Our 'BBB-' issuer rating on LSTH Svenska Handelsfastigheter AB (publ) (Svenska Handelsfastigheter) is unchanged following the publication of its third-quarter results.
Strong demand for retail properties supports strong efficiency
The results were broadly in line with our expectations. Quarterly revenues increased by 50% compared with the third quarter of 2020, primarily due to the acquisition of Tre Kronor Property Investment AB (3Kr) in June. Operating efficiency has increased as a result of project completions and increased demand for the company's managed properties, which was reflected by lower vacancy rates. The NCR-adjusted EBITDA margin rose to 66.7% in the 12 months ended 30 Sep. 2021 from 66.5% previously. In our view, increased administrative staffing could prove a slight drag on operating margins in the course of 2022 as the company seeks to increase scale. However, we expect the divestment of 3Kr's Norwegian branch to partly offset any temporary margin pressure. Reduced pandemic-related restrictions are likely to increase tenant demand and footfall at retail premises. This should improve the company's negotiating position, enabling it to maintain its strong operating efficiency.
Deleveraging underway following 3Kr acquisition
Svenska Handelsfastigheter's NCR-adjusted net loan-to-value (LTV) ratio was 58.5% as of 30 Sep. 2021, a quarter-on-quarter decrease of 1pp. We note that leverage remains elevated following the 3Kr acquisition but expect the company to restore net LTV below 55% on a sustained basis by end-2021. The planned divestment of 3Kr's Norwegian branch at a projected value of over SEK 1bn should contribute to deleveraging.
Figure 1. Svenska Handelsfastigheter key credit metrics, 2017–Q3 2021
| SEKm | 2017 | 2018 | 2019 | 2020 | LTM to Sep. 2021 |
|---|---|---|---|---|---|
| Total revenue | 298 | 477 | 584 | 670 | 815 |
| NCR-adj. EBITDA | 203 | 323 | 394 | 453 | 544 |
| NCR-adj. EBITDA-margin | 68.0% | 67.7% | 67.5% | 67.6% | 66.7% |
| NCR-adj. investment properties | 4,683 | 6,918 | 8,597 | 10,565 | 14,447 |
| NCR-adj. net debt | 3,662 | 5,654 | 6,919 | 5,140 | 8,451 |
| Total assets | 4,809 | 7,032 | 8,747 | 10,867 | 14,925 |
| NCR-adj. net debt/EBITDA | 18.1x | 17.5x | 17.6x | 11.3x | 15.5x |
| NCR-adj. EBITDA/net interest | 1.8x | 1.7x | 1.7x | 2.4x | 3.9x |
| NCR-adj. net LTV | 78.2% | 81.7% | 80.5% | 48.7% | 58.5% |
This commentary does not constitute a rating action.
Contacts:
Mille Fjeldstad, analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com