Fitch Ratings: Neutral Impact of Coronavirus on Italian IGD's Liquidity
13/03/2020 16:20
(The following statement was released by the rating agency) Fitch Ratings-London-March 13: The coronavirus outbreak in Italy has limited immediate credit implications for IGD SIIQ S.p.A (BBB-/Stable), the Bologna-based shopping centre owner and operator, Fitch Ratings says. Its liquidity, which at end-2019 composed of EUR129 million in cash and EUR60 million of undrawn committed credit lines, is healthy and compares with EUR44 million bank debt maturing in 2020. Containment measures in Italy include the closure of all retail shops apart from pharmacies and food stores. As a consequence, IGD has had to shut down all the retail galleries within its shopping centres, only allowing hypermarkets, tobacco shops and pharmacies to remain open. Around 68% of IGD's 2019 total gross rental income (EUR155.3 million) came from retail shops (currently closed, including smaller chains), which are more exposed to the immediate economic damage of the coronavirus measures. The remainder of rental income is mostly generated by hypermarkets, which have been increasing their sales since the beginning of March when the coronavirus started to spread rapidly in Italy. The limitations imposed on bars and restaurants are also a key contributor to the increase in groceries. Fitch expects retailers who are suffering a sharp fall in sales in 1Q20 to ask for a review of their property lease conditions. These could be either in the form of delayed payments or, if the emergency persists, in the form of discounts or rent reductions. In the past IGD has offered temporary discounts to its tenants, which peaked in 2011 (EUR3 million) in the aftermath of the global economic downturn. The occupancy cost ratio averages around 12% for IGD's tenants. As with many property companies IGD will receive quarterly rents paid in advance at the end of March, providing management with visibility on tenants' intentions. IGD has only 2% of its rents directly linked to the turnover of its tenants' stores and there are no legally binding obligations for IGD to grant rent discounts. Fitch estimates that limited concessions to its tenants or delays in collecting rents should not have an immediate negative impact on IGD's credit profile. In the event of temporary rent losses, Fitch expects REITs such as IGD SIIQ to reduce their dividends accordingly. REITs pay out a minimum percentage of their variable profits. Abundant liquidity - a key differentiator for Fitch's investment-grade property companies - provides IGD with adequate resources to withstand short-term shocks. Also, Fitch expects the company to defer its capex plan to conserve liquidity. Fitch will continue to monitor how the coronavirus emergency affects the credit profile of IGD's tenant base, the number of tenant defaults and store closures, particularly the longer-term effects. 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