Announcements Corporate Rating Alerts

GCR affirms National Scale Issuer Rating on Safari Investments RSA Limited at BBB(ZA), Outlook Stable.

Rating Action

Johannesburg, 30 August 2019 – GCR Ratings (“GCR”) has affirmed the long term national scale Issuer rating accorded to Safari Investments RSA Limited (“Safari”) at BBB(ZA), with a Stable Outlook. The short term national scale rating has been revised to A3(ZA) in line with GCR’s updated Rating Scales, Symbols and Definitions.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Safari Investments RSA Limited Issuer Long Term National BBB(ZA) Stable Outlook
Issuer Short Term National A3(ZA)

Rating Rationale

The ratings reflect the high quality of Safari’s retail property portfolio and moderately low gearing which serves to offset concerns regarding its very small size and high asset concentration.

Safari’s ratings remain constrained by its small portfolio size (R3.2bn), and the very high concentration to discreet assets, with just nine income-generating properties. Nevertheless, the fund’s properties have demonstrated sustained strong performance, with an overall vacancy rate of 2.6% at FY19 (FY18: 2.0%), below the retail sector’s average of 4.2%. The real estate investment trust (“REIT”) also reflects a well-laddered lease expiry profile, a high quality tenant base and positive rental reversions. The sound performance has also been reflected in the average operating margin of c.70% over a five-year period. Nevertheless, in line with the broader market, GCR expects rental growth be curtailed somewhat as tenants manage down their all-in occupancy expenses amidst the rising costs of utilities and rates.

GCR has noted the adverse impact the Southern Palace empowerment transaction has had on the capital structure and earnings. However, the problems should be resolved, with Safari’s planning to repay Sanlam and unwind the transaction, albeit a cost to the REIT.

Safari’s ratings also benefit from its fairly conservative funding profile. Based on adjusted debt, to include R250m expected settlement of the Southern Palace guarantee, GCR calculates the fund’s LTV at c.31% at FY19, compared to the reported LTV of 24.2%. Interest cover registered at 5.6x at FY19 (FY18: 5.2x) and is expected to trend in the 4.0x-5.0x range over the rating horizon. Thus, in GCR’s view, gearing levels will remain within the LTV and interest cover covenants. Cognisance is taken of negligible debt maturities in the coming 24 months which increase the REIT’s financial flexibility somewhat. However, GCR considers the funding concentration to ABSA Bank Limited a risk factor, albeit efforts to diversify funding somewhat are noted.

Safari’s liquidity profile is considered to be sound as indicated by 1.5x liquidity sources coverage of obligations (including the expected Sanlam Life Insurance Limited guarantee payment) for FY20. This is supported by the R500m in unutilised facilities with ABSA Bank Limited, low debt maturities and insignificant projected capex spend. That said, GCR considers the high asset encumbrances to constrain funding flexibility somewhat.

Outlook Statement

While GCR has taken cognisance of the recent offers to acquire Safari, GCR does not foresee a change in the rating until a transaction is completed. The stable outlook reflects GCR’s view of continued earnings stability and a conservative financial profile.

Rating Triggers

Positive rating action could arise if the REIT expands meaningfully, whilst maintaining sound credit protection metrics, as this would minimise concentration concerns. Conversely, downward rating pressure could result from higher leverage or interest coverage weakness beyond GCR’s expectations and weaker liquidity.

Analytical Contacts

Primary analyst Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771
Secondary analyst Alan Mananga Associate Analyst
Johannesburg, ZA AlanM@GCRratings.com +27 11 784 1771
Committee chair Patricia Zvarayi Deputy Sector Head: Corporate Ratings
Johannesburg, ZA Patricia@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Real Investment Trusts and Other Commercial Property Companies, May 2019
GCR’s Country Risk Score report, published June 2019
GCR’s Corporate Sector Risk Score reports/Market Alerts, published June/July 2019
GCR’s Industry Research on the SA Commercial Property Market, July 2019

Ratings history

Safari Investments RSA Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Issuer Long term Initial National BBBZA) Stable Outlook August 2014
Issuer Short Term Initial National A2(ZA)
Issuer Long term Last National BBB(ZA) Positive Outlook August 2018
Issuer Short Term Last National A2(ZA)

Risk Score Summary

Risk score 11.00
Operating environment 14.50
Country risk score 7.50
Sector risk score 7.00
Business profile -3.00
Portfolio quality -3.00
Management and governance 0.00
Financial profile -0.50
Leverage and Capital Structure 0.00
Liquidity -0.50
Comparative profile 0.00
Group Support 0.00
Peer analysis 0.00

Glossary

Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial

Instruments, using an established and defined ranking system of rating categories.

Country Risk The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.
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.
DCM Debt Capital Market(s).
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.
Debt Service Ratio A measure of a company’s ability to service its interest and principal redemption costs, expressed as the ratio of earnings or cash flows

over a period to the sum of interest and principal payments over the same timeframe.

Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
Downgrade The rating has been lowered on its specific scale.
Facility The grant of availability of money at some future date in return for a fee.
Gearing 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, EBITDA or operating income.
Hedge A form of risk management aimed at mitigating financial loss or other adverse circumstances. May include taking an offsetting position in addition to an existing position. The correlation between the existing and offsetting position is negative.
Interest Cover Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
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.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Market Risk Volatility in the value of a security/asset due to movements in share prices, interest rates, currencies, commodities or wider economic factors.
Market value An assessment of the property value, with the value being compared to similar properties in the area.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance.
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 Horizon The rating outlook period.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
REIT Real Estate Investment Trust. A company that owns, operates or finances income-producing real estate.
Rent Payment from a lessee to the lessor for the temporary use of an asset.
Retention The net amount of risk the ceding company keeps for its own account.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
Short Term Current; ordinarily less than one year.
Upgrade The rating has been raised on its specific scale.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

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; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The credit ratings have been disclosed to Safari Investments RSA Limited. 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.

Safari Investments RSA 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 information received from Safari Investments RSA Limited and other reliable third parties to accord the credit ratings included:

  • the 2019 audited annual financial statements (plus four years of audited comparative numbers);
  • presentations, SENS announcements and roadshows;
  • a breakdown of debt facilities available and related counterparties at 31 March 2019 (including related debt covenants)
  • a breakdown of the property portfolios at 31 March 2019.


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