One of the biggest residential property companies in Europe has adjusted its financial policy and is considering raising fresh capital to defend its investment-grade credit rating.
Sweden-based Heimstaden Bostad AB is assessing measures including “a potential capital injection to ensure ongoing adherence” with its BBB rating at S&P Global Ratings, Chief Executive Officer Helge Krogsbol said in the company’s second-quarter report.
Like fellow landlord, SBB, Heimstaden Bostad is increasingly finding itself drawn into the epicenter of one of the world’s worst property routs, where home prices in Sweden are expected to tumble 20% from a peak in early 2022. That, combined with billions of dollars of bond debt that is short term and floating rate, has made the Nordic nation the canary in the coal mine for Europe’s unfolding real estate crisis.
With bond markets all but closed for most borrowers, Heimstaden Bostad said it would now focus on accessing bank financing in the respective local markets where it operates. Similarly, it plans to boost the level of secured financing in the short term. The company owns about 160,000 homes with concentrations in the Nordic region, the Netherlands and Germany.
“To adapt to the current market circumstances, we have thoroughly reviewed and updated our financial policy,” the company said, adding that it remains “committed to an investment grade rating.”
The credit rating has been a vital funding tool for the pan-European landlord to build up $11.8 billion of bond debt in the cheap-money era.
The landlord posted a net loss of 6.8 billion kronor ($623 million) for the second quarter, largely driven by write-downs in its property portfolio — which also increased the loan-to-value ratio to 54.4%. The company’s interest coverage ratio — a key metric signaling its ability to service debt — shrank to 2.4 times from 4 times a year earlier.
Heimstaden Bostad was created in 2013 through a joint venture between Norwegian property mogul Ivar Tollefsen and Alecta, the Swedish pension fund caught up in the Silicon Valley Bank fallout earlier this spring. Tollefsen’s real estate company Heimstaden AB owns 50% of the voting rights in the landlord while Alecta has a 30% share. The remainder of the voting rights is held by Swedish institutional investors such as Folksam.
In April, Alecta wrote down its holding in Heimstaden Bostad by 3 billion kronor amid a real estate crisis in Europe that counts Sweden as its epicenter. Two years ago Heimstaden Bostad was crowned one of the biggest landlords in Europe after using a mix of debt and equity to buy a portfolio of assets worth 92.5 billion kronor.
The company is rated BBB by both S&P Global Ratings and Fitch Ratings. However, its investment grade ratings were placed on negative outlook last year by both rating firms. The ability to service its debt was cited as a key reason in each case.
The second quarter report also showed that Heimstaden Bostad posted a fair value loss of 7.4 billion kronor on its property portfolio. The decrease was driven by what it called “sentiment-based yield increases” that outweighed the positive effects of rent increases.
The report is “slightly credit positive on the back of the company’s communication around its commitment to the ‘BBB’ S&P rating and a potential capital injection,” Danske Bank credit analyst Marcus Gustavsson said in a note to clients.
(Updates with further context)
