The Q1 results were in line with our estimates and consensus. Asset values were lifted by 1.4% QOQ, and the vacancy rate improved slightly. We believe the current NAV discount is fair given the high exposure to retail and low valuation yields used in general. We reiterate our HOLD recommendation and have raised our target price to SEK127 (120).
Current swap yield curve market expectations imply 5-year swaps in the Nordics rising by 60–100bp over the next three years, leading to bank funding above current CBD yields. Thus, despite rental growth from market rents and developments, we think NAV growth looks set to be capped by higher yield valuations. We believe the new corporate tax law in Sweden would also lead to companies deleveraging. We see some Q1 risk from the cold Nordic winter. We keep our neutral sector stance.
The week started with a bid for all shares in Victoria Park by Starwood Capital. In other news, D.Carnegie bought real estate assets for SEK1.6bn and SBB Norden sold a school. The average implied EBITDA yields on the stocks we cover are 4.61% for 2018e and 4.87% for 2019e.
The Swedish finance minister has proposed a corporate tax law that includes a cap of 30% of EBITDA on interest rate tax cost deductions. Entra bought a small property and Hemfosa bought out a JV partner. The average implied EBITDA yields on the stocks we cover are 4.62 % for 2018e and 4.88 % for 2019e.
In the news, Kungsleden acquired a SEK1bn property in Malmö, and issued its first green bond. This week we published notes on NPRO (which we downgraded to SELL) and Entra. Elsewhere, prospects of an interest rate rise in Norway moved closer. The average implied EBITDA yields on the stocks we cover are 4.55% for 2018e and 4.81% for 2019e.
Swap rates moved up this week – and most so in NOK in the Nordics. Castellum announced one large development in Malmö and sold one Stockholm property. Several bonds have been issued. Kungsleden and Fabege have announced leases. The average implied EBITDA yields on the stocks we cover are 4.57% for 2018e and 4.83% for 2019e.
Today Norges Bank cut its inflation target for the economy from 2.5% to 2%, while Entra announced a lease contract. Earlier in the week, Olav Thon issued a bond, Platzer’s CFO announced he will be stepping down, and D. Carnegie set a subscription price for a rights issue. The average implied EBITDA yields on the stocks we cover are 4.63% for 2018e and 4.89% for 2019e.
Balder reported its Q4 results this week and thus ended the Q4 reporting season for our covered names in the sector. Kungsleden’s CFO is stepping down. D. Carnegie & Co (not covered) reported Q4 results and proposed a SEK1.5bn rights issue. Technopis and Prime Living also reported Q4 results (we do not cover these two stocks). The average implied EBITDA yields on the stocks we cover are 4.63% for 2018e and 4.89% for 2019e.
Six of the companies we cover released Q4 results this week; there were few surprises, with just one beating forecasts. However, as market interest rate swaps and FRAs continue to rise we lowered some of our forecasts following the Q4 releases. The average implied EBITDA yields on the stocks we cover are 4.60 % for 2018e and 4.91 % for 2019e.
In line with the market sell-off, we also fear lower NAV on rising interest rates. We are also concerned about luxury spending, as new mortgage amortisation rules are set to reduce consumer wallets. However, after the sell-off we find the short-term downside has been taken out, and have upgraded our recommendation to HOLD (Sell). We have cut our target price to SEK120 (130) on increased yield forecasts.
Five companies under our coverage have had Q4 reports this week. Klovern has published its mandatory bid for Tobin. Kungsleden divested a warehouse for SEK555min in Helsingborg. Average implied EBITDA yields on the stocks we cover are 4.36% for 2018e and 4.84% for 2019e.
Swap rates continued upwards this week; adding even more pressure on low yield-spread names. Wihlborgs started the year with the acquisition of two properties in Lund and two in the Copenhagen area. Kungsleden has acquired two newly built office properties as well as a property with a multistorey car park for approximately SEK1bn. Average implied EBITDA yields on the stocks we cover are 4.36% for 2018e and 4.78% for 2019e.
Castellum’s CFO indicated during the Q4 webcast (kicking off the reporting season) that a decision on the new Swedish tax rate with interest rate cap would come in April. Swap rates continued upwards this week; we continue to see downside potential in low yield-spread names. Average implied EBITDA yields on the stocks we cover are 4.41 % for 2018e and 4.81 % for 2019e.
While the company reported profit from rental operations in line with our forecast, we have cut our FFO forecast for Hufvudstaden given its increased payable tax rates. NAV was written up in Q2 as yields were lowered again, even as low as 3.4% on the most prime assets, a level still not seen in the transaction market. We reiterate our SELL recommendation and SEK130 price target.
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