GCR has accorded Emira Property fund a first time national scale ZAR currency rating of A (single A) in the long term and A1 (single A one) in the short term. The rating reflects Emira’s high credit quality and good protection factors, as well as the very high certainty of timely payment to creditors.
Emira displays a well diversified portfolio amongst property class and individual properties. The fund has a very conservative investment record, with few transactions having been undertaken since F07 and development activity largely limited to less risky expansion and refurbishment projects. While increased investment activity was evidenced around the Menlyn, Pretoria node, this reflects management’s confidence in the area’s desirability.
Further supporting the rating, Emira’s gearing ratios fall well within international benchmarks for A rated property funds. The LTV ratio was just 22.8% at 1H F11, with net debt to EBITDA of 260%. In addition the fund has hedged 94% of its interest rate risk for an average duration of 8 years. Gearing ratios are expected to remain stable at FYE11.
Nevertheless, the lower than expected earnings growth served to constrain the rating somewhat. Rising vacancy rates and lower escalations have resulted in slowing rental growth since F08. Combined with increasing municipal costs and larger arrears, operating profit was likely to come under pressure. Nevertheless, GCR still expects Emira to report positive growth in F11, due to the contractual rental escalations in most long term leases.
Liquidity is key to obtaining a strong credit rating. In this regard, the availability of cash on call on existing banking and credit facilities to Emira was somewhat lower than optimal levels. Mitigating this risk, however, is the close relationship between the fund and its primary funders in the FirstRand Group, as well as the demonstrated ability to obtain funding to settle maturing facilities when necessary. Moreover, with facilities being all long term in nature and low levels of ongoing capex, no substantial liquidity pressure is anticipated in the short term.
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