Nordic Credit Rating said today that it had affirmed its 'A-' long-term issuer rating on Sweden-based public-property manager Vacse AB (publ) The outlook is stable. At the same time, the 'N2' short-term issuer rating and 'A-' senior unsecured issue rating were also affirmed.
Rating rationale
The affirmation reflects Vacse's relative resilience to rising interest rates. We expect the company's financial metrics to weaken somewhat from both current levels and our previously forecast figures. However, we expect overall financial risk to remain low and that the company's metrics will be less impacted than most of its peers' thanks to strong interest rate fixing, healthy cash flow generation, and a large proportion of inflation-linked rental contracts.
The long-term issuer rating reflects the company's strong portfolio of modern, tailor-made properties leased on long contracts to highly creditworthy public-sector authorities that are essential to Sweden's public security. It further reflects its high operating efficiency and its virtually 100% occupancy rate. The rating is also supported by Vacse's long fixed interest periods and strong owners with a commitment to maintaining a stable financial risk profile.
These strengths are offset by the limited number of Vacse's properties (20) and tenants, with the top 10 tenants generating most of the company's revenues. We believe the concentrations in Vacse's portfolio create some risk at contract expiry, though this is low as only 14% of the company's contracts (by value) expire within the next three years.
Stable outlook
The stable outlook reflects our expectation that Vacse will continue to focus on similar types of properties and tenants, and long lease terms. We expect the company to grow through contracted acquisitions of development projects without deviating from its current low-risk financial profile, even though property values are likely to decrease moderately and interest coverage weaken as market interest rates rise. The outlook also reflects our view that public-sector tenants funded by government budgets provide stability, especially in times of high market uncertainty.
We could raise the rating to reflect stronger credit metrics together with significant portfolio growth and diversification that do not compromise the company's low-risk business profile.
We could lower the rating to reflect net loan to value above 45% or EBITDA/net interest below 4.0x over a protracted period, any deviation from the company's low-risk business profile, or a withdrawal of shareholder commitments or change in ownership.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A- | A- |
Contacts:
Yun Zhou, analyst, +46732324378, yun.zhou@nordiccreditrating.com
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, 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.