Nordic Credit Rating said today that it had affirmed its 'BBB' long-term issuer rating on Sweden-based commercial property manager Axfast AB (publ). The outlook is stable. At the same time, the 'N3' short-term issuer was affirmed.
Rating rationale
The long-term rating reflects Axfast's long remaining lease terms, low vacancy rate, and long-term strategic ownership. It also reflects the company's strong portfolio of properties located in prime locations. In addition, the rating reflects Axfast's solid financial position and low loan-to-value (LTV) ratio, in comparison with those of its Nordic peers. We expect the company's owners to support its growth ambitions and maintain strong credit metrics.
These strengths are offset by the concentration of Axfast's properties in the Stockholm region, as well as its relatively high exposure to single-name and sector-specific tenants. Our assessment reflects the company's small portfolio in comparison with its peer group average and relatively short debt maturity profile.
We have revised our portfolio assessment to reflect the strength of Axfast's prime locations and the normalisation of hotel revenues due to relaxation of COVID restrictions. In addition, we expect development exposure to remain low once key projects are finalised by early 2023.
Stable outlook
The stable outlook reflects Axfast's solid revenues from a steady base of primary tenants on long-term contracts. It also reflects our expectation that vacancies will remain low, supported by the company's central locations and the completion of major projects. We expect Axfast's financial metrics to weaken over our forecast period through 2024 due to sharp increases in interest rates. However, we expect the company's overall financial leverage to remain low. We expect Axfast to expand via acquisition of new properties, which should reduce concentrations in the portfolio over time and compensate for our forecast decline in interest coverage.
We could raise the rating if the company were to improve its portfolio size and increase the diversity of its tenants and locations, while maintaining strong portfolio quality and credit metrics. We could lower the rating if net LTV were to rise above 35% or interest coverage were to fall below 2.2x. We could also lower the rating to reflect deteriorating market fundamentals that could negatively affect occupancy and profitability, or a material increase in the company's development exposure.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.