NP3 Fastigheter AB : (publ) assigned 'BB' long-term issuer rating; Outlook stable

Rationale
The long-term rating reflects the company's highly leveraged balance sheet as indicated by an adjusted loan-to-value (LTV) ratio of 63–66% and adjusted debt-to-EBITDA of around 11x. The rating is constrained by below-average liquidity in NP3's main markets, the company's focus on properties outside city centres, and its ambitious growth plans. It is also constrained by the company's aim of paying out 50% of after-tax profit in dividends, limiting the prospects of deleveraging.

These weaknesses are offset by a highly cash-flow generative property portfolio, showcased by an adjusted net interest coverage ratio of 3.0–3.3x over our forecast period. Furthermore, the rating is supported by the company's strong position in its main markets, its long lease terms, and its highly diverse revenue streams with the 10 largest tenants accounting for only 14% of rental income.

Stable outlook
The stable outlook reflects our expectation that NP3 will maintain its focus on highly cash-flow generative commercial properties in northern Sweden and the Karlstad–Västerås region. We expect the company to continue pursuing growth through acquisitions and keep its key credit metrics close to current levels. Furthermore, we expect the company to successfully refinance upcoming debt maturities. We could raise the rating to reflect improved credit metrics, with adjusted LTV below 60% and net interest coverage ratio over 3.5x over a protracted period, significantly increased average debt maturity, together with a generally reduced risk appetite, or increased size and improved diversity, positively affecting economies of scale and profit margins. We could lower the rating to reflect unsuccessful refinancing of debt maturities, deteriorating market fundamentals, or increased risk appetite and weakened cash flows resulting in a net interest coverage ratio below 2.2x.

All research for this issuer is available here.

If you have any questions, please contact:
Marcus Gustavsson, credit rating analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@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.