Welcome everyone to Samhällsbyggnadsbolaget's Capital Markets Day, which is the grand finale of what has been a highly exciting first half of 2020. I'm Adrian Westman, I'm Head of Investor Relations, and will moderate today's session, where you will meet with the full management team of SBB and other selected key people from our organization. Everyone will present themselves when it's time to enter the stage. Looking at the agenda, we will start off with an introduction from our CEO, Ilija Batljan, and COO, Lars Thagesson , followed by a walkthrough of our unique business model, which is how SBB creates value. We will then round off with a financing section and conclude with the new targets that were announced yesterday in a press release. Last but not least, we will have a Q&A session with the full team on stage.
During the Q&A session, everyone who is here in the room will, of course, be able to ask questions, and for those following the webcast, if you have pre-registered, you can write questions in the message board tool. Make sure to use the same name as when you registered, in order for the questions to come through. Our aim is to finish today at 4:00 P.M. by the latest, and we will try to answer as many questions as possible. If time runs out, we might have to get back to some of the online questions by email. The full webcast will be available to see afterwards on our website.
I think that's it for the introduction, and I give the floor to Ilija and Lars. Please.
Thank you very much, Adrian, and thank you all for coming and calling and listening. I will give you a short introduction to SBB. I am Founder and CEO of the company, and together with me, I have Lars Thagesson, that is one of the most experienced professionals in this business, also our Chief Operating Officer. Concerning SBB, we do operate in the world's safest real assets classes in terms of social infrastructure in the Nordic countries, Sweden, Norway, Finland, and Denmark, and Swedish rent-regulated residentials. Please observe the word rent-regulated residentials. Rent-regulated residentials in Sweden are mainly owned by municipalities, and those municipal companies have also an association, which is Public Housing Sweden, and SBB became the first-ever private member of Public Housing Sweden late last year.
We have, and as you have could seen during the coronavirus crisis, and I will come back to that, among the strongest cash flows in the Nordic regions. As I said, properties in the Nordics, mainly in Sweden, 76% of the total portfolio, then Norway with 15%, Finland 8%, and Denmark 1%. We have SEK 5.2 billion in running rental income, NOI of SEK 3.7 billion, and very strong net yield. We have net yield of 4.7%, and as you can see on the slide, 66% of our assets are located in the Nordic larger cities with Stockholm and Oslo as our largest regions. We have been performing well last year, and one of the reasons why we are performing well and why we have a strong outlook going forward is on this slide. We are in the space that is very favorably affected by demographic changes.
All of you understand changes in increasing number of elderly people and demographic aging, those are also the regions with strongest demographic development in Europe. For you that are not familiar, Stockholm and Oslo have been the fastest-growing cities last 10 years in Europe. If you look here at COVID-19, a big crisis that is affecting all of us. Also during this crisis, our assets have shown amazing resilience. Reported in the Q1 report that we, in Q2, have only SEK 12 million in deferred payments and only SEK 1.3 million in rental discount, which should be related to SEK 5.2 billion in rolling income. We also see that those rental discounts, despite that those are very small, that is our way to support society to manage the crisis.
Probably one of the most important points at this slide is at the bottom of the slide, showing sovereign credit rating. We are exposed to government-backed income from three of 10. There is 10 countries in all of the world that have AAA rating. Three of those are Sweden, Norway, and Denmark, our biggest markets. Our income is government-backed from AAA sovereign-rated countries. Some of you that have been following us have seen this slide, focusing our pillars of strategy with our unique and difficult-to-replicate long-term relationship with municipalities and other market participants that, at the end of the day, has been delivering the strongest NAV growth in the sector and in Europe last three years. You can see at the figure below, 73% on yearly average.
After the acquisition of Hemfosa, we became the Nordic champion in the social infrastructure, the largest company in the space, and also the third-largest in the listed real estate space in the Nordics. You've heard me telling about our safe assets, social infrastructure in the Nordics, rent-regulated residential in Sweden, backed by government-backed income from AAA-rated countries. Probably our most important assets is our team. I will start with our board. We have Lennart Schuss, founder of Catella. Sven-Olof Johansson, Founder of FastPartner. Fredrik Svensson, board member of Balder since 2005, the second-largest owner. Eva Swartz Grimaldi, that has been CEO, Chairman of the Board for both listed and non-listed companies. Anne-Grete Strøm-Erichsen, that has been having long experience from business and politics, also been a member in different Norwegian governments as both health minister and defense minister. Hans Runesten, that was involved when Sagax has been founded.
With me, I have probably the most knowledgeable person in this space in the Nordics. It is Lars Thagesson, my mentor and my teacher, that have been teaching me almost everything since 2005 to 2006, that is now mentoring our young professionals. You will meet some of those here today. You will see that Lars is very successfully transforming his broad knowledge to our extended management team and created new champions in this space. Lars has actually focused all of his life, since he left primary school when he was 14 years, to today, to work in real estate business. He's the person that has done the most deal in Nordic transaction market without anyone coming close. Because of focusing on doing deals, he has missed his English.
For some of you that are Swedish speakers, you can always reach to Lars, and I'm sure you will get the best insight in this very special asset class. The rest of the team, you will meet through the presentation, and you will also heard through the presentation what we are planning to achieve or where we are going forward. It's always important also to remember how we have delivered of our earlier targets, and we have always over-delivered. One of the most beautiful part of this slide is actually us delivering our first investment-grade rating after announcing target in 2018 and delivering on that in 2019, and in that way, creating a lot of value, both for our equity and for our credit investors. Today, we will also focus to explain how we are creating value for both society and for our shareholders.
We have a unique business model, not only to be exposed to AAA credit-rated countries, but also in the way that we are delivering income from four different income streams. From traditional property management, where we have SEK 5.2 billion in almost fully government-backed income from property management, and three additional income streams. The first one, property development, where we are also announcing the new goal. Krister and his team will tell you more about that. I don't know, some of you have missed the news yesterday that Veidekke is selling their property development business. They have sold property development business for SEK 7.7 billion. They have 15,000 building rights. I can repeat once more. SEK 7.7 billion for 15,000 building rights. Krister will tell you how many building rights we have. You can be sure that it's more than 15,000.
The next is our team working on property renovation and combining that with sustainability, where we have been showing a large decreasing in CO2 emissions. Finally, we are a transaction-intense company, and our transaction and M&A team will give you insights in how we are creating the income from our transaction business. Finally, I'm not good, and I have to admit, my only qualification for this business that I have some grades in mathematics, so I'm not good on real estate. You will meet many people that are good on real estate. When you work with mathematics, there is always plus and minus, and then you have the result. I like to focus on results. On this slide, you will see one case study that is delivering from four income streams.
We bought almost 500 apartments in 2016. A short time after, we agreed with tenant association the new rents after renovation to SEK 1,250/ sq m. We start to renovate, and up to now, we have renovated 154 apartments, creating income from those apartments, both increased rental income and also increased value. At the same time, our property management team, on top of having income from property management, also used actually some few liters color to draw the new parking lines. From that work that took, I think it was seven liters of color and 10 hours. Now they are collecting SEK 0.8 million in income every year. Shortly after, our property development team focused on that property, and it's now in planning to deliver 20,000 sq m of building rights.
That means we have make money from property management, we have made money from refurbishment and investments, we have made money from property development, and at the same time we're working with refurbishment. We used our green bond framework to decrease CO2 emissions with more than 50%. In that way, add value to society, make the money. Finally, I was not for that, but our transaction team, they are always lucky to make some money. They sold it for double the money. This is how it work in the real world.
I hope that you will learn more about it and understand more about SBB. Thank you for coming. Thank you.
Great. Thank you, Ilija and Lars. Now we will look into the different parts of the value creation model. We will start off with the foundation. That is the property management. We have Annika and Fredrik, who will join us on stage, please.
Thank you. My name is Annika Ekström. I have 24 years in the industry, 20 years as a head. I worked at Hemfosa since 2010, where I built up the asset management team to, in my opinion, the best in Sweden. Now, I and Fredrik has integrated Hemfosa and SBB into two asset management teams, one for community service properties and one for rent-regulated residentials. In this way, we get two very efficient teams with high competence in each business. We also increased the gap with 215% from SEK 25 billion to SEK 80 billion. On the other hand, the number of employees with 91%. We gain considerable economies of scale as well. This team and of course, all employees behind makes my and Fredrik's job very easy. We have taken the best regional managers from Hemfosa and SBB and put together a dream team.
