Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Sweden-based community service property manager Intea Fastigheter AB (publ). The outlook is stable. The 'N-1+' short-term issuer rating and the 'BBB+' issue ratings on the company's senior unsecured bonds were also affirmed.
Rating rationale
The long-term rating reflects Intea's relatively low-risk portfolio of largely custom-built properties and its generally long contracts with highly creditworthy public-sector authorities in the education, healthcare and law enforcement sectors. The rating also reflects the strong operating environment and Intea's stable cash flows, healthy profitability and debt-servicing capabilities. We view the company's solid and committed owners, and long fixed-interest periods as credit strengths.
These benefits are offset by Intea's overall financial risk profile, as the company's credit metrics are notably weak in comparison with those of its peers. Furthermore, the rating is constrained by the company's relatively modest size, high portfolio concentrations and restricted geographic scope, with concentration risk in certain municipalities. However, the significant proportion of government-backed tenants and multiple contracts across different locations is beneficial for operational diversity.
We have raised our market position, size and diversification score to reflect Intea's larger scale and improved market position. We have raised our operating efficiency score to reflect improved operating margins resulting from an increased focus on in-house operations. However, we have lowered our financial ratio score to reflect Intea's relatively high leverage compared with peers, along with our projection of weaker interest coverage.
Stable outlook
The stable outlook reflects our expectations of continued substantial shareholder commitment, which supports Intea's overall financial risk profile. We believe the company will maintain its focus on specialised community service properties with long leases with government-backed counterparties. We expect Intea to primarily grow through its project portfolio, in which properties appear to be on schedule for completion, while maintaining its current financial risk profile.
We could raise the rating to reflect improved credit metrics, with a net loan-to-value (LTV) ratio below 40%, and net interest coverage above 5x over an extended period, or an increased portfolio size and diversification, combined with reduced project development. We could lower the rating to reflect net LTV above 55% and net interest coverage below 3.5x on a sustained basis, a withdrawal of shareholder commitments or change in ownership, or a lower proportion of public tenants.
| 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:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@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.