GCR has accorded Premium Properties Limited (“Premium”) a first time national scale ZAR currency rating of BBB+ in the long term and A2 in the short term. The rating is supported by the robust management systems implemented over the years, which has allowed the fund to report above average rental income and property appreciation growth for listed property funds, despite the more risky nature of its property segment.
GCR stated that in contrast to much of the industry, Premium has targeted long-term asset appreciation over short term rental yields. Thus, the fund has invested heavily in the inner-cities of Johannesburg and Pretoria, a sector which has fallen out of favour with many investors. Premium generally purchases old (often disused and dilapidated) buildings, refurbishes them and makes the modernised space available for rent. In many instances these buildings have been converted into residential units, profiting from the robust demand for accommodation in city centres. GCR added that Premium’s target tenant base (of the employed, lower to middle income segment of the population) has not been as adversely affected by the ongoing economic slowdown, given the real wage increases in the public sector. Successful redevelopment of inner-city nodes, and the growing financial clout of its target market has also increasingly seen Premium attracting national retailers to its street level retail space, at favourable rental yields. Accordingly, vacancy rates in its core residential and retail portfolios remain very low, while arrears are negligible.
Substantial development activity over recent years saw gearing metrics creep up to relatively high levels in F11. To strengthen its financial position, the fund thus undertook a rights issue towards the end of the year, which was fully supported by shareholders. The R400m raised has since been used to reduce debt levels, with the fund reporting a net LTV ratio of 29% at FYE11, in line with other highly rated companies. GCR indicated that adequate liquidity is available to the fund, with sufficient banking facilities to cover maturing debt and project development costs in the short term.
Constraining factors to the rating are the relatively small size of the portfolio, as well as the significant geographic concentration. However, management indicated that there were no plans to expand into other areas of the property segment, as the fund’s core competencies remain inner city properties, which continue to offer a strong pipeline of potential projects at above average rental yields.
Marc Joffe https://globalratings.net/uploads/files/September_2011.pdf
CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.