I worked with many of these for several years, so I know them very well. They are all very experienced, very business-minded. They know their markets, and they like to make business. New lettings, renegotiations, and of course, take care of the tenants. [Non-English content] as we say in Sweden. We have many local property management offices with dedicated employees who know their region and tenants, and have a strong local contact that generates new business. With these key employees in place, we are up and running, and we are more than ready to continue to create value. We have a fantastic portfolio of community service properties with a value of SEK 61.5 billion. 93% of the rent comes from government-funded tenants. 93%, meaning very low-risk tenants, very secure rental income.
As Ilija told you before, you see the countries, they are all triple-rated: Sweden, Norway, and Denmark. Sweden is the largest market, we have in all Nordic countries, a strong foothold in the metropolitan regions. We have long leases. We have seven years as average. We also know for a fact that a majority of our tenants, they renew their leases. They don't move that easy. When we make tenant improvements, we have lease length of 10-15 years, and we of course, get higher rent as well. Regardless of the state of economy, schools and elder homes are needed. The economy only has a small impact on our properties. Fredrik?
Thank you, Annika. Hi, I'm Fredrik Holm, and property manager for our rent- regulation resident portfolio. I have 24 years in real estate business and more than 15 years was only for residential. As we can see, we have lots of regulated residential in many good location, in medium size and major cities, especially middle and south part of Sweden. Here is the numbers for our portfolio. As you can see, especially for the rent, there is still lot of opportunities for us for activities and good investment for increasing the rent. My colleague Peter will tell you all about our unique residential renovation well working business model later on. The best part is only 25% of our portfolio is renovated, so we still have the best part in front of us to make business. Thank you.
The last slide. To summarize, we have built a dream team in social infrastructure asset management. You have heard it before, and you will hear it now, and you will hear it later. We have the safest assets in the world, and clear economies of scale achieved as well. Thank you.
Great. Thank you. As stated in the beginning, we will round off the agenda with a Q&A session. If you are following online, you can already now type your questions in the tool, and then we will collect and save them for later. That was the foundation. Now it's time to start these three additive recurring income streams. We will start off with property development. We have Krister joining us here, and he will start off, and then we have Erik and Jenny also joining on stage. Please, Krister.
Thank you, Adrian. Hi, everyone. I'm Krister Karlsson, Head of Property Development. My experience is 22 years in the construction sector within NCC in the Nordic countries and in the Baltics. Then I joined Rikshem at the same time as Ilija, then I joined Samhällsbyggnadsbolaget when it was founded by Ilija. As Adrian mentioned, SBB has three additive recurring income streams, one of them is the property development. Now me and part of my team are going to introduce you to that one. What do we see? We see a huge undersupply when it comes to community service properties. As we can see, the red one is the needs, the gray one is the planned.
We are now planning and building for less than half of the need when it comes to elderly homes and less than a fourth of the needs when it comes to high schools. On top of that, we see the Nordic region are growing. We're growing with approximately 2.4 inhabitants within 20 years from now. This all together gives us a huge demand. From SBB point of view, we have the solution to those demands with our land bank, with our organization, and with the balance sheet. What do we have? Compared to other companies, we have an extremely strong land bank. We have 25,000 apartments within the land bank. As you can see, we are in front of Bonava, JM, Peab, for example. As Ilija mentioned earlier, we have Veidekke on 15,000 apartments where we stand out with our 25,000 apartments.
I will guide you through our portfolio later on. I would also stress the fact that we are the only company in this picture that works with both development and management. Okay. The past years, we have focused on the left side of the picture. We have focused to create a rock-solid building right portfolio. Now we have about 500,000 sq m that are legal force. We think it's about time to move on to the right part of this area to construct for our own balance sheet and for our own management. Erik will tell you a little bit about that process later. To mention a little bit about the planning process as such, when we present our portfolio, we are working within four phases.
The first phase, we are working with a concept and internal decisions to start, et cetera. Then we send this to the municipality and after that, we get the decision from the planning authorities to start up with the planning phase. When that's ready, we have zoning plan legally enforced. For those of you who think this is quite an easy job when I'm talking about it, I would say that this is quite a complicated process. This is a chart from a municipality that describes the same process as I just described. We didn't translate it, I want to stress the fact that each and every of these bubbles contains a lot of things to be done and acts to be taken.
I think it's important to stress the fact that once you have the zoning plan legal force, you could apply for a building permit at the municipality, and the municipality, due to law, must grant this application within 10 weeks. The crucial part when it comes to property development is the building right. This is a very important slide, and I'm proud of it. I will stress some facts here. On this row, you see our volume of building right became legal force. This is the volume where we can just send in an application to the municipality and get a building permit in 10 weeks. We have proven evidence that we have done this, so to speak, 400,000 sq m. If you add the 400 sq m to this 760, you get 1.2 million sq m.
This is the volume that we have an agreement with the municipality to start the zoning work, so to speak. SEK 1.2 million we have an agreement with the municipality to work with. I would also like to stress the fact that we have in total 1.8 million sq m, corresponding with the 25,000 apartments that I talked about earlier. This corresponds with a value on the balance sheet of SEK 1,420, compared to what we have sold for, that you have here. It's nearly 3,500 sq m. This is the value uplift that we see in Hedvig. The last thing I want to stress on this picture is that we have this 1.380 million sq m that we can develop for our own management, so to speak. Just to give you some short examples, we have made ABC, three examples.
The first one, if we just act in the area that I told you that we have been in the past, if we sell our building rights 100%. We have a result of SEK 3.4 billion. If we assume that it takes four years to deliver this, we have a result of SEK 850 million per year by selling the building rights that we have already in our portfolio. We have the other way to do it, the right way to do it. That is if we start to develop for our own balance sheet, and we can do it either 100% or 50/50%. We have made up an example here. Here we have the example. This could be an ordinary school, an ordinary residential, an ordinary home for elder somewhere in the Nordics.
We have calculated and estimated the profit would be SEK 8,500/ sq m. If we do it 100% by ourself, it will correspond with SEK 10 billion in total. If we assume that it would take us eight years, it will be SEK 1.3 billion per year. If we do it 50/50, you have it right in between. It will be six years and SEK 1.2 billion per year. I would like to stress the fact that this is only, so to speak, within the building right portfolio that we are working with as is today. Now when we have our building right portfolio under control, I would like to welcome up Jenny, who takes the building right portfolio into long-term lease agreements in these projects.
Okay. Short introduction. I'm Jenny Asmundsson, and I'm Head of Business Development in this project development team. I'm happy to have joined SBB earlier this year. I've been with Hemfosa as a Head of Business Development, and I also have a background as a Property Director at the Municipality of Nacka. I have a good orientation around community properties and the challenges facing the municipalities. For example, timing the capacity, financing, and not the least, the process of public procurement. To give you a short glimpse of our project portfolio, I'd like to highlight two of our ongoing projects. We're building for the Municipality of Västerås, an office for their social department. It's about 8,000 sq m and will be ready until next fall.
For the moment, we're also in the making of a new city hall in the municipality of Nykvarn, and that's around 4,000 sq ft of new and updated space. Both these projects are built from our own building rights. Those are two examples. We have more projects in the pipeline, and my main responsibility is to transform the building rights into new projects and also to bring in new projects from the start. We see many requests at the moment, and as we have heard earlier, there's a growing demand for expanded capacity and also for reconstruction and modernization. A lot of new schools are needed. There's a huge need for more elderly care and also new police stations.
I'm not sure if you have read or caught that, but I'm happy also that we have just recently landed the opportunity to build a new police station in Sälen. That's also connected to the Swedish government's new strategy to add 10,000 more policemen until the end of 2024. It also feels good for us because the Swedish police force is one of our large tenants. We have 40+ police stations throughout Sweden. We're also working with two new schools for the moment. We have one in Järfälla that's in the zoning phase, and we also have another one on our own building rights in Haninge that's currently under construction and will open up for new students in the fall of 2021.
