Matthias and we are very happy to present the creation of the social infrastructure champion in the Nordics by today's announcement. Next slide, please. At 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 in social 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+ within the next 12 months.
There is also strong opportunity 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 refurbishments and from transactions benefiting from SBB's active asset management. Finally, also very important in those states, we are creating strong platform for sustainability. This together creates a unique combination of low-risk assets with very strong balance sheet. Next slide, please. Few words about the transaction. We are offering to Hemfosa shareholders mix and match cash and shares, 45% cash and 65% shares. This is in order to give Hemfosa 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 a running 12 months basis SEK 300 million in synergies post tax, SEK 260 million coming from lower financial costs and SEK 40 million coming from operational synergies. On top of that, as I mentioned in the introduction, we will have extra value creation from property development, from refurbishments and for our strong transaction team. We are also expected to get higher rating post-transaction. We are targeting BBB+ rating in the next 12 months. The offer is fully financed. 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 1.5 billion in B shares and with share price of SEK 23 per share. That is discount with 3.6% in relation to yesterday's closing price.
We used to issue shares at premium, but it feels good to issue discount to our own shareholders that can participate in value creation. You can see also timetable for rights issue starting with 20th of November where the final result of the rights issue are planned to be released on or around 12th of December. Next slide, please. Next slide, please, to slide six. For some of you that don't know about SBB is a leading player in Nordic social infrastructure. We have properties for SEK 31 billion, consisting of community service properties of SEK 18 billion and strong residential portfolio, rent-regulated residential in Sweden more than SEK 10 billion. 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 at the slide, for the first nine months of this year, we delivered net profit of SEK 1,337 million. We have exposure, strong presence in Sweden, Norway and building presence in Finland and starting in Denmark. 94% 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 welfare 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, the 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, or Norwegian cannot declare bankruptcy. At the end of the day, municipal contracts are ultimate state risk. We have been very successful in creating value both from property development but also from renovation and establishment. All of that on top of very stable and low-risk rental income, where 91%, as I said in the introduction, is coming from state or municipalities, direct or indirect, or Swedish rent-regulated residential. Next slide, please. Slide number 9.
Heimstaden is a natural partner for SBB. Heimstaden has today SEK 40 billion in property value with strong economic occupancy and virtually no tenant turnover. Heimstaden delivered SEK 1.5 billion in net profit for the first nine months of this year. Heimstaden's portfolio is based in Sweden, Norway, and Finland. 93% of portfolio is coming from community service properties, slightly high share of public sector offices, and a very good share of educational properties, schools, preschools, but also a strong footprint in elderly care homes. Next slide, please. It is a 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 SEK 70.5 billions in property value. Next slide, please. A few more numbers.
As I mentioned, SEK 70.5 billion in property value, 78% community service properties, elderly care homes, schools, municipal offices, LSS 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 footprints in Denmark. Also strong geographical coverage in larger cities in the Nordics. Next slide 12, please. On this slide, you can see that 78% of total portfolio is community service properties, 50% rent-regulated residentials. In total, 93% social infrastructure. You can see strong position in elderly care homes, schools, preschools, police and justice buildings, and LSS housing. Those are the assets with lowest risk in real estate business.
Combining those low-risk social infrastructure or low-risk community service properties with Swedish rent-regulated residential creates a unique combination of low-risk assets with exposure to the Nordic welfare state and almost direct access to tax-funded tenants. Next slide, please. On the slide 13, you can see that the Norwegian Government and 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&P, we looked at our leases three years ago and could conclude that of those expiring in the next three years, 32% have been there for more than 20 years, and almost 70% has been there for more than 10 years. Just half a year ago, we signed the first ever 50 years, five-zero, 50-year lease with one of Swedish richest municipalities.
Our contracts, our leases are on very attractive terms, 10 to 15 years, no break clauses, indexed to CPI, and also without, as 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 service properties in prime locations across major Nordic urban regions. The highest, we are 65% of property value in major Nordic regions with Stockholm and Oslo as the largest region. You can also see that we have very low rents. There is large potential in relation to replacement cost in all of our segments in healthcare, elderly care, group housing for people with disabilities, and LSS housing. Next slide, please. Here you can see some of the key ratios that are underpinning strong profits with financial upside.
