Trianon: Good activity but higher interest rates looming - ABG

Value change potential from retail to CSP conversion
Unsustainable yield spread prompts value declines
Share down ~50% YTD, trades well below hist. average

Recent new letting points to further value change potential
Trianon announced ~770 sqm of new leases in Q2, below the very active Q1 (~3,700 sqm), but the market is holding up well according to management. The new 10y lease to a community service tenant at the Entré property, announced on 15 June, means a further conversion from retail to community service tenants there. A conversion of the remaining 9% vacant retail space should lead to a decent value uplift as the valuation yield on CSP properties is significantly lower than for retail properties. Moreover, we note that ongoing projects are on fixed price agreements and therefore not severely impacted by higher input costs.

Declining property values, but timely interest hedge
The refinancing in Q1 led to a cushion as 43% of Trianon’s interest rates expire after 2024 (21% in Q4’21). With that said, the cash flow impact from higher interest rates is more severe for residentials than for high-yielding segments. Because interest rate expectations have soared in 2022 we have increased our repo rate assumptions, now reflecting hikes of +25bps in June, Sept. and Nov., respectively, for a total of +150bps until 2024e (+100bps previously). Moreover, credit spreads in the capital markets have expanded further in the last few months, leaving the yield spread between financing costs and low-yielding properties (e.g. residentials) at an unsustainable level, in our view. Thus, we assume a property value decline of ~10% (excl. inflation and project gains) between Q4’22 and Q4’23, explaining our cuts to EPRA NRV.

Fair value range of SEK 26-32 (35-43)
Trianon is one of the hardest-hit shares in the sector in 2022, down ~50% YTD. The share is trading at ~20x LTM P/IFPM and a ~25% discount to its last reported EPRA NRV. These metrics are well below its 4y averages (26x & 24% premium). Co ...
Läs mer på ABG Sundal Collier

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/trianon/Equity-research/2022/6/trianon---good-activity-but-higher-interest-rates-looming/