Both higher growth and discount to NAV vs. peers
Results above ABGSCe but interest rates weigh on estimates
Studentbostäder i Norden (SBS) delivered a stable Q2 report with total income and IFPM 2% and 3% above our expectations, respectively. However, the NOI margin of 58.8% (56.2%) fell short vs. ABGSCe at 64.0%, leading to negative estimate revisions. For projects that are not yet started, we move completions further into the future due to extreme construction cost inflation (+14.6% y-o-y in July), affecting rental income negatively for 2024e. Looking at CEPS, interest rate expectations have continued to soar since our last update in mid-May, and as such we incorporate higher interest expenses than previously. The share issue of ~SEK 125m or an increase by ~13% of outstanding shares also affects figures negatively.
Organic growth from projects partly hampered by yield shift
SBS has >1,600 units (net) in ongoing projects (>30% of the current base of management properties), of which we estimate a project margin above 20%, showcasing the organic value creation in the years to come. All ongoing projects have construction agreements with fixed prices, which is comforting in an environment of high inflation for development costs. However, financing costs and the Swedish 10-year govt. bond have increased rapidly, which is why we now forecast that property values (excl. inflation and project gains) will decrease by ~10% until Q4’23, with the first negative value changes in Q4’22 (in line with our coverage) affecting NAV estimates, as SBS has relatively high gearing.
High-beta case, sector facing headwinds
The share is trading at a discount to the Q2’22 reported EPRA NRV of ~54% vs. residential peers such as Balder, Trianon and Wallenstam at an average discount of ~23%. In an environment of increased interest rate expectations, SBS should be viewed as a high-beta case. We adjust our ...
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