Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB-' long-term issuer rating on Norway-based OBOS Eiendom AS. The outlook is stable. At the same time, the 'N3' short-term issuer rating and the 'BBB-' issue ratings on the company's senior secured bonds were also affirmed.
Rating rationale
The long-term issuer rating reflects OBOS Eiendom's relatively solid property portfolio in generally attractive locations. Our assessment is supported by the strong fundamentals of the Oslo area, which accounts for almost all of the company'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 property 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 have revised our view of OBOS Eiendom's key credit metrics and expect them to weaken due to increased interest rates and substantial investments in project development, although we expect this to be mitigated by property divestments over time.
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. For this reason we add one notch of ownership support to our 'bb+' standalone credit assessment of OBOS Eiendom to bring the long-term rating on the company into line with our 'BBB-' long-term rating on the parent, in accordance with our methodology.
Stable outlook
The outlook is stable, reflecting our issuer rating on OBOS BBL. Given our view of OBOS Eiendom as 'vital' to the OBOS BBL group, we could revise our rating on the company due to changes in our issuer rating on the parent, which has a stable outlook.
We could raise the rating to reflect an improvement in the credit quality of the overall OBOS BBL group. We could lower the rating to reflect a change in ownership or a deterioration in group credit quality, or a reduction in strategic importance of the commercial real estate segment to OBOS BBL..
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB- | BBB- |
Outlook: | Stable | Stable |
Short-term issuer credit rating: | N3 | N3 |
Senior secured issue rating: | BBB- | BBB- |
Contacts:
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Yun Zhou, analyst, +46732324378, yun.zhou@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 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.