Background

Samhällsbyggnadsbolaget (SBB) was founded by Ilija Batljan in 2016. The business idea came from the founder’s great social engagement.

SBB's focus is long-term ownership of rental residentials in Sweden and social infrastructure properties and building rights in the Nordics. SBB shall be a long-term partner to the public sector in the Nordic region.

The housing shortage is one of the biggest problems in society today and a challenge for Sweden. SBB wants to contribute by creating new homes, either through developing building rights or by finding land where new homes can be built.

With the aid of a strong cash flow and long leases SBB can continue to develop and expand. With our long-term focus we can achieve our ambition to become the largest Nordic real estate company focusing on regulated residentials and social infrastructure properties.

CEO ILIJA BATLJAN

Samhällsbyggnadsbolaget (SBB) owns, develops and manages social infrastructure on a long-term basis in four Nordic countries: Sweden, Norway, Finland and Denmark. The common denominator for all four countries is that they are strong tax-financed welfare states. Social infrastructure consists of elderly care homes, healthcare centres, LSS group housing properties, schools and other properties where tax-financed activities are conducted in the Nordic region and by rent regulated residentials in Sweden. Our unique and scalable model of acquiring and managing low-risk assets that, in addition to a strong earnings capacity from the property management, also delivers profit from three value-creating areas – renovations/investments in our properties, development of building rights and transactions – continues to contribute to a sharp increase in net asset value. The net asset value after the deduction for dividends of SEK 438m increased during the first half year by SEK 857m or SEK 1.14 per ordinary class A- and B shares.

Profit before tax amounted to SEK 1,060m, where the profit from property management contributed with SEK 254m, investments and transactions with SEK 854m and building rights with SEK 40m. Profit after tax was SEK 933m. Adjusted for non-recurring costs relating to refinancing and the repurchase of bonds, earnings per ordinary class A- and B shares for the first half year was SEK 1.40 per share.

A focal point in our business model is a scalable platform manned by some of the Nordic region’s most experienced employees at the leading positions. SBB invests in low-risk properties that generate stable net operating income and manage the properties with a long-term perspective. We have a long experience of working with municipalities and we have built the company from scratch. The largest owners of social infrastructure in the Nordics are municipalities and we continue to be a leading partner to the municipalities in the Nordic region. Our strong position combined with demographic trends that lead to great needs for elderly care homes and schools creates the potential for new collaborations and growth. During the first half of the year, too, we have added new leases to our base of long municipal leases, such as the new 25-year agreement with Nykvarn’s municipality in connection with the rebuilding of the municipal house and a number of leases for elderly care homes, schools, preschools and LSS-group housing in Sweden’s fifth largest city of Linköping. Those are only a few examples. From the start, we have delivered shareholder value, a good profit and strong positive cash-flow.

Our property portfolio, where approximately 60 percent of the value is in the largest cities in the Nordics and with Stockholm as our largest market (26 percent of the value), combined with an average lease length of seven years (given the newly signed leases, rather an adjusted average lease length of 10 years) means low risk. We can add to this the fact that our total rental income, which for a rolling 12-month period amounts to SEK 1,999m, has 91 percent coming from social infrastructure either from rent regulated rental apartments or directly or indirectly from the state and municipalities through our community service properties. Overall, this is a low-risk exposure that is unique in its kind when the economy turns.

STRONG INCREASED PROFIT FROM PROPERTY MANAGEMENT AND EARNINGS CAPACITY
SBB’s estimated earnings capacity using rolling 12 months at the end of the first half year was SEK 1,006m, corresponding to an increase of 57 percent from SEK 640m at the end of the first half year of 2018.

Profit from property management adjusted for extraordinary costs amounts to SEK 377m (243m), an increase of 55 percent from the first half year of 2018.

PROFIT FROM INVESTMENTS AND TRANSACTIONS
Our pace of renovation is now at the targeted levels and will continue to deliver strong results and growth in net asset value. During the first half year of 2019, we have commenced the refurbishment of 248

apartments, of which 98 are completed. For another 147 apartments, leases were terminated and those are in the planning stages for renovation, to commence during the second half of the year.

During the first half year we closed transactions for SEK 14.5 billion. The transactions contributed with SEK 663m to the net profit for the period. This year, we could see how the transactions contribute to the cash flow, where the sale of DNB delivers nearly SEK 1.8 billion in free cash flow that we could use for new investments in social infrastructure with higher yields that both increased earnings capacity and created added value.

