TEXT-Fitch publishes Fabrica Immobiliare 'M3+' asset manager rating
Link to Fitch Ratings' Report: Fabrica Immobiliare SGRFeb 28 - Fitch Ratings has published Fabrica Immobiliare SGR's (Fabrica) 'M3+' Real Estate Asset Manager Rating. KEY RATING DRIVERS The rating's main driver is the company's track record and experience as Italy's sixth largest real estate management company. A strategic partnership with CBRE Global Investors was signed in December 2012 to promote co-branded funds and investments outside Italy, which opens geographic diversification opportunities. The rating recognises the research oriented investment expertise over a broader set of different real estate property types and strategies. It benefits from a process driven asset selection and portfolio management with a well-structured operational platform and workflow management. However Fabrica also meets a number of challenges: The strategic partnership is in its early stages and needs to be developed to increase the company's competitive edge. The envisaged launch of new funds and execution of existing funds' business plans is potentially constrained by illiquid markets. Given staff turnover in 2012 Fabrica also needs to maintain stability and maximise the benefits from increased analytical resources and client outreach. Fabrica's 'M3+' rating is based on the following category scores, which represents a scale from 1 to 5, with 1 as the highest possible score: Company & Staffing: 3.00 Risk Management & Controls: 2.75 Investment Selection: 2.75 Portfolio Management: 3.00 Investment Administration: 2.75 COMPANY AND STAFFING The partnership with CBRE Global Investors in Fitch's view is a key milestone in the company's development. Nevertheless the score recognises the weaker financial profile of Fabrica's key shareholders, Banca Monte dei di Siena SpA (BMPS; 'BBB'/Stable/'F3`) and FGC SpA (Caltagirone Group, unrated). The liquidation of two funds due to a change in the tax regime of Italian real estate investment funds lower Fabrica's assets under management (AuM), weaken its financial resilience and dent its track record of profitability. . However the average fund duration is above peers and is expected to be lengthened with new institutional mandates pending better market conditions. The company has qualified staff and demonstrated solid replacement capacity following turnover in 2012. However given the size of the operation, key staff risk prevails. RISK MANAGEMENT AND CONTROL Fabrica has an established three line defense model based on internal risk management, compliance and internal audit. The score benefits from a systematic operational risk management including staff self-assessments. Fitch expects more input from the application of stochastic risk models and stress testing by the newly hired head of risk management but considers it essential to build upon the quality of the established bottom-up risk analysis. INVESTMENT SELECTION Fabrica applies a diligent ex-ante evaluation of all fund strategies and objectives with a prudent assessment of return expectations. It added to its research resources based on an extensive proprietary database and has opportunities to leverage on CBRE Global Investors' international market insight. It follows a disciplined multi-step selection/disposal process supported by systematic due diligence procedures. Nevertheless the ability to perform the funds' business plan disposals is challenged in the current market environment. PORTFOLIO MANAGEMENT Fabrica's ex-ante fund budget planning with its integrated control and review cycle is the key management tool for portfolio staff. Non-core functions (facility and property management) are outsourced based on defined service level agreements and key performance indicators. Fitch recognises the consistency in the management approach and strength in tenant management. It considers the financial management conservative as demonstrated by low leverage compared with the market and lack of financing risk to 2015. INVESTMENT ADMINISTRATION Fabrica has an institutional mind-set and servicing capacity. Reporting largely reflects regulatory requirements. The score benefits from an established middle office function with tested routines in transaction processing. Fitch recognises an improved level of automation and an increased capacity to convert accounting/administration data straight into control data. Valuation and their underlying approaches are actively monitored. COMPANY PROFILE Fabrica Imobiliare SGR was created in 2003 and started operations in July 2004. The company is dedicated to the development, promotion and management of (closed-end) real estate investment funds for institutional clients and private savers. At end-June 2012, Fabrica managed one retail fund and eight funds for qualified investors, with gross assets under management of EUR2.5bn. The company employed 40 staff of which 11 are portfolio managers at end December 2012. RATING SENSITIVITY The rating may be sensitive to material adverse changes to any of the aforementioned rating drivers. A material deviation from Fitch guidelines for any key rating driver could cause the rating to be downgraded. For additional information about Fitch's asset manager ratings guidelines, please review the criteria referenced below, which can be found on Fitch's website at www.fitchratings.com. Fabrica Immobiliare SGR's rating report will shortly be available at www.fitchratings.com. 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. The sources of information used to assess this rating were the public domain and Fabrica Immobiliare SGR. Applicable criteria 'Reviewing and Rating Real Estate Asset Managers', dated 22 June 2009 are available at www.fitchratings.com Applicable Criteria and Related Research Reviewing and Rating Real Estate Asset Managers
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