RPT-Fitch affirms Silver Oak at 'AAAsf'; outlook stable

Thu Jan 23, 2014 5:41am EST

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Jan 23 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Silver Oak Ltd.as (Silver Oak) Class A notes as listed below. Silver Oak is a CMBS transaction backed by Raffles City Singapore, which comprises Raffles City Shopping Centre, Raffles City Tower, two hotel towers (Fairmont Singapore and Swissotel The Stamford) and a convention centre.

The rating action is as follows:

USD645m Class A secured floating-rate notes due 2018 affirmed at ‘AAAsfa; Outlook Stable

KEY RATING DRIVERS

The affirmation reflects adequate cash flows from the underlying properties, which have been above Fitchas stabilised cash flow assumptions since closing in June 2011. Fitchas stressed debt service coverage ratio (DSCR) and loan-to-value (LTV) ratio for Silver Oak continue to meet the agencyas criteria thresholds. Robust tourism and domestic consumption in Singapore continue to support the transactionas retail and hotel components, which accounted for nearly 80% of Silver Oakas total net operating income during the first eleven months of 2013. For the same period, the office component contributed 17% of the transactionas total net operating income, supported by the tight supply of office space and growing demand for commercial real estate. Rental income from office leases expiring in 2014 accounted for less than 3% of the portfolioas gross rental, thus reflecting minimal lease-renewal risks. Rental income from retail leases expiring in 2014 was higher, accounting for 15% of gross rental. However, Fitch deems the renewal risks for retail leases as limited given the property manageras track record in renewing leases. The property portfolioas prime location, strong transport links, and experienced property-management team should continue to support stable operating performance.

Fitchas stressed DSCR for the Class A notes has been maintained at an average 2.4x for the 11 months ended November 2013 (assuming a stressed refinancing rate of 6.7%), compared with 1.8x at the €˜AAAsf stress. The reported three-month DSCR averaged 6.0x for the same period. The committed occupancy rate has been stable at over 98.5% since the transactionas closing. The LTV ratio was low at 27.2% as of end-June 2013 (the latest valuation available).

Silver Oak is a special-purpose company incorporated under the laws of Singapore. RCS Trust is the owner of the underlying property as well as the borrower. RCS Trust is jointly owned by CapitaCommercial Trust and CapitaMall Trust, with 60% and 40% interest respectively. CapitaLand (RCS) Property Management Pte Ltd, an indirect subsidiary of CapitaLand Limited, is the property manager for the underlying property.

RATING SENSITIVITIES

Based on Fitchas sensitivity analysis, annualised free cash flow would need to decrease by 27% from annualised levels in 2013 or the value of the properties decline by 44% from the latest valuation in June 2013, assuming the liquidity facility is fully drawn, before any negative rating action would be considered. The liquidity facility has not been drawn since closing and is not expected to be drawn given the adequate cash flow.

Initial key rating drivers and rating sensitivity are further described in the new issue report for Silver Oak Ltd. dated 22 June 2011.

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