[3,533 CREDIT RESEARCH June 4, 2021, 11:31 CET Real Estate | Sweden Diös No recommendation Heading for the Northern Lights MARKETING COMMUNICATION . A leader in stable and growing cities of northern Sweden . Strengthening credit profile . Handelsbanken has a mandate to issue bonds for Diös Leading market position in a growing, dynamic region Diös Fastigheter AB (Diös) has a market-leading position in 10 larger, growing cities in northern Sweden, as well as in Gävleborg County and Dalarna County. In our view, its property portfolio is well-diversified in terms of regional presence, property types and tenants, of which around 31% are related to government and municipalities, and 8% are residential rental properties. Based on data from Statistics Sweden and the regional municipalities, we expect the markets where Diös is active to continue to show healthy population and economic growth, which should in turn support the local property markets. About the company Strengthening credit profile We expect Diös to continue to strengthen its credit profile, including a sustained Profile: LTV of less than 55%, a lengthening of the debt maturity profile and an increased Diös Fastigheter AB, owns, manages and develops share of unsecured capital markets funding. Thanks to its cash-generative property commercial and residential properties, primarily in the larger cities of northern Sweden. The company was portfolio, we find that Diös’ credit metrics, such as debt-to-EBITDA and interest founded in 2005 and is headquartered in Östersund. coverage, are typically stronger than many of its Swedish real estate peers’. Total assets amounted to SEK 25bn as of March 31, 2021. SEK-denominated senior unsecured notes contemplated Diös is contemplating issuing a senior unsecured green bond with an estimated Data: size of about SEK 500m and a two-year maturity. Handelsbanken has a mandate Web address: http://www.dios.se to issue bonds for Diös and is a lender to the company. CEO: Knut Rost CFO: Rolf Larsson Andreas Stattin Berg Michael Andersson, +4687011399, [email protected] Treasurer: Key figures Public ratings: SEKm 2016 2017 2018 2019 2020 Q1-21LTM No public ratings Op. net (NOIRE) 806 1,080 1,140 1,187 1,219 1,218 Income fr property mgmt adj 539 822 894 952 958 959 Net income adj 832 1,029 1,341 1,050 913 1,245 Rental value distribution, Q1 2021 Property value 13,683 19,457 20,802 22,938 24,512 25,340 Industry, Other, Gross debt adj 8,028 11,104 11,297 12,404 13,461 13,660 6% 8% Net debt to prop value adj (%) 58.7 56.9 54.3 54.1 54.9 53.9 Hotel/restaurant, Total debt to total assets adj (%) 57.7 56.3 53.6 53.5 54.1 52.9 6% FFO/gross debt adj (%) 7 7 7 7 7 7 Gross debt/EBITDA adj (x) 10.7 11 . 0 10.5 11.1 11.7 11.9 EBITDA/interest expense adj (x) 3.7 5.5 6.1 6.9 6.2 6.3 Dividends/FFO adj (%) 39.5 35.8 48.5 46.2 25.0 24.6 Office, Vacancy rate (%) 10.0 9.0 9.0 10.0 11 . 0 10.0 53% Pledged assets to total assets (%) 89.9 81.6 79.7 74.1 80.1 n.m Residential, Secured debt to total assets (%) 57.6 53.3 47.5 44.5 46.0 43.5 8% Source: Company reports and Handelsbanken Capital Markets Retail, 17% This marketing communication has not been prepared in accordance with legal requirements designed to promote the independence of Source: Company reports investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. This marketing communication is commissioned and paid for by the corporate issuer to promote a new issuance by the company and is made available at the same time to any investment firms wishing to receive it. This report is deemed to constitute an acceptable minor non-monetary benefit as defined in MiFID II. For full disclaimer and definitions, please refer to the end of this report Credit Comment, June 4, 2021 Credit highlights In our view, Diös’ credit profile is supported by its market-leading positions in its 10 growing home markets, primarily located in northern Sweden. Based on data from Statistics Sweden and the regional municipalities, we expect these 10 regional centres to show steady economic and population economic growth ahead, which should in turn support healthy local property markets. In addition, we expect Diös to continue to strengthen its credit profile in terms of leverage, debt maturity profile and capital market funding, thereby bolstering its strong operational track record further. In terms of restrictive factors, we find that these strengths are somewhat offset by Diös’ smaller size and scope, higher leverage and higher share of secured debt compared with many Swedish real estate peers that have longer track records on the capital markets. Overall though, we would classify Diös’ credit profile as solid. Key credit considerations Supportive factors for Diös’ credit profile – our view In our view, Diös has • Leading market positions in the larger, growing cities in northern Sweden a