SBB Q1 Earnings Call 2025. For the first part of the conference call, the participants will be in listen-only mode. During the Q&A session, participants are able to ask questions by dialing #5 on their telephone keypad. Now, I will hand the conference over to Treasury Director Helena Lindahl. Please go ahead.
Good morning, everyone, and a warm welcome to our first quarter earnings presentation. It has been an eventful morning, and Leiv Synnes, myself, Helena Lindahl, and Daniel Tellberg are ready to present the first quarter results. I will give the floor to Leiv, and he will run the results and the strategy update.
Thank you, Helena. If we look on the period, I think the underlying business in SBB is continuing to perform well. We see an increase in the revenues from a like-for-like standpoint by 2.7%, and the like-for-like growth in net operating income is a little bit more than 4%. Stable and positive development for SBB, and we continue to develop the income from our properties. Since the starting of 2026, the like-for-like growth from our properties has been 26%. That is very good. We see almost flat valuation of the properties. We see also that we continue to do good steps with our strategy, and our strategy and the core holdings strategy that we have is going quite well at the moment.
During the first quarter, we set new financial targets, and one of them is that we would like to grow the net asset value by a minimum of 12% per year. One way to do that is to increase the like-for-like revenue streams, and we need to increase the Net operating income by at least 1% above the inflation. The next target is a long-term goal to go back to investment grade for SBB Group. The first step is to make sure that our core holdings or large subsidiaries receive investment-grade funding. We have Nordicus doing that, and we also have PPI doing that. We believe that Svea Fastigheter is in a good position to also issue bonds with an investment-grade rating. That is quite good.
Also, one idea, which is nothing new for you guys, is that we intend to build efficient and leading companies in all business areas. As I mentioned, we have good progress with our subsidiaries and associated companies. In Nordicus, we did an additional raise of U.S. private placement. Now we have in total SEK 17 billion with a 13-year duration. It is quite good and stable funding, which complements the long-term assets we have in Nordicus. Svea Fastigheter received an indication from Fitch that they have a good chance to issue bonds with an investment-grade rating. All our three main companies continue to see good opportunities in the market, and at the moment, they are able to catch some of the opportunities. I come back to that later in the call.
We intend to optimize the property management in the community segment, and one way to do that is to split the holdings into two companies. One is called SBB Samhälle, and one is called SBB Utveckling. Utveckling is, in English, development. We add specialist workforce for each segment in order to continue to perform above the market. We know that we have had some high administrative costs in the last years due to various issues that we have had. One is the legal issues with the bondholders. One is that we tried to structure the group in a better way. Now it is time to start lowering the administrative costs, and we see a positive trend at the moment, and that positive trend we need to continue.
Yes, in short, the long-term goal is, of course, to have a transparent group with a lot of funding options for the holdings that we manage. We have then split the assets into four different segments. One is community, one is residential, and one is education. Now we split it into one subsegment more, and that is development. We will have a more specialist workforce that works with those properties, and the people there will turn potential into long-term value. In development, it's a property's value at SEK 4.9 billion, and we limit the properties to 10% of the company's Balance sheet. We do not think at the moment to increase the volume of properties here. It's just to maintain and develop the assets we have and turn them into Cash flow That's the goal.
We believe that this business has the ability to generate even higher return on equity than the Cash flow that we have. We have a 15% minimum return on equity in this segment. As I said earlier, the property valuations were flat during the quarter, and you see it here on the yield as well. The yield is rather flat at the moment. 4.8% we are receiving from the properties at the moment. The required yield on the properties is almost similar as in the end of 2024. The economic occupancy is rather stable for SBB. One part of that is that we hold a lot of properties with long leases, and we also hold a lot of properties in the residential segment in Sweden, which is a quite stable business.
