OREANDA-NEWS. Fitch Ratings has assigned Unibail Rodamco SE's (URSE) senior unsecured notes, issued under the company's USD1bn private placement commercial notes programme, a 'F1' Short-term rating.

The 'F1' rating corresponds to Unibail's Long-term IDR of 'A', and reflects a strong liquidity back-up.

Although Unibail does not intend to increase its use of commercial paper (around EUR1.6bn at end-2015) the rated programme allows the company to further diversify its source of funding. The company has around EUR5.4bn of undrawn committed credit lines together with EUR0.3bn of cash, which comfortably cover upcoming debt maturities and commercial paper use.

Unibail operates geographically diversified prime shopping centres with a defensive rental income profile. Its operating performance continues to be outstanding, benefiting from high occupancy, solid rent renewal increases and high tenant retention, mitigating fairly short average lease maturities. Fitch expects Unibail's loan-to-value (LTV) and EBITDA net interest cover (NIC) to remain below 40% and around 4.0x, respectively. The group also benefits from one of the strongest liquidity positions in the sector and has extended its debt maturity and lowered its funding cost.

KEY RATING DRIVERS
Regular Churn Improves Portfolio
Unibail accelerated the disposal of non-core assets with the sale of more than EUR2bn of assets in 2014 and EUR1.6bn in 2015, including the sale of 46% of mfi, a German real estate subsidiary, to Canadian Pension Plan Investment Board (CPPIB). It follows years of portfolio transformation that has seen the average gross market value of Unibail's shopping centres grow to EUR450m in 2015 from EUR170m in 2009, with footfall of 11.6 million in 2015, up from 7.9 million in 2009.

Large shopping centres (more than 6 million footfall) continued to report strong performance in 2015, most notably in valuation or minimum guaranteed rent uplift, therefore validating Unibail's strategy.

Higher Minority Interests
Unibail will keep mfi fully consolidated after the sale of a 46% stake. While Unibail has one of the cleanest group structures within Fitch's property universe, it has seen an increased usage of minority interests. Fitch does not adjust its LTV calculation for equity-accounted investments given the control Unibail is exercising and the non-material, non-permanent nature of the debt sitting at the level of equity-accounted investments. Also, Fitch continues to deduct cash minority dividends from Unibail's EBITDA.

Modest Decrease in LTV
Unibail's published LTV slightly improved in 2015, following disposals and like-for-like changes in valuation. The company's through-the-cycle LTV proved to be less volatile than other rated EMEA-based REITs, due to its prime portfolio and geographical diversification. Although management have a track record of managing the LTV conservatively through the cycle, it has not adopted a debt-neutral strategy, which has left the company with less headroom for further leverage.

Longer and Cheaper Debt
Unibail further reduced its average cost of debt to 2.2% in 2015 (2.6% in 2014) and increase its average debt maturity to 6.5 years (5.9 in 2014), benefitting from its issuance of bonds with long maturities (15 years) and low financing costs. Use of secured debt remains limited. Unencumbered asset cover ratio was above 2.5x last year, in line with our guideline for the current rating.

Significant Geographical Diversification
Unibail's property activities span mainly three different sectors (retail 80%, office 12%,exhibition centres 7% and services 1%) and 12 countries from western to eastern Europe. Unibail has exposure to mature markets such as France and Holland and emerging retail consumer markets, such as Poland. We view the geographical and sector diversification of its property investment portfolio as being unrivalled in Europe.

KEY ASSUMPTIONS
-Moderate indexation and increase in rent at renewals with flat occupancy ratios for shopping centres
-A similar level of profitability to previous years

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating actions include:
- A very significant decrease in leverage, assuming the current operating profile

Negative: Future developments that could, individually or collectively, lead to negative rating action include:
- Significant rise in tenant defaults and lease arrears, leading to a material fall in total rents
- LTV adjusted for minorities above 40% on a sustained basis and a deviation from managing this ratio conservatively through-the-cycle
- EBITDA NIC below 2.5x on a sustained basis.

LIQUIDITY
At end-2015 Unibail had around EUR5.4bn of undrawn committed facilities and EUR343m of cash, sufficient to meet its committed development capex and EUR0.9bn of debt maturities in 2016 (excluding commercial paper issuance).