Comment Stockmann sells its crown jewel at a discounted price – Market reaction says that even crumbs were better for investors

As late as September 2020, the book value of Stockmann’s properties was EUR 653 million. The realized purchase price remained remarkably low, writes Joonas Laitinen, a news producer for HS’s financial editorial office.

Department store group Stockmann is selling its department store property in the center of Helsinki at a considerably low price compared to preliminary estimates.

The earnings-related pension insurer Keva said that it would pay a total of about EUR 400 million for the property on Monday morning. Keva will pay directly about 391 euros, and the rest will be taken into account in the rent for the next few years. The estimated net rental income is approximately 4.2 percent.

“We are pleased that a stable and reliable domestic owner has been found for the property,” said Stockmann’s CEO Jari Latvanen in the company bulletin.

Read more: Stockmann sells its Helsinki department store property to Keva for EUR 400 million, the company’s share opened up sharply

But can Stockmann really be happy with the transaction amount?

For example, HS Vision Merja Saarinen In January, Stockmann wrote that Stockmann would have to receive EUR 434 million from the property in order for the department store group to pay off its debt. From the beginning of the year, there were still estimates in the market that the price of the property could move even closer to EUR 600 million.

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Shortly before the end of 2021, the retail group managed to sell its department store properties in Tallinn and Riga. It received EUR 87 million from them.

After the sale of the shopping centers, Stockmann will be able to pay off its debt. The company said in a statement that it will fully repay both the EUR 342.6 million secured restructuring debt and the EUR 21.8 million unsecured restructuring debt with the sales revenue. Thus, Stockmann paid a total of EUR 364.4 million in debt. The company can be genuinely happy about this.

But would more of the property in the center of Helsinki have been available?

For example, yet in September 2020 the value of Stockmann’s properties was EUR 653 million. The majority of the value of the real estate pot came from a department store in the center of Helsinki. The realized transaction amount was very far from the book value.

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However, the transaction amount was better than good for the market. Stockmann’s share rose more than 20 percent in the morning. Two hours after the trade opened, the stock was still up more than 10 percent.

This is in stark contrast to the reaction that has followed the sale of department store properties in the Baltics. Stockmann received EUR 87 million from its Baltic properties. At that time, the transaction fell short of expectations and the market would penalize Stockmann with an 8% drop in share price.

Why, then, do shareholders rejoice in today’s trade, even though it may look like a deal worth selling Baltic properties on a quick interpretation?

The reason may be found in the eastern neighbor and the drop in expectations it brings. For example, at the end of February, OP estimated that the value of a property in the center of Helsinki would be approximately EUR 400 million. The value of the property had thus fallen by about EUR 200 million in less than 1.5 years.

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According to some commentators, the war started by Russia in Ukraine has weakened Finland’s attractiveness as a real estate investment destination. The veracity of the claim will only be resolved later, but in this market situation, some investors could be satisfied that Stockmann received an amount equal to the present value of the property.

Kevan In terms of investment, the investment decision may prove to be very profitable in the long run. The pension insurer is already one of the largest providers of business premises in Finland, and now this development is gaining momentum.

“Location is key in the real estate market. The location of Stockmann’s department store is the best possible, and we therefore see it as maintaining its position in the future, ”said Keva’s Director of Real Estate Investment Calle Roselius In Keva’s press release.

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