You see that we have a relatively high net initial yield of 5.5%. This is very high for this kind of low-risk asset and creates big potential for continuing upside, strong economical competency, and longer maturity, effectively perpetual. You can also see that we have relatively low values at balance sheet. We are averaging for combined entity 17,400 SEK per sq m. Please compare with some commercial piece so you will see what kind of upside is there. We have also relatively low passing rent of 1,233 SEK per year and sq m, which is also creating large upside potential. Strong financial metrics, net LTV below 50% in next year. Strong ICR higher than three times. Also, as you can see, strong profit delivery from both companies. SBB first nine months, 1.3 billion SEK. Heimstaden first nine months, 1.5 billion SEK.
In total, SEK 2.8 billion in net profit for the first 9 months this year. Next slide, please. Slide 15, we are showing the substantial synergies that will drive total shareholder return, that will give good profit to SBB shareholders and to Heimstaden shareholders. We are presenting SEK 260 million per annum after tax in financial run rate synergies and SEK 40 million from the operational run rate synergies. It is in total SEK 300 million run rate synergies after tax. 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.
Focusing on investing in renovation and refurbishment and continuing value creation that we in SBB have been able to, for every invested crown, to double the yield during this year. We presented just a few weeks ago the profits or the results for Q3, showing that we are higher than target on our establishments of apartments. Then strong profits from capital recycling. We are among the largest and most active transaction players. We have a long experience and strong team working with transaction. For the first nine months this year, we did transaction for SEK 16 billion. Just to give you a flavor on that, for example, selling DNB's headquarter in central Oslo, we made SEK 1.8 billion in free cash. There is continuing strong potential to create extra value from non-core assets. Next slide, please. Slide 17.
For SBB, sustainability is a core part of our business model, and the combined entity has a strong performance. For example, we just announced a few weeks ago that we are moving all of our electricity consumption to 100% origin-certified renewable electricity, which means reducing carbon dioxide emissions by 15,000 tons per year. On top of that, also reducing nuclear fuel waste with nearly 77 kilograms. Our Green Bond framework has strong marks from S&P and the rating from Cicero. In the same way, Heimstaden has a Green Bond framework with a strong rating from Cicero, and Heimstaden have been since 2016, affiliated to the UN Global Compact. Adding to that, SBB's strong involvement in the communities and investments in, among others, working together with municipalities to offer young kids summer jobs creates strong sustainability focus and good partnership with municipalities. Next slide, please. Next slide, please.
It's two 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 a EBITDA of SEK 3.4 billion on 12 months rolling. This is just from property management. On top of that, you have to add the profit from property development, profit from refurbishments, and profit from transactions. Next slide, please. At slide 20, you can see some indicative timelines. Today we announced public tender offer. Tender offer acceptance period is planned to begin the 19th of November, and we are planned to announce the final results of tender offer of 23rd of December.
For sending right issues, we are planning to have 22nd November as record date for right issue and planning to announce our final results of right issue on or around 12th of December. 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 community service property champion with exposure to unique combination of low-risk assets, Swedish rent-regulated residential, and elder care homes, schools, municipal buildings, and special housing for people with special needs in the Nordics. Highly attractive and very low risk portfolio. We are also strengthening balance sheets and delivering strong KPIs, improving SBB's KPIs, and accelerating delivery of financial and operational targets by at the same time targeting BBB+ rating within next 12 months.
As I presented, we see opportunity to unlock significant synergies and value creation, both from financing and operational synergies, SEK 260 million from financing, SEK 40 million from operations, post-tax, 12 months run rate day one. On top of that, significant upside from creation of building rights, continuing investment in refurbishments and renovations, and strong transaction plan with using SBB's active asset management. Finally, we are creating a very strong player that is focusing on sustainability. Thank you for listening and question please.
Thank you. Ladies and gentlemen, if you wish to ask a question, please can you press zero and then one on your phone keypad now in order to enter the queue, and then after I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There'll be a brief pause while the questions are being registered. Our first question is from the line of Louis Landeman at Danske Bank. Please go ahead, Louis. Your line is now open.
Yeah. Hi, this is Louis at Danske Bank. I was just wondering if you could clarify a bit in terms of. It's a combined equity and cash offer. If one assumes that at least some shareholders will prefer to get paid in cash, on a pro forma basis, the way I see it, the leverage of the combined entity will rise at least slightly from current level. Wouldn't that mean that leverage is a bit too high for the current requirements for the current ratings? Given that you have a target of getting BBB+, that would require even further deleveraging. Wouldn't that mean that.
I'm sorry, Louis, if we have not been clear enough to explain but the offer is 55% shares and 45% cash. Day one, the balance sheet is stronger with the job that we are doing with combined entity. We are counting on to actually get stronger rating when the transaction has been completed.
