Swedish landlord Heimstaden sees property values stabilising

HEIMSTADEN Bostad, one of Europe’s biggest residential landlords, said property valuations are now showing signs of stabilisation after five straight quarters of declining values.

Despite the positive outlook, the Swedish real estate group said in a statement on Tuesday (Oct 24) that its overall portfolio value stood at 332 billion Swedish kronor (S$41.3 billion) in the third quarter. This is down 2 per cent from the prior three-month period.

The landlord is currently racing to avert a downgrade of its BBB rating by selling assets and securing funds in the bank market. The group had been among the biggest issuers of bonds in Europe’s real estate sector, but that funding channel is now largely closed given a market-wide surge in borrowing costs. 

As a consequence, the board has approved a so-called “privatisation plan” where portions of its portfolio will be sold off to the private home-owner market. The plan is expected to deliver 20 billion Swedish kronor by the end of 2025, said chief executive officer Helge Krogsbol in the report.

The new strategy “will support our deleveraging programme while crystallising premiums to book values as a key support to our credit metrics”, the CEO added.

Still, the pressure on its ratings remains. Heimstaden Bostad’s interest coverage ratio, a metric which is used to measure a company’s ability to service its debt, weakened to 1.8 times in the third quarter due to higher cost of debt and valuation yields. A further weakening of that ratio could trigger a rating downgrade.

The company “may very well see a downgrade to BBB – but we are comfortable with the credit remaining investment-grade-rated, and the name continues to be the most mispriced name in the Nordic real estate space”, credit analysts at Arctic Securities said in a client note.

Heimstaden Bostad said in its last quarterly report that it was weighing a capital injection from its owners to ensure adherence with the thresholds for its credit rating. Any such move could be sensitive for one of its largest shareholders, Swedish pension fund Alecta, which earlier this year lost US$2 billion from a failed investment strategy in the United States.

The CEO however played down the prospects of such a capital raise in the latest report, published on Tuesday.

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“We do not require additional equity injection to handle upcoming maturities, thanks to our substantial reserves and operational results,” Krogsbol said. BLOOMBERG