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AP3 JV acquires €111m social infrastructure portfolio

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EUROPE - Hemsö Fastighets, a property joint venture between Sweden's third national buffer fund (AP3) and listed property firm Kungsleden, has acquired a domestic social infrastructure portfolio for its book value of SEK912m (€111m).

The King's Trail portfolio's 39 assets include schools, health centres and nursing homes, all located in Härnösand, northern Sweden, and previously owned by Kungsleden.

Hemsö has managed the assets since 2009, when the joint venture was set up, although ownership remained with Kungsleden under the original financial agreement.

Kungsleden chief executive Thomas Erséus said: "At the time, there was a big debate whether property values would hold up, and we needed to consider how we would continue to do business in more difficult environment. That was the defensive reason to sell.

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"The aggressive reason is that the portfolio was too big for us compared with the rest of our holdings, and the return was below our target."

The company's major shareholders include the second and fourth Swedish buffer funds, Dutch pension fund manager PGGM and the Norwegian sovereign wealth fund.

Erséus today told IP Real Estate the sale would effectively mark its divestment from directly held domestic social infrastructure assets - but that Hemsö would continue to source infrastructure assets from outside its portfolio.

"All the growth we've seen at Hemsö over the past three years has come from outside assets," he said.

"We have less than 2% market share. The challenge will be to meet the yields the sellers are asking for. From a financial return point of view, we may not be able to buy.

"On the other hand, if prices are too high, the existing portfolio will gain value. For Hemsö, it's win-win. Either it continues to grow or it benefits from high prices and the existing portfolio."

AP3 head of alternatives Bengt Hellström said the pension fund targeted social infrastructure to avoid macro risk.

"Probably the most important thing for us as potential investors in infrastructure is to avoid the GDP link," he said.

The SEK 214.1bn pension fund's alternatives portfolio includes private equity, real estate, infrastructure and timber.

AP3 stipulated as a condition for entering the joint venture agreement that Hemsö, which had been a Kungsleden subsidiary, be managed independently.

The 50/50 joint-venture partners each have equal representation on the board.

"Joint ventures are not something we have a general view on," said Hellström.

"We take it case by case. A big part of our social infrastructure portfolio is listed. We don't prefer one route to another.

"In any case, joint ventures tend to put larger demands on our own organisation."

Back in May, Kungsleden deputy chief executive Johan Risberg suggested Hemsö could tap Sweden's debt market again after it raised SEK750m in an oversubscribed bond issue.

A spokeswoman said today Hemsö would continue to monitor the bond market for "the right indications that pricing is in line with our expectations".

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