Nordic Credit Rating (NCR) said today that it had affirmed its 'A' long-term issuer rating on Norway-based property manager and developer Bane NOR Eiendom AS (Bane NOR Eiendom). The outlook is stable. The 'N2' short-term issuer rating and 'A' senior unsecured issue rating were also affirmed.
Rating rationale
The affirmation reflects our maintained assessment of Bane NOR Eiendom's financial risk, despite weaker financial metrics than previously anticipated. Leverage is still elevated due to the lack of sales of completed properties, but we expect that improved market sentiment could incentivise the sale of completed properties and that the company has the ability to reduce leverage through the use of surplus cash from sales. We believe that Bane NOR Eiendom has a prudent financial risk profile, with extended average debt to maturity and a longer maturity on shareholder loans, in addition to improved liquidity. We note the company has added values through various properties that are not included in the assessment of the total market value and that, if adjusted for, would further improve credit metrics.
Our long-term issuer rating on Bane NOR Eiendom reflects the company's low leverage, solid average remaining lease term and a high share of government-funded tenants. The rating is also supported by the company's de facto monopoly over domestic railway stations and workshops and its importance to Norwegian railway infrastructure. The company's large and central land bank supports future development opportunities in city centres in close proximity to existing stations.
The rating is constrained by the size of Bane NOR Eiendom's management portfolio, though this is mostly offset by the specialised nature of the properties. It is also constrained by the company's revenue concentrations and the risks associated with development projects.
We add two notches to our standalone credit assessment to reflect Bane NOR Eiendom's 100% indirect ownership by the Norwegian government and our view that the government has a strategic interest due to the company's role as a provider of critical public-transport infrastructure.
Stable outlook
The stable outlook reflects our expectation that Bane NOR Eiendom's credit metrics will remain moderate, despite increased interest costs and a rise in leverage over our forecast period. It also reflects our belief that the company can reduce leverage by selling off completed projects in its development portfolio, surpassing our base case projections. In addition, footfall through the company's railway stations is nearly back to pre-pandemic levels, supporting occupancy and increasing the attractiveness of its property locations.
We could raise the rating to reflect a loan to value (LTV) ratio of around 20% and an EBITDA margin above 65% for a prolonged period, to take account of improved profitability and revenue stability, or to reflect strengthened financial policy through tighter leverage targets. We could lower the rating to reflect net LTV above 40% or net interest coverage below 2.2x over a prolonged period, or to take account of weaker profitability or an inability to achieve competitive prices on development properties.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | A | A |
Outlook: | Stable | Stable |
Short-term issuer credit rating: | N2 | N2 |
Senior unsecured issue rating: | A | A |
Contacts:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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.