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16 Jun 2010
First time rating
London, 16 June 2010 -- Moody's Investors Service has today assigned Corio N.V.
("Corio"), the listed Dutch REIT (real estate investment
trust), a first-time long-term Issuer Rating of Baa1.
The outlook on the rating is stable.
The Baa1 Issuer Rating reflects the size and quality of Corio's
property portfolio, which benefits from active management and produces
a solid, recurring rental income stream underpinned by excellent
geographic and tenant diversification, good quality, well-positioned
assets and low vacancy rates. Over 94% of the portfolio
is located in mature European markets and in countries with broad economic
bases. At year-end 2009, retail properties represented
95% of the portfolio by value, offices 4% and industrial
The rating also incorporates, as at Q1 2010, Corio's
good fixed charge cover of 2.9x and moderate leverage as measured
by adjusted debt to property assets at 40.3%; however,
adjusted net debt/EBITDA at 7.5x is higher than most of its similarly-rated
Corio announced the acquisition in Q1 2010 of two high quality shopping
centres in Italy as well as the acquisition of a portfolio from Multi
Corporation of four shopping centre investments and five shopping centre
development projects, located largely in Germany. The consideration
for the six investment properties is EUR985 million plus an additional
EUR660 million to cover the costs to acquire and complete the developments.
The purchase is being financed by a combination of debt, equity
and the sale of mature assets with the intention of keeping the transaction
leverage-neutral thereby maintaining Corio's internal solvency
ratio guideline of 40%.The acquisition will improve the
geographic diversification of the portfolio, allow Corio to enter
the German market at a time when the economy is stabilising and improve
the scale of its operations in Spain and Italy.
Nevertheless, the acquisition considerably expands Corio's
exposure to development risk. While management normally limits
Corio's fixed development commitments to approximately 10%
of the total portfolio, this transaction spikes its exposure for
a few months and then settles to between 14% to 15% at year-end
2010, following anticipated project completions in Q3 2010.
While the rating allows for this temporary rise in development activity,
it is Moody's expectation that Corio will ensure the proportion
of committed development activity to total property assets is brought
down to well below 15% as early as practicable.
The company's liquidity risk profile has tightened as a result of
these new financing requirements and the rating assumes that headroom
will be promptly replenished.. Moody's expects that
Corio will manage its liquidity in a conservative and prudent manner and
believes the company has the means to do so, particularly as it
was able to maintain good access to capital throughout the credit crunch.
Moody's further notes that the company's failure to strengthen
its overall liquidity profile could potentially put negative pressure
on the rating.
The stable outlook on Corio's Baa1 issuer rating reflects our view
that despite elevated unemployment levels across the EU combined with
subdued household consumption, the company will continue to produce
steady net rental income and operating profits. The stable outlook
assumes that (i) management will continue to act in accordance with its
financial policies, thus ensuring that acquisitions of property
investments and developments will be financed with a debt to equity mix
that meets Corio's internal solvency ratio guidelines and ensures
Corio's leverage metrics do not deteriorate; (ii) adjusted
debt to gross property assets, as measured by Moody's,
will remain at around 40%; (iii) Corio's fixed charge
coverage ratio will remain at or above 2.7x; (iv) the proportion
of the fixed committed development pipeline to property assets will return
to levels well below 15% as soon as possible in practice;
and (v) the company will preserve an adequate liquidity profile at all
Positive pressure on the ratings is currently constrained by Corio's
moderate size, substantial exposure to development risk and relatively
high level of net debt to EBITDA compared to its similarly-rated
peers. Pressure would nevertheless start building if Corio were
to improve its credit metrics with inter alia, more contained leverage,
interest coverage of at least 3 times on a sustainable basis and maintain
its development pipeline as a proportion of its property assets to historic
levels, i.e. around 10%.
While Corio intends the acquisition of the Multi developments to be earnings
accretive, Moody's perceives that business, financial
and liquidity risks are currently elevated and, as a result,
the rating has limited headroom. Downward pressure on the ratings
could arise from (i) a failure to strengthen the company's liquidity
risk profile, (ii) the company pursuing development activity more
aggressively causing the committed development pipeline to remain above
15% of total property assets, (iii) the ratio of debt to
gross property assets rising materially above 40%; or (iv)
fixed charge coverage falling below 2.7x.
The principal methodology used in rating Corio was Moody's Rating Methodology
for REITs and Other Commercial Property Firms, published January
2006 and available on www.moodys.com in the Ratings Methodology
subdirectory 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 website.
Corio N.V., headquartered in Utrecht, The Netherlands,
has a portfolio of primarily retail operating properties that were valued
at 31 December 2009 at EUR5.7 billion and produced gross rental
income in FY2009 of EUR391 million.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paloma San Valentin
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns Corio Baa1 rating; stable outlook
No Related Data.
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