The credit rating of "Garant-Invest Commercial Real Estate" JSC (hereinafter, the Company) is based on the high industry risk, small business size (the net operating income is less than RUB 5 bln), low coverage assessment, high leverage, and medium profitability and liquidity assessments. The credit rating is supported by the Company’s strong business profile and geographic footprint. The outlook has been changed to Stable to reflect ACRA’s opinion on the reduced possibility of new lockdowns being initiated in 2021.

The Company is the main business asset of the Financial and Industrial Corporation "Garant-Invest." The Company owns and manages a portfolio of commercial real estate, and develops and redevelops commercial real estate in Moscow. The Company owns seven shopping centers and a network of district shopping centers, with the gross building area of 132,000 sq. m, of which the gross leasable area is 83,000 sq. m.

Key rating assessment factors

Recovery of traffic and cash flow after the easing of quarantine limitations and the second wave of the coronavirus. In 2020, the Company’s revenues decreased by around 20% compared to 2019 due to the impact of limitations introduced to fight the COVID-19 pandemic. Starting from September 2020, the Company’s revenues began to recover to their pre-crisis level. ACRA notes that the business sector the Company belongs to (medium-sized shopping centers located next to metro stations and in residential districts) was the least affected by the current crisis and expects consumer traffic in this segment to recover at the fastest pace. ACRA expects the Company’s revenues to recover to their pre-crisis level in 2021 and then grow by 3–5% annually in 2022–2023.

High leverage and low coverage. Following a decrease in the Company’s net operating income in 2020, the average weighted ratio of total debt to net operating income for the period from 2018 to 2023 is estimated by ACRA at 10.4x, which indicates high leverage. The weighted average ratio of net operating income to charges is estimated at 1.16x.

Medium liquidity. According to ACRA’s assessments, the Company’s expected free cash flow combined with cash held in accounts and a RUB 1.2 bln preliminarily approved credit line more than 100% covers repayments scheduled for 2021. ACRA also notes that the Company can obtain additional loans using its unburdened assets as collateral.

Key assumptions

  • Recovery of revenues to their 2019 level in 2021; annual growth of revenues by 3–5% in 2022–2023;

  • The percentage of leasable area in the key shopping centers to remain high after the quarantine is lifted.

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:

  • Weighted average ratio of net operating income to payments exceeding 1.2x;
  • Weighted average ratio of total debt to net operating income falling below 8x.

A negative rating action may be prompted by:

  • Significant deterioration in the macroeconomic situation in the country and  critical decline in consumer purchasing power;
  • Decline in the Company’s liquidity indicators and difficulties in servicing debt obligations;
  • Weighted average ratio of total debt to net operating income exceeding 12x.

Rating components

SCA: bbb-.

Adjustments: none.

Issue ratings

"Garant-Invest Commercial Real Estate" JSC, 001Р-05 series (RU000A1005T9), maturity date: April 5, 2024, issue volume: RUB 6 bln — BB+(RU).

"Garant-Invest Commercial Real Estate" JSC, 001Р-06 series (RU000A1016U4), maturity date: December 13, 2022, issue volume: RUB 500 mln — BB+(RU).

"Garant-Invest Commercial Real Estate" JSC, 001Р-07 series (RU000A101V37), maturity date: October 30, 2021, issue volume: RUB 700 mln — BB+(RU).

"Garant-Invest Commercial Real Estate" JSC, 002Р-01 series (RU000A102DZ1), maturity date: November 23, 2022, issue volume: RUB 800 mln — BB+(RU).

"Garant-Invest Commercial Real Estate" JSC, 002Р-02 series (RU000A102LS9), maturity date: December 25, 2023, issue volume: RUB 500 mln — BB+(RU)

Rationale. The issues represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards these issues as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. When assessing the loss recovery rate, ACRA considered the planned purchase of new commercial real estate.

According to ACRA’s methodology, the  loss recovery rate for the Issuer’s unsecured debt belongs to Category III. Therefore, the above bond issues are rated BB+(RU), i.e. one notch below the credit rating of the Company.

Regulatory disclosure

The credit ratings have  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 Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied to assign the credit ratings to the above issues.

The credit ratings assigned to "Garant-Invest Commercial Real Estate" JSC and the bonds (RU000A1005T9, RU000A1016U4, RU000A101V37, RU000A102DZ1, RU000A102LS9) issued by "Garant-Invest Commercial Real Estate" JSC were first published by ACRA on December 26, 2018, March 12, 2019, December 25, 2019, September 8, 2020, November 26, 2020, and December 29, 2020, respectively. The credit rating of "Garant-Invest Commercial Real Estate" JSC and its outlook as well as the credit ratings of the bonds issued by "Garant-Invest Commercial Real Estate" JSC are expected to be revised within one year following the publication date of this press release.

The credit ratings were assigned based on the data provided by "Garant-Invest Commercial Real Estate" JSC, information from publicly available sources, as well as ACRA’s own databases. The credit ratings are solicited, and "Garant-Invest Commercial Real Estate" JSC participated in their assignment.

No material discrepancies between the provided data and the data officially disclosed by "Garant-Invest Commercial Real Estate" JSC in its financial statements were discovered.

ACRA provided additional services to "Garant-Invest Commercial Real Estate" JSC. No conflicts of interest were discovered in the course of credit rating assignment.

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Elvira Yakubova
Analyst, Corporate Ratings Group
+7 (495) 139 04 80, ext. 185
Alexey Kornev
Expert, Corporate Ratings Group
+7 (495) 139-0480, ext. 126
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