Fitch Affirms BRMALLS Participacoes S.A.'s IDR at 'BB+', Nat'l Scale at 'AA(Bra)'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the ratings of BRMALLS Participacoes S.A. (BRMALLS) as follows:

--Foreign currency Issuer Default Rating (IDR) at 'BB+';

--Local currency IDR at 'BB+;

--Long-term national scale rating at 'AA(bra)';

--BRL400 million local debentures, first and second tranches due in 2017 and 2019, respectively, at 'AA(bra)';

--BRL400 million local debentures due in 2016 at 'AA(bra)';

--BRL320 million local debentures, first and second tranches due in 2014 and 2016, respectively, at 'AA(bra)'.

Fitch has also affirmed the following ratings of BR Malls International Finance Limited (Finco):

--Foreign currency IDR at 'BB+';

--USD405 million perpetual notes at 'BB+'.

The Rating Outlook is Stable.

BRMALLS' ratings reflect its dominant business position as the largest Brazilian shopping center operator, stable and predictable cash flow generation, geographical and property revenue base diversification, and low working capital requirements with renters responsible for most maintenance expenses.

The ratings also factors in BRMALLS' growth strategy, stable capital structure, large pool of unencumbered assets, and successful track record in growing the business. The company's consistent use of a balance of equity and debt to fund its organic and inorganic growth during the past five years has kept leverage levels low relative to the value of its assets.

The Stable Rating Outlook reflects the expectation that BRMALLS will continue to deliver positive operating results based upon its strong market position and the high quality of its assets. Leverage is not expected to increase from current levels, as additional growth is expected to occur through a continued balanced mix of funding that will not compromise its capital structure.

KEY RATING DRIVERS

Business Fundamental, Positive View on the Sector

The ratings consider a positive view on the Brazilian mall industry in the medium to long term based on its fundamentals, which include Brazil's positive demographic changes, and the upward migration of economic classes that has resulted in a growing middle class. Medium-term retail consumption trends coupled with still low penetration levels for the retails industry also support the ratings. In the short term, a slowdown of the Brazilian retail environment could result in more moderate revenue growth rates for the shopping mall industry. The sector has demonstrated resilience to past slowdowns due to its revenue and rent-contract structures that incorporate fixed and inflation adjusted components, which reduce the volatility in revenues and cash flow generation.

Dominant Market Position and Business Diversification Incorporated

BRMALLS' ratings reflect the company's dominant business position as the largest Brazilian shopping center operator. The company held an interest in 51 malls with a total gross leasable area (GLA) of 1,640,662 square meters and owned a GLA of 950,178 square meters as of Sept. 30, 2013. BRMALLS' increased geographic coverage, income, and tenant diversification make it less prone to fluctuations in the domestic economy. The company has operations in all five regions of Brazil; the largest mall represents approximately 13% of its total revenue.

Stable Cash Flow Generation

BRMALLS' rents and net operating income per square meter are stable to positive. They are supported by a lease structure that consists of fixed rent payments (70%) and tenant reimbursements (10%), which cover costs associated with property management and taxes. The lease portfolio has staggered lease expiration dates. About 75% of BRMALLS' rental income contracts have expiration dates beginning in 2015 and beyond. BRMALLS' latest 12 month (LTM) September 2013 EBITDA was BRL1 billion, a 46% increase when compare with 2011 EBITDA (BRL689 million). The company's EBITDA margin has remained stable at around 80% during the last five years.

No Major Changes Expected in Leverage

The gross leverage of BRMALLS is expected to remain around 5x in the medium term, which compares well with regional and global players in the industry. As of Sept. 30, 2013, the company's total debt was BRL5 billion. The company's gross and net leverage ratios were 5x and 4.7x as of Sept. 30, 2013. Fitch base case projects 2014 revenues at approximately BRL1.4 billion and an EBITDA margin of 80%. The company's investments during 2013-2014 period are expected to be around BRL750 million per year, which should result in gross leverage stable around 5x.

Adequate Liquidity

As of Sept. 30, 2013, the company faces debt amortizations of BRL759 million and BRL427 million during the next 12 and 24 months, respectively, and has a cash position of BRL357 million. The company has consistently maintained adequate interest coverage ratios around 2x over the last four years. BRMALLS also has a high level of unencumbered assets; approximately 50% of the company's owned GLA is free of any liens.

RATING SENSITIVITIES

A stronger capital structure could lead to an increase in the company's ratings. Fitch would consider a negative rating action if the company's financial profile deteriorates due to some combination of the following factors: aggressive capex; adverse macroeconomic trends leading to weaker credit metrics; significant dividend distributions; and higher vacancy rates or deteriorating lease conditions.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'National Ratings Criteria' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=811850

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Contacts

Fitch Ratings
Primary Analyst
Jose Vertiz, +1-212-908-0641
Director
Fitch Ratings, Inc.
One State Street Plaza,
New York, NY 10004
or
Secondary Analyst
Jose Romero, +11-55-11-4504 2600
Director
or
Committee Chairperson
Dan Kastholm, CFA, +1-312-368-2070
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, 212-908-0526
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Jose Vertiz, +1-212-908-0641
Director
Fitch Ratings, Inc.
One State Street Plaza,
New York, NY 10004
or
Secondary Analyst
Jose Romero, +11-55-11-4504 2600
Director
or
Committee Chairperson
Dan Kastholm, CFA, +1-312-368-2070
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, 212-908-0526
elizabeth.fogerty@fitchratings.com