The credit rating of JSC «Laut» (hereinafter, the Company) has been upgraded due to the provision of additional equity financing in December 2020, which led an improvement in the Company’s liquidity indicators. The Company’s credit rating is based on its high leverage and very low debt payment coverage. The rating is supported by the Company’s strong business profile and medium liquidity assessment. Last year, restrictions on shopping centers due to the coronavirus pandemic had a strong impact on the Company’s operating activities and, as a result, its cash flows. The change in outlook to Stable reflects ACRA’s opinion on the reduced likelihood of new lockdowns being imposed in 2021.
The Company owns and operates the Salaris shopping center, whose gross building area (GBA) covers 308,000 square meters, with 105,000 square meters of gross leasable area (GLA). The Company is part of the Plaza B. V. group (hereinafter, the Group), which operates and manages commercial real estate. The Group is also involved in investment activities and development. The Group’s projects include the Salaris shopping center, the Paveletskaya Plaza shopping center, and IFC Columbus.
Key rating assessment factors
Restored traffic and cash flow after easing of quarantine measures and the second wave of the coronavirus. Starting from August 2020, the Company’s revenues recovered to the pre-crisis level recorded in Q1 2020. Already by September, revenues had reached RUB 209 mln, which is higher than in February (RUB 189 mln), the best pre-crisis month. Despite the second wave of the coronavirus, operating income continued to grow in Q4 2020 and averaged RUB 208 mln per month compared to RUB 179 per month in Q3. Rental income rose by more than 16% in the Q4 2020 compared to the previous quarter.
High leverage and very low debt service indicators. The Company’s weighted average total debt to NOI (net operating income) ratio for 2020−2023 should equal 14.4x, according to ACRA’s calculations. The weighted average NOI to payments ratio for 2020−2023 should amount to 0.9x. At the end of December 2020, the Company received significant liquidity injections from its shareholder, which allowed it to meet all of its obligations to its creditor. Despite growth in the size of debt payments starting from 2021 (in 2021, the Company will start making payments on the body of debt as per the repayment schedule set by the loan agreement), the NOI to payments indicator is expected at around 1.0x in 2021–2023 due to growth in rental income.
Key assumptions
- No new coronavirus quarantine restrictions in 2021;
- Growth in rental income by 31% in 2021 and growth in rental rates by 10−15% in 2022 and 2023 and by 5% annually in subsequent years;
- Maintaining a very high utilization rate in 2021–2023.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Consistent growth of the weighted average NOI to payments ratio to higher than 1.0x;
- Weighted average total debt to NOI ratio falling below 8.0x at the same time as weighted average LTV falling to 0.8x or lower.
A negative rating action may be prompted by:
- Weighted average LTV exceeding 1.0x amid the weighted average total debt to NOI ratio falling below 1.0x.
Rating components
SCA: bb.
Adjustments: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of JSC «Laut» was published by ACRA for the first time on February 4, 2020. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by JSC «Laut», information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and JSC «Laut» participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by JSC «Laut» in its financial statements have been discovered.
ACRA provided no additional services to JSC «Laut». No conflicts of interest were discovered in the course of credit rating assignment.
