(Bloomberg) -- Swedish landlords are returning to the bond market in numbers not seen since the boom year of 2021 as falling interest rates drive a surge in issuance.
The nation’s property companies sold $7.8 billion worth of notes in the first three quarters of 2024, outstripping the annual total in each of past two years, according to data compiled by Bloomberg.
“Real estate issuance is now running at about 70% of total corporate bond issuance in krona thanks to more dovish pricing from the central bank,” Anders Holmlund, head of bond origination at Svenska Handelsbanken AB, said in an interview.
The pickup in bond sales contrasts with last year when real estate firms from the Nordic nation were some of the companies worst hit by climbing borrowing costs and falling property valuations. Firms including Samhallsbyggnadsbolaget i Norden AB and Heimstaden Bostad AB were among those forced to sell assets, find new shareholders or chase alternative financing.
Now, in the broader credit market where bonds are bought and sold, real estate firms are leading year-to-date returns in the European high-yield bond index. Investors are betting the asset class will be an early winner from the start of the rate-cutting cycle. In hybrid bonds, the riskiest slice of a real estate company’s debt, returns this year total 170% for the top 10 performing notes — a list dominated by Swedish issuers including Heimstaden and SBB.
The five-year credit spread, a gauge of borrowing costs, is down almost 100 basis points since January for BBB-rated property bonds in krona, Holmlund said.
Krona Preference
About 80% of the sales this year have been denominated in kronor, the data compiled by Bloomberg show.
The pace of easing by the Riksbank has encouraged landlords like Fastighets AB Balder to establish four new maturities in the Swedish currency this year as well as tapping previous issues. Heimstaden sold notes in its home market in August for the first time in two-and-a-half years.
“The pre-rate-hike market environment tilted our funding mix towards euros more than what we feel is strategically relevant,” Balder’s investor relations officer Jonas Erikson said. “This is why our focus has been on kronor issuance this year, and probably will continue to be so also next year.”
Issuance in euros has yet to take off in comparable volumes. Castellum AB nonetheless managed to close a deal in euros last month, and investors are “receptive” to sales by real estate companies with an investment-grade credit score, according to Christoffer Stromback, head of investor relations and corporate finance at the company.
Other major landlords such as Balder are also weighing a return. “We may do something small in the euro market in 2025 as a response to the requests we are getting from the market for new issuance,” Erikson said.
Funding costs remain relatively high and investors including abrdn plc. continue to view the sector more cautiously after the funding crunch last year.
“Many of the Nordic real estate companies still have too much leverage for the new interest rate environment,” Thomas Leys, an investment director at abrdn, said. While he acknowledged that the pressure on landlords has eased since rates began trending down, he said the sector “remains very sensitive to the path of interest rates and the lingering governance weaknesses will cap the recovery.”
(Adds comments from Balder.)
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