Johannesburg, 29 Jul 2013 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to Investec Property Fund of A-(ZA) and A1-(ZA) respectively; with the outlook accorded as Stable.
Global Credit Ratings has accorded the above credit rating(s) on Investec Property Fund based on the following key criteria:
Strong support from parent Investec Limited (“Investec”) remains a key underpin to the rating. Group synergies and management’s strong real estate credentials have enabled Investec Property Fund (“IPF”) to ramp up scale within a relatively short time frame, doubling its portfolio size to R4.2bn as at FYE13. A targeted portfolio size of R8bn-R10bn over the medium term should see IPF more closely aligned to larger, more established funds.
The fund’s high quality pool of office, retail and industrial properties evidences long term leases and low vacancy levels. This has engendered strong cash flows, underpinned by sound escalations and reversions. As such, margins remain robust despite the higher retail exposure (R1.5bn was spent on the procurement of retail properties during F13), and should support comfortable medium term debt serviceability. Concentration risk has reduced, with 55% of the portfolio’s carrying value at FYE13 derived from 10 properties (FYE12: 75%). Single-tenanted properties contributed around 55% of revenue (FYE12: 58%), and this helps to manage down the cost to income ratio. Although there is concentration in this regard, the fund’s chiefly A-graded tenant profile serves as a mitigant.
As IPF has not made further recourse to debt since it raised R450m under its R3bn DMTN programme, gearing levels remain low, with the gross LTV reported at 10.7% as at FYE13. Management does not anticipate that the LTV ratio will exceed 30%-35% in the short to medium term. This is comfortably below the 40% benchmark for highly rated property funds. The DMTN programme provides access to capital markets, while liquidity is underpinned by a R500m bridging facility. Established relationships with banking counterparties should see IPF secure other funding facilities in the short term. The low proportion of encumbered properties of 23% implies strong recoveries for potential unsecured note holders and is further indicative of the fund’s financing flexibility. Nevertheless, the rapid acquisitive growth planned elevates investment risk.
A further upgrade would be driven by a strong medium term performance track record, underlined by the positive earnings impact of new acquisitions. Materially higher than projected gearing metrics, underpinned by deteriorating market fundamentals or unanticipated investment risks, however, could place downward pressure on the rating. In addition, a significant reduction in Investec’s stake in the fund could necessitate a rating review.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov 2011)|
|Long term: BBB+(ZA); Short term: A2(ZA)|
|Last rating (Nov 2012)|
|Long term: A-(ZA); Short term: A1-(ZA)|
|+27 11 784 1771|
|Sector Head: Corporates|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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.
Investec Property Fund participated in the rating process via face-to-face management meetings, teleconferences and written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to Investec Property Fund with no contestation of the rating.
The information received from Investec Property Fund and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), full year detailed budgeted financial statements, most recent year to date management accounts, corporate governance and risk management framework, reserving and capital management policy, industry comparative data and regulatory framework, a breakdown of facilities available and related counterparties.