The offer at Stendörren high risk for EQT | Realtid.se

Per Lindvall

Real-Time Chronicle Per Lindvall is a multi-year financial journalist. Downstairs, he has a degree in Financial Economics and Credit Analysis from the Stockholm School of Economics.

EQT relies on the real estate company Stendörren the same day that Finansinspektionen raises the finger on an increased risk in the Swedish market of commercial real estate. Two events that resemble a thought.

For this, it should be a company of character Stendörren, as Finansinspektionen think when, in his latest report on stability, he reports a sharp increase in risk in the Swedish market of commercial real estate. The stair gate has several features that can bring some warning flags of a confusing institution such as the Financial Supervisory Authority to collapse.

It is a transaction-oriented business that has grown strongly in recent years. Only this year, the company set up net acquisition of real estate for 1.5 billion Swedish kroner. The sellers have been established players like Castellum and Profi, who are real estate companies that should have as good market knowledge as the buyer.

The acquisitions are entirely financed by borrowing. The traditional bank guarantee against real estate collateral has been covered by unsecured bonds (maximum loans), which now represent a total of SEK 1.4 billion for the company. Just by increasing funding in the credit market, in its new stability report, FI is talking about an increased risk factor for the sector. (And that's something Real Time has also pointed out)

Those seeking do not learn to find many "stan doors" on the company's real estate without most of Crawford's industrial cards, since the stock is mostly made up of industrial properties and warehouses. These are commonly referred to as "recorded properties" because they typically generate a high cash flow. That is, as long as they are rented and working. The person who was interested in this sector five years ago could expect a return of 8 to 10%. Stendörren has now lost about 5% of its stock.

It all depends of course on very low interest rates, but if the economy is deteriorating in Sweden, it should not be excluded that the risk premiums for loans granted to players such as Stendörren change appropriately, even if the Riksbank falls its minimum interest rate.

One can also worry about whether the reported net operating income and cash flows for Stendörren really reflect the economic reality. The declared maintenance costs are on average 40 square meters, ie a box of Rusta color, but no brush. It can be compared to a book value of just under 12,000 Swedish crowns per square meter, which is not far from the "new price" of this type of property. And keep in mind that no depreciation is made on these buildings, whose economic life is not much longer than 25 years.

In a context where real estate prices are beginning to fall, maintenance measures and adjustments for tenants, which can now be printed on the balance sheet, can be included in the income statement.

It is therefore understandable that the main owner and founder of the misleading name Kvalitena has succumbed to the offer of EQT. For having examined the cash flow of the parent company of Kvalitena, they know for a fact that the holding of Stendörren can be exchanged for red money.

It can be seen that the EQT premium, 3.8%, is limited. However, this remains a premium over a book value, which is not particularly tight. One wonders what EQT researches to create value with this investment. It is difficult to see that interest rates can be pushed further, although the strong financial support of EQT can reduce the risk. The real estate is 90% a "macro bet". The impression is soon that EQT has more money than investment ideas. This is not usually a good combination.