The credit rating of JSC “Laut” (hereinafter, the Company, or Laut) has been affirmed due to the Company maintaining high profitability, a strong business profile, and a medium market position in its segment and location, as well as due to the improvement of cash flow thanks to a considerable reduction of capital expenditures in the forecast period. The operational risk profile assessment is limited by the high industry risk inherent to commercial real estate companies and poorly developed corporate governance, while the financial risk profile assessment is constrained by low coverage and weak liquidity.
After successful repayment of the principal and interest expenses in 2023 and on the back of further growth of net operating income (NOI), the Agency expects the Company’s leverage to decline, which may lead to improved assessments of a number of indicators. This is reflected in the Positive outlook being retained for the credit rating.
Laut owns and operates the Salaris shopping center, whose gross building area covers 310,000 square meters, with 105,000 square meters of gross leasable area. Prior to October 2022, the Company was part of the Plaza B. V. group, which operates and manages commercial real estate (projects include the Salaris shopping center, the Paveletskaya Plaza shopping center, and IFC Columbus) and is also involved in investment activities and development.
key assessment FACTORS
Strong business profile. Laut owns a single property, Salaris shopping center, which has a highly diversified pool of tenants. As of the end of February 2022, more than 20 tenants representing international brands suspended their commercial activities, however, the Company reached agreements regarding lease payments and replacing part of these tenants, which allowed it to maintain its lease income. The average occupancy of floor area under signed contracts amounted to 99% as of the end of 2022. Despite the presence of long-term lease contracts, in ACRA’s opinion the risk of the remaining foreign tenants leaving in the event of further deterioration of the geopolitical situation remains.
High profitability and medium size of business. The Company’s NOI was RUB 1.8 bln as of the end of 2022, which is 28% higher than in 2021. The Agency expects this indicator to grow to RUB 2.4 bln over the forecast period (2023–2025), which may lead to a better assessment of profitability (NOI per square meter of leasable area) and it exceeding the current assessment boundary of 20,000 rubles. The weighted capitalization rate on the horizon of 2020–2025 is 11%, which indicates the Company’s high profitability.
Medium leverage and low coverage. The Company’s debt includes a ruble-denominated non-revolving credit line with a floating interest rate. At the end of 2022, the total debt to NOI ratio was 8.2x and LTV (loan-to-value) was 96%. Amid an absence of new loans, ACRA expects the Company’s leverage to decline (ratio of total debt to NOI may amount to 6.0–6.5x in 2023–2024).
After the Bank of Russia hiked its key rate in February 2022, Laut reached an agreement with its creditor on postponing part of debt repayments until 2023. Consequently, the Agency estimates the ratio of NOI to payments (including the principal and interest expenses) at 0.95x this year, and the weighted average for 2020–2025 at the boundary level of 1.0x, which indicates low coverage of payments.
Weak liquidity and expected improvement of cash flow. Lower investment expenditures in the forecast period led to an improvement of the average weighted FCF margin for 2020–2025, which turned positive by the end of 2022. The postponement of debt payments put pressure on the Company’s liquidity in 2023. Although liquidity is assessed as low, Laut assumes that, as in the past, missing funds will be provided by the shareholder if necessary.
Low corporate governance. Laut compiles RAS reporting and does not publish its financial and operational indicators. The absence of key governance bodies (board of directors and the associated committees), and policies and formalized procedures for making managerial decisions, heightened interest risk, as well as the presence of related party transactions, limit the Company’s rating. At the same time, the Agency positively assesses the consistent and successful implementation of the development strategy, which aims to provide growth of cash flow from lease payments and NOI. The highly experienced Mall Management Group manages Salaris shopping center.
key assumptions
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Shareholder providing liquidity to make debt payments if necessary;
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No proceeds from the return of issued loans;
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Capital expenditures as per the presented financial model;
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No additional borrowing or dividend payments in the forecast period;
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Very high occupancy of floor space maintained in 2023–2025.
potential outlook or rating change factors
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Weighted average ratio of total debt to NOI falling below 5.0x;
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Weighted average ratio of NOI to payments exceeding 1.0x;
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Improved liquidity assessment;
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Considerable improvement of corporate governance practices.
A negative rating action may be prompted by:
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Steady growth of the weighted average ratio of total debt to NOI above 8.0x;
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Considerable decline of NOI over the forecast period;
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FCF margin turning negative;
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Worsened liquidity assessment;
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Material change to macroeconomic conditions that is capable of having a significant negative impact on the Company’s metrics.
rating components
Standalone creditworthiness assessment (SCA): bb.
Support: 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 were, 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.
