Announcements Corporate Rating Alerts

GCR affirms Investec Property Fund’s A+(ZA) rating following operating environment assessment review, Outlook Evolving

Rating Action

Johannesburg, 17 September 2020 – GCR Ratings (“GCR”) has affirmed Investec Property Fund Limited’s (“IPF”) long and short term national scale issuer ratings of A+(ZA) and A1(ZA) respectively, with the Evolving outlook maintained.

Rated Entity

Rating class

Rating scale

Rating

Outlook / Watch

Investec Property Fund Limited

Long Term Issuer

National

A+(ZA)

Evolving 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 Real Estate 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 grouping 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 South African REITs’ operating environment assessments if our view of the impact of restrictions and interventions to normalise national/global productivity deteriorates or begins to stabilise.

Outlook Statement

The Evolving Outlook continues to reflect GCR’s view that IPF’s credit risk profile presents both upside and downside risks that could impact the ratings in the short to medium term. In this regard, progression of the REIT’s ratings will largely be informed by demonstrated progress (or lack thereof) in refinancing and reducing leverage. This is complicated by the current COVID-19 related disruptions, which are expected to delay meaningful progress beyond 2020.

Rating Triggers

Looking ahead, positive rating action depends on 1) meaningful reduction in the look-through LTV ratio towards the 40% level; 2) maintaining the interest coverage ratio at/above 3.5x; 3) achieving a sound medium-term debt maturity profile, and sustaining sound liquidity coverage of 1.20x-1.50x. Conversely, negative rating action could arise from 1) persistently high gearing; 2) failure to proactively refinance debt maturities; 3) underperformance of the Pan European Logistics portfolio beyond the adverse COVID-19 related impact on the global supply chain.

Analytical Contacts

Primary analyst

Eyal Shevel

Sector Head: Corporate Ratings

Johannesburg, ZA

Shevel@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

Investec Property Fund Limited

Rating scale

Review

Rating class

Rating

Outlook/Watch

Date

Long Term Issuer

Initial

National

BBB+(ZA)

Stable Outlook

Nov 2011

Short Term Issuer

National

A2(ZA)

Long Term Issuer

Last

National

A+(ZA)

Evolving Outlook

Apr 2020

Short Term Issuer

National

A1(ZA)

Risk Score Summary

Rating components & factors

     

Risk scores

 

       

Operating environment

     

16.00

Country risk

     

9.00

Sector risk

     

7.00

         

Business profile

     

1.50

Portfolio quality

     

1.50

Management & governance

     

0.00

         

Financial profile

     

(3.50)

Leverage and capital structure

     

(3.00)

Liquidity

     

(0.50)

         

Comparative profile

     

0.00

Government support

     

0.00

Peer analysis

     

0.00

Group support

     

0.00

         

Total Risk Score

     

14.00

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.

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.

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

 

 

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