Oscar Properties: Redirecting course of action - ABG

Old projects marked off – positive Likely a net seller in the coming quarters We trim rental income and NOI by ~10-15% Positive net letting in Q2 and liquidity injection in Q3e

Q2 was affected by many one-offs, most prominently ~SEK -35m from a settled conciliation regarding Brf Innovationen in Norra Tornen. Moreover, OP divested a villa project and came to a final settlement of a school project, realising value changes of SEK -53m. According to mgmt., net letting was positive in Q2 - and we have reflected that with an increased occupancy rate in 2022e. Moreover, we expect project Primus to be divested in Q3, amounting to a ~SEK 240m liquidity injection – a clear positive. We lower rental income by 9-13% in ’22e-‘24e due to the top-line miss in Q2 and removal of template acquisitions until H2’23e. The NOI margin is trimmed by ~1.5-2.0pp in ’22e-’23e due to the Q2 miss.

Asset rotation and focus on value add Previous financial targets, such as SEK 20bn in property value by 2024, remain in place, and acquisitions of ~SEK 1.4bn are expected to close in Q3 vs. the property value in Q2 of ~SEK 7.3bn. Nevertheless, we will likely see few, if any, acquisitions in the next couple of quarters. Focus will instead be on 1) value-add investments to increase cash flow, 2) high-yielding properties while low-yielding could be divested. With even more focus on cash flow, the company could amortise debt and enable negotiations with banks to potentially lower its sector-high bank margins. Financial metrics that are important to meet are its equity ratio (>30%) and ICR (>2.0x) targets.

80% discount to booked values priced in Our estimates point to an equity ratio of 23-22% in ’23 & ’24, respectively, while bond covenants would be breached at 25% (and at 27.5% from Q1’24). According to the company’s estimates, it will meet its covenants solely through earnings from its existing property portfolio. We advise investors not to focus on our CEPS revisions as Oscar Properties has not yet reached a ...
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