I have a very positive outlook. I find that we're attractive in these processes. I feel that we have a competitive offer, and our strength is often our local property management. Our head of regions are well-connected and business-driven, and we also build trust with our keen and competent project team. That makes my job a lot easier when I have solid colleagues. My work is to bring in and to start up these projects, and when the lease agreement is set, the project moves on to the next phase.
It's my time to introduce my colleague, Erik.
Thank you, Jenny. Hi, everyone. My name is Erik Hävermark , and I am Head of Project Development. Project development is the implementation phase of the property development business, illustrated on the right side of the figure Krister previously showed you, also shown in the lower right corner in this picture. A phase that ends with a completed, fully leased building for own management. I started at SBB January this year, and I have previously worked at NCC, JM, Rikshem, and Veidekke. I have 17 years of experience in the building and property industry, both as developer and contractor. At Rikshem, I was responsible for their strategy and implementation for developing new residential buildings and a procurement which resulted in an agreement with a contractor, including 2,500 apartments built with a modular building system.
I'm very happy and inspired to now be part of this very competent and experienced team at SBB and get the opportunity to work with this fantastic building rights portfolio with its enormous potential, which Krister just told you about. At SBB, we are now working on a procurement to find a contractor that, in cooperation with us, can develop several new residential buildings in Sweden with rent-regulated apartments. This approach will give us a lower cost compared to signing an agreement with a contractor for each project individually, and it will also enable us to, in an effective way, focus on sustainability issues, such as the completed building's energy consumption, building system, building material selection, and so on. The project development team at SBB consists of seven persons.
This team has great expertise in developing community service and residential buildings, and our projects are guided by a defined process with established routines for managing and monitoring the ongoing projects. Our projects are on land and buildings that we own, so all the technical conditions are known to us. The buildings we develop are largely regulated, and therefore, basically designed and constructed the same way, so the cost level are known to us for the projects. In addition to that, the contractors are fully responsible for the project implementation. Finally, our projects in community service properties are based on tenant agreements, and our residential projects with rent-regulated apartments are based on the structural undersupply of housing in Sweden. We are not affected by market fluctuations.
To sum it up, in our project developments, we know the revenue, we know the cost, and we have the tenants.
Thank you, Erik. To sum up the whole part of property development, I would say that we can see that we have undersupply of community service properties and also of residentials, so we don't see any market risk in this. As I have told you, we have 1.8 million sq m building right in our portfolio, where of 400,000 is already legally enforced. We have a proven track record from zoning. Last, we have skilled and experienced people, so we can manage to develop for our own balance sheet. Thank you.
Perfect. Thank you, team. While we change some microphones, that was the first recurring income stream, that is the property development. We will now move on to property renovations and sustainability. I hope that you all saw that we presented new sustainability targets for our sustainability vision earlier this year for 2030, which Marika will tell you more about then. We will start off with Peter, who is our Chief Technical Officer, and he will dig into the details concerning all the renovation-related business. We'll see when he joins us. In the meantime, once again, I can just say that for those following online, you can continue to type questions as we go along, and we will get back to questions in the end. Peter, welcome.
Thank you, Adrian. Thank you very much. Hi, everyone. My name is Peter. I'm a CTO at SBB. I joined the company in November 2016. Today I want to talk about how SBB is creating value in our existing property portfolio. We have a handful of different strategies that we use to increase value. Two examples of that is our renovation process in community service properties and of course, our apartment renovation program in our rent-regulated residentials in Sweden. First, let me start here with our residential conversion. This is when we create income-bringing apartments out of non-income-bringing square meters within existing buildings. Of course, this is not possible everywhere, but it is in our DNA to search for this type of potential. If there is a hidden potential, we will find it, we will execute it, and we won't miss the opportunity.
Until now, SBB has created almost 70 new apartments within existing buildings without adding any extra square meters, and that is apartment that people, families, and students are living in right now. I think that's quite amazing. Our most important process to create value in our residential building is our apartment renovation program. For that, we have an industrialized process starting in a new location when the existing tenant is moving out. We take that apartment, and we renovate it and use it as a prototype to show the union of tenant in the negotiation, where the goal is to set the new normative rent level. In Sweden, we have a quite unique rent regulation system, which is good for us because it gives our visibility, and the new rent levels after renovation is very predictable. I will go through how this system works on my following slide.
Let me first finish this. Once the normative rent level is agreed, SBB proceeds to renovate apartments as a tenant terminate their lease. By that routine, we minimize the vacancies due to renovations. About our projects in community service properties, we have several projects underway. Some examples is the rebuilding of Arlövsgården in Malmö region in order to create more elderly care units for private public-funded operator Norlandia with a 15-year lease. We have a tenant improvement project for the municipality of Haninge, where we modernize a school with a 25-year lease. We have a conversion and extension of the city hall of Nykvarn in Stockholm region with a 25-year lease.
As the Nordic region's largest actor in group housing, SBB has multiple group housing units under construction, we always negotiate the rent levels before we start our projects. Now let me clarify how our unique rent regulation system in Sweden is working. We negotiate a normative rent level, to calculate the rent level for a certain apartment, the system is building on this formula. The input in this formula is the normative rent level, the apartment points, the apartment size. In this example, we have a two-room-and-kitchen of 62 sq m and a rent level before renovation of SEK 850. It gives us annual rent of about SEK 55,000, if we, in this example, agree a new normative rent of SEK 1,250, we get a new annual rent of SEK 81,000. Most of the company, they're working like this.
Most of the company, they think that the apartment size and the number of room in the apartment are fixed figures. Every time we renovate an apartment, we look at the floor plan, we look at the layout, and we try to find ways to make additional rooms. We are working in this box. As you can see, if we can make an additional room, we increase the apartment points, and the annual rent will go up even more. Still with the same agreed normative rent level. As you can see on this picture, we illustrate from a project we made, how the standard of the apartment is. As you can see, this is new production standard. In Sweden for the last 20 to 25 years, the rent level has increased in average between 1%-3%, or 1% above inflation.
On top of that, if we invest SEK 5,000/ sq m, we can increase the rent level with SEK 300 to SEK 400. In addition to that, our costs will be lower, due to lower maintenance costs. The NOI will be even better. As you can see on the picture, our average rent level before renovation is SEK 962, and the potential after renovation is SEK 1,383. If you compare that to rent levels for new build apartments, you can see that it is still very cheap. We have a target to renovate 600 apartments a year, and we have still 75% of the stock remaining with this potential. By this type of projects, we estimate our recurring earning effects to be SEK 600 million per year. Thank you.
Now I will introduce my colleague Marika, who will talk about sustainability.
Good afternoon, everyone. My name is Marika Dimming. I am Head of Sustainability. I joined SBB in July 2018. Prior to joining, I was at a Swedish bank where I worked with their green bonds, and prior to that, I worked for many years as a capital markets lawyer in London. In February 2020, we launched Vision 2030. Our aim is to become the world's most sustainable property company. We're governing the company's operations in line with the following UN global sustainable development goals. Five, gender equality. Seven, affordable and clean energy. Eight, decent work and economic growth. 11, sustainable cities and communities. 13, climate action. Finally, 15, life on land. We've selected the following ecological sustainability goals. 100% renewable energy in the entire property portfolio, and also minimizing carbon dioxide emissions by reducing the emissions by at least 5% per year. Promoting renovations.
We're promoting renovations instead of demolition. All properties held for more than three years must be environmentally inventoried at least every 10 years. Increased wood usage. At least 50% of our new production is to be comprised of buildings built of wood. Reduced water consumption. We are continuing to contribute to reduced water consumption in our properties with a goal of 1% water savings per year. Finally, integrating public transport access. We're managing and creating housing in locations close to public transport, which contributes to reducing the transport sector's environmental impact. We're also using sustainable financing sources by issuing green bonds. On the 1st of June this year, we integrated our green bond framework with Hemfosa's green bond framework. Our green bond framework has received a medium green rating from CICERO. We now have SEK 10 billion eligible for green financing.
