Rating Type Rating Outlook Last Rating Action Long-Term IDR BBB Stable Affirmed 31 July Short-Term IDR F3 Affirmed 31 July 2017

Transcription

1 Corporates Rating Type Rating Outlook Last Rating Action Long-Term IDR BBB Stable Affirmed 31 July 2017 Short-Term IDR F3 Affirmed 31 July 2017 Click here for full list of ratings Financial Summary (AEDm) Dec 2014 Dec 2015 Dec 2016 Gross Revenue 25,261 27,343 29,909 Operating EBITDAR Margin (%) FFO Margin (%) FFO Adjusted Leverage (x) Total Debt with Equity Credit/Operating EBITDA (x) Operating EBITDAR/Interest Paid + Rents (x) Source: Fitch Fitch Ratings has affirmed UAE-based s (MAF) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at BBB. The Outlook is Stable. Fitch has also affirmed MAF s Short-Term IDR at F3. MAF Global Securities Limited s global medium-term note (GMTN) programme and MAF Sukuk Ltd have also been affirmed at BBB. Fitch has affirmed MAF Global Securities Limited s hybrid security rating at BB+. The affirmation reflects MAF s strong financial performance resulting from improved results across all operating divisions (Property, Retail and Ventures) and our expectation of solid future performance, led by the stable, defensive rental income generation from the property division. The Stable Outlook reflects Fitch s expectations of the group s ability to maintain relatively stable credit metrics despite the significant level of growth and expansion capital expenditure over the forecast period. The rating is driven by MAF s property division with its high levels of occupation and resilient rental income generating the majority of the group s profitability and cash flows. The Retail division and, to a lesser extent, Ventures division, due to its smaller size, provide both geographical and service diversification for MAF, which has a positive impact on the rating. Key Rating Drivers Strong FY16 Performance: MAF continued to deliver strong revenue growth of 9.4% to AED29.9 billion in 2016, and Fitch forecasts low single-digit growth in 2017, followed by low double-digit growth thereafter performance was largely driven by Majid Al Futtaim Properties (MAFP) rent increases achieved on lease renewals, the full-year impact of the expansion of Mall of the Emirates and Me aisem, together with Majid Al Futtaim Retail s (MAFR) strong new stores roll-out. EBITDA margins remained stable at 14% in 2016 and are expected to range between 13% and 14% over the forecast period despite the weak macro environment for MAFP s hotels and MAFR. Under Fitch s rating case, we expect MAF s recurring EBITDA (rental derived EBITDA from the property arm Majid Al Futtaim Properties or MAFP) interest cover to remain healthy in the range of 3x-4x over the forecast period and its loan-to-value metrics (derived from MAFP) to remain below 50% for the same period. Properties Supported by Defensive Rental Income: MAFP remains the key driver of the group and our rating, with MAFP s EBITDA of AED2.9 billion (2015: AED2.6 billion) contributing 68% of MAF s consolidated EBITDA of AED4.2 billion. We expect MAFP to continue to drive good EBITDA growth through investment in new assets such as the Mall of Egypt, which opened in 1Q17. The group maintained shopping mall occupancy at 98% and strong lease renewals at increased rates in December

