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CCP 5 FinCo SV S.a r.l. -- Moody's assigns Baa3 ratings to Tristan's Curzon Capital Partners 5 real estate fund; positive outlook

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Rating Action: Moody's assigns Baa3 ratings to Tristan's Curzon Capital Partners 5 real estate fund; positive outlookGlobal Credit Research - 29 Mar 2022London, March 29, 2022 -- Moody's Investors Service (Moody's) has today assigned a first time Baa3 issuer rating to Curzon Capital Partners 5 Long-Life SCA SICAV-SIF (CCP5 or the fund), a diversified pan European real estate fund. At the same time, Moody's assigned (P)Baa3 ratings to the €3.5 billion backed senior unsecured Euro Medium Term Note (EMTN) Programme and a Baa3 rating to the inaugural, envisaged €500 million backed senior unsecured bond issued under the backed senior unsecured EMTN Programme by CCP 5 FinCo SV S.a r.l. The outlook of both entities is positive.The ratings assume a successful placement of the planned bond.A full list of affected ratings is provided towards the end of this press release.RATINGS RATIONALECCP5's Baa3 long term issuer rating is supported by (1) a good quality portfolio of significant and growing scale that is well diversified across core European markets and asset classes (2) its strong core plus European real estate platform with a good track record of attracting and retaining capital and sourcing opportunities (3) a value creation strategy that is driven by improving occupancy and capturing the ~€61.9 million upside potential between the current €184 million of contracted rent and the €246 million estimated rental value (ERV) with less reliance on favourable movements in property yields for value uplifts (4) good liquidity supported by a five year track record of successfully raising and deploying capital and more than €550 million of committed uncalled equity as of 31 December 2021 (5) minimal development risk.Counterbalancing these credit strengths are (1) equity redemption risk from an open ended fund structure that could prompt the fund to sell properties and structural considerations that could create periodic liquidity events , however there has been a low level of equity redemption since the fund's inception with only two requests from high-net-worth individuals totalling €7 million (2) risks from a strategy that aims at continuing to deploy similar equity levels in line with previous years, at the same time and in line with its active management approach will dispose around 15-20% of the portfolio per annum (3) a core plus strategy that results in persistent reletting risk and sustains moderately elevated vacancy rates and sees the more stabilized assets being sold after the typical five year hold period and (4) a five-year track record for the fund which was established in 2017 although the fund manager has a much longer operating and investment history.ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSGovernance considerations include the potential conflicts of interest that may arise because of the fund being managed and advised by Tristan Capital Partners (Tristan), who also manages other funds and manage relationships with fund investors who are typically invested across several Tristan funds.The fund's governing documents require it to maintain loan-to value (LTV) below 45%, and it operates within a target range of 37.5 - 42.5%. Going above the 45% LTV would require the fund to put in place a plan to bring LTV back within the required level.OUTLOOKThe positive outlook reflects our expectation of the fund's continued strong operating performance, improving Moody's-adjusted net debt/EBITDA and fixed charge coverage and good liquidity that sees it continuing to successfully raise and deploy capital while meeting its 9-11% total return target and 3-5% distribution target without taking excessive risk.KEY CREDIT METRICS• Moody's adjusted gross debt / total assets stood at 37.6% as of 31 December 2021, and the rating agency expects this ratio to remain below 40% for the next 12 to 18 months.• Earnings-based metrics are comparatively low as of year-end 2021, especially after incentive fees of operating partners that are paid from disposal proceeds are deducted, but expected to improve as the fund realises re-letting potential and brings down vacancy in its current holdings as well as recently acquired assets which benefit from a high occupancy rate and long lease lengths. Moody's-adjusted fixed charge coverage is expected to improve to above 2.5x in the next 18 months and Moody's adjusted net debt/EBITDA is expected to improve towards 17x.• Moody's adjusted unencumbered assets to total assets was 13.9% as of year-end 2021 but should improve to around 50% pro forma for the planned €500 million backed senior unsecured bond.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSPositive rating pressure could develop if the fund (1) continues to grow its portfolio in line with its core plus strategy while maintaining quality and avoiding excessive churn that sees too many of the stabilized assets being sold too early and (2) builds a track record of raising unsecured debt in the capital markets and increasing its unencumbered assets. An upgrade will also require:• Moody's adjusted gross debt / total assets is sustained below 40% and a Moody's adjusted net debt/EBITDA stabilizing around 15x; and• Moody's-adjusted fixed charge coverage sustained around 3x; and• Moody's adjusted unencumbered assets to total assets maintained well above 50%Negative rating pressure could develop from any of the following:• Any factor that would increase the likelihood of material and sustained equity redemptions or make it more likely that the fund will terminate and enter its three-year wind-down phase. Those factors could include, but are not limited to, persistently underperforming the fund's return and distribution targets, systematic inability to raise equity capital or not addressing the periodic liquidity events at least one year ahead of their due date.