Nordic Credit Rating (NCR) said today that it had assigned a 'BB-' long-term issuer rating to Sweden-based property manager Studentbostäder i Norden AB (publ) (Studentbostäder). The outlook is stable. An 'N-2' short-term issuer rating was also assigned.
The long-term issuer rating reflects Studentbostäder's small portfolio, high geographic concentrations, weak financial ratios, limited covenant headroom, and recent strong growth rates. It also reflects a focus on project development, increasing risk compared with pure property management. We view the company's brief operating history (founded in 2018), and limited track record (only one completed development project to date), as credit weaknesses. The rating is constrained by Studentbostäder's below-average operating efficiency, reflected in low operating margins and an occupancy rate that fell significantly during the COVID-19 pandemic.
These weaknesses are partly offset by strong demand for student accommodation; many of Studentbostäder's operating locations have significant supply shortages. Although we view geographic concentration as material, we see negligible tenant concentrations as a credit strength, and take a positive view of the company's efforts to reduce project risk. We believe that Studentbostäder could develop an attractive niche position as its property portfolio grows.
The stable outlook reflects our expectation that Studentbostäder's credit metrics will weaken as the company pursues its ambitious growth plans. In our assessment, new equity is needed if the company is to maintain credit metrics within policy levels and covenants, given plans for continued rapid growth. We expect the company to maintain its focus on student housing and believe that the operating environment will remain strong. We also expect Studentbostäder to complete development projects successfully and in a timely manner, strengthening the company's market position over time.
We could raise the rating to reflect improved credit metrics (net loan to value (LTV) below 60% and net interest coverage above 2.2x) over a protracted period, an increased proportion of properties under management, or improved operating efficiency combined with a larger property portfolio and reduced geographic concentrations. We could lower the rating to reflect reduced covenant headroom or breach of covenants, weakened credit metrics (net LTV above 75% and net interest coverage below 1.5x) over a protracted period, or deteriorating market fundamentals, adversely affecting occupancy and/or profitability.
|Long-term issuer credit rating:||BB-|
|Short-term issuer credit rating:||N-2|
Marcus Gustavsson, analyst, +46700442775, firstname.lastname@example.org
Yun Zhou, credit rating analyst, +46732324378, email@example.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.