Why Alecta backed one of Europe’s biggest real estate deals

The Swedish pension plan has committed a total of €3.8bn to date as the most sizable investor in the region’s second-largest residential company.

Alecta, Sweden’s largest pension fund, has further increased its investment in Heimstaden Bostad, Europe’s second-largest residential company.

The investor, which has SKr1,134 trillion ($129.57 billion; €111.72 billion) of assets under management, was one of four organizations that backed Heimstaden Bostad’s acquisition of 599 properties in Germany, Sweden and Denmark from fellow Stockholm-based residential company Akelius for SKr92.5 billion.

Stockholm-based Alecta committed €694 million to the deal, which is the second-largest European real estate equity transaction to date, after Blackstone’s €12.25 billion sale of Logicor to China Investment Corporation in 2017. The remaining equity came from Swedish insurer Folksam, which contributed €784 million; Swedish Pension Agency, which invested €123 million; and Heimstaden Bostad’s parent company, Heimstaden, which allocated €830 million.

“It is a very attractive and unique portfolio of residential assets with mostly regulated rents in growing cities,” said Frans Heijbel, Alecta’s head of international real assets. “This acquisition also creates further scale in Heimstaden Bostad’s operations and other synergies that we believe will strengthen the platform as a whole.”

Frans Heijbel Alecta
Heijbel: believes Heimstaden Bostad has ‘phenomenal prospects’ for growth

Alecta is the largest investor in Heimstaden, having committed a total of €3.8 billion, or 43 percent of the €8.8 billion of equity invested in the company. With an expanded portfolio of €27.5 billion – comprising 145,000 units in the Nordics, Central and Eastern Europe and UK – Heimstaden Bostad will be the second-largest European residential landlord, following European residential companies Vonovia and Deutsche Wohnen, which agreed to a merger earlier this year, but have yet to close on the deal.

Alecta has invested in Heimstaden Bostad since its launch in 2013, when the company owned only residential assets in mid-sized Swedish cities. Over the next several years, Heimstaden Bostad significantly grew its footprint in Europe through forays into countries such as the Netherlands and Germany. In 2019, the pension plan committed SKr21.5 billion to Heimstaden Bostad to support the future development of the company, which has since expanded into Czech Republic, the UK and Finland. The Akelius portfolio acquisition alone has increased the size of the company’s pan-European portfolio by 50 percent.

“We believe Heimstaden Bostad now has phenomenal prospects for successful growth ahead, reinforced by its strong ESG ambitions,” Heijbel noted.

He added that Heimstaden is Alecta’s primary investment vehicle in residential, which represents 60 percent of the pension plan’s international real estate portfolio. The investor has also allocated capital to the sector through a couple of other managers, including Oxford Properties Group and Delancey, to which Alecta committed up to £250 million ($340 million; €294 million) through the partners’ DOOR residential investment vehicle.