RPT-Fitch Affirms Atrium at 'BBB-', Outlook Stable
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Oct 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Atrium European Real Estate Limited's (Atrium) Long-term Issuer Default (IDR) and senior unsecured ratings at 'BBB-'. The Short-term IDR is affirmed at 'F3'. The Outlook is Stable.
Atrium's portfolio comprises food-anchored shopping malls diversified across central eastern Europe (CEE) with a bias towards Poland. The ratings benefit from defensive contractual rental income, high occupancy rates and low tenant concentration. Organic rental growth is expected to flatten in the medium term, with completion of new developments and extensions on existing shopping malls to be the main growth driver. Fitch expects Atrium to maintain a strong balance sheet even after accounting for modest acquisitions made during 2013, with loan-to-value (LTV) likely to remain below 35% over FY13 and FY14. Headroom under the rating has improved following the issue of Atrium's inaugural unsecured bond in April 2013, providing increased financial flexibility.
KEY RATING DRIVERS
New Unsecured Bond Issue
The debut EUR350m 2020 unsecured bond issue diversified Atrium's funding sources and extended its debt maturity profile to 5.4 from 4.3 years as of March 2013.
Fitch believes the issue is part of the company's likely shift towards unsecured financing, although secured lending is still an important source of funding.
Following the bond issue the gross debt mix is split around 40% unsecured and 60% secured. The pool of unencumbered assets is expected to total EUR1.1bn at FYE13, offering unsecured bondholders a healthy unencumbered asset cover ratio above 3.0x.
Strong Debt Serviceability
Fitch expects Atrium's EBIT net interest cover to remain high at above 5.0x for FY13 and FY14, stemming from a well-hedged low average cost of debt at around 4.0% compared with a portfolio of assets that yield around 8%. With net LTV expected below 25% at FYE13 and a solid liquidity cushion there is reasonable headroom for acquisitions.
Resilient Rental Income
The tenant profile is diversified, focused on food anchor tenants, namely large European retail chains with the top 10 tenants generating 25% of total rental income. Fitch expects occupancy rates to remain high at approximately 95%. Atrium's exposure to more volatile CEE currencies is largely hedged with 78% of gross rental income received in euros.
Limited Organic Growth
Fitch expects low single digit rental income growth in FY13 and FY14. Atrium may outperform other European Fitch-rated REITs, due to the company's strong performing Russian portfolio benefiting from high indexation to inflation and a higher quality tenant mix. In addition, this portfolio is boosted by a turnover rent component. On a group basis turnover rent accounts for only a minimal amount of total gross rental income, limiting any downside risk in a stressed scenario. Rental income growth is likely to be supported by extending and refurbishing existing shopping centres such as the Copernicus centre in Torun and the completion of the Lublin Atrium Felicity by end of 2014.
Although Atrium has no committed revolving facilities in place, it has always maintained significant cash amounts. Fitch expects around EUR260m cash at FYE13 which will comfortably cover EUR85m of debt maturities and EUR28m of committed capex for FY14 and FY15. During this period the agency expects the Fitch liquidity score to be maintained above 1.5x. Short-term debt maturities are secured facilities and are likely to be repaid, releasing pledged properties increasing the pool of unencumbered assets available.
Positive: Future developments that could lead to positive rating action include:
- Improved quality of the property portfolio focusing on prime and good secondary properties
- Rationalisation of assets in markets with limited geographic critical mass
- Improved sources of liquidity evidenced by a diversification of funding sources such as an undrawn committee credit line
Negative: Future developments that could lead to negative rating action include:
- LTV (adjusted net debt/investment properties) above 35% on a sustained basis
- EBIT net interest cover below 2.5x on a sustained basis
- Liquidity score below 1.25x on an 18 month cycle on a sustainable basis
- Unencumbered asset cover ratio below 2.0x to 3.0x on a sustainable basis
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