Citycon Oyj credit rating downgraded by S&P Global Ratings

Investing.com -- S&P Global Ratings has downgraded the credit rating of Citycon Oyj, a leading Nordic owner and operator of grocery-anchored shopping centers, due to persistently tight credit metrics. The long-term issuer credit rating was lowered to ’BB+’ from ’BBB-’, while the issue rating on the senior unsecured notes remained at ’BBB-’ and the short-term issuer credit rating was adjusted to ’B’ from ’A-3’. The hybrid notes’ issue rating was also reduced to ’B+’ from ’BB’. Despite these changes, the outlook for Citycon remains stable.

In 2024, Citycon reported an adjusted debt-to-debt-plus equity ratio of 57.7%, well above the S&P Global Ratings’ downside threshold of 55% for the second year in a row. This ratio persisted despite the company selling assets worth €390 million in 2024, albeit at a discounted price. Citycon continues to face challenges in selling assets without a discount on book values, leading to expectations that the ratio will remain at or above 55%.

Citycon’s interest coverage ratio is also expected to remain under pressure, potentially bottoming out at a low 1.8x over 2026-2027, as the company continues to update its balance sheet to current financing cost. S&P Global Ratings has also revised its view of Citycon’s management and governance from neutral to moderately negative due to recent high turnover in the management team and unclear communication.

Citycon’s operating performance is expected to remain sound over the next 12 months, despite reporting elevated leverage. The company’s debt to debt plus equity is anticipated to stay at or above 55%, with interest coverage progressively reducing toward 1.8x.

The company’s debt to debt plus equity remained high at the end of 2024, even with considerable asset disposals. Citycon reported a negative valuation effect of about 2.0% on its €3.7 billion portfolio compared to 2023. The company also reported net fair value adjustments of negative €79 million on a disposed €390 million portfolio, representing a 20.3% discount over book value.

Citycon has been actively replacing its debt at a higher cost, which will weaken its interest coverage ratio, expected to bottom out at 1.8x-2.0x over 2026-2027, from 2.0x at the end of 2024.

S&P Global Ratings has revised its management and governance assessment of Citycon to moderately negative, from neutral previously, due to the increased turnover in the company’s management team and the deteriorating quality of reporting.

The stable outlook reflects the expectation that Citycon will continue to benefit from solid operating performance, with positive rental growth, stable occupancy, and stable EBITDA margins. Citycon’s interest coverage ratio is estimated to weaken slightly over the next 12 months, while debt to EBITDA should remain stable.

S&P Global Ratings could lower the rating if Citycon’s credit metrics deteriorate, or if the company fails to address its upcoming maturities in a timely manner. On the other hand, a positive rating action could occur if Citycon manages to reduce leverage while preserving the integrity, quality, and diversity of its asset portfolio.

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