ODIN Eiendom. Fund comments October The upturn continues for property. No nasty surprises and that is how it should be

Transcription

1 ODIN Eiendom Fund comments October 2013 The upturn continues for property No nasty surprises and that is how it should be The falling interest rates and credit margins are positive contributors

2 Continued upturn for property shares This year to date ODIN Eiendom has achieved a return of 27.3 per cent, of which nearly 1.4 per cent were achieved in October. The positive performance of Nordic property shares must be viewed against a backdrop of relatively stable economic conditions, falling financing costs and increased appetite for risk among investors. Smaller real estate companies have done better than larger ones over the last 12 months. In addition we can see that the least heavily indebted players, Olav Thon, Hufvudstad and Heba Fastigheter, have been lagging. Lower interest costs are of less importance to these players. 2

3 Lower government bond yields and credit margins After the American central bank signalled unchanged acquisition of bonds, interest rates on long term government bonds has dropped in most countries, including in the Nordic region. In addition, the margin between government securities and private bonds, illustrated here using 5-year European "investment grade" bonds, has fallen to below 100 base points. This illustrates that financing costs for most private companies, including estate agencies, have fallen dramatically in recent months. Many estate agencies are also not financed in the bond market, but falling credit orders from banks are reported. Net debt amounts to around 60% of the property market value for most companies. The heavyweights Hufvudstaden and Olav Thon have the lowest levels of debt, along with Heba Fastigheter. At the opposite end of the scale we find Corem, Diøs and Sagax. (Eiendomsspar does not submit accounts in accordance with IFRS and its accounts are not based on market value.) 3

4 No nasty surprises - just as it should be So far, the real estate companies have submitted acceptable results for Q3. The company that stands out most is Norwegian Property, which has experienced a significant drop in earnings and a rental level of only 72% in connection with the extensive redevelopment in Aker Brygge. The company also made a minor, but surprising, downward adjustment of property values. The share price has been weak this year, but we have faith that the redevelopment and repositioning will provide a lift as we head toward 2014/15. Swedish companies Kungsleden, Fabege and Castellum have submitted results for Q3 without any major drama. However, the first two companies are subject to unclear tax issues that have been going on for a number of years and that are taken into account when the share is priced. Kungsleden's recent acquisition of GE's Swedish portfolio has indicated a direct return of an acceptable 6.9%, whilst the financing costs are low at 5.8%. All companies have reported modestly increasing property values. NORWEGIAN PROP Real Estate Operating Companie Market Value (mill) Price 7,76 Currency NOK Enterprise Value (mill) Exchange rate to NOK: E 2014E Sales (mill) EBIT (operating Income) (mill) Net Income (mill) Price/earnings 0,54 12,39 22,43 22,08 33,16 24,48 Price/Book Value 0,44 1,01 0,89 0,81 0,79 0,83 0,81 EV/EBITA 20,73 19,14 Return on Equity (%) (80,0) (23,6) (9,3) 3,8 (2,4) (1,6) 4,1 Dividend yield (%) 0,0 0,0 0,0 2,3 2,6 2,6 2,7 KUNGSLEDEN AB Real Estate Operating Companie Market Value (mill) Price 47,80 Currency SEK Enterprise Value (mill) Exchange rate to NOK: 0, E 2014E Sales (mill) EBIT (operating Income) (mill) Net Income (mill) Price/earnings 3,00 30,00 8,09 6,69 18,54 13,85 10,66 Price/Book Value 0,93 1,04 0,94 0,55 0,84 0,80 0,75 EV/EBITA 14,09 10,05 Return on Equity (%) (11,9) 3,5 11,7 8,5 4,6 8,7 8,2 Dividend yield (%) 3,1 6,9 4,0 8,3 2,1 2,8 3,6 4

5 ... which is also the case in Finland Citycon undertakes significant business relating to shopping centres in Finland and announced good quarterly results. The rental level rose notably to 95.8% and the increased rental level has resulted in an earnings growth of close to 5% this year to date. The shopping centre activities are assumed to represent stable earnings in a period in which Finnish industry in general is experiencing a somewhat uncertain economic situation. The Finnish company Technopolis announced the issuing of subscription rights amounting to 100 m in connection with the acquisition of IT Fornebu and properties in Otaniemi. The acquisitions, estimated to represent a yield of 7%, are considered to be supplementary to the existing IT-focused business activities. The share price notably rose following the announcement. CITYCON OYJ TECHNOPOLIS OYJ Real Estate Operating Companie Market Value (mill) Price 2,62 Currency EUR Enterprise Value (mill) Exchange rate to NOK: 8, E 2014E Sales (mill) EBIT (operating Income) (mill) Net Income (mill) Price/earnings 1,59 7,95 51,24 10,92 14,01 12,91 Price/Book Value 0,79 0,99 0,79 0,79 0,91 0,92 0,91 EV/EBITA 17,96 17,27 Return on Equity (%) (13,9) (4,5) 9,9 1,5 8,0 7,2 7,1 Dividend yield (%) 1,4 1,2 1,5 1,6 1,4 5,9 6,0 Real Estate Operating Companie Market Value (mill) 377 Price 4,97 Currency EUR Enterprise Value (mill) 399 Exchange rate to NOK: 8, E 2014E Sales (mill) EBIT (operating Income) (mill) Net Income (mill) Price/earnings 10,52 9,94 9,01 4,99 13,46 10,12 9,47 Price/Book Value 0,68 0,90 0,73 0,71 0,84 0,84 0,80 EV/EBITA 6,60 5,76 Return on Equity (%) 6,6 (2,8) 8,3 14,9 7,3 8,3 9,1 Dividend yield (%) 3,7 0,0 5,0 5,4 4,0 3,4 3,6 5

