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). The outlook is stable. The 'N3' short-term issuer rating was also affirmed.
Rating rationale
The long-term rating reflects Svenska Handelsfastigheter's large proportion of non-cyclical tenants, diverse property portfolio, long remaining average lease terms, high occupancy levels, and low refinancing risk. It also reflects the stable operating environment and the company's relatively strong cash flow generation. We have raised our assessment of Svenska Handelsfastigheter's financial risk appetite to reflect increased shareholder commitments from the company's owners, which we regard as strong, and their more pronounced management role through increased board participation. The rating is further bolstered by the company's commitment to a more conservative financial risk profile.
These strengths are offset by Svenska Handelsfastigheter's relatively high, but stable, leverage as we expect the value of the company's properties to be more resilient than those of its peers due to its relatively low sensitivity to changes in yield requirements and the comparatively healthy yield gap of its assets. The rating is further constrained by the relatively small size of the company's portfolio, which includes a high proportion of customised properties outside city centres. Although these properties encourage tenant loyalty, they have a higher risk of lengthy vacancies if contracts are not renewed.
Stable outlook
The stable outlook reflects our expectation that Svenska Handelsfastigheter will maintain its financial risk profile thanks to strong shareholder commitments. In our assessment, the company is well equipped to meet upcoming debt maturities and remain resilient to higher market interest rates. The outlook incorporates our expectation that Svenska Handelsfastigheter will continue to pursue a higher proportion of less cyclical tenants. In addition, it reflects the portfolio's resilience to the negative effects of e-commerce and the declining discretionary purchasing power of consumers.
We could raise the rating to reflect a commitment to reducing financial risk (net loan-to-value [LTV] and net debt/EBITDA below 40% and 9x respectively) or a significantly larger and more diverse portfolio with a higher proportion of non-cyclical tenants. We could also raise the rating to reflect strengthened long-term ownership. We could lower the rating to reflect weaker credit metrics (net LTV above 55% and EBITDA/net interest below 3.0x) over a protracted period, or to reflect a change in ownership or the owners' risk appetite. We could also lower the rating if the company seeks a higher proportion of cyclical tenants or if market fundamentals deteriorate and negatively impact profitability and/or occupancy.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB- | BBB- |
Outlook: | Stable | Stable |
Short-term issuer credit rating: | N3 | N3 |
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@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 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.