(The following statement was released by the rating agency)
Dec 28 - Fitch Ratings has assigned an 'AA+(bra)' national scale rating to
Iguatemi Empresa de Shopping Centers SA's (Iguatemi) proposed local
debentures fourth issuance. The target amount of the proposed issuance is
up to BRL400 million and composed of two series, one with a minimum amount of
BRL350 million and the other one with a maximum amount of BRL50 million due in
2020 and 2021, respectively. The final amount of the issuance will depend on
market conditions. Proceeds from the issuance would be used to fund the
company's capex plan.
Fitch currently rates Iguatemi with a national scale rating of 'AA+(bra)'. The
Rating Outlook is Stable.
The ratings of Iguatemi reflect its dominant business position in the Brazilian
shopping center market with participations in 13 shopping centers and three
office towers. The company manages a total gross leasable area (GLA) of 491
thousand square meters (m2) and owns 281 thousand m2 of GLA as of Sept. 30,
2012. Positively factored into the ratings are the solid business fundamentals
for Brazil's shopping mall industry over the medium term given the scarcity of
quality leasable retail space. The strength and track record of the company's
controlling shareholder, Jereissati Participacoes S.A., is also an important
Iguatemi's credit ratings also incorporate the company's stable and predictable
cash flow generation, solid liquidity, low net leverage, and diversified
property revenue base. Working capital requirements are low, as tenants are
responsible for most of the maintenance expenses. The ratings take into
consideration Iguatemi's organic growth strategy and aggressive capital
expenditure (capex) plan for 2012 through 2014 that should result in the company
having negative free cash flow (FCF) generation and a modest increase in net
leverage. Iguatemi's solid liquidity position and large pool of unencumbered
assets should ensure adequate funding for the capex plan.
Solid Industry Fundamentals:
Iguatemi's business strategy is based upon targeting the high- and middle-income
segments. Brazil's favorable demographic trends, emerging middle class, and
increasing retail consumption coupled with still low penetration levels of
quality retail space in the industry support this strategy and are considered in
the company's rating. In the near term, the industry's revenue growth rates
should moderate from recent levels. In general, Brazilian shopping center
operators have shown some resiliency to economic slowdowns due to leasing
structures that have fixed and inflation adjusted components, which reduce
volatility in revenues and cash flow generation.
Positive Operating Trends:
The consolidated sales of Iguatemi's tenants totaled BRL7.4 billion and BRL5.7
billion, respectively, during 2011 and the first nine months of 2012. These
sales levels represent increases of 18% and 14%, respectively, versus the
comparable time period in the previous year. The growth of sales during the past
21 months reflects the strong demand for leasable space, as Iguatemi has
maintained high occupancy levels of around 97% during the last several years,
which has allowed its lease spreads to increase on average by approximately 12%
in real terms. The improvements have occurred in spite of projected GDP growth
levels in Brazil of only 1.5% during 2012.
Iguatemi has managed to keep occupancy costs at reasonable levels of around 10%
of total sales during the first nine months of 2012 and default rates below 2%.
The lease portfolio has staggered lease expiration dates with approximately 60%
of the company's lease portfolio having expiration dates longer than two years.
The vast majority of leases falling due in the next two years are projected by
Fitch to be renewed.
High Margins and Stable Revenues:
Iguatemi's net revenues for the LTM ended Sept. 30, 2012, 2011 and 2010 were
BRL387 million, BRL330 million, and BRL264 million, respectively. Fixed rent
payments account for about 68% of Iguatemi's net revenues, while tenant
reimbursements represent an additional 11% of total net revenues. These payments
by tenants comfortably cover Iguatemi's property management costs and taxes,
resulting in stable EBITDA margins of about 70%. Iguatemi's cash flow
generation, as measured by EBITDA, was BRL278 million during the LTM September
The company's revenues are stable given the characteristics of its lease
portfolio, which provide it with a stable base of fixed-rent income and lease
expirations. Iguatemi's top-20 tenants account for less than 10% of its
Solid Liquidity, High Level of Unencumbered Assets:
As of Sept. 30, 2012, Iguatemi had BRL1.4 billion of total debt, which was
composed of local debentures (BRL 769 million), BNDES financing (BRL 334
million) and bank loans (BRL 258 million). The company's secured debt, BRL330
million, represents approximately 25% of the company's total debt. Iguatemi's
debt is entirely denominated in local currency, which reduces foreign exchange
risk as its revenues are also denominated in local currency. The company's debt
has an average tenor of three years.
Iguatemi's liquidity is strong as a result of its solid cash position,
manageable debt payment schedule, and high levels of unencumbered assets. The
company's cash position was BRL758 million as of Sept. 30, 2012, which
comfortably covers its scheduled debt payments of BRL14 million, BRL156 million,
and BRL171 million due in fourth quarter 2012, 2013, and 2014, respectively.
Iguatemi is expected to maintain a cash position in the range of BRL500 million
to BRL1 billion between 2012 and 2014.
The company's owned GLA was 281 thousand m2 as of Sept. 30, 2012, which had a
market value of approximately BRL5.5 billion. Iguatemi maintains a high level of
unencumbered assets; approximately 33% of its total owned GLA (93 thousand m2)
has been used as collateral for secured debt of BRL330 million. The company
maintains total GLA of approximately 185 thousand m2 which is unencumbered and
has an estimated market value of between BRL3 billion and BRL 3.5 billion. These
assets provide financial flexibility as they could be used in the future to help
access financing, if needed.
Moderate Leverage Expected to Increase:
The company's total net debt/EBITDA ratio was low at 1.8x as of Sept. 30, 2012.
This ratio compares with a net debt position of 1.6x at the end of 2011 and a
net cash position of 0.7x during 2010. The ratings incorporate the expectation
that Iguatemi's net leverage will increase to between 2.5x and 3.0x by 2014 as
the company executes its capex plan. Over the longer term, the company's
financial strategy is to maintain net leverage levels to 2.5x or below.
The company has an aggressive capex plan that will result in expansions of
existing developments, as well as greenfield projects. The company is expected
to spend BRL1.1 billion - net of key money - on developments between 2012 and
2014. These investments should increase the company's GLA by approximately 140
thousand m2 and should result in the growth of the company's EBITDA to about
Key rating drivers include the development of the Brazilian macroeconomic
environment in which the company operates. The Stable Outlook reflects Fitch's
expectation that Iguatemi will complete its capex plan as scheduled and reach
annual EBITDA levels around BRL450 million by the end of 2014. The Stable
Outlook also incorporates the view that the company's liquidity will remain
solid with a cash position between BRL500 million to BRL1 billion and that its
net leverage will remain around 2.5x during the next two years.
Positive Rating Actions: Iguatemi's ratings could be positively affected by
significant improvement - above expectations already incorporated - in its cash
flow generation, leverage and liquidity metrics, and level of unencumbered
assets, coupled with capex plan completion ahead of original schedule.
Negative Rating Actions: A negative rating action could result from some
combination of the following factors: delays in the company's capex plans for
2013 and 2014, lower cash flow generation (EBITDA) by existing malls; and/or
significant incremental debt associated with acquisition activity resulting in a
deterioration of the company's credit profile.
(Caryn Trokie, New York Ratings Unit)