Even with the 45% cash, that's SEK 10 billion that will be paid, right? I don't know if I got this wrongly, but if I try to do the S&P rate, I get about 60% on the leverage.
Louis, you know that I like to do calculations, you can be sure that I have run through everything. The part of that I probably forget to mention is that we will also, as a part of the transaction, explore opportunities to do a hybrid. That will of course result in much stronger balance sheet. Give us a few days and we will be back on that.
All right. Okay. All right. Thanks.
Thank you.
Okay, we now go to the line of Jan Ihrfelt 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, put my question then. I just wonder, your share in residential properties will decrease as Heimstaden has not any residential properties as far as I know. 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 main partners to the municipalities in the Nordics. We will continue to do the deals with municipalities, including both rent-regulated residentials but also elderly care homes and schools. Just a week ago, we announced a new deal with municipality of Stockholm, which is the largest city in the Nordics. At the same time, we see that we could divest some non-core assets, how to say, office-like from combined entities. I'm sure we will be able to do good value creation from divestments and at the same time continuing to be strong partners to Swedish municipalities, both in terms of rent-regulated residentials, but also elderly care homes. We are also right now having discussion with some Finnish municipalities to do schools there. There is very strong traction that we have from the Nordic municipalities.
Okay. You newly bought a fairly large portion in Amasten. Will that have any impact from this deal that you announced today? Could you just comment on that investment?
Yeah, that is for us core investment. We see Swedish rent-regulated residentials as together with elderly care homes, schools, and LSS housing, the lowest risk assets in the world. We are happy with our position with Amasten and owning and having exposure to Swedish rent-regulated residentials is part of our view of the Nordic social infrastructure because Swedish residentials are completely rent-regulated and very close to public housing. That is also why we became the first private member ever of Public Housing Sweden.
Okay. My final question is regarding your tax situation. What kind of amount or leverage level will you pay on paid tax going forward? Have you any guidance on that?
We used to say without giving guidance, but the part I used to say that I used to calculate with 10% in paid tax. That gives you a flavor about it.
Okay. Thanks very much for taking my questions.
Thank you.
Okay, before we go to the next, which is Simen Mortensen at DNB Markets, if anyone else has any further questions, please press zero and then one on your phone keypad now. Mr. Mortensen, over to you.
Yeah. Hi, this is Simen from DNB Markets. 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? The second one, what is saving the financing costs so significantly versus current rates?
Simen, 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. Heimstaden maturity is around slightly over two years. At the same time, Heimstaden issued three years money at 215 basis points. There is large potential that we have summarized in SEK 260 million potential from lower financing costs. On top of that, we are counting on SEK 40 million on operational costs. Those SEK 40 million, 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. It's relatively straightforward. Those SEK 300 million, how to say? There is no question. This is not rocket science. This is relatively easy.
On top of that, we count that we can deliver strong profit from property development, from the building rights, from refurbishments and renovations. I don't know if you saw that, already in Q3, we delivered over the target. We have been guiding 600 apartments on a yearly basis in renovation. At Q3, we were 462 plus 232 that were all already signed for Q4. That means that we are delivering over the target. Those together will create strong value to both SBB's current shareholders and Hemfosa's shareholders becoming new SBB shareholders.
Also, 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? Secondly-
The difference-
What is the assumption in those figures?
Yeah. I will be very happy to comment that the difference is that we are taking into account also these shares and perpetuals. This is also to show that those parts of equity story that common D shares and perpetuals are also delivering extra profit to common shareholders. I don't know, Simen, if you remember, but for the first nine months of this year, we presented a profit adjusted of SEK 1.61 per share after dividends have been paid to D shares and hybrids. This is more to give the flavor, how much of capital is working to deliver stronger tone to common A and B shares.
Yeah, just to clarify that, isn't that capital that you pay dividend from to others, the same as you would a debt, but debt also will value up less, if I'm correct. Isn't that correct?
No, you are not correct because those are perpetual assets, Simen. That is very important for the common shareholders. Debt is not perpetual assets. That is big difference. You can for the more underlying analysis, look at European biggest real estate company Aroundtown or some other German companies, so you will see that we are doing the same calculations using the same methodology as they are. This is very important for that kind of comparisons.
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 have 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. 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 3rd figure, whereas the offer website has a January 7th figure. 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. This issue is only related to Sweden. 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. The 3rd of January is the correct settlement date?
