Oscar Properties: Mixed bag of messages from Q1 - ABG

Positive top line revisions while lowered NOI margin
Borrowing terms should improve even with higher repo
‘24e P/IFPM of ~13x and P/EPRA NRV of 0.35x

The occupancy rate possibly troughed in Q1
We increase our rental income estimates based on 1) higher indexation assumptions of 150bp in ‘23e and 100bp in ‘24e, to 3.0% and 2.5%, 2) the ~5% Q1 beat, although the effect is somewhat delayed due to postponed closures for unsigned acquisitions. The occupancy fell 10bp q-o-q to 88% in Q1, but according to management this is due to terminated contracts in Q4’21, and the letting activity YTD has been better. The Q1 NOI margin was weaker than expected at 59%, and we lower our full-year margin assumption to 68% (compared to the earnings capacity of 77%) Higher net financials (explained more below) mainly explain the negative CEPS revision; however, CEPS is still a small number which causes estimate changes in percentages to be volatile.

Interest rate estimates up on higher repo rate
We continue to estimate that OP improves the terms of its loans ahead as 1) the company grows towards its portfolio growth target of SEK 20bn at year-end ’24 (vs SEK 7bn Q1’22), and 2) its average interest rate is remarkably high (4.6% as of Q1’22). However, our net financial forecasts go up in this review as we have incorporated repo rate hikes of 100bp for all companies in our coverage. This decreases income from property management (IFPM) and CEPS in ’22-‘24e. In addition, we previously included some yield compression in our estimates, but due to changed market conditions we have removed this, which in part explains our lower EPRA NRV estimates.

‘24e P/IFPM roughly in line with peers
The valuation is tricky on ’22 and ’23 estimates as CEPS is depressed while EPRA NRV is well above market value. As cash earnings reach critical mass in 2024, we find ‘24e more useful, and note ~13x P/IFPM and 0.35x P/EPRA NRV. These valuation metrics are roughly in line (P/IFPM) and ~50% below (P/EPRA NRV) the average fo ...
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