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Rating Action:

Moody's downgrades Wereldhave to Ba2 from Baa3, outlook negative

26 May 2020

Frankfurt am Main, May 26, 2020 -- Moody's Investors Service, ("Moody's") has today withdrawn Wereldhave N.V.'s ("Wereldhave") Baa3 issuer rating following its downgrade to Ba2, as per the rating agency's practice for corporates with non-investment-grade ratings, and assigned a new corporate family rating (CFR) of Ba2.

Concurrently, Moody's has also downgraded to (P)Ba2 from (P)Baa3 the rating on the company's existing senior unsecured EMTN program and to Ba2 from Baa3 the rating on the outstanding senior unsecured notes. The outlook on the rating has changed to negative from ratings under review.

This rating action concludes a review for downgrade, which was initiated on 8 April 2020.

"The downgrade of Wereldhave's ratings reflect the combination of a sustained weaker operating environment even post coronavirus interruptions through a weakened retail sector and accelerated changes in consumer behavior, reduced access to capital, and expected leverage increases" says Oliver Schmitt, a Vice President and Senior Credit Officer at Moody's. "A very high degree of uncertainty around the retail environment and further downside risk to leverage and operating performance contribute to the negative outlook of the ratings."

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

Wereldhave's operating environment has deteriorated strongly with the business interruption caused by the coronavirus outbreak. Larger parts of Wereldhave's units outside of daily goods had been closed, mostly based on government regulation. Collection rates at Wereldhave have fallen, with uncertain recovery expectations over the medium term. Nevertheless, we understand that the largest part of Wereldhave's retail units are now open again, even though the existing requirements on social distancing and health protection continue to restrict the business.

Despite most of the retail units being reopened at this point, a combination of factors will lead to weaker prospects of Wereldhave's business even after the lockdown, leading to lower occupancy and rental income. Prospects for a V-shaped economic recovery have declined in our macroeconomic forecasts, and consumer demand will remain weaker into 2021. Social distancing is set to continue throughout large parts of 2020, meaning that footfall, ease and pleasure of shopping will remain subdued and below pre-Corona levels in 2021. Moreover, we expect an accelerated trend to online shopping that further reduce demand for retail space, as we expect some changed consumer behavior to remain even after coronavirus related social distancing rules have been removed. We also expect the weak credit fundamentals for parts of Wereldhave's retail tenant basis to put pressure on future space requirements and rents, and lead to increased insolvencies. We are mindful that retailers aim for a higher degree of business risk sharing between landlords and retail tenants for the retailer's store performance, which would increase the operational risk for landlords. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Wereldhave went into the period of current disruptions with a weaker operating performance trends compared to peers. In its Q1 trading update, Wereldhave reported like-for-like net rental income declines in shopping centers of 3.6% in Q1 2020, with occupancy down to 94.1% in shopping centers at the same date. Part of Wereldhave's centers remain daily need driven and will remain relevant in their catchment areas, but we expect non-essential goods retailers to reduce space requirements and to have less capacities to pay rent.

We acknowledge a high degree of uncertainty for any projections looking through partially temporary rental deferrals in 2020, but given the permanent damage on the retail industry we expect rental declines around 15-20% in our base case, with some additional working capital outflows from temporary rent deferrals. Property values have substantial value decline potential, even though the extent and timing is unknown. Given our expectations of sustained rental income declines, we have assumed values to decline in a similar way.

As a consequence of earnings and property value declines, we expect all key credit ratios to weaken in the next 1-2 years. We expect Debt/Assets to increase to above 50%, which includes the benefit of moderate property sales in 2021 at discounted prices. An execution of larger parts of Wereldhave's sales plan in 2021 would be a positive. The company's reported net LTV was 44.8% at year-end 2019, substantially higher than the targeted 30-40% that the company aimed to achieve through property sales. Wereldhave's fixed charge cover was strong at 5.4x and net debt/EBITDA was moderate compared to peers at 8.5x, but we expect both metrics to deteriorate due to EBITDA declines.

The company's access to capital has weakened, while the liquidity position as of March 2020 is tight but sufficient for the 12 months to March 2021. We understand raising equity is unlikely at this time, and the company did not raise meaningful amounts of longer-term debt in the last 18 months. The declining weighted average debt maturity profile (below 3.5 years), makes the company more vulnerable to changes in availability of debt. The company made some improvements to its liquidity structure through a €100 million revolver that aims to address some uncertainty in its asset disposal plan. The current Ba2 rating includes an expectation of an extension of some of the debt due in 2021 in the near future.

The LTV related covenant reflects around 25% value decline buffers as of December 2019, assuming no further changes to debt, asset sales or other changes to the asset side. While this buffer appears adequate, we can envisage scenarios of substantial value declines that will diminish the cushion substantially, depending on the recovery path after the coronavirus-related disruptions and the return of investor interest.

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

Upward rating pressure would only occur once more clarity exists around the impact of the coronacrisis on Wereldhave's business, the operating performance stabilises, and Wereldhave's debt maturity profile extends. Furthermore Moody's could upgrade Wereldhave's rating if Debt/Asset remains well below 50% in combination with net debt/EBITDA remaining at current levels, and fixed-charge coverage remains above 2.75x.

Shorter term negative rating pressure will develop if the company is unable to term out its currently short-dated debt maturity profile and in particular increasing its liquidity buffers significantly into 2021, or if the company increasingly uses lowly levered secured refinancing.

Negative rating pressure could develop if we expect retail weakness to translate into weaker rental income or occupancy than currently anticipated in our base case, or if a successful sale of at least some of the non-core assets becomes rather unlikely. Moreover, Moody's could downgrade Wereldhave's rating if we expect Moody's-adjusted gross debt/assets to increase to 55%, accompanied with an increasing trend in net debt/EBITDA, or if fixed-charge coverage sustained below 2.25x.

LIST OF AFFECTED RATINGS

..Issuer: Wereldhave N.V.

Assignment:

.... LT Corporate Family Rating, Assigned Ba2

Downgrades, previously placed on review for downgrade:

....BACKED Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba2 from (P)Baa3

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Baa3

Withdrawal, previously placed on review for downgrade:

.... LT Issuer Rating, previously rated Baa3

Outlook Action:

....Outlook, Changed To Negative From Ratings Under Review

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.

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.

Oliver Schmitt
VP - Senior Credit Officer
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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