Atrium European Real Estate Limited
EANS-News: Atrium European Real Estate Limited
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Ratings/CREDIT RATING UPGRADE TO INVESTMENT GRADE
St Helier Jersey / Channel Islands (euro adhoc) - Atrium European Real Estate
Limited
CREDIT RATING UPGRADE TO INVESTMENT GRADE
Jersey, 6 September 2012. Atrium European Real Estate Limited ("Atrium" or the
"Company") (VSE/Euronext: ATRS), a leading owner, operator and developer of
retail real estate and shopping centres in Central and Eastern Europe, is
pleased to announce that, 'based on reduced exposure to development activities',
'steady growth rates in its investment property portfolio' and 'the higher
proportion of income-producing retail property in Atrium's asset base' Standard
and Poor's has upgraded the Company's long- and short term corporate credit
rating to the investment grade level of 'BBB-/A-3' from 'BB+/B', with a 'stable'
outlook.
Rachel Lavine, CEO of Atrium, commenting on the upgrade, said:
"Since the very outset of our involvement with the Company, and subsequently, we
have clearly stated that achieving an investment grade rating for Atrium was a
high priority. I am therefore very pleased that all of our hard work in
restructuring the Company, improving its operating performance and creating a
platform that delivers visible recurring income with the potential for future
growth has resulted in today's decision by S&P."
The press release issued by Standard and Poor's is included below:
Jersey's Atrium European Real Estate Upgraded To 'BBB-/A-3' On Stronger
Portfolio; Outlook Stable
Overview
-- We consider that Atrium European Real Estate Ltd. (Atrium) has reduced its
exposure to development activities and experienced steady growth rates in its
investment property portfolio.
-- We are raising our long- and short-term ratings on Atrium to 'BBB-/A-3' from
'BB+/B'.
-- The stable outlook reflects our view that Atrium will likely maintain its
moderate financial policy centered on a loan-to-value ratio below 40%.
Rating Action
On Sept. 6, 2012, Standard & Poor's Ratings Services raised its long- and
short-term corporate credit ratings on Jersey-based real estate company Atrium
European Real Estate Ltd. (Atrium) to 'BBB-/A-3' from 'BB+/B'. The outlook is
stable.
Rationale
The upgrade reflects the higher proportion of income-producing retail property
assets in Atrium's asset base, which led us to revise our assessment of its
business risk profile to 'satisfactory' from 'fair.'
We anticipate that the share of development activities should remain slightly
lower than 20% of Atrium's asset base going forward, with a strong focus on the
extension and refurbishment of existing sites. We estimate that the delivery of
the extension projects in Plock and Gdynia, Poland, should result in Atrium's
standing investments representing more than 80% of its EUR2.7 billon total
portfolio value and generating funds from operations (FFO) in excess of EUR100
million by the end of 2014, under our base-case scenario. We view revenue from
development activities as more volatile than passive rent collection, as it is
exposed to construction and letting risks. An increasing part of Atrium's
recurring income comes from mature real estate assets, which should continue
supporting cash flow stability. Atrium's portfolio of 37 development projects,
valued at EUR567.5 million as of June 30, 2012, mainly consists of landbank and
extensions of existing assets, which we view as less risky than greenfield or
brownfield projects. We also take a positive view of the company's stated target
to reduce development to a maximum of 10% of its total portfolio's market value
over the long term.
The upgrade also incorporates the fact that Atrium's profitability has
stabilized thanks to local efficiency improvements and better rent collection
overall. This has resulted in a Standard & Poor's-adjusted EBITDA margin
reaching the 60%-70% range, which we believe falls within our guidance for a
retail real estate investment trust (REIT) with a 'satisfactory' business risk
profile. Under our base-case scenario, we anticipate that Atrium's EBITDA
interest coverage ratio will remain higher than 3x over the next two years. We
believe that Atrium's strong presence in growing markets like Poland (38% of
gross rental income as of June, 30, 2012) and Russia (27%), where retailers
currently outperform the subdued European market, is a key competitive advantage
over the medium term. We think that low vacancy and healthy growth rates
reported by international retailers in those countries should support the
resilience of Atrium's recurring income over the short term, although they could
become more vulnerable to the economic crisis in the longer term.
