Safari Retreats Pvt. Ltd.: Rating Removed from ‘Rating Watch with Negative Implications’ and ‘Negative’ Outlook Assigned

November 06, 2020

Safari Retreats Pvt. Ltd.: Rating removed from ‘rating watch with Negative implications’ and ‘Negative’ Outlook assigned

Summary of rating action Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. Crore) (Rs. Crore) [ICRA]A- (Negative); removed from ‘rating watch with Negative Long Term - Fund Based TL 250.00 250.00 implications’ and ‘Negative’ Outlook assigned Total 250.00 250.00 *Instrument details are provided in Annexure-1

Rationale The negative outlook takes into consideration the near-term impact of the Covid-19 pandemic on the cash flows of Safari Retreats Private Limited’s (SRPL). The mandatory closure of mall operations from March 22, 2020 to August 02, 2020 has impacted the company’s cash flows as it extended waiver on rentals to the tenants. Hence, the company’s credit risk profile and the liquidity position are likely to deteriorate. Furthermore, the company’s business risk profile is under pressure, even after the commencement of operations, due to sparse footfalls. The footfalls and the trading density are expected to improve gradually in H2 FY2021.

The rating continues to draw strength from the attractive location of Safari Retreats Private Limited’s (SRPL) sole retail property ‘Esplanade One mall’ in Bhubaneshwar, Orissa, which witnessed healthy occupancy levels (99.7%) during pre- Covid times. However, due to the restriction imposed by the Central government to contain the pandemic, only 3.48 Lakh sqft (83.3%) area was eligible to be operational; hence, the occupancy was 79.7% of the total leasable area as on September 30, 2020. The rating also factors in the presence of a debt servicing reserve account (DSRA), in the form of fixed deposit (Rs.9.91 crore as on Sep 30, 2020) equivalent to one quarter of debt repayment obligation, as well as an escrow structure, which ensures transparency in cash flows, thus enhancing the credit profile. ICRA continues to draw comfort from the strong sponsor group, Nexus Malls, the Indian retail portfolio arm of The Blackstone Group. SRPL is likely to derive operational synergies as well as financial flexibility from the proven track record and the diverse portfolio of its sponsor.

The rating, however, remains constrained by the high lessee concentration risk with the top-five tenants occupying close to 44.3% of the total leasable area and contribute 36.8% to the total rental revenue. Though there are no major lease renewals in the near term, still the possibility of any major tenant vacating the property remains a key risk, considering the possible adverse impact of the Covid-19 pandemic on the business prospects of tenants. However, considering the strategic location of the mall, the stickiness of tenants is expected to be adequate. The rating is further constrained by the competition from upcoming malls in the Bhubaneswar region and the geographically concentrated operations as the entire leasable area is at a single location in Bhubaneshwar. The cash cover will also remain susceptible to volatility in interest rates, given that the interest rate is floating in nature.

ICRA notes that the company has availed a moratorium for the period March 01, 2020 – Aug 31, 2020. As per the Covid- 19 Regulatory Package, interest of Rs.10.7 crore that has accrued from March 01, 2020 to Aug 31, 2020 has been added

to the principal. Moreover, the repayment tenure has been elongated by nine additional monthly instalments till March 31, 2029 from June 30, 2028. ICRA has also taken note of the pending unsold inventory (Hotel premise worth Rs.15.7 crore and Office premise worth Rs.1.5 crore) of Rs.17.3 crore as on March 31, 2020. Sale proceeds of the same will be utilised to repay the unsecured loans of Rs.14.7 crore outstanding as on March 31, 2020.

Key rating drivers and their description

Credit strengths Strong sponsor group with established track record and diverse portfolio – The company is 100% owned by the Blackstone group through its affiliates. The sponsor is one of India’s leading office landlords. Nexus Malls is the retail platform of Blackstone Real Estate in India. The established track record of the shareholders in the real estate sector and the diverse portfolio in retail real estate business in India provide comfort. The mall is expected to benefit from Nexus Malls’ presence and experienced management in terms of operational and financial synergies due to large retail portfolio.

Healthy occupancy levels, diverse and reputed lessee profile - Esplanade One, owned by Nexus Malls, is Bhubaneswar’s first organised retail mall. It became operational in July 2018 and is currently the biggest mall in Odisha. The mall hosts reputed tenants such as Lifestyle, Iconic, Big Bazar, Home Center, Max, Reliance Trends, Project Eve, Mark & Spencer and Cinepolis. A combination of attractive location and catchment area as well as robust mall management capabilities have enabled the mall to draw healthy occupancy levels of 99.7% during pre-Covid times. However, due to the restriction imposed by the Central government to control the pandemic, only 3.48 Lakh sqft (83.3%) was eligible to be operational, thus the occupancy was at 79.7% of the total leasable area as on September 30, 2020.

