24 Sep 2019

IRES REIT: Vonovia acquires large residential portfolio in Sweden

Vonovia, Germany's largest residential owner with a market cap of €23.9bn, announced yesterday that it had agreed to purchase 61% of Hembla.

The Swedish residential landlord has an in-place portfolio of 21,400 apartments as well as a significant development pipeline, for a consideration of €1.14bn from Blackstone.  


Vonovia already owns close to 400,000 residential units in Germany, Austria and Sweden (it also has plans to expand in France and Netherlands) with a book value of €47bn and this transaction will give the group a market-leading position in Sweden with ownership of 38,000 units only one year since it entered the market through the acquisition of Victoria Park. Hembla’s portfolio is centred on the Greater Stockholm area and it has been undertaking a multi-year refurbishment programme of its portfolio – 30% of its units had been refurbishment as at June 2019 with the programme upgrading c.1,600 units per year. The deal has been struck at 215 SEK per share, an 11% premium to Friday’s closing price and a 19% premium to Hembla’s EPRA NAV/share of 181.3 SEK as at June this year.


The transaction highlights the strong demand across Europe for residential assets producing long income streams, including in Ireland where the institutional PRS sector is a relatively new concept but has attracted significant capital in recent years. It also emphasises the importance of scale in the sector, with this cited by Vonovia as a key strategic rationale for the acquisition, while we also note comments from its CEO that “we are open for further transactions abroad”. 

Supreme court ruling due

At 10:30am this morning, the UK Supreme Court is set to deliver their verdict on whether Prime Minister Boris Johnson’s advice to the Queen on proroguing parliament was lawful. If the judgement goes against Mr Johnson, Parliament may be recalled immediately rather than its current scheduled return date of 14 October. However, the Prime Minister has not ruled out a second prorogation depending on the ruling of the court. Mr Johnson is currently in New York for a UN General Assembly and we should hear his response to the court ruling around lunchtime London time when he is set to attend a televised breakfast event. 

In addition, later today he is set to deliver a speech setting out a post-Brexit vision Britain becoming a Singapore-esque low tax and lightly regulated economy. Meanwhile in Brighton, amid chaotic scenes at the Labour Party conference, calls for the party to back a remain stance in a second referendum were squarely rejected, with members deciding to stand behind leader, Jeremy Corbyn’s ‘sit on the fence’ approach. 

UK public finances due

This fiscal year, UK public sector net borrowing figures have persistently overshot last year’s borrowing levels; indeed, year-to-date borrowing is £6.0bn up on the same period in 2018. An increase in borrowing this year has been anticipated by the Office for Budget Responsibility, which forecast borrowing would be higher in 2019/20 than in 2018/19. However, it has been the extent of the uplift that has been notable. 

Of particular interest is how robust current spending figures have been. Indeed, central government spending was up 6.9% (y/y) in July and up 6.3% over the year to date. The recent Spending Round showed the government’s willingness to loosen the purse strings materially over coming years. Notwithstanding the point that the figures are for August and therefore represent the period ahead of the Spending Round, we think the government will have been content to let borrowing run on robustly amidst a forthcoming intention to loosen the purse strings. 

Our forecast for the upcoming borrowing figures is therefore based on current spending standing more than 4% up on year ago levels in August. Put alongside our expectation that current receipts will be a little more than 2% up on year ago levels, we look for a net borrowing total of some £7.8bn. That would be £1.9bn more than in August last year, continuing the trend over 2019/20 so far.