Fitch: Latin American Real Estate Outlook Stable for 2016; Operational Performance Remains Resilient
OREANDA-NEWS. Fitch Ratings is maintaining its stable outlook for Latin American real estate companies for 2016, given expectations of continued steady cash flow generation, adequate access to capital, good liquidity, stable fixed-charge coverage and moderate net financial leverage. These elements are partially counterbalanced by the regional economic slowdown, continued limited property diversification and FX risk exposure.
Despite the slowdown in the main economies in the region, cash flow generation for most rated issuers is anticipated to remain resilient during 2016 due to revenue and lease structures that incorporate fixed and inflation-adjusted components, reducing volatility in revenues and margins. Profitability should remain healthy, with EBITDA margins in the 70%-80% range, occupancy rates in the 85%-95% range, and neutral to low-single-digit positive same-store rents (SSRs) above inflation.
Companies across the sector are anticipated to continue to have well-managed liquidity, reflected by their comfortable interest coverage ratios, consistently in the 2.0x-4.0x range. Supporting the view that the sector will maintain adequate liquidity are debt amortization profiles with low levels of short-term debt relative to cash on the balance sheet; significant levels of unencumbered assets; and adequate access to international and local debt and equity markets.
Fitch views the sector's net debt/recurring operating EBITDA as low to moderate, with levels in the 4.0x-5.0x range. Fitch does not expect leverage for Latin America rated issuers to change meaningfully during 2016. Fitch considers the sector's FX risk exposure as manageable, with most rated issuers having relatively low levels of U.S. dollar-denominated debt relative to cash flow generation or important portions of their revenue structure also being dollar-denominated, providing a natural hedge.
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