CEO ILIJA BATLJAN
CASH FLOW INCREASED BY 201 PER CENT
After the acquisition of Hemfosa, Samhällsbyggnadsbolaget (SBB) is the Nordic region’s largest and one of Europe’s largest owners of social infrastructure. We continue to build a cash-flow machine through SBB’s scalable platform staffed with some of the Nordic region’s most experienced employees in the senior positions. Cash flow from operating activities before changes in working capital increased by 201 per cent to SEK 745m (248). Adjusted for non-recurring effects for the buyback of expensive loans, cash flow for the year ends up at SEK 942m (375).
NET ASSET VALUE INCREASED BY 73 PER CENT
In the past 12 months, the net asset value increased by SEK 16,1 billion, corresponding to 73 per cent per ordinary A and B shares. Net asset value EPRA NAV was SEK 20.04 per ordinary A and B share at the end of the fourth quarter.
Profit before tax was SEK 3,137m and profit after tax was SEK 2,624m. Adjusted for non-recurring costs for repayment of expensive loans and deductions for profit attributable to preference shares, D shares and hybrid bonds, earnings for the year were SEK 3.36 per ordinary A and B share.
EARNING CAPACITY FROM PROPERTY MANAGEMENT INCREASED BY 126 PER CENT
SBB’s 12-month rolling earning capacity from the management operations amounted to SEK 2,723m (770) at the end of 2019. Considering a theoretical cost because the company had a liquid position (available liquidity less deposited payment for the cash component of the Hemfosa deal) of SEK 6,930m, an adjusted earnings capacity would end up at SEK 2,845m, corresponding to an increase of 126 per cent per ordinary Class A and B share since the end of 2018 when earnings per share was SEK 1.02 per share.
The management earnings adjusted for non-recurring costs increased, compared with 2018, by 73 per cent to SEK 945m (468). In addition to costs for the repayment of loans, the non-recurring costs include SEK 10m in costs for the transition to renewable energy and SEK 10m for central administration. The strong net operating income combined with ever lower financial expenses are the main factors behind the strong increase in management earnings.
We see continued strong demand for rental apartments and extensive competition for both rental apartments and social infrastructure properties.
SBB’s property value amounted to SEK 79.5 billion at the end of 2019. The total area of our property portfolio is 4.2m sq.m. with a rental income of SEK 5,217m based on a 12-month rolling earning capacity. Approximately 65 per cent of the value of our property portfolio is in the Nordic region’s largest cities with Stockholm as the largest market (27 per cent of the value), with an average lease length of 7 years. If we adjust for signed but not yet closed leases, the average lease length would be nine years.
In connection with the acquisition of Hemfosa, SBB’s portfolio with building rights under development increased by around 700,000 sq.m. GFA to a total of 1.8m sq.m. GFA. Converted to potential for new construction, these correspond to approximately 20,000 – 24,000 homes.
We continue to develop our joint venture collaborations. This is done both with respect to the sale of building rights to the joint ventures, but also focussing on having social infrastructure such as elderly homes and properties for the disabled delivered to us. In one of our joint ventures, a project engineering agreement has been signed with the Swedish Police Authority for the purpose of building a new police station in Västerås on a jointly owned property with an appraised rental value of SEK 630m during the 15-year term in the lease intended to be signed.
BBB+ RATING FOCUS IN THE NEXT 12 MONTHS
We are focusing on achieving a BBB+ rating in the next 12 months, which is a prerequisite for strong growth. In the long term, the goal is to achieve an A- rating.
We continued to strengthen equity, by SEK 20 billion during the year. Calculated on our earning capacity on a 12-month rolling basis, the interest coverage ratio ends up at a multiple of 4.3. At the end of the year our net debt proforma, adjusted for upcoming property divestments, through total capital in accordance with S&P’s definition amounted to 54 per cent.
SUSTAINABILITY – A CENTRAL PART OF OUR BUSINESS MODEL
Sustainability is a natural part of SBB’s business model and SBB strives to be the most sustainable property company in the world. In order to achieve this, SBB launched Vision 2030 which sets out clear goals. The overall goals presented in Vision 2030 are:
- Govern the company’s operations in line with the UN global sustainable goals; (5), (7), (8), (11), (13), (15).
- 100 per cent climate neutral by 2030.
- Minimize the risks to the company’s assets by continuously reviewing the climate risks in the property portfolio.
- Regularly improve, follow up and report on the company’s sustainability efforts.
- The company’s Code of Conduct, which is based on the UN Global Compact, must be followed and understood by all employees and partners.
SBB provides social infrastructure by ensuring access to appropriate and affordable premises for the most important welfare state services. As a long-term partner to the municipalities, we invest in CSR and cooperate with the municipalities by, for example, letting apartments to the municipalities for social purposes. One of our important goals is to offer summer jobs in our residential areas so that approximately 100 young persons get the opportunity to enter the job market. We invest in our residential areas and, together with the municipalities, we are a player in sustainable urban planning and community development.
SBB’s secure cash flows are only marginally affected by the economy and external factors. We provide a strong earnings capacity of SEK 2.29 per share from property management. In addition to this, we see good conditions to continue delivering further earnings from our three value-creating areas – renovations/investments in the existing portfolio, development of building rights and transactions. We previously communicated that “For 2019-2021, our assessment is that we will be able to deliver the highest annual increase in net worth among all Swedish listed property companies.” We now have the outcome for 2019 and it is a high 73 per cent per ordinary A and B share.
SBB is now the leading property company in the Nordic region focused on social infrastructure. Our assessment is that we have the best conditions to continue developing our position. SBB’s strength is clear from some of the events after the end of the fourth quarter. First off is naturally the major success with the offer to Hemfosa’s shareholders, where SBB by the end of the offering period in January 2020 controlled 93.5 per cent of the shares and 93.8 per cent of the votes in Hemfosa. In addition, SBB issued a perpetual hybrid bond (equity) of EUR 500m with a fixed coupon of 2.624 per cent and, last, but not least, SBB’s successful unsecured 7.5 year bond of EUR 750m with a fixed coupon of 1 per cent – the largest ever for a Nordic real estate company.
We are continuing to deliver shareholder value, good profitability and strong cash flows. SBB’s new dividend policy entails a goal to generate a stable increasing annual dividend. The company’s Board of Directors proposes an initial dividend in accordance with the new dividend policy of SEK 0.60 per ordinary A and B share for the 2019 financial year, to be paid out with SEK 0.15 quarterly.
CEO and Founder
”SBB is now the social infrastructure property champion in the Nordics”
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.