Presence of structural features such as escrow mechanism and DSRA - The company has created a debt servicing reserve account (DSRA) in the form of fixed deposit (Rs.9.91 crore as on Sep 30, 2020) equivalent to one quarter of debt repayment. The receivables are routed through an escrow mechanism to ensure transparency in cash flows. Presence of DSRA coupled with adequate liquidity profile of the company underpins the rating.

Credit challenges Exposed to lessee concentration risk and vacancy risk – The mall has high customer concentration, with the top-five tenants occupying close to 44.3% of the total leasable area and contributing 36.8% of total rental revenue, thus exposing the company to lessee concentration risks. Though there are no major lease renewals in the near term, still the possibility of any major tenant vacating the property remains a key risk, considering the possible adverse impact of the Covid-19 pandemic on the business prospects of tenants. However, considering the strategic location of the mall, the stickiness of tenants is expected to be adequate.

Competition from upcoming malls in Bhubaneswar region – Although Esplanade One mall is the largest mall in Bhubaneswar, it is exposed to competition in the near to medium term from other existing and upcoming malls in Bhubaneswar.

Vulnerability to volatility in interest rates and asset concentration risk – Though the current cumulative cashflow coverage indicator remains adequate, it is exposed to volatility in interest rates. Further, the company’s dependence on a single asset exposes the company to asset concentration risk.

Liquidity position: Adequate The company has an adequate liquidity position, with unencumbered cash and bank balance of Rs.11.92 crore as on Sep 30, 2020. Further, the presence of debt servicing reserve account (DSRA) equivalent to one quarter of interest and principal repayment (Rs.9.91 crore in form of FD as on Sep 30, 2020) obligation provides additional liquidity comfort. The company has a debt repayment obligation of Rs. 9.1 crore in FY2021, which is estimated to be adequately serviced through operating cashflows.

Rating sensitivities Positive triggers – The crystallisation of scenarios for a rating upgrade is unlikely over the medium term. The outlook might be changed to ‘Stable’ in case of an earlier-than-anticipated recovery, followed by significant ramp up in mall operations.

Negative triggers – Any large vacancy or material decline in rental rates such that the cumulative DSCR weakens below 1.20 times. Second wave of covid-19 disrupting mall operations or any additional round of rental waivers impacting cash flow position of the company might warrant a rating downgrade.

Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Debt Backed by Lease Rentals Parent/Group Support Not Applicable Consolidation/Standalone Standalone

About the company Incorporated on February 27, 1982, Safari Retreats Private Limited (SRPL) is currently a part of Blackstone’s Indian retail portfolio arm - Nexus Malls Group. The Blackstone Group, through Nexus Malls, had acquired 100% stake in the company from the Kolkata-based Forum Group by July 2018. Esplanade One, the company’s mall at Bhubaneswar, has a total leasable area of 0.42 million square feet and it opened to the public in July 2018. The mall has a well-diversified clientele and had a healthy occupancy level of 99.1% (pre-Covid). However, due to the restrictions imposed by the Central government to contain the pandemic, only 3.48 Lakh sqft are was eligible to be operational and thus the occupancy level was at 79.7% of the total leasable area as on September 30, 2020.

Key financial indicators FY2019 (Audited) FY2020 (Provisional)

Operating Income (Rs. crore) 136.4 74.3 PAT (Rs. crore) -3.1 17.2 OPBDIT/OI (%) 18.0% 73.0% PAT/OI (%) -2.3% 23.1%

Total Outside Liabilities/Tangible Net Worth (times) 7.5 4.9 Total Debt/OPBDIT (times) 10.8 4.5 Interest Coverage (times) 1.3 2.3

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years Rating History for the Past 3 Current Rating (FY2021) Years Instrument Amount Rating FY2020 FY2019 FY2018 Amount Type Outstanding as 06-Nov- 14-Apr- 3-Jan- 12-Dec- Rated on Sep 30, 2020 2020 2020 2020 2018 [ICRA]A- Fund Long [ICRA]A- [ICRA]A- 1 250.00 241.19 [ICRA]A- @ (SO) - Based Term (Negative) (Stable) (Stable) Amount in Rs. crore

Complexity level of the rated instrument ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website click here

Annexure-1: Instrument details ISIN Instrument Date of Issuance / Coupon Maturity Amount Current Rating and Name Sanction Rate Date Rated Outlook (Rs. crore) NA Term Loan Aug 2018 7.95% March 31, 250.00 [ICRA]A- (Negative) 2029 Source: SRPL

Analyst Contacts Shubham Jain Anand Kulkarni +91 124 4545 306 +91 22 6169 3326 [email protected] [email protected]

Rohit Agarwal +91 22 6169 3329 [email protected]

Relationship Contact L. Shivakumar +91 22 6169 3304 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

About ICRA Limited:

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

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