We issued our first green bond on 14th February 2019. It received a rating of E2 from Standard & Poor's. The following are our selected social sustainability goals. We are a member of Public Housing Sweden, where we will continue to be a member of Public Housing Sweden. We will participate in the residential social work of the municipalities. Youth employment. We will continue to contribute to young people's occupation by offering at least 100 summer jobs every year to young people who live in our residential areas. Refugee assistance. We will annually contribute at least 10 Better Shelter refugee homes and 100 tents through the UNHCR to help improve the housing situation for refugees. Finally, inclusive employment. We aim to be the most attractive and inclusive employer for the best and most professional employees, regardless of gender or background. A few short words about our summer interns.
We offer summer jobs to youths living in our residential areas, which connects all of the dimensions of sustainability. Nicer external environments in our residential areas. We reduce wastage of our shared resources, and we contribute to our long-term operating net profit and create a link to the youth employment in the market. To sum up, property renovations and sustainability. Sweden has a unique rent-setting model based on utility value. We have a large remaining value potential in our portfolio, and we are fully committed to supporting the transition towards a more sustainable world with very clear targets. Thank you.
Great. Thank you, Marika. Thank you, Peter. We have received a question on the webcast if the material can be found anywhere. You can find the PDF file with the full presentation on our website, sbbnorden.se. It's available both in the Capital Markets Day section and in the Reports & Presentation section. That was the second recurring income stream. Now, we have come to the transactions part. Oscar will start off going through both the market and the transaction recurring income stream, and then we will round off this part with a positioning review of SBB in comparison with some selected reference-listed peers in Europe. Oscar, the floor is yours.
Thank you, Adrian. Hi, everyone. My name is Oscar Lekander, I'm the Business Development Manager at SBB. I have worked for the company since it was founded and previously worked at Rikshem, among others. I'm going to talk about our third income stream, transaction. First, I'm going to give you some insights into the market where SBB is present. SBB is present in the community service market, where we have a Nordic focus, a focus against some of the strongest economies in the world. Almost all countries are AAA-rated. They have a solid GDP growth historically. At the same time, the countries have some demographic challenges and also a growing population. This gives SBB a great opportunity of growth. If we look into Sweden alone, we see that we need an additional 7.7 million sq m of additional community service properties until 2030.
In Norway, we have the need of an additional 6.2 million sq m the upcoming 20 years. As you can see on the right side here, the market is currently not able to build the elderly home cares and the schools needed. Less than half of the elderly care homes needed is being constructed and less than a fourth of the schools needed. As you all can see on the bottom right side of the slide, these can be constructed at attractive rent levels. Also, rent levels that indicates that SBB have some rent potential with it in the current portfolio. The community service market is a market with fairly high barriers of entry. Looking into the different companies in the market, we see that several of the largest companies in the market has been built up by SBB employees such as Hemfosa, Hemsö, and Rikshem, among others.
If we also look into the most mature community service market, which probably is Sweden, we still see that the municipalities and the states holds almost 80% of the total stock. This also gives SBB a unique opportunity to grow into the market. This is a market where SBB is the preferred buyer, and we see an increasingly willingness from different municipalities around the Nordics to make more transaction. We have ongoing discussions with municipalities in all different Nordic countries. The second market SBB is exposed to is the Swedish rent-regulated market. This is probably one of the safest assets in the world. As my colleagues previously have pointed out, our book value is less than half of the replacement cost.
Our current rent levels is less than 60% of the rent in new construction. Also here we see that the large owner of Swedish rent-regulated residential is the municipal companies where also SBB is the preferred buyer. We did our first municipal transaction just three months after the company was started. SBB tries to make win-win transaction with the municipalities, and here we have a case study of such a transaction. Northvolt, which is going to build the largest battery factory in Europe, was looking for an establishment. They met with several different municipalities around Sweden, which of Skellefteå was one. The demand they put on Skellefteå to choose Skellefteå as their location was that the municipality should build a new culture house and congress hall.
SBB, together with the municipality, created a new culture and congress hall, which has 26,000 sq m and is built completely in wood, which makes it the largest building in Nordics in wood of its kind. In connection to this, the municipality of Skellefteå signed the Nordics' first ever 50-year lease, five, zero. A part of our business model and our recurring earnings is transactions. We have, during the last 2.5 years, made transactions for more than SEK 82 billion. We have made acquisitions for approximately SEK 62 billion and disposals of SEK 20 billion. We estimate that we are going to have recurring earnings from these activities of at least SEK 400 million. We have historically delivered more than SEK 700 million Swedish crown from this income stream.
SBB is a company that we deliver on our promise. In connection to the Hemfosa offer, we said that we were going to dispose properties for SEK 11 billion. As you all are aware of, we have had some of the most challenging times for decades due to the Corona pandemic. However, by the 12th of June, we communicated our latest sale, and we have now achieved sales of SEK 10.9 billion. All the sales have been done at a lease book value of Q1 or above. This is also something that the rating companies is giving us credit for, and the credit is given before we made the last two disposals of total of SEK 5 billion.
To summarize this part, we are an active player, and we will keep being an active player in the transaction markets, both on the sell and on the buy side. We will keep earning money from these transaction activities. We are the preferred buyers from municipalities around Nordics, and we see a great deal flow coming from these municipalities. We have the strongest transaction team in the market.
Now I'm going to hand over to my colleague, Carl.
Thank you, Oscar. I'm Carl Lundh Mortimer , working with business development at SBB. I joined the company in 2016. Before that, I was at Rikshem together with quite a few of my colleagues here today. Ilija showed this slide before. It basically shows SBB's position on the Nordic real estate market. You can see that SBB is the third largest listed real estate player on the market. We are the champion when it comes to social infrastructure and community services. Due to that very strong position, it's hard for us to find relevant peers on the Nordic market. We have looked outside the Nordic market to find a relevant peer. As a relevant peer for community services, we think that a Belgian company, Aedifica, is a good peer.
They are active in community services, mostly elderly care in Belgium, the Netherlands, Germany, U.K., and also in Finland after the recent acquisition. As a peer on the resi side, we think that the Finnish resi peer, Kojamo, is a good reference. If we look at some quick property metrics, you can see that the property value is SBB is the largest one, Kojamo, SEK 70 billion, and Aedifica SEK 36 billion. In terms of value per square meter, SBB has the lowest value per square meter in the books and relies in the middle when it comes to net yield. If we continue on to look at the leverage metrics, the companies are quite similar. LTV numbers of 40%-50%. We have two companies with investment grade from the rating agencies. It's Kojamo, and it's SBB, whereas Aedifica isn't rated.
Average cost of debt, you can see that SBB has slightly lower cost of debt compared to the peers. I would say that the major differences, they come when we start to look at the quality of the assets that these companies hold. If you start with community services, SBB, as Annika told you, we are having government-funded tenants in that portfolio. 93% of the tenants are government-funded, whereas for Aedifica, they mostly have private tenants that are partly funded by the public. On the residential side, I would say that the differences are even more substantial. As you know, and as some of my colleagues have told you about, SBB are active on the regulated Swedish residential market.
Due to the regulations, the rents are kept low, whereas Kojamo, they are active on the Finnish market where they have market rents, meaning that the rents are higher. The most obvious consequence of that is that SBB has rent per square meter of slightly over SEK 1,000/sq m , whereas Kojamo, they have rents of over SEK 2,100/sq m . That basically means that for every Kojamo apartment, you can rent two SBB apartments and still have some money left. To summarize here, I think this is three companies. They share some similarities, but also some major differences in favor for SBB when it comes to stability in rental income, predictability in rental income, and the quality of the tenant base. It is regulated residentials and is 93% government-funded community service tenants.
On the next slide, we will look at how are these companies actually traded at the market. Yes. I think this slide is quite self-explanatory. It shows that SBB has been able to, over time, over the last three years, we have been able to deliver a net asset value growth per share of 42%, compared to the peers, 14% for Kojamo and 10% for Aedifica. Despite that, SBB are traded at an FFO yield of 8.4%. It's twice the FFO yield compared to the peers. This is without taking into account what makes SBB truly unique, the ability to create additive recurring income stream. In this FFO, we haven't included profit from property development, profit from renovations, or profit from real estate transactions. If we are to add those income streams, the picture would look even stronger for SBB.
If we add those additive recurring income streams, the FFO yield increases to 13.5%. It's 13.5% despite a proven ability to generate a very high net asset value growth per share over time, and despite the fact that SBB are holding the most secure real estate assets in the world. I think I stop there.
