DBRS Confirms Rating of Westfield Stratford City Finance PLC

DBRS Ratings Limited (DBRS) confirmed its rating on the following class of Commercial Mortgage-Backed Floating-Rate Notes Due November 2024 issued by Westfield Stratford City Finance PLC:

-- Class A at AAA (sf)

The trend is Stable.

The rating confirmation reflects the transaction’s stable performance since issuance.

Westfield Stratford City Finance PLC is a securitisation of a single, interest-only loan of GBP 750 million made by Westfield Stratford City Finance PLC to Stratford City Shopping Centre (No.1) Limited Partnership (the Borrower) to refinance the Borrower’s existing indebtedness and to provide capital for general corporate purposes. The loan’s sponsors are Westfield Corporation (50%), Algemene Pensioen Groep NV (25%) and the Canada Pension Plan Investment Board (25%). While the loan pays fixed interest, the notes pay a floating rate based on three-month Sterling LIBOR. The transaction’s interest rate risk is hedged using interest rate swaps provided by Credit Agricole Corporate and Investment Bank and Deutsche Bank AG. The loan has a five-year loan term and is scheduled to mature in October 2019.

The collateral securing the loan is the Westfield Stratford City shopping centre, which is located in East London, near to the Queen Elizabeth Olympic Park. The shopping centre comprises of approximately 1.9 million square feet of leasable area and 5,000 car parking spaces. The property opened in September 2011 and has ranked first in each Trevor Woods Going Shopping Survey since 2013. It continues to be one of the most visited and popular shopping centres in the United Kingdom.

According to the August 2017 Investor Report, net operating income has increased by 9.3% to GBP 105.0 million from GBP 96.0 million in August 2016. While the total number of tenants has fallen to 298 from 327 at issuance, the shopping centre’s overall occupancy has increased to 97.7% from 95.0%. The property’s overall weighted-average lease term to maturity and weighted-average lease term to break are 10.4 years and 5.9 years, respectively. The shopping centre continues to exhibit a well-diversified income stream with the proportion of income from sources other than rent — parking, branding and the provision of utilities to tenants — increasing to 19.8% of total gross operating income as of August 2017 from 13.9% at issuance.

The Westfield Stratford City shopping centre was valued by CBRE in May 2014 at GBP 1.9 billion, resulting in an initial loan-to-value (LTV) ratio of 38.4%. The property has not been revalued since issuance and the current LTV remains at 38.4%. The DBRS stabilised value assumption of GBP 1.3 billion represents a 33.4% haircut to CBRE’s valuation and a DBRS LTV of 57.6%.

DBRS expects its future performance to continue to be stable, hence the rating confirmation.

Notes:
All figures are in pounds unless otherwise noted.

The principal methodology applicable to the rating is: European CMBS Rating and Surveillance Methodology.

DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of data and information used for this rating include the Servicer, Capita Asset Services (UK) Limited.

DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 14 October 2016, when DBRS confirmed the rating of this transaction.

The lead analyst responsibilities for this transaction have been transferred to Rick Shi.

Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

A decrease of 10% and 20% in the DBRS net cash flow (NCF), derived by looking at comparable properties, market rents, market occupancies in addition to expenses ratios, capital expenditures and re-tenanting costs, would lead to the following ratings in the transaction, as noted below for each class respectively:

Class A Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class A to AA (low) (sf)
-- 20% decline in DBRS NCF, expected rating of Class A to BBB (sf).

For further information on DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Rick Shi, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Head of European Structured Finance
Initial Rating Date: 28 July 2014

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- European CMBS Rating and Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisation

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375