Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Sweden-based community service property manager Fastighets AB Stenvalvet (publ) (Stenvalvet). The outlook is stable. At the same time the 'N-1+' short-term rating and the 'BBB+' senior unsecured issue rating were also affirmed.
Our issuer rating on Stenvalvet reflects the company's strong property portfolio and long-term contracts with highly creditworthy public-sector tenants. About 94% of the company's rental income is generated directly or indirectly by government funding. The rating further reflects the strong average remaining lease term of above six years, an occupancy rate of about 96%, and the stable operating environment. Stenvalvet's stable cash flows and strong debt-servicing abilities also support the rating, as do the company's low-risk shareholders, which we regard as a stable, long-term ownership group. The three main shareholders have provided SEK 2.8bn in long-term loans, which we regard as equity.
Although, most of Stenvalvet's income comes from government-related anchor tenants, about 6% of tenants are purely commercial entities, and 40% of the company's revenues come from office tenants, which tend to be less loyal than occupants of specialised properties. The company has high tenant concentrations, with the top 10 tenants generating 51% of revenues, albeit with a high level of public funding.
We have revised our assessment of Stenvalvet's risk appetite to reflect our expectations that leverage levels will remain modest for the duration of the company's project development and acquisition plans, as well as its reduced dependence on bank debt, balanced debt maturity profile and long-term interest fixing.
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 also expect that the company will retain its moderate leverage and risk appetite as it grows via development and acquisitions.
We could raise the rating to reflect improved credit metrics such as a long-term loan-to-value (LTV) ratio below 40%, or increased diversification and quality in the property portfolio. We could lower the rating to reflect increased leverage, with long-term NCR-adjusted net LTV above 50% and NCR-adjusted EBITDA to net interest below 5.0x, a higher proportion of non-community service tenants, or inability to refinance debt maturities.
|Long-term issuer credit rating:||BBB+||BBB+|
|Short-term issuer credit rating:||N-1+||N-1+|
|Senior unsecured issue rating:||BBB+||BBB+|
If you have any questions, please contact:
Mille O. Fjeldstad, credit rating analyst, +4799038916, firstname.lastname@example.org
Marcus Gustavsson, credit rating analyst, +46700442775, email@example.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.