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Pure-Play Swedish REITs Separate Next Week with Strong Post-Spin Opportunities

The Edge View...
Hemfosa Fastigheter AB (HEMF SS), a community service property owner in the Nordic region, is prepared to Spinoff its high-growth commercial property portfolio into the newly listed Nyfosa AB (NYF SS). After the Spinoff, HEMF (ex-Spin) will focus on its 237 community service properties with a high leasing rate of 94.4%. On the other hand, NYF (Spinoff) will operate as a commercial property portfolio of 126 properties, with a leasing rate of 91.0%. More importantly, former HEMF CEO Mr. Jens Engwall will move to NYF (Spinoff) and serve as CEO. Mr. Engwall was the CEO of HEMF for 6 years (from 2013 to September 14, 2018), where his strategy of acquisition-led growth has generated an absolute return of +146.9%, outperforming the OMX Stockholm 30 Index return of +34.7% since HEMF’s IPO in March 2014 to date. His expertise in acquisition-led growth will benefit NYF and replicate HEMF’s growth profile in the long-term.

Furthermore, we believe NYF will position itself as a solely commercial property owner with an improved debt to equity ratio of 0.9x and a leasing rate of 91.0%. NYF’s property portfolio will be concentrated in Sweden alone, in contrast to HEMF’s presence in three countries (Sweden, Norway and Finland). The regional focus and lower debt profile may offer an opportunity for acquirers like Fabege AB (FABG SS), which has a strong presence in the commercial properties space in Sweden and is a potential acquirer of NYF to strengthen its own position.

Having said this, since the news regarding the Spinoff was confirmed on February 16, 2018, HEMF’s share price has increased by +15.8% compared to the OMX Stockholm 30 Index return of -1.6% to date, largely pricing in the separation benefits. Therefore, we recommend investors to wait for a lower entry point in either of the entities post-separation.