Stendörren: We expect strong newsflow - ABG

Letting holds up – and 20% rental uplifts are encouraging
Expected property value decline drives EPRA NRV lower
Potential index inclusion: capital inflow

Operations running well, but we could see delays in new projects
Management continues to experience good letting activity, confirming strong demand for its industrial premises in urban locations. ~SEK 150m of outstanding contracts (~25%) mature in 2023, and a more modest ~SEK 65m in 2022 (~10%). STEF has averaged rental uplifts of >20% in recent years and the solid demand for its premises indicates a continued high level. The four ongoing projects (~21,700 sqm) run on fixed prices, while planned projects may see delays due to the recent spike in construction prices. Our project estimates are unchanged, implying completions in line with STEF’s projections. We note downside estimate risk in ’24 if the residential project is delayed (currently Q3’24e).

Interest rate hedging mitigates higher interest rates
As interest rates and the Swedish 10y government bond have increased rapidly, we pencil in two more repo rate hikes (150 bps in total vs. 100 bps previously), explaining the lower CEPS estimates. That said, in Nov. and Dec., STEF hedged ~90% of its debt, extending its interest maturity from 2.5 to 3.7 years (3.5y in Q1’22), thus limiting the impact of higher interest rates. We also assume declining property values of ~5% (excl. inflation and project gains) between Q4’22e and Q4’23e. We still expect NAVPS to grow every quarter in our forecast period (helped by inflation, cash flow and project gains), although at a slower pace than earlier anticipated; until ’24e, we forecast a NAV CAGR of 9% (12% previously).

EPRA index inclusion possible in September
The share is trading at a ~5% discount to its last reported EPRA NRV, and ~22x LTM P/IFPM. These metrics are below STEF’s 3y averages on EPRA NRV and P/IFPM (14% premium & 27x). Based on various measures (liquidity, size and formalities), we note that STEF is approaching a pot ...
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