Heimstaden Postad suffers from high interest rates and falling property values. In the last quarter, property values declined even further.
Real estate values were written down by SEK 4.9 billion, representing a 1.5 percent decrease from the second quarter.
The entire real estate portfolio is now worth SEK 331 billion.
Heimstaden Bostad has an ambition to retain its triple B rating from S&P. Then the interest coverage ratio, operating profit (EBITDA) divided by interest costs, must be at least 1.8. As of Q3, that headline number was exactly 1.8, down from 2.1 in the previous quarter.
Ready to sell property
In an interview with DN, Ivar Tollefsen said that the rating should be defended through the sale of property, not through a share placement.
During the conference call on Tuesday, investment director Christian Vladland said Heimstaden Bostad is in dialogue with shareholders about the possibility of a stock injection. Swedish pension funds own more than 60% of the company, but have been on the back foot and have demanded an amendment to the shareholders agreement before they pump in more money.
A plan has already been implemented whereby the rental giant will sell properties piecemeal and segmented, and this way it will achieve better prices. Heimstaden Bostad believes that just over a quarter of the portfolio, equivalent to SEK 85 billion, is suitable for sale.
The sale process will be accelerated in the coming quarters, and properties will be sold for up to 20 billion by the end of 2025 to repay debt, which amounts to about 220 billion SEK, including mixed capital.
Lower debt results in lower interest costs and thus a better interest coverage ratio. But it is not a given that the profit from the sale of property has any impact on the operating result, which will also make it easier to meet classification requirements. The company is in dialogue with Standard & Poor’s about whether such a gain could be included in the interest coverage ratio calculation, Vladland said on the conference call.
Despite increasing interest rates and higher return requirements, the investment manager believes and hopes that Heimstaden Bostad will be sold at prices 20 percent higher than book value. According to the report, 106 units have already been sold at a premium of 30 percent.
More stock too?
In an update, Swedbank analyst Axel Andersson wrote that the quarterly report was weaker than expected. It indicates lower cash flow, increased pressure on the interest coverage ratio and increased risk of a Standard & Poor’s rating downgrade.
– It will take a long time to sell each unit individually, as the company needs to strengthen its balance sheet now, Anderson writes.
The triple B rating is two notches above high yield, also known as “junk status.” Heimstaden Bostad does not want to go there, because that would mean the debt would become more expensive and less available.
– Improved liquidity and an announced sales strategy are factors that S&P will take into account, but ultimately the company needs an equity infusion to maintain its BBB rating, Anderson wrote.
In August, Anderson said Heimstaden Bostad should raise $30 billion.
Tollefsen can be sold
Hemstaden Bostad’s loan-to-value ratio was 57.2 percent at the end of the third quarter, up from 56.6 percent in the previous quarter, according to Standard & Poor’s calculations. The maximum rating requirement is 60 percent.
In the third quarter, the company obtained bank loans totaling SEK 13 billion and received a total of SEK 50 billion in the past 18 months, according to the report. Thus, refinancing is secured until the third quarter of 2025.
Heimstaden Bostad is owned by Ivar Tollefsen’s Heimstaden (38 percent) and Swedish pension and insurance companies, such as Alekta and Folksam (just over 62 percent). Ivar Tollefsen controls Heimstaden via Fredensborg.
Parent company Heimstaden also faced major challenges after interest rates rose. On Sunday, DN wrote that it was now open for Heimstaden to sell Heimstaden Bostad shares, so it could dispose of a $4.5 billion hybrid loan at ten percent interest.(conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using links that lead directly to our pages. No copying or other use of all or part of the Content may be permitted except with written permission or as permitted by law. For more terms see here.
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