Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB-' long-term issuer rating on Sweden-based commercial property manager LSTH Svenska Handelsfastigheter AB (publ) (Svenska Handelsfastigheter). The outlook is stable. At the same time, the 'N-1+' short-term issuer rating was affirmed.
Rationale
The affirmation reflects Svenska Handelsfastigheter's large proportion of non-cyclical tenants, diverse property portfolio, long remaining average lease terms, high occupancy level and prudent debt maturity profile. The rating also takes account of the stable operating environment, healthy profitability and improved diversification through the acquisition of Tre Kronor Property Investment AB (publ) (Tre Kronor). It is also supported by the company's strong owners and their commitment to maintaining a stable financial risk profile, reflected in a commitment to a loan-to-value (LTV) ratio below 55%.
The rating is constrained by Svenska Handelsfastigheter's relatively high leverage and large dividend commitments, limiting the potential for deleveraging and increasing the financial risk profile. In addition, it reflects Svenska Handelsfastigheter's relatively small portfolio with a high proportion of customised properties outside city centres. Although these properties encourage tenant loyalty, they have a higher risk of prolonged vacancies if contracts are not renewed.
We have revised our assessment of Svenska Handelsfastigheter's market position, size and diversification to reflect the improved diversification achieved through the acquisition of Tre Kronor. We have also updated our assessment of the company's financial ratio analysis to better reflect its leveraged balance sheet.
Stable outlook
The stable outlook reflects our expectations that Svenska Handelsfastigheter will restore its LTV to below 55% on a sustained basis, despite net LTV approaching 60% following the acquisition of Tre Kronor. We anticipate it will do this either by divesting its Norwegian branch and community service properties portfolio or with support from the company's owners. It also incorporates NCR's expectation of a continued focus on a higher proportion of less cyclical tenants and the portfolio's resilience to the effects of e-commerce and the COVID–19 pandemic.
We could raise the rating to reflect a lower risk appetite in the event of deleveraging that results in net LTV below 45% and net interest coverage that is higher than 5x over a protracted period. We could also raise the rating if the percentage of non-cyclical tenants were to rise, combined with reduced tenant concentration as a result of a larger and diverse portfolio. We could lower the rating to take account of an increased risk appetite, which could be reflected by net LTV above 55% over a prolonged period, a change in the ownership structure affecting financial risk, a higher proportion of cyclical tenants or deteriorating portfolio quality.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-1+ | N-1+ |
If you have any questions, please contact:
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Marcus Gustavsson, credit rating analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.