Investor Update

Nov 15, 2019

Slides

And we are very happy to present the creation of the social infrastructure champion in The Nordics by today's announcement. Next slide, please. On Slide two, you can see the main reasons and the main strategic rationale for this unique transaction. This is the transformational transaction where we are creating the fourth largest listed player in The Nordics and the largest player infrastructure field in The Nordics. Social infrastructure in The Nordics is a unique combination of assets where we have high exposure to Nordic welfare states with very low risk assets in terms of elderly care homes, schools, municipal buildings, special housing for people with special needs and combine those with Swedish rent regulated residential. If you look at the balance sheet, you will see strong balance sheet that will be even strengthened after this deal and where we are targeting BBB plus within the next twelve months. There is also strong opportunity to with this deal to unlock significant synergies both and to start with lower financial costs, some operational synergies and also strong value creation from property development, from refurbishment and from transactions benefiting from FBB's active asset management. And finally, also very important in those states, we are creating strong platform for sustainability. So this together creates a unique combination of low risk assets with very strong balance sheet. Next slide, please. A few words about the transaction. We are offering to Hempfusar shareholders mix and match cash and shares, 45% cash and 65% shares. This is in order to give Hermoso shareholders both opportunities to realize immediately values, but also to have opportunity to participate in long term value creation, taking part in synergies that we are creating. We are creating on running on a twelve month basis, 300,000,000 in synergies, post tax, CHF $260,000,000 coming from lower financial costs and CHF 40,000,000 coming from operational synergies. On top of that, as I mentioned in the introduction, we will have extra value creation from property development, from refurbishment and for our strong transaction team. We are also expected to get higher rating for transaction, and we are targeting Zipplbee plus rating in the next twelve months. The offer is fully financed. And you can see at next slide that we are also giving our shareholders the opportunity to participate in the value creation by announcing fully underwritten right issue of SEK 1,500,000,000.0 in B shares and with share price of SEK 23 per share. That is discounted 3.6% in relation to yesterday's closing price. We used to issue shares of premium, but it feels good to issue discounts to our own shareholders that can participate in value creation. And you can see also timetable for right issues starting with the November 30 and where the final results of the right issue will be are planned to be released on or around December 13. Next slide, please. Next slide, please, to Slide six. For you for some of you that don't know about SEB, SEB is the leading player in Nordic social infrastructure. We have properties for CHF 31,000,000,000 consisting of community service properties of CHF 18,000,000,000 and stronger residential portfolio, rent regulated residential in Sweden, more than CHF 10,000,000,000. We are also the first private member ever of public housing Sweden, which is emphasizing our strong relationship with municipalities. 91% of our income is coming either from government direct or indirect or from Swedish rent regulated residential. As you can see on the slide, for the first nine months of this year, we delivered net profit of 1,337,000,000.000. We have exposure, strong presence in Sweden, Norway and Sweden presence in Finland and starting in Denmark. Ninety Four Percent of our property value is coming from elderly care homes, schools, municipal buildings, special apartments for people with special needs and Swedish rent regulated residential. Next slide, please. As I mentioned in the introduction, we are creating value from AAA assets where we have probably the world's safest real estate asset class in terms of exposure to the Nordic wealthy state, with Norwegian and Swedish governments as the largest tenants. We are also emphasizing our long trusted partnership with municipalities through the fact that we became the first private member ever of public housing Sweden. We have been very successful on doing off market deals and important message here for those of you that are not from The Nordics is that this is unique exposure to AAA rating because the Swedish municipalities cannot Norwegian cannot declare bankruptcy at the end of the day. Municipal contracts are ultimate state risk. And we have been very successful in creating value both from property development, but also from renovation and refurbishment. All of that on top of very stable and low risk rental income, where 91%, as I said, in terms of production is coming from state or municipalities, direct or indirect or Swedish regulated residential. Next slide, please. Next slide, please. Slide nine. Kempusa is a natural partner for F and