(Bloomberg) — A Swedish landlord’s stock has fallen by three quarters this year and investors are betting the worst isn’t over.
SBB, as Samhallsbyggnadsbolaget i Norden AB is more commonly known, has become the second-most shorted stock in Europe, with bearish bets running at 35% of its free float, according to data compiled by S&P Global Market Intelligence. The scenario is based on concerns that SBB piled on too much debt in the boom years to create a portfolio of about 2,500 properties across the Nordic region.
The Stockholm-based company is positioned as the canary in the coal mine for Europe’s teetering real estate market. With Swedish housing prices projected to fall as much as 20% in one of the world’s bubbliest property markets, its business model faces renewed pressure.
A representative for SBB declined to comment on the short interest in the company.
As valuations decline and the cost of capital rises, SBB risks being pushed into fire sales to defend its credit ratings.
“It’s already a bit tough for SBB with its already high loan-to-value ratio,” Emil Ekholm, an analyst at Pareto Securities, said in a streamed interview last week. Under such a scenario, “you could breach certain covenants and that would not be good for the property portfolio.”
SBB is a specialist landlord in community service and rent-regulated residential properties in Sweden and other Nordic countries. It enjoyed a meteoric rise since it was founded by current Chief Executive Officer Ilija Batljan in 2016, but aggressive expansion led to an accumulation of debt — the yields of which are now trading at levels significantly wider than other real-estate peers.
Its financial risks have caught the attention of short-seller Fraser Perring’s Viceroy Research LLC, which issued a series of scathing reports about the company. SBB has called on Sweden’s financial watchdog to investigate trading activity around the reports and in July published details of its cash flow as a rejoinder to claims that questioned its accounting.
SBB was relatively unknown in credit markets beyond Sweden before the onset of the Covid-19 pandemic. That changed as the company pushed to the vanguard of European real-estate borrowers, amassing billions of euros of debt on bond markets.
Then came this year’s double whammy of interest rate hikes and a marked downturn in investor sentiment. Like many in the sector, SBB saw its borrowing costs spike. Yields on the company’s riskiest debt have jumped to more than four times the 2.875% coupon they were originally sold with.
SBB has about $500 million of debt maturing next year and $1 billion in bonds and loans coming due in 2024, according to data compiled by Bloomberg.
“If we don’t have a bond market that’s as open to real estate companies, it’s going to be tough to refinance all of this,” said Ekholm. “It won’t really be possible to shift all this into bank loans.”
One catalyst for SBB’s bond trading levels is what rating agencies do next. The company is rated one step above junk by both Standard & Poor’s and Fitch Ratings, and a further downgrade could be devastating.
CEO Batljan is vigorously defending its investment-grade status, pushing through a spate of asset sales to get leverage down in the hopes of an upgrade. On Thursday, it signed a letter of intent to sell 9 billion kronor ($841 million) worth of properties to an unidentified institutional investor.
The sales don’t yet appear to be working. In July, S&P cut its outlook on SBB to negative, saying there’s “a one-in-three chance” it would downgrade the company to sub-investment grade, especially if trading conditions remain at weak levels. Such a move would compound the forced selling that has already seen its bonds swoon earlier this summer.
SBB’s main advantage is its portfolio of social housing, with rental revenue stable and its long-term contracts due for inflation-related increases, while its cheap debt means financing costs are still relatively low, according to Pareto’s Ekholm.
But short-sellers see the downturn being too much for the landlord to weather unscathed.
“SBB have sold higher yielding assets to trick the market into believing that leverage will decrease,” Perring said in an emailed statement. “SBB will inevitably be downgraded.”
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
