Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Sweden-based property manager Vacse AB (publ). The outlook is stable. At the same time, NCR affirmed the 'N2' short-term rating and 'A-' senior unsecured issue rating.
The affirmation reflects Vacse's relative resilience to rising interest rates and its strong ownership profile. We expect the financial metrics to weaken somewhat from current levels but remain within the range of the company's rating drivers and current scoring of its financial ratios. The rating is also supported by Vacse's long fixed interest periods, healthy cash flow generation and strong owners with a commitment to maintaining a stable financial risk profile.
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 also reflects Vacse's high operating efficiency and virtually 100% occupancy rate.
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, although the risk is low due to negligible lease maturities over the next three years.
We have lowered our assessment of the company's operating efficiency, reflecting our expectations of a reduction in historical net operating income and EBITDA margins due to higher operating costs. However, we see the negligible downside risk to occupancy rates, and the level of operating margins and their stability remain good relative to the wider real-estate sector and are comparable to those of Vacse's closest peer.
The outlook is stable, reflecting 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 at 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 3.5x over a protracted period, any deviation from the company's low-risk business profile, or a withdrawal of shareholder commitments or change in ownership.
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Gustav Nilsson, analyst, +46735420446, firstname.lastname@example.org
Yun Zhou, analyst, +46732324378, email@example.com
Sean Cotten, chief rating officer, +46735600337, firstname.lastname@example.org
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.NCR - Vacse_AB_publ - Full Rating Report 17 Oct. 2023.pdf (352.97 KB) NCR - Vacse_AB_publ - Rating Action Report 17 Oct. 2023.pdf (138.21 KB) Vacse AB (publ) A - Stable Real estate N2 Off On Off