Announcements Corporate Rating Alerts

GCR affirms Fortress’ AA-(ZA) issuer rating after reviewing operating environment assessment; Outlook Stable

Rating Action

Johannesburg, 17 September 2020 – GCR Ratings (“GCR”) has affirmed Fortress REIT Limited’s (“Fortress”) long and short term national scale issuer ratings of AA-(ZA) and A1+(ZA) respectively, with a Stable Outlook.

Rated Entity Rating class Rating scale Rating Outlook / Watch
Fortress REIT Limited Long Term Issuer National AA-(ZA) Stable Outlook
Short Term Issuer National A1+(ZA)

The rating action follows successive reviews of GCR’s Country and Sector risk assessments since May 2020, with the latest update applicable to South African property funds being the August 2020 publication of GCR’s Commercial Property Sector Risk Scores.

Updates of GCR’s Country and Sector Risk Assessments and related research can be accessed via the following links: https://gcrratings.com/risk-scores/ and https://gcrresearch.com/reports/house/industry-reports.

Rating Rationale

GCR reduced a range of Country and Commercial Property Sector Risk Scores to reflect expectations of the adverse impact of COVID-19 related disruptions on economic productivity, and to signal our view of the effectiveness of interventions to stabilise the respective economies.

We have also expanded our international assessment of commercial real estate sector risk to include selected territorial groupings in Europe that REITs in GCR’s rating universe are exposed to, in order to make a clearer distinction between funds with exposures to highly developed Eurozone territories and other economies in that region. The rating reviews not only capture differences in the fundamentals of the different offshore territories, but also incorporate our view of the rigour of each fund’s underlying asset and financial management. This further explains the differences in the ratings of REITs with moderate to strong geographic diversification, with the funds demonstrating conservatively funded and strongly performing international strategies considered to have better insulation from the vagaries of the South African operating climate. Looking ahead, GCR could further revise the South African REITs’ operating environment assessments if our view of the impact of COVID-19 restrictions, or of the interventions to normalise domestic and/or global productivity deteriorates or begins to stabilise.

Outlook Statement

The Stable Outlook reflects our expectations that, notwithstanding the heightened uncertainty in the wake of the COVID-19 crisis, Fortress’ financial profile will remain relatively stable due to strong treasury management, the defensive logistics portfolio, and the moderate, but strongly performing Central & Eastern Europe exposure.

Rating Triggers

Upward issuer rating migration beyond the COVID-19 crisis could result from 1) improved operating environment and a demonstrable return to strong profitability; 2) improvements to the funding profile, achieved by a longer weighted average debt maturity profile; and 3) rigorous management of the development cycle that supports more conservative leverage levels and stronger interest cover. Conversely, GCR could take negative rating action if 1) pressure on Fortress’ credit risk profile persists beyond the vagaries of the COVID-19 restrictions; 2) if market uncertainty constrains the REIT’s ability to manage down leverage; and 3) if the REIT’s strong liquidity and covenant risk management is constrained by delays in the disposal pipeline or weakened access to capital markets.

Analytical Contacts

Primary analyst Sheri Morgan Senior Analyst: Corporate Ratings
Johannesburg, ZA Morgan@GCRratings.com +27 11 784 1771
Committee chair Susan Hawthorne Senior Analyst: Insurance Ratings
Johannesburg, ZA Susan@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Real Estate Investment Trusts and Other Commercial Property Companies, May 2019
GCR’s Country Risk Score report, May 2020
GCR Rating Scales Symbols and Definitions, May 2019
GCR’s Commercial Property Sector Risk Score report, August 2020
GCR places South African commercial property on negative trend as fragile economy continues to drive high asset, liquidity and funding risks, August 2020

Ratings history

Fortress REIT Limited

Rating scale Review Rating class Rating Outlook/Watch Date
Long Term Issuer Initial National A-(ZA) Stable Outlook Apr 2012
Short Term Issuer National A1-(ZA)
Long Term Issuer Last National AA-(ZA) Stable Outlook Oct 2019
Short Term Issuer National A1+(ZA)

Risk Score Summary

Rating components & factors Risk scores
Operating environment 14.00
Country risk 7.50
Sector risk 6.50
Business profile 2.00
Portfolio quality 2.00
Management & governance 0.00
Financial profile (0.50)
Leverage and capital structure (0.50)
Liquidity 0.00
Comparative profile 0.00
Government support 0.00
Peer analysis 0.00
Group support 0.00
Total Risk Score 15.50

Glossary

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.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
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 See GCR Rating Scales, Symbols and Definitions.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to the rated entity. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

The rated entity participated in the rating process via management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered to be adequate, and has been independently verified where possible. The information received from the rated entity and other reliable third parties to accord the credit ratings included:

  • The latest financial results (plus four years of comparative, audited financials)
  • SENS releases
image_pdfPDF View


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://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. 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 THIS SITE.

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.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.