Thank you, Leiv. All in all, Q1 has been a solid quarter, and our assets continue to perform. On a like-for-like basis, net operating income increased by 4.3%, driven by both rental increase of 2.7% as well as cost control. As Leif said, admin costs remain a priority area for SBB, and despite SEK 26 million in one-offs in Q1, admin costs are slightly below prior year. Total changes in value amount to minus SEK 131 million, impacted by some building rights being disposed. In total, unrealized changes in value amounted to minus SEK 36 million. Other financial items amounted to SEK 1.8 million, driven by FX gains of SEK 1.9 billion. In total, we are happy to see a bottom line of SEK 1.6 billion for the quarter.
I will talk a little bit about the financing. For the eighth consecutive quarter presentation, we reiterate the message that our main focus is to reduce the group's debt level and also to widen the funding sources. We have articulated this aim in the update of the financial targets that we strive to maintain and/or to gain the investment-grade rating of at least BBB- , and we have also expressed it in the new financial targets. For this quarter, there is a slight decrease in the loan-to-value with 1% down to 60%, and the secured loan-to-value is running at 22%. We still benefit from the very attractive long-term funding, which the company set up back in 2020 through to 2022. The bulk of our maturities are between 2027 and 2029.
The next large maturity we have is in August of 2026, and the management feels very confident that we have a lot of time to execute on the sale of the non-core assets. Sorry about that. I lost my line a bit. We have an average interest rate maturity of 2.9 years still, and the average interest rate is very favorable and low at 2.5%. The interest coverage ratio for the quarter is 1.8. Also, to go back for all of these quarters, we have amounted to a substantial debt reduction, and we will continue to reduce that. We will do so by not giving any dividends until the group can report an investment-grade rating as stated in the financial targets. Hence, we will mainly repay maturing debt, and we will do so by sourcing direct sales of real estate.
Also in Q1, we communicated and identified SEK 10 billion of non-core assets. Should that not be enough, we have liquid holdings and also are able to raise equity in subsidiaries to address the coming maturities. Back to you, Leiv, to summarize the quarter.
Thank you, Helena. To summarize, SBB has a decentralized group structure with four business areas. At the moment, I think that some of the companies we invest in are performing very well and also are able to grasp the opportunities they see in the market. Nordicus is acquiring assets and are growing the portfolio and have access to excellent funding. Svea Fastigheter is developing residential properties and see a good profitability in that. We also have PPI that grows and see a lot of opportunities in the market. One transaction that we have mentioned to the market this morning is that we intend to continue to support PPI with new equity. One way to do that is that we ourselves issue equity.
This morning, we have issued or we have said that we intend to issue shares, and those shares will be held by Aker Property Group in the end. The amount is approximately SEK 700 million. We will use those proceeds in order to buy more shares in PPI and support the growth of PPI, which we think is a very profitable and good company with a bright future. All of this, we continue to grow our companies within the SBB Group and with the ability for the whole group to go back to financial stability and at the end go back to investment grade. We can combine very long-term assets with very long-term funding and then provide a safe return to our investors. Thank you.
From our side, we are ready to have the Q&A session. I'll stick back to the operator, please.
To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Tarun from INFI. Please go ahead.
Hello, is this my line?
Yes, we can hear you.
Hi, so I have two questions. First of all, can you give us any details on any progress on sale of non-core assets? Secondly, you talked about raising some money from sale of an equity stake in the community service properties. How much cash could we expect from there? Can you give some color on, for example, when you did the IPO for Svea Fastigheter? I believe around a 40% stake was sold, and the cash generated was only about SEK 3 billion. Just some understanding around that would be helpful.
Yes, we have ongoing discussions with divesting mainly residential buildings, which are outside Svea Fastigheter, and the aim is to reduce it to zero in the next coming years. It is not urgent, but we intend to sell properties here and there and concentrate the holdings or residential holdings only to Svea Fastigheter. That is going well, and we have time on our side at the moment. The next large redemption of debt is in the autumn of 2026. We are not in a hurry to sell properties. We are taking our time and would like to sell at the highest price as possible. The second part of the question, if I just give you the round numbers, not the exact numbers, but the assets in the community sector for us is around SEK 40 billion. If you assume 50% leveraged, that means SEK 20 billion of equity.
