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Rating Action:

Moody's places the ratings of Atrium Europe Real Estate Limited on review for downgrade as Gazit-Globe intends to acquire the remainder 25% stake

05 Aug 2021

Frankfurt am Main, August 05, 2021 -- Moody's Investors Service ("Moody's") has today placed on review for downgrade the Baa3 long-term issuer rating of Atrium European Real Estate Limited ("Atrium"), the Baa3 ratings on its senior unsecured notes and the Ba2 rating on its subordinated (hybrid) notes. It has also placed on review for downgrade the Baa3 issuer rating and senior unsecured rating of Atrium Finance Issuer B.V., both backed by Atrium. The outlook has been changed to ratings under review from stable.

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

The review follows the announcement on 2 August 2021 that, Gazit-Globe Ltd. (Gazit) has the intention to acquire all the minority interests in Atrium for a total of EUR 3.35 per share, constituting a 14% premium to the closing price preceding the announcement date and a 18% discount to 30 June 2021 EPRA NTA of €4.10 per share. Gazit also announced its intention to turn it into a wholly owned privately held company of Gazit, with a subsequent delisting from the stock exchange. Gazit currently holds 75% of Atrium's share capital.

During the rating review period Moody's will re-assess the degree of interlinkage between Atrium 's credit risk profile and that of its majority shareholder Gazit, a larger and globally active real estate group that appears to have a weaker financial profile compared to Atrium, with a reported consolidated net debt to total assets of 58.8% as of Q1 2021. The rating review will also monitor the progress of the transaction, future disclosures from Gazit around funding and conditions of closing of the transaction, as well as the impact, if concluded, on Atrium's credit profile.

During the review process Moody's will focus on: (1) Gazit's underlying credit strength and the interlinkage with Atrium's credit quality, (2) any potential commitments from Gazit or ringfencing features in the corporate governance structure that could protect Atrium's credit quality and its current ratings, if the latter becomes a wholly owned and privately held subsidiary of Gazit, (3) the impact of the ownership consolidation by Gazit on Atrium's operations, business strategy, financial policy, corporate governance and access to capital, including a potential greater operational and financial integration into the Gazit group.

In case that the transaction will not be completed, Moody's will reassess to which extent Gazit's underlying credit strength can be regarded as an anchor to Atrium's rating, potentially also introducing additional rating guidance in connection with Gazit's financial and business profile, to reflect a greater credit linkage between both entities going forward.

The impact on the credit quality of Atrium and its rated debt instruments will depend on Moody's final assessment of above-mentioned factors.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

Governance risks that we take into consideration in the company's credit profile include the company's concentrated ownership by its key shareholder Gazit, who controls 75% of the shares. In spite of the concentrated ownership, Atrium has been run as a rather independent entity with a public listing on the Vienna and Amsterdam stock exchanges. The company has a good track record of adequate corporate governance supported by a one-tier board of directors that is comprised by five independent members out of seven and Atrium's commitment to conservative financial policy of maintaining a reported loan-to-value (LTV) below 40%.

However, the lack of details with respect to funding in the context of the transaction, raises the risk of a potential special dividend payment or other forms of cash leakage to refinance the price consideration (estimated at ca. €335 million) for squeezing out existing minorities. Atrium had a strong cash balance as of end of June 2021 amounting to €514 million and which is currently earmarked by the company for investments into their multifamily residential platform over the next 3-4 years.

Another risk is the aimed delisting of Atrium, if the bid is successful, which could impair corporate governance structure, reporting quality and transparency, as well as limit its access to other forms of capital in the near future.

Absent the completion of the transaction, the factors that could lead to a downgrade include:

- Structural deterioration of operating environment for retail landlords in CEE translating into a high level of retailer distress, sustained decline of like-for-like rental growth, footfall and retail sales with rising vacancy, and pressure on cash flow due to rent concessions.

- Moody's-adjusted leverage above 45% on a sustained basis, with net debt/EBITDA increasing from the current levels, or Moody's-adjusted fixed-charge coverage below 2.5x on a sustained basis

- A sharp and persistent deterioration in local currencies against the euro, which would force the company to heavily discount rents on a long-term basis

- If material execution risks would arise as the company diversifies into the residential segment or if these investments are funded substantially with debt

Given the review for downgrade, an upgrade is unlikely at this point. Absent the completion of the transaction, the rating could be upgraded under a stable operating environment for retail real estate in CEE, and if Atrium maintains:

- a large-scale and diversified portfolio of high-quality and dominant shopping centres in major cities of highly rated countries, while maintaining a strong operational performance, measured by like-for-like rental growth, footfall, overall retail sales, retail sales per square metre and occupancy cost ratio for retailers

- Moody's-adjusted gross debt/total assets below 40%, with financial policies that support that level and limit the payment of special dividends, and Moody's-adjusted net debt/EBITDA falling towards the levels reported before the coronavirus pandemic

- Moody's-adjusted fixed-charge coverage above 3.5x on a sustained basis

- Moody's-adjusted unencumbered assets/gross assets around their current levels

- a conservative funding approach for the company's diversification strategy into the residential segment

LIST OF AFFECTED RATINGS:

On Review for Downgrade:

..Issuer: Atrium European Real Estate Limited

.... Issuer Rating , Placed on Review for Downgrade, currently Baa3

....Subordinate Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa3

..Issuer: Atrium Finance Issuer B.V.

.... BACKED LT Issuer Rating, Placed on Review for Downgrade, currently Baa3

.....BACKED Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa3

Outlook Actions:

..Issuer: Atrium European Real Estate Limited

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Atrium Finance Issuer B.V.

....Outlook, Changed To Rating Under Review From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms Methodology published in`July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1272320. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Atrium European Real Estate Limited (Atrium) owns a €2.5 billion portfolio of 26 shopping centres totalling around 809,000 square metres (sqm). In 2020, the company generated around €139 million in annual rent after a €26 million negative rental income stemming from coronavirus-related rent relief and tenant support measures. The company is focused on the more stable CEE countries of Poland and Czech Republic, where 85% of its centres (by value) are located. The average value of the company's shopping centres is €94 million, with an average size of around 31,100 sqm.

Atrium is based in Jersey, Channel Islands, and it has a dual public listing on the Vienna and Amsterdam stock exchanges, with a market capitalisation of around €1.26 billion as of 04 August 2021.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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
Vice President - Senior 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.
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