2 MAFP also benefited from the annualised impact of the Mall of the Emirates expansion, the finalised expansion of some smaller assets, and new assets becoming operational (eg Shindaga). Hotels remain difficult with an 8% decline in revenue per available room (RevPar), although occupancy was slightly increased. Retail Strengthens Regional Presence: MAFR s Carrefour franchise continues to build on its regional strength with the establishment of 10 new hypermarkets and 10 supermarkets in 2016, driving an 8% increase in revenues to AED23.9 billion (2015: AED22.1 billion) and EBITDA of AED1.2 billion. Fitch believes that the consolidated MAF group business profile benefits from MAFR s service and geographical diversification (further evidenced by its establishment of new operations in Kenya and Kazakhstan), as long as associated debt and lease expenses do not increase beyond Fitch s expectations. MAFR s growth will be supported by the Geant acquisition, partially financed by hybrid instrument fundraising, which will strengthen MAFR s footprint in the UAE, Kuwait and Bahrain with nearly 29 more stores, to be rebranded as Carrefour outlets. We do not foresee major capex implications from the rebranding and alignment of the stores with the organisation. Extensive Capex Plans: Capex for 2016 stood at AED3.7 billion, mainly made up of land acquisitions and further construction costs for two malls. Fitch expects capex-to-sales to remain within the range of 15%-16% for 2017 and 2018, on the back of further land bank opportunities and the roll-out of new shopping malls in Abu Dhabi and Riyadh. Conservative Debt Structure with Stable Metrics: The group s strategy is to further establish its existing leading regional positions while also pursuing largely capex-driven growth in new regions to achieve MAF s diversification aims. Consequently, Fitch expects the group to continue funding its expansion through free cash flow (FCF) and additional borrowings. However, we expect leverage and coverage metrics to remain well within our sensitivities as the group benefits from the investments delivering profitability growth. MAF utilises a diverse range of funding including bank debt, bonds, sukuk and hybrids with a smooth debt maturity profile with no significant maturities until The average debt maturity of just over five years as of 2016 provides a stable financing structure, although this is slightly below its average lease life of seven years. Secured debt as a percentage of gross debt remains fairly stable at 13% (2015: 14%) as the group has increased its use of Egyptian project finance facilities, and has benefited from the depreciation of the Egyptian pound. Rating Derivation Relative to Peers Rating Derivation versus Peers Peer Comparison MAF is one of the leading retailers and mall operators in the Middle East with strong cash flow generation from the UAE. The group s rating is supported by a portfolio of flagship assets with a longterm retail lease profile and high tenant retention ratio. Its financial profile compares to European property/real estate players such as Unibail-Rodamco SE (A/Rating Watch Negative) and SEGRO PLC (BBB+/Stable), yet asset and geographical concentration remain high. MAF has good access to capital and has a diversified, well-spread debt maturity profile, supported by a healthy liquidity position. Parent/Subsidiary Linkage Country Ceiling Operating Environment Other Factors No parent/subsidiary linkage is applicable. No Country Ceiling constraint was in effect for these ratings. No operating environment influence was in effect for these ratings. None. Source: Fitch Rating Sensitivities Future Developments That May, Individually or Collectively, Lead to Positive Rating Action MAFP recurring income EBITDA interest cover sustained above 3.0x and MAFP derived Fitch-adjusted leverage below 40% Meaningful geographical diversification and/or reduced asset concentration Future Developments That May, Individually or Collectively, Lead to Negative Rating Action Significant downturn in the markets in which MAF operates and higher-than-expected capex, leading to material falls in recurring income EBITDA interest cover below 1.5x over a sustained period 21 December

3 Liquidity and Debt Structure Corporates Diversified Debt and Satisfactory Liquidity: Capital market issuance reached 73% of total drawn debt as of 2016 compared to 65% in 2015, maintaining a debt maturity profile of 5.3 years. In 1Q17 MAF issued its second hybrid of USD500 million non-call 5.5 years issue, which qualified for 50% equity credit under Fitch s hybrid methodology. In July 2016 MAF issued another USD300 million of bonds maturing in 2024 and redeemed a USD400 million sukuk in The Sukuk documentation, structure, terms and conditions were reviewed and there has been no change since the last update in June Overall, the average cost of debt remained stable for the group. Dept Instrumetns YE16 Revolvers 8% Hybrid 8% Secured Dept 11% GMTN 43% Sukuk 30% Source: Fitch Company Liquidity remains healthy with an available cash position of AED1.4 billion as of 1H17 coupled with sufficient headroom under the committed undrawn facilities at corporate level of AED6.8 billion in 1H17, with extended maturities beyond December

