end of the period. We have SEK 130bn in non-pledged assets and non-cur- rent capital and fixed interest maturities. Our quota of non-pledged assets is among the highest in Europe. SBB had an average interest rate of 1.11 percent at the end of the third quarter.

Sustainability is the core of our business model

During the third quarter, SBB launched its updated Vision 2030, in which the climate target was sharpened from climate neutrality to climate positivity throughout the value chain by 2030. A concrete road map has also been launched, clearly detailing and illustrating how this target is to be achieved. The road map charts a clear course ahead for employees, suppliers and other stakeholders alike. SBB’s course to climate positivity by 2030 rests on three pillars: efficient consumption of renewable energy, generating renewable energy and life cycle investments focused on constructing with wood and green concrete with major elements of recycling. With continued investments in energy efficiency improvements, solar cell plants and heat pumps, SBB’s direct and indirect emissions will be sharply reduced. SBB’s strategy for at least 50 percent of its construction to be in wood has also sharply reduced the company’s indirect emissions in the construction process.

By expanding the charging capacity for electric cars at the properties, SBB can also help reduce its tenants’ emissions. Other targets introduced include at least 90 percent of the property port- folio comprising social assets, SBB’s financing being 100-percent sustainable, and SBB’s share being classified as green on NASDAQ Stockholm.

SBB is taking initiatives to generate conditions for being climate positive by producing renewable energy. We produce geothermal heat, build solar cell plants to generate power and are planning for wind power. In September 2021, SBB announced its plans to build a solar park in Hallstahammar. The expected annual production during a normal year is about 10 GWh, corresponding to 5 percent of SBB’s electricity consumption.

Over the year, SBB has conducted a thorough review of the property portfolio, assessing climate-related risks, including energy efficiency, floods, extreme weather, natural disasters and regulatory risks at the property level. The analysis provides a basis for management’s risk management work. The analysis shows that less than 1 percent of the property portfolio has a high or very high physical risk and that only 1 percent has a high or very high regulatory risk. A total of seven properties are in the risk zone for coastal flooding. Eighteen properties have a high energy consumption and/or high carbon dioxide emissions. In total, 94 percent of the portfolio is classified as very low risk or better in terms of physical risks, and 97 percent is classified as low risk or better in terms of regulatory risks. The analysis is conducted by MSCI and builds on established and scientifically founded scenarios, such as IAM, GCAM4, SSPs and ECMWF.

During the quarter, SBB began work on 162 homes aimed at young adults in partnership with the concept company Alive. SBB will be the long-term owner of the homes. Through the Alive concept, the rent will be about 30 percent lower compared with other newly produced homes. Partners in the project are Lindbäcks bygg, Tengbom arkitekter and Uppsala University. All of the buildings are constructed in wood in accordance with SBB’s Vision 2030 for at least half of all new production to use wood. Alive contributes to a sustainable lifestyle in which tenants assume an active responsibility for reducing their climate impact. The concept seeks to advance innovations for reducing CO2 and energy consumption by, for example, partnering with Uppsala University Sustainability Initiatives. This partnership serves to foster innovation in sustainability and to develop collaboration between businesses, universities and municipalities. And this year, 180 young people were afforded the opportunity to work with us during the summer.

Our team is our platform. Our team wins most transactions it considers worth fighting for and delivers shareholder value throughout the value chain, from property development to property management. We are also the buyer to whom municipalities and other long-term players choose to sell. At the same time, our employees increasingly have to compete with players with owners located in tax havens. It

is important to highlight such objectionable practices. Combining a long-term perspective and sustainability with owners from tax havens can be a conundrum. SBB’s principal owners pay their taxes in the Nordics and consider long-term planning to be important. Paying taxes in accordance with Swedish (Norwegian, Danish or Finnish) laws and regulations is also an important sustainability issue. Or simply a hygiene factor. Accordingly, we want to be extra clear to our shareholders that we will not compromise on sustainability. Instead, our competition continues to spur us on to further hone our approach.


For the 2021 full year, we raise our forecast to earnings of SEK 9.80 per series A and B ordinary share. Today we are a large family with about 130,000 shareholders and slightly more than 300 employees who are located in many places in several countries. Our employees and our infrastructure form a unique investment platform that will continue to deliver strong earnings, secure cash flows and high growth. The quality of our assets, both in terms of the security of the rental flows and of their liquidity in the transaction market, has proven to be among Europe’s most secure in challenging times. This commits us to continue building Europe’s largest property company focused on secure assets. We continue to repeat the mantra and deliver results.

Ilija Batljan
CEO and founder