Sweden-based Vacse AB Assigned 'BBB+' Rating; Outlook Stable

On 25 October 2018, Nordic Credit Rating assigned its 'BBB+' long-term and 'N-1+' short-term issuer credit ratings to Vacse AB (publ), a Swedish real-estate management company focused on leasing to public-sector entities. The outlook is stable. In addition, Vacse's senior unsecured debt was rated 'BBB+'.

Rating rationale
Our 'BBB+' long-term issuer rating on Vacse reflects the company's strong portfolio of modern, tailor-made properties leased on very long contracts (averaging around 11 years) to highly creditworthy public-sector authorities that are essential to Sweden's public security. The rating also reflects the company's 100% occupancy rate and strong operating margins. It is supported by Vacse's strong financial position of relatively moderate leverage, with loan to value (LTV) of 43%, excluding a shareholder loan; an interest coverage ratio of 4.0x; a low share of secured debt (12%) as of 30 Sep. 2018; and its strong ownership profile.

These strengths are somewhat offset by the company's limited number of properties (14). We believe this creates some, albeit low, risk at contract expiration as 8% of the total contract value expires within five years. In addition, the company has an increasing share of development properties, which are typically pre-let. Like most Swedish real-estate peers, the debt maturity profile is relatively short at 2.7 years, including a bond maturity of SEK 773m in June 2019, which weighs on the liquidity profile.  

Outlook
The stable outlook reflects our expectation that Vacse will continue to focus on similar types of properties, with long lease contracts with public institutions. We expect Vacse to extend its relatively short debt maturity profile and proactively refinance the outstanding SEK 773m bond maturing in June 2019. We also see Vacse retaining moderate leverage (including LTV below 50%), while successfully completing its development projects. The stable outlook reflects our view of a stable economic outlook for Sweden, with slowly rising interest rates, and an unchanged ownership profile for the company.

Potential positive rating drivers

• Significantly lower leverage on a sustainable basis, including LTV of less than 35% and an EBITDA/net interest ratio of more than 5.0x.
• An improvement in the debt maturity profile.

Potential negative rating drivers

• Increased leverage, including LTV of more than 50% over an extended period.
• An inability to refinance forthcoming debt maturities.
• A significant increase in development projects.

The methodology used for this rating was NCR's Corporate Rating Methodology, published in August 2018. For full regulatory disclaimer please see the full rating report which can be downloaded at www.nordiccreditrating.com.

If you have any questions, please contact:
Michael Andersson, Chief Rating Officer, +46 732 32 43 22, michael.andersson@nordiccreditrating.com
Mille O. Fjeldstad, Credit Analyst, +47 99 03 89 16, mille.fjeldstad@nordiccreditrating.com

Nordic Credit Rating AS is a credit rating agency headquartered in Oslo with a branch in Stockholm. The company provides credit ratings to companies and financial institutions in the Nordic region, and bases its analysis on local insights. Nordic Credit Rating is registered with the European Securities and Markets Authority (ESMA).