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Rating Action:

Moody's downgrades Immobiliare Grande Distribuzione SiiQ S.p.A. to Ba2 with stable outlook

09 Jul 2020

Frankfurt am Main, July 09, 2020 -- Moody's Investors Service ("Moody's") has today downgraded the long term corporate family rating (CFR) of the Bologna-based real-estate company Immobiliare Grande Distribuzione SiiQ S.p.A. (IGD) to Ba2 from Ba1 as well as downgrading the senior unsecured rating of its EUR 300 million notes maturing 2021 (out of which around EUR 71 million outstanding) to Ba2 from Ba1. The outlook has been changed to stable from ratings under review.

RATINGS RATIONALE

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the deterioration in IGD's credit quality it has triggered, given its exposure to the Retail Real Estate industry which has left it vulnerable to a depressed economic sentiment, in which we expect a rising number of retail insolvencies and potentially tenants to re-negotiate rent levels in addition to a likely accelerated structural move towards e-commerce in these unprecedented operating conditions.

IGD's operating environment has deteriorated strongly and will likely be sustainably weaker even after the immediate disruption has ceased. Many retailers are expected to face acute liquidity and solvency challenges because of store closures and loss of income. In this context, we expect that the company provides concessions through extended payment terms and rent reductions to support its occupancy rate, while vacancy through insolvencies or non-renewals of leases will be more challenging to fill.

IGD's net rental income generation will be additionally challenged by the expected sharp contraction of the Italian economy in 2020 and its limited recovery in 2021. The expected subdued economic and leasing activity will result in declining rental income throughout 2020 and 2021, which we estimate to be around 10% per year in our base case. While low interest rates should continue to support property values, value corrections seem inevitable given the declining rental outlook. Therefore, we have assumed property values to decline in a similar way throughout 2020 and 2021. All this will put a greater strain on IGD's credit ratios, while its capacity to restore balance sheet metrics remains limited, given its reduced access to equity because of the large discount to net asset value (NAV) at which the company's shares are currently trading. Deleveraging via disposals will be difficult as well, amid the current limited appetite for retail real estate assets.

More positively IGD's rating is supported by its food-anchored portfolio of convenience shopping centres, that provide some element of rental income resilience and stability. Fixed charges coverage ratio will remain solid at around 3x as a result of the company's operational efficiency and the recent refinancing measures, which have also bolstered the company's liquidity.

LIQUIDITY

Despite the expected reduction of net rental income, we estimate that the company will generate funds broadly covering maintenance capital spending and interest payments over the next 12 to 18 months. Furthermore, IGD's early refinancing of its 2021 bond bolstered its liquidity with around €130 million cash on hand as of 31 March 2020 (out of which €71 million is earmarked for repaying the residual outstanding amount of its 2021 bond). The company has successfully extended its €60 million revolving credit facilities (undrawn) with no MAC clauses and which mature in 2023.

The company has taken additional measures to preserve cash flows such as reducing project capital spending that is not committed throughout 2020 and 2021 as well as a dividend reduction as permitted by the Italian REIT tax regime.

RATIONALE FOR THE STABLE OUTLOOK

Despite the tough economic climate and very challenging operating environment for retail landlords, with Covid-19-driven social distancing likely to exacerbate the sector structural challenges, we expect that IGD's operational and financial performance remains within the guidance of its new rating category. Over the next 12 to 18 months we expect the company's Moody's adjusted debt to assets to remain between 51% and 53% and its Moody's adjusted net debt to EBITDA to be between 11x and 13x.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Negative rating pressure could develop if a higher level of retailer distress would translate into weaker rental income or occupancy than currently anticipated in our base case. Other factors that could lead to a downgrade include:

- Moody's-adjusted gross debt to total assets increases to 55%, accompanied by an increasing trend in net debt to EBITDA exceeding 13x

- Moody's-adjusted fixed charge coverage deteriorates sustainably below 2.25x

- A negative rating action on Italy's sovereign rating

- The company fails to maintain good liquidity or refinance debt maturities well in advance

- The credit quality of its main tenant deteriorates to an extent that affects IGD's key metrics through declining rents or other channels

Upward rating pressure could develop if:

- There is sustained positive operating performance, reflected by growing footfall, tenant sales per square meter (sqm) and tenant affordability ratio, with at least a stable occupancy ratio

- Moody's-adjusted debt to total asset remains below 50%, in combination with net debt to EBITDA around 10x

- Moody's-adjusted fixed charge coverage ratio remains above 2.75x

- Strong liquidity management

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Immobiliare Grande Distribuzione SiiQ S.p.A. (IGD) is a retail property company based in Bologna, Italy. It owns and operates medium to large sized convenience shopping centres valued at EUR2.4 billion per 31 March 2020 and generating net rental income of ca. EUR137million. The company also has a small presence in Romania, where it owns 14 shopping centres, representing 6% of portfolio value and rental income.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

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

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

Ana Luz Silva Robles
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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