Nordic Credit Rating (NCR) has raised its long-term issuer rating on Sweden-based commercial property manager LSTH Svenska Handelsfastigheter AB (publ) to 'BBB' from 'BBB-'. The outlook is stable. The short-term issuer rating has been raised to 'N3' from 'N4' to reflect an improved liquidity profile.
Rating rationale
The raised rating reflects indications of commitments from existing owners to support liquidity, and a sustained improvement in the company's financial risk management, supported by an improved standalone liquidity profile. The rating revision reflects an update to the company's financial policy, which now targets liquidity coverage of at least 12 months and additional supportive actions by the owners. We expect the company to refinance some of its outstanding debt to align with the new liquidity guidelines. At the same time, we expect Svenska Handelsfastigheter to maintain strong key credit metrics, with net interest coverage remaining above 3.0x, supported by lower financing costs and solid operational performance. We view positively the company's extension of its fixed-interest period to 2.4 years in the second quarter of 2025 from 1.7 years in the first quarter, which somewhat reduces its sensitivity to interest rate changes. We expect the fixed-interest period to remain above the policy level of 2 years and approach historical levels of 2.7 years.
In the second quarter of 2025, the owners provided a short-term shareholder loan of SEK 380m to partially refinance bond maturities. We view the owners' demonstrated willingness to provide non-committed capital positively, as it gives us increasing confidence in available extraordinary support. We expect Svenska Handelsfastigheter to continue pursuing debt-financed acquisitions, though the timing and size of potential transactions remain uncertain. Given the company's strong cash flow generation, we anticipate net LTV will approach 50% at year-end 2025. As the company pays no dividends and has limited project development, it maintains strong organic deleveraging capacity, supporting financial flexibility.
The company's tenants have remained resilient amid challenging market conditions and more cautious households, with no material impact on Svenska Handelsfastigheter's occupancy rate. While some individual tenants have faced profitability pressures, proactive management, adjustment of rents and ongoing dialogue have enabled the company to maintain occupancy. We view Svenska Handelsfastigheter's focus on cash flow and tenant relationship management positively. However, the company's significant exposure to discretionary retail remains a relative weakness, given the segment's higher expected cyclicality.
Stable outlook
The stable outlook reflects a sustained improvement in the company's standalone financial risk management, supported by strong cash flow generation that enables organic deleveraging and maintenance of financial ratios within our rating drivers over a protracted period. It also reflects our expectation that Svenska Handelsfastigheter will maintain its strong market position and effectively manage tenant relationships, with no significant adverse impacts on occupancy or cash flow.
We could raise the rating to reflect strengthened financial risk profile with net loan to value (LTV) below 40%, net debt/EBITDA below 9x and EBITDA/net interest above 4.0x, combined with longer fixed-interest period and a higher share of capital markets funding improving financial flexibility. The rating could also be raised from a materially larger and more diverse portfolio, with continued focus on grocery-anchored tenants.
We could lower the rating to reflect worsened credit metrics, with net LTV above 55% and EBITDA/net interest below 2.5x over a protracted period. The rating could be lowered from a change in ownership structure or reduced likelihood of owner support. The rating could also be changed from a significant deterioration in market condition, negatively affecting profitability, occupancy and cash flows resulting in lowered debt servicing capabilities.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB | BBB- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N3 | N4 |
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@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.