Fitch Upgrades BRMALLS Participacoes S.A.'s Ratings

Fitch Ratings has upgraded the ratings of BRMALLS Participacoes S.A. (BRMALLS) as follows:

--Foreign currency Issuer Default Rating (IDR) to 'BB+' from 'BB' ';

--Local currency IDR to 'BB+; from 'BB';

--Long-term national scale rating to 'AA(Bra)' from 'AA-(Bra)';

--BRL320 million local debentures, first and second tranches due in 2014 and 2016, respectively, to 'AA(Bra)' from 'AA-(Bra)'.

--BRL400 million local debentures, first and second tranches due in 2017 and 2019, respectively, to 'AA (Bra)' from 'AA-(Bra)'.

Fitch has also upgraded the following ratings of BR Malls International Finance Limited (Finco):

--Foreign currency IDR to 'BB+' from 'BB';

--USD175 million perpetual notes to 'BB+' from 'BB';

--USD230 million perpetual notes to 'BB+' from 'BB'.

The Rating Outlook is Stable.

The rating upgrades are a result of BRMALLS' emergence as the largest shopping center operator in Brazil with 51 malls throughout the country, an increase from 34 during 2008. The revenue stream from these malls has resulted in stable and predictable cash flows. The company's consistent use of a balance of equity and debt to fund its organic and inorganic growth during the past five years has kept leverage levels low relative to the value of its assets.

The Stable Rating Outlook reflects the expectation that BRMALLS will continue to deliver positive operating results based upon its strong market position and the high quality of its assets. Leverage is not expected to increase from current levels, as additional growth is expected to occur through a continued balanced mix of funding that will not compromise its capital structure.

Growing Revenues and EBITDA Driven by Investments

During the latest 12 months (LTM) ended Sept. 30, 2012, BRMALLS revenues were BRL1.1 billion, an increase from BRL861 million and BRL546 million during 2011 and 2010. BRMALLS' EBITDA for the LTM was BRL844 million, which compares positively with its EBITDA levels of BRL685 million in 2011 and BRL442 million and 2010. This growth has been driven by investments of BRL1.4 billion during the LTM, BRL2.4 billion during 2011 and BRL2.2 billion during 2010. Equity funding consisted of a BRL446 million offering in 2009 and a BRL731 million secondary issuance during 2011.

Lease Characteristics Support Revenue Stream

BRMALLS rents and net operating income per square meter are stable to positive. They are supported by a lease structure that consist of fixed rent payments (70%) and tenant reimbursements (10%), which cover costs associated with property management and taxes. The lease portfolio has staggered lease expiration dates. About 75% of BRMALLS rental income contracts having expiration dates beginning in 2015 and beyond.

Diversified Business Lowers Risks

BRMALLS' increased geographic, income and tenant diversification make it less prone to fluctuations in the domestic economy. The company has operations in all five regions of Brazil; the largest mall represents approximately 13% of its total revenue. The company's diversification spreads over to its customer base as it looks to serve all income segments. Only about 10% of the company's total annual revenues from rent and services are derived from anchor stores. None of those stores is individually responsible for more than 2% of the company's annual revenues from rent and services.

No Major Changes Expected in Leverage

The gross leverage of BRMALLS is expected to remain around 5x in the medium term, which compares well with regional and global players in the industry. As of Sept. 30, 2012, the company's total debt was BRL4.5 billion. The company's gross and net leverage ratios were 5.4x and 4.2x as of Sept. 30, 2012. Fitch base case projects 2013 revenues at approximately BRL1.3 billion and an EBITDA margin of 80%. The company's investments are expected to be around BRL1.2 billion, which should result in gross leverage stable around 5x.

Adequate Liquidity

BRMALLS maintains adequate liquidity. As of Sept. 30, 2012, the company faces debt amortizations of BRL1 billion and BRL250 million during 2013 and 2014, respectively, and has a cash position of BRL880 million. BRLMALLS short-term debt obligations are expected to be reduced to about BRL500 million by the end of 2012 through some debt refinancing. BRMALLS has a high level of unencumbered assets; approximately 51% of the company's owned GLA (429 thousand m2) is free of any liens. The company could use these assets in the future to access liquidity. The high level of unencumbered assets also presents a good recovery prospect for the unsecured debt in a default scenario, with LTV levels in the range of 30% to 50%.

Rating Expectations

Fitch expects BRMALLS to maintain adequate leverage and liquidity levels. Fitch would consider a negative rating action if the company's financial profile deteriorates due to some combination of the following factors: aggressive capex; adverse macroeconomic trends leading to weaker credit metrics; significant dividend distributions; and higher vacancy rates or deteriorating lease conditions. A stronger capital structure could lead to an increase in the company's ratings.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'National Ratings - Methodology Update' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

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