Diös: Investment fireworks in the north - ABG

Transactions and high net letting offset top-line miss Higher reported interest rate explains CEPS revisions Another bn-sized investment approved last week Changes to our numbers The report was -2% vs. ABGSC Q2e on the top line and IFPM (higher paid tax caused CEPS to be -5% but we do not extrapolate that miss since paid tax fluctuates somewhat unpredictably). The previously announced divestment to Point Properties (SEK 69m rental income) has been cancelled, which increases the top line by ~2-3% in ’22e-’24e. Two small, signed acquisitions, positive net letting, and an improved occupancy rate further support our positive top-line estimate revisions. CEPS is impacted by the same factors but also to a large degree by raised interest costs. We have revised our interest rate assumptions according to the higher reported interest rate of 1.8% (as of June 30) vs. ABGSCe 1.6%, which leads to a negative effect on CEPS. Several factors mitigate interest rate hike The completion of two residentially tilted acquisitions in Q2 and a higher occupancy explain the 6bps yield compression q-o-q. We maintain our forecasts of a value decline up to Q4’23 (starting in Q4’22) and our EPRA NRV estimates remain relatively unchanged. Diös has one of the lowest interest maturities among Swedish real estate companies (1.0 y), but a high cash-flow generation (3.6pp yield gap in Q2’22) counteracts this negative impact alongside a high (73%) proportion of outstanding debt with banks as opposed to the capital market. Refinanced debt in H1 (SEK 1.3bn) has been at similar bank spreads as in 2021. Share trading 20-25% below its historical averages We note that there are planned investments of >SEK 500bn in northern Sweden directly affecting the ten cities in which Diös operates. For example, last week, H2 Green Steel received building approval for its factory outside of Luleå, a SEK 25bn investment. Meanwhile, Diös’ share is trading at ~9x LTM P/IFPM and at a ~30% discount to reported EP ... Läs mer på ABG Sundal Collier