B. And Kempusa has today 40,000,000,000 in property value with strong economic occupancy and virtually no tenant to no rent. And delivered €1,500,000,000 in net profit for the first nine months of this year. Camfusa portfolio is based in Sweden, Norway and Finland, and 93% of portfolio is coming from community service properties, slightly high share of public sector offices and very good share of educational property schools preschools, but also strong footprint in elderly care homes. Next slide, please. Combination is unique combination of low risk assets that will actually transform Swedish real estate market by creation of the fourth largest player fourth largest listed player, as you can see on the slide, with CHF 70,500,000,000.0 in property value. Next slide, please. Few more numbers. As I mentioned, euros 70,500,000,000.0 in property value, 78% community service properties, elderly care homes, schools, municipal offices, LHS housing, 15% Swedish rent regulated residential, which means unique combination of low risk assets, strong footprint in both Sweden, Norway, but also in Finland and starting to make footprint in Denmark. Also strong geographical coverage in larger cities in The Nordics. Next slide, Slide 12, please. On this slide, you can see that 78% of total portfolio of community service properties, 50% regulated rent regulated residential in total, 93% social infrastructure. You can see strong position in elderly care homes, schools, preschools, police and justice buildings and LSS housing. And those are the assets with lowest risk in real estate business. So combining those low risk social infrastructure or low risk community service properties with the Swedish rent regulated residential creates a unique combination of low risk assets with exposure to the Nordic self estates and almost direct access to tax funded funding panels. Next slide, please. On the Slide 13, you can see that Norwegian government, the Swedish government are our largest tenants. We are very high exposure to sovereign credit rating countries. We have long leases, almost perpetual. Together with S and P, we look at our leases three years ago and could conclude that of those expiring in next three years, thirty two percent have been there for more than ten years, and almost 70% has been there for more than ten years. Just a half year ago, we signed the first ever fifty years, five-zero, fifty years lease with one of Swedish's richest municipalities. Our contracts, our leases are on very attractive terms, ten to fifteen years, no break closes, indexed to CPI and also without a difference to commercial real estate without CapEx, where we are using tenant improvements where tenants are paying for this through higher rents and longer leases. As I mentioned before, very high exposure of community sales properties in prime location across major Nordic urban regions. And the highest we are, like 65% of property value in major Nordic regions with Stockholm and Oslo as the largest region. You can also see that we are very low rents. There is a large potential in relation to replacement costs in all of our segments, in health care, elderly care, group housing for people with disabilities and LSF housing. Next slide, please. Here, you can see some of key ratios that are underpinning strong profit with financial upside. You see that we have a relatively high net initial yield of 5.1%. This is very high for this kind of low risk assets and creates big potential for continuing upside, strong economic occupancy and long maturity, effectively perpetual. You can also see that we have relatively low values at balance sheet. We are averaging, for combined entity, 17,400 per square meter. And please compare with some commercial fees, so you will see what kind of upside is there. We have also relatively low passing rent of $12.33 per year square meter, which is also creating large upside potential. Strong financial metrics, net LTV below 50% in next year, strong ICR higher than 3x. And also, as you can see, strong profit delivery from both companies. SBB, first nine months, one point three billion, Handfuta, first nine months, one point five billion, in total SEK 2,800,000,000.0 in net profit for the first nine months this year. Next slide, please. Slide 15, we are showing the substantial synergies that will drive total shareholder return, that will give good profits to SUBJECT shareholders and to Henfusen shareholders. We are presenting CHF $260,000,000 financial run rate synergies and €40,000,000 from the operational run rate synergies. It is in total 300,000,000 run rate synergies after tax. And you can do your math by yourself if you multiply that with 4.5% FFO, so you will understand what kind of value creation we are delivering on the day one from combined entity. On top of that, we can add our applying our strong property development team on developing, building rights and creating unrealized or showing values from the development of building rights for social infrastructure, also focusing on investing in innovation and refurbishment and continuing value creation that we, Nestle B, have been able to for every invested clown to double