The credit rating of “Garant-Invest Commercial Real Estate” JSC (hereinafter, Garant-Invest, or the Company) is based on its high leverage and low coverage, as well as weak liquidity. High profitability and medium free cash flow (FCF) support the financial risk profile. The Company’s operational risk profile is characterized by high industry risk, a medium market position coupled with a strong business profile, and very strong geographic diversification.
The current rating action was applied including taking into account the Company’s provision of preliminary information on its actual results for last year. The Agency plans to review the rating of Garant-Invest and the rating outlook, taking into account the Company’s audited financial reporting for 2022 and the report of an independent appraiser on the market value of real estate, which is reflected in retaining the “Rating under review: negative” status for the credit ratings of the Company and its bond issues.
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. As of December 31, 2022, the Company owned 16 properties, including 13 functioning shopping centers (Galereya Aeroport shopping center, Moskvoreche shopping center, Retail Park shopping center, PEROVO MALL shopping and entertainment complex, Tulsky retail and business complex, Kolomensky shopping center, Prazhsky Grad shopping and restaurant center, the Small shopping center chain, and WESTMALL multifunctional complex).
key assessment factors
Strong business profile. All shopping centers are located in Moscow, which, according to ACRA’s methodology, allows the Agency to assign a very high score for geographic diversification. The shopping centers that generate the highest revenues — Galereya Aeroport shopping center and Moskvoreche shopping center — each account for around 25% of the Company’s total revenues. The average floor space occupancy at the end of 2022 was over 95%. Tenants are sufficiently diversified and are mainly represented by popular mid-range brands. In 2022, 51 new tenants began operating and the Company signed contracts with them. The Company’s policy is aimed at minimizing risks related to specific tenants. The Company’s anchor tenants are supermarkets (Miratorg, Perekrostok, Pyatyorochka, Auchan), cafes and restaurants (Dzhondzholi, IL Patio, Shokoladnitsa, Vkusno — i Tochka, and others), and a DIY hypermarket (OBI). Despite the presence of long-term lease contracts and continued business relationships with some international brands, in ACRA’s opinion the risk of the remaining foreign tenants leaving in the event of further deterioration of the geopolitical situation remains.
High profitability and smaller than average business size. According to the Company’s preliminary data, its net operating income (NOI) may amount to RUB 2.4 bln for 2022. The weighted average profitability indicator for 2020–2025 (NOI per square meter of leasable area) may be RUB 27,000, while the weighted capitalization rate may be 8.6%, which indicates that the Company has high profitability.
High leverage and low coverage. According to the Company’s preliminary data, weighted average total debt/NOI over the 2020–2025 horizon is assessed at 9.6x, while LTV (loan-to-value) is 78%. In October 2021, Garant-Invest entered into an agreement with Promsvyazbank PJSC (ACRA rating AA+(RU), outlook Stable) which envisages provision of financing for 80% of the expenses for building WESTMALL multifunctional complex. As the conditions of the deal announced by the Company do not involve it providing guarantees, ACRA did not take this debt into account when calculating leverage and, when calculating the FCF margin, excluded construction expenses made using borrowed funds. The weighted average ratio of NOI to payments for 2020–2025 (including interest expenses and amortization payments on the nominal part of the debt for the shopping centers) calculated according to the Agency’s methodology, excluding interest received from loans issued, is estimated at the boundary level of 1.0x, which indicates low coverage of payments.
Medium cash flow and weak liquidity. According to the Company’s preliminary data, the weighted average FCF margin for 2020–2025 is 9.3%. Despite the availability of free credit limits and the possibility to refinance debt, the Company’s liquidity is assessed as low due to significant debt repayments scheduled for 2023–2025.
Medium corporate governance. The Company compiles annual and interim IFRS consolidated financial statements. Financial and operating indicators are published, and this is positively assessed by the Agency as part of the Financial Transparency sub-factor. ACRA takes into account the presence of key governance bodies (board of directors including independent directors and committees). However, the heightened interest risk for floating-rate bank loans and the presence of transactions with related parties and non-related parties limit the assessment of corporate governance factors.
key assumptions
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NOI growing by 15% in 2023 and then declining by 5% in 2024;
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Exclusion of the loan from Promsvyazbank PJSC to build WESTMALL multifunctional complex from the leverage calculation;
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Average annual key rate of the Bank of Russia at 6.8% in 2023 and 2024 and 7.0% in 2025;
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Capital expenditures according to the provided financial model;
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No dividend payments in the forecast period;
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High level of floor space occupancy maintained in the Company’s shopping centers in 2023–2025.
potential outlook or rating change factors
The “Rating under review: negative” status indicates that the rating may be downgraded.
Removal of the “Rating under review: negative” status and affirmation of the credit rating may be prompted by:
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Maintaining the assessments of operational and financial risk profile factors within the ranges established for the current rating, taking into account the Agency’s expectations for the forecast period.
Removal of the “Rating under review: negative” status and downgrading the credit rating may be prompted by:
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Deterioration of operational and financial risk profile factors taking into account the Agency’s expectations for the forecast period;
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Deterioration of coverage indicators (weighted average ratio for NOI to payments for 2020–2025, calculated according to ACRA’s methodology, falling below 1.0x);
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Worsened access to existing liquidity sources.
rating components
Standalone creditworthiness assessment (SCA): bbb-.
Support: 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, 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).
“Garant-Invest Commercial Real Estate” JSC, 002Р-05 (RU000A105GV6), maturity date: November 18, 2025, issue volume: RUB 1.5 bln — BB+(RU).
Rationale. The above issues represent senior unsecured debt of “Garant-Invest Commercial Real Estate” JSC. Due to the absence of contractual subordination of the issues, ACRA regards these issues as pari passu to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. 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 “Garant-Invest Commercial Real Estate” JSC. The “Rating under review: negative” status has been retained for the credit rating of “Garant-Invest Commercial Real Estate” JSC and therefore the “Rating under review: negative” status has been retained for the credit ratings of the Company’s bond issues.
regulatory disclosure
The credit ratings of “Garant-Invest Commercial Real Estate” JSC and the bonds issued by “Garant-Invest Commercial Real Estate” JSC (RU000A1005T9, RU000A102LS9, RU000A102X18, RU000A103WX4, RU000A105GV6) 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 Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the bonds issued by “Garant-Invest Commercial Real Estate” JSC.
The credit ratings of “Garant-Invest Commercial Real Estate” JSC and the bonds (RU000A1005T9, RU000A102LS9, RU000A102X18, RU000A103WX4, RU000A105GV6) issued by “Garant-Invest Commercial Real Estate” JSC were published by ACRA for the first time on December 26, 2018, March 12, 2019, December 29, 2020, April 5, 2021, October 25, 2021, and November 23, 2022, 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 were, 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.