6 Capital accumulation lifts share prices The figure on the right shows the relationship between long term government bonds and the prime yield - a pricing multiplier for the sale of high-quality properties in Stockholm. For a long time the prime yield fell in line with long-term government bond rates. However, we believe that the extremely low interest rates in the period were not reflected in a correspondingly low prime yield in the property market and that a certain increase in interest rates may now take place without any dramatic negative effects on the property transaction price. Based on the results so far in Q3, there are no real prospects of significant changes in the companies' assessment of the market value of their own properties. With the positive operating results, we expect the positive price development to continue for our investments, in line with the companies' capital accumulation. This relationship can be seen in the figure on the right. Here you can also see that the average price/book multiple for the fund remains around 1.0. Stockholm: Property yield vs. gov. bond rates 6

7 Return and risk Return over the past 3 years (EUR) Risk measure Portfolio Benchmark Alpha 3.36 Beta 0.78 Tracking error 6.91 Information ratio 0.31 Sharpe ratio 1) Standardavvik 2)

8 Contributors past 12 months Five best companies Contribution in % Contributions per country Contribution in % Balder B 4.71 % Diös Fastigheter 2.68 % Technopolis 2.29 % Sagax A 1.95 % JM Bygg 1.90 % Five weakest companies Contribution in % Norw egian Property % Selvaag Bolig % Eiendomsspar % Fornebu Utvikling 0.00 % Klövern Pref 0.00 %

9 10 largest shareholdings Company Country Sector % of total Olav Thon Eiendomsselskap Norw ay Financials 9.27 % Hufvudstaden A Sw eden Financials 8.86 % Kungsleden Sw eden Financials 7.58 % Diös Fastigheter Sw eden Financials 6.65 % Technopolis Finland Financials 4.86 % Balder B Sw eden Financials 4.80 % Fabege Sw eden Financials 4.80 % Kiinteistösijoitus Citycon Finland Financials 4.51 % Sponda Finland Financials 4.44 % Norw egian Property Norw ay Financials 4.22 %

10 Sector allocation Sector Portfolio Benchmark Diff. Financials 91.18% 0.00% 91.18% Consumer discretionary 3.36% 0.00% 3.36% Industrials 0.00% 0.00% 0.00% Annet 5.45% % % Total % % 0.00%

11 About ODIN Eiendom ODIN Eiendom is an actively managed equity fund that invests in companies which are listed or have their head office or origins in one of the Nordic countries and which are mainly engaged in real estate. The fund passes on the dividend it receives to the fund s unit holders The dividend date is 15 June. The fund s long term goal is to provide a higher return than the stock market for listed real estate companies, measured by the fund s benchmark. Facts about the fund Manager Carl Erik Sando Manager since 10/01/2013 Benchmark Basic currency Carnegie Sweden Real Estate NOK Management fee 1% Subscription/redemption fee Minimum subscription amount 0% NOK 1,000,000 11

12 About the manager The manager responsible for the fund, Carl Erik Sando, joined ODIN in March He has an MSc in Business and Economics and sound experience from working as a financial analyst (Elcon Sec, Alfred Berg, Pareto) from 1987 to 2006, and as a manager of Norwegian and Nordic share portfolios with the Government Pension Fund Norway (Folketrygdfondet) from 2006 to Carl Erik s long working life and broad experience of the Norwegian financial market have made him a recognised expert on the Norwegian stock market. 12

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14 Please remember Past performance is no guarantee of the future return, which will depend on such things as market developments, the manager s skill and the fund s risks as well as on the costs of buying shares and managing the fund. The return may be negative as a result of share prices falling. Statements in this report reflect ODIN s views on the market on the date when the report was prepared. We have quoted sources who are considered to be reliable, but we cannot guarantee that the information from these sources is either precise or complete. Employees of ODIN Forvaltning AS may trade in several types of financial instruments for their own account. This means that ODIN Forvaltning AS employees may own securities in companies that are referred to in this report as well as units in ODIN s mutual funds. Employees own-account trading must take place in accordance with ODIN Forvaltning AS s internal guidelines for employees own-account trading, which have been prepared in accordance with the Norwegian Securities Trading Act and the Norwegian Fund and Asset Management Association s industry standard. You can find more information at 14

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