CREDIT RATING REPORT

GULF CITY LIMITED

December 2013
INSTRUMENT RATED RATING
TT $620 million Secured Bond Issue CariA (Foreign Currency)

RATING HISTORY
Date Foreign Currency Local Currency National Scale Instrument
December 11, 2013 CariA CariA ttA TT $620 million Secured Bond Issue
November 12, 2012* CariA CariA ttA TT $620 million Secured Bond Issue
*Initial Rating Assigned

RATING DRIVERS Analytical Contacts:

Wayne Dass
Strengths Tel: 1-868-627-8879 Ext. 223
 Good asset quality E-mail: wdass@caricris.com

 Strong market share Stefan Fortune

Tel: 1-868-627-8879 Ext. 228
 Comfortable profitability levels and healthy cash balances E-mail: sfortune@caricris.com
 Low anchor tenant risk Website: www.caricris.com
 Adequate debt protection measures and leverage Email: info@caricris.com

Weaknesses
Disclaimer: CariCRIS has taken due
 Fairly low occupancy in Tobago care and caution in compilation of data

 Limited access to additional capital for this product. Information has been
obtained by CariCRIS from sources
which it considers reliable. However,
CariCRIS does not guarantee the
Rating Sensitivity Factors
accuracy, adequacy or completeness of
 Significant changes in the macroeconomic environment in Trinidad any information and is not responsible
for any errors or omissions or for the
and Tobago
results obtained from the use of such
 Significant changes in the competitive environment for shopping information. No part of this report
may be published / reproduced in any
malls in Trinidad and Tobago form without CariCRIS’ prior written

 Significant changes in occupancy levels approval.

responsible
CariCRIS is also not
for any errors in
transmission and especially states that
it has no financial liability whatsoever
to the subscribers/ users/
transmitters/ distributors of this
product.

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COMPANY BACKGROUND

Gulf City Limited (GCL) was incorporated in Trinidad and Tobago on February 4, 1982 and was
acquired by the Hadeed family in October 1994. The company is a real estate development and
management company whose primary assets are Gulf City Mall (GCM) in La Romaine and
Lowlands Mall (LLM) in Tobago. The company was initially formed in 1977 as Gulf View
Investments Limited and was established to construct and manage GCM within the hub of 3
prime residential developments, namely, Gulf View, Bel Air and Palmiste. GCM is the premier
shopping mall in south Trinidad and is one of the largest on the island. The mall was originally
constructed on 11 acres of land which it acquired from its sister company Gulf View Property
Development (1976) Limited, and is ideally situated on a link road that routes traffic from San
Fernando to its suburbs and the south and south western regions of the island. The company’s
name was changed by way of a special resolution to GCL in February 1982 and in September of
that year GCL acquired the related company Gulf View Property Development (1976) Limited
(GVPD). In August 1984 GCL became the parent company of Gulf View Villas Limited (GVVL)
which was primarily established for the purpose of developing land for the construction of
townhouses. Both GVPD and GVVL are non-operational and represent legacy assets.

Following its acquisition in 1994, the Hadeed family embarked on a program of upgrade and
improvement. The purchase offered asset diversification and was not too far removed from
their primary businesses of manufacturing and retailing. The original GCM was constructed on
175,000 sq. ft. of leasable space and comprised two (2) floors. The mall has since grown to
371,277 sq. ft. of leasable space with the original mall being expanded to 327,358 sq. ft., while
four (4) stand-alone buildings comprising a total of 39,546 sq. ft. were constructed on the same
property. LLM, which opened its doors in 2006, is the largest shopping center in Tobago and is
situated on 20.5 acres of land obliquely opposite the Magdalena Grand Beach Resort. The
property comprises 162,630 sq. ft. of leasable space and was constructed over the period 2004 to
January 2009 .

GCM has a well-diversified tenant portfolio comprising 176 clients. The main mall is not
particularly dependent on any single tenant and the seven (7) largest tenants occupy
approximately 29% of the leasable space in the building. The anchor tenants include Francis
Fashions, Detour and Sportsworld, all owned by the Hadeed family. The standalone buildings
each have anchor tenants and they include TGI Fridays, Haagen Daz, Subway, RBC Royal Bank,
Wendy’s, Papa John’s and Burger King. The tenant portfolio at LLM comprises 40 clients. The
anchor tenants include Multi Cinemas (Trinidad) Limited (Movie Towne), Francis Fashions,
Detour and Scotiabank who together, occupy approximately 32.5% of the leasable space in the
building.

