GCR affirms Investec Property Fund Limited’s rating of A(ZA); Positive outlook.

08 Aug 2017 In Rating Notifications

GCR affirms Investec Property Fund Limited’s rating of A(ZA); Positive outlook.

Johannesburg, 8 August 2017—Global Credit Ratings has today affirmed the national scale Issuer ratings assigned to Investec Property Fund Limited of A(ZA) and A1(ZA) in the long and short term respectively; with the outlook accorded as Positive.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Investec Property Fund Limited (“IPF”) based on the following key criteria:

IPF’s portfolio growth has gained significant traction over the past five years, with the most transformative acquisition being the transfer of the Zenprop and Griffin portfolios in FY16, evidenced by the value of direct properties having more than quadrupled to R16.9bn at FY17 (FY16: R16.1bn). While note is taken of the increasing investments in offshore and listed property funds, this is still modest in relative terms to add material diversification benefits. The ratings continue to draw support from synergies with the greater Investec group. This is reflective of the REIT’s access to liquidity, group systems and protocols, as well as potential deal flow of properties.

Key performance metrics continue to display strong characteristics, including high tenant quality, low vacancies, and above inflation escalations, even in sectors evidencing increasing weakness. That said, rental reversions are likely to be pressured for some time across all market classes. Cognisance is, however, taken of management strong track record of execution, evidenced by consistent net income growth of the base portfolio YoY.

Net property income rose to exceed R1.5bn in FY17 (FY16: R1bn), double the FY15 level. This was supported by the full throughput of the Zeprop assets and strong growth in rental income from existing assets. In addition, strict cost management has seen the property expense ratio decrease YoY over the review period, despite rising utility and municipal costs.

In view of the recent substantial growth in the asset base, debt utilisation has climbed to peak at R6.4bn at FY17, from R2bn in FY15 and a low of R450m at FY13. As the net LTV remained at 34% in FY17, and earnings based gearing has started to show correction towards the 400% threshold (and should moderate further as the portfolio stabilises), gearing metrics fall within GCR’s benchmarks for ‘A’ band rated REITs.

IPF evidences strong liquidity characteristics, with c.R1bn in unutilised banking facilities, high unencumbered asset base of 66%, as well as the continued positive investor sentiment enabling the REIT to raise sizeable funding through both equity and the debt capital markets.

The positive outlook reflects GCR’s view that IPF should remain measured in acquisition and development funding and be able to sustain a strong performance, despite the weakness in the general property sector. IPF’s ratings could be pressured downward if occupancy rates fall materially leading to profitability declines and/or if gearing metrics rise beyond GCR’s comfort levels.

NATIONAL SCALE RATINGS HISTORY  
Initial rating (November 2011)  
Long term: BBB+(ZA)  
Short term: A2(ZA)  
Outlook: Stable  
   
Last rating (August 2016)  
Long term: A(ZA)  
Short term: A1(ZA)  
Outlook: Stable  

ANALYTICAL CONTACTS

Primary Analyst

 
Sheri Few  
Senior Analyst: Corporate Ratings  
(011) 784-1771  
.(JavaScript must be enabled to view this email address)  
   
Committee Chairperson  
Eyal Shevel  
Sector Head: Corporate Ratings  
(011) 784-1771  
.(JavaScript must be enabled to view this email address)  

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2017

Criteria for rating property funds, updated February 2017

IPF Issuer rating reports, 2011-16

 

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:  HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

 

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY

Capital The sum of money that is invested to generate proceeds.
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Diversification Spreading risk by constructing a portfolio that contains different investments, whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Equity Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.
Gearing With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.
Liquidity The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price. 
Long-Term Rating A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Risk The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.
Short-Term Rating A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.

 

 

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Investec Property Fund Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to Investec Property Fund Limited with no contestation of the ratings.

The information received from Investec Property Fund Limited and other reliable third parties to accord the credit ratings included;

  • 2017 audited financial statements (plus four years of comparative audited numbers);
  • Investor presentations,
  • a breakdown of facilities available and related counterparties, and
  • Other non-public information

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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