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 'N3' short-term issuer and 'BBB' senior unsecured issue rating were also affirmed.
Rating rationale
The affirmation reflects our expectation that Intea will not continue to pursue its communicated target of SEK 30bn in portfolio value by 2026 without obtaining additional funding to maintain its financial risk profile. The company's main source of growth is projects. However, in the second quarter of 2023, Västra Götaland County exercised its option to purchase Intea's largest project, Sahlgrenska Life. We believe this project was fundamental to achieving the target portfolio value and, given the remaining project pipeline, we do not expect the company will be able to achieve its target portfolio value. All of the company's ongoing projects are scheduled for completion in the next 12 months, improving cash flows and debt-servicing capabilities.
Our long-term issuer rating reflects the company's low-risk portfolio of largely custom-built properties and its generally long contracts with highly creditworthy public-sector authorities in the education, law enforcement and healthcare sectors. The rating also reflects the company's strong operating environment, stable cash flows and healthy profitability. We view the company's solid 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 weaker than those of its peers. Furthermore, the rating is constrained by the relatively front-loaded debt maturity profile. We view the company's relatively high project exposure, modest size, high portfolio concentrations and restricted geographic scope, with concentration risk in certain municipalities, as negative. However, the significant proportion of government-backed tenants and multiple contracts across different locations is beneficial for operational diversity.
Stable outlook
The stable outlook reflects our expectations that Intea's interest coverage ratio will improve over our forecast period and that property values will remain robust. It also reflects our expectations that Intea will be able to refinance its upcoming debt maturities at longer tenors. We believe the company will maintain its focus on specialised community service properties with long leases and government-backed counterparties. We expect that Intea will complete ongoing projects and now pause its previously communicated target of SEK 30bn in portfolio value by 2026.
We could raise the rating to reflect improved credit metrics, with a net loan-to-value (LTV) ratio below 50%, net debt/EBITDA below 10x and net interest coverage above 3.5x over an extended period, together with an improved debt maturity and liquidity profile.
We could lower the rating to reflect a failure to improve the financial risk profile in line with our expectations, including net interest coverage below 2.2x on a sustained basis. The rating could also be lowered due to an increased financial risk appetite or a change in ownership.
| 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 |
Related rating actions
i) Intea Fastigheter AB (publ) long-term issuer rating lowered to 'BBB'; Outlook stable, 19 May 2023.
Related publications
i) Real-estate quarterly snapshot (Q4 2023): Strong performance despite highest Swedish corporate defaults, 11 Mar. 2024.
ii) Swedish real estate sector adapts to tougher financing climate, 18 Jan. 2024.
iii) Real estate quarterly snapshot (Q3 2023) - is it a sigh of relief?, 28 Nov. 2023.
iv) The Swedish real estate sector– waiting for sunshine after the rain, 27 Sep. 2023.
v) Decoding Swedish real estate in an uncertain market environment, 29 Aug. 2023.
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.