Nordic Credit Rating (NCR) 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, NCR affirmed the 'N3' short-term rating.
Rating rationale
The long-term issuer rating reflects Axfast's long remaining lease terms, low vacancy rate and long-term strategic ownership. It also takes account of the company's strong portfolio of properties in prime locations. In addition, the rating reflects Axfast's solid financial position and low loan-to-value (LTV) ratio compared with those of its Nordic peers. We expect the company's owners to support its growth ambitions and help 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 factors in the company's small portfolio in comparison with its peer group average and relatively short debt maturity profile.
We have raised our assessment of Axfast's market position, size and diversification to better reflect the company's strong position in Stockholm's central business district. In accordance with its growth strategy to achieve a portfolio value of SEK 30bn by 2030, the company is expanding by acquiring new properties.
We have also revised our assessment of Axfast's operating efficiency to reflect the improved EBITDA margin and occupancy rates. Despite the market uncertainty, we expect occupancy rates to stay strong, supported by the central locations of the properties.
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 see Axfast's financial metrics weakening over our forecast period through 2025 due to increases in interest rates. However, we believe the company's overall financial leverage will remain low. We expect Axfast to expand by acquiring 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 expand 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 to reflect 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
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.