Nordic Credit Rating (NCR) said today that it had lowered its long-term issuer and senior unsecured issue ratings on Heba Fastighets AB (Heba) to 'BBB+' from 'A-'. The outlook is stable. At the same time, the 'N-1+' short-term issuer rating was affirmed.
Rating rationale
The rating action reflects Heba's increased efforts to expand its property portfolio with a series of projects in locations outside its historical markets, and a subsequent increase in business risk. It also reflects increasing investments in projects to build and sell apartments to tenants through joint ventures with up-front funding commitments through loans and guarantees. The resulting shift in focus has led to an increase in risk appetite and higher levels of financial risk compared with historical levels.
Positively, the rating reflects Heba's long and stable history of managing residential rental properties in Stockholm, Sweden's highest-demand housing market. Due in part to its stable ownership, the company's financial position, risk appetite, and leverage remain at stronger levels than those of its peers.
Stable outlook
The stable outlook reflects our expectation that Heba will maintain a long-term ratio of projects to management properties of close to 15% by value. In our view, this is likely to prevent any significant improvement in financial leverage or credit metrics. It also reflects our expectation that the company will continue to focus on non-cyclical residential and community service properties, while maintaining the level of properties developed for sale. In addition, the outlook reflects our expectation that Heba's financial risk appetite will remain unchanged.
We could raise the rating to reflect deleveraging, resulting in NCR-adjusted net loan to value of below 40% over a protracted period and net interest coverage of above 5x, combined with a commitment to a reduced risk appetite. We could also raise the rating to reflect greater diversification and an improved market position, along with lower risk exposure to in-house projects and joint venture agreements. We could lower the rating to reflect NCR-adjusted net loan to value increasing towards 50% over a protracted period along with reduced net interest coverage. Other negative rating drivers could include deteriorating market fundamentals, adversely affecting occupancy and/or profitability, or severe complications involving in-house projects, joint venture agreements, or other collaborative efforts.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | A- |
| Outlook: | Stable | Negative |
| Short-term issuer credit rating: | N-1+ | N-1+ |
| Senior unsecured issue rating: | BBB+ | A- |
Contacts:
Mille Fjeldstad, analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@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.