Johannesburg, 27 March 2018 — 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 31 March 2019.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Oryx Properties Limited (“Oryx”) 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 its properties are geographically concentrated in Windhoek, the fund’s local knowledge remains its core competitive advantage, driving sustained distribution growth and value enhancement. Moreover, the recently concluded offshore investment with Tower Property Fund Limited will provide a degree of geographic and currency diversification.
The property portfolio bears a high concentration risk as Maurua Mall represents 55% of the portfolio. Concentration risk is, however, somewhat mitigated by high quality tenants, mainly comprising large South African and Namibian companies. Moreover, the tenant expiry profile is well balanced and long dated.
The overall portfolio vacancy rate rose considerably from 2.1% in FY16 to 6.4% in FY17 and 1H FY18. This was due to the spike in the industrial vacancy rate to 11% in FY17 (FY16: 0.6%), indicative of the subdued economic environment. While retail vacancies remained moderate, notwithstanding the increase to 2% in FY17, performance has been impacted by lower trading densities as a result of weaker consumer confidence. Vacancy levels are anticipated to reduce as business confidence improves over the next 18 months.
In contrast to the double digit growth achieved in prior years, revenue advanced by 2.2% in FY17 as no new assets were acquired. Property costs were well managed with the property expense ratio remaining flat at 32% (FY16: 31%). Oryx has attained a licence to generate and distribute up to c.2.5MW of power from panels installed at Maurua Mall, which will reduce its reliance on the national electricity provider. Thus, the profit margin earned on the provision of bulk electricity is expected to amplify, contributing to profitability.
Oryx has met acquisition and capex requirements primarily through raising debt. This saw gross debt climb from NAD696m in FY16 to NAD902m in 1H FY18, with the net LTV registering at 34% and 35% respectively. The investment in Tower International will be paid through debt, which should see the LTV rise to c.39% at FY18, just below management’s 40% comfort level. Nevertheless, at this high level, funding flexibility is somewhat constrained and further capex activity will require a large portion of equity funding to maintain gearing below the comfort level. Of concern is the very high level of short term debt at FY17 and 1H FY18. While a large portion of debt has been refinanced in early 2018, Oryx’s funding profile remains concentrated and short dated. This is somewhat mitigated by adequate unutilised funding facilities.
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 positively considered. Conversely, an increase in debt and gearing metrics to levels incongruent with the current rating level would lead to ratings downgrade. Underperformance from the Maurua Mall, would significantly impact earnings.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (February 2015)||Last rating (February 2017)|
|Long term: BBB+(NA); Short term: A2(NA)||Long term: BBB+(NA); Short term: A2(NA)|
|Outlook: Stable||Outlook: Stable|
|Primary Analyst||Secondary Analyst|
|Eyal Shevel||Danisile Munyai|
|Sector Head: Corporate and Public Sector Ratings||Junior Analyst|
|(011) 784-1771||(011) 784-1771|
|Senior Analyst: Corporate Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Global Criteria for Rating Property Funds and Commercial Real Estate Companies, updated February 2018
Oryx rating reports, 2015-17
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S Corporates 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.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, 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 assignment of a lower credit rating to a corporate or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|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.|
|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.|
|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.|
|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 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.
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 ratings included;
- Audited financial results of Company per 30 June 2017, plus four years comparative audited accounts;
- Unaudited interim results of Company per 30 December 2017;
- Full details of the property portfolio; and
- Full details of funding facilities.
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.