Grupo GICSA #BB# Global And #mxA# National Scale Ratings Outlook Remains Stable

Stocks and Financial Services Press Releases Wednesday December 6, 2017 09:43
MEXICO CITY--6 Dec--S&P Global Ratings
  • Mexican real estate company, GICSA, has maintained a resilient operating performance at its stabilized properties despite volatile macroeconomic conditions in the country during 2017. Although the company incurred incremental debt in the past 12 months to finance its growth plans, which pressured credit metrics, the latter remain in line with the current rating level.
  • GICSA also recently fully refinanced significant short-term debt maturities, alleviating pressure on its debt maturity profile and overall liquidity.
  • We're affirming our 'BB' global scale and 'mxA'national scale corporate credit ratings on the company. At the same time, we're affirming our 'mxA' issue-level ratings on GICSA's various local notes.
  • The stable outlook reflects our expectation that GICSA will maintain robust occupancy and renewal rates at its stabilized properties, while it continues to execute its aggressive expansion plan. Despite additional external funding requirements in the next 12 months, we expect GICSA's debt to EBITDA and debt to capital to remain consistently below 7.5x and 50%, respectively.

MEXICO CITY (S&P Global Ratings) Dec. 5, 2017--S&P Global Ratings affirmed its 'BB' global scale and 'mxA' national scale corporate credit ratings on Grupo GICSA S.A.B. de C.V. The outlook remains stable.

At the same time, we affirmed our 'mxA' issue-level ratings on the company's various local notes. Our recovery rating of '3' (rounded estimate 65%), indicating our expectation of meaningful recovery prospect for the bondholders in the event of a payment default, remains unchanged.

Despite volatile macroeconomic conditions in Mexico throughout 2017, GICSA's operating performance has remained solid, reflecting its high-profile assets under management and resilient portfolio.

Although most of GICSA's properties benefit from prime locations, mainly in Mexico City, some assets in the portfolio are still in their ramp-up period. In our opinion, GICSA has maintained solid occupancy and renewal rates thanks to its diversified tenant base, while the company benefits from lease prices that are higher than the market average thanks to its high-quality assets and strategic locations.

However, the ratings constraint stems from the company's exposure to development and execution risks related to its expansion plan. GICSA currently has nine projects under construction, with a total expected investment of about MXN12.8 billion, 42% of which has already been deployed. In addition, GICSA has six other projects that are in the process in receiving the necessary construction approvals. Moreover, the company recently began the development of a high-end residential project in Mexico City, which we haven't included in our previous assumptions. According to GICSA, this is an isolated project that won't cause the company to deviate from its focus on core businesses: the retail and office space segments. We will continue to monitor GICSA's consolidated profitability and credit metrics throughout the residential project's construction and selling phase, and we don't expect additional residential projects in the company's portfolio.

Our revised forecast reflects our expectation that GICSA will post a robust operating performance, thanks to its stabilized properties that we believe will continue to deliver broadly stable occupancy and renewal rates, while its leases increase fairly in line with inflation rates in Mexico. We also expect GICSA to continue executing its aggressive capital investment plan, resulting in free operating cash flow (FOCF) shortfall in the next two years, and the company to primarily fund its capex through incremental debt. As a result, we expect its leverage metrics to weaken in 2017 due to the lag between the financing requirement to develop the new properties and the actual EBITDA and net operating income that these properties will generate. We expect a gradual improvement leverage metrics in 2018.

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