Our 'BBB+' credit rating for Fastighets AB Stenvalvet (Stenvalvet) is unchanged following the publication of the fourth quarter (Q419) and full-year 2019 results yesterday. Rental revenues, EBITDA and property valuation for the periods reported all developed positively y-o-y and were ahead of our expectations. Moreover, the company outlook for 2020 remained positive with regards to underlying fundamentals, market development and the company's ongoing project plans. Relevant reported credit metrics as of year-end 2019 remain fully commensurate with our current rating.
Financials better than anticipated in all, robust operational metrics
2019 rental income of grew by 9% to SEK 888m (compared to SEK 811m for 2018 and SEK 850m estimated by NCR) whereof SEK 232m is explained by new properties. EBITDA increased by 8% and ended up at SEK 586m (2018: SEK 542m, NCR: SEK 556m) (implying a margin of 66% vs. 67% for 2018 and 65% expected by NCR), this mainly based on increased rental income, however, costs also increased , negatively impacting net operating income (NOI). Stenvalvet's property values decreased by SEK 456m during Q419 to SEK 12.0bn in total (NCR: SEK 12.1bn), largely explained by property divestments of SEK 1.1bn as earlier communicated. Despite interest-bearing debt (IBD) increasing q-o-q and y-o-y, stronger cash flows amid less tied up working capital and lower net capital expenditures (e.g. due to the property divestments), resulted in a net IBD level of SEK 5.1bn (2018: SEK 5.1bn, NCR: SEK 5.7bn), this based on a cash position of SEK 349m by year-end 2019 (2018: SEK 315m). Stenvalvet's income statement also developed favourably y-o-y in Q419 on virtually all relevant reported lines.
At this stage we make no changes to our forward estimates.
Stenvalvet has seen a further decrease in the percentage of leases maturing before end of 2020, to 9% by Q419 vs. 10% in Q319, and with improvements in most property categories. The company's occupancy ratio stood at 95% as of Q419 and was consequently unchanged from Q319 while the average lease time has improved to 6.3 years by Q419 vs. 5.7 years as of Q319.
Solid credit metrics reported and stable financials expected going forward
At the reported level Stenvalvet's credit metrics showed a positive development in Q419; e.g. with an LTV level of 42% (Q319: 50% - thus having reversed the adverse Q319 development), an EBITDA to net interest ratio (ICR) of 5.7x (Q319: 5.7x) and net debt to EBITDA of 8.7x (Q319: 10.7x) (as defined by NCR). All metrics are commensurate with the NCR 'BBB+' guidelines. We note that some 50% of the company's external debt matures in 2020, as of year-end 2019, which is well above the communicated 35% target. We note that Stenvalvet has issued a SEK 750m bond in recent weeks which will likely prolong the interest rate duration from the current average debt duration of 3.6 years (see details below). In addition to the improved cash position as of year-end, Stenvalvet's liquidity is supported by back-up facilities of SEK 1.2bn and an owner commitment of SEK 500m in equity injections.
MTN-programme now in place and SEK 750m FRN bonds issued after Q4
In January Stenvalvet established a SEK 5.0bn MTN-programme. In conjunction with the programme the company issued a SEK 750m (FRN) senior unsecured bond (rated BBB by NCR) priced at 3M STIBOR +95 and with maturity in 2024 on 05/02/2020. We conclude that this will further prolong the debt maturity profile and help to diversify the debt structure in line with Stenvalvet's communicated ambition and our expectations.
Importantly, Stenvalvet's CEO for the last 10 years, Magnus Edlund, will be replaced by Maria Lidström (previously at various senior positions with real estate peer Humlegården) later this spring.
Analyst contact details:
Daniel Johansson, +46 732 324 378, daniel.johansson@nordiccreditrating.com
Mille O. Fjeldstad, +47 99 03 89 16, mille.fjeldstad@nordiccreditrating.com
This commentary does not reflect a rating action.
research Issuer comment Real estate Fastighets AB Stenvalvet (publ) Real Estate