Nordic Credit Rating (NCR) has affirmed its 'BBB' long-term issuer rating on Sweden-based residential and community service property manager Heba Fastighets AB (publ). The outlook is stable. At the same time, NCR affirmed its 'N3' short-term issuer rating and 'BBB' senior unsecured issue rating.
Rating rationale
The affirmation reflects Heba's stable performance and our expectation of higher rental growth in the residential segment, which will support cash flow and offset the impact of expiring low interest rate swaps on the company's interest coverage. In 2024, the company acquired community service properties with better cash flow than its residential portfolio, improving its earnings capacity. In the fourth quarter of 2024, Heba revised its financial policy and set growth targets for 2025 to 2030. The company aims to increase its portfolio value to SEK 20bn while keeping a long-term gross loan-to-value (LTV) below 45%. Simultaneously, it adjusted its dividend policy to 50% of after-tax profit from property management, down from a previous long-term target of 70% (temporarily revised to 40% during 2023 and 2024). We believe reduced dividends allow for reinvestment into operations and meet leverage targets.
In addition, the rating reflects the company's long and stable history of managing residential rental properties in Stockholm, Sweden's highest-demand housing market. We expect Heba's business risk profile to remain strong and believe the company has taken measures to support its financial risk profile, including revision of long-term dividend policy. The rating also reflects low project development exposure and the company's historically moderate financial risk appetite.
The rating is constrained by Heba's high sensitivity to changes in interest rates. Limitations on raising rents in Sweden's regulated market results in slower cash flow adjustments in the residential sector during periods of high inflation compared with other segments. The company's earnings relative to debt is relatively high. While Heba's exposure to property development is currently low, we expect this will increase and remain part of the company's core strategy.
Stable outlook
The outlook is stable, reflecting our expectations that Heba's interest coverage ratio will remain stable over our forecast period through 2027 and that the company will have a lower than historical development exposure. We believe property values will increase due to higher net operating income. We expect the company will refinance maturing debt at more favourable terms than current loan terms and will maintain its liquidity profile, with committed sources exceeding cash outflows.
We could raise the rating to reflect a commitment to reduced financial risk (NCR-adjusted interest coverage above 3.5x), primarily driven by a sustained improvement in cash flow generation (net debt to EBITDA below 9.0x over a protracted period), together with an unchanged business risk profile and reduced exposure to in-house and joint venture development projects.
We could lower the rating to reflect an NCR-adjusted interest coverage ratio below 2.2x, or net LTV above 50% over an extended period. We could also lower the rating to reflect a material increase in tenant concentration, or significant issues with joint venture partners, affecting one-off payments and financial commitments.
Related rating actions
i) Heba Fastighets AB (publ) outlook revised to stable; 'BBB' long-term issuer rating affirmed, 7 Mar. 2024.
Related publications
i) Swedish real estate outlook 2025, 23 Jan. 2025.
ii) Comparison of NCR-rated community service property managers, 9 Dec. 2024.
iii) Swedish real estate snapshot (Q3 2024): continued cautious optimism in the air, 26 Nov. 2024.
iv) Swedish real estate: Likely interest rate cuts allow for cautious optimism, 24 Sep. 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
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@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.