Icra assigns AA+ stable rating to India’s first education infrastructure InvIT

Ratings agency Icra has assigned a provisional AA+ stable rating to the issuer-rating program of Schoolhouse InvIT, which marks the debut of an Infrastructure Investment Trust (InvIT) in India’s education infrastructure sector.

Schoolhouse InvIT, established on 10 March, 2022, is a registered trust approved by the Securities and Exchange Board of India (Sebi). Precise Credit Solutions, a fund entity advised by Veld Capital, is set to be the sponsor of Schoolhouse InvIT. The investment and project management responsibilities will be handled by Schoolhouse Investment Managers Private Limited and Schoolhouse Project Managers Private Limited, both owned by Cerestra Ventures Private Limited.

The investment trust aims to acquire a 100% shareholding in seven special purpose vehicles (SPVs) and a 74% shareholding in four SPVs. These SPVs hold a portfolio of 10 schools and two student housing properties, spread over 2.25 million square feet (msf) of leasable area. The edu-infra assets are currently leased to K-12 educational institutions, providing a stable source of revenue.

“The rating reflects the assurance derived from the long-term lease agreements, ranging from 15 to 30 years, and the favorable lock-in period of 15 to 20 years. These factors mitigate the risk of premature termination of leases and significantly reduce vacancy risk. The tenants have a successful track record of operating multiple schools at the national and regional level, making them established players in the education sector. Despite the challenges posed by the Covid-19 pandemic, occupancy remained resilient at 100%, demonstrating the strong commitment of tenants and minimal switching costs,” Rajeshwar Burla, group head and senior vice president, corporate & infrastructure ratings at Icra, said.

The initial public offering (IPO) proceeds of the InvIT will be utilized to fully repay the existing debt of the SPVs, resulting in a debt-free InvIT at the time of listing. However, future expansion and acquisitions are expected to be funded through debt.

Icra has been informed that post-listing, asset expansion and new acquisitions will be financed through external debt, ensuring a loan-to-value (LTV) ratio of below 30%. Monitoring the InvIT’s future debt-raising activities and their impact on debt protection metrics will be crucial from a credit perspective.

“The rating also considers the robust security package, which grants priority charge over fees collected by tenants through a legally enforceable deed of hypothecation. This arrangement prioritizes rent pay-outs to Schoolhouse InvIT, with any remaining surplus available for tenants to cover other expenses. Furthermore, the InvIT benefits from a healthy cash flow cover, ranging from 1.9 to 2.8 times of rentals for 85% of the portfolio. The triple-net lease agreements between tenants and SPVs place the responsibility for insurance, property tax, repairs and maintenance, and applicable GST on the tenants, minimizing revenue leakage and resulting in a substantial net operating income,” Burla added.