Trading at ~16x and ~0.6x last reported IFPM and NAV
Rental negotiations on everyone’s lips
As mentioned in our note in July, the upcoming rental negotiations are different this year due to a tripartite agreement in May, which stipulates a structure for what the parties need to base the rental increase off, incl. tariff-related and operating costs, interest rates, GDP, GDP/capita, and inflation. From both media reports and our talks with management, it has become evident that there is a wide range of opinion in terms of the degree of the rent hikes, with Trianon’s CEO as well as a few regional CEOs for the Property owners’ association pointing to double-digit raise, while the CEO of the Tenant’s association has replied to this with sharp scepticism. We forecast 3%, up from 2.5% in our previous estimates.
Riksbank’s aggressive rate hike main reason for est. cuts
Despite the rental income increase, we cut our NOI estimates due to higher electricity and heating costs. In 2021, Trianon’s operating costs consisted of 10% of electricity costs and 20% heating costs. For district heating (its largest heating source), Trianon will pay fixed prices for the remainder of 2022; negotiations for ‘23 are currently ongoing. Electricity prices in Malmö are up by ~150% y-o-y, of which a certain share is fixed (not communicated how much, but we assume 25%). Note that 72% of the portfolio is resi., while the rest can pass on to tenants. The largest cuts to our estimates come on updated interest rate assumptions in accordance with the Riksbank’s new (September) rate path. In addition, we assume four 10bps margin increases in Q2’23-Q1’24e.
Next 12m fair value range of SEK 20-25
Multiples now vary significantly, depending on time horizon. For 2024e, Trianon is trading at ~21x IFPM and ~0.7x, while for 2023e, the corresponding multiples amount to ~26x and ~0.7x. Finally, the last reporte ...
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