At the moment, we are just preparing the company to be a stable company. If needed or we deem it good for us, we could raise equity in that entity. It's like we're creating an opportunity, and it's not sure that we will pursue the opportunity. We have other opportunities as well in SBB Group, and that is just one alternative that we have. Let's say we sell out 50% of the equity, that would be up to SEK 10 billion that we receive.
That's assuming there's no discount on the equity value. Can you tell me what the discount was when the Svea Fastigheter equity was sold?
I don't have that in my head, but it's a different kind of assets. You know that some properties are trading above NAV, and some properties are companies trading below NAV. It depends on the asset type. Residential is a little bit lower value than other kinds of properties. In the past, before we sold shares in Svea Fastigheter, we also sold shares in Nordicus. If my memory is correct, that transaction was at NAV. You should not assume that we will sell at discount.
Yeah.
Also, not sell at the discount at the current market value. If we sell, let's say next year, it's a good probability that the property prices are higher than today.
Yeah. Okay, clear. If I just may ask one other question, can you explain this transaction with Aker? It's all in-kind, right? There is no cash inflow for SBB. What does SBB get out of this transaction?
Yes, we like to help PPI to become a larger and even better company. It's already a good company, but it can be even better. We like to support that journey by injecting equity into PPI. One way for us to be able to do that is that we in turn raise equity. We have sent a message to the market that we intend to issue shares that will end up with Aker Property Group in the end. We get more equity, and one of our core holdings will also get more equity. Both SBB and PPI will be better companies according to my understanding. SBB will benefit from a new strong owner in Aker, which will be helpful in the future for us.
If we look on the numbers for us, it will mean that SBB will have a decrease in loan-to-value. Also, that one of our holdings will generate more dividend up to SBB because PPI Group will be a larger company and we will hold more shares, meaning that the potential for dividend and the cash flow from PPI will be increased. That will help SBB.
Okay. Understood. Thank you.
Next question.
If you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Othman EI Liraki from Fidelity International. Please go ahead.
Yes. Hi. Good morning. Thanks for taking my question. Just a question on your discussion with the rating agencies. Where do you stand today? I mean, you are making some very good progress. Do you have a timeline in mind in terms of when the rating agencies will react or anything like that? It's interesting to know. Thank you.
I think that we had a very, very good discussion with both of the rating agencies, Standard & Poor's and Fitch. I think regarding rating agencies, they will not give you a timeline of how quickly they can raise your rating. I hope it is apparent to everyone that we are working as hard as we can in order to find the financial stability and reduce the debt level in the firm. I do not think it will be within the next quarter, but you have to be on the longer-term horizon when we can get better investment-grade rating if you have sort of realistic expectations, which we have. I would like to reiterate that we had a very good discussion and a very constructive discussion with both of the rating agencies.
Also, I think if you read at least the S&P rating report, I think it's clear that once we raise liquidity, the rating will improve from the CCC area we are at the moment. That can be rather fast. It is also, of course, up to the rating agencies to do the judgment. We have done at least two big steps now since year-end. One is, of course, that the risk with the bondholders has heavily decreased the financial risk in SBB, meaning that discussions or the legal topic with the bondholders does not exist anymore. That is very helpful in being able to raise liquidity and also the judgment by the rating agencies. Also now we show that we can attract equity. That should also be read that if we need to or if we want to, we can always issue more equity.
To then have a clear path to both debt and equity is very helpful when you do the judgment of the rating in a company.
Okay. Excellent. Thank you very much.
Next question.
No more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you. Thank you for listening. I think we are in SBB very happy about the development in the ongoing business. The like-for-like revenues grow in a good pace. An even higher pace is the net operating income growing due to a strict cost control in SBB at the moment. We think the financial market is improving for us. Gradually, we get more access to capital, both debt and equity, which is helpful. I think we are taking step by step in the right direction, and we will bring SBB back to financial stability. Thank you.