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.
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.
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.
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.
|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|
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|
|Management & governance||0.00|
|Leverage and capital structure||(0.50)|
|Total Risk Score||15.50|
|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