well-diversified • Solid fundamentals supporting the local property markets property portfolio and a long track • A regionally well-diversified property portfolio, with properties typically located centrally record of controlled in cities growth and • A large, well-diversified tenant base, with around one third of rental value coming from retained leverage government or municipality-related tenants • A long and solid track record of controlled growth while retaining stable credit metrics • Good access to liquidity and capital through banks and through debt and equity markets • Credible sustainability targets covering environmental, social and governance issues Restrictive factors for Diös’ credit profile – our view We consider its • The company is relatively small compared with many established Swedish real estate relatively small size peers on the capital markets and somewhat • In terms of property value, about 20% exposure, albeit declining, to retail, hotels and higher leverage as restaurants; these segments have been burdened by the pandemic, and their longer-term restrictive factors outlook is still somewhat difficult to assess • Somewhat higher, albeit declining, leverage compared with larger peers on the capital markets • A relatively high share of short-term and secured debt, although we would expect this to be refinanced with longer-maturity, unsecured debt ahead • An increased share of development projects in its portfolio MARKETING COMMUNICATION 2 Credit Comment, June 4, 2021 Company description Diös Fastigheter AB (Diös), headquartered in Östersund, is a listed, Swedish real estate company that owns, manages and develops commercial and residential properties, mainly in the larger cities in northern Sweden, as well as in Gävleborg County and Dalarna County. The portfolio consists of 331 properties spanning over 1.5 million m2 and is valued at about SEK 25bn. With the exception of the three largest shareholders AB Persson Invest, Backahill and Nordstjernan (controlling a combined 36% of k and capital), we find that the shareholder structure is diversified and includes Swedish and international institutional investors, equity funds and private investors. The leading real estate company in northern Sweden Diös is today the Diös was founded in 2005 on the initiative of Erik Paulsson (who remains a key leading real estate investor in Diös, as well as in Fabege, Wihlborgs, Catena and Brinova). The strategy company in was to acquire, manage and develop cash-generative properties in northern northern Sweden Sweden. Initially, 36 properties were acquired from AP Fastigheter (which later merged with Vasakronan). Following several acquisitions, including the acquisition of Norrvidden in 2011, and Castellum’s Norrporten portfolio in 2017, Diös is today the leading real estate company in northern Sweden. In recent years, the company has increased its focus on project development, including residential properties. Figure 1: Rental value distribution by type, as of the end of Q1 2021 Industry/warehouse, Other, 6% 2% Community service, 6% Hotel/restaurant, 6% Residential, 8% Office, 53% Retail, 17% Source: Company reports Diös has a diversified In our view, Diös has a relatively diversified property portfolio spanning across most property portfolio, real estate segments, including office, retail, residential, community service and in our view industrial properties (Figure 1). Today, offices account for the majority of Diös’ rental value, at 53%, followed by retail properties, at around 17%. We expect that offices continue to represent the largest share of the portfolio ahead, with an increased share of residential properties, primarily through development projects. Diös is the market leader in each of the 10 cities where it is active (Figure 3). The properties are typically located centrally in these cities. In our view, the property portfolio is well diversified across the larger, growing cities in northern Sweden, as well as in Dalarna, Gävleborg and Jämtland counties. The typical “Diös city” has a population of 60,000-150,000, one city centre, established universities, good transportation links, and dynamic and growing business/entrepreneurial environments. MARKETING COMMUNICATION 3 Credit Comment, June 4, 2021 Figure 2: Rental value distribution by region, as of the end of Q1 2021 Luleå, 17% Dalarna, 17% Skellefteå, 7% Gävle, 11% Umeå, 14% Sundsvall, 15% Åre/Östersund, 19% Source: Company reports Figure 3: Map of Sweden and Diös’ 10 cities Diös is the market leader in each of the 10 cities where it is active Source: Company reports 31% of its tenants are Diös’ tenant base is relatively diversified, in which 31% of tenants are government government or or municipality-related entities that also account for the majority (seven) of its 10 municipality-related largest tenants (Table 1).