Credit ratings agency Moody's has downgraded Italian REIT Immobiliare Grande Distribuzione (IGD) in response to the declining prospects in the country's retail sector.
The Bologna-based company, which owns 26 shopping malls in Italy and has total gross assets of €2.4 bn, had its corporate family rating reduced from Baa3 to Ba1. Its outlook has been changed from negative to stable.
'The downgrade of IGD's ratings is driven by the overall challenging operating environment for the retail property sector and the weak growth prospects for the Italian economy, factors we expect to weigh more heavily on IGD's credit metrics over the next 12 to 18 months,' said Moody's assistant vice-president Ana Luz Silva.
IGD's Italian malls make up 65% of the company's total portfolio value and generated 67% of its rental income, while Italian hypermarkets account for 24% and 26% respectively. IGD also owns malls in Romania (7% of its portfolio) and elsewhere (4%).
Moody's said the weak financial profile of IGD's main tenant and shareholder, Coop Alleanza 3.0, was another factor in the decision to downgrade its credit rating. The food retailer is struggling with large debts and carrying out a major restructuring which is likely to include store closures.
The downgrade to Ba1 also reflects wider structural changes in the retail sector and the weak Italian economy, which went into recession at the end of 2018. Moody's expects gross debt as a percentage of total assets to remain above 45% for the next 12 to 18 months, while net debt/EBITDA will rise towards 10x.
Moody's also noted that there were positive indications such as stable rental incomes in a challenging environment and a stronger coverage of fixed charges following refinancing measures, but IGD remained highly dependent on its income from Coop Alleanza, which has faced severe competition from hard discounters.
The stable outlook reflected Moody's expectation of a resilient operating performance, evidenced by steady footfall and tenant sales with a strong occupancy ratio. The agency said it also expected IGD to manage upcoming debt maturities well in advance of their due date.