Quarterly report Q3 2020

”As the largest owner of social infrastructure, SBB is one of Europe’s most socially sustainable company.”

As the largest owner of social infrastructure, Samhällsbyggnadsbolaget i Norden AB (SBB) is one of Europe’s most socially sustainable company. It is in this role that we shoulder a particular responsibility for society through social initiatives of various types, continuing to invest in sustainability and delivering social infrastructure that is of great importance to very many people. Through renegotiation of lease agreements, new lease agreements and through an active transaction team, our average lease duration for community service properties has increased by 28 percent, from 7 to 9 years. During the second and third quarters, we received 99.8 percent of our rental income, which is probably the highest of all listed property companies in Europe. In addition to various support measures for our tenants, SBB also invested additionally in summer jobs this summer due to the pandemic, with a total of 134 young people thus helping create pleasant local environments around our properties. In line with the UN’s global sustainability goals, as part of SBB’s sustainability initiative, Vision 2030, SBB’s project and property development centres on locations close to transport hubs, where land that has already been exploited is refined rather than taking up important green areas. An amazing example of this is the development of a new district in central Nyköping, adjacent to the central railway station, where brownfield sites are being transformed into a new district with housing and social infrastructure. The zoning plan adopted by the municipal council in September allows for the development of about 1,600 homes.

Strong earnings increase cash flow by 253 percent

Profit before tax amounted to SEK 6,142m and profit after tax was SEK 5,734m. Adjusted for non-recurring costs and deductions for earnings attributable to preference shares, series D shares and hybrid bonds, profit for the period amounted to SEK 4.39 per series A and B ordinary share.

Cash flow from operations before changes in working capital increased by 253 percent to SEK 1,590m (450) for the first nine months of the year. Adjusted for non-recurring effects for repurchases of expensive loans and restructuring costs, cash flow for the nine-month period ended up at SEK 1,796m (580).

Adjusted for non-recurring costs, profit from property management increased by 207 percent in comparison with the third quarter of 2019 to SEK 1,910m (623). In addition to loan-repayment costs, non-recurring costs also included restructuring costs and unrealized FX effects. The main reason for the strong increase in profit from property management was the sharp increase in net operating income. At the same time, we continue to lower our average interest rate, ending up at 1.41 percent (1.76) at the end of the period. SBB has no exposure to variable interest rates. The average interest duration for all interest-bearing liabilities is among the longest in the Nordics at 4.9 years (2.8) and the average debt maturity was 4.7 years (3.4). To further strengthen its sustainability profile, SBB intends to launch a framework for social sustainable bonds.

BBB+ rating in focus

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 and 12 months’ earnings capacity divided by total capital, in accordance with S&P’s definition of the loan-to-value ratio, amounted to 49.7 percent (see table below).

According to our calculations, we have thus fulfilled the key figures most significant for a BBB+ rating. In the longer term, our objective is to achieve an A– rating. This is supported by the quality of our assets, which have proven to be Europe’s most secure in challenging times. We continue to raise our interest coverage ratio, which was a multiple of 3.3 at the end of the nine-month period. We expect it to end up at a multiple of about 3.7 for the full year, to then pass 4 early next year. We have slightly more than SEK 60bn in unencumbered assets; cash balances, including liquidity from properties that have been sold but not yet transferred and financial assets of SEK 9.6bn, as well as available credit commitments of SEK 9.1bn.

Clear strategy based on sustainability

The integration of Hemfosa has now been fully implemented. The company has taken the best from both organizations and created a joint management organization resting on three clear pillars – community service properties, residentials and LSS housing – safeguarding efficient and qualitative property management moving forward. We supplement our secure cash flows from property management by generating value through property development, renovations and transactions. In property development, we are now focusing on using our extensive portfolio of building rights to construct new housing and community service properties based on the needs of the municipalities, both to be managed in-house by our new organization following the integration of Hemfosa, as well as through joint ventures with parties who assume the construction risk. Project and property development delivered SEK 852m in profit for the nine-month period, greatly exceeding our target of generating an average SEK 500-700m annually in profit from property development. The scenario analyses presented in the appendix to the project and property development section of this report show potential annual profit of SEK 1.1-1.7bn from property development.

In renovations, we continue to deliver on our target of renovating 600 apartments per year. Over the nine-month period, SBB completed the renovation of 437 apartments. A further 80 apartments are currently being renovated and renovation of a further 176 apartments is planned to commence within the next three months. Combined with renovation needs among community service properties, this generates potential for strong recurring earnings.

SBB is focusing on constructing environmentally friendly rent-regulated residentials in Stockholm and Gothenburg. Of the company’s previously communicated target of achieving a property value of SEK 125bn by 2025, at least SEK 15bn of that property value shall comprise rent-regulated residentials in Stockholm and Gothenburg.

Elderly people and people with disabilities are currently experiencing shortages of elderly care units and LSS housing. SBB views contributing new elderly care units and LSS housing as an important part of its investment in social sustainability. The number of elderly care units to be managed in-house is set to increase sharply, with total rental income from elderly care units and LSS housing doubling by 2025, from the current level of just over SEK 800m to SEK 1.6bn annually.


The pandemic has exposed major shortcomings in the world’s economies. This has required coordinated action by the world’s central banks to try and stimulate growth and create new jobs. Unfortunately, to date, the real economy has failed to generate growth and inflation, while continuing to conduct operations that risk our entire planet by failing to accept responsibility for the climate. The financial market is assuming an increasingly strong leadership role with regard to climate change. This means that the search for secure and sustainable assets will intensify in the years to come. This will benefit SBB’s secure cash flows and sustainable business model. In line with earnings for the first nine months of the year and the earnings capacity for the year as a whole, we see SBB delivering strong earnings capacity of SEK 4.86 per series A and B share. We will continue to invest in society by, for example, offering summer jobs to young people living in SBB’s portfolio of rent-regulated residentials. As of 30 September 2020, SBB’s portfolio of building rights amounted to approximately 2,185,000 sq.m. GFA for social infrastructure, corresponding to approximately 22,000 apartments, making SBB one of the leading property developers in the Nordics. This safeguards long-term value creation and sharp increases in net asset value. Two years ago, we communicated our view that we would be able to deliver the highest annual increase in net asset value among all listed Swedish property companies for the years 2019-2021. The outcome for 2019 ended up at a high 73 percent per series A and B ordinary share. After the first nine months of 2020, we are looking at increasing our net asset value per series A and B ordinary share by 22 percent, paving the way for the continued value creation.

I would like to repeat what I wrote in our Q2 report: “Covid-19 has gone from being a pandemic to also becoming a greatly increased risk to the world economy that leaves no one indifferent. The great uncertainty that currently prevails around economic development requires focus and hard work. Although community service properties and residentials are the least affected by the crisis, it leaves no one unaffected. On the other hand, this is neither the first nor the last crisis with which companies with a long-term focus have had to deal. Crises come and go and you have to be humble in the face of this, but our task is to be a reliable and long-term societal player that delivers shareholder value, good profitability and strong results in a sustainable way.”

With that said, all companies also bear an important responsibility to their shareholders, with whose money they are entrusted, and the Board of Directors of SBB has stated clearly that, given the company’s current position and prospects, its ambition is to propose to the 2021 Annual General Meeting a dividend of SEK 1 per series A and B ordinary share.

Ilija Batljan
CEO and founder