Nordic Credit Rating (NCR) said today that it had raised its long-term issuer and issue ratings on Swedish public-property manager Vacse AB (publ) (Vacse) to 'A-' from 'BBB+'. The outlook is stable. At the same time the short-term rating was affirmed at 'N-1+'.
Continued strong development and improved business risk profile
The upgrade reflects a reduction in Vacse's project property portfolio with the finalisation of its landmark Färgskrapan project underway and the anchor tenant moving in during the current quarter. We have upgraded our assessment of the company's portfolio to reflect this improvement. The upgrade is supported by Vacse's positive approach to sustainability, primarily because government tenants tend to demand higher-than-average property sustainability as Sweden strives to meet its commitments to the Paris Agreement.
The upgrade is further supported by improved financial ratios and reflects the company's strong financial position, low risk appetite, and relatively moderate leverage, as reflected in an NCR-adjusted loan-to-value (LTV) ratio of 40% and interest coverage ratio of 5.6x (as of 30 Jun. 2020). Proactive refinancing of upcoming debt maturities and extended and increased revolving credit facilities support our financial risk profile assessment.
The 'A-' long-term 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. These strengths are somewhat offset by the limited number of Vacse's properties (16) and tenants, with the top 10 tenants generating virtually all of the company's revenues. NCR believes Vacse's tenant concentration creates some risk at contract expiry, though this is low as only 11% of the company's contracts (by value) expire within the next four 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 keep development projects at around 5% of the overall portfolio by area and maintain its low-risk financial profile. The outlook reflects our expectation that Vacse will continue to obtain certification of new properties and maintain its proactive attitude towards sustainability. It also reflects our stable economic outlook for Sweden's wider community-service sector.
Potential positive rating drivers
- An upgrade is unlikely at this time, but could occur due to significant portfolio growth and diversification without compromising low-risk business profile and credit metrics.
Potential negative rating drivers
- Increased leverage resulting in LTV above 50% and EBITDA/net interest moving towards 4.5x.
- Deviation from low-risk business profile.
Rating list
To From
Long-term issuer credit rating: A- BBB+
Outlook: Stable Positive
Short-term issuer credit rating: N-1+ N-1+
Senior unsecured issue ratings: A- BBB+
All research for this issuer is available here.
If you have any questions, please contact:
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Marcus Gustavsson, credit rating analyst, +46700442775, marcus.gustavsson@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.