Nordic Credit Rating (NCR) said today that it had assigned a 'BBB-' long-term issuer rating to Norway-based property manager OBOS Eiendom AS. The outlook is stable. At the same time, an 'N3' short-term issuer rating was assigned. NCR also assigned 'BBB-' issue ratings to OBOS Eiendom's senior secured bonds.
Rating rationale
The long-term issuer rating reflects OBOS Eiendom's relatively solid property portfolio in generally attractive locations. The assessment is supported by the strong fundamentals of the Oslo area, which accounts for almost all of OBOS Eiendom's rental income. We view the company's generally long lease terms and solid operating margins as positive.
These strengths are offset by the modest size of OBOS Eiendom's property portfolio, albeit mitigated by a market position bolstered by the company's close ties with its parent residential developer, OBOS BBL. Portfolio concentration is relatively high, which we view as a weakness. Our assessment is constrained by challenges in the retail property subsector, which accounts for more than half of rental income, while the company's concentrated project development pipeline, which includes speculative elements, also tempers our evaluation. We expect OBOS Eiendom's key credit metrics to weaken as it makes substantial investments in project development, although we expect this effect to be mitigated by property divestments.
Our assessment factors in OBOS Eiendom's relationship with its parent, OBOS BBL. We view OBOS Eiendom as a 'vital' component of the OBOS BBL group (as defined in our Group and Government Support Rating Methodology), due to a strong parent-subsidiary link, resulting from a long history of integration and a shared name. In line with our methodology, we align the long-term issuer rating of OBOS Eiendom with that of OBOS BBL. As of the date of publication, OBOS BBL had a 'BBB-' long-term issuer rating from NCR. As our 'bbb-' standalone credit assessment on OBOS Eiendom is at the same level as the issuer rating on OBOS BBL, we do not notch for owner support.
Stable outlook
The stable outlook reflects our expectations of OBOS Eiendom maintaining its focus on commercial properties, primarily in the Oslo area. It also reflects a somewhat weakened financial risk profile, although we see metrics being kept at manageable levels. We also expect the strong ties with OBOS BBL to remain. We could raise the rating to reflect improving credit quality of the overall OBOS BBL group. We could lower the rating to reflect a change in ownership or deteriorating credit quality of the overall OBOS BBL group.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N3 |
| Senior secured issue rating: | BBB- |
Contacts:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022 and NCR's Rating Principles published on 24 May 2022. For the full regulatory disclaimer please see the rating report.