The credit rating of "Garant-Invest Commercial Real Estate" JSC (hereinafter, the Company, or Garant-Invest) is based on the high industry risk, small business size (net operating income is less than RUB 5 bln), low coverage assessment, high leverage, and medium liquidity assessment. The credit rating is supported by the Company’s strong business profile and geographic presence, as well as high profitability.
The Company is the main business asset of Financial and Industrial Corporation "Garant-Invest". The Company owns and manages a portfolio of commercial real estate, and develops and redevelops commercial real estate in Moscow. The Company owns seven shopping centers and a chain of district shopping centers, with the gross building area of 132,000 sq. m, of which the gross leasable area is 83,000 sq. m.
key assessment factors
Recovery of rental income. Last year Garant Invest’s rental income practically recovered to the pre-crisis level recorded in 2019, while the vacancy rate in the Company’s shopping centers decreased to 2.6% as of the end of 2021. ACRA expects recovery growth of the Company’s rental income to continue in 2022 as during the crisis, it provided tenants a discount in the form of delaying indexation for a year. Consequently, double indexation is expected in 2022 for a significant part of contracts. Inflationary growth in trade turnover will also contribute to the increase in rental income.
High leverage. In October 2021, Garant-Invest entered into a loan agreement with Promsvyazbank PJSC (AA+(RU), outlook Stable), which involves financing 80% of the construction costs of WEST MALL multifunctional complex. The terms of the transaction do not provide for a guarantee from the Company, in connection with which the Agency does not take this debt into account when assessing leverage, and also excludes construction expenses financed by loans when calculating FCF profitability. ACRA estimates the weighted average ratio of total debt to net operating income for 2019 to 2024 at 9.5x, which corresponds to high leverage.
Low coverage. In 2021, when refinancing a loan provided by Sberbank (AAA(RU), outlook Stable) and secured by Galereya Aeroport shopping center, the Company repaid all interest payments that were accrued and unpaid during the loan holiday period (in 2020), and also paid a penalty for early termination of a contract, which led to a significant increase in interest expenses at the end of last year. The Company’s interest expenses will remain high in 2022 due to the growth in interest rates on floating rate loans that are tied to the Bank of Russia’s key rate. ACRA assesses the weighted average ratio of net operating income to payments for the period from 2019 to 2024 at 1x.
KEY ASSUMPTIONS
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Rental income growing by 19% in 2022 and 4% in 2023 and 2024;
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Percentage of leasable area in key shopping centers remaining high during the forecast period;
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Annual average key rate of the Bank of Russia at 7.5% in 2022, 5.7% in 2023, and 5.3% in 2024.
potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Weighted average ratio of net operating income to payments exceeding 1.2x;
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Weighted average ratio of total debt to net operating income falling below 8x.
A negative rating action may be prompted by:
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Significant deterioration in the macroeconomic situation in the country and critical decline in consumer purchasing power;
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Decline in the Company’s liquidity indicators and difficulties in servicing debt obligations;
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Weighted average ratio of total debt to net operating income exceeding 12x.
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): bbb-.
Adjustments: none.
issue ratings
"Garant-Invest Commercial Real Estate" JSC, 001Р-05 series (RU000A1005T9), maturity date: April 5, 2024, issue volume: RUB 6 bln — BB+(RU).
"Garant-Invest Commercial Real Estate" JSC, 001Р-06 series (RU000A1016U4), maturity date: December 13, 2022, issue volume: RUB 500 mln — BB+(RU).
"Garant-Invest Commercial Real Estate" JSC, 002Р-01 series (RU000A102DZ1), maturity date: November 23, 2022, issue volume: RUB 800 mln — BB+(RU).
"Garant-Invest Commercial Real Estate" JSC, 002Р-02 series (RU000A102LS9), maturity date: December 25, 2023, issue volume: RUB 500 mln — BB+(RU).
"Garant-Invest Commercial Real Estate" JSC, 002Р-03 (RU000A102X18), maturity date: March 26, 2024, issue volume: RUB 1.5 bln — BB+(RU).
"Garant-Invest Commercial Real Estate" JSC, 002Р-04 (RU000A103WX4), maturity date: May 26, 2023, issue volume: RUB 1.2 bln — BB+(RU).
Rationale. The issues represent senior unsecured debt of the Company. Due to the absence of either structural or contractual subordination of the issues, ACRA regards these issues as pari passu with other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. When calculating the loss recovery rate, ACRA took into account the planned purchase of new commercial real estate.
According to ACRA’s methodology, the loss recovery rate for the Issuer’s unsecured debt belongs to Category III. Therefore, the above bond issues are rated BB+(RU), i.e. one notch below the credit rating of the Company.
REGULATORY DISCLOSURE
The credit ratings of "Garant-Invest Commercial Real Estate" JSC and the bonds issued by "Garant-Invest Commercial Real Estate" JSC have been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of "Garant-Invest Commercial Real Estate" JSC and the bonds (RU000A1005T9, RU000A1016U4, RU000A102DZ1, RU000A102LS9, RU000A102X18, RU000A103WX4) issued by "Garant-Invest Commercial Real Estate" JSC were first published by ACRA on December 26, 2018, March 12, 2019, December 25, 2019, November 26, 2020, December 29, 2020, April 5, 2021, and October 25, 2021, respectively. The credit rating of "Garant-Invest Commercial Real Estate" JSC and its outlook and the credit ratings of the bonds issued by "Garant-Invest Commercial Real Estate" JSC are expected to be revised within one year following the publication date of this press release.
The credit ratings were assigned based on data provided by "Garant-Invest Commercial Real Estate" JSC, information from publicly available sources, and ACRA’s own databases. The credit ratings are solicited, and "Garant-Invest Commercial Real Estate" JSC participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to "Garant-Invest Commercial Real Estate" JSC. No conflicts of interest were discovered in the course of credit rating assignment.
