ACRA affirms B+(RU) to JSC «Laut» with the status “Rating under revision: developing”

The credit rating of JSC «Laut» (hereinafter, the Company) is based on the Company’s high leverage, very low debt payment coverage, and weak liquidity. The rating continues to be supported by a strong business profile and the liquidity injection the Company expects from its shareholder. This 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 “Rating under revision: developing” status reflects ACRA’s view of the significant impact on the Company’s creditworthiness that the expected support from its shareholder may have.

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 lifting of quarantine measures, and the second wave of the coronavirus. In August and September, the Company’s revenues recovered to the pre-crisis level recorded in Q1 2020, with revenues in September reaching RUB 209 mln, which is higher than in February (RUB 189 mln), the best pre-crisis month. Revenues and net operating income are expected to fall from October onwards due to the introduction of new measures to combat the second wave of COVID-19. The Company’s financial model factors in a 20% decline in revenues in October to December compared to September due to new limitations and on the assumption that a new lockdown will not be imposed. In the same period, fixed rent is expected to generate 18.5% less revenues due to the assumption new discounts will need to be provided to tenants, and revenues from turnover are expected to be down 20% amid a predicted decline in traffic and turnover. In addition to this, operational expenses are expected to grow by 38% in October to December compared to September 2020 due to increased expenses on security (due to the need to support anti-coronavirus measures), cleaning (seasonal increase in expenses), and marketing (measures to boost traffic amid new limitations).

High leverage, very low debt service indicators, and weak liquidity. The Company’s weighted average total debt to NOI (net operating income) ratio for 2020−2022 should equal 13.8x. The weighted average NOI to payments ratio for 2020−2022 should amount to 0.9x. The Company will be able to meet its interest payment obligations at the end of the year due to expected liquidity injections from its shareholder.

Key assumptions

  • Shareholder providing no less than RUB 1.2 bln in liquidity in 2020;
  • Growth in rental rates by 10−15% in 2021 and 2022 and by 5% annually in subsequent years;
  • Maintaining a very high utilization rate in 2021–2022.

Potential outlook or rating change factors

The “Rating under revision: developing” status assumes that the rating may be changed within the next 90 days.

Removal of the “Rating under revision: developing” status and affirmation or upgrade of the credit rating may be prompted by:

  • Reduced leverage via the provision of additional funds by the shareholder;
  • Consistent recovery of planned pre-crisis NOI indicators.

Removal of the “Rating under revision: developing” status as well as downgrade of the credit rating may be prompted by:

  • Late provision of funds from the shareholder needed to service interest payments in December 2020;
  • Reimposed tough restrictions on the operations of shopping centers within the forecast period;
  • Significant deterioration in the macroeconomic situation in Russia and critical deterioration in the population’s purchasing power;
  • Deterioration of the Company’s liquidity indicators and difficulty in servicing debt obligations.

Rating components

SCA: b+.

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 90 days 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.

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