Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based property manager NP3 Fastigheter AB (publ) to stable from negative. At the same time, we affirmed our 'BB' long-term and 'N4' short-term issuer ratings on the company.
Rating rationale
The outlook revision reflects our expectation that the company's net interest coverage is likely to improve towards 2.5x over our forecast period through 2026. We also expect that NP3 will continue to grow through acquisitions, while maintaining net loan to value at 56–57%, which is lower than historical levels. The company focuses on high cash flow generating commercial properties, supporting its cash flow metrics through organic deleveraging.
Our long-term issuer rating reflects NP3's leveraged balance sheet, modest size and focus on properties outside city centre locations. The rating is constrained by below-average liquidity in NP3'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 credit weaknesses.
These weaknesses are offset by the company's high cash flow generating property portfolio and its strong positions in its main markets. We also take a positive view on the company's long lease terms, combined with its highly diverse revenue streams, where the 10 largest tenants account for only 11% of its rental income.
Stable outlook
The outlook is stable, reflecting our expectation that NP3's net interest coverage will remain well above 2.2x while the company targets continued growth through acquisitions. We also expect the company to maintain its focus on high cash flow generating commercial properties in northern and central Sweden, supporting cash flow metrics. We anticipate leverage lower than historical levels and believe that the company will maintain its net loan to value around 56% despite its growth focus.
We could raise the rating to reflect the company's improved credit metrics, with adjusted loan to value (LTV) below 55% and net interest coverage above 3x over a protracted period and continued proactive refinancing and liquidity management.
We could lower the rating to reflect NP3's weakened credit metrics, with net interest coverage below 2.2x and net LTV approaching 65% over a protracted period, or deteriorating market fundamentals, negatively affecting occupancy and profitability.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BB | BB |
| Outlook: | Stable | Negative |
| Short-term issuer credit rating: | N4 | N4 |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.