PROFIT FROM PROPERTY DEVELOPMNET
Property development also continues to deliver strongly. As at 30 June 2019, SBB had ongoing development projects in various stages of the planning process with a total volume of approximately 1,000,000 sq.m. GFA (gross floor area). During the first half year, the zoning plans of 50,500 sq.m. building rights were approved in Nykvarn Kaffebryggaren 1, Oskarshamn Hälsan 22 and Ulricehamn Krämaren 4. We have also built and leased out two 15-years leases for LSS-special housing buildings using our building rights in Malmö-Burlöv. We have signed long leases for an additional four LSS group housing properties under development. Sold and zoned (approved) building rights have delivered approximately SEK 157m in cash flow.

BBB RATING FOCUS DURING NEXT 12 MONTHS
The work of consolidating the balance sheet with the aim to improve our financial position culminated in the first four months of 2019. In April we received an investment grade rating BBB- from both S&P and Fitch. We have also, in our communication during the spring, clarified that in the short term (ie. within next 12 months), we will focus on a BBB rating, which is a notch better and leads to long-term lower financing costs. Almost half of our planned growth from SEK 25 billion to SEK 40 billion between 2018 and 2023 will be delivered organically through property development, renovations, renegotiations and thus higher rental income (i.e. without acquisitions). We want to be clear that we prioritise a strong financial position and look forward to combining it with strong growth.

We continue to strengthen equity during the first half year by SEK 4 444m. At the same time, we have repaid the majority of expensive loans, reduced the proportion of secured debt and increased the proportion of unsecured debt. Our interest coverage ratio has increased strongly to 2.2 times and our average interest rate on a 12-months rolling basis has decreased from 2.93 percent to 1.96 percent. We have also increased the maturity of fixed interest rate. Approximately 91 percent of SBB’s loans are with a fixed interest rate with an average maturity of four years. At the end of the first half year, our net loan-to-value ratio was 43 percent.

SUSTAINABILITY IS CORE IN OUR BUSINESS MODEL
We see a great potential in continuing to develop our property management through an increased focus on energy efficiency. Sustainability is a central part of our business model and we have initiated major investments in reducing carbon dioxide emissions by at least 400 tonnes per year over the next five years. Energy projects are underway in the properties Stensiken 1 in Tidaholm and Yggdrasil 1 & 2 in Skara, and these are expected to be completed during the summer of 2019. During the first half year, agreements were also signed regarding an energy project on the Tellus 1 property in Motala, where the goal is to reduce the amount of purchased energy by 50 percent. This will be done by recycling extract air and heat from waste water. In early February, SBB issued its first green bond of SEK 500m with a maturity of five years. At the end of June, we issued a further green bond of SEK 500m with a maturity of three years under our EMTN Programme.

OUTLOOK
SBB’s stable cash flows are only marginally affected by the business cycle and external factors. We deliver a strong earnings capacity from the property management and continue to see great opportunities to deliver profit from three value-creating areas – renovations/investments in our properties, development of building rights and transactions. We count on delivering the strongest yearly increase in NAV among Swedish listed property companies for the years 2019-2021.

As previously communicated, we are continuing work to prepare SBB for a listing on Nasdaq Stockholm’s Main List. SBB is on a strong growth path, having announced 10 acquisitions with a total value of SEK 8.9bn in 2019. As we continue to see opportunities to grow, we may also evaluate the possibility of raising capital in

connection with the listing on the Main List in order to further strengthen our capacity to fund growth in compliance with our recently achieved investment grade credit rating.

I am very proud over the company development so far during 2019. All in all, this gives us the best conditions for continuing to build the Nordic region’s strongest player with a focus on social infrastructure (community service properties in the Nordics and rent regulated residentials in Sweden).

Ilija Batljan
Founder and CEO

Ilja Batlian VD

"Our mission is to benefit our shareholders and society as a whole"

About Ilija Batljan

Ilija Batljan is the founder and CEO of SBB. He came to Sweden with his wife and daughter in 1993 as a result of the war in the former Yugoslavia. He was previously a deputy commisioner for Stockholm County Council and Mayor/Chairman of Nynäshamn municipal executive board, representing the Social Democrats. Following his political career, he entered the property industry and was deputy CEO of Rikshem AB for over four years. Ilija Batljan has a BA in Economics and a PhD from Stockholm University in demography and planning care of the elderly. Ilija Batljan has long and extensive experience from different management positions, from Sweden and internationaly.