DBRS Confirms Ratings of Westfield Stratford City Finance PLC

DBRS Ratings Limited (DBRS) has today 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 overall stable performance of the transaction since issuance.

Westfield Stratford City Finance PLC is a securitisation of a fixed-rate, interest-only loan granted by Westfield Stratford City Finance PLC to the borrower, Stratford City Shopping Centre (No.1) Limited Partnership. The loan sponsors are Westfield Corporation (50%), Algemene Pensioen Groep NV (25%) and the Canada Pension Plan Investment Board (25%). The purpose of the loan was to provide refinancing of exisiting indebtedness of the borrower and to provide capital for general corporate purposes of the borrower. As of August 2016, the original and current whole loan balance remains the same at GBP 750.0 million.

The collateral securing this loan consists of the 1.9 million square feet Westfield Stratford City shopping centre and the 5,000 space adjacent car park. The property opened in September 2011 and is located in East London within the Queen Elizabeth Olympic Park neighbourhood.

According to the August 2016 Investor Report, the Net Operating Income (NOI) increased by 3.2% to GBP 96.0 million from the first reported figure of GBP 93.3 million in February 2015. The top ten tenants represent 18.1% of the total rent. The centre has a well-diversified income stream from rent, parking, branding and the provision of utitity to tenants. Since issuance, the centre’s vacancy rate has been stable with a current vacancy rate of approximately 5.0%. Throughout the coming 12 months, tenants representing 5.6% of the total rental income have lease expirations and tenants representing an additional 12.0% of total rental income have lease break options. The overall weighted-average lease term to maturity and weighted-average lease term to break is 11.4 years and 5.7 years, respectively, for the property as a whole. The property’s largest tenants are John Lewis, Marks & Spencer and Vue Enternainment Ltd.

In May 2014, CBRE valued the property at GBP 1.9 billion resulting in an initial loan-to-value (LTV) ratio of 38.1%. A new valuation has not been completed since issuance. The DBRS stabilised value assumption of GBP 1.3 billion represents a 33.4% haircut of the original CBRE valuation. As a result, the DBRS LTV is 57.6%. As the subject property continues to be one of the most visited and popular shopping centres in the United Kingdom, DBRS expects its future performance to continue to be stable.

In July 2016, DBRS completed a review of all DBRS-rated transactions with collateral in the United Kingdom following the EU Referendum vote in June. This impact was addressed on a deal-by-deal basis. At the time of the analysis, all ratings of Westfield Stratford City Finance PLC were confirmed given the historical performance trends and DBRS value haircut at issuance that provides some cushion in case of potential value declines following the referendum. For more information about DBRS’s view on the impact of the EU referendum on the UK commercial real estate market and outstanding UK CMBS ratings, please see the press release, “DBRS Takes Several Rating Actions on UK CMBS.”

The final legal maturity of the Notes is in November 2024, five years beyond the maturity of the only loan in October 2019. If necessary, this is believed to be sufficient time, given the security structure and jurisdiction of the underlying loans, to enforce on the loan collateral and repay bondholders.

Notes:
All figures are in pounds sterling unless otherwise noted. The principal methodology applicable is European CMBS Surveillance.

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 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 information used for this rating include the Special Servicer, Capita Asset Services (UK) Limited.

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

DBRS was not supplied with third party assessments. However, this did not impact the rating analysis.

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

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 22 July 2016, when DBRS confirmed all the ratings of this transaction.

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)

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS’s outlooks and ratings are monitored.

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 regulations only.

Initial Lead Analyst: Mary Jane Potthoff, Managing Director, Global CMBS
Initial Rating Date: 28 July 2014
Initial Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

Lead Surveillance Analyst: Jorge Lopez Herguido, Financial Analyst, European CMBS
Rating Committee Chair: Christian Aufsatz, Senior Vice President, European CMBS

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

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