Moody’s gives Baa2 to Grand City Properties

Moody's Investors Service said it assigned a long-term issuer rating of Baa2 to Grand City Properties SA.

The outlook is stable.

Moody’s said Grand City's Baa2 rating is supported by moderate "effective" leverage, as measured by adjusted debt/gross assets of 46.3% and strong fixed charge cover of more than 4 times, defined as adjusted EBITDA/gross interest expense + ground rents, as of the last 12 months to Sept. 30, 2014.

The rating also reflects the company's scale, with total assets of €2.38 billion, which is smaller than most of its rated investment-grade peers, but is nonetheless geographically diversified across Germany with a granular tenant base.

The asset quality of its property portfolio is mixed owing to its strategy to acquire under-managed properties for their turnaround potential. The portfolio exhibited an average vacancy rate of 13.3% reported at the third quarter of 2014, which is above that seen at similarly rated peers, in part as a result of the acquisition of new properties.

However, the company has developed a good track record of increasing the occupancy and rental income of acquired assets and reducing their operating and non-recoverable costs, Moody’ said.

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