Nordic Credit Rating (NCR) has affirmed its 'BBB' long-term issuer rating on on Sweden-based community service property manager Fastighets AB Stenvalvet. The outlook is stable. At the same time, the 'N3' short-term issuer rating and 'BBB' senior unsecured issue rating were also affirmed.
Rating rationale
The affirmation reflects the company's stable performance, aligning with our expectations for the rating. The company's deleveraging efforts has resulted in net LTV declining to below 50%. We expect a rebound in the company's interest coverage to 2.6x─2.9x through 2027 due to lower interest rates and reduced debt. The company is expected to maintain low project development exposure and proactively refinance maturing debt, ensuring a satisfactory liquidity profile. In our view, the company is solidly positioned operationally, with positive net letting and improvements in its net operating income. It is unlikely that the company will face meaningful operational headwinds, as favourable demographic trends ensure demand for its premises.
The affirmation also reflects the company's strong property portfolio and long-term contracts with highly creditworthy public-sector tenants. About 92% of the company's rental income is generated directly or indirectly from government funding and the company has a strong average remaining lease term of around five years. Stenvalvet's stable cash flows and strong debt-servicing abilities also support the rating, as do its low-risk shareholders, which we regard as stable, long-term owners.
Although most of Stenvalvet's income comes from government-related anchor tenants, about 8% of tenants are purely commercial entities and 28% of the company's rental value is derived from its office segment, in which tenants tend to be less loyal than occupants of specialised properties. The company has high tenant concentrations, with the top 10 tenants generating 50% of revenue, albeit with a high level of public funding.
Stable outlook
The stable outlook reflects our expectation that Stenvalvet will continue to focus on community service properties, with long lease contracts under which rents are funded directly or indirectly by public institutions. We expect net interest coverage to improve and stabilise at about 3x during our forecast period through 2027. The outlook also reflects our expectation that Stenvalvet will remain cautious with regard to capital expenditure and growth.
We could raise the rating to reflect credit metrics improving over the long term to NCR-adjusted net loan to value (LTV) below 40%, net debt/EBITDA below 10.0x and EBITDA/net interest over 3.0x, combined with reduced uncertainty over ownership and shareholder commitment.
We could lower the rating to reflect leverage increasing on a long-term basis to NCR-adjusted net LTV above 55% with EBITDA/net interest below 2.2x, given the current ownership. We could also lower the rating to reflect a higher proportion of non-public-sector tenants or increased ownership uncertainty.
Related publications
i) Swedish real estate snapshot (Q4 2024): growth is back on the menu, 4 Mar. 2025.
ii) Swedish real estate outlook 2025, 23 Jan. 2025.
iii) Comparison of NCR-rated community service property managers, 9 Dec. 2024.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
| Senior unsecured issue rating: | BBB | BBB |
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@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.