Announcements

GCR affirms Oryx Properties Limited’s rating of BBB+(NA); Outlook Stable.

Johannesburg, 26 Feb 2016 — 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 February 2016.

SUMMARY RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Oryx Properties Limited (“Oryx”) based on the following key criteria:

Oryx is a leading player in the Namibian property sector. The fund’s local knowledge remains its core competitive advantage, and growth has been strongly supported by domestic financial institutions and unitholders, who have demonstrated a willingness to provide funding. Nevertheless, its small size constrains the rating.

High concentration is inherent to Oryx, with the largest and second largest properties comprising 48% and 13% respectively. As the majority of planned development activity is to focus on the two largest properties over the short to medium term, this concentration will become even more acute. This risk is mitigated by the fund’s high quality tenant profile, with the majority of leases with South African national retailers or large local companies. In addition, close relationships with tenants have resulted in a retention rate of around 90% and a vacancy rate below 1% over most of the review period, despite rising competition from new developments.

Rental income rose by 32% to NAD266m in F15, reflecting the contribution of acquisitions and expansions, while escalations of around 8% and the initial contributions from electricity generation and provision saw annualised rentals climb 11% in 1H F16. Efforts to expand income streams through the provision of electricity and the potential investment in listed investments could provide some income diversification. Although the property expense ratio has increased, this is a result of the provision of electricity. Aside from this, Oryx has managed its costs by renegotiating service level agreements and internalising the core property management functions.

The reduction in debt to NAD692m at 1H F16 (FYE15: NAD872m) saw the gross LTV ratio reduce to 30.4%, from around 40% over the prior three years, and gross debt to EBITDA fall to 381% (FYE15: 488%). Both metrics are within GCR’s benchmark for highly rated property funds, but GCR expects gearing to rise over the next 2 years as funds are drawn for developments. Interest coverage of 2.4x is in line with similarly rated funds, but the low hedged position does expose Oryx to the rising interest rate environment. Funding flexibility is considered high, given the NAD281m in utilised revolving credit facilities. This is complimented by the relatively high level of unencumbered properties, which suggests an ability to raise additional facilities through other institutions. The fund has also established a DMTN programme to provide an alternative source of funding, but no notes have been issued to date.

The property environment in Namibia is challenging, with the retail sector evidencing an oversupply of GLA, exacerbated by the high asking prices for acquisitions. Accordingly, Oryx plans to focus on developing its existing properties further as such a strategy entails less risk, 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. Conversely, a weak performance from Maerua Mall would have a negative impact on the results of the group as a whole. A sustained increase in the LTV ratio above 40% and/or an inability to raise capital for further growth would be negatively viewed.

NATIONAL SCALE RATINGS HISTORY  
   
Initial/ last rating (February 2015)  
Long term: BBB+(NA); Short term: A2(NA)  
Outlook: Stable  

ANALYTICAL CONTACTS

Primary Analyst  
Eyal Shevel  
Sector Head: Corporate & Public Sector Debt Ratings  
(011) 784-1771  
Shevel@globalratings.net  
   
Committee Chairperson  
Patricia Zvarayi  
Senior Credit Analyst  
(011) 784-1771  
patricia@globalratings.net  

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, updated February 2015

Criteria for Rating Property Funds, updated April 2015

Oryx rating report 2015

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY

Capital The sum of money that is invested to generate proceeds.
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.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
Default Failure to meet the payment obligation of either interest or principal on a debt or bond. Technically, a borrower does not default, the initiative comes from the lender who declares that the borrower is in default.
Fix The setting of a currency or commodity price for trade at a future date.
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.
GLA GLA is the portion of the total floor area of a building that is available for tenant leasing, and is usually expressed in square meters or square feet.
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.
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.
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. 
Loan to Value (LTV) Principal balance of a loan divided by the value of the property that it funds. LTVs can be computed as the loan balance to most recent property market value, or relative to the original property market value.
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.
Operating Profit Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.
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.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.

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 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 credit rating/s has been disclosed to Oryx Properties Limited with no contestation of the rating.

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 2015, plus four years comparative audited accounts
  • Unaudited interim results of Company per 31 December 2015
  • 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’s rating of BBB+(NA); Outlook Stable.

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