Nordic Credit Rating (NCR) has affirmed its 'BBB-' long-term issuer rating on Norway-based property manager OBOS Eiendom AS. The outlook is stable. The 'N3' short-term issuer rating and the 'BBB-' issue rating on the company's senior secured debt have also been affirmed.
Rating rationale
The affirmation reflects stable improvements in cash flow and further progress towards completing the Construction City development project, a new office area in Oslo's Ulven neighbourhood. Once completed, we expect EBITDA to increase and recent growth in net debt to decrease, which should prompt improved interest coverage and reduced leverage.
The long-term issuer rating also reflects the company's solid property portfolio in generally attractive locations and the company's contribution to the OBOS BBL group. Our assessment is supported by the strong fundamentals of Oslo, which accounts for almost all of OBOS Eiendom's rental income. We view the company's 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. The company also has a concentrated project development pipeline, with a large investment in Construction City, and occupancy has improved.
We incorporate OBOS Eiendom's relationship with OBOS BBL in our assessment. 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. We add one notch of ownership support to our 'bb+' standalone credit assessment of OBOS Eiendom. Consequently, our long-term rating on the company is in line with our 'BBB-' long-term rating on OBOS BBL.
Stable outlook
The outlook is stable, reflecting the outlook on our long-term issuer rating on OBOS BBL. Given our view of OBOS Eiendom as 'vital' to the OBOS BBL group, we could raise or lower our rating on the company due to changes in our issuer rating on the parent.
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 the credit quality of the overall OBOS BBL group, or a reduction in the company's strategic importance 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:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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.