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). The outlook is stable. The 'N-1+' short-term issuer rating and 'BBB+' senior unsecured issue rating were also affirmed.
Rating rationale
The long-term issuer rating reflects Stenvalvet'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 by government funding. The rating further reflects the strong average remaining lease term of around 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 stable, long-term owners. The 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 8% of tenants are purely commercial entities, and 42% 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 the company's prudent growth strategy, strong liquidity position, and financially strong owners, which take a long-term view of their investments. Our risk appetite assessment is supported by the company's interest fixing and stable debt maturity profile.
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 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 over the long term (NCR-adjusted net loan to value [LTV] below 35% and EBITDA/net interest over 5.0x). We could also raise the rating to reflect increased diversity and quality in the property portfolio. We could lower the rating to reflect increased leverage on a long-term basis (NCR-adjusted net LTV above 50% and EBITDA/net interest below 3.5x). We could also lower the rating to reflect a higher proportion of non-public tenants or a substantial change in the ownership structure.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB+ | BBB+ |
Outlook: | Stable | Stable |
Short-term issuer credit rating: | N-1+ | N-1+ |
Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.