Nordic Credit Rating (NCR) said today that it had raised its long-term issuer rating on Sweden-based property manager Catena AB to 'BBB' from 'BBB-'. The outlook is stable. At the same time the short-term rating was raised to 'N3' from 'N4'.
Rating rationale
The rating action reflects a gradual shift in financial leverage and risk appetite since Catena received the first of a series of equity injections in 2021. We view the latest injection, in March 2024, as an indication that Catena's owners are likely to continue to support the company's growth. Since 2021, Catena has received over SEK 7bn in new equity and in 2023 revised its financial policy, committing to significantly lower leverage.
The long-term rating reflects Catena's strong position as one of Sweden's largest logistics property managers. The company has long remaining lease terms, a high occupancy rate, and solid profitability. The rating also reflects the benefits of growth in e-commerce for the sector. These strengths are offset by Catena's growth focus. We view high tenant concentrations as a weakness, though this is partly offset by strong tenant profiles.
In our base case, we expect Catena's net debt/EBITDA to remain below 8x and net loan to value (LTV) to remain below 40% through 2026. We note that the company has a high proportion of interest rate fixing and has improved its debt maturity profile and liquidity. As a result, we have revised our assessment of financial risk upward. We incorporate a degree of caution due to the possibility that future investments could exceed the assumptions in our forecast. We view Catena's financial risk appetite as commensurate with our assessment of the company's financial ratios, given the high probability of continued owner support and further improvements in its financial risk management.
We have revised our assessment of Catena's market position, size and diversification upward to reflect expansion of the property portfolio as a result of recent investments, combined with the company's solid brand awareness and improved geographic diversity in Sweden and Denmark.
Stable outlook
The stable outlook reflects our view that Catena will maintain its revised strategy of growth with more moderate financial leverage, while funding expansion with both equity and debt. It further reflects our belief that Catena's landbank will enable growth at attractive yields despite increasing competition in the logistics subsector, and that the company's largest tenants are well positioned to withstand a weaker economy and reduced consumption. We expect a positive long-term trend in e-commerce to benefit the subsector.
We could raise the rating to reflect further improvements in the financial risk profile and a less concentrated debt maturity profile, more predictable ratios (net debt/EBITDA below 7x and net LTV below 35% on a sustained basis), or an increased portfolio with continued property quality and reduced concentrations.
We could lower the rating to reflect a greater financial risk appetite, with net debt/EBITDA above 9x, net LTV above 45%, and interest coverage below 3x over a protracted period. We could also lower the rating to reflect deteriorating market fundamentals that adversely affect occupancy and/or profitability.
Related publications
i) NCR Comments: Catena AB 'BBB-' rating and outlook unchanged following equity issue, 14 Apr. 2024
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB | BBB- |
Outlook: | Stable | Positive |
Short-term issuer credit rating: | N3 | N4 |
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@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.