Johannesburg, 6 March 2017 — Global Credit Ratings has today affirmed the national scale ratings assigned to Oryx Properties Limited of BBB+(NA) and A2(NA) in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until 28 February 2018.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit ratings to Oryx Properties Limited based on the following key criteria:
Oryx has a leading position in the Namibian property sector, strongly supported by domestic financial institutions and shareholders. Thus, while the majority of properties are geographically concentrated in Windhoek, the fund’s local knowledge remains its core competitive advantage, driving robust distribution growth and value enhancement.
Oryx is highly reliant on the performance of its largest property, Maerua Mall, which poses some concentration risk. However, with the current upgrades to the Gustav Voigt Centre, as well as the possible investment offshore, concentration towards the Maerua Mall will slowly reduce. The fund evidences a high quality tenant profile, with majority of leases with South African national retailers or large local companies. Moreover, close relationships with most tenants have seen over 80% of expiring leases retained in each year and the overall vacancy rate remain low.
Operating income increased by 11% to NAD294m in FY16, driven by expansions and rental escalations. Although, the fund’s property expense ratio rose to 31% in FY16 (FY15: 28%), compared to a low 18% in FY12, Oryx attributes the higher ratios partly to the internalisation of property management functions, but more so to the conversion and supply of bulk electricity at Maerua Mall. Notwithstanding the cost, the margin earned on electricity sales will contribute to earnings.
Consecutive debt issuances to fund capex saw gross debt climb from NAD396m at FY12 to NAD872m at FY15 and the gross LTV rise to a high of 41% and 40% in FY14 and FY15 respectively (at the upper end of highly rated funds). As such, funding flexibility was constricted and a rights issue was undertaken in FY16, with proceeds used to pay down debt. Accordingly, debt decreased to NAD696m at FY16, reducing the gross LTV to 30%, and providing funding capacity for planned investments. Oryx maintains close relationships with its bankers, who have committed sufficient funding to undertake planned investments. Nevertheless, GCR notes the high debt maturities in FY17 and FY18, as well as the high property encumbrances, which limits the funding flexibility somewhat. With few viable opportunities for acquisitions or new developments in Namibia, Oryx will focus on developing its existing properties further. Such a strategy entails less risk, which is further mitigated by the staggered nature of the development pipeline.
Positive rating movement is dependent on sustained long term earnings growth, despite the challenging operating environment. The successful implementation of one of the larger medium term projects, or an acquisition that substantially enhances the size of the fund (and reduces concentration) would also be positive considered. However, an increase in debt and gearing metrics to levels incongruent with highly rated property funds would likely lead to a downgrade. Underperformance from the Maerua Mall, due to competitive pressures or the loss of key tenants, would also be negatively considered.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (February 2015)|
|Long term: BBB+(NA); Short term: A2(NA)|
|Last rating (February 2016)|
|Long term: BBB+(NA); Short term: A2(NA)|
|Sector Head: Corporate and Public Sector Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2017
Criteria for Rating Property Funds, updated February 2017
Oryx rating reports 2015-2016
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S Corporates 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.|
|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.|
|Downgrade||The assignment of a lower credit rating to a corporate or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|Gearing||With regard to corporate analysis, 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 or by EBITDA.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|LC||An LC is a guarantee by a bank on behalf of a corporate customer that payment will be made if that entity cannot to meet its obligations.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Rights Issue||One of the ways that a company can raise additional funds is to issue new shares. These must be first offered to current shareholders and a rights issue allows a shareholder to buy shares in proportion to the number already held.|
|Risk||The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
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.
Oryx Properties Limited participated in the rating process, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Oryx Properties Limited with no contestation of the ratings.
The information received from Oryx Properties Limited and other reliable third parties to accord the credit rating(s) included;
- Audited financial results of Company per 30 June 2016, plus four years comparative audited accounts
- Unaudited interim results of Company per 30 December 2016
- Full details of the property portfolio
- Full details of funding facilities
- Industry related information
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.
GCR affirms Oryx Properties Limited rating of BBB+(NA); Outlook Stable