TEXT-Fitch affirms Land Securities Capital Markets Plc
Aug 14 - Fitch Ratings has affirmed Land Securities Capital Markets Plc's (LSCM/the Security Group) secured notes at 'AAsf' with a Stable Outlook. LSCM operates a programme of secured financing of investment property assets within Land Securities Group Plc (LSG). Based on an external valuation of the secured portfolio as at 31 March 2012 - resulting in an increase in the total collateral value (TCV) for the security group to GBP8,832m from GBP8,658m in March 2011 - LSCM's loan-to-value ratio (LTV) has fallen to 37.6% from 40.1% in March 2011. As a result and in combination with the projected interest coverage ratio (PICR) of 3.85x, LSCM is operating within Tier 1 parameters (i.e. LTV below 55%, PICR above 1.85x), resulting in minimal operational restrictions. In its analysis, Fitch has taken into consideration LSG's statement that it remains committed to operate within the Tier 1 LTV thresholds, which reduces the future credit risk for the secured creditors. At the group level, LSG benefits from strong liquidity, with undrawn committed facilities and non-restricted cash deposits of GBP1.2bn, at March 2012, against only GBP71m of debt maturities (including share of JV debt) in FY 2013 (to March 2013) and estimated projected development costs of circa GBP450m. LSG's portfolio value benefited at March 2012 from a 2% increase in the valuation of the group's investment property portfolio, due to yield compression on prime assets and completion of new developments, including One New Change London EC4. LSG is expecting future rental increases across the Central London office and retail market in FY12. However, the group is aware of the risks that remain in their non-London portfolio and in particular the fragility of the retail market. Fitch's adjusted projected income cover ratio (Fitch PICR) is the agency's key measure of debt affordability for this transaction. This comprises LSCM's Fitch adjusted operating EBITDA plus interest income on the inter-company loan, divided by LSCM's external net interest payable. Fitch estimates that LSCM's PICR should remain around 2.5x by financial year ending March 2015, from previous PICR projections of between 2.1x and 2.6x. A Fitch PICR of 2.0x represents a guideline minimum level of sustainable interest cover that is considered to be consistent with Fitch's current ratings of LSCM's secured notes, given the portfolio's risk level and development appetite. The Fitch PICR could deteriorate in the event of further tenant defaults, non-renewal of leases and increased void periods triggered by the continuing weak economic environment, and these have been taken into account in Fitch's analysis. Fitch also notes that LSG has stated that the group is ready to take advantage of market opportunities. LSCM is a special purpose vehicle, which issues secured debt for LSG, one of the UK's largest quoted property companies. At 31 March 2012, LSG's investment and development property portfolio was valued at GBP9.7bn (including its interest in joint ventures). Of this, the security group that supports LSCM represented investment property valued at GBP8.83bn (91% of total) split across offices (44%), retail (48%), and other property types (8%). Fitch will continue to monitor the transaction's performance.(Caryn Trokie, New York Ratings Unit)
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