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GCL has 151 employees of which 117 are based at GCM in Trinidad. The company, as far as
possible, provides hard and soft services to its clients. Hard services include building
maintenance, plant and equipment, elevator maintenance, plumbing repairs, building
management systems and more. Soft or support services include janitorial services, health and
safety management, manned security, pest control etc. When necessary the company
supplements its in-house services by contracting the expertise of the relevant service providers.

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RATING RATIONALE

Caribbean Information and Credit Rating Services Limited (CariCRIS) has reaffirmed the
ratings of CariA (Foreign and Local Currency) on its regional rating scale, and ttA on the
Trinidad and Tobago (T&T) national scale to the TT $620 million debt issue of Gulf City Limited
(GCL). These ratings indicate that the level of creditworthiness of this obligation, adjudged in
relation to other obligations in the Caribbean and within T&T is good.

The factors supporting the ratings are:

Good asset quality

GCL manages a portfolio of high quality shopping malls in San Fernando, Trinidad and
Lowlands in Tobago. The company’s asset base stood at TT $1.2 billion as at September 2013,
and is considered to be fairly large. The flagship, Gulf City Mall (GCM), is located along the
Gulf View Link Road which provides easy access to transportation and places it within close
proximity to three (3) upscale residential developments, namely Gulf View, Bel Air and
Palmiste where income levels and demand for property are high. In Tobago, LLM is within
close proximity to six (6) major hotels, 10 minutes from Scarborough and the ANR Robinson
International Airport and, is located in the southwest of the island where around 75% of the
Tobago population resides. Access to the mall is easy, by way of three (3) roads, including the
Claude Noel Highway. The ample parking, though less so in GCM, as well as the shopping,
entertainment and dining facilities enhance the desirability of the two (2) properties. Moreover,
in Trinidad, the proposed highway from San Fernando to Point Fortin, once completed, is
expected to expand the consumer pool as travelling time to Gulf City would be reduced for
residents of Point Fortin and environs. This further enhances the desirability of GCM as the
preferred shopping complex in south Trinidad.

LLM is a fairly new facility, with construction of the first phase being completed in 2006 and the
second phase in January 2009. GCM on the other hand is approximately thirty one (31) years
old and despite its age, is a fairly modern and attractive building, having been consistently
expanded and upgraded since 1994. In 2006 a decision was taken to continuously upgrade
GCM to ensure it meets international standards and management is now in Phase 6 of this
program, which was approximately 95% completed as at October 2013. In addition to the four
(4) stand-alone properties that have a total leasable space of 39,546 square feet (sq. ft.), a multi-
storey facility that provides additional parking and 67,000 sq. ft. of leasable space, GCM added

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another 4,321 sq. ft. in FY2013 which brings the total leasable space to 371,225 sq. ft. Moreover,
the layout and internal design of the mall has been modernized while the finishing and fittings
are of a high quality inclusive of two (2) spiral escalators and the use of marble, porcelain and
granite tiles on the floor and some walls throughout the structure. In keeping with the
upgrades to the mall, all existing tenants have also had to upgrade their stores to ensure that
their establishments are in keeping with the new standard.

GCL ensures that its buildings are maintained to a high standard. The company has a
maintenance department of eighteen (18) employees including two (2) supervisors. At LLM
there are two (2) employees responsible for maintenance however, whenever necessary,
maintenance personnel from Trinidad are dispatched to Tobago to assist the team. Preventative
maintenance is continuously undertaken for all properties. GCL was able to book a revaluation
gain of TT$236.2 million for GCM in FY 2012, following an increase in rental rates in that year.
There were no rate increases in FY2013 and the occupancy rate remained at the same high level,
hence the market value of GCM was maintained at the same level as in the prior year. There
was similarly no change in the market value of LLM in 2013 compared to 2012, but the market
value of LLM continues to be below that of its capital cost, due to its average occupancy level of
only 60%.

Strong market share

GCL, with 533,855 sq. ft. under management has the second largest portfolio of leasable
commercial retail space under management behind Home Construction Limited (HCL), which
has the largest portfolio of commercial retail real estate space with six (6) malls including
Trincity Mall, the largest in the English-speaking Caribbean. GCM is the largest shopping mall
in San Fernando and in FY2013, total leasable space for GCM increased to 371,225 sq. ft. from
366,904 sq. ft. in the prior year. Although there was an increase in leasable space, GCM remains
the second largest mall behind Trincity Mall which has over 1 million sq. ft. of leasable space.
GCM has a strong location advantage as it is situated within the vicinity of the high value
neighbourhoods of Bel Air, Gulf View and Palmiste. It is also easily accessible to San Fernando
and several communities in the south and south western regions. This, together with the
ongoing high quality property upgrades, janitorial, security, maintenance, advertising and other
services, enables GCM to attract some of the highest rental rates in the market. Typically,
tenants pay TT $33.75 per sq. ft. for space in the mall, TT $45 per sq. ft. for the food court and TT
$26.15 to TT $31.20 per sq. ft. for the stand-alone properties. By contrast, the average rental rate
per sq. ft. for space in the premier malls of the country is normally around TT $29. Despite the
high rates, GCM continues to enjoy consistently high occupancy levels, averaging 90% in

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FY2013 and has some of the most popular and highest quality retailers and retail chains among
its tenants including Radio Shack, Micles, R.I.K. Services Ltd, TGI Fridays and Subway
Restaurants. Moreover, tenants such as Francis Fashions, Detour and Sportworld are owned by
members of the Hadeed family, the owners of GCL. Over the past year, Hi-Lo Food Stores was
the only client to terminate its lease contract and is expected to move out by the end of 2013 to a
new location with much larger building space.

The tenants at GCM have demonstrated their ability to pay their rent even in periods of
economic downturn. This is evidenced by the fact that 50% of the existing tenants have been
with the mall since inception, having survived the severe recession of the late 1980’s to early
‘90’s. Demand/supply conditions in San Fernando are very favourable given GCM’s status as
the largest shopping centre in San Fernando. Its main competition at this time are the stores
located along High Street, San Fernando, which are not as convenient and do not offer shoppers
the same experience. However, once the construction of an 18-acre real estate property to be
called the C3 Shopping and Entertainment Centre in Corinth, as well as the construction of a
strip mall in Tarouba are completed, both expected in 2015, there would be a greater element of
competition in the commercial retail real estate market in South Trinidad. GCM’s strong
locational advantage, as well as the high quality of its facilities and variety of stores and
restaurants would continue to lend to high occupancy levels and to a safe and comfortable
shopping experience for southern and other families.

In Tobago, LLM is the largest shopping centre and main shopping mall in Tobago, boasting
162,630 sq. ft. of leasable space. The property also has a strong location advantage given its ease
of access to transportation and close proximity to six (6) hotels. It is situated in the southwest of
the island where approximately 75% of the population resides. The tenant mix at LLM
comprises some of the well-known retail brands such as Francis Fashions, Detours, Payless Shoe
Source, Movie Towne and Courts Optical. Its main competition is the retail shopping in
Scarborough which is not as convenient and does not offer the same shopping and
entertainment experience.

Comfortable profitability levels and healthy cash balances

The company continues to enjoy a stable and predictable revenue stream in which rental
income represented 99.5% of total revenue in FY2013. Total revenue rose by 15.3% to TT $114.2
million in FY2013. The growth was driven by increased occupancy as the number of tenants
rose by 8.6% to 176 from 162 in FY2012. Operating expenses rose by 15.9% to TT $11.2 million
as a result. After adjusting for one-off gains from asset revaluation and a property sale in

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FY20121, earnings before interest, taxes, depreciation and amortization (EBITDA) rose by 15.4%
to TT $103.6 million, while the EBITDA margin remained unchanged from FY2012 at 90.3%, the
highest in CariCRIS’ peer comparison sample. Profit after tax (PAT) improved by 26.9% to TT
$43.1 million from $33.9 million in the previous year, with the PAT margin improving to 37.5%
compared to 34.1% in FY2012. Inclusion of the one-off transactions would have resulted in
declines of 71.2% and 85.8% in EBITDA and PAT respectively, from TT $359.5 million and TT
$303.6 million in FY2012.

Chart one (1) below shows the revenue and PAT for the company over the last five (5) years.

Chart 1
Revenue and PAT (FY2009-FY2013)

Source: Gulf City Limited Financial Statements

Note: Figures exclude revaluation gains and a gain from the sale of property in FY2012

GCL has maintained healthy cash balances averaging TT $18.5 million over the last three (3)
years and increasing marginally by 7.1% to TT $19.4 million as at September 2013, compared to
the previous year. This increase was due largely to the sale of investment property. Over the
last three (3) years GCL has generated positive cash flows from its operations, which have
grown almost every year. Cash flows from operations grew by 35.5% to TT $101.1 million in

1 The revaluation and property sale gains totalled TT $269.7 million

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FY2013 from TT $81.3 million the prior year and has averaged TT $97.7 million for the last three
(3) years.

Low anchor tenant risk

Both LLM and GCM have a well-diversified tenant mix. Management in its diversification
strategy attempts to group tenants of similar types within the different sectors of the mall to
take advantage of the economies of agglomeration while at the same time ensuring that
logically complementary stores are situated near to each other to create a comfortable flow for
shoppers. At GCL the anchor tenants are strategically placed to the extremities of the mall to
maximize the use of space and to draw shoppers into the mall. There is a low level of anchor
tenant risk at the GCM main building. The seven (7) largest tenants represent approximately
25.3% of the leasable space. One of the anchor tenants, Hi-Lo, which represented
approximately 5.5% of the leasable space, has terminated its lease and is expected to move out
at the end of 2013. Management plans to reconfigure the available space to accommodate two
(2) tenants and has already finalized one (1) lease contract and is currently negotiating the
other lease contract with a retail tenant to populate the vacant space. GCM expanded its tenant
base by 14 additional clients bringing the total tenant base to 176 in 2013, with no significant
concentration to any single segment of the retail trade industry. Even within the food court,
management has sought to ensure that there is a diverse range of available options for
shoppers to choose from. GCM has also opened a second food court on October 2013, which
focuses on offering customers local food choices to complement the international food
franchises available at the other end of the mall.

The level of anchor tenant risk may be considered higher for the stand-alone buildings which
tend to have just one (1) or two (2) tenants. In the case of RBC, they occupy 100% of the stand-
alone building that they are housed in. These tenants however, are benefitting from a prime,
high customer traffic location that is considered the best in south Trinidad. Furthermore, these
tenants are generally franchises of international brands such as TGI Fridays, Subway and
Haagen Daz and significant investments were made by these tenants to ensure that their
facilities match the strict international standards to which they must adhere. Therefore,
CariCRIS does not expect these tenants to walk away from their investments easily. The level of
anchor tenant risk is also higher at LLM where four (4) anchor tenants represent 50% of the total
space under lease2. These tenants represent 28% of the total leasable space of the mall in
FY2013. Two (2) of the anchor tenants however are owned by the Hadeed family while the
third and fourth have both made significant investments in establishing their businesses and are

2
LLM is currently at 60% occupancy.
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therefore unlikely to exit without very careful consideration, particularly since there are no
alternative spaces of a similar size that offer the same location advantages and other services
available in Tobago. GCL offers two (2) lease structures, a two (2) year lease with an option to
renew for another term and a ten (10) year lease. The company enjoys high renewal rates with
its bi-annual leases.

The debt refinancing structure

GCL’s TT $620 million bond is secured by a first demand debenture over the fixed and floating
assets of GCL and is to be repaid with thirty-two (32) quarterly principal and interest payments
of TT $16.2 million. Under the terms of this bond facility, the company was required to create
four (4) accounts, namely a revenue collection account, a debt service payment account, a debt
service reserve account, and an operating account. GCL is required to send all rent revenue to
the debt revenue collections account from which 1/3 of the next scheduled quarterly debt
service payment will be deducted and then the rest will be forwarded to the operating account
to enable the company to meet its operating expenses. This feature, together with the
assignment of the debt service reserve account, which must have a minimum balance of TT $14
million, the operating account which must have a minimum cash balance of TT $5 million at
year end and also the assignment of the other two (2) accounts, are significant credit
enhancements to the facility.

