Preview: Property write-downs still loom over Nordic real estate in Q3
17/10/2023 07:00
By Greta Rosen Fondahn
Oct 17 (Reuters) - Nordic property companies are likely
to further write down the value of their real estate in the
upcoming results season, analysts said, as rapidly rising
interest rates have taken their toll on the highly indebted
sector.
While rates remain high in the region amid a struggle to
curb inflation, predominantly Swedish companies have in recent
months scrambled to refinance large bond loans with short-term
maturities, while their credit ratings have been cut to junk
status.
Barclays analyst Paul May said property values for Nordic
real estate companies would see downward pressure from rising
reported property yields in the quarter, which would weigh on
the sector's balance sheets.
Goldman Sachs has forecast that property values for real
estate companies within its European coverage could fall 7%,
with declines continuing into the first half of 2024.
The broker said the balance sheets of the Nordic companies
are the most exposed to property value drops, as the sector's
leverage of 48% is already higher than the European sector
average of 39%.
Falling property values could push up companies'
loan-to-value ratios, a key metric used to determine credit
risk, raising the risk companies will breach debt covenants, the
terms under which they borrowed.
Still, liquidity and the ability to refinance loans remained
the most important factors for companies struggling with rates
and loan repayments, Carlsquare analyst Bertil Nilsson said.
In Sweden, which has close to 40 real estate companies
listed on its main market, the highest number in the Nordics,
the Financial Supervisory Authority (FSA) flagged in May that
over the next four years, around 100 billion Swedish crowns
($9.14 billion) in outstanding bonds for the sector would mature
each year.
Swedish landlord SBB SBBb.ST recently said it was eyeing a
sale of its residential arm to meet debt deadlines and pension
fund Alecta flagged that residential landlord Heimstaden Bostad
was in need of cash.
Local analysts in Sweden now remain on the look out for
further declines in booked property values.
Pareto Securities analyst Emil Ekholm pointed to "somewhat
lower" closing prices in recent property transactions, compared
to the values many companies have on their books.
Carlsquare's Bertil Nilsson expected write-downs of another
0.5-1% for the quarter for the brokerage's Swedish coverage,
after seeing value drops of about 2.9% in the first half of the
year.
Larger cuts could come for companies that need to sell
properties to release liquidity, like SBB and Corem COREa.ST ,
as recognising realised losses would pressure companies to write
down other properties to similar values, Nilsson added.
Sweden's Fabege FABG.ST is the first Nordic real estate
company listed on the pan-European STOXX 600 index .STOXX to
report results on Oct 19, with struggling SBB set to report on
November 9.
($1 = 10.9352 Swedish crowns)
(Reporting by Greta Rosen Fondahn; Editing by Sharon Singleton)
((Greta.RosenFondahn@thomsonreuters.com))