Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB-' long-term issuer rating on Sweden-based property manager CA Fastigheter AB. The outlook is stable. At the same time, the 'N4' short-term rating was also affirmed.
Rating rationale
The affirmation reflects continued performance in line with our expectations. We expect CA Fastigheter's net interest coverage to weaken in the short term due to higher financing costs but to improve over time as projects are finalised. We take a positive view of the flexibility to postpone projects to support credit metrics and believe that the company prioritises long-term investment opportunities and stability over pure growth.
Our long-term issuer rating on CA Fastigheter reflects the company's relatively low financial gearing, high occupancy, diversification benefits from its share of residential properties and low tenant concentrations in its commercial portfolio. It also reflects our expectations that the residential rental market will remain strong and that CA Fastigheter will continue to increase rental income from its commercial portfolio and completed projects.
These strengths are offset by the company's active project and development activities and associated capital expenditure, which create volatility in cash flows and have a higher risk than pure property management. We also view CA Fastigheter's intra-group lending and short debt maturity profile with large single-year maturities as credit weaknesses in our standalone assessment. We consider CA Fastigheter's market position to be modest, given the relatively small portfolio in most of its core geographic locations.
Stable outlook
The stable outlook reflects our expectation that CA Fastigheter's credit metrics will continue to weaken but remain above our rating drivers over the forecast period. We expect that occupancy will remain strong and that the company will continue to generate stable cash flows. The company has postponed many projects in its pipeline to support capital metrics and we believe that this demonstrates its long-term investment horizon. We expect CA Fastigheter to complete the sale of current tenant-owned property projects and maintain the flexibility to postpone projects further.
We could raise the rating to reflect improved credit metrics (EBITDA/net interest sustainably over 3.5x and net loan to value (LTV) sustainably below 35%) or to reflect reduced risk appetite and an extended debt maturity profile. We could lower the rating to reflect increased financial gearing (net LTV at levels sustainably over 50% or EBITDA/net interest below 2.2x over a protracted period), deteriorating market fundamentals that affect occupancy and/or profitability, or to reflect increased lending exposure to, or deteriorating credit quality of, its owner CA Group.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N4 | N4 |
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.