FastPartner : Scope Ratings_Fastpartner Rating Report_2021 Sep

3 September 2021Corporates

	FastpartnerAB
			BBB-	STABLE
	Sweden, Real Estate

Corporate profile

Fastpartner is a large commercial real estate company in Sweden, with a geographic focus on greater Stockholm. The company owns and manages a diversified portfolio across asset types of around 200 properties worth SEK 35bn. Fastpartner is listed on the Nasdaq Stockholm large cap market. Its largest shareholder, with 72%, is company CEO Sven-Olof Johansson.

Key metrics

				Scope estimates
Scope credit ratios	2019	2020		2021E	2022E
Scope-adjusted EBITDA/interest cover (x)	3.7x	3.9x		4.2x	3.9x
Scope-adjusted debt (SaD)/EBITDA (x)	12.4x	12.4x		11.5x	11.1x
Scope-adjusted loan/value ratio (LTV) (%)	48%	47%	42%	43%

Rating rationale

Scope Ratings 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.

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

1. thanks to improved credit metrics anticipated to stabilize at new levels going forward.

The rating is supported by Fastpartner's market position in the Swedish real estate market, with improved market share in its core market of Stockholm. The company's weighted average unexpired lease term (WAULT) is above average for the Nordics at

4.7 years, and profitability is just shy of 70% as measured by its Scope-adjusted EBITDA margin. These support the rating further. Scope-adjusted interest coverage improved from 3.5x to over 4x and is expected to remain at this level, while LTV improved to 45% from around 50%. Both of these ratios are rating-supportive as well.

The rating is constrained somewhat by relatively high geographic concentration, with Stockholm accounting for 78% of assets by fair value. Relatively low but stable occupancy of 91% and a top-three tenant concentration of 9.5% somewhat hinders the rating. Fastpartner's exposure to floating-rate debt, with only 15% hedged, is seen as a risk factor, but this is partially mitigated by our expectation of continued zero interest rates in Sweden.

Ratings & Outlook

Corporate rating	BBB-/Stable
Short-term rating	S-2

Senior unsecured rating BBB-

Analyst

Thomas Faeh

[phone]

[e-mail]

Related Methodologies

Corporate Rating Methodology: July 2021

Rating Methodology: European

Real Estate Corporates

January 2021

Scope Ratings GmbH

Karenslyst allé 53

N-0279 Oslo

Phone [phone]

Headquarters

Lennéstraße 5

10785 Berlin

Phone	+49	30 27891 0
Fax	+49	30 27891 100

[e-mail]

www.scoperatings.com

Bloomberg: RESP SCOP

3 September 2021

1/11

Fastpartner AB

Sweden, Real Estate

Outlook and rating change drivers

The Outlook for Fastpartner is Stable and incorporates continued growth in its core market of Sweden, especially greater Stockholm. We assume such growth will be financed with debt and equity. In addition, it incorporates our 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 highly debt-financed acquisitions 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.

Rating drivers

Positive rating drivers

• Medium-sizedcommercial real estate company with good access to capital markets and high visibility in the Swedish market thanks to 1.5m sq m of lettable area under management
• Moderate and stable profitability, with a Scope-adjusted EBITDA margin of around 70%, that supports internal financing capabilities
• Strong debt protection supported bystable operating cash flows
• Moderate tenant diversification with top three (10) accounting for 9% (19%) and good tenant industry diversification
• Above-averageWAULT for the Nordic market of 4.7 years

Negative rating drivers

• Modest geographic diversification with 79% of assets (fair value) located in Stockholm, somewhat mitigated by the economic power and liquidity the capital provides
• Relatively high vacancy rate due to acquisition strategy, somewhat mitigated by the issuers ability to keep the ratio stable

Rating-change drivers

	Positive rating-change drivers		Negative rating-change drivers
	• LTV of around 40% on a sustained		• Increase in LTV above 55% on a
	basis supported by tightened		sustained basis or weakening of debt
	financial policy		protection to below 3x

3 September 2021

2/11

Fastpartner AB

Sweden, Real Estate

Financial overview

				2019				2020
	Scope credit ratios
	Scope-adjusted EBITDA/interest cover (x)		3.7x			3.9x
	Scope-adjusteddebt/Scope-adjusted EBITDA (x)		12.4x			12.4x
	Scope-adjusted loan/value ratio	48%	47%
	Scope-adjusted EBITDA in SEK m			2018				2019
	EBITDA	1,138		1,247
	Operating lease payments in respective year	0	0
	Other	0	0
	Scope-adjusted EBITDA			1,138				1,247
	Scope-adjusted funds from operations in SEK m			2018				2019
	EBITDA	1,138		1,247
	less: (net) cash interest as per cash flow statement	-310	-317
	less: cash tax paid as per cash flow statement	-61	-72
	Other	8	-3
	Scope-adjusted funds from operations			775				855
	Scope-adjusted debt in SEK m			2018				2019
	Reported gross financial debt	14,413		15,638
	less: cash and cash equivalents	-264	-147
	add: cash not accessible	0	0
	add: pension adjustment	0	0
	add: operating lease obligations	0	0
	Other	0
	0
	Scope-adjusted debt			14,149				15,491

Scope estimates

	2021E			2022E
	4.2x		3.9x
	11.5x		11.1x
42%	43%
	2020E			2021E
1,312		1,463
0	0
0	0
	1,312			1,463
	2020E			2021E
1,312		1,463
-314	-375
-98	-107
0	0
	900			981
	2020E			2021E
15,222		16,471
-124	-166
0	0
0	0
0	0
0	0
	15,098			16,305

3 September 2021

3/11

Fastpartner AB

Sweden, Real Estate

Industry risk: BB

Credit outlook stable for 2021

Large Swedish CRE, with top three position in home market of Stockholm

Business risk profile: BBB-

Fastpartner's industry risk is modest given its exposure to the highly cyclical commercial real estate industry (its main segments comprising the development, leasing and management of office buildings).

