OREANDA-NEWS.  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).

KEY RATING DRIVERS
The total collateral value of the security group increased to GBP12.270bn in March 2015 from GBP9.686bn in March 2014. This increase is largely explained by the large revaluation gain (mostly yield shift) that LSG experienced in FY2015. As the company is following a net debt neutral strategy, LSCM's loan-to-value ratio (LTV) decreased to 31.5% from 35.5% in March 2014.

As a result, and combined with the projected interest coverage ratio (PICR) of 6.16x, LSCM is operating comfortably 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 the group is committed to maintaining a net debt neutral policy. This financial discipline encourages capital recycling and Fitch notes that since 2010 disposals roughly match acquisition and capex.

At the group level, LSG benefits from strong liquidity, with undrawn committed facilities and non-restricted cash deposits of GBP1.4bn, at March 2015, against minimal debt maturities until 2018. Estimated committed development costs are approximately GBP349m for FY2015/16 and GBP151m in FY2016/17, which are expected to be funded through the group's policy of capital recycling, but are also supported by undrawn committed debt facilities. The amount of committed capex is actually down compared with last year and illustrates the company's more conservative tone.

The rating continues to reflect high occupancy, diverse and good quality tenant base, eight-year average contracted lease lengths and a diverse prime asset base. The longevity of the rental income profile and asset base is complemented by a largely fixed rate 8.3 year average debt maturity profile matching its assets and liabilities.

Fitch's adjusted 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 covered by the non-restricted group's unsecured rental income, divided by LSCM's external net interest payable. Fitch estimates that LSCM's Fitch PICR should remain above 2.5x by financial year ending March 2018. A Fitch PICR of 2.0x represents a guideline minimum level of sustainable interest cover that Fitch considers to be consistent with the rating 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, which have been taken into account in Fitch's analysis.

LSCM is a special purpose vehicle, which issues secured debt for LSG, one of the UK's largest quoted property companies. At 31 March 2015, LSG's investment and development property portfolio was valued at GBP14.0bn (including its interest in joint ventures). Of this, the security group that supports LSCM represented investment property valued at GBP12.3bn (87% of total) split across offices, retail, and other property types.

RATING SENSITIVITIES
The ratings are sensitive to LSG's on-going performance. A significant change in the credit quality of LSG would have an impact on the ratings. Fitch will continue to monitor the transaction's performance.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction over the last 12 months is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.