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Rating Action:

Moody's affirms Sonae Sierra's senior unsecured ratings at Aa3.br; outlook revised to negative

 The document has been translated in other languages

26 Feb 2016

Approximately R$ 252 million of securities affected.

Sao Paulo, February 26, 2016 -- Moody's America Latina Ltda. affirmed Sonae Sierra Brasil S.A's national scale senior unsecured debt rating and national scale corporate family rating at Aa3.br, and revised the outlook to negative from stable.

The following ratings were affirmed with a negative outlook:

-- National scale senior unsecured rating at Aa3.br (Ba2 global scale)

-- National scale corporate family rating at Aa3.br (Ba2 global scale)

RATINGS RATIONALE

This rating action and outlook revision for Sonae Sierra (Sonae) was taken as a result of Moody's having downgraded Brazil's issuer and bond ratings to Ba2 with a negative outlook from Baa3 under review for a possible downgrade on February 24, 2016.

According to Moody's, Sonae's operating performance is linked to the strength of the Brazilian economy, which is undergoing an economic shock with prospects of a slow recovery. The combined effect of the volatility in the local economy, a challenging political atmosphere, higher interest rates and a continued decline in consumer spending could negatively impact Sonae's credit profile.

Moody's ratings reflect Sonae Sierra's solid operating performance, including a portfolio occupancy level consistently in the mid-90% range, coupled with solid EBITDA margins and low occupancy costs. Sonae has modest leverage and a fixed charge coverage with ample cushion. There are no greenfield projects in the pipeline, a credit positive, and the company is more focused on redevelopment opportunities in the portfolio to further drive internal growth. As of 3Q15, Sonae had a manageable debt maturity schedule with a total of R$ 152 million due between the end of 2015 and 2016, followed by R$ 113.4 million in 2017. The company's liquidity and funding positions are supported by its cash balance of over R$ 250 million, not including the R$ 56 million of expected proceeds from the sale of Shopping Boa Vista (to close in 1Q2016), and an unencumbered pool, representing approximately 56% of gross assets.

The key credit challenges for the company include the higher exposure to the slow recovery and anemic growth prospects of the Brazilian economy and its modest size in terms of gross assets. In addition, there is lease rollover risk for a portion of the portfolio in the next 12 to 24 months. Lastly, Moody's notes the overall continued deceleration in sales for the entire retail sector. As of year to date September 30, 2015, Sonae's same store sales growth decreased to 1.3% from 7% for the same period last year. Despite the challenging environment, the company grew same store rents by about 7%, albeit 300 basis points lower than the rate for the same period last year, due to its inflation-indexed leases and healthy leasing spreads.

The negative rating outlook reflects Sonae Sierra's heightened exposure to the uncertainty and risks of additional deterioration of Brazil's credit profile.

An upgrade for Sonae's ratings would be predicated upon the overall improvement of Brazil's sovereign bond ratings, in conjunction with a). maintenance of a cash balance between R$400-600 million to manage short-term liquidity needs; b). a fully loaded fixed charge coverage (interest expense, capitalized interest and principal amortization) consistently above 2.5x; and c). an increase in the unencumbered asset pool above 70% of gross assets. Conversely, a downgrade would result from a). further downgrades of Brazil's bond ratings; b). a fully loaded fixed charge coverage close to 1.5x on a sustained basis; c). a decline in cash balance and marketable securities closer to R$100 million; d). a significant decline in the portfolio's occupancy rate and/or a 10% decline in EBITDA margins; and e). development as percentage of gross assets above 15%.

The last rating action was taken on March 18, 2014 when it affirmed Sonae Sierra Brasil S.A.'s Aa3.br national scale senior unsecured debt rating (Ba2 global scale) and the Aa3.br national scale corporate family rating (Ba2 global scale) with a stable outlook.

Sonae Sierra Brasil S.A. [SSBR3 on Sao Paulo Stock Exchange (BOVESPA)] is real estate operating company (REOC) focused on the shopping mall sector and headquartered in Sao Paulo, Brazil. The company's portfolio consists of 10 properties, totaling over 450,000 square meters of gross leasable area (GLA), with predominant concentration in the state of Sao Paolo.

The principal methodology used in these ratings was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda. may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please see the special report "Services provided to entities rated by Moody's America Latina Ltda." on our website www.moodys.com.br for further information.

Entities rated by Moody's America Latina Ltda. (and the rated entities' related parties) may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities. Please go to www.moodys.com.br for a list of entities receiving products/services from these related entities and the products/services received. This list is updated on a quarterly basis.

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.br.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com.br for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.br for additional regulatory disclosures for each credit rating.

Juan Acosta
Analyst
Commercial Real Estate Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
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Nick Levidy
MD - Structured Finance
Commercial Real Estate Finance
JOURNALISTS: 212-553-0376
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Moody's affirms Sonae Sierra's senior unsecured ratings at Aa3.br; outlook revised to negative
No Related Data.
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