Heimstaden - Safe as Houses - Model Update

All,

Please find our updated analysis on Heimstaden Bostad and Heimstaden AB here. 

We have revisited the Heimstaden group structure in anticipation of Heimstaden Bostad receiving an upgrade, potentially allowing dividends to resume from Bostad to Heimstaden AB during the year. We had expected this to create an investment opportunity at the AB level; however, with the AB structure now trading tightly, this opportunity has largely passed. Compared with other European residential names, such as Vonovia, LEG, and Covivio, Heimstaden Bostad’s unsecured yields inside 4% are at the tighter end of the spectrum. Similarly, Heimstaden AB’s unsecured bonds at c.6.5% are trading in line with the wider BBB- corporate universe, reflecting limited upside relative to its peers.

Investment Considerations:

Heimstaden Bostad 

- Heimstaden Bostad’s debt stack has continued to rally throughout FY25, with unsecured bonds now trading largely at yields inside 4%. During the year, the company has demonstrated strong access to unsecured funding markets, including the issuance of a €500m green bond at 3.75% in July 2025 and SEK 1,350m at STIBOR +150bps in June 2025. These transactions underscore the market’s confidence in Heimstaden Bostad’s ability to refinance its debt.

- Previously, we had expressed concerns that the proportion of secured debt within Heimstaden Bostad’s capital structure was increasing to potentially unsustainable levels. The recent issuance of unsecured debt has alleviated these concerns.

- Upside/Downside: We see limited upside across the capital structure, given the constrained scope for further material improvement in operating metrics. At the same time, downside risk appears limited as Heimstaden Bostad continues to pursue a return to full investment-grade ratings.

- The principal risk factor remains the potential for shareholder discord. Alecta has repeatedly stated its intention to reduce its holding in Heimstaden Bostad, citing an imbalanced shareholder agreement and unsatisfactory cooperation with management. However, despite Alecta’s stated desire to reduce its exposure, we consider it unlikely that the shareholder would pursue a strategy that is materially value-destructive.

Heimstaden AB:

- Heimstaden AB’s debt has also continued to rally throughout FY25, with unsecured bonds now trading at yields of around 6.5%. The hybrid instruments are trading just below par and offer limited upside. In our view, the AB capital structure is priced to perfection, particularly given that dividends from Heimstaden Bostad have yet to resume. Our base case assumes dividend flows recommence in FY26; however, current pricing appears to discount this outcome already. There are no material near-term maturities at the AB level, and while a perpetual hybrid becomes callable in January 2027, there is no obligation to exercise the call.

- Upside/Downside: As noted previously, we believe the structure offers limited upside at current levels. There is, however, scope for material downside should dividend flows from Bostad remain suspended for longer than expected. Offsetting this risk, continued progress with the privatisation programme is improving leverage metrics, and we would expect a rating upgrade during 2026.

Asset Coverage:

- Heimstaden Bostad values its property portfolio at an average yield of 3.42%, implying a total portfolio value of SEK 323bn. On this basis, the hybrids at the Bostad level equate to an LTV of 58%, while unsecured debt equates to 51%. Adjusting for Heimstaden AB’s ownership stake in Bostad, LTV increases to 66% through unsecured debt at the AB level and to 73% when including hybrids. This analysis indicates substantial asset coverage, which underpins current yield levels across both entities.

- While asset prices achieved through the privatisation programme have exceeded Heimstaden’s stated portfolio valuations, we have retained a simplified, alternative valuation framework for analytical purposes.

- We monitor the implied portfolio yield across Heimstaden’s three core geographies, Sweden, Germany and Denmark, focusing on the spread over the respective 10-year government bond yields. By adjusting these spreads to levels observed in 2021, we derive an implied valuation for each geography, which we use as a proxy for the group-wide portfolio.

- This approach implies an overall portfolio yield of approximately 4.8%, representing a c.30% discount to Heimstaden’s reported valuations. While this may appear conservative, listed residential peers trade at discounts of c.20–25% to book value. For example, Vonovia currently trades at a c.23% discount to book value. While our implied discount sits modestly outside this peer range, it is not materially divergent. This analysis is illustrated in the accompanying chart.

- Offsetting this downside valuation scenario is the demonstrated ability of Heimstaden to execute asset disposals under its privatisation programme at prices above stated book values.

Happy to discuss

Tomás 

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk