Johannesburg, 21 Feb 2017 — Global Credit Ratings has today affirmed the national scale issuer ratings assigned to Accelerate Property Fund Limited of BBB+(ZA) and A2(ZA) in the long term and short term respectively; with the outlook accorded as Stable. The ratings will be reviewed again in August 2017 in order to align with Accelerate Property Fund Limited’s full year results.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Accelerate Property Fund Limited (“Accelerate”) based on the following key criteria:
Accelerate’s focus on strategic, yield enhancing acquisitions has boosted the value of its property portfolio to R9.3bn at 1H FY17, from R6.1bn since listing almost three years ago. While growth of the fund will continue to derive from direct local property purchases, Accelerate has recently diversified offshore in order to take advantage of attractive growth regions. In this regard, and in line with the fund’s predominant retail focused investment strategy, the €82m international property portfolio acquired in December 2017 consists of nine direct retail assets in Austria and Slovakia, all backed by long-term leases (greater than 10 years), with blue-chip investment grade tenants.
While properties are geographically concentrated in Fourways (61% of GLA) and other certain strategic nodes, the fund’s local knowledge and critical mass in these areas is considered a competitive advantage and should drive robust distribution growth and value enhancement. Furthermore, high quality A-grade tenants occupied 62% of GLA at 1H FY17, whilst the lease maturity profile displays relatively long tenors and negative rate reversions have been minimal. At 1H FY17, the REIT’s GLA vacancy rate, excluding structural vacancies, registered at 7.8% (FY16: 7.1%), which is considered relatively high given the concentration towards retail and reflective of the underperformance of certain office and retail assets.
The R1.3bn in equity raised since FY14 reflects sustained strong shareholder support. Debt has risen by a similar R1.3bn over the same period to R3.7bn at 1H FY17, which has seen the fund’s gross LTV ratio rise to 40% at 1H FY17 (FY16: 35%). Although this has reached management’s upper threshold, there remains headroom in terms of covenant levels. Similarly, earnings based gearing metrics registered at a higher 555% at 1H FY17 (FY16: 539%), aligning with GCR’s benchmarks for ‘BBB’ rated property funds. In view of recent large offshore transactions GCR considers Accelerate’s financial flexibility to be somewhat constrained by the high LTV and fully encumbered asset base, with a greater weighting of equity funding likely to be required going forward. The REIT faces modest refinancing risk in the coming 12 months, and while advanced plans are in place, cognisance is taken of the fact that unutilised banking facilities remain limited.
Upward rating movement would be based on Accelerate solidifying its gearing metrics within the ‘A’ band rating range and a demonstrated ability to extract value from recent acquisitions, resulting in sustained earnings growth. A ratings downgrade could follow an aggressive risk appetite leading to debt-funded acquisitions that result in increasingly elevated leverage and LTV ratios. Further, a weakening trend in profitability levels and/or any pressure on the REIT’s liquidity position may also result in a ratings pressure.
|NATIONAL SCALE RATINGS HISTORY|
Initial rating (February 2014)
|Long term: BBB+(ZA)
Short term: A2(ZA
Last rating (February 2016)
|Long term: BBB+(ZA)
Short term: A2(ZA)
|Sector Head: Corporate ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for rating corporate entities, updated February 2016
Criteria for rating property funds, updated April 2016
Accelerate rating reports (2014-2016)
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>
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.|
|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.|
|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.|
|Loan to value||The principal balance of a loan divided by the value of the property funded. LTVs can be computed as the loan balance to current property market value, or the original property market value.|
|Liquidity Risk||The risk that a company may not be able to take or meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets.|
|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.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|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.|
|Refinancing||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|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.|
|REIT||Real Estate Investment Trusts are JSE listed companies that own operate and manage a real estate portfolio consisting of income producing property (office parks, industrial parks or retail centres).|
|Tenor||The time from the value date until the expiry date of an instrument, typically a loan or option.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Accelerate 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 Accelerate Property Fund Limited with no contestation of the rating.
The information received from Accelerate Property Fund Limited and other reliable third parties to accord the credit ratings included:
- The 2016 audited annual financial statements (plus prior year of comparative numbers),
- 1H 2017 unaudited interim accounts
- A breakdown of debt facilities available and related counterparties at 1H 2017 and January 2017
- A full breakdown of the property portfolio at 1H 2017
- Other 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.
GCR affirms Accelerate Property Fund Limited’s rating of BBB+(ZA); Outlook Stable.