On 28 Sep. 2023, Sweden-based property manager LSTH Svenska Handelsfastigheter AB (publ) announced that it will record a decrease in property values of SEK 1bn in the third quarter of 2023. This follows an external valuation of its entire property portfolio and represents a decline of approximately 6.4% compared to the previous quarter. Based on our calculations, assuming the net debt has remained constant since the second quarter of 2023, the proforma NCR-adjusted net LTV is around 52.4% after this adjustment. This decrease in valuation is consistent with our base case forecast of the company's financials, as outlined in our most recent affirmation of the company's rating on 3 Jul. 2023.
The company emphasized that the decrease in value is propelled by heightened yield requirements due to uncertainty in financial markets. Though enhanced net operating margins have mitigated some of the adverse effects of broader yield requirements on property values. We interpret this development as a sign of a broader need for revaluation in the retail property segment, given that Svenska Handelsfastigheter has a relatively high yield compared to its counterparts.
In the first half of 2023, Svenska Handelsfastigheter secured renewed shareholder commitments amounting to SEK 1.2bn, of which SEK 500m was utilized in the second quarter. We anticipate that the company's owners will supply the necessary funding to bring the net LTV below 50%, in accordance with financial targets. Additionally, the company has put a hold on dividends to strengthen its financial standing and is contemplating a revision of its capital structure.
Related publications:
- NCR comments: Svenska Handelsfastigheter publishes plans to revise its capital structure, publ. 15 Aug. 2023
- LSTH Svenska Handelsfastigheter AB (publ) 'BBB-' long-term rating affirmed; Outlook stable, publ. 3 Jul. 2023
- LSTH Svenska Handelsfastigheter AB (publ) outlook revised to stable; 'BBB-' long-term issuer rating affirmed, publ. 21 Mar. 2023
This commentary does not constitute a rating action.
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com