ICRA assigns Provisional [ICRA]AA+ (Stable) rating to the first Education Infrastructure InvIT in India
Rating agency ICRA has assigned Provisional [ICRA]AA+ rating[1] with a stable outlook for the issuer-rating programme of Schoolhouse InvIT, the country’s first InvIT in the education infrastructure arena.
Schoolhouse InvIT was incorporated on March 10, 2022, and is a registered trust approved by the Securities and Exchange Board of India (SEBI) under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, as amended. The Schoolhouse InvIT is proposed to be sponsored by Precise Credit Solutions 3 S.a.r.l, which is a fund entity advised by Veld Capital. Schoolhouse Investment Managers Private Limited and Schoolhouse Project Managers Private Limited will be the investment and project managers, respectively, owned by Cerestra Ventures Private Limited.
The Schoolhouse InvIT proposes to acquire 100% shareholding in seven special purpose vehicles (SPVs) and 74% shareholding in four SPVs. The SPVs hold 10 schools and 2 student housing properties (Edu-Infra assets) which are leased to K-12 educational institutions[2] (also referred to as tenants), with a total leasable area of 2.25 million square feet (msf).
Commenting on the rating, Mr. Rajeshwar Burla, Group Head & Senior Vice President, Corporate & Infrastructure Ratings at ICRA said: “The rating derives comfort from the long-term lease agreements ranging between 15 to 30 years and favourable lock-in period of 15 to 20 years, which mitigate the risk of premature termination of the lease by the lessee and reduces vacancy risk to a significant extent. The tenants have more than two decades of experience in operating multiple schools with national/regional presence and are established players in the education sector. Further, occupancy remained resilient at 100% even during the Covid-19 pandemic, given the high stickiness of tenants and switching costs.”
The IPO proceeds of InvIT are expected to be utilised to fully prepay the existing debt of SPVs and consequently the InvIT is proposed to have nil external debt. Although the leverage is expected to be nil at the time of listing of the InvIT, the future expansion and acquisitions are expected to be debt funded. ICRA is given to understand that post listing, asset expansion and new acquisitions are planned to be funded by external debt while ensuring a sub 30% loan-to-value (LTV). The InvIT’s future debt-raise and its impact on the debt protection metrics would remain a key monitorable from the credit perspective, going forward.
Providing more insights on the rating factors, Mr. Burla said: “The rating of Schoolhouse InvIT also considers the robust security package, wherein the SPVs have priority charge over fees collected by the tenants, which is legally enforceable through deed of hypothecation. As part of the arrangement, the rent pay-out to the Schoolhouse InvIT gets prioritised and the remaining surplus post rent will be available to tenants which can be utilised for their other expenses. In addition to the priority charge on fees, the InvIT has a healthy cash flow cover ranging between 1.9 to 2.8 times of rentals for 85% of the portfolio. Further, as part of the triple-net lease agreements between the tenants and the SPVs, insurance, property tax, repairs and maintenance, applicable GST is fully borne by the tenants, thereby resulting in minimal leakage of revenue (i.e., revenue largely translates into net operating income).”