4 Debt Maturities and Liquidity at FYE16 Debt Maturities and Liquidity at YE16 Maturity Schedule (AEDm) , ,196 After ,623 Total debt 10, Month Liquidity Analysis FY16 Unrestricted cash 1,047 Committed bank facilities 11,000 Available undrawn portion 10,127 FCF (post dividend) from forecast -1,578 Short-term debt 3,128 Liquidity/liquidity shortfall 6,468 Liquidity score (x) 3.1 Source: Fitch Cash and Cash Equivalents Cash & Cash Equivalents and Notional Amount Readily Available Restricted/Not Readily Face Value (%) Marketable Securities Cash Available Cash (AEDm) Cash & Cash Equivalent 1, , Cash Deposits Bank Certificates of Deposit Government Bonds 100 Fixed Income Bond Diversified Investment-Grade Fixed Income Bond Fund 70 Diversified HY Fixed Income Bond Fund Equity Fund, Equities 0 to 40 Total 1, , Source: Company 21 December

5 Trends and Forecasts Emerging BBB Cat Median Property/Real Estate Median Note: Including Fitch expectations Source: Fitch Definitions FFO Adjusted Leverage: Total Adjusted Debt with Equity Credit divided by Funds From Operations [FFO] + Gross Interest (Paid) - Interest Received + Preferred Dividends (Paid) + Operating Lease Expense for Capitalised Leased Assets. FFO Interest Cover: FFO + Gross Interest paid minus interest received + Preferred Dividends paid divided by Gross Interest Paid + Preferred Dividends Paid. Revenue Growth: Percentage growth in revenues since previous reporting period. FFO Margin: FFO divided by Revenues. 21 December

6 Key Assumptions Corporates Fitch s key assumptions within our rating case for the issuer include: continued revenue growth at the group level with stable EBITDA margins for the forecast period; vacancy rates for comparable shopping malls to remain low; ample headroom under committed available revolvers; stable dividend policy. Financial Data Historical (AEDm) Dec 2014 Dec 2015 Dec 2016 SUMMARY INCOME STATEMENT Gross Revenue 25,261 27,343 29,909 Revenue Growth (%) Operating EBIT 2,589 2,680 2,983 Operating EBIT Margin (%) Operating EBITDA (Before Income From Associates) 3,671 3,795 4,172 Operating EBITDA Margin (%) Rental Expense DETAILED CASH FLOW STATEMENT FFO Margin (%) Operating EBITDA 3,671 3,795 4,172 Cash Interest Cash Tax Recurring Dividends Received From Associates Recurring Dividends Paid to Non-Controlling Interest Other Items Before FFO Funds Flow From Operations 3,214 3,245 3,609 Change in Working Capital Cash Flow From Operations 3,421 3,383 3,205 Total Non-Operating/Non-Recurring Cash Flow Capital Expenditure -3,821-4,231-3,677 Common Dividends Free Cash Flow , Net Acquisitions and Divestitures Net Equity Proceeds Net Debt Proceeds 391 1, Total Change in Cash SUMMARY CASH FLOW STATEMENT Free Cash Flow Margin (%) Cash Interest Received Other Investing and Financing Cash Flow Items COVERAGE RATIOS 21 December

7 FFO Interest Coverage (x) Operating EBITDA/Interest Paid (x) FFO Fixed Charge Coverage (x) Operating EBITDAR/Interest Paid + Rents (x) Operating EBITDAR/Net Interest Paid + Rents (x) ADDITIONAL METRICS Cash Flow From Operations/Capital Expenditures (%) FCF/Lease Adjusted Debt (%) LEVERAGE RATIOS Total Debt With Equity Credit/Operating EBITDA (x) Total Net Debt With Equity Credit/Operating EBITDA (x) Total Adjusted Debt/Operating EBITDAR (x) FFO Adjusted Leverage (x) FFO Adjusted Net Leverage (x) SUMMARY BALANCE SHEET Readily Available Cash and Equivalents 834 1,209 1,047 Short-Term Debt 2,716 2,185 3,128 Subordinated Debt Equity Credit Total Debt With Equity Credit 9,962 11,644 11,830 Off-Balance-Sheet Debt Total Adjusted Debt With Equity Credit 12,858 15,364 16,670 DETAILED BALANCE SHEET Restricted/Not Readily Available Cash Senior Debt 9,049 10,731 10,917 Source: Fitch, Company The forecast presented is based on the agency s internally produced, conservative rating case forecast. It does not represent the forecast of the rated issuer. The forecast set out above is only one component used by Fitch to assign a rating or determine a rating outlook, and the information in the forecast reflects material but not exhaustive elements of Fitch s rating assumptions for the issuer s financial performance. As such, it cannot be used to establish a rating, and it should not be relied on for that purpose. Fitch s forecasts are constructed using a proprietary internal forecasting tool, which employs Fitch s own assumptions on operating and financial performance that may not reflect the assumptions that you would make. Fitch s own definitions of financial terms such as EBITDA, debt or free cash flow may differ from your own such definitions. Fitch may be granted access, from time to time, to confidential information on certain elements of the issuer s forward planning. Certain elements of such information may be omitted from this forecast, even where they are included in Fitch s own internal deliberations, where Fitch, at its sole discretion, considers the data may be potentially sensitive in a commercial, legal or regulatory context. The forecast (as with the entirety of this report) is produced strictly subject to the disclaimers set out at the end of this report. Fitch may update the forecast in future reports but assumes no responsibility to do so. 21 December