Offsetting these strengths, we note Atrium's slightly higher percentage of
development activities relative to other investment grade-rated European REITs
and we continue to regard its geographic diversity as relatively modest.
Additionally, we think Atrium's ownership and management structures have
stabilized after a period of corporate change. We also view the company's
financial policy as moderate, reflecting its publicly stated target of a
reported loan-to-value (LTV) ratio remaining below 30%, which we view as
commensurate with an 'intermediate' financial risk profile.
Liquidity
The short-term rating is 'A-3'. We assess Atrium's liquidity as 'adequate'
according to our criteria, because we anticipate that its liquidity sources will
be more than sufficient to meet its funding needs in the next 12 months.
On June 30, 2012, Atrium's short-term debt maturities amounted to EUR7 million
of contractual amortization and EUR51 million of committed 2003 bond repurchases
over the next 12 months. Over the same period, we also forecast about EUR90
million in investment costs and EUR62 million of annual dividend distribution.
To cover these short-term cash calls, Atrium had EUR207 million of unrestricted
cash as of June 30, 2012. We also anticipate that the portfolio of
income-producing assets should drive FFO to about EUR95 million over the next 12
months.
Atrium does not, to our knowledge, have any committed bank lines at present,
although it is in a position to raise incremental debt, based on its moderate
debt leverage and significant unencumbered assets. As of June 30, 2012, Atrium's
debt amounted to EUR555 million, or about 20% of its combined balance sheet debt
and equity capital. We estimate Atrium's unencumbered income-producing assets at
almost EUR800 million.
Outlook
The stable outlook reflects our view of positive trends in Atrium's operating
metrics and low debt relative to its peers, which support the ratings.
We believe Atrium should be able to pursue its growth strategy in key markets,
while maintaining EBITDA interest coverage and adjusted LTV ratios above 3x and
below 40%, respectively. We also expect Atrium's ratio of debt to debt and
equity to remain modest, standing well below 50%.
We could raise the ratings if Atrium significantly diversified its market
exposures, generated a track record of raising unsecured debt, and maintained a
sufficient liquidity cushion to meet any unexpected shortfalls in income or cost
overruns in its development projects.
We could lower the ratings if we saw unexpected changes in discretionary
spending or shareholding structure that could limit the funding options open to
the company. We would consider a rebound in the share of development activities
to more than 20% of Atrium's total portfolio value or a sharp deterioration of
the environment in its key markets to be a significant increase in the group's
business risk. This might prompt us to consider a rating review. Consumer
confidence in Central and Eastern Europe, and specifically retail sector
performance in Atrium's main markets, remain the principal operating risks that
could affect Atrium's interest cover and other debt metrics.
For further information:
FTI Consulting Inc.:
+44 (0)20 7831 3113
Richard Sunderland
Will Henderson
Daniel O'Donnell
{atrium@fticonsulting.com}[HYPERLINK: mailto:atrium@fticonsulting.com]
Further inquiry note:
For further information:
FTI Consulting Inc.:
+44 (0)20 7831 3113
Richard Sunderland
Will Henderson
Richard.sunderland@fticonsulting.com
end of announcement euro adhoc
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company: Atrium European Real Estate Limited
Seaton Place 11-15
UK-JE4 0QH St Helier Jersey / Channel Islands
phone: +44 (0)20 7831 3113
mail: richard.sunderland@fticonsulting.com
WWW: http://www.aere.com
sector: Real Estate
ISIN: JE00B3DCF752
indexes: Standard Market Continuous
stockmarkets: official market: Wien
language: English