OREANDA-NEWS. Fitch Ratings has affirmed the Long-Term Foreign - and Local-Currency Issuer Default Ratings (IDRs) of InRetail Real Estate Corp. (InRetail Real Estate) at 'BB+'. Fitch has also affirmed the senior unsecured bond issued by InRetail Shopping Malls at 'BB+'. The Outlook is Stable

A full list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Solid Business Position

InRetail Real Estate Corp.'s (InRetail Real Estate) ratings reflect the solid Peruvian shopping mall industry, stable and predictable cash flow generation, and favorable industry fundamentals. InRetail Real Estate is the largest shopping mall company in Peru based on gross leasable area (GLA) and the number of shopping malls. Under its Real Plaza brand, the company operates 18 shopping malls with 582,218 square meters (m2) of total GLA. InRetail Real Estate maintains a market share measured by its participation in Peru's total GLA, estimated at 24.8% as of Dec. 31, 2015. The company's market position in Peru's shopping mall industry is viewed as solid in the medium term.

Revenue Supports Stable Margins

The company's margins are stable and supported by its lease structure with fixed-rent payments representing approximately 87% of total rental income. EBITDA margins are expected to remain stable at about 82% - 83% in 2016 - 2017. In addition, Fitch expects the company to continue its moderately aggressive capex plan, which includes the addition of more than 140,000 square meters of GLA during 2016 - 2018, primarily as a result of the development of the Puruchuco Mall.

Operational Performance in Line with Industry Standards

InRetail Real Estate has maintained high occupancy levels of 94% - 97% through 2012 - 2016. Its lease portfolio has adequate lease expiration dates with approximately 4.9% and 5.4% of the company's lease portfolio, measured as a percentage of the company's total GLA, with expiration dates in 2016 and 2017, respectively. In addition, InRetail Real Estate's lease duration profile for its property portfolio has an average of about 19 years (including anchor tenants) and about six years (excluding anchor tenants).

Limited Diversification

The ratings incorporate InRetail Real Estate's asset and tenant concentration risk. The company's net revenue structure presents some asset concentration, with five malls representing approximately 54% of its net revenues during 2016. In addition, the company's tenant composition is concentrated, as 10 of its most important tenants represent approximately 44% of the company's total annual rent revenue. This concentration is partially balanced by the credit quality of these tenants. The company's assets and tenant concentration risks are not expected to materially change in the short to medium term.

Adequate Leverage

The company's net leverage is adequate. During the LTM ended March 31, 2016, InRetail Real Estate's net debt/LTM EBITDA was at about 4.2x. Fitch expects Net debt/ EBITDA to remain at about 4.3x - 4.4x during 2016 - 2017 as the company is increasing expansion capex. The company had PEN1.267 million (USD381million) of total debt, which was composed of its USD 350 million senior unsecured of notes due in 2021 and PEN136 million of unsecured local currency bonds due in 2034. The balance of the company's debt was mostly in banking loans and financial leases.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for InRetail Real Estate include the following:

--2016 EBITDA margin around 80%;

--Net leverage around 4.3x - 4.4x in FYE16;

--Negative FCF (after interest payment)during 2016 due to higher capex;

--No dividend payments during 2016 - 2017;

--Interest coverage (EBITDA/gross interest expenses) consistently above 2.5x during 2016 - 2017;

--Unencumbered assets-to-net unsecured debt consistently above 1.75x during 2016.

RATING SENSITIVITIES

Fitch would consider a negative rating action if the company's financial profile deteriorates due to some or a combination of the following factors:

--Adverse macroeconomic trends leading to weaker credit metrics;

--Significant dividend distributions; and

--Higher than expected vacancy rates or deteriorating lease conditions;

--Net Leverage consistently above 5x;

--EBITDA margin deterioration reaching levels consistently below 72%;

--Interest coverage ratio (EBITDA / interest expense ratio) consistently below 2x;

--Consistent increase in short-term financing.

Fitch would consider a positive rating action as a result of some or a combination of the following factors:

--Improvement in InRetail Real Estate's asset diversification, net leverage and unencumbered assets at levels above those incorporated in the ratings;

--Net Leverage consistently below 3.75x ratio;

--Interest Coverage ratio consistently above 3x;

--Unencumbered asset to net unsecured debt consistently above 3x ;

--Material improvement (i. e. better than expected) in EBITDA margins and asset diversification;

--Positive FCF.

LIQUIDITY

InRetail Real Estate's liquidity is adequate as a result of its current cash position and cash equivalent and debt payment schedule, as well as a high level of unencumbered assets. No material debt is due during the next three years. The company is expected to maintain an adequate level of unencumbered assets, with an estimated market value of approximately PEN2,9 billion (USD865 million), as of March 31, 2016, covering 2.4x its unsecured debt level. InRetail Real Estate's loan to value is estimated at about 43%.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

InRetail Real Estate Corp

--Long-Term Foreign-Currency IDR at 'BB+';

--Long-Term Local-Currency IDR at 'BB+'.

InRetail Shopping Malls

--USD350 million senior unsecured foreign currency notes at 'BB+';

--Senior unsecured local currency notes due 2034 at 'BB+'.