Our 'BBB-' issuer rating on LSTH Svenska Handelsfastigheter AB (publ) (Svenska Handelsfastigheter) is unchanged following the publication of its fourth-quarter 2021 results.
Higher costs in final quarter drag on full-year operating margins
Svenska Handelsfastigheter's rental income grew by 47% year-on-year in the fourth quarter. The growth was largely driven by the acquisition of Tre Kronor Property Investment AB (3Kr) in June. Strong demand resulted in economic occupancy rebounding to 97.7% at year-end from 93.3% a year earlier. The company's NCR-adjusted EBITDA margin fell to 65.6% for the full year, 2pp lower than in 2020, as a result of higher administrative and property management costs in the fourth quarter due to the consolidation of higher costs in connection with 3Kr. We expect the decline to be temporary and project that strong demand will improve the company's negotiating position and result in higher margins in the remainder of 2022.
Large fair value changes and divestment of 3Kr Norwegian branch improve leverage ratios
In line with our expectation for the quarter, Svenska Handelsfastigheter restored its NCR-adjusted net loan-to-value (LTV) ratio to below 55%. LTV dropped to 53.7% in the fourth quarter of 2021, from 58.6% a quarter earlier. The sharp decline was attributable to large property value changes of SEK 672m in the quarter together with a mix of debt repayment and an improved cash position following the divestment of 3Kr's Norwegian branch. We see the company's strong cash position as improving financial flexibility to undertake acquisitions.
Figure 1. Svenska Handelsfastigheter key credit metrics, 2017–2021
| SEKm | 2017 | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|---|
| Total revenue | 298 | 477 | 584 | 670 | 897 |
| NCR-adj. EBITDA | 202 | 323 | 394 | 453 | 588 |
| NCR-adj. EBITDA-margin | 68.0% | 67.7% | 67.5% | 67.6% | 65.6% |
| NCR-adj. investment properties | 4,683 | 6,918 | 8,597 | 10,565 | 14,228 |
| NCR-adj. net debt | 3,662 | 5,654 | 6,919 | 5,140 | 7,640 |
| Total assets | 4,809 | 7,032 | 8,747 | 10,867 | 15,123 |
| NCR-adj. net debt/EBITDA | 18.1x | 17.5x | 17.6x | 11.3x | 13.0x |
| NCR-adj. EBITDA/net interest | 1.8x | 1.7x | 1.7x | 2.4x | 3.7x |
| NCR-adj. net LTV | 78.2% | 81.7% | 80.5% | 48.7% | 53.7% |
| Average remaining lease term (years) | 4.2 | 4.7 | 5.2 | 5.4 | 5.1 |
| Occupancy rate | 98.3% | 93.1% | 93.4% | 93.3% | 97.7% |
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