• If the fund acts in a way that disadvantages unsecured creditors including selling properties at materially below their book value and disproportionally redeeming equity ahead of creditors, or takes on excessive risk to meet its return targets• If Moody's adjusted gross debt / total assets is sustained well above 45% for a prolonged period or an elevated Moody's adjusted net debt / EBITDA.• If Moody's adjusted fixed charge coverage is not maintained above 2.25x• Weak operating performance or widespread and persistent inability to either source appropriate core plus opportunities or execute the leasing and turnaround plans for the properties• Weak liquidity or if the ratio of unencumbered assets to total assets would remain well below 30%.STRUCTURAL CONSIDERATIONSThe €500 million backed senior unsecured notes are issued by CCP 5 FinCo SV S.a r.l. under it €3.5 billion backed senior unsecured Euro Medium Term Note (EMTN) Programme, and unconditionally and irrevocably guaranteed by CCP5.The backed senior unsecured notes are subject to incurrence-based covenants that include: (1) ratio of net borrowings to total assets below 60% (2) interest expense cover above 1.5x (3) secured borrowing to total assets ratio less than 40% (4) maintain the unencumbered assets to unsecured borrowing ratio above 175%.CCP5 reports under Generally Accepted Accounting Principles in Luxembourg (LUX GAAP), and therefore does not consolidate its accounts. CCP5's results are currently consolidated in the IFRS financial statements of Curzon Capital Partners 5 Long-Life LP, which Moody's relies upon when assessing the credit standing of CCP5.METHODOLOGYThe principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms Methodology published in July 2021 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1272320. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.LIST OF AFFECTED RATINGSAssignments:..Issuer: CCP 5 FinCo SV S.a r.l.....BACKED Senior Unsecured Medium-Term Note Program, Assigned (P)Baa3....BACKED Senior Unsecured Regular Bond/Debenture, Assigned Baa3..Issuer: CCP5 SIF....LT Issuer Rating, Assigned Baa3Outlook Actions:..Issuer: CCP 5 FinCo SV S.a r.l.....Outlook, Assigned Positive..Issuer: CCP5 SIF....Outlook, Assigned PositivePROFILECCP5 is a leading diversified, open-ended and perpetual European real estate fund incorporated in March 2017 that invests in assets across Western and Northern Europe. The fund has a value-added, active asset management strategy that invests in assets with minor correctable impairment(s) and repositions them into core, stabilised assets. CCP5 is a Luxembourg fund subject to financial regulation and oversight from The Commission de Surveillance du Secteur Financier (CSSF).As of 31 December 2021, CCP5 had 318 properties valued at €4.6 billion in fund gross asset value (GAV) across office, logistics, convenience led Retail (Parks) and Residential sectors spanning 11 countries. The average GAV per property in ~€16 million. For the last twelve months ending December 2021, the fund generated gross rental income (GRI) of €146 million, net property income of €124 million and adjusted EBITDA of €82 million. The fund's weighted average lease term (WALT) to first break is 5.3 years. Physical occupancy was 89% as of 31 December 2021.The fund is externally managed by Tristan Capital Partners (Tristan), which has €14 billion of assets under management and employs more than 140 people across six locations. Tristan owns / controls the Fund General Partner (GP) vehicles which are ultimately responsible for the management and control of the Fund. Tristan's role is essentially governed by the Fund's Limited Partnership Agreements. New York Life Insurance Company (Aaa negative) is a minority shareholder in Tristan and a fund investor that sits on its compliance committee. Considering the fund's relative size compared to the overall AUM, Moody's believes that the fund will receive critical attention and support in managing to its core fund principles.Tristan is responsible for the implementation of the fund's investment decisions including (i) selecting investments; (ii) structuring, negotiating, and executing the fund's transactions, including acquisition, renovating, repositioning, (re)financing, leasing, and disposition; and (iii) formulating and executing exit strategies.CCP5's investor base includes 41 institutional investors (of which 15 sit on the Advisory Board) with an average subscription of c. €60 million and the largest single commitment in excess of €200 million.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Ramzi Kattan Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London, E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Richard Etheridge Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. 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