Trianon

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

Trianon reported earnings that were a touch below our expectations but with a better contribution from revaluations (renovation and NOI) and higher earnings capacity than we expected. With more than 70% of Trianon's total portfolio comprised of rental apartments and community service properties, we argue that its low average rents and attractive project portfolio cushion it against the tougher economic growth outlook. COVID-19 effects on rental levels in Q2 will be limited to SEK 4-6m according to the company, a sign of strength given its above-sector retail exposure. Our NAV-based fair value range is SEK 95-133 (104-150) per share, which is down owing to multiple contraction in the sector. Marketing material commissioned by Trianon.

Trianon reported strong Q4 2019 results, with income from property management in line with our expectations, adjusting for realised derivative costs, and exceeding our NAV estimates despite lower revaluations in the quarter. With more than 66% of Trianon's total portfolio comprising rental apartments – and given the upward demand trend for rental apartments in Malmö – we argue that Trianon's low average rents and attractive project portfolio cushion it against the tougher economic growth outlook. We argue for a NAV-based fair value range of SEK 104-150 (103-151) per share.

Trianon announced a directed share issue as of 28 November 2019, worth SEK 210m, which has strengthened its capital base. We keep our estimates largely unchanged, but we see potential upside from future acquisitions. With more than 66% of Trianon's total portfolio comprising rental apartments – and given the upward demand trend for rental apartments in Malmö – we argue Trianon's low average rents and attractive project portfolio cushion it against the tougher economic growth outlook. We argue for a NAV-based fair value range of SEK 103-151 (91-134) per share.

Trianon's underlying earnings were in line with our expectations, with slightly lower rents offset by strong surplus margins and lower central costs. Strong NAV growth was supported by slightly lower yield requirements related to the rental portfolio and stable ongoing renovation projects. The outlook for project starts remains firm at 750 units in 2020, of which 256 have already been sold (but not contributed to revaluation as they are awaiting planning permits). We keep our estimates largely unchanged, but we see potential upside from future acquisitions. With more than 66% of Trianon's total portfolio comprising rental apartments and given the upward demand trend for rental apartments in Malmö, we argue Trianon's low average rents and attractive project portfolio cushion it against the tougher economic growth outlook and compensate for the company's above-sector average LTV of 56%. We thus argue for a NAV-based fair value range of SEK 91-134 per share (SEK 88-125 previously).