The FINANCIAL -- London/Istanbul-29 July 2011: Fitch ratings has affirmed Turkey-based Is
Real Estate Company's (IS REIC) National Long-term rating at
'AA+(tur)'.
The Outlook is Stable.
IS REIC's ratings are primarily driven by the entity's standalone creditworthiness but also benefit from a one notch uplift due to the company's relatively strong linkage with Isbank's ('AAA(tur)'/Stable) which owns a 42% stake in IS REIC (Is Group companies have a 58% stake overall). The one notch uplift reflects Fitch's assumption that IS Bank would be likelly to support IS REIC if needed, in line with Fitch's parent and subsidiary rating linkage methodology, notably for reputational reasons. Fitch also notes that IS REIC's operational profile benefits from the high credit quality of Isbank through the fact approximately 45% of its tenants are IS Group companies, including the Sisecam Group (one of the companys largest tenants).
The rating reflects IS REIC's sustained healthy and stable rental revenues thanks to its strong tenant base. Fitch expects rental income from the total portfolio to remain stable due to the long-term structure of lease contracts (average five years), but notes that leases corresponding to 48% of annual rental income are up for renewal in 2011 (18% of which are related to Is Bank). The occupancy rate across the office portfolio remained at 100%, even during the economic crisis, reflecting the quality of IS REIC's assets. The agency considers that IS REIC's concentration on rental-derived income rather than on development sale is credit positive.
IS REIC took on debt for the first time in 2010 to finance investments in the tourism sector. Fitch notes that development risk will increase due to new mixed-use projects in Tuzla and Izmir (Turkey's third-largest city). Accordingly, Fitch expects capex spending to continue to increase in the medium term. The agency notes that the company's current gearing is conservative, however Fitch expects gearing to increase due to the new development projects. The agency considers further leveraging above a loan-to-value ratio of 40%, rental derived EBIT NIC ratio below 4x and speculative development assets representing more than 35% of total assets would be rating negative.
IS REIC is Turkey's third-largest quoted property company and at end-Q111 had a TRY1,492m property portfolio. Offices accounted for 45% of the real estate portfolio by value, followed by retail with 28% and hotels with 8%.
Related Stories