the yield during this year. And we presented just a few weeks ago the profit or the results for Q3 showing that we are higher than target on our refurbishment of apartments. And then strong profit from Capsule Recycling, we are among the largest or most active transaction players. We have a long and strong long experience and strong team working with transaction for the first nine months this year. We did transaction for SEK 16,000,000,000. And just to give you a flavor on that, for example, selling BNB's headquarter in Central Uskow, we made SEK 1,800,000,000.0, 1 point 8 billion in free cash. So there is continuing strong potential to create extra value from noncore assets. Next slide, please, Slide 17. For SPB, sustainability is a core part of our business model, and the combined entity has strong performance. For example, we just announced a few weeks ago that we are moving all of our electricity consumption to 100% all gene certified renewable electricity, which means reducing carbon dioxide emissions by 15,000 tonnes per year. And on top of that, also reducing nuclear fuel weight with nearly 70 kilograms. Our green bond framework has strong marks from S and P and rating from Cicero. In the same way, Kernfousa has green bond framework with strong rating from Cicero. And Herfuta has been since 2016 affiliated to the UN Global Compact. And adding to that, FB's strong involvement in the communities and investments in among others, working together with municipalities to offer young kids summer job, create strong sustainability focus and good partnership with municipalities. Next slide, please. Next slide, please. It's few slides in appendix, Slide 19, just to give you some continuing flavor on how increased size is also presenting and delivering operational and financial targets, important message here, that combined company will have EBITDA of SEK 3,400,000,000.0 on twelve months rolling, and this is just from property management. On top of that, you have to add the profit from property development, profit from refurbishment and profit from transactions. Next slide, please. At Slide 20, you can see some indicative time line. Today, we announced the public tender offer. Tender offer acceptance period is planned to begin November 19. And we are planning to announce the final results of tender offer of December 23. Concerning rights issues, we are planning to have twenty second November, a record date for rights issue and planning to announce our final results of rights issue on or around December 12. Next slide and final slide to summarize. This is a unique transformational deal, creating the fourth largest listed player in the Nordic real estate market and the Community Sales Property Champion with exposure to unique combination of low risk assets, Swedish rent regulated residential and elderly care homes, schools, municipal buildings and special housing for people with special needs in the Nordic, highly attractive and very low risk portfolio. We also strength we are also strengthening balance sheet and delivering strong KPIs, improving STDs KPIs and accelerating delivery of financial and operational targets by, at the same time, targeting BBB plus rating within next twelve months. As I presented, opportunities to unlock significant synergies and value creation, both from financing and operational synergies, SEK $260,000,000 from financing, SEK 40,000,000 from operations, the post tax, twelve months run rate today one. And on top of that, significant upside from creation of building rights, continuing investment in refurbishments and renovations and strong transaction plan with using FCD's active asset management. And finally, we are creating a very strong player that is focusing on sustainability. Thank you for listening and question please. Thank Please go ahead. Louis, your line is now open. Yes. Hi, this is Louis at Danske. I was just wondering if you could clarify a bit in terms of you have it's a combined equity and cash offer. So if one assumes that at least some shareholders will prefer to get paid in cash then on a pro form a basis, the way I see it, I mean, the leverage of the combined entity will rise at least slightly from current level. And wouldn't that mean that leverage is a bit too high for the current requirements for the current ratings? And given that you have a target of getting BBB plus, that would require even further deleveraging. So wouldn't that mean that sorry, Louis, if we have not been clear enough to explain, but there is the offer is 55% shares and 45% cash. And the day one, the balance sheet is strong with the job that we are doing with combined entities. So we are counting on to actually get stronger rating when the transaction has been completed. Yes. But with even with the 45% cash, I mean, that's SEK 10,000,000,000 that will be paid, right? So I mean, your I don't know if I got it wrongly, but if I try to do the S and P ratio, I get to about 60% that Louis, you know that I like to do calculations that you can be sure that I have run through everything. So the part of that, that I probably forget to mention is that we will also, as a part of the transaction, explore