OREANDA-NEWS. Fitch Ratings has assigned REITALY Finance S.r.l.'s notes final ratings, as follows:

EUR70m class A1: 'A+sf'; Outlook Stable
EUR39.3m class A2: 'Asf'; Outlook Stable'
EUR0.2m class X1: NR
EUR0.1m class X2: NR
EUR33.3m class B: 'BBBsf'; Outlook Stable
EUR12.4m class C: 'BBB-sf'; Outlook Stable
EUR17.7m class D: 'BBsf'; Outlook Stable
EUR9.3m class E: 'BB-sf'; Outlook Stable

The class A1 and A2 notes rank pari passu until the earlier of loan maturity, the transfer of the loan to special servicing or an enforcement of the note security after which the class A1 ranks senior.

The transaction is the securitisation of a single EUR191.5m commercial real estate loan advanced by Goldman Sachs International Bank (GS, or the originator) to an Italian fund which is secured by a portfolio of 25 Italian real estate assets. GS has retained 5% of the loan.

The collateral falls into five sub-portfolios: (i) five large retail assets with exposure to a cinema operator; (ii) five cash-and-carry assets; (iii) three retail galleries; (iv) five retail boxes; and (v) seven smaller retail units.

KEY RATING DRIVERS
Riskier Leisure Exposure
Over half the portfolio value comprises centres which are either entirely turned over to, or anchored by, tenants in the entertainment sector. Fitch considers the risk profile of leisure to be higher than retail, as the financial performance of the former is subject to macroeconomic stress and underlying consumer behaviour is more discretionary and may be influenced by changing tastes and technology. Re-fitting former leisure space to appeal to retailers may also prove challenging.

Varying Property Quality
Although the property portfolio is underpinned by several large, well-located and good quality assets, there is also some exposure to highly over-rented property as well as secondary/tertiary assets that are dilapidated and in need of remedial work. The weaker components offer little in the way of recovery in Fitch's investment-grade stress scenarios.

Re-letting Risk Present
Almost half the contracted rental income expires by loan maturity in 2020. While not unusual, the asset manager may struggle to stabilise the lease profile over time; however, cash trapping triggered by declining lease terms provides an incentive for this to occur in the short term. While there is a risk of a reduction in demand for the subject properties over time, the threat of new supply from development activity is mitigated by current property values being (in aggregate) 30% less than the reinstatement (construction) value.

Balanced Cost Structure

The borrower's indemnity for loan enforcement costs may not cover fees from a non-enforced remedy; its unrated bank account risks one-off loss of interest. While commingling risk is accounted for in Fitch's analysis, since the issuer traps 1% loan penalty interest from loan default, both exposures are mitigated. The loan also provides for a step-up in payments once its balance falls below EUR40m, mitigating back-ended issuer fixed costs.

KEY PROPERTY ASSUMPTIONS (all by net rent)
'Bsf' weighted average (WA) capitalisation (cap) rate: 7.7%
'Bsf' WA structural vacancy: 22.3%
'Bsf' WA rental value decline: 3.4%

'BBsf' WA cap rate: 8.3%
'BBsf' WA structural vacancy: 25.5%
'BBsf' WA rental value decline: 6.1%

'BBBsf' WA cap rate: 8.9%
'BBBsf' WA structural vacancy: 28.6%
'BBBsf' WA rental value decline: 9.3%

'Asf' WA cap rate: 9.5%
'Asf' WA structural vacancy: 31.8%
'Asf' WA rental value decline: 14.9%

Fitch estimates a 'B' LTV of 79%.

RATING SENSITIVITIES

The change in model output that would apply if the capitalisation rate assumption for each property is increased or decreased by a relative amount is as follows:

Original rating class A1/A2/ B/ C/ D/ E: 'A+sf'/'Asf'/'BBBsf'/'BBB-sf'/'BBsf'/'BB-sf'
Increase capitalisation rates by 10% class A1/ A2/ B/ C/ D/ E: 'A+sf'/'BBB+sf'/'BBsf'/'BB-sf'/'Bsf'/'Bsf'
Increase capitalisation rates by 20% class A1/ A2 B/ C/ D/ E: 'A+sf'/ 'BBBsf'/'BB-sf'/'Bsf'/'CCCsf'/'CCCsf'

The change in model output that would apply if the rental value decline and vacancy assumption for each property is increased or decreased by a relative amount is as follows:

Increase RVD and vacancy by 10% class A1/ A2/ B/ C/ D/ E: 'A+sf'/ 'BBB+sf'/ 'BB+sf'/ 'BB-sf'/ 'B+sf'/ 'B+sf'
Increase RVD and vacancy by 20% class A1 / A2/ B/ C/ D/ E: 'A+sf'/ 'BBBsf'/'BBsf'/'BB-sf'/'Bsf'/'CCCsf'

The change in model output that would apply if the capitalisation rate, rental value decline and vacancy assumptions for each property is increased or decreased by a relative amount is as follows:

Deterioration in all factors by 10% class A1/ A2/ B/ C/ D/ E: 'A+sf'/ 'BBB-sf'/'B+sf'/'Bsf'/'CCCsf'/'CCCsf'
Deterioration in all factors by 20% class A1/ A2/ B/ C/ D/ E: 'Asf'/ 'BB+sf'/'Bsf'/ CCCsf/'CCCsf'/'CCCsf'

DUE DILIGENCE USAGE

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

DATA ADEQUACY
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

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

SOURCES OF INFORMATION
The information below was used in the analysis.
- Facility Agreement provided by the originator as at March 2015
- On-site visit of properties conducted by the agency's analysts as at April 2015.