Our 'BBB+' issuer and issue ratings on Svensk FastighetsFinansiering AB (publ) (SFF) are unchanged following recent bond maturities and the publication of third-quarter results by its owners.
SFF publishes mid-year financial accounts, but also regularly updates its market value reports, most recently at the end of the third quarter.
SFF bond volumes rebound
According to SFF, at 30 Sept. 2020, outstanding bonds of SEK 7.3bn (SEK 8.9bn at end-2019) financed properties worth SEK 13.5bn (SEK 17.2bn), resulting in a loan-to-value (LTV) ratio of 54.5% (51.5%).
SFF signed terms for a SEK 300m two-year, fixed-rate bond in November, increasing its loan volume to SEK 7.6bn, up SEK 900m from mid-year levels. The most recent bond finances properties owned by Diös. Including the properties financed by this bond, SFF finances 31 properties. After the November bond, Wihlborgs will maintain the highest share (35%) of SFF's outstanding bonds.
The increasing loan volume confirms our view that the recent decline would be only temporary and dependent on SFF obtaining capital market financing at costs and tenors comparable with or better than the owners' own bank financing. This demonstrates that SFF's owners actively manage their use of SFF as a financing source and that they maintain adequate liquidity to meet upcoming SFF bond maturities.
SFF's has three bonds maturing before August 2021. The first is a green bond of SEK 724m maturing 3 Dec. 2020. The other two are a SEK 200m bond maturing 5 Feb. 2021 and a SEK 220m bond maturing 31 May 2021. These three bonds finance six properties with a total value of SEK 4.7bn spread among four of SFF's owners.
Owners' third quarter report summary
SFF's five owners reported solid third-quarter results with property management income and net interest coverage in line with or well above the levels recorded in the first three quarters of 2019. However, occupancy rates were 1–3 pp below end-2019 levels in most cases. The companies' reported LTV levels were close to end-2019 levels. The net asset value for all owners was above end-2019 levels due to completion of projects and revaluations of existing assets.
We view forward-looking property valuations as uncertain given the current wave of COVID-19 cases which have resulted in tighter social distancing recommendations from the Public Health Agency of Sweden. We also expect the resulting increase in working from home to affect office property managers (see Swedish property managers face shift in customer demand, published 6 Nov. 2020). We note that the share of SFF's loans secured by office properties is 78%, including the security underlying the November bond (down from 84% at end-2019) and that SFF has no security in hotel properties or properties with at-risk retail tenants.
We maintain credit assessments on the owners that range from 'bbb' to 'bb'. On the basis of third-quarter reports, the owners maintain sufficient liquidity to mitigate any refinancing risk arising in the remainder of 2020.
This commentary does not constitute a rating action.
If you have any questions, please contact:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Marcus Gustavsson, credit rating analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com