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Rating action

Scope Ratings GmbH (Scope) has today affirmed the issuer rating of Fastpartner AB at BBB-/Stable. The company’s senior unsecured debt was affirmed at BBB- as was the S-2 rating of its short-term debt.

Rating rationale

The rating action reflects Fastpartner’s stable operations with an unchanged business risk profile (assessed at BBB-) as well as an improved financial risk profile (assessed at BBB) thanks to improved credit metrics anticipated to stabilize at new levels going forward.

Fastpartner’s business risk profile benefits from its market position in the Swedish real estate market with Scope-adjusted total assets of SEK 35.2bn (EUR 3.4bn) and a total lettable area of 1.5m sq m as of end-June 2021 (+11% YoY). Its visibility in the market supports access to funding, demonstrated by regular issuances in debt and equity capital markets. Fastpartner’s strongest foothold is in Stockholm, where it has improved its dominance during the past year, climbing from a top-five position into the top three. The company intends to grow further in the capital and in the city of Norrköping.

Tenant diversification is moderate, with the top three (10) tenants accounting for 9.5% (19.5%) of rental income. In addition, the top 20 tenants credit quality is seen as investment grade, significantly reducing the risk of cash flow deterioration due to a single tenant default or delayed payment. Fastpartner’s asset quality benefits from some 83% of portfolio assets (as measured by fair value) being located in metropolitan areas with more than 1m inhabitants and demonstrating cash flow visibility with a stable weighted average unexpired lease term of 4.7 years, which is above average compared to Nordic peers (four years).

Fastpartner’s business risk profile is somewhat constrained by its relatively high geographical concentration, being focused exclusively on Sweden, and Stockholm alone accounts for 78% of assets by fair value. This concentration is partially mitigated by: i) Stockholm’s status as an ‘A’ location with large, liquid property markets; and ii) Sweden’s mature and stable economy, whose strong welfare/social system can soften the impact of economic turbulence. Fastpartner’s strategy of acquiring properties in near-city locations with good transportation links but below-par occupancy translates into a relatively low occupancy rate of around 91% at present.

Fastpartner’s financial risk profile benefits from strong debt protection, as measured by Scope-adjusted EBITDA interest cover levels of above 3.5x historically. In the 12 months since Scope’s initial rating, Fastpartner has improved its financing profile by achieving more favourable interest rates. Scope forecasts that the company’s interest coverage will remain around 4.0x (end-June 2021: 4.1x) based on continued low floating rates, while highlighting the current low hedging rate of 15% as a risk factor. This risk is partially mitigated by: i) the macroeconomic environment, which will probably lead to an extended period of zero or negative interest rates as the Swedish central bank recently implied¹; and ii) the company’s headroom, with high debt protection levels acting as a buffer to the negative rating trigger, which enables it to react without reaching uncomfortable levels.

Fastpartner’s leverage as measured by its Scope-adjusted loan/value ratio (LTV) has continued to improve over the last 12 months, falling to 45% as at end-June 2021 from 49% as at end-June 2020 mostly thanks to fair value adjustments. The current, ongoing SEK 500m D-shares issuance is partially earmarked to repay secured debt, which should strengthen LTV further. Since Scope’s initial rating, Fastpartner has also adopted a stricter financial policy, reducing its target LTV to below 48% (as calculated by the issuer) while increasing its target interest coverage ratio to above 3x. Bearing in mind the abovementioned factors, Scope’s updated forecast expects an LTV in the mid-40% range for the foreseeable future. Leverage as measured by Scope-adjusted debt/EBITDA has remained stable at around 12x-13x historically. This is expected to decrease slightly going forward based on expected EBITDA growing faster than expected SaD proportionally.

Fastpartner’s liquidity is adequate given that sources (SEK 150m cash; SEK 1bn FoCF and SEK 2.4bn committed credit lines) cover uses (SEK 3.45bn short-term debt) by about 1.0x in 2021. Scope believes that liquidity is a manageable risk in the short to medium term as sufficient headroom is provided by: i) a reasonably low LTV of 24% on secured debt, providing ample headroom to increase debt on existing secured debt; and ii) the company’s access to capital markets and its good banking relationships with a wide range of potential funding sources.

Outlook and rating-change drivers

The Outlook for Fastpartner is Stable and incorporates continued growth in its core market of Sweden, especially greater Stockholm. Scope assumes such growth will be financed with debt and equity. In addition, it incorporates Scope’s expectation that the company’s leverage, as measured by its LTV, will remain at levels of between 40%-50% and that debt protection will remain around 4x. Continued strong cash flow generation, as measured by Scope-adjusted free operating cash flow, is expected to cover dividend payments going forward.

A negative rating action is possible if Fastpartner’s leverage, as measured by its LTV , reached above 55% on a sustained basis, or if debt protection weakened below 3x. This could be driven by a rise in interest-bearing debt through fully debt-financed acquisitions to significantly increase the portfolio’s size or unfavourable remortgaging. It could also be driven by more severe after-effects from the pandemic, leading to a stronger-than-expected revision of rental growth prospects and a downward adjustment to the company’s asset values.

A positive rating action could be warranted by deleveraging that results in an LTV of around 40% on a sustained basis supported by a tightened financial policy. This could be achieved with less debt-funded capex, decreased financial debt requirements through stronger-than-anticipated cash generation from the portfolio, and continued strong demand for Fastpartner’s properties, resulting in positive fair value adjustments.

Long-term and short-term debt ratings

Fastpartner currently has SEK 7.2bn of senior unsecured debt outstanding, which comprises SEK 1.5bn in commercial paper and SEK 5.7bn in senior unsecured bonds (of which SEK 3.3bn was issued under its green framework). These senior unsecured obligations benefit from an increased property pool of SEK 9.2bn (up from SEK 4bn) in truly unencumbered assets in addition to SEK 6.4bn in unencumbered parts of secured properties (difference of secured LTV up to 60%). Scope assesses the pool of unencumbered assets at SEK 15.7bn, which provides around 220% coverage of unsecured assets. Scope therefore rates senior unsecured debt at the issuer’s level of BBB-.

The S-2 short-term rating is supported by adequate liquidity, good banking relationships, and strong access to diverse funding sources with regular issuances of various equity share classes and bonds. 

Rating driver references
1. 27 April 2021 Swedish Riksbank press release

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (Corporate Rating Methodology, 6 July 2021; Rating Methodology: European Real Estate Corporates, 15 January 2021), are available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Thomas Faeh, Executive Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Executive Director
The Credit Ratings/Outlook were first released by Scope Ratings on 31 August 2020.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
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