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Global Credit Research - 02 Mar 2011
New York, March 02, 2011 -- Moody's de Mexico affirmed Grupo GICSA, S.A. de C.V.'s
(GICSA) MX-2 national scale short-term rating, Not
Prime global scale local currency short-term rating, Baa1.mx
national scale issuer rating, and its B1 global scale local currency
issuer rating. The rating outlook is stable, which reflects
our expectation that GICSA will at least maintain its current metrics
and liquidity position, as the general economic and financial uncertainties
continue to stabilize.
According to Moody's, these ratings reflect GICSA's business model
as an owner and operator of a portfolio of shopping centers, offices
and industrial properties with recurring leases as well as an existing
development pipeline and a sales revenue stream. GICSA also has
a well established luxury residential sale business and a 50% JV
for the development and ownership of hotels. The company has a
well diversified portfolio by property type, tenants and geography.
GICSA has a strong management team with an average of more than 15 years
of experience in the Mexican real estate sector. These strengths
are tempered by the entity's high leverage with heavy reliance on property/development
specific financing, some speculative building and cash flows dependent
on property and unit sales, which creates volatility.
Moody's also noted that GICSA's liquidity and funding has been managed
on a non-recourse, project specific, secured debt basis.
The company obtains construction financing for its projects, which
amortizes depending on the type of project. Its current debt maturity
schedule is well laddered with weighted average debt maturities over the
next three years of 17.4%. GICSA's construction financing
providers are institutional long term investors. However,
like most companies in Mexico, GICSA has no committed line of credit
as a backstop to its commercial paper program. Nevertheless,
the company has generated free cash flows to cover its commercial paper
program by at least 2.2x. On the other hand, the company
has no unencumbered assets. However, GICSA does manage its
cash-flow well with enough internally managed cash-flow
and funding to meet its growth plans and pay all its debt service and
it does not pay a regular dividend.
The real estate market in Mexico is very fragmented and highly competitive
and GICSA's large development pipeline translates into funding and earnings
risk. The company's asset size, however, is large by
Mexican standards and average vs. US real estate operators,
which somewhat mitigates this risk. Nevertheless, GICSA's
EBITDA has fluctuated substantially due to its aggressive growth,
through development mostly. Its fixed charge coverage has fluctuated
from 1.5x at its low to 1.9x at its high in the past three
years. This is a solid number for a developer and commercial property
owner rated B1.
The stable outlook incorporates Moody's expectation that GICSA's credit
metrics at least remain at current levels and or continue to improve as
the company continues to enhance and grow its owned portfolio, while
prudently managing its development pipeline and at least maintaining its
operating margins. The outlook also incorporates GICSA's position
as a leading owner, operator and developer of real estate in Mexico.
Moody's will monitor GICSA's opportunistic investment and growth strategy
and the funding of its growth strategy.
Moody's stated that upward rating movements will be predicated upon continued
successful progress in its development and growth strategy accompanied
by material improvements in the company's credit profile including:
increase in size closer US$5 billion in total assets, fixed
charge coverage including interest, capitalized interest,
principal amortization and JVs, closer to 3X, and Debt/EBITDA
closer to 4X. The company's aggressive growth and funding strategy,
coupled with its limited history of accessing the public debt markets
are challenges to ratings improvement in the medium term. Downward
rating pressure on both the global and national scales ratings would occur
from any significant missteps in its development pipeline or growth plans
causing a 10% or more of reduction in revenues. In addition,
material mismanagement of its development pipeline, causing returns
to fall by more than 15%, its projected occupancies to decline
by more than 10% and deterioration in GICSA's credit profile as
follows: fixed charge coverage below 1.5X and Debt/EBITDA
close to 12X, will also place downward ratings pressure.
The following ratings were affirmed with a stable outlook:
Grupo GICSA, S.A. de C.V. --
MX-2 national scale short-term rating; Not Prime global
scale local currency short-term rating; Baa1.mx national
scale issuer rating, and a B1 global scale local currency issuer
In its most recent rating action with respect to GICSA, Moody's
affirmed its MX-2 national scale rating, Not Prime global
scale local currency short-term rating, Baa1.mx national
scale issuer rating, and its B1 global scale local currency issuer
rating on May 12, 2009. The rating outlook remained stable.
GICSA, based in Mexico City, Mexico is an owner, operator
and developer of real estate in Mexico. The company owns a portfolio
of shopping centers, offices and industrial properties with recurring
leases as well as an existing development pipeline and a sales revenue
stream. GIGSA also has a well established luxury residential sale
business and a 50% JV for the development and ownership of hotels.
The principal methodology used in rating GICSA was the Global Rating Methodology
for REITs and Other Commercial Property Firms, published in July
2010 and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's web site.
Senior Vice President
Commercial Real Estate Finance
Moody's Investors Service
Commercial Real Estate Finance
Moody's Investors Service
Moody's Investors Service
Moody's affirms GICSA's ratings, outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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