GCR has affirmed Premium Properties Limited’s (“Premium”) national scale long term credit rating at BBB+(ZA) (triple B plus) and national scale short term rating at A2(ZA) (single A two).
In maintaining the rating, GCR has considered Premium’s performance and property portfolio in relation to local market conditions and international benchmarks, whilst taking cognisance of the fund’s unique characteristics. In this regard, Premium remains a relatively small fund, with significant geographic concentration. While rental income is evenly earned across the retail, residential and office classes, the performance correlation between the classes is high, as they are often in the same street, development or property. This would make all rental streams susceptible to common environmental changes, which cannot be discounted given the inner-city positioning of most properties. Notwithstanding the risks, comfort is taken from Premium’s proven ability to manage such properties and a riskier client base in an efficient manner, with actual bad debt levels well below those for properties serving more affluent areas. This has allowed Premium to increase rental income and operating profit at double digit rates over the review period.
From a funding perspective, Premium’s liquidity position is sound. The net LTV ratio at 33% is below the benchmark for highly rated funds, and the board has demonstrated its intention to maintain a moderate level through periodic rights issues. However, net debt to EBITDA of 459% was slightly above the earnings based gearing benchmark of 400%. Net interest coverage registered 2.5x, in line with benchmarks, although the relatively high unhedged portion of interest does add to the fund’s risk. Overall, Premium has sufficient unutilised facilities to cover projected capex over the next 14 months, as well as having some reserves if acquisition opportunities arise. Moreover, the overcollateralisation on banking facilities, and long standing relationships, suggest additional funding could be raised if necessary. Access to funding is also afforded by the DMTN programme.
Finally, as GCR’s rating pertains to the unsecured corporate credit rating, it must consider the protection afforded to unsecured creditors. In this regard, unencumbered assets amounted to R487m at FYE12, more than twice the value of unsecured debt. In addition, the aforementioned high overcollateralisation suggests that there would be sufficient assets to cover unsecured creditors after all secured creditors have been settled from the proceeds of the security.
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