Nordic Credit Rating said today that it had affirmed its 'BB' long-term issuer rating on Sweden-based property manager NP3 Fastigheter AB (publ) (NP3). The outlook is stable. At the same time, the 'N-2' short-term issuer rating was affirmed.
Rationale
The long-term rating reflects NP3's highly leveraged balance sheet, small size, and focus on properties outside city centre locations. The rating is constrained by below-average liquidity in the company's main markets, and a financial risk appetite that in our view is greater than warranted by the company's financial ratios. Specifically, we view NP3's rapid growth and single-year debt maturity concentrations, as a credit weakness.
These weaknesses are offset by a highly cash-flow generative property portfolio, the company's strong position in its main markets, its long lease terms and its highly diverse revenue streams with the 10 largest tenants accounting for only 13% of rental income.
Stable outlook
The stable outlook reflects our expectation that NP3 will maintain its focus on highly cash-flow generative commercial properties in northern Sweden and the Karlstad–Västerås region. We expect the company to continue pursuing growth through acquisitions and to maintain its key credit metrics in line with our forecast figures. We could raise the rating to reflect improved credit metrics, with net LTV below 55% and net interest coverage above 3.5x over a protracted period, or improved portfolio quality combined with a lower risk appetite as the portfolio grows. We could lower the rating to reflect weakened credit metrics with net LTV above 65% or net interest coverage below 2.2x over a protracted period, or deteriorating market fundamentals that might negatively affect occupancy and profitability.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BB | BB |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N-2 | N-2 |
Contacts:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Yun Zhou, credit rating analyst, +46732324378, yun.zhou@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.