Nordic Credit Rating (NCR) said today that it had assigned its 'A-' long-term issuer credit rating and N-1+ short-term issuer credit rating to Swedish property management company HEBA Fastighets Aktiebolag (HEBA). The outlook is stable.
"The ratings reflect the company's long and stable history of managing residential rental properties in Stockholm, Sweden's highest-demand housing market, and the company's relatively low leverage", said NCR rating analyst Sean Cotten.
Rating Rationale
HEBA's portfolio consists of a mix of housing properties in Stockholm, ranging from apartment buildings built in the mid-1900s to modern and newly built apartment complexes. The company also manages and develops community-service properties with long rental contracts as well as other facilities and parking associated with its rental properties.
Due in part to HEBA's stable ownership, the company has maintained a strong financial position, low risk appetite, and relatively moderate leverage as it has grown its property portfolio.
NCR projects that the company will have an adjusted loan-to-value (LTV) ratio of 40-42% in the coming years with an interest coverage ratio improving to over 5x once development investments begin to yield over the next 12 months. HEBA also maintains a high share of equity-to-assets (52%) despite doubling the value of its portfolio to SEK 10.3bn since 2014.
NCR believes the demand for housing in Stockholm reduces the risks associated with HEBA's relatively small balance sheet and geographic concentration. Despite an increase in unemployment in the Stockholm region as a result of the COVID-19 pandemic, we do not anticipate a decline in the company's occupancy rates given a multi-year waiting list for rental apartments in the Stockholm region.
We note that the company is stepping up its growth efforts with a series of acquisitions and new developments in regions on the outskirts of its historical markets and targets an increasing share of rental income from elderly care properties, group housing, and day care facilities. This expansion is likely to be financed by debt and result in higher leverage and LTV levels, which are captured in our financial risk assessment of the company.
Outlook
The stable outlook reflects NCR's expectation that HEBA will maintain relatively strong financial metrics as it expands into new areas of Stockholm and increases the share of revenues from community-service properties. Given the current disruptions in the certificate market, the company is likely to rely on its strong banking relationships and increase its use of bank financing in the interim. We also expect that the company will retain its moderate leverage (including LTV between 40-45%) as it expands its residential and community-service portfolio.
Potential positive rating drivers
• Improvements in diversification and market position with similar risk appetite.
• LTV ratio falling towards 35%.
Potential negative rating drivers
• LTV ratio increasing towards 50%.
• Increased share of development projects in which HEBA carries the associated risk.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report
NCR - HEBA_Fastighets_Aktiebolag - Initial Rating Report 28 May. 2020.pdf (1.12 MB) Heba Fastighets AB (publ) A - Stable Real estate N-1+ Off On