The credit rating of JSC «Laut» (hereinafter, the Company) is based on the Company’s high leverage, low debt payment coverage, and low liquidity assessment. The rating is supported by the Company’s strong business profile and high profitability.
The outlook has been changed from Stable to Positive to reflect ACRA’s expectations that the leverage and coverage indicators will improve due to further growth of the Company’s net operating income (NOI).
The Company owns and operates the Salaris shopping center (hereinafter, the SC), 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 assessment factors
2021 results. In 2021, the traffic of the SC increased by 45%, which provided for growth of revenues by 55% and more than twofold growth of the Company’s operating income. At the same time, fixed rent increased by 55% and the trade turnover fee grew by 86%. The share of vacant areas in the SC fell to 1% by the end of 2021. The restrictions imposed on shopping centers in 2021 due to the coronavirus pandemic had a much weaker impact on the Company’s operations than restrictions in 2020. Growth of ROI is reflected in the improvement of the Company’s profitability assessment to high.
The Company’s debt includes a floating-rate bank loan tied to the Bank of Russia’s key rate. Growth of the key rate in H2 2021 was only partially reflected in the Company’s interest expenses in 2021, with interest expenses growing by 6%. ACRA expects the growth of rates to be fully reflected in the growth of interest expenses by the end of 2022. The Agency expects the Company’s interest expenses to grow by approximately a third in 2022.
High leverage and low debt service indicators. The Company’s weighted average total debt to NOI ratio for 2020−2024 will equal 9.2x. The weighted average NOI to payments ratio for 2020−2024 will amount to 1x. In 2021, the Company started making payments on the body of debt as per the repayment schedule set by the loan agreement. The size of payments will gradually increase in the forecast period. When coupled with the growth of interest expenses, this will lead to gradual growth of total debt service expenses. Nevertheless, ACRA expects the NOI to payments ratio to exceed 1.2x as soon as 2024 due to further growth of rental income. The Agency expects the total debt to NOI ratio at lower than 6x in 2024.
Low liquidity assessment. The Company’s liquidity assessment is influenced by significant growth of NOI in the forecast period amid a simultaneous increase in the volume of debt to be repaid, as well as an absence of open credit lines provided by banks.
KEY ASSUMPTIONS
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No new strict coronavirus quarantine restrictions in 2022;
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Growth in rental income by 25% in 2022 and by 6.7% annually in 2023–2024;
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Annual average key rate of the Bank of Russia at 7.5–8.5% in 2022, and then declining to 5.25–6% in 2024;
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Maintaining a very high utilization rate in 2022–2024.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Consistent growth of the weighted average NOI to payments ratio to higher than 1x;
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Weighted average total debt to NOI ratio falling below 8x.
A negative rating action may be prompted by:
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Consistent decline of the weighted average NOI to payments ratio to below 1x;
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Introduction of new tough quarantine measures related to the coronavirus pandemic.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bb.
Adjustments: none.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating has been assigned to JSC «Laut» 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 data provided by JSC «Laut», information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and JSC «Laut» participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to JSC «Laut». No conflicts of interest were discovered in the course of credit rating assignment.