Nordic Credit Rating (NCR) said today that it had assigned a 'BB' long-term issuer rating to Sweden-based property manager Stenhus Fastigheter i Norden AB (publ) (Stenhus Fastigheter). The outlook is stable. At the same time, NCR assigned an 'N-2' short-term issuer rating.
Rationale
The long-term issuer rating reflects the company's limited portfolio size, relatively high concentrations and brief operating history. It also reflects the company's high-yielding property portfolio, often in non-central locations, and our expectations that financial metrics will weaken as the company pursues its ambitious growth plans. The rating is constrained by a short debt maturity profile and lack of environmental, social and governance (ESG) credentials.
The weaknesses are partly offset by Stenhus Fastigheter's exceptionally long lease terms, strong profitability, and high occupancy. Furthermore, the company's primary geographical focal area, the Mälardalen region, shows strong fundamentals, which we view as a credit strength. We take a positive view of Stenhus Fastigheter's 25% exposure to grocery retail and public tenants, which increase stability, while the high-yielding assets in the portfolio lead to relatively strong cash flow generation. We believe that Stenhus Fastigheter's brief operating history is mitigated by the founders' previous real-estate experience and the currently low, albeit increasing, financial gearing in the company.
Stable outlook
The stable outlook reflects our expectations that financial metrics will weaken towards the levels set out in the company's financial policies. We foresee a successful integration of MaxFastigheter's operations into Stenhus Fastigheter's and expect the company to move previously outsourced property-related functions in-house, which should support margins. We also expect the company to continue to pursue growth within its currently targeted property subsectors and regions. We could raise the rating if there were an improvement in credit metrics, with a net loan-to-value (LTV) ratio below 50% and net interest coverage above 3.5x over a prolonged period, or a larger and less concentrated portfolio, combined with a longer track record. We could lower the rating if there were a deterioration in credit metrics, with net LTV above 60% over a prolonged period, or deteriorating market fundamentals adversely affecting occupancy and/or profitability.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BB |
| Outlook: | Stable |
| Short-term issuer credit rating: | N-2 |
Contacts:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Mille Fjeldstad, analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.