DNB 62 pages intitation report:
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TWO in ONE

We believe Sveafastigheter standalone could get back to creating value in its sizeable residential development business and reinvest earnings from its SEK24.5bn portfolio of rent-regulated apartments. In our view, the segment is nearing an inflection point, backed by non-cyclical demand and our expectation of above-CPI rent increases for several years. The stock is trading at a 54% discount to NAV (sector average: 23%), which looks attractive given its 43% LTV and renewed balance sheet. We initiate coverage with a BUY and SEK47 target price.

Develops, owns and manages residential portfolio. Sveafastigheter has a SEK24.5bn diversified portfolio of c14,500 rent-regulated apartments across 260 properties in Sweden on top of ongoing projects worth another cSEK1.2bn (or 1,150 units) scheduled for completion over 2024–2026. Its average rent per sqm is below peers' (SEK1,513 versus SEK1,823, respectively, in Q2 2024). Around 3,700 units in its portfolio qualify for either a full or partial upgrade, for which it is targeting a ⟩7% yield-on cost. With mainly bank financing, and no JVs or alternative equity instruments, Sveafastigheter would be a pure investment case on a recovery in Sweden's residential rental segment.
Window to ramp up project development business. Sveafastigheter also has a Stockholm-focused land bank worth cSEK2bn. With limited competition, it sees a window to ramp up its development business, and is targeting construction start of 600–800 units annually. Since 2018, it has secured land allocations in the city of Stockholm equating to c1,680 apartments, more than any listed peer (including JM) – indicating it can grow its land bank further. It stands out in the peer group in terms of construction targets and track record, the latter providing a competitive advantage versus many of its peers, we believe.
We initiate coverage with a BUY and SEK47 target price, valuing the stock at a 2026e implied NOI yield of 5.0%, or a 4.5% EBIT yield, and equating 40% and 23% discounts to NAV and EV/GAV, respectively, versus 23% and 12% sector averages. Our target price also implies a 2026–2027e P/FFO of 18–16x, again below most peers, partly explained by Sveafastigheter's large land bank (SEK2bn). To us, the combination of its portfolio comprising solely of rent-regulated residential assets, low LTV of 43% at end-Q3 and longer average debt and interest rate profiles than peers indicates low risk, while its land bank offers significant upside potential in a market recovery.