opportunities to do a hybrid. And that will, of course, result in much stronger balance sheet. But we will be back on the give us a few days, and we will be back on that. All right. Okay. We got all right. Thanks. Thank you. Okay. We now go to the line of Jan Efelt at Kepler Cheuvreux. Please go ahead. Jan, by the way, there's a lot of background noise on your line, just so you're aware. Okay. Yes, I've got my questions then. I just wonder your share in residential properties will decrease as Hemphosa has not any residential properties as far as I know. And I just wonder how you look upon this segment, if you were going to expand it or just having the properties you have or just focusing on renovation? As you know, Jan, we are a main partner to municipalities in The Nordics, and we will continue to do the deals with municipalities, including both rent regulated residential, but also elderly care homes and schools. Just a week ago, we announced a new deal with the municipality of Stockholm, which is the largest city in The Nordics. And at the same time, we see that we could divest some noncore assets, how to say, office like from combined entities. So I'm sure we will be able to do good value creation from divestments and at the same time, to be strong partners to Swedish municipalities, both in terms of rent regulated residential, but also elderly care homes. And we are also right now having discussion with some Finnish municipalities to school there. So there is a very strong traction that we have from the Nordic municipalities. Okay. And you newly bought a fairly large portion in Amazdan. Will that have any impact from this deal that you announced today? Or any could you just comment on that investment? Yes. That is, for us, core investment. We see Swedish and regulated residential as together with Healthcare Homeschools and LFS Housing, the lowest risk assets in the world. And we are happy with our position with Amazfit and having exposure to Swedish and regulated residential is part of our view of the Nordic social infrastructure because the Swedish residential are completely rent regulated and very close to public housing. And that is also why we became the first private member ever of public housing freedom. Okay. And my final question is regarding your tax situation. What kind of amount or level will you pay on paid tax going forward? Have you any guidance on that? I mean we used to say without giving guidance, but the part I used to say that I used to calculate 10% in paid tax. So that gives you a flavor about it. Thanks very much for taking my questions. Thank you. Okay. Before we go to the next, which is Simon Mortensen of DNB Markets. Mr. Mortensen, over to you. Yes. Hi. This is Simon from BB and B Markets. Just the I wanted to clarify a bit. In terms of the synergies, can you just help us to understand how you expect these to come through specifically? First of all, just operational ones, where do you see the savings? Is it management? What is it? And the second one, what is saving the financing costs so significantly versus current rates? Simon, it's very easy concerning the financing costs. You can just order our latest bonds, and you will see that we issued two years' money at 66 basis points. And Hermosa's maturity is around slightly over two years. And at the same time, Hermosa issued three years' money at two fifteen basis points. So there is large potential that we have summarized in €60,000,000 potential from lower financing costs. And on top of that, we are counting on CHF 40,000,000 on operational costs. And those CHF 40,000,000 I mean, we don't need to have two head offices. We don't need to have two boards. We don't need to have two IT providers and so on. So it's relatively straightforward. So those €300,000,000 is how to say, there is no question. This is not is not rocket science. This is relatively easy. But on top of that, we count that we can deliver strong profit from property development, from the building rights, from refurbishment and renovations. I don't know if you saw that, but already in Q3, we delivered over the target. We have been guiding 600 apartments on yearly basis in renovation. At Q3, we were four sixty two plus two thirty two that were already signed for Q4. That means that we are delivering over the target. So in those together, it creates strong value both to both ABB's current shareholders and Kampuso shareholders becoming new ABB shareholders. And also a final question. On Page 19 in the report, you communicate EPRA NAV, but you also communicate an adjusted EPRA NAV. Can you, one, tell me what is the difference and clarify exactly what is the difference between the EPRA NAV and the EPRA adjusted NAV? And secondly, what are what is the assumption in those figures? I would be very happy comment that the difference is that we are taking into account also these shares and perpetuals. And this is also to show that those parts of equity story that common D shares and perpetuals are also delivering profit to common shareholders. I don't know, Simone, if you remember, but for the first nine months of this year, we presented a profit of adjusted of SEK 