8 Simplified Group Structure Diagram The structure has no impact on the rating. Debt is ring-fenced and has no recourse to MAF Retail. Secured debt represented 13% of total drawn debt in 2016, with EBITDA from encumbered assets contributing 3% to overall EBITDA. Debt raised by MAF Global Securities and MAF Sukuk Ltd are cross-guaranteed by MAF Properties and MAF Holding. Majid Al Futtaim Holding BBB/Stable EBITDA - AED4,172m AED9200m Unsecured Revolver due 2020 BBB Outstanding: AED1,568m MAF Properties EBITDA - AED2,855m MAF Sukuk Ltd. MAF Retail EBITDA - AED1,232m Unsecured Bonds due 2017 BBB Outstanding: AED1,468.7m Unsecured Bonds due 2025 BBB Outstanding: AED1,808m Unconditionally & Irrevecably guaranteed on joint & several basis by and MAF Properties Majority of Debt has no recourse to MAFR MAF Global Securities Ltd. Unsecured Bonds due 2019 BBB Outstanding: AED1829m Unsecured Bonds due 2024 BBB Outstanding: AED3007m MAF Properties, Ventures & JVs AED748.6m 1st Lien Secured Term Loan A due 2022 BBB Outstanding:509.6m AED726.8m 1st Lien Secured Term Loan B due 2026 BBB Outstanding:726.8m Source: Fitch, Company, As at Dec December

9 Peer Financial Summary Company Date Rating Majid Al Futtaim Holding LLC Gross Revenue (USDm) Operating EBITDAR Margin (%) FFO Adjusted Leverage (x) Total Adjusted Debt/Operating EBITDAR (x) Operating EBITDAR/Interest Paid + Rents (x) 2016 BBB 8, BBB 7, PSP Swiss Property AG 2018F F BBB BBB Hammerson plc 2018F F BBB BBB Unibail-Rodamco SE 2018F 2, Source: Fitch 2017F 2, A 1, A 1, December

