Withina year of its strategic transition from a residential developer to a property management company, Oscar Properties has expanded its investment property portfolio from SEK 1.4bn to ~SEK 6.7bn, and the target is set for SEK 20bn by year-end 2024. The acquired properties are supposedly high-yielding (~6%) mainly commercial properties located throughout Sweden, with a somewhat higher concentration in Stockholm and Skåne. As a previous developer, Oscar Properties has a solid understanding of the real estate market, but its abilities as an investment property manager remain to be seen.
Successful growth may lower interest rates
The 2021e equity ratio of merely 27% illustrates the company’s high leverage, and it needs to continue finding acquisitions and establishing a successful property management in the existing properties to grow and lower its high interest costs. We do include SEK 0.9m-1.0bn of annual template acquisitions, constituting ~10-15% of net operating income in 2022-2024e. Income from property management (IFPM) is currently negative but turns positive in Q1 2022e and grows by ~70-50% in ’23e and ’24e, respectively, albeit boosted by a low base figure. Our modelled interest rate falls from 4.3% in Q3 2021 to ~3.7% in Q4 2024e. We include scenarios in our analysis where we assume a faster decline.
Fair value range of SEK 10-13
Oscar Properties is valued at ~14x and 0.47x on ’23e P/IFPM and P/EPRA NRV. We note the shorter track record and slightly slower EPRA NRV growth than peers (Castellum, FastPartner and Wihlborgs), but we forecast larger cash earnings growth than cons. and ABGSCe for these. The share is valued in line with peers on P/IFPM (income from property management) but ~45-50% below on P/EPRA NRV. Our fair value range of SEK 10-13 implies ’23e P/IFPM and P/EPRA NRV of 16-20x
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