Yeah, the press release is correct settlement date planned.
Perfect. Thank you very much indeed.
Thank you.
We are now over to the line of Hiten Dave at UBS. Please go ahead, sir. 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? 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.
Yeah, I can start with the first questions that I'm happy that you are asking. We are the most trusted partner to Swedish municipalities. There are no requirements from the municipalities affecting the transaction. I'm sure many of those will be happy. This will create more opportunities for us to do more with municipalities. 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.
Yeah, this is a strong bid. We are offering a premium of 22%. It is like 50% over NAV, and at the same time also giving shareholders in Heimstaden opportunities to 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 Heimstaden's portfolio. I can understand the strategic rationale why the board is recommending transaction because this is transaction that is very good for all shareholders, both in SBB and today Heimstaden shareholders, hopefully new shareholders in combined or new SBB.
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 20th of December? 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? Thank you.
I think we have tried to be very clear that we are targeting 90%. 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 Kardi Kusik 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 talk about potential rating upgrade at S&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?
As we are already rated by S&P, and that is normal that we always have discussion with S&P, but this is just our assessment that we will be stronger. Already today with announcement, we are a stronger company. This is my expectation.
Okay. Any thoughts on your LTV post this transaction? From the way I see it's right now 37%, and it goes up closer to 50% as for my calculations, even more than 50% as per my calculation. Any plan to bring it down? Any roadmap for bringing it down below 50%?
Yeah. Absolutely. We are planning to continue to strengthen our balance sheet, and I think I mentioned in 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. We will have lower LTV and also, as I said before, we are targeting net debt to EBITDA under 10 times and also having a BBB+ rating.
Okay. Thank you. Thank you very much.
Our final question for today is over the line of Philip Halberg at Danske Bank. Please go ahead, sir. Your line is open.
Yes, hello, gentlemen. My first question is quite stupid, but I'll ask it anyway. Just for the new amount of shares, am I correct that in regards to common shares, it's 513 million B shares, and then for the new issue, it's 65 million shares, right? That's the total combined. Roughly 578 million new shares.
Yeah, I will give you exact numbers as we announced this morning. We are issuing, as you said, 512-0.7 million B shares and 65 million that will be in rights issue. That is correct.
34 million D shares, right, for the preference shares, I guess.
Yeah. Exactly 34 million or 33.9 millions B shares.
Okay. Thank you. You were talking a bit about divesting perhaps non-core assets. Are those mainly related to the purchase in Hemfosa? I would guess that Mr. Thagesson has a quite good insight in the portfolio. If I look, it wasn't that quite long ago that you issued new financial targets, that was SEK 55 million in property value, I guess. Now you're at SEK 70 billion property value. Is it like SEK 15 billion in Hemfosa that is non-core assets or how do you?
As you know, we have one of the most active transaction team in Nordic, I should say, without competition. It is headed by Lars Thagesson but you have also Oscar Lekander, Joakim Bille , Carl Lundh , you're in the board, Lennart Schuss, Sven-Olof Johansson, Fredrik Svensson. You have a lot of M&A and transaction, I should say, insight and experience in the team. 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. When I said non-core assets, that means assets with high share of office space. We are continuing to improve quality in the portfolio by focusing on elderly care homes, schools, municipal buildings, and LSS housing, and combine those with Swedish rent-regulated residentials. Creating the asset with lowest risk in the world almost without competition.
In that way, this divestment will be natural part of increasing quality in our portfolio.
Also just a final question. Does this change anything in your financial targets except for maybe the target set property value of SEK 55 billion? Does it change anything else in regards to NAV growth or anything like that?
No, this does not change anything. Rather, our board has expressed before that they expected to propose dividend of SEK 0.6 per share, which is at the level of the shares price of around SEK 34. That is 2.5% in dividend yield, which is, I should say, unseen for this kind of low-risk asset. On top of that you have to add value creation. This transaction is strengthening value creation for both SBB and Hemfosa 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'll read them, and you can answer. First one is, "Can you please comment on the credit rating impact of the merger?" The second one is, "Are you going to issue bonds to fund the cash part of the consideration?" I can comment those questions. The answers on the first question is that we think that after today's transaction SBB is stronger credits than before, and we are committed to achieve BBB+ rating within next 12 months. Answer 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 as an important part of our equity story and we have a strong investor base.
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 get the answers that you needed. This is transformational deal for Swedish real estate market. If you have any questions or comments, please reach out to our IR. Thank you very much and have a nice day.