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. At the same time, the 'N3' short-term issuer rating was 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 prudent debt maturity profile. It also reflects the stable operating environment and the company's relatively strong cash flow generation. The rating is also supported by the company's strong owners and their commitment to maintaining a stable financial risk profile.
The rating is constrained by Svenska Handelsfastigheter's relatively high leverage and large dividend commitments, which limit the potential for deleveraging. In addition, it reflects the company's relatively small 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.
We have revised our assessment of the operating environment downwards by one notch to bring the subscore into alignment with those on the company's domestic peers. In addition, we have raised our subscore for market position, size and diversification to reflect the company's improved market position and reduced concentrations following the acquisition of Tre Kronor Property Investment AB (publ) in 2021.
Stable outlook
The stable outlook reflects our expectations that Svenska Handelsfastigheter will maintain its current financial risk profile despite rising market interest rates. It also reflects strong ownership commitments, which improve the company's financial risk profile. The outlook incorporates our expectation that Svenska Handelsfastigheter will continue to pursue a higher proportion of less cyclical tenants, the portfolio's resilience to the effects of e-commerce, and declining discretionary purchasing power on the part of consumers. We could raise the rating to reflect improved credit metrics (net LTV below 45% and net debt/EBITDA below 9x over a protracted period), or an increased proportion of non-cyclical tenants combined with a larger and more diverse portfolio. We could lower the rating to reflect weaker credit metrics (net LTV above 55% or net interest coverage below 3.5x over a protracted period) or a change in ownership structure that negatively affects financial risk. We could also lower the rating to reflect a higher proportion of cyclical tenants or deteriorating market fundamentals that negatively impact profitability or occupancy.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N3 |
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 24 May 2022. For the full regulatory disclaimer please see the rating report.