Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based property manager LSTH Svenska Handelsfastigheter AB (publ) to stable from negative. At the same time, the 'BBB-' long-term issuer rating and 'N3' short-term issuer rating were affirmed.
Rating rationale
The outlook revision reflects an improvement in our projections of Svenska Handelsfastigheter's ratios. This follows a SEK 1bn equity issue, announced 21 Mar. 2023, and reduced uncertainty about the company's ownership and management team. Recent negotiations about the company's future have concluded in line with the timeline we had previously expected and we see the outcome as supportive of the corporate credit risk profile.
The owners' decision to strengthen the balance sheet through the new issue supports our positive view of their commitment to the company and effectively reduces its leverage. As a result of the equity issue, the company's pro-forma NCR-adjusted net loan-to-value (LTV) as of end-2022 would have been 46% compared with 52% before. In addition, we expect Svenska Handelsfastigheter to commit to keeping net LTV below 50%. We believe that current CEO Lennart Sten's replacement by current deputy CEO Thomas Holm will have only a minimal impact on the company's overall strategy and operations.
Stable outlook
The stable outlook reflects an improved financial risk profile following the strengthening of the balance sheet and reduced uncertainty about the company's ownership and management team. In our assessment, Svenska Handelsfastigheter is well equipped to meet upcoming debt maturities and is less sensitive to higher market interest rates than previously. We expect the values of the company's properties to be more resilient than those of its competitors due to its relatively low sensitivity to changes in yield requirements and the healthy yield gap of its assets.
We could raise the rating to reflect a commitment to reducing financial risk (net 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 increased long-term ownership commitment. We could lower the rating to reflect a change in ownership or the owners' risk appetite and weaker credit metrics (net LTV above 50% and net interest coverage below 3.5x) over a protracted period. We could also lower the rating if the company's exposure to cyclical tenants increases 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 | Negative |
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 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.