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Rating Action:

Moody's assigns Baa1 rating to Wereldhave N.V.; stable outlook

02 Feb 2016

London, 02 February 2016 -- Moody's Investors Service has today assigned Amsterdam-based real-estate company Wereldhave N.V. a first-time long-term issuer rating of Baa1, with a stable outlook.

"Our decision to assign Wereldhave a Baa1 rating balances the company's good franchise, geographically diversified portfolio, moderate leverage and conservative financial policy" says Roberto Pozzi, a Moody's Vice President, Senior Credit Officer and lead analyst for Wereldhave. Moody's anticipates that the company's will successfully refinance short term debt maturities and that the availability liquidity, including both cash and long term committed credit facilities, will cover all its cash outflows over the next 12-18 months, including dividends and planned maintenance capital expenditures.

RATINGS RATIONALE

Today's assignment of a Baa1 rating to Wereldhave reflects its (1) solid franchise in the convenience shopping centres business; and (2) geographically well-diversified portfolio. The company has recently completed its strategic plan to transform its portfolio by selling non-core properties and increasing its scale in key markets, while maintaining a solid balance sheet. Proposed future development activities are very limited and focused on very low-risk extensions.

The company's asset base is well diversified, both geographically as well as in terms of tenant base. Recent acquisitions and future expansion plans into existing core markets will further enhance the quality of the company's property portfolio, stabilising its cash flows.

However, the company could face headwinds over the next two years given a still mixed economic outlook in Europe and continued structural challenges, including from e-commerce competition. Nevertheless, its recent results are consistent with management's key strategic target of achieving 98% occupancy by 2017.

Moody's expects that potential future acquisitions will be funded in line with the company's conservative financial policy. However, the opportunity for operating cost synergies to be achieved through the integration of retail property assets are limited. Instead, the benefits of further expansion will be related to greater diversification and lower funding costs.

Wereldhave's current development activities are based on low-risk redevelopments and extensions of existing properties that meet its internal investment criteria, rather than involving the construction and development of new sites. This approach significantly reduces the company's exposure to development risk.

Moody's anticipates that Wereldhave's effective leverage (measured as debt to gross assets) will be in a 35%-40% range over the next two years. Given limited portfolio's yield compression over the last three years and still sizeable yield spreads, downside risk to valuations should be limited, in our view. Management is committed to maintaining leverage within the 35%-40% target range and has funded its recent acquisitions accordingly.

Wereldhave benefits from low funding costs, paying an average 2.3% interest rate (June 2015) on EUR1.46 billion of interest-bearing debt, of which approximately 75% was at fixed rates or hedged and 25% variable.

Wereldhave's financing arrangements have financial covenants, typically loan-to-value and interest cover for the specific assets pledged. At the end of June 2015, the company had significant covenant headroom under all its financing arrangements: its largest credit facility allows for a loan-to-value ratio of up to 60% compared to an actual 30.5% at the last test date. The company also has substantial headroom under the two other covenants based on interest coverage ratio (minimum 2.0x compared to actual 5.4x) and solvency ratios (minimum 40%) included in its financing arrangements. We note that the facilities contain material adverse change language.

The company has maintained good access to multiple sources of capital (unsecured debt and common equity) throughout the last few years, despite occasionally constrained capital market conditions. Its property portfolio is fully unencumbered, adding to the company's financial flexibility.

Wereldhave has undergone a major transformation since 2012 having reduced its presence from seven countries to four, and from five different real-estate sectors to essentially one. In 2013, it sold investments in the US and UK totalling $720 million and GBP243 million, respectively. It also sold its properties in Spain for EUR99.5 million in 2014, and three office buildings in Paris for EUR401 million in 2015. After posting a loss of EUR98.4 million in 2012, Wereldhave returned to profit in 2013 and 2014.

RATIONALE FOR STABLE OUTLOOK

The stable outlook assumes that management will continue improving occupancy rates towards its target of 98%, leverage below 40% and fixed charge cover between 3x-4x.

WHAT COULD CHANGE THE RATING -- UP

Upwards rating pressure could develop if the company targeted and maintained effective leverage sustainably below 30% and fixed-charge coverage remained above 4x.

WHAT COULD CHANGE THE RATING -- DOWN

Negative rating pressure would develop in the event of a substantial reversal of the expected stable trends in earnings and leverage. This could arise from an unexpected reduction of occupancy rates or a large and highly leveraged acquisition driving fixed-charge coverage sustainably below 3x and effective leverage above 40%. Negative rating pressure could also result if a deteriorating trend in the company's covenant headroom or liquidity develops.

Wereldhave is one of the largest European retail property companies measured in terms of gross asset value (EUR3.7 billion, or EUR 4,111/sqm), and market capitalisation (EUR2 billion as at 26 January 2016). At the end of June 2015, the largest shareholders were Cohen & Steers with a 8.81% stake and LaSalle Investment Management with 3.4%, the remaining shares are widely held.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating 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.

REGULATORY DISCLOSURES

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.

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.

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 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 for additional regulatory disclosures for each credit rating.

Roberto Pozzi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Patrick Mispagel
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns Baa1 rating to Wereldhave N.V.; stable outlook
No Related Data.
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