Great. That was the full section on the income streams and value creation model of SBB. Thank you, everyone. Now we will move into the balance sheet and treasury, and our CFO, Eva-Lotta, will start this section off. Welcome.
I'm Eva-Lotta Stridh. I'm CFO of SBB, and I've been with SBB from the start. I have about 20 years experience from the property sector, from companies such as Akelius and Rikshem. Together with my colleague Lotta, I will talk about balance sheet strength and also give you a treasury update. SBB has a strong financial position and a solid platform for growth, as you can see in the balance sheet for Q1 on the screen. On the asset side, mainly consists of properties, of course, about SEK 80 billion in Q1. SBB also have investments in joint ventures and associated companies. That was SEK 2 billion in Q1, including the loans to the companies. Some of these companies carry out property development projects, but the largest holdings are in companies that owns investment properties.
In the balance sheet is also a goodwill position of SEK 6.7, which is connected to the Hemfosa transaction. SEK 2.4 billion of this is deferred tax, that will decrease as a result of the property disposals, which we have announced. The remaining parts are synergies. These assets are funded by diverse sources of funding, such as bonds, bank loans, commercial papers, shares, and hybrid bonds. However, SEK 50 billion of the properties are unencumbered. As you can see, hybrid bonds are reported as equity to 100%. There are rumors in the market that SBB has bridge loans in JP Morgan and from Goldman Sachs. I'm telling you now, SBB has never had bridge loans from JP Morgan and Goldman Sachs. LTV was 50% in Q1. SBB has been successful in deleveraging over time, and this work continues after the Hemfosa acquisition. This is a key factor for our rating.
SBB calculates loan-to-value by taking gross debt, less cash equivalent, in relation to total assets. This is different from how the rating agencies, including S&P, calculate loan-to-value. S&P's loan-to-value is in relation to debt-plus-equity ratio. Another difference is that SBB only consider 50% of the hybrid bond as equity, and the rest is debt. In Q1, the loan-to-value by S&P was 64%, but after the announced property sales, we anticipate a lower rating, which enables a higher rating. You can see the pro forma of the disposals number in the upper right on the screen. Let's now focus a bit on the hybrid bonds. SBB was one of the first companies in Sweden, property companies, I mean, then, to issue hybrid bonds. They are quite common in Europe.
SBB's hybrids are perpetual and are an attractive source of funding since they are 100% equity. They are also non-dilutive. We think hybrids is cheap equity. In our last issuance, in the beginning of the year, the coupon was 2.624%. SBB also has a number of different share classes. The A shares are not listed but has a higher voting right than other shares. The B and the D shares are listed, and the difference between them is that the D shares only has the right to SEK 2 per share, per year in dividends. A, B, and D shares are ordinary shares and are classified as 100% equity, also according to rating agencies. To simplify the capital structure, we have the intention to redeem the preference shares, which has been announced yesterday.
I will now give the word to my colleague, Lotta. Thank you.
Hello. My name is Rosel Ragnarsson. I am also called Lotta, and I started at SBB in January 2017. Prior to SBB, I was deputy CEO for Stockholm Region's finance company. Before that, I had several positions in Swedish, Nordic, and international investment banks. I am going to not to talk about this. I take next slide here. I am going to read from the screen here, so I hope that you can see here, or at least if not, you have this compendium in front of you. I am going to talk about treasury. We have a very strong balance sheet with a low cost of debt, and we have a very long dated maturity profile. Our debt portfolio or debt structure is very diverse. We have non-secured bonds, which is 61% of our debt portfolio. We have 29% bank loans.
We have 8% commercial papers, and we have 2% secured bonds. If we look at the capital structure, we have 36% equity, we have 34% bond loans, we have 16% liabilities to credit institutions, that would say bank loans, we have 4% commercial papers, others is 3%, and deferred tax of 7%. Up to the right, you can see our long-dated maturity profile. Important here is to see the gray numbers with the ring in gray and the red numbers with the ring in red. It's included and excluded commercial papers. The highlighted area shows that most of our bonds and our loans mature beyond four years. Another important thing here, it's the first, the maturity below or under one year. It's SEK 1.298 billion. Quite a high number. Remember that this number includes commercial paper of over SEK 4 billion.
The chart under here, you can see the increasing debt maturity and progressively lower cost of debt. You can see our weighted average maturity has always been quite high, started at 4.5 in 2018, Q3, and is now 4.3. Important to see here is that Q4 2019, when we acquired Hemfosa and we calculate the Hemfosa numbers in this, the average maturity was at 3.4%. At that time, the portfolio was SEK 56 billion, you can see 2020, the first quarter, the portfolio is SEK 52,225. We have bought back bonds, and we have paid back loans for more than SEK 10 billion in a quarter. Latest development, which was last week. No, it was 5th of June, I'm sorry. SBB added a new credit revolving facility of SEK 2 billion into our commercial lines.
This means that SBB now has a total of SEK 9.1 billion credit limits, and that means that all loan maturities, including commercial papers, are covered for next 24 months. Some information about the combined business profile, Hemfosa and SBB, and together with rating agencies, which leads us towards lower financing costs. I will start at the text to the right-hand side. As you can see, S&P emphasizes in the text our safe assets in their latest rating report, which was out on 12th June 2020. Also important in S&P's report was that they point out that our anchor rating is actually BBB flat. Please also note that this report was published a week ago and prior to announcement of our disposals of properties, which was SEK 4.892 million, 10th of June, and add to that SEK 282 million, 12th of June. SEK 4.892 billion, I'm sorry.
Some important events in the capital markets. Apart from BBB- rating with stable outlook affirmed by S&P in the report, we updated our green financing framework, eligible for green financing instruments up to SEK 10 billion, which Marika told you about before. We have issued a SEK 50 million, 20-year unsecured bond at fixed interest rate of 2.75% in a stressed market in March 2020. We repurchased most of the unsecured bond issued by SBB and Hemfosa, which mature until May 2021, and the amount was SEK 3.362 billion repurchase of the total issue amount of SEK 3,724 million. We issued an unsecured bond of EUR 750 with a fixed coupon of 1%, maturity seven and a half year in February. We started the year to issue a perpetual hybrid bond of EUR 500 with a fixed coupon of 2.624% in January 2020.
All these activities has led to a lowering cost of debt from 1.75% in Q3 2019 to 1.52%, Q1 2020. Here are some numbers of the capital market activities. As you can see, or as you hear, we have a very robust access to funding. You can see in 2017, we started to issue SEK 4.4 billion, and that was equities, hybrids, and bonds in red. In 2019, we issued bonds, hybrids, and equities for SEK 38.6 billion. Year to date today is SEK 14.5 billion in unsecured bonds, hybrids, and equities. The activity, you can see that in numbers here, unsecured bonds in total, we have issued SEK 32.9 billion, and we have issued equity and hybrids for SEK 29.8 billion. The highlighted text, I've already mentioned all this issuing we've done.
To summarize, we have a very strong financial position. We have a diversified funding. We're deleveraging, I'm sorry, according to plan, and we have full speed ahead to BBB +. Thank you.
Great. Thank you, Lotta. That means that we have reached the last section of the presentation, which is the new goals that were presented yesterday. Ilija, you will once again come up here, and then when Ilija is concluding, we will go to the Q&A session.
Thanks, Adrian. It has been amazing to listen to my colleagues. As you mentioned, the board decided yesterday to put some more pressure on us to be working even harder. The new goals are also shifting focus in two areas, and I will emphasize both of them. The first one is the new growth target which is expressed in terms that we will grow profit from property management with more than 15% on average over a five years period, and yearly growth of more than 15% on average. The other shift has been also on property development, because you know before, we were focusing more on selling building rights.
