Fitch Affirms Iguatemi's National Long-term Rating at 'AA+(bra)'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Iguatemi Empresa de Shopping Centers SA's (Iguatemi) ratings as follows:

--National Long-term ratings at 'AA+(bra)';

--BRL 450 million Unsecured Debentures at 'AA+(bra)'.

The Rating Outlook is Stable.

The ratings reflect Iguatemi's high quality asset portfolio, with participations in 18 shopping centers and three office towers. Iguatemi is one of the largest full-service companies in the Brazilian shopping malls sector. The company's operations include developing and managing regional shopping malls and multi-purpose real estate developments in the South and Southeast regions of Brazil. As of September 30, 2015, its portfolio is comprised of 18 shopping centers, 1 outlet; and, 3 commercial towers, with a total gross leasable area (GLA) of 715,000 m2 and owned GLA of 440,000 m2.

The Stable Outlook reflects Fitch's expectations of continued consistent operational performance during 2015 - 2017 despite Brazil's challenging business environment. Fitch expects Iguatemi to maintain EBITDA margins above 75%, Net leverage around 3x, and interest coverage around 2x coupled with keeping an important unencumbered asset base.

KEY RATING DRIVERS

MODERATE REVENUE GROWTH IN 2016

Fitch's expects the company's revenue growth to be around 10% in 2015 and in the 6% to 8% range in 2016. The current business environment in Brazil should limit the company's capacity to increase rents. Iguatemi's net revenues for the latest-12-month (LTM) ended Sept. 30, 2015, and fiscals 2014 and 2013 were BRL620 million, BRL577 million, and BRL464 million, respectively. The company's revenues are stable given the characteristics of its lease portfolio, which provide it with a stable base of fixed-rent income and lease expirations. Iguatemi's top 20 tenants account for less than 10% of its revenues.

RESILIENT BUSINESS, STABLE EBITDA MARGINS AROUND 76%

The consolidated sales of Iguatemi's tenants were

BRL11.3 billion during the LTM September 2015 period, an increase of over 11.2% from BRL10.2 billion during the same period in September 2014. The company has maintained high occupancy levels of around 95% during the last several years. Iguatemi has managed to keep occupancy costs at levels of around 12% of total sales during the first nine months of 2015 and default rates below 2%. The lease portfolio has staggered lease expiration dates, with approximately 60% of the company's lease portfolio having expiration dates longer than two years. The vast majority of leases coming due in the next two years are expected to be renewed.

ADEQUATE LIQUIDITY, HIGH LEVEL OF UNENCUMBERED ASSETS

Iguatemi's liquidity is viewed as adequate as a result of its cash position, manageable debt payment schedule, and high levels of unencumbered assets. The company's cash position was BRL420 million as of Sept. 30, 2015, which covers its scheduled debt payments of BRL322million due during the next 12 months ended in September 2016. Iguatemi is expected to maintain a cash position around BRL500 million during 2016 - 2017. The company's unencumbered assets coverage ratio is estimated at 4.4x as of Sept. 30, 2015.

SOLID CAPITAL STRUCTURE, LOW FINANCIAL LEVERAGE

As of Sept. 30, 2015, Iguatemi had BRL2 billion of total debt, which was composed of local debentures (BRL938 billion), BNDES financing (BRL 307 million) and bank loans (BRL 755 million). The company's secured debt, BRL781 million as of Sept. 30, 2015 represents approximately 40% of the company's total debt. Iguatemi's total debt is entirely denominated in local currency. The company's net leverage, measured as total net debt/EBITDA, has remained stable during LTM September 2015; the ratio was 3.3x. The ratings incorporate the expectation Iguatemi's net leverage levels will be around 3x during

2016 - 2017.

KEY ASSUMPTIONS

Key assumptions within Fitch's rating case for Iguatemi's ratings include:

--Total average owned gross leasable area (GLA) of 440,000, 451,000; and 468,000 square meters (sm) by year-end 2015, 2016 and 2017, respectively.

--Occupancy levels around 95% during 2015 - 2017. Annual revenue growth of 10.2%, 7.4% and 7%, in 2015, 2016 and 2017, respectively.

--EBITDA margin remains at historical levels around 76% during 2015 - 2017.

--Capital intensity, measured as the total capex to revenue ratio, in the 20% to 30% range during 2016 - 2017.

-- Net debt level stable around BRL1.7 billion during

2015 - 2017

--Net leverage ratio around 3.15x during 2015 - 2017. Negative to slightly positive free cash during 2016 - 2017, no material impact on capital structure.

--Interest coverage ratio stable 2x during 2015 - 2017.

RATING SENSITIVITIES

Negative Rating Actions: Fitch would consider a negative rating action if the company's financial profile deteriorates due to some combination of the following: aggressive capex, adverse macroeconomic trends leading to weaker credit metrics, significant dividend distributions, and higher vacancy rates or deteriorating lease conditions.

The following factors may also have a negative impact on Iguatemi's ratings:

--Net leverage consistently trending to levels above 4.25x;

--Deterioration in EBITDA margin -trending consistently to levels below 72% - and occupancy below 92%;

--Material increase in secured debt / total debt ratio above current levels of 40%;

--Unencumbered assets-to-net unsecured debt coverage consistently below 3.5x.

Positive Rating Actions: The combination of the following may have a positive impact on Iguatemi's ratings:

--Significant improvement in EBITDA margin, occupancy, and financial leverage;

--Improvement in the company's debt payment schedule reflected in lower debt due during the next 24 months relative to the company's cash position;

--Interest coverage trending consistently to levels above 3x.

LIQUIDITY

Iguatemi's liquidity is viewed as adequate as a result of its cash position, manageable debt payment schedule, and high levels of unencumbered assets. The company's cash position was BRL420 million as of Sept. 30, 2015, which covers its scheduled debt payments of BRL322million due during the next 12 months ended in September 2016. Iguatemi is expected to maintain a cash position around BRL500 million during 2016 - 2017.

The company's owned GLA was 483 thousand as of Nov. 30, 2015, which had a market value of approximately BRL7.6 billion. Iguatemi maintains a high level of unencumbered assets that represents around 66% of its total owned GLA. Approximately 33% of its total owned GLA (161 thousand m2) has been used as collateral for secured debt of BRL781 million. The company maintains total GLA of approximately 320 thousand m2 which is unencumbered and has an estimated market value of between BRL5.6 billion. These assets provide financial flexibility as they could be used in the future to help access financing, if needed. The company's unencumbered assets coverage ratio is estimated at 4.4x as of Sept. 30, 2015.

Iguatemi's credit ratings also incorporate the company's stable and predictable cash flow generation, solid liquidity, and low net leverage. The ratings take into consideration Iguatemi's organic growth strategy and balanced capital expenditure (capex) plan for 2015 - 2017 that should not material change its net financial leverage and liquidity.

FULL LIST OF RATING ACTIONS

Fitch Ratings has affirmed Iguatemi Empresa de Shopping Centers SA's (Iguatemi) ratings as follows:

--National Long-term ratings at 'AA+(bra)',

--BRL 450 million Unsecured Debentures at 'AA+(bra)',

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

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Contacts

Fitch Ratings
Primary Analyst:
Jose Vertiz, +1-212-908-0641
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Jose Romero, 011 5511 4504 2600
Director
or
Committee Chairperson:
Joe Bormann, CFA, +1-312-368-3349
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Jose Vertiz, +1-212-908-0641
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Jose Romero, 011 5511 4504 2600
Director
or
Committee Chairperson:
Joe Bormann, CFA, +1-312-368-3349
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com