Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based property manager LSTH Svenska Handelsfastigheter AB (publ) to negative from stable. At the same time, the 'BBB-' long-term issuer rating and 'N3' short-term issuer rating were affirmed.
Rating rationale
The outlook revision reflects increased uncertainty as Svenska Handelsfastigheter's owners discuss potential changes in the company's ownership and management team. Given our positive view of the current owners and their ability to support the company, changes in the ownership profile or operations could affect our assessment of the company's creditworthiness. Details of the ongoing negotiations are confidential.
In our base case, we expect the situation to be resolved by the end of the first quarter of 2023. However, the process has already taken longer than we originally expected, and discussions could continue further into next year.
Negative outlook
The negative outlook reflects increased uncertainty about Svenska Handelsfastigheter's ownership profile and management. In addition, we expect the company's financial metrics to come under pressure as a result of rising interest rates and property yields. In our base case, we expect NCR-adjusted net interest coverage to fall below our previous end-2023 estimate of 3.5x at an earlier point in the year.
We could lower the rating if negotiations stall or the outcome negatively affects our view of the company's ownership profile and operations. We could also lower the rating if net loan to value (LTV) remains above 50% and net interest coverage falls below 3.5x, or if deteriorating market fundamentals negatively impact occupancy or profitability. We could revise the outlook to stable if the current uncertainties recede and net LTV falls below 50% or net interest coverage stabilises above 3.5x.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB- | BBB- |
| Outlook: | Negative | Stable |
| Short-term issuer credit rating: | N3 | N3 |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@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 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.