As you have been aware from Krister, Erik, and Jenny, we will be delivering stronger profit from property development, and the new goal is on top of profit from property management, additional SEK 500 million- SEK 700 million per year on average. Our LTV target is to achieve below 50% LTV measured as adjusted debt to debt plus equity, which is in that way, both clarification and also strengthening credit matrix by lower leveraging. It means counting hybrid as 50% debt and 50% equity, and secured LTV below 30%, as Eva-Lotta mentioned before. We have more than SEK 50 billion in unsecured assets, or for Swedish audience, [Non-English content]
Continuing on rating, the new specified target is to achieve BBB+ in first half of 2021, with having A- as target in the long term. Interest rate coverage ratio over 3x . Those targets together are also being summarized in that we will continue with growth. We have a new target of having a property portfolio of SEK 125 billion by 2025, with retained BBB+ rating. Marika told you about our Vision 2030, and emphasizing our focus to be 100% climate neutral by 2030. Peter told you about, and Fredrik, about our amazing low risk rent-regulated residential portfolio with good upside from renovations. We have as a target to renovate at least 600 apartments per year. Finally, dividend policy. We have been increasing dividend strongly all years since start, and the dividend policy is to generate a steadily increasing annual dividend per A and B shares.
Just to sum up the day with a few closing remarks. The first one, our target to achieve profit from property management based on world's safest assets with, as I mentioned before, counterparties that are AAA governments and us having government-backed income from AAA governments and targeting an average growth of more than 15% per year per A and B ordinary shares. The important message from today is also our unique model with three additive recurring income streams, including new focus on using our building rights, not to sell as before, but to deliver and to construct social infrastructure with safe cash flows, or as Erik emphasized in his presentation earlier, we know the tenants, we know the revenue, and we know the cost. That is a unique position.
One message that I hope that you have been able to take in today is actually breadth and experience and knowledge in our team. Some of the persons that I've been learning a lot and some of the persons that are today and tomorrow's stars, and that I look forward to continue to work with together. Being a trusted partner to municipalities is impossible without also today also being important part of the society is impossible without not being fully committed to supporting the transition towards a more sustainable world with clear targets. Marika gave you our targets, not only on being 100% climate neutral, but also on focusing on society by delivering summer jobs, or as we have been doing throughout corona crisis, financing together with others, Food for Heroes that has delivered food to healthcare workers, to elderly people, and to charitable organization.
Finally, our goal of BBB+ is actually not something that is, how to say, a long way from being reached. As you could see from Eva-Lotta's pro forma calculations, already now we are at levels of adjusted debt to adjusted debt plus equity of 56.7%. If you just use some math and apply that we are according to our earnings capacity, making a yearly profit of about SEK 3.9 billion. If you apply those SEK 3.9 billion, with some additional planned sales of SEK 2 billion, you will arrive at LTV measured as adjusted debt to adjusted debt plus equity below 50% during first half year of 2021.
To sum it up, walk the talk. We will continue to deliver, now I want to invite my team in front of you for Q&A section. Please.
Great. Thank you, Ilija. Everyone will come up on stage. As I stated in the beginning, we will start off with any questions from the audience here. I will read out the questions that we have received online, and we'll try to focus on questions not already asked. We'll try to distribute the questions to the best way possible. We have received quite a few questions on the new targets. I think those will end up with you, Ilija, but apart from that, we'll try to distribute as we go along. Any questions from the audience? We'll start there.
Thank you. I wonder, Eva, that if you next year get the rating BBB+ with stable outlook, what is the consequences? Can you elaborate on that? With cost of debt, can it go from 1.5%-1% or what will happen? Can maturity be longer? Can you have more share buyers? What is the consequences, if someone can elaborate on that?
Hello.
Yes.
Can you hear me? Yes. Yes, I can say some words about it. BBB+, now we aim into BBB+ or even more or even a higher rating, A-, because that's what we have done so far. We have looked at good-rated corporates, companies, and we've seen what spreads they issue at and what they pay to banks and so on. Therefore we think that the financing cost will come down, or at least the credit spreads. We don't know about the market, of course, the market risk.
It's the same. 0.5 down or something.
Yes. That's right. We will be compared to the good, to the high-rated companies.
Maybe I can follow up on that then. The 1.52% is from the situation in the last quarter, it's been a little bit of a turbulence in the market. I know this is a very difficult question, but just if you were to refinance as things looks today, what kind of direction are we looking at and how big a change would that be?
It's very difficult to say and to say where rates will be. Of course, the market is closed for us. We will not issue in this market, and we don't need to issue in this market. We have our CFs, or we have our commercial lines that we can draw on if there is a crisis and so on. There we know our highest interest rate level, so we will never go over that. Of course, now in this stressed market, it has been some problems with the commercial papers. We can see now the market is starting again, so we actually issued today commercial paper and paid 60 basis points. That's very good because we have paid more than that during this period. You will see that in our report in 14th of July. Vive la France.
Okay. Another question. Looking at the public sector, just guessing for the next few years, most likely the financial situation will be a little bit worse. Tax rates might. Sorry for looking at you. You looked nervous there. Maybe Ilija is the one who will take this one. I'm just thinking on the public sector in general, both high and low, there will be a little bit of a distress and financial difficulties, of course, maybe tax rates coming up. In my world, that would be opportunities as well as risks. Maybe if you could elaborate a little bit on how you view that, what kind of opportunities you see, and if there is any risk, how you could mitigate those.
Thank you, Stefan. As Lotta mentioned, we actually have very strong position in the financial market. We issued 20 years bonds in a market when no one in Sweden could issue any money at the end of March, and that is often forgotten. As she mentioned, she's today able to issue commercial papers at 60 basis points, and you can compare with other BBB flat and even higher ratings. They probably pay a little bit more. This strong financial position and the strong access to capital market is also giving us opportunity to be supportive too. As you said, Stefan, that is very important. The corona crisis has also emphasized that there are needed new investment in, among others, elderly care homes. As Oscar mentioned, there is also lack of schools. There is lack of the space that is good for our children.
At the same time, municipalities have to meet a new condition with, how to say, worsening public financing. That is already creating opportunity for us. I think Oscar mentioned that we are actually right now dealing with, I think, three municipal deals in Sweden and one municipal deal in Finland, where we are actively helping municipalities to manage their balance sheet in order to deliver new social infrastructure. This situation, it's very unfortunate for everyone. However, we see that we can be the ones that are also helping municipalities to bridge to better economic conditions.
The last question to Krister, probably. Looking at the book value of your building rights and then comparing that to the market value, it's a big difference, and it's significantly bigger than I see in Bonava, Veidekke, or JM. Could you maybe elaborate a little bit on that? Why there's such a big difference? Maybe the key answer is in phase I, phase II, especially phase I, where you have quite a lot of building rights. What kind of situation are those in? The zoning is not done. We could go all the way to just farm. Is it farmland, so it's a big risk to get them zoned? Maybe if you could elaborate a little bit on what kind of land that is, just to explain the big difference between market value versus book value.
Yeah. Thank you for the question. Starting up with the last question, the building rights within phase I and II, I would say, and connected to what Marika told us about, we are never zoning raw land or something like that. We are looking at central places where you have commuting possibilities and where you can live your life without cars, et cetera. We do our homework and look into the possibilities. First of all, we often meet the municipality and have a first discussion if our idea is possible, et cetera. I would say that the building right portfolio within phase I and II are to be decided to start up soon. I would like to stress the fact that it's a very important decision.
Especially when you look at it from a valuation point of view, then I feel much more safe when we have this decision from the municipality. Regarding the book value, I'm not here to answer for Bonava and our competitors. It's up to them. From our point of view, I think we're quite conservative when we look into our values.
Great. Any other questions from the audience? Yes, in the back.
Bertil Nilsson from Carlsquare Equity Research. First of all, when you made a transaction of SEK 11 billion on one of the largest deals with Nyfosa so recently. There is this kind of crisis, you could compare with, for instance, last Lehman crash, could you see any changes or project any changes if the process has changed in fully let secure long lease properties and/or vacant properties or coming vacant properties due to leverage or debt financing from the banks? That's my first question. Second question is, if you look under operational goals, you say that you should be climate neutral in 2030, that's unchanged. I assume that there is an income stream linked to that as well. Thank you.
Thank you. First question. We don't work that much with vacant properties. I cannot give you any insights there. Looking into our properties, we see a great demand of the secure cash flows that we have, and we see an increasing part of investors wanting to buy these state-backed cash flows. From my opinion, I would say the prices are likely slightly more up post-corona than pre-corona. I think if you look at the real estate market as a whole, I would say that the yield spread has increased, that you're giving more credit to the good properties with the good tenants.
We can add, and as Marika shown, that is, of course, sustainability is also delivering money to us. Peter has shown in our refurbishments projects that we have been in some places decreasing our energy consumption with 50%. That is great upside, both on value, but also on NOI on a yearly basis.
