Studentbostäder i Norden delivered a strong Q1 report with rental income and NOI margin of ~6% and ~4pp above our estimates, respectively. Looking ahead, we postpone our assumption of rental income contributions from development projects in 2023 from Q2 and/or Q3 into Q4, which impacts 2023e rental income and NOI negatively by ~4%. 2024e rental income is boosted by an acquisition in Copenhagen. Looking at CEPS, interest rate expectations have skyrocketed since we initiated on 29 March, hence we incorporate higher interest expenses than previously. One should keep in mind that Studentbostäder has not yet reached a critical mass in terms of management properties, and CEPS is growing from a low base.
More project gains to come
Q1 property value changes amounted to ~SEK 110m, of which ~64% stem from project gains (~SEK 70m). SBS has ~1,800 units in ongoing projects (almost 40% 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 relatively fixed prices, which is comforting in an environment of high inflation for development costs.
Higher growth and lower multiples, with higher risks
The share is trading at a discount to the Q1’22 reported EPRA NRV of ~30%, compared to residential peers such as Balder, Trianon and Wallenstam at an average discount of ~10%. Looking ahead, we expect SBS to generate an EPRA NRV growth of ~17% p.a. in 2022-2024e (above peers), hence the deviation to peers increases looking at P/NAV in 2022e-2024e. However, both the project volume and the gearing (net LTV or NIBD/EBIT) is higher in SBS, and the ICR is currently below the company target of 2.0x, which poses risks. We adjust our fair value range to SEK 8 ...
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