1.61 per share after dividends have been paid to B shares and hybrids. So this is more to give the flavor how much of capital is working to deliver stronger tone to common A and B shares. Yes. But just to clarify, Dan, isn't that capital that you pay dividend from to others the same as you would have debt, but debt also will be value uplift, if I'm correct. Isn't that correct? No, but that's you are not correct because those are perpetual assets, Simon, and that is very important for the common shareholders. Debt is not perpetual assets. That is big difference. And you can, for the more underlying analysis, look at the European biggest real estate company around town or some other German companies. So you will see that we are doing the same calculations using the same methodology as they are. And this is very important for that kind of comparisons. And in terms of net debt to EBITDA, would you give us an indication of where you will have the new company long term? We will have below 10 times already in next year. Thank you. Thank you. Our next question is over the line of David Abraham at BTIG. Please go ahead, sir. Your line is open. Good morning, gentlemen. Just two quick questions. Firstly, in terms of the required merger control clearances. At the end of the press release, you say that you need Swedish merger control clearance. But it's a little bit unclear if there's any other jurisdictions required, in particular Norway and Finland. I was wondering if you can tell us if it's just Sweden you need or any other ones. My second question is in terms of the settlement date. The press release has a January 3 figure, whereas the offer website has a January 7 figure. So wondering if you could explain the discrepancy, please. Let me start with the first question. We are not so big, not yet, I should say, in Norway and Finland. So this issue is only related to Sweden. And concerning your second question, we will ask our IR to check that immediately The press release is correct. To adjust in accordance to press release, which is correct information. Okay. So the January 3 is the correct settlement date? Yes. The press release is correct, settlement date planned. Perfect. Thank you very much indeed. Thank you. We are now over to the line of Hittendaevda at UBS. Please go ahead, Your line is open. Good morning. Just following on from the last few questions, I just wanted to check, given that the Nordic governments and the municipalities are some of your biggest customers, are there any specific requirements you need to have from them for this acquisition? And secondly, if you could just provide a little bit more background on how we came to this recommended transaction this morning. It seems we've got to a stage this morning where we have a recommendation and we have a very prompt timetable of a five week offer period. Yes. I can start with the first question that I'm happy that you are asking. We are the most trusted partner to the Swedish municipalities, and there are no requirements from the municipalities affecting the transaction. I'm sure many of those will be happy, and this will create more opportunities to for us to do more deals with municipalities. And could you please repeat your second question? Sure. It was just to give us a little bit more background as to how we've come to a recommended transaction today, please. Yes. I mean this is a strong bid. I mean if you look at we are offering the premium of 22%. It is like 50 percent over NAV. And at the same time, also giving shareholders in helpful opportunities both realize immediate value from the transaction through the cash part and also be part of this amazing value creation using our strong balance sheet and strong rating and strong synergies from decreasing financial costs and applying our property development team on the health of the portfolio. So I can understand the strategic rationale why the Board is recommended transaction because this is the transaction that is very good for all shareholders, both in FBB and today's Airfossa shareholders, hopefully new shareholders in the combined or new FBB. Understood. Very clear. Can I just ask a quick follow-up? How important is it to get to this the acceptance level of 90% by the December 20? If we don't get to that level, should we be assuming that you will keep the offer open for a longer period to allow us to get to that 90%? Or would we just close with maybe slightly less than 90% and then move forward from there? I think we have tried to be very clear that we are targeting 90%, and we feel pretty confident that we will achieve 90% because this is very strong offer. Understood. Thank you very much. Thank you. We are now over to the line of Kardiakoussik at HSBC. Please go ahead. Your line is open. Hi. Thanks for taking the question. I have a couple, if I may. One is, you're talking about potential rating upgrade at the S and P. Any specific discussions you have had with the agencies? Any indications you have got from them? Or is it just your understanding of the situation? I mean, as we are already rated by S and P, and that is normal that we always have discussion with S and P. But this is just