The credit outlook for the European real estate sector is stable in 2021, though the retail sector remains a weak spot as it faces multi-layered disruption resulting from the Covid- 19 crisis. This may have only a modest impact on credit quality in the short term, but the consequences will be more severe if a future recovery falters.

For more information, refer to our corporate outlook for real estate (click here).

Fastpartner is a medium-sized commercial real estate company based in Sweden with Scope-adjusted total assets of SEK 35.2bn (EUR 3.4bn). Its total lettable area amounts to 1,516,737 sq m, in addition to which the company also owns unutilised building rights for 137,000 sq m of residential space and 298,000 sq m of commercial buildings, some of which it plans to develop over the coming years. The company's size translates into decent diversification in terms of tenants and locations, which should enhance its resilience to cash flow volatility caused by economic cycles, industry developments, regulatory changes and the loss/default of single tenants. It also affords good access to capital markets, proven by the regular issuance of class A shares, class D shares and preference shares, the issuance of unsecured bonds in Swedish markets (SEK 5.7bn outstanding), as well as a SEK 2bn commercial paper programme and secured bank loans with all the major Nordic banks (SEK 7.9bn).

Figure 1: European peers, assets under management in EUR bn

45 40 35 30 25 20 15 10 5 0

Source: Company accounts, Scope estimates

Fastpartner's strongest foothold, with assets worth SEK 25.9bn, is in Stockholm, where it holds a top-three position by square metres. The company is mostly in the top five in the other markets in which it operates except for Gothenburg and Malmö, where its exposure is too small to qualify as moderately dominant. Having a high share in most of its markets, including Sweden's capital Stockholm, is positive. It often translates into higher visibility to potential tenants and offers more flexibility to accommodate the changing needs of existing tenants. Thus, high market shares increase tenant retention and lead to more stable occupancy and reduced capex needs linked to tenant fluctuation.

Fastpartner intends to grow within its current home territory, predominantly in Stockholm and the city of Norrköping. The company plans to do so by developing some of its building rights, while also acquiring properties that fit its portfolio.

3 September 2021

4/11

Fastpartner AB

Sweden, Real Estate

Moderate geographical diversification, with a strong Stockholm bias

Fastpartner's geographical diversification is moderate, with activities spread across Sweden, with a focus on Stockholm (78% of assets by fair value), allowing it to benefit from a broad range of tenants (from regional to multinational) and keep tenants with relocation/resizing needs. However, Fastpartner's performance hinges on the macroeconomic development of Sweden, a mature and stable economy with a strong welfare/social system in place. The latter softens the economic burden in times of distress (as can be seen during the current crisis), with labour costs being partially borne by the state and subsidies provided for fixed costs like rent, resulting in decreased rental losses for commercial real estate owners.

Fastpartner does not intend to broaden its exposure abroad. The company plans to focus on the markets it knows best and achieve further growth by acquiring properties and developing its building rights.

Figure 2: Geographic diversification by value of assets Figure 3: Tenant diversification by rental income

	6%	Gävle
		Gothenburg
		Malmö
78%	7%	Norrköping
	3%	Other
	2%	Stockholm
	3%	Uppsala & Mälardalen
	1%

Source: Fastpartner, Scope estimates

4%	3%
	2%
	2%
	2%
	1%
	1%
	1%
	1%
	1%

80%

Nasdaq AB 3.8% NCC Sverige AB 3.3% Sandvik AB 2.3% Patent- och Registreringsverket 2.3% ICA Sverige AB 1.6% Teleperformance Nordic AB 1.3% Åhléns AB 1.3% Stockholms stad 1.3% Gavlefastigheter Gävle kommun AB 1.3% Region Stockholm 1.2% Remainder

Source: Fastpartner, Scope estimates

Moderately diversified by property type with 47% offices

Fastpartner's largest segment by rental value is offices, at 47%, followed by logistics and warehousing at 15% and shops/restaurants at 13%. Diversification into different asset types enables the company to dampen short-term effects like those triggered by the pandemic. While the shops/restaurants segment has been adversely affected during the past year, demand for the logistics segment has increased significantly. This increased demand has balanced out rental losses/bad debt impairments from shops/restaurants. In addition, Fastpartner's exposure to the healthcare and education segments and the residential segment acts as a low-risk, stabilising factor.

Nevertheless, we do expect tenants' behaviour to change, because efforts to limit the spread of Covid-19 have led to a worldwide experiment in remote work that has turned out to be largely successful. Companies look set to adjust down their real estate requirements in the medium term. That said, we expect the decline in demand for office space to be gentle rather than drastic for two main reasons.

First, employers will require significant amounts of office space to comply with new health and safety standards requiring less densely populated working space, even if more staff work remotely more often. Employers will also have to increase recreational areas and add meeting facilities to encourage a minimum of staff to return to the office. Secondly, companies will still want prestigious, high-quality buildings to impress clients and recruit and retain staff.1

Fastpartner's tenant diversification is moderate, with the top three tenants accounting for 9.5% of rental income and the top 10 tenants accounting for 19.5%. The largest tenant is Nasdaq AB, which provides 3.8% of rental income, followed by NCC Sverige AB with

1 Europe office property: evolution, not revolution (https://scoperatings.com/#!search/research/detail/166638EN)

3 September 2021

5/11