DBRS Confirms Rating of Westfield Stratford City Finance PLC

DBRS Ratings Limited (DBRS) confirmed its AAA rating on the Class A notes issued by Westfield Stratford City Finance PLC. 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 backed by the Westfield Stratford City shopping centre, which is located in East London, near Queen Elizabeth Olympic Park. The collateral consists of a shopping centre that comprises approximately 1.9 million square feet of leasable area and an adjacent 5,000-space car park.

According to the August 2018 investor report, net operating income has increased by 11.8% to GBP 117.4 million per annum from GBP 105.0 million in August 2017. This represents an increase to net operating income over the cut-off figure by 26.5% and the DBRS issuance figure by 38.8%. The number of tenants has stabilised to roughly 299 compared with 327 tenants at issuance. Similarly, the overall occupancy at the shopping centre has stabilised at 97% compared with the issuance figure of 95.0%. The property’s overall weighted-average lease term to maturity and weighted-average lease-term-to-break are 9.4 and 4.9 years, respectively, a slight decrease compared with last year’s review.

The loan also benefits from having a well-diversified income stream with a proportion of income from sources other than rental income, such as parking, branding and the provision of utilities to tenants. The proportion of other income to total income has decreased by 3.9% since last review to 15.9% as of the August 2018; however, this income still represents a higher proportion compared with issuance. The year-on-year drop was mainly caused by a decrease in car park income of approximately GBP 1.6 million. DBRS underwrote GBP 5.4 million for car park income at inception, which is still approximately GBP 2.3 million lower than the currently reported car park income.

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%.

Notes:
All figures are in British pound sterling 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 surveillance section of 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 “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include Link Asset Services (UK) Limited and its delegates.

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 13 October 2017 when DBRS confirmed its rating on the Class A notes and maintained the trend as Stable.

The lead analyst responsibilities for this transaction have been transferred to Christopher Horst.

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 A (high) (sf).
-- 20% decline in DBRS NCF, expected rating of Class A to A (low) (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: Christopher Horst, Senior Financial Analyst
Rating Committee Chair: Jerry van Koolbergen, Managing Director
Initial Rating Date: 28 July 2014

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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
-- Interest Rate Stresses for European Structured Finance Transactions

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.