Fitch Affirms Alto Palermo's Ratings at 'B/RR3'; Outlook Negative

Fitch Ratings has affirmed the following ratings of Alto Palermo S.A. (APSA):

--Foreign currency Issuer Default Rating (IDR) at 'B-',

--Local currency IDR at 'B+',

--USD120 million senior unsecured notes due in 2017 at 'B/RR3'.

The Rating Outlook is Negative.

APSA's ratings reflect the company's exposure to Argentina's business climate and economic conditions, its credit profile, and the credit linkage with its parent company, IRSA Inversiones y Representaciones S.A. (IRSA).

KEY RATING DRIVERS

APSA's foreign currency (FC) IDR continues to be constrained at 'B-' by the 'B-' country ceiling assigned to Argentina by Fitch. The company's local currency (LC) IDR remains at 'B+' due to the high degree of risk associated with operating in Argentina's real estate industry. The Negative Outlooks on the FC and LC IDRs are in line with those assigned to Argentina's sovereign ratings and reflect the high degree of uncertainty about the business climate and economic conditions.

The 'RR3' Recovery Rating reflects good recovery prospects in the event of default. The notching above the soft cap of 'RR4' for bonds issued by Argentine corporates reflects the company's very strong credit profile.

APSA has a strong business position in the Argentine shopping center industry. The company operates 13 shopping centers with gross leasable space of approximately 308,000 square meters. The high quality of these malls and their strategic locations has resulted in sales per square meter that exceed the market average and occupancy rates of around 98%. APSA's revenues are partially hedged against consumer inflation, as the company receives a percentage of the sales made by tenants in its malls. The company's high operating margins are due to leases that result in the tenants paying direct expenses and a percentage of the common expenses.

APSA shows some near-term concentration in its lease agreements; 39% of lease contracts expire in fiscal 2014, as the contracts are generally for 36 months. While this ratio is high for the industry, APSA's strong market position enables it to renew contracts updating leasing terms. Devaluation risk is also present for APSA as most of its cash flow is denominated in Argentine pesos and a substantial part of its debt is in U.S. dollars. This risk is partially mitigated by APSA's dollar-denominated asset portfolio and its long-term debt profile.

APSA's revenues and EBITDA were USD311 million and USD162 million, respectively, during the LTM ended Sept. 30, 2013. The company's EBITDA margin has remained stable at around 53% during the last several years. As of Sept. 30, 2013, the company had USD200 million in total debt (total net debt was USD163 million), the total debt-to-EBITDA ratio was 1.2x, while the EBITDA-to-interest ratio was 8.2x during the period.

While debt at APSA is low in relation to cash flow, Fitch has linked the credit quality of APSA with its more highly leveraged parent company, IRSA (APSA is 95.67% owned by IRSA). On a consolidated basis, IRSA had USD416 million of sales and generated USD239 million of EBITDA during LTM September 2013. At Sept. 30, 2013, IRSA had USD651 million of consolidated debt, resulting in a total debt-to-EBITDA ratio of 2.7x. APSA accounted for only 32% of IRSA's consolidated debt.

APSA maintains a manageable debt payment schedule with, respectively, USD51 million, USD24 million and USD9 million due during the next 12, 24, and 36 months ended September 2014, 2015, and 2016. The company had USD37 million of cash and marketable securities at the end of September 2013. The company also maintains other liquid assets for a total amount of approximately USD40 million. In addition, APSA's portfolio of assets is strong, with book capital of approximately USD300 million as of Sept. 30, 2013. This value would be higher at market value. These assets are mostly unencumbered, as secured debt represents less than 5% of its total debt load. The large pool of unencumbered assets at APSA provides financial flexibility and results in above-average recovery prospects in the event of default.

RATING SENSITIVITIES

The ratings are expected to be driven primarily by developments in Argentina's business climate and economic conditions. Fitch expects APSA will manage its balance sheet to a targeted debt-to-EBITDA ratio under 1.5x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=813995

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Fitch Ratings
Primary Analyst
Jose Vertiz, [phone]
Director
Fitch Ratings, Inc.
One State Street Plaza,
New York, NY 10004
or
Secondary Analyst
Dan Kastholm, CFA, [phone]
Managing Director
or
Committee Chairperson
Joe Bormann, CFA, [phone]
Managing Director
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Media Relations
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[e-mail]