Trianon: Don’t underestimate the residential segment - ABG

NOI trimmed by ~1-2% and CEPS by ~4% We note rental income estimate potential Trading ~25% below 4-year P/IFPM average Consensus for residentials might be too low
Higher energy costs drive down the NOI margin by 1.0pp in ‘22e and 0.5pp in ’23 & ‘24e, respectively. Moreover, we have raised our central admin forecasts slightly after the higher-than-expected figure in Q2. We note that rents for residentials in Malmö historically has superseded CPI (by ~50% since 1998 and ~25% since 2011). In addition, an agreement in May between the property owners’ association and the tenants’ association (TA) in Sweden lays out how rents can be determined from 2023. We believe the agreement could move the advantage from the TAs to the residential property owners, such as Trianon. These factors combined serve as rental income estimate potential, as we are more conservative and only pencil in moderate growth vs. current CPI forecast (2.5% in ‘23 & 2.0% in ‘24) and 0.1-0.2% in uplifts from renegotiations of commercial leases in ’22-’24.

>90% of financing in banks The interest maturity is down to 1.4y (2.0y in Q1) despite refinancing in Q2, although the average interest rate fell by 0.1pp, to 1.8%. We note that our net financials forecasts are roughly in line with Trianon’s “alternative earnings capacity for ’23 and ‘24” posted in its Q2 presentation slides. We anticipate that the gap to the reported earnings capacity will decline in the coming quarters, as funding costs for new loans increase, but the high exposure to funding in the bilateral bank market (93% of IB debt) is a cushion as bank margins have not risen as much as in the capital markets. On another note, 75% of property value changes came from project profits in Q2 (25% in Q1), and SEK 50m in profit has now been booked in 2022 (full-year target SEK 100m).

20x LTM IFPM and 0.79x reported EPRA NRV The share is trading at 20x LTM IFPM and 0.79x reported EPRA NRV. Its 4-year averages are 27x and 1.24x, while the averages of peer ... Läs mer på ABG Sundal Collier

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