Nordic Credit Rating (NCR) said today that it had placed its 'BBB' long-term issuer rating on Sweden-based community service property manager and developer Intea Fastigheter AB (publ) on watch negative. The 'N3' short-term issuer rating and 'BBB' senior unsecured issue rating were also placed on watch negative.
Rating rationale
The watch placement reflects recent acceleration of growth, with announced acquisitions of SEK 1.6bn and a prospective ramp-up in project development. Accordingly, we now expect weaker key credit metrics than previously. In our previous base-case forecast we projected Intea's NCR-adjusted EBITDA/net interest would fall to 2.1x and net loan-to-value (LTV) to 57.4% by end-2024, before improving to 2.5x and 56% by end-2025. As of end-September 2024, these metrics stood at 1.9x and 58%, respectively. We now expect interest coverage for full-year 2024 of about 1.8x due to a rise in financing costs. We also expect that net LTV will approach 60% in an absence of offsetting measures.
Because Intea has added new projects to its pipeline and plans additional investments that we estimate at SEK 4.4bn, we now expect the company's credit metrics to rebound less strongly in 2025 than in our previous base-case projection. This would effectively offset the impact of any positive cash flow from completion of projects. Positively, we believe that yield-based rental contracts could offset risk to rental income and largely contain risk that might negatively affect liquidity management. We have revised our assessment of the company's portfolio, reflecting our expectations of larger and more complex projects and higher growth than previously.
Intea has a front-loaded debt maturity profile and is reliant on uncommitted capital for meeting both maturing debt and project-related outflows. As of end-September, the company had committed unused credit facilities with maturities longer than 12 months of SEK 1.4bn (excluding SEK 3.1bn earmarked for the repayment of outstanding commercial paper obligations). While the company has ready access to the capital markets, its liquidity profile is weaker than that of its investment-grade peers, which typically have committed sources of liquidity in excess of expected cash outflows.
We believe that Intea is likely to refinance a currently unused credit facility of SEK 700m maturing within 12 months and that a prospective initial public offering (IPO) could offset some of the current weaknesses in its capital structure. The company has indicated that it is preparing for an IPO, which we believe could take place in the near future, although uncertainty remains as to timing and size, as well as market sentiment.
Watch negative
The watch placement reflects recent acceleration of growth, and uncertainty about the timing of a prospective IPO and the subsequent use of proceeds. We see a risk that the recent increase in project development and the possibility of new growth could put further pressure on Intea's key credit metrics and weaken the company's financial risk profile.
We could lower the rating if the company fails to raise new equity in the near term and continues to operate with interest coverage below 2.2x or net LTV above 55%. We could also lower the rating following a successful IPO if the company fails to improve its financial metrics or increases project exposure without improving its liquidity management and capital structure.
We could assign a stable outlook if the company raises new equity in the near term, bringing net LTV back within its stipulated target range of 50–55% and net interest coverage to above 2.2x over a sustained period, while committing to a more moderate financial risk profile. We could also assign a stable outlook if the company moderates growth through project development, effectively reducing financial leverage, while improving its debt maturity and liquidity profile.
Related rating actions
i) Intea Fastigheter AB (publ) 'BBB' long-term issuer rating affirmed; Outlook stable, 21 May 2024.
ii) Intea Fastigheter AB (publ) long-term issuer rating lowered to 'BBB'; Outlook stable, 19 May 2023.
Related publications
i) Swedish real estate: Likely interest rate cuts allow for cautious optimism, 24 Sep. 2024.
ii) Swedish real estate snapshot (Q2 2024): Interest rate cuts likely to continue, 5 Sep. 2024.
iii) Real-estate snapshot (Q1 2024): A step towards long-term normalised interest rate levels, 23 May 2024.
iv) Real-estate quarterly snapshot (Q4 2023): Strong performance despite highest Swedish corporate defaults, 11 Mar. 2024.
v) Swedish real estate sector adapts to tougher financing climate, 18 Jan. 2024.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB |
| Outlook: | Stable | |
| Watch: | Watch Negative | |
| 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.