Our 'BBB+' issuer rating on Swedish property manager Fastighets AB Stenvalvet (publ) (Stenvalvet) is unchanged following the publication of the company's second-quarter results.
Earnings metrics in line with expectations
Stenvalvet's second-quarter report was in line with our expectations. Revenues in the quarter were SEK 223m (compared with SEK 218m in the second quarter of 2019) and EBITDA was SEK 148m (SEK 141m), corresponding to an EBITDA margin of 66% (65%).
Stenvalvet's revenues, derived 66% directly and 26% indirectly from government funded tenants, appear to be largely unaffected by the COVID-19 pandemic. The company's occupancy ratio of 96% was as we expected. Stenvalvet added two properties during the quarter, and says that all its projects are going according to plan.
New bonds diversify financial structure
Stenvalvet's interest coverage ratio was 5.4x at end-June, down from 5.7x a year earlier, and 5.7x at end-2019. The deterioration was driven by a rise in market volatility that temporarily increased the cost of capital. However, because the markets have somewhat stabilised, we have not at this point adjusted our expectation that the interest coverage ratio will stand at 5.6x for full-year 2020. The average loan maturity was 3.5 years at end-June, down from 3.7 years at end-March, and the average interest maturity was 4.4 years (5.2 previously).
During the second quarter, Stenvalvet issued two senior unsecured bonds totalling SEK 800m, increasing its loan-to-value ratio to 45% from 42% at end-March. The issuance has further diversified the company's financial structure, enabling it to reduce commercial paper as a proportion of total debt. Stenvalvet plans to use the proceeds from the bonds to refinance maturing secured bank debt, among other purposes, as part of the company's strategy to reduce the share of secured debt. Secured debt as a proportion of total debt amounted to 57% at end-June, down from 65% at end-March. We expect secured debt as a percentage of total debt to decrease as upcoming secured bank debt matures.
In our assessment, Stenvalvet's liquidity profile is likely to remain adequate, supported by a strong cash position of SEK 1bn.
This commentary does not constitute a rating action.
If you have any questions, please contact:
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com