On 14 May 2019, Nordic Credit Rating AS (NCR) assigned its 'BBB+' long-term and 'N-1+' short-term issuer credit ratings to Fastighets AB Stenvalvet (Stenvalvet), a Swedish real-estate management company focused on leasing to public-sector entities. The outlook is stable.
"Our 'BBB+' rating on Stenvalvet reflects the company's defensive portfolio and diversified tenant base, where rents are predominantly directly or indirectly linked to public funds, as well as moderate leverage, stable cash flow and strong ownership profile. The rating does, however, also reflect a relatively short funding profile, as well as the somewhat limited scale of the company" said Michael Andersson, Chief Rating Officer at NCR and primary analyst for Stenvalvet.
Rating rationale
Our 'BBB+' long-term issuer rating on Stenvalvet reflects the company's strong portfolio with 111 diverse properties throughout Sweden, with an average remaining lease term of more than six years to highly creditworthy tenants, an occupancy rate of about 96%, and a stable operating performance. The rating also reflects Stenvalvet's solid financial position with a loan to value (LTV) ratio of 47%, excluding shareholder loans, an interest coverage ratio of 5.8x, and a strong ownership profile.
These strengths are somewhat offset by Stenvalvet's relatively high level of refinancing needs within the coming 12 months; these total about 30% of all external debt including commercial paper. However, the company has liquid funds of about SEK 1.7bn to match these needs. About 20% of tenants are private care and education operators and 5% are purely commercial. Some 26% of the company's properties are used as government and municipal offices, which partly offsets its concentration on tailor-made properties such as facilities for the elderly, schools and health care.
Outlook
The stable outlook reflects our expectation that Stenvalvet will continue to focus on community service properties, with long lease contracts under which rents are funded directly or indirectly by public institutions. We expect Stenvalvet to continue to refinance its short-term debt proactively to reduce the proportion of short-term debt in its overall debt mix. We also expect that the company will retain its moderate leverage (including LTV below 50%). The stable outlook reflects our view of a stable economic outlook for Sweden, with slowly rising interest rates, and an unchanged ownership profile for the company.
Potential positive rating drivers
- Continued successful growth and diversification of the property portfolio while retaining modest leverage and stable credit metrics, and improving the debt maturity profile
Potential negative rating drivers
- Increased leverage, including an LTV of more than 50% over a protracted period
- Inability to refinance upcoming debt maturities
- Change in strategy resulting in an increasing level of non-community service tenants
The methodology documents used for this rating are Corporate Rating Methodology and Rating Principles, published on 14 August, 2018. For the full regulatory disclaimer please see the rating report which can be downloaded at nordiccreditrating.com/ratings-research/research
Contact details:
Michael Andersson, Chief Rating Officer, +46 732 32 43 22, michael.andersson@nordiccreditrating.com
Mille O. Fjeldstad, Credit Analyst, +47 99 03 89 16, mille.fjeldstad@nordiccreditrating.com