our assessment of that we will be stronger I mean, already today, with announcements, we are a stronger company. So this is my expectation. Okay. Any thoughts on your LTV post this transaction? Because from the way I see it, it's right now 37% and it goes up closer to 50% as for my calculations, even more than 50% as for my calculation. So any plan to bring it down? Any road map for bringing it down below 50%? Yes, yes, yes, absolutely. We are planning to continue to strengthen our balance sheet. And I think I mentioned in the presentation, we see that we can do good value creation by divesting some non core assets and at the same time also acquiring assets from the municipalities. So I mean we will have lower LTV. And also, as I said before, we are targeting net debt through EBITDA under 10x and also having BBB plus rating. Thank you. Thank you very much. Our final question for today is over the line of Philipp Hauberg at Danske Bank. Please go ahead, Your line is open. Yes. Hello, gentlemen. My first question is quite stupid, but I'll ask it anyway. So just for the new amount of shares, am I correct that in regards to common shares, it's $513,000,000 B shares? And then for the new issue, it's SEK 65,000,000 shares, right? So that's the total combined. So roughly $578,000,000 new shares? Yes. Will give you I will give you more I will give you exact numbers as we announced this morning. We are issuing, as you said, May shares and 65,000,000 that will be in right issue. That is correct. 34,000,000 B shares, right, for the preference shares? Yes, it's actually 34,000,000, 30 3 point 9 million D shares. Okay. Thank you. And then you were talking a bit about divesting perhaps noncore assets. Are those mainly related to the purchase in Temptosa? I would guess that Mr. Tagesan has a quite good insight in the portfolio. Because if I look, it wasn't that quite long. I know that you issued new financial targets. That was EUR 55,000,000 in property value, I guess. Now you're at EUR 70,000,000 or EUR 70,000,000,000 property value. Is it like SEK 15,000,000,000 in Hemphosa that is noncore assets? Or how do you view it? I mean, as you know, we have one of the most active transaction team in Bordeaux, I should say, without competition. It is headed by large targets, but you have also Oskar Lekander, Joakim Bildka Lund, you're in the Board, Lena Schuss, Senora, if you want on Credit First. So you have a lot of M and A and transaction, I should say, insight and experience in the team. And we are not giving any numbers, but it is very clear that we see that we can do strong value creation by selling non core assets. And when I said non core assets, that means assets with high share of this space. We are continuing to improve our improved quality in the portfolio by focusing on elderly care homes, schools, municipal buildings and the LSS housing and combine those with Swedish and regulated residential, I mean, creating the assets with lowest risk in the world almost without competition. So in that way, this divestment will be a natural part of increasing quality in our portfolio. And also, just a final question. Does this change anything in your financial targets, except for maybe the targets at property value of SEK 55,000,000,000? Does it change anything else in regards to NAV growth or anything like that? No. This does change anything. Rather, I mean, our Board has expressed before that they expected to propose dividend of SEK 0.6 per share, which is, I mean, at the level of the shares price of around SEK 34, that is the 2.5% in dividend yield, which is, I should say, unseen for this kind of low risk assets. And on top of that, you have to add value creation. So this transaction is strengthening value creation for both SBB and Hemphoostad shareholders, hopefully, new SBB shareholders. Okay. Thank you. Those were my questions, and congratulations to the deal. Thank you very much. As that was the final question for today, can I please pass it back to you for any closing comments? We have received two questions through the webcast as well. I think you've touched upon them already, but I read them and you can answer, Elij. First one is, can you please comment on the credit rating impact of the merger? And the second one is, are you going to issue bonds to fund the cash part of the consideration? And I can comment those questions. The answers on the first question is that we think that after today's transaction, SPB is stronger credit than before, and we are committed to achieve BBB plus rating within next twelve months. And I'll say that on the second question is that we do not need to issue any bonds. However, we will evaluate to issue perpetual bond hybrid if the market is right because we see that hybrid is an important part of our equity story, and we have a strong investor base. So we will look at that opportunity. Now after those questions, I would like to say thank you to all of you, and I hope that you have got the answers that you needed. And this is a transformational deal for Swedish real estate market. And if you have any questions or comments, please reach out to our IR. Thank you very much, and have a nice