Nordic Credit Rating (NCR) said today it had affirmed its 'BBB' long-term issuer rating on Sweden-based commercial-property management company Axfast AB (publ) (Axfast). The outlook is stable. At the same time, the short-term rating was affirmed at 'N-1+'.
Rationale
Our long-term rating on Axfast is supported by the company's long remaining lease terms, low vacancy rate and long-term strategic ownership. It also reflects the company's efforts to reduce single-name tenant exposure and increase diversification of tenants across sectors. In addition, our long-term rating reflects Axfast's strong financial position and low loan-to-value ratio (LTV), compared with Nordic real-estate peers. We expect the company's growth ambitions to be supported by its owners in order to maintain strong credit metrics.
These strengths are offset by Axfast's concentration of properties in the Stockholm region, as well as its relatively high exposure to single-name tenants and sector-specific tenants. Our assessment also reflects the company's smaller portfolio than those of peers, as well as a relatively short debt maturity profile.
We have revised our assessment of operating environment and efficiency upwards to reflect the improved hotel and retail outlook, due to reduced social-distancing measures, and to better reflect the EBITDA margin. We have revised our financial risk assessment downwards to reflect higher leverage and a more rapid growth rate than previously anticipated. However, we expect the owners to play an active role in providing equity support for future growth, if needed.
Stable outlook
The stable outlook reflects our view of stable revenues based on Axfast's steady base of primary tenants on long-term contracts. We expect Axfast to be able to manage what we believe to be the final phase of the pandemic without granting additional rebates to its tenants. Our outlook also factors in our expectation of decreasing vacancies as major projects are completed, despite the increase in the vacancy rate over the past year. We expect Axfast to continue to grow through the acquisition of new properties, increasing its net LTV. We could raise the rating if the company were able to improve its portfolio size and diversification of tenants and locations, while maintaining strong portfolio quality and credit metrics. We could lower the rating in the event of net LTV rising above 35% and interest coverage falling below 3.5x, an occupancy rate below 90% for a prolonged period, or increased risk appetite or a change in profile as a result of future acquisitions.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
If you have any questions, please contact:
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Marcus Gustavsson, credit rating analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.