Heimstaden Bostad - comment

In line with their peers, Heimstaden Bostad have reported solid Q2 results with both rental income and NOI margin growing.  The Privatisation Program is 40% ahead of our forecast and coupled with achieving a 29% premium over book value, it will attract most of the headlines.  But to put it into context, Heimstaden sold only 363 units in the quarter (Company own 163,000!), which is still in the ramp-up stage.  

Property values have marginally increased due to NOI growth compensating for the slightly higher yields in the market.  The issue continues to be the ICR ratio (S&P defined).  LTV remains in line with covenants, but the ICR has dropped to 1.6x from 2.1x at year-end and is expected to remain in the 1.5-1.6x range.  Heimstaden management has guided to lfl growth continuing at >5%, with LTV stabilising at 57-58%.  

The next step for Heimstaden Bostad is to deal with their Hybrids.  We expect this will be asked on the call at 1 pm today and deflected by management who will state they still have time to decide.