Potential refinancing wall in 2021

The Swedish Financial Supervisory Authority has stated it will publish its final recommendation on rule changes for higher risk weights for commercial real estate lending for banks within three weeks. A record-high volume of bonds are due to mature in 2021. Hufvudstaden’s Q3 report was in line with expectations and we believe the full retail NAV discount is still to come. The average implied EBITDA yields on the stocks in our sector coverage are 3.90% for 2019e and 4.09% for 2020e.

Q3 reporting season continues

The Q3 reports were more positive this week, with results in line with consensus and no setbacks on net lettings. We also note that Balder, Klövern and Hemfosa do not report forward-looking net lettings. The average implied EBITDA yields on the stocks in our sector coverage are 3.87% for 2019e and 4.06% for 2020e.

Northern Lights

Klövern (Sell, TP: SEK14.00) - Less cash flow, more developments

With the share price up by 60% YTD, we consider the valuation demanding. In Q3, Klövern divested high-yield assets in regional Swedish cities and started a new office development project in New York, which further supports our view that the company is becoming more project-driven and less by cash flow. Following a change of analyst, we reiterate our SELL but have raised our target price to SEK14 (12.3) on trimmed operational costs estimates and lowered valuation yield.

More Q3 results and likely rate hike

This week’s Q3 reporting started off with more negative net lettings, namely for Fabege (Castellum and Atrium last week). However, the week ended with stronger net lettings from Citycon, Wihlborgs, and Kungsleden. Also this week, the Swedish Riksbank indicated a likely interest rate hike at its December meeting. The average implied EBITDA yields on the stocks in our sector coverage are 3.87 % for 2019e and 4.07 % for 2020e.

Q3s and flawed employment data

Q3 reporting season kicked off this week with Entra, Castellum and Atrium. Pandox announced it had bought two hotels. Swedish unemployment was reported at 7.4%, but the data is flawed according to SCB. The average implied EBITDA yields on the stocks in our sector coverage are 3.77% for 2019e and 3.93% for 2020e.

Offer to buy back bonds, transaction, leases and projects

This week SBB Norden launched an offer to buy back bonds, as well as announcing more transactions, Entra secured another lease, while Wallenstam appointed a new vice CEO and won a project. The average implied EBITDA yields on the stocks in our sector coverage are 3.91% for 2019e and 4.07% for 2020e.

Softer foundations, high valuations

The strong office rental market has gone hand in hand with a lower unemployment rate in recent years, but the recent sharp spike in Swedish unemployment raises concern that weakening economic fundamentals could put pressure on market rents and vacancies, in our view. The 15-year correlation between P/FFO in Nordic real estate and P/E in the Nordic stock markets also appears to have decoupled in 2019. We reiterate our negative sector view.

Bonds, new leases and our initiation

On Monday we initiated coverage on Catena with a SELL recommendation and SEK260 target price. This week also saw newly issued bonds and new leases. The average implied EBITDA yields on the stocks in our sector coverage are 3.91% for 2019e and 4.07% for 2020e.

Conference, share offering and transactions

The third annual DNB Nordic Real Estate and Construction Conference took place on Thursday. In other news, Akelius is offering D-shares in EUR, Balder acquired two properties from Platzer, and Klövern divested a logistics portfolio to Blackstone. The average implied EBITDA yields on the stocks in our sector coverage are 3.87 % for 2019e and 4.03 % for 2020e.

CMD, volatility and a development

Citycon hosted a CMD in Stockholm, setting a new course to become a ‘mixed use’ company. The Swedish names saw a hit on Thursday as the Riksbank indicated a rate hike in late 2019 or early 2020. Wihlborgs is starting a new development. The average implied EBITDA yields on the stocks in our sector coverage are 3.84% for 2019e and 4.00% for 2020e.

Valuation rally

In this minor sector note we take a look at Nordic real estate valuations, post the latest rally in share prices in the sector, which we believe has been fuelled by falling market interest rates. Implied yields have correlated closely with market interest rate trends, but with P/FFOs at record-highs and P/NAVs well above norms, we continue to have an overweight of SELL recommendations in the sector. We also note that changes to consensus EPS/FFO adjusting for lower funding costs are marginal com...

Trade, bonds and leases

NPRO’s main shareholder flagged a 72.5% ownership, having bought another 67.4m shares. Wihlborgs announced several leases in Denmark; Kungsleden also provided a lease update. Wallenstam, Castellum and SBB Norden all issued new bonds. The average implied EBITDA yields on the stocks in our sector coverage are 3.80% for 2019e and 3.97% for 2020e.

Q2 results, bonds and projects

This week’s news highlights: Hufvudstaden (SELL, TP SEK148) and Kojamo’s Q2 (no rec) results, several bonds were issued, Kungsleden started a new project in Malmö and Johanna Skogestig was appointed as new CEO of Vasakronan. The average implied EBITDA yields on the stocks in our sector coverage are 3.85% for 2019e and 4.02% for 2020e.

Transactions/leases and Q2 results

Länsförsäkringar Skåne purchased a property from Wihlborgs, Kungsleden started an office project in Malmö, and Hufvudstaden signed lease agreements in Gothenburg. Olav Thon’s Q2 results were in line with our estimates. The average implied EBITDA yields on the stocks in our sector coverage are 3.92% for 2019e and 4.09% for 2020e.

Peak Q2 reporting season

This was peak Q2 results week, with eight companies we cover reporting, summarised below. The average implied EBITDA yields on the stocks in our sector coverage are 3.95% for 2019e and 4.13% for 2020e.

Northern Lights

Klövern (Sell, TP: SEK12.30) - Declining share discount

Klövern (KLOVb SS, Sell) - Declining share discount (18 pages)

Q2 results and profits from deals

Atrium Ljungberg sold a residential area in Kista, a zoning plan change prompted an additional payment to Fastpartner, and Kungsleden has leased 20,000 sqm in Västerås. Entra, Atrium Ljungberg, Kungsleden and Norwegian Property have reported Q2 results. The average implied EBITDA yields on the stocks in our sector coverage are 3.98 % for 2019e and 4.16 % for 2020e.

Transaction markets, Q2 results and pref shares

We recently reiterated our SELL recommendation on Fabege after its Q2 report. The Nordic transaction market is strong. Yesterday was the last day of trading for Victoria Park preference shares. The average implied EBITDA yields on the stocks in our sector coverage are 3.96% for 2019e and 4.16% for 2020e.