Adequate debt protection measures and leverage

In December 2012, the company refinanced its high cost debt by issuing a TT $620 million bond.
This bond was issued at an initial rate of 6.5% fixed for three (3) years, and the proceeds were
used to repay directors’ loans totalling TT $100 million as well as a TT $505 million syndicated
loan. Together, these facilities had a weighted average cost of 8.9%. Consequently, GCL’s debt
protection measures have improved, evidenced by a debt service coverage ratio (DSCR) of 1.5
times as at September 2013, up slightly from 1.4 times as at September 2012, and the highest in
CariCRIS’ peer group. Likewise, interest cover improved to 2.3 times in FY2013 from 2 times in
FY2012.

GCL’s gearing ratio (total debt/tangible net worth) also improved slightly to 1.3 times as at
September 2013 from 1.4 times in the previous year. Total borrowings decreased by 5% to TT
$609.1 million as at September 2013 from TT $641.2 million in the prior year as the company
repaid its debt. Although currently the highest amongst its peers, CariCRIS expects gearing to

9
improve gradually going forward as debt is repaid. Chart 2 below shows the interest cover and
gearing ratios for GCL for the last 5 years.

Chart 2
Debt/Equity and Interest Cover (FY2009-FY2013)

Source: Gulf City Limited Financial Statements

Note: Figures exclude revaluation gains and a gain from the sale of property in FY2012

These ratings strengths are constrained by:

Fairly low occupancy in Tobago

Occupancy levels at LLM have been relatively low since the mall was opened and presently
average 60%. The retail market characteristics of Tobago are different to what obtains in
Trinidad. Businesses tend to be smaller and given the small size and lower median household
income levels of the Tobago market, GCL has not been able to attract as many of the large
Trinidad based retail chains to Tobago. Furthermore, the indigenous Tobago tenants tend to
have much smaller operations and typically require only 800 – 1000 sq. ft. of floor space.
Notwithstanding this, LLM has a fairly big customer base comprising 40 tenants in FY2013,
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which will increase by an additional 3 tenants by December2013. The anchor tenants include
some well-known establishments such as Movie Towne, Scotia Bank, Francis Fashions and
Detour. In the prevailing soft economic circumstances, management has not lost or had any
problems collecting rent from its larger tenants however, some indigenous operations have not
been paying their rents on time. Going forward, management intends to focus on increasing the
occupancy levels in Tobago by targeting potential clients looking for office space to rent,
specifically targeting Government Ministries, and by increasing their efforts to attract Trinidad
based retail operators to the island.

Limited access to additional capital

GCL is a privately owned company and as such does not have access to the local or regional
stock market should it need to raise additional capital. It is 100% owned by the Hadeed family
who have invested TT $61.8 million in equity and provided up to TT $130 million in additional
funding. While the principals have indicated a willingness to provide additional funding if
required, GCL is not a core operating entity for the principals who own several highly
successful retail and manufacturing operations.

Rating Sensitivity Factors

 Significant changes in the macroeconomic environment in Trinidad and Tobago
 Significant changes in the competitive environment for shopping malls in Trinidad and
Tobago
 Significant changes in occupancy levels

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SUMMARY FINANCIAL PERFORMANCE

FY2013* FY2012** FY2011*** FY2010 FY2009

TT $'000
Operating Revenue 114,172 98,996 81,300 70,991 65,646
EBITDA 103,609 89,772 71,545 60,620 51,343
PAT 43,054 33,940 23,302 17,910 8,783
Net Cash Accruals 33,118 33,940 23,302 17,898 8,491
Equity Share Capital 61,775 61,775 61,775 61,775 61,775
Net Worth 481,565 448,512 144,873 173,376 293,504
%
EBITDA Margin 90.3 90.3 87.6 84.9 77.6
PAT Margin 37.5 34.1 28.5 25.1 13.3
ROCE 9.5 9.3 9.1 7.9 6.4
Times
Interest Cover 2.3 2 1.8 1.7 1.3
Operating Cash Flow / Debt Servicing Burden 1.5 1.4 0.5 0.9 0.4
Net Cash Accruals / Total Debt 0.05 0.05 0.03 0.03 0.01
Net Cash Accruals /Current Debt 1.3 2 0.1 0.6 0.4
Total Debt / Net Worth 1.3 1.4 4.8 4 2
Current Ratio 0.5 0.6 0.1 0.5 0.1
Source: Gulf City Limited Financial Statements
*Financial year runs from October 1 to September 30
**FY2012 excludes revaluation gain and gain from sale of property
*** FY2011 excludes revaluation loss

December 16, 2013

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