Are we missing an answer there, or is it good? Any other questions? Shall we go to the online participants then? We can start. I think this will be for you as well, Oscar. This was received by email before. How big is your current acquisition pipeline?
Due to the fact that we are an active player in the transaction market and in the real estate space, our pipeline change on a daily basis, more or less. If we look into the transaction pipeline as a whole, both disposals and acquisition, I would say that we have a pipeline of around SEK 7 billion, including both acquisitions and disposals, and where we see an increasing interest for our state-backed tenants, especially within. We will keep selling properties and office properties with state contracts.
Good. We received a bunch of questions relating to the new financial targets, so I think we'll direct them to them, Ilija, and then you can include anyone if you want to. First off, also by email ahead of this. In the context of the SEK 125 billion portfolio target, what is SBB's ideal capital structure, including LTV hybrids share classes?
The answer to that is very easy. The capital structure is not our target. Our target is a strong financial position that is in terms of having BBB+ rating. That is why the growth is conditional by retaining BBB+ rating. That combined also with continuing strong growth in the cash flows through profit from property management. We are not here to play, we are here to deliver, and we are delivering value to the shareholders, and the capital structure and the rest is just a function of that.
Following up to that, can you please explain how to reach your growth target for 2025 with a rating of BBB+ ? What will it mean to your equity needs?
We do not need any new equity. It is actually relatively easy mathematics. If you make SEK 4 billion in profit and have as a target LTV of below 50%, that means that you can acquire SEK 8 billion the year one, probably slightly more the year two, a little bit more the year three, and so on. SEK 125 billion is not a number that has been, how to say, guessed by Lars Thagesson or by Eva-Lotta Stridh. It is actually pure mathematics. What is possible to build up without issuing any new A and B shares through delivering of ordinary profit?
Good. I think that answered also another question here, if you plan to reach the new goals without new issues of equity. I'll discard that one.
We are always ready to issue new equity at premium. You are welcome. You can just call Eva-Lotta and we are not afraid of issuing new equity, but we will always make sure that our shareholders are fairly treated and getting the best opportunity to get best return. This is important message. We are showing what we can do given the profit that is from organic growth, that we are always ready to access capital markets.
Great. This one I think we'll take for you, Krister. Why shifting annual guidance from building rights disposals to property development gains? Is there any change expected in the level of construction costs you may accept to take?
Okay, thank you for the question. The change is due to what we have been seeing and talking about today. We have seen that we have a shortage of residentials and shortage of elderly care homes and shortage of schools. We also have seen that we have 400,000 sq m of building rights legal force, and we have 1.8 million in total, and we also have a skilled team. From my point of view, it's for us not to give away the profit to Skanska or NCC or anyone else.
Good. You have divested SEK 10.9 billion since December, now state plans to grow assets to SEK 125 billion, which gives a bit of a mixed picture. Can you please elaborate on this strategy? Maybe Oscar, do you want to take that one or?
Yeah, I can take that one. As we said, when we made the Hemfosa acquisition, we said that we were going to sell properties of SEK 11 billion. Hemfosa had a lot of office properties with public tenants. Our core focus is on elderly care homes, preschools, schools, and LSS housing, and such other specialized community service properties. We will keep doing disposal of office properties related to the Hemfosa portfolio and keep acquiring community service properties, such as elderly care homes, preschools, and schools, as well as residential properties.
Excellent. On the LTV target, how come you define the adjusted net debt without hybrid bonds or D shares when there are payment commitments on this capital? How does this impact your LTV targets?
That is someone that is probably trying to play or not understanding how Swedish share classes works. D shares are ordinary shares. The only difference between A, B, and D shares is in participating in profit generation. That means that if that A and B shares get profit from value creation and small dividend on top, D shares get larger dividend that don't participate in the value creation. However, the dividend on D shares is conditional that company has profit to give the dividend to A and B shares. That can never be a debt. I understand that the person is not from Sweden and has not, how to say, studied how the ordinary share structure may look in Sweden.
Concerning the hybrid, there is a different situation. The hybrid is an amazing instrument for growing company because a hybrid as a perpetual instrument is never needed to be paid back. We are always, of course, because we have strong balance sheet and we have strong value creation, we will always pay back our hybrid at first call day. In a crisis situation, you never need to pay it back. That is, I should say, the big difference in treatment between ordinary debt and hybrid. To sum it up, I do think that S&P and also other rating. We are also rated by Fitch, and both S&P and Fitch count hybrid as 50% debt and 50% equity. I do think that is a fair way to calculate LTV in order to understand and to compare to other companies that are not having that kind of instrument.
These shares are pure equity.
Great. I think the last question then on the targets, then let's move on. That's from the release, where you stated that the board has decided to divert from the previous method of targeting growth by NAV and instead focus on profit from property management. What does this statement entail for NAV and NAV growth plans?
That means that we don't care about NAV. That is very important here because NAV is more for the company that don't have cash flow. We are the strong cash flow company. We have a net yield of 4.7%. For our international listeners, please compare it to German offices that are valued at net yield of 3%. I can assure you that our income from AAA sovereign credit-rated countries, Sweden, Norway, Denmark, is much more safe than German offices. At the same time, we are having a yield that is more than 50% higher, which means that our prices on the book are 2/3 of the assets that should not be comparable with our assets.
In that way, I do think that it's very important to leave NAV and to focus on cash flow because at the end of the day, the people are investing in company in hope to get a dividend, and you cannot get dividend from valuation than from an NAV. You get dividend from cash flow. I'm very happy that our board is, how to say, forward-looking and focusing on cash flow.
Great. Okay, here's a question on the portfolio composition. 18% of the portfolio is residentials. How will this change going forward? Any takers on this, Oscar, maybe?
Sure. I can take that one. I would say that the residential share of the total portfolio will be around 15%, and I think we will grow at the same speed as the community service properties. We will buy some residentials from the municipal housing companies, and we will also see an increasing part coming from Erik and Krister with new construction.
Perfect. Next one, this might be for Lotta. How do you hedge your euro debt?
Yes, good question. Thank you. We are very active in manage FX risk. The part of our FX risk that not is natural, we hedge with FX swaps.
Perfect. Shall we stay with the capital activity? Can you clarify how SBB generates recurring income from its capital activity? Are acquisition yields higher than disposal yields?
Yeah, I think I will take that question then. We try to provide some profit from our transactions, so we try to sell our properties at least our book values. When we make acquisitions, we are on the market, and we have to pay the market price, and we have to be fair against the municipalities and pay accordingly.
Great. Are there any questions from the audience? Follow up? Yes. Let's mix it up a bit.
I just got curious about the D shares when you say that I know it's not a debt, but what happens? Suppose that you have a year when you have reduced property values and you still have a good cash flow, but the net result at the end of the year is zero. Does that give dividend to the D shares? If it's not any dividend, does it accumulate so it's double the year after? Is it back to 50?
It is not at all. That is the important, that is why let me just start with the point why the only companies with strong financial position and a strong cash flow are issuing D shares because people understand that those company will pay dividend. In a crisis situation, the dividend for D shares is expressed as five times total dividend on A and B shares. If the dividend on A and B shares is zero, five times multiplied with zero is zero. This is very important because D shares are good for fixed income investors, and they are good in the way that if you have the stable cash flows as we have, because then you know that this company is going to give the dividend, and you will have the dividend.
There is no pressure on you if there is like Lehman Brothers or whatever it is.
No, I understand when you don't get anything. The year after, when you have an excellent cash flow, you have an excellent net profit. You don't get twice when you're back to 50 or.
I will explain that, too. There is also a difference towards preference shares. I agree on that with rating agencies that often give zero equity to preference shares because they treat it as debt. In a situation when you postpone the dividend, if you have preference shares, then you will have some, how to say, punishment interest rate. For these shares, you don't have any punishment. In that way, that is really pure equity instrument that is good for fixed income investors, and at the same time shielding the company in a way of Lehman Brothers or that kind of very deep crisis.
