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. The 'N3' short-term issuer rating was also affirmed.
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 into consideration the company's strong portfolio in prime locations. In addition, the rating reflects Axfast's solid financial position with a 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 large 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 assessment of the operating environment to reflect the strong rental market in Stockholm's central business district, Axfast's strong position in the office market, and improved conditions in the hotel industry with higher rental incomes and occupancy rates.
We have also raised our assessment of Axfast's property portfolio to reflect more accurately the prime location of the company's assets, including recent acquisitions, as well as the small size of the development portfolio.
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. We expect Axfast to expand by acquiring new high-quality properties, which should reduce concentrations in the portfolio over time. As a result of continued growth, we expect the company's leverage to increase, but believe its overall financial leverage will remain low.
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 40% 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
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.