10 Reconciliation of Key Financial Metrics Corporates (AED Millions, As reported) 31 Dec Dec 2015 Income Statement Summary Operating EBITDA 4,172 3,795 + Recurring Dividends Paid to Non-controlling Interest Recurring Dividends Received from Associates Additional Analyst Adjustment for Recurring I/S Minorities and Associates 0 0 = Operating EBITDA After Associates and Minorities (k) 4,176 3,802 + Operating Lease Expense Treated as Capitalised (h) = Operating EBITDAR after Associates and Minorities (j) 4,781 4,267 Debt & Cash Summary Total Debt with Equity Credit (l) 11,830 11,644 + Lease-Equivalent Debt 4,840 3,720 + Other Off-Balance-Sheet Debt 0 0 = Total Adjusted Debt with Equity Credit (a) 16,670 15,364 Readily Available Cash [Fitch-Defined] 1,047 1,209 + Readily Available Marketable Securities [Fitch-Defined] 0 0 = Readily Available Cash & Equivalents (o) 1,047 1,209 Total Adjusted Net Debt (b) 15,623 14,155 Cash-Flow Summary Preferred Dividends (Paid) (f) 0 0 Interest Received Interest (Paid) (d) = Net Finance Charge (e) Funds From Operations [FFO] ( c) 3,609 3,245 + Change in Working Capital [Fitch-Defined] = Cash Flow from Operations [CFO] (n) 3,205 3,383 Capital Expenditures (m) -3,677-4,231 Multiple applied to Capitalised Leases Gross Leverage Total Adjusted Debt / Op. EBITDAR* [x] (a/j) FFO Adjusted Gross Leverage [x] (a/(c-e+h-f)) Total Adjusted Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Debt With Equity Credit / Op. EBITDA* [x] (l/k) Net Leverage Total Adjusted Net Debt / Op. EBITDAR* [x] (b/j) FFO Adjusted Net Leverage [x] (b/(c-e+h-f)) Total Adjusted Net Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Net Debt / (CFO - Capex) [x] ((l-o)/(n+m)) Coverage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] (j/-d+h) Op. EBITDA / Interest Paid* [x] (k/(-d)) FFO Fixed Charge Cover [x] ((c-e+h-f)/(-d+h-f)) (FFO - Net Finance Charge + Capit. Leases - Pref. Div Paid) / (Gross Int. Paid + Capit. Leases - Pref. Div. Paid) FFO Gross Interest Coverage [x] ((c-e-f)/(-d-f)) (FFO - Net Finance Charge - Pref. Div Paid) / (Gross Int. Paid - Pref. Div. Paid) * EBITDA/R after Dividends to Associates and Minorities Source: Fitch based on company reports 21 December

11 Fitch Adjustment Reconciliation (AED Millions, As reported) Income Statement Summary Source: Fitch, Company Reported Values 31 Dec 16 Sum of Fitch Adjustments Preferred Dividends, Associates and Minorities Cash Adjustments Lease Adjustment Adjusted Values Revenue 29, ,909 Operating EBITDAR 4, ,777 Operating EBITDAR after Associates and Minorities 4, ,781 Operating Lease Expense Operating EBITDA 4, ,172 Operating EBITDA after Associates and Minorities 4, ,176 Operating EBIT 2, ,983 Debt & Cash Summary Total Debt With Equity Credit 11, ,830 Total Adjusted Debt With Equity Credit 11,830 4,840 4,840 16,670 Lease-Equivalent Debt 0 4,840 4,840 4,840 Other Off-Balance Sheet Debt Readily Available Cash & Equivalents 1, ,047 Not Readily Available Cash & Equivalents Cash-Flow Summary Preferred Dividends (Paid) Interest Received Interest (Paid) Funds From Operations [FFO] 3, ,609 Change in Working Capital [Fitch-Defined] Cash Flow from Operations [CFO] 3, ,205 Non-Operating/Non-Recurring Cash Flow Capital (Expenditures) -3, ,677 Common Dividends (Paid) Free Cash Flow [FCF] Gross Leverage Total Adjusted Debt / Op. EBITDAR* [x] FFO Adjusted Leverage [x] Total Debt With Equity Credit / Op. EBITDA* [x] Net Leverage Total Adjusted Net Debt / Op. EBITDAR* [x] FFO Adjusted Net Leverage [x] Total Net Debt / (CFO - Capex) [x] Coverage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] Op. EBITDA / Interest Paid* [x] FFO Fixed Charge Coverage [x] FFO Interest Coverage [x] *EBITDA/R after Dividends to Associates and Minorities 21 December

12 Full List of Ratings Rating Outlook Last Rating Action Long-Term IDR BBB Stable Affirmed 31 July 2017 Short-Term IDR F3 Affirmed 31 July 2017 Senior unsecured BBB Affirmed 31 July 2017 MAF Global Securities Limited BBB Affirmed 31 July 2017 Hybrid Capital Instruments BB+ Affirmed 31 July 2017 MAF Sukuk Ltd BBB Affirmed 31 July 2017 Related Research & Criteria Sukuk Rating Criteria (August 2017) Non-Financial Corporates Hybrids Treatment and Notching Criteria (April 2017) Exposure Draft: Corporate Rating Criteria (December 2017) Analysts Richard Barrow Samer Haydar December

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