Great. Any other questions from the audience? We have a few more online questions as well. I like this one. We'll see who I guess Ilija will take this one. We will see if anyone will want to add something. Thank you for a very clear and well-structured CMD. Great. I do mainly miss your assessment of the actual risks. I would like you to show what can go wrong, and how you try to mitigate. Great people are key, but please do not answer by repeating low risk. I want to understand the risks of the underlying assets.
That is very good question. First, let me start with the assets. If you own one building, then you have an amazing risk, despite that building is NK here in Stockholm. If you own 10 buildings, then you have a slightly lower risk. If you own 1,500 buildings with 90% of income government-backed by AAA countries, then that risk is very minimal on the asset side. However, our biggest risk, and that is always risk as soon as you have any loans, is refinancing risk. That has been very clear in this COVID-19 situation. You have had the companies that have had difficulties to refinance itself. That is the risk that we are trying to manage, not only by having Eva-Lotta, that is our CFO, and coming from Småland and keeping all money very hard, but also working hard to prolong our maturities.
That is what Eva-Lotta and Lotta have been doing by showing before that when we issued our latest bonds in capital markets, we did it at 20 years, and before that, at 7.5 years. That is our way to manage our main risk.
Perfect. Some questions on the tenants. Please elaborate on the value add above and beyond the financing solution that SBB brings to its municipal clients.
Annika can tell you everything about it.
Yeah, Annika, that's one for you.
I did not get the question. Could you take it?
What value does SBB bring to the municipalities?
Okay.
Beyond the financing solution.
Beyond financing. It's about the team, again. It's the management team. We work very close to our tenants, and we have regular meetings with them. We always try to be ahead the tenants, not a step behind. We have a lot of contacts with the tenants, and with the municipalities as well. The regional managers, and together with Jenny, we have very lot of meetings with them.
Excellent. This one, I think this is a question that we meet sometimes reading the papers. Please explain why the state does not ask for lower rents given the rating. Why do they hand over value to property companies so freely?
That is continuing on the points that Annika mentioned. It is not easy to employ this kind of very knowledgeable employees that Annika has succeeded with. To build a team of 250 persons that are serving municipalities is delivering extra value. Sometimes we are also delivering to the municipalities our numbers, so they can benchmark and compare with the other part of portfolios that they are managing themself. Also in order to decrease their cost and also save taxpayers money. On top of that, we have the work that is being done by Krister, Erik, Jenny, and the property development team, working very closely with construction company to get lower costs for new constructions. I can tell you, Lars Thagesson, me, and Oscar, we had a meeting with some large municipality in Gothenburg region. Actually, in very frank discussion, we shared our numbers with municipalities.
It was shown that we are building LSS buildings, like it was 25%. Our price of the new LSS building was 25% lower than the price municipalities paying to the construction companies. I should say, sometimes people are focusing on the numbers and on the buildings, but I should say the people and the team's experience and competencies, the most important part, and that is what we are offering to the municipalities.
I think that ties into a question that we just received. What would happen to SBB if something would happen to Ilija? I think the answer is on the stage, but do we want to elaborate anything more on that?
I think that is elephant in the room. We had actually an accident here for a month ago and where the team and the board showed in a very stressful situation that they manage the company very professionally. I'm happy to work with those amazing people, as long as board want me to do it. I can assure you this company is very strong and with amazing people.
Great. Anything more from the audience? Yes.
Niklas Wetterling, DNB. A short follow-up on the hedging cost. I wonder if the FX hedging cost is included in the average interest rate of 1.5%?
Eva-Lotta can answer.
The 1.52%, that's the interest costs. At the balance sheet date.
Okay.
Of course, that's the interest for the Euro loans or NOK loans. They are converted into the balance sheet exchange rate.
Okay, the FX is included in.
Yeah, more or less. Yes.
Okay. You are doing a lot of transactions, so it's pretty hard to keep up with your assets, and I can't find a property list in the annual report or on the website. I just wonder if that's something you could provide to the market.
We have discussed it, and maybe we will.
We would like to do so.
Okay, thanks.
Later this year. We cannot do that because the reason why we have not been, when you grow as fast as we are growing, there is a large risk that someone forget to take away something from the website or you need to deploy a new administrative resources to have it. If you have it, then you have to be updated. That is why Adrian is clarifying that we are working and trying to look at if we can have good automatized digital resources to have it as updated as it's possible. That is the reason why we don't have it at that place before.
Thank you. Two questions. In my opinion S&P tends to be, and also other rating agencies tends to be slow moving in upgrading ratings, particularly in the market conditions we are under right now. How are you going to be able to persuade them to move fast on your rating?
Our view on that is, first, we agree with you. We do see that there is a lot of investor community also that during last week has been engaged and also directly contacting S&P because already today there is. At least we have talked to a few of the largest credit players that are not understanding why we are not been moved already to BBB because, as I could show according to all metrics, it's relatively easy to show that we will be there in next 12 months, and rating should be 12- 18 months forward-looking. I do think that we together, we do have good dialogue with rating agencies and other things that we together with investor community will get there.
Okay. One more question regarding refinancing that you touched briefly upon. What is your preference when you return to the market? Is this going to be Swedish krona, Euro, other currencies, and what maturities do you prefer?
I actually got the question because Lotta was working here preparing for presentation. It was someone that reached out to me in the meantime earlier today, and our answer was very straightforward. We will never issue at levels that are below BBB flat. The same way as I said before concerning the equity, we are always open to discuss with investors, but we need that the price is fair to our earlier investors because we have the large investor community that has invested in our bonds, and we are not going to issue the new bonds because we don't need any money. We are not going to issue the new bonds at the conditions that are worsening conditions for our secondary market. We can issue both in Swedish krone, in Norwegian krone, in Euro, but it has to be at BBB flat level.
Then finally, also important because we often get the questions about Euro. I want to tell you that Euro is our main currency, at least for SBB, and you know why. Just look at the markets. Norwegian market crashed. The Swedish bond market crashed. The only liquid market that had straightforward support by the central bank was Euro market. If you're a large player in real estate business today and you have not understand that you have to be exposed to the Euro market, then you have a big risk. Hedging, that is also part of the math, and that is the work that has to be done. That is very important work for liquidity and very important work for having low long-term risk.
Okay. Stefan, did you have a question as well?
Yeah. Sorry. No, it's a question on the transaction with Nyfosa. You also bought a property from them, which is SEK 400 million, I think, it's the SKF headquarters. Not incorrect. Maybe in need of renovation. Maybe they are leaving in two years, I think. I know that Nyfosa has been thinking about residential in that area because it might fit. My question to you, what is your thinking behind buying that property?
I will be very happy if Lars can tell you about that area in Swedish. I will think that will be good also for our international viewers. I will start, then Lars will tell you about all of the area. I can start by telling you that Lars already had the bid to sell it at SEK 450 million, and he said no. Please explain why do you like the area?
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You're not building any additional, you're just converting that building? That's the whole plan? You're adding also?
Sorry.
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I can just clarify that the building right there is not only the existing property, but there is additional building rights, and with the plan that has been ongoing for the long time to get broad usage, including rent-regulated residentials.
Great. I think time is almost running up. We might have one more question from the online tool. Anything else in the room here? No, not at this stage. We'll take the last one. We have received a lot of questions, and some of them are very technical details. We can see who has asked them, and we will try to get back to you online with the more detailed calculations. I don't think that really suits here on the stage. Just maybe then a clarification on the recurring profits from transactions. The guidance was for several hundred millions per annum in recurring profits from acquisition and sale activity. My understanding is that there is not much difference in the yield. Please explain where the profits are projected to come from in this activity.
This is expected to come from that we have a yield shift compared to what we are buying for and what we are selling for. As we said, we had done SEK 700 million historical, and we believe that we can at least do SEK 400 million going forward.
Excellent. Ilija, would you like to say a few concluding remarks? You already did before going into the Q&A session, but want to repeat them?
Yeah, I can just emphasize that few words that I started with, and the main one is actually presented here. I'm not, as I said also before, not so knowledgeable on buildings and real estate. I'm listening many times, many very smart people telling me that the assets are important, and it is important if you are in city of Stockholm or if you are in city of Linköping. I should say finally, and that is my real message for you that want to make money from real estate or whatever business you are invested in. The most important is here. It is the people. That is my main message. The people, that is what counts. Thank you.
Thank you, everyone.
Thank you very much.
Thank you.
Thank you.