Nordic Credit Rating (NCR) said today that it had revised its outlook on Sweden-based property manager Stendörren Fastigheter AB (publ) (Stendörren) to positive from stable. At the same time, the 'BB-' long-term and 'N4' short-term issuer ratings were affirmed.
Rating rationale
The outlook revision reflects Stendörren's successful deleveraging and proactive hedging of interest rate risk and energy costs, which have supported its financial risk profile, despite adverse market conditions. The outlook revision also takes account of the reduced operational risk in connection with the company's single largest tenant exposure, which has been a general concern in the past few years.
We have raised our assessment of Stendörren's market position, size and diversification to reflect the successful elimination of the potential vacancy risk in connection with its single largest tenant exposure. This lease, which expires at the end of September 2024, has been replaced by a new six-year lease with the Swedish Fortifications Agency. We believe that a government agency taking over the single largest tenant exposure demonstrates continued demand for Stendörren's premises in Mälardalen. It also factors in a more geographically diversified portfolio and diverse tenant base than peers.
In addition, we have raised our assessment of operating efficiency in response to the company's improved operating margins and occupancy rates.
Positive outlook
The positive outlook reflects our view that if Stendörren performs in line with our expectations, despite the uncertain market environment, we could lift our assessment of the financial risk and raise the rating. The outlook also reflects our belief that the company will maintain moderate growth ambitions and retain its current leverage throughout our forecast period. We expect the company to maintain adequate interest coverage covenant headroom and to be proactive in managing its upcoming debt maturities.
We could raise the rating to reflect a proven commitment to a more moderate financial risk profile, with NCR-adjusted loan to value (LTV) below 60% and EBITDA/net interest above 2.0x, or in response to maintained market fundamentals that support continued strong operating performance.
We could revise the outlook to stable to reflect NCR-adjusted LTV above 60% and EBITDA/net interest below 2.0x or in response to a deteriorating liquidity position.
Related publications
(i) Swedish real estate sector adapts to tougher financing climate, 18 Jan. 2024.
(ii) Real estate quarterly snapshot (2023Q3) - is it a sigh of relief?, 28 Nov. 2023.
(iii) The Swedish real estate sector– waiting for sunshine after the rain, 27 Sep. 2023.
(iv) Decoding Swedish real estate in an uncertain market environment, 29 Aug. 2023.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BB- | BB- |
| Outlook: | Positive | Stable |
| Short-term issuer credit rating: | N4 | N4 |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@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 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.