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This paragraph[1] presents an example of an executive summary to be presented and discussed in front of a lender's credit committee regarding the potential financing of a core shopping centre through a Mortgage Loan facility. The credit application presents information on the borrower, on the sponsor, and detailed analysis on the property which is the object of financing. In case of a positive outcome of the discussions and support/approval from the committee, a binding term sheet can be issued by the lender and necessary legal documentation (mortgage loan agreement and security package) can be discussed and implemented.

6.4.1 Players Involved

Players involved in the transaction are the borrower, the fund, and the fund manager/sponsor, and will be described in the following section. In view of the non-recourse nature of the

Financial covenants: LTV

FIGURE 6.21 Financial covenants: LTV

Summary of cash flows and loan facilities

FIGURE 6.22 Summary of cash flows and loan facilities

proposed financing, the analysis is mainly focused on the borrower/SPV directly holding the property, representing the main collateral of the facility and the source of the necessary cash flows to grant the necessary debt service. Creditworthiness is therefore mainly impacted by quality of the property. Other players involved in the transaction are the fund (controlling entity of the borrower) and the fund manager being the investment and asset manager in charge of the management of the fund portfolio as well as the entity with a direct relationship with the lender (sponsor of the transaction). The Borrower

The Borrower of the proposed financing is Prime S.r.l., a limited liability company directly owning Prime Shopping Centre (SPV), a shopping mall (the “Property”) with a current GLA of 30,000 m2 to be further completed by a 10,000 m2 extension. The Borrower is fully indirectly controlled by Prime FCP, a closed end real estate fund reserved to institutional investors (the “Fund”), managed by Prime Ltd (“Fund Manager” or “Sponsor”). The Sponsor is a global real estate investment and fund asset management firm with more than €50 billion total assets under management. Please refer to the chart in Figure 6.23 for the transaction structure diagram.

Approval is requested for a Mortgage Loan facility up to €75 million secured by the Property (max 50% LTV). The purpose of the facility is (i) to refinance the existing financial indebtedness (outstanding €50 million) and (ii) to create liquidity within the Borrower to finance the construction and development costs related to the realization of an extension of approximately 10,000 m2 of GLA, bringing the total GLA of the Property to approximately 40,000 m2, with the OMV of the Property expected to increase from the current €150 million (very recent valuation report prepared by an independent appraiser following RICS standards) to approximately €200 million. Initial LTV of 50% is therefore expected to fall in the 37.5% range upon completion of the extension. Please find in the Figure 6.24 the main terms and conditions of the proposed Mortgage Loan facility (tenn sheet).

Structure chart of the transaction – purpose of application

FIGURE 6.23 Structure chart of the transaction – purpose of application

Summary of main terms and conditions

FIGURE 6.24 Summary of main terms and conditions Business Strategy Sponsor

Prime Ltd is a global real estate investment and fund asset management firm with more than €50 billion total assets under management, listed on the London Stock Exchange. The Fund was established in 2010 with a 10 year tenor, with the aim of allowing institutional investors to access a specialist sub-sector of the property market such as shopping malls. The Fund has built a prime portfolio of 15 class-leading shopping malls located across Europe (Germany, France, Italy, Benelux, Scandinavia), which are dominant in their respective catchment areas. Total real estate portfolio amounts to €1 billion, with NAV equal to €0.6 billion. The current strategy of the Fund is to extend some of its core properties (including the Property) through additional extensions to further increase their attractiveness and dominance in the respective catchment areas. Prime Ltd is a specialist in the investment and management of retail properties, granting to the Fund portfolio the highest standards in terms of asset management and operating functions such as tenant management, leasing, marketing, rent collection, and reporting activities. The Fund is showing a successful performance, with actual IRR equal to 11% (with annualized distributions to investors equal to 6%).

  • [1] Written by Michele Monterosso, Director ING Commercial Banking, Real Estate Finance and RE&O in Italy. He joined ING in late 2006, in charge of origination, execution, and monitoring of commercial real estate loans within the ING REF division. Since July 2012, he has also been working for the ING RE&O aim where he is in charge of the wind-down of a combined real estate portfolio in excess of €3 billion (Lease and Real Estate Development positions across Italy). Michele stalled his career as analyst at KPMG and in the valuation department of DTZ. He holds an honours degree in Business Administration and Corporate Finance from Bocconi University in Milan, and is a member of the Royal Institute of Chartered Surveyors.
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