Fitch Upgrades Cyrela Commercial Properties IDR to 'BB+'; Outlook Stable
SAO PAULO -- April 17, 2013
Fitch Ratings has upgraded the ratings of Cyrela Commercial Properties S.A.
Empreendimentos e Participacoes (CCP) as follows:
--Long-term Foreign Currency Issuer Default Rating (IDR) to 'BB+' from 'BB';
--Long-term Local Currency IDR to 'BB+' from 'BB';
--Long-term National Scale rating to 'AA(bra)' from 'AA-(bra)';
--Second debenture issuance, in the amount of BRL204.4 million, due in 2017,
to 'AA(bra)' from 'AA-(bra)';
--Third debenture issuance, in the amount of BRL150 million, due in 2018, to
'AA(bra)' from 'AA-(bra)'.
The Outlook for the corporate ratings is Stable.
KEY RATING DRIVERS
The upgrade of CCP's ratings reflects the company's consistent and growing
operating results, adequate liquidity, conservative coverage ratios and
manageable debt maturity schedule. The upgrades also incorporate the
expectation that CCP will preserve a satisfactory financial profile, supported
by adequate liquidity and considerable financial flexibility, as it moves
forward with a BRL777 million capex plan, which is intended to increase the
company's presence in the industry.
CCP's ratings incorporate its diversified asset portfolio and position as one
of the leaders in the leasing of high-quality corporate buildings in Brazil.
The company's stable business base, predictable and growing operational cash
generation, its experience, and the competitive advantage of an integrated
business model in a highly fragmented industry were also considered in the
analysis. The ratings are constrained by the cyclicality of the commercial
properties business and its vulnerability to fluctuations in the domestic
economy and the availability of long term credit lines.
The classifications also consider the strength of the CCP brand and its
operational synergies and integration with Cyrela Brazil Realty S.A.
Empreendimentos e Participacoes (Cyrela, IDRs in Foreign and Local Currency
'BB' and Long Term National Scale Rating 'AA-(bra)' with a Stable Outlook),
one of the largest homebuilding companies in Brazil.
Consistent and Growing Operational Cash Flow
CCP's cash flow from lease agreements is predictable and growing and has
benefited from the occasional sale of assets. The company's net revenues
increased by 57% in 2012, in comparison with 2011, to BRL489 million. This
growth reflected increased lease renewals and closing of new lease agreements,
as well as substantial revenues from asset sales of BRL289 million. CCP's net
operating income (NOI), which considers only the lease revenue, was BRL179
million in 2012, compared with BRL150 million in 2011. EBITDA has consistently
increased since 2007 and was BRL236 million in 2012, compared with BRL180
million in 2011, with an EBITDA margin of 48.7%, compared to 58.3% in the same
period. The volatility of the EBITDA margin reflects the larger volume of
assets sold, which carry lower margins and are more volatile than those of
recurring revenue from lease agreements.
The large capex plan is expected to continue to pressure CCP's free cash flow
(FCF), which is likely to remain negative in 2013 and in 2014, excluding
occasional property sales. In 2012, the company's funds from operations (FFO)
totaled BRL236 million, while its cash flow from operations (CFFO) was BRL175
million. These figures compare with BRL205 million and BRL207 million,
respectively, in 2011. With investments of BRL438 million and dividends of
BRL27 million, FCF was a negative BRL290 million in 2012. Fitch expects that
the company will be able to obtain long-term financing for its projects with
amortizations based on funds received from the assets leased, and despite high
investments, FFO interest coverage should remain strong. In 2012, FFO interest
coverage was 6.2x, while the EBITDA/interest expense ratio was 5.2x.
Expected Leverage Increase is Manageable
CCP's leverage should increase, but remain manageable, despite the investments
expected for the next two years. Total debt/EBITDA ratio remained stable over
the last three years at 4.0x in 2012, while net leverage was 2.8x in 2012,
compared with 1.9x in 2011. Fitch expects an increase in net leverage to
around 5.5x in 2013, reflecting the disbursements of the long- term real
estate lines for the projects under development. Revenues from lease
agreements of new projects should positively impact the company's credit
metrics and leverage should reduce in 2014 and 2015.
When compared with the economic value of the CCP's commercial properties,
leverage remains low. The ratio loan-to-value, measured by net debt /
estimated market value of assets, was of 33% at end 2012, without considering
the projects under development. This ratio should not exceed 50% over the 2013
to 2015 period.
Adequate Liquidity and Debt Profile
CCP's liquidity is comfortable for debt maturities due by year-end 2015. As of
Dec. 31, 2012, cash and marketable securities totaled BRL274 million and total
debt, BRL946 million. The company's debt maturity schedule showed BRL87
million maturing in the short term, BRL98 million in 2014 and BRL107 million
in 2015. Fitch expects the company to continue to manage its liquidity
conservatively and benefit from an increasing lease base and growing EBITDA
generation, which are expected to satisfactorily contain the effects of higher
leverage and limit refinancing pressures in the short and medium terms. Fitch
also views the more intensive use of long-term real estate construction
financings, linked to future cash flow from the projects, as a positive.
CCP counts on good financial flexibility, since around 69% of the estimated
market value of its assets were unencumbered and may be available for sale or
serve as collateral for a secured financing, if needed. In December 2012,
unencumbered assets had an estimated market value of BRL1.4 billion and
covered about 2.6x the corporate debt of BRL548 million.
High Quality Portfolio of Commercial Properties
CCP is one of the largest companies of investment, lease and commercialization
of commercial properties in Brazil. At end 2012, the company owned 18
commercial properties, with an estimated market value of BRL2.1 billion and
GLA of 223 thousand sqm. CCP's diversified portfolio includes 12 office
buildings, four shopping centers and two distribution centers. CCP currently
develops 16 projects, which should add 337 thousand sqm of GLA, to be
delivered from 2013 to 2015.
The company's high portfolio quality supports its strong market position and
the positive operational track record since 2007, with low tenant turnover and
residual vacancy and delinquency rates. At year-end 2012, physical and
financial vacancy rates were low at 0.5% and 0.4%, respectively. The lease
maturity profile is well distributed, with 14% (by revenues) maturing in 2013
and 16% in 2014. CCP has a concentration of tenants and the 20 largest
represented 81% of its total monthly revenues from corporate buildings in
2012. This risk is partially mitigated by the high quality of tenants and
property portfolio, and the low vacancy rates in Sao Paulo and Rio de Janeiro,
where most of the company's assets are located.
CCP's ratings can be negatively impacted by higher than expected increases in
leverage, a weakening debt amortization profile, liquidity falling to levels
that considerably weaken short-term debt coverage, and by factors that greatly
impact the company's cash generation. The ratings could also be pressured by a
significant increase in vacancy and delinquency rates, as well as a sharp
downturn in the Brazilian economy. Positive ratings actions are not expected
in the short term. CCPs' ratings could be positively affected by coverage and
leverage ratios better than Fitch's expectations in this rating action. A
higher scale of operations and the maintenance of a conservative cash cushion,
may also impact future rating actions.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Corporate Rating Methodology' (Aug. 08, 2012);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research
Corporate Rating Methodology
National Ratings Criteria
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Jose Romero, +55-11-4504-2603
Fitch Ratings Brasil Ltda
Alameda Santos, 700 - 7 andar - Sao Paulo - SP - CEP: 01418-100
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