Trianon

The Q3 results showed relatively minor deviations from our estimates and IFPM fell 2% y/y. Going forward, we expect increasing interest rates to render a continued negative trend in IFPM for both 2023 (-5%) and 2024 (-4%). Even though we foresee good rental income growth in 2022-24 (8-12%), we expect higher interest rates to exceed rental growth. The company has close to 100% of interest maturing in 2022. However, we highlight that its financing mainly stems from bank funding (93%) and that bank margins have been stable, according to the company. The share trades at a spot NAV discount of 50%, in line with the sector. Marketing material commissioned by Trianon.

Trianon reported a mixed set of numbers for Q2. On the negative side, IFPM fell 10% short of our estimates, burdened by higher energy and property costs. On the positive side, the average interest rate decreased by 15 bp to 1.75%, which we see as a favourable development given the current market conditions. Earnings capacity improved by 6% q/q, mainly due to lower vacancies and lower interest costs. We argue, however, that the average interest rate is likely to increase (we assume a ~1pp increase over our 2022-24 forecast period), which will negatively affect adjusted EPS growth. We estimate an adjusted EPS CAGR of 9% for 2021-24 (17% previously). Despite a less favourable adjusted EPS growth outlook, we still see good prospects for continued NAV gains through project profits and value-enhancing investments. We estimate a NAV CAGR of 10% for 2021-24, not including potential acquisitions. Marketing material commissioned by Trianon.

Trianon reported solid Q1 2022 numbers, with adjusted EPS growth of 42% y/y, EPRA NAV up 35% y/y, earnings capacity up 13% y/y and positive net letting of SEK 3.7m. We expect 11-13% NAV growth in 2022E-24E, mainly driven by its cash earnings yield and project profits. We argue that growth is likely to be boosted by further acquisitions, which are not included in our estimates. While we see good prospects for continued NAV gains, we argue that rising interest rates could hurt adjusted EPS growth due to high leverage and a limited ability to adjust rents in the face of greater inflation. Marketing material commissioned by Trianon.

Trianon ended 2021 with several transactions and new projects and we expect the high level of activity to continue in 2022. In Q4, income from property management fell 7% short of our estimate, mainly due to higher property costs related to acquisitions and energy prices. We therefore lower our adjusted EPS forecast by 6% for 2022. Despite that, we still expect Trianon to outperform the sector in 2022, with 27% adjusted EPS growth. Due to its strong cash flow and acquisition capacity of SEK ~2bn, we see good prospects for another eventful year in terms of transactions.

Trianon had yet another eventful quarter in terms of transactions, with the 50% divestment of Rosengård Centrum and acquisition of Signatur Fastigheter as highlights. Income from property management (IFPM) fell 8% short of our estimate, partly due to higher electricity costs and unfavourable timing in divestments versus acquisitions, bringing 2021E down 2%. Earnings capacity increased by 5% q/q from these transactions but will be fully visible in 2022, when we expect ~30% cash earnings growth and 14% NAV growth. We consider transactions in Q3 to be a great strategic fit, as 82% of Trianon's portfolio is now rental housing and community service properties, so the target of 80% has been reached. Marketing material commissioned by Trianon.

In Q2, Trianon was active in investments, including listed, shares, projects and building rights. The rental income lost by divesting Multihuset exceeds that gained by the investments, however, resulting in 5-7% negative cash earnings revisions for 2021E-23E. We still expect Trianon to outperform the sector in 2021, with 38% adjusted EPS growth and NAV growth of 22%. Trianon repeatedly delivers among the highest growth in the sector, due to its strong cash flows and high reinvestment capacity. We also see significant revaluation potential in the residential portfolio. Marketing material commissioned by Trianon.

We believe the Q1 report confirms our case that Trianon is a growth story. Trianon reported solid growth for Q1 with IFPM per share growth of 12% y/y and EPRA NAV up 31% y/y. The strong NAV growth was supported by revaluations of 3.0%, driven by 10 bp yield compression, investments and improved cash flows. Despite the strong revaluations, the yield on residentials was unchanged q/q at 4.2%. We still argue that residentials are too conservatively valued as we see transactions documenting 2.75-3.5%. We raise our NAV-based fair value range to SEK 131-167 (128-156), reflecting 3-5% positive NAV revisions due to the asset revaluation beat. Marketing material commissioned by Trianon.

Trianon reported solid financial and operational performance for Q4 with adjusted EPS growth of 31% y/y, EPRA NAV up 21% y/y, earnings capacity up 28% y/y, a stable occupancy rate of 94% and positive net letting. We argue that the growth story is intact with new production of ~850 apartments due for construction start in 2021-22, M&A opportunities in the residential segment, and potential value growth from its residential properties being valued conservatively, in our view, at a 4.2% yield or SEK ~22,500 per m2. We raise our NAV-based fair value range to SEK 128-156 (125-149) per share. Marketing material commissioned by Trianon.

Trianon reported a property value increase of SEK 217.2m for Q3, up 2.5% q/q, implying sequential NAV growth of 9.1%. While Trianon took a 10 bp yield contraction in its internal valuation of residential assets in Q3, we still consider its valuation prudent given a net yield of 4.3%. We expect its portfolio to be externally valued in Q4, and hence do not rule out more yield contraction; we pencil in a 1.6% rise in its property value and see NAV rising by 5.4% q/q to SEK 99.6 in Q4. We lift our NAV-based fair value range to SEK 125-149 (115-142) per share, owing to the ~6% NAV beat in Q3 and reflecting the increased investment capacity that this implies. Marketing material commissioned by Trianon.

Trianon reported net operating income 2% ahead of our estimate despite a SEK 4.4m negative impact owing to COVID-19. While near-term results confirm solid operational performance, we find Trianon's long-term prospects more significant. With 73% of its portfolio exposed to residential and community service properties and almost 700 apartments in its project portfolio due for construction start within 12 months assuming regulatory approvals, we see good potential for Trianon to continue its low-risk growth journey. We estimate 2020-22 EPS growth of 13-23%, driven by decreased cost of debt, renovation and acquisitions, with corresponding NAV growth of 12.9-15.4%. We see the main share price triggers as: 1) project starts, 2) acquisitions, 3) asset revaluation. After a change of analyst, we increase our NAV-based fair value range to SEK 115-142 (95-133) per share. - Marketing material commissioned by Trianon