Safari Retreats Pvt. Ltd. December 12, 2018 Summary of rating action Current Rated Amount Instrument* Rating Action (Rs. crore) Fund-based -Term Loan 250.00 [ICRA]A-(SO) (Stable); Assigned Total 250.00 *Instrument details are provided in Annexure-1 Rationale The assigned rating draws strength from the favourable location of Safari Retreat Private Limited’s (SRPL or the company) property ‘Esplanade One mall’ at Rasulgarh area, which is a major commercial place in the city of Bhubaneswar (Odisha). The rating also draws support from the healthy occupancy levels and tenant profile which include reputed anchors such as Mark & Spencer, Lifestyle, Iconic, Reliance Trends, Reliance Digital, Project Eve, and Cinepolis among others. The rating also takes into account the low renewal risk with no major renewals falling due in the next three years given that the mall became operational from July 2018 onwards. The rating also positively factors in the presence of Debt Servicing Reserve Account (DSRA) equivalent to one quarter of debt obligations as well as an escrow structure for the term loans and its strong management team and promoter – Nexus Malls, the Indian retail portfolio arm of The Blackstone Group. The rating, however, is constrained by the high lessee concentration risk as the top five tenants account for ~60% of the total leasable area. The risk is further accentuated in the backdrop of asset concentration risks inherent in a single property portfolio and its modest operating scale on account of limited track record of mall’s operations. The ramp-up in operating scale remain a key monitorable as the mall recently opened to the public in first quarter of FY2019. This apart, ICRA notes that leases are either on plain fixed gross rent, pure revenue-share basis or a combination of the two. Thus, the rental revenues of the mall will also remain contingent on the eventual operational performance of the tenants. Any prolonged slowdown in the business activity affecting the footfall as well as the spending ability of the customers may have an impact on the tenant revenues and the occupancy rates of the mall. The rating is also constrained by competition from upcoming malls in Bhubaneswar in medium to long term. The cash cover will also remain susceptible to exposure to volatility in interest rates given that the interest rate is floating in nature. Nevertheless, management’s stated stance to retain the entire cash flow surplus and prioritize prepayment of debt mitigates the risks to an extent. Outlook: Stable ICRA expects that the company’s cash flow cover for the debt obligations to remain healthy in near to medium term owing to its healthy occupancy levels and presence of reputed brands ensuring sustainability in revenue. The outlook may be revised to Positive if there is higher-than-expected growth in net operating income (NOI) which further strengthens the financial risk profile of the company. The outlook may be revised to Negative if cash accrual is lower than expected, or if there is any major debt-funded capital expenditure or acquisition that weakens the liquidity and coverage indicators of the company. Key rating drivers Credit strengths Strong promoter group- The company’s current promoter is Nexus Malls (100% stake). The established track record of Nexus Malls Group in real estate sector provides significant comfort. 1 Healthy occupancy levels; Diverse and reputed lessee profile - The mall has a set of diverse and reputed clientele such as Lifestyle, Iconic, Big Bazar, Home Center, Max, Reliance Trends, Reliance Digital, Project Eve, Mark & Spencer and Cinepolis. The mall is present in Rasulgarh area, near to Kolkata-Chennai(NH16) highway, which is the primary catchment area of the mall and is a major commercial place. A combination of attractive catchment area and mall management capabilities have enabled it to attract reputed brands (over 100 tenants) with healthy occupancy levels at 93% as on November 2018. Low lease renewal risk - All the anchor tenants have a long lease period ranging from 12 years to 19 years. The lease period for most of the vanilla stores range from 5 years to 9 years. Thus, renewal risk is low with no major renewals are falling due over the next three years, with the earliest renewal due in FY2024 for few vanilla stores. Presence of structural features such as DSRA- The company has created a DSRA equivalent to one quarter of debt servicing. The receivables are routed through escrow mechanism. Presence of DSRA coupled with healthy liquidity profile of the company underpins the rating. Credit challenges High lessee concentration risk- The mall has high customer concentration with the top five tenants occupying close to 60% of total leased area and contributing to 50% of total rental revenue, thus further exposing the company to vacancy risks. High asset concentration risk and modest scale of operations– The company draws its revenues from a single mall in Bhubaneswar, Odisha. The project being a single mall SPV for the company is exposed to high asset concentration risk, which is inherent in single property nature of portfolio. Further, the mall was opened to public on July 2018. Prior to that, the company had no operational cashflows till FY2018. Therefore, the operating scale of the company remains modest on account of limited track record of operations. The ramp-up in operating scale is yet to be seen as FY2020 will be the first full year of operations. Exposure of cash flow cover to volatility in interest rate and revenues - The cash flow cover will remain susceptible to volatility in interest rate because the interest rate is floating in nature. Further, part of the rental revenues remains contingent on tenants’ performance as the same is linked to revenue share. Any sustained economic slowdown would have a bearing on the footfalls as well as consumer spending ability and consequently on the mall’s rental revenues. Exposure to competition from upcoming malls in Bhubaneswar region- Although Esplanade One mall is the largest malls in Bhubaneswar, and has been recently opened, it remains exposed to competition from upcoming malls in Bhubaneswar in medium to long term. Liquidity Position: The company has an undrawn bank lines of ~Rs.17 crore currently. Its liquidity profile is further strengthened by presence of DSRA amount of Rs.5.85 crore that has been created and escrow mechanism. 2 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: 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 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 healthy occupancy level of 93% (as on November 2018) with diverse tenant categories such as food courts & dining (Chili’s, Burger King, Domino’s, Pizza Hut), 7 screen multiplex (Cinepolis), departmental stores (Mark & Spencer, Lifestyle, Iconic, Big Bazar, Home Center, Max, Reliance Trends, Reliance Digital, Project Eve), various retails stores and entertainment zones (Timezone). Key financial indicators (audited) FY2017 FY2018 Operating Income (Rs. crore) - - PAT (Rs. crore) -0.07 -0.69 OPBDIT/OI (%) - - RoCE (%) -0.12% 0.71% Total Debt/TNW (times) 1.13 3.84 Total Debt/OPBDIT (times) -70.82 -194.44 Interest coverage (times) -72.44 -33.29 Status of non-cooperation with previous CRA: Not applicable Any other information: None 3 Rating history for last three years: Chronology of Rating History for the Current Rating (FY2019) Past 3 Years Date & Date & Date & Date & Rating in Rating in Rating in Amount Amount Rating FY2018 FY2017 FY2016 Rated Outstanding Instrument Type (Rs. crore) (Rs. crore) Dec 2018 - - - 1 Term Loan Long 250.00 232.41 [ICRA]A-(SO) - - - Term (Stable) 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 www.icra.in 4 Annexure-1: Instrument Details Date of Amount Issuance / Maturity Rated Current Rating and ISIN No Instrument Name Sanction Coupon Rate Date (Rs. crore) Outlook NA Term Loan Aug-2018 - June- 2028 250.00 [ICRA]A-(SO) (Stable) Source: SRPL 5 ANALYST CONTACTS Shubham Jain Manav Mahajan +91 124 4545 306 +91 124 4545 817 [email protected] [email protected] Ashirbad Rath +91 226 1693 327 [email protected] RELATIONSHIP CONTACT Jayanta Chatterjee +91 804 3326 401 [email protected] MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected] Helpline for business queries: +91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm) [email protected] About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. 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