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Investing.com -- Moody’s Ratings has upgraded the issuer rating of Swedish real estate company, Castellum AB, from Baa3 to Baa2. Along with this upgrade, the outlook has also been changed from positive to stable. In addition, the ratings of the company’s senior unsecured medium term note (MTN) programme, senior unsecured euro medium term notes, and subordinated notes have all been upgraded. The ratings of Castellum Helsinki Finance Holding ABP’s backed senior unsecured euro medium term notes and its backed senior unsecured MTN programme were also revised upwards.
The upgrade to Baa2 for Castellum is a reflection of the company’s consistent rental growth and capital preservation strategies. Maria Gillholm, a Moody’s Ratings Vice President -- Senior Credit Officer, and lead analyst for Castellum, stated that these measures have helped align the company’s credit metrics with the requirements for the Baa2 rating category. The company is also expected to show further performance improvements in the future. Gillholm acknowledged the company’s ability to adapt to a higher interest rate environment and its proven access to bond and equity markets as well as established banking relationships. The company’s improving business profile, which is shifting towards better asset quality, was also noted.
Castellum AB’s Baa2 long-term issuer rating is a testament to its significant and diversified presence in the Swedish real estate market, as well as its operations in Denmark and Finland. The company has a strong presence in the office markets in Stockholm and Gothenburg, and its warehouse and logistics properties are primarily located in some of Sweden’s largest logistics hubs. Castellum also benefits from a substantial exposure (26%) to government tenants, which provides a stable long-term cash flow. The company has a solid track record of accessing both local and international debt and equity markets.
However, the real estate market environment has not yet fully recovered. Castellum’s occupancy rate has declined to 90.6%, due to a strategic decision to divest fully let properties, the limited impact of properties affected by the Northvolt bankruptcy, and a softer market in Stockholm. The rating upgrade reflects the expectation that the company will gradually improve occupancy levels in the future.
Castellum has extended its average debt maturity to 4.6 years, up from 4.4 years, which is considered long by Nordic standards. While the company remains somewhat exposed to rising interest rates, it has effectively hedged 74% of its interest rate exposure for the coming year. Additionally, a strategic shift toward more unsecured debt is gradually improving its secured debt ratio.
The stable outlook reflects the expectation that Castellum will continue to strengthen its position within the Baa2 rating category, supported by a property portfolio capable of delivering solid rental growth and maintaining steady cash flow. This stability is underpinned by the company’s geographic diversification, broad tenant base, and a significant share of revenue derived from governmental tenants.
Castellum aims to maintain stable credit metrics, effective leverage around 40%, EBITDA interest coverage of approximately 3.0x, and net debt/EBITDA near 10x. Its strategy includes optimizing the asset portfolio through development projects, divestments and a balanced dividend policy. Potential interest rate cuts by central banks could enhance Castellum’s financial profile by positively impacting EBITDA interest coverage.
An upgrade would require effective leverage below 40%, fixed charge coverage above 3.5x on a sustained basis, and an improved average debt maturities profile. On the other hand, a downgrade could occur upon significant deterioration in operating performance, property market fundamentals weakening sharply, effective leverage sustainable at 45%, or if EBITDA fixed-charge coverage is sustainably below 2.75x, among other factors.
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