Johannesburg, 31 Mar 2014 — Global Credit Ratings has today affirmed the long term national scale and affirmed the short term national scale issuer ratings assigned to Resilient Property Income Fund Limited of A(ZA) and A1(ZA) respectively; with the outlook accorded as Positive.
Global Credit Ratings has accorded the above credit rating(s) on Resilient Property Income Fund Limited based on the following key criteria:
The value of Resilient Property Income Fund’s (“Resilient”) investment portfolio has risen notably over the review period to R19.3bn at 1H F14 (FYE13: R16.6bn), from R7.4bn at FYE09, supported by management’s extensive retail property expertise. Continued enhancement of existing centres and investment in strategically positioned projects should further entrench the fund’s dominance in the regional retail segment. The positioning of its properties and focus on large retail space is supportive of a strong tenant profile, underpinned by national, listed anchors. The portfolio thus evidences long term leases, above inflation rental escalations and atypically low vacancy rates. This should sustain sound cash flows in the face of waning domestic retail spend.
Resilient’s increased stake in certain sizeable developments saw the top ten properties account for 61% of the value of its real estate assets and 42% of total investments at 1H F14. While the fund is geared towards major retailers, it has no unduly high exposure to one tenant. Although note is taken of efforts to rein in costs, rising pressures due to utility price hikes, as well as higher rates and taxes, are likely to lead to further margin compression in the sector.
>Acquisitive growth has largely been funded by debt, which rose by R5.9bn over the five-year review period to a high of R7.3bn at 1H F14 (FYE13: R4.8bn). As a result, the net LTV rose to a review period high of 38% at 1H F14 (FYE13: 30%), albeit remaining below GCR’s 40% threshold for highly rated funds, and is not expected to exceed 35%-40% in the medium term. However, net debt to EBITDA peaked well above GCR’s 400% benchmark for highly rated funds at 583% (FYE13: 462%), constraining the rating somewhat. Note is taken of pipeline projects and recent acquisitions that are yet to contribute to income, as well as the earnings drag of recent disposals, suggesting that earnings-based gearing is expected to trend downwards in the medium term.
The fund’s liquidity profile is underpinned by over-collateralised facilities, while access to capital markets is secured through the R4bn DMTN programme. At 63%, the level of unencumbered assets (mainly comprising the listed equity portfolio) is low relative to industry peers, implying strong recoveries to unsecured note holders.
While the growth in the investment portfolio and the generally high quality of properties is consistent with a ratings upgrade, gearing metrics have also risen. Accordingly, upward rating movement is dependent on expected earnings from recent acquisitions and ongoing developments being achieved, which should see earnings based gearing trend downward. Conversely, macroeconomic trends which negatively affect consumer spending patterns and domestic funding costs could result in negative trends in portfolio performance, arrears and vacancies. To the extent that this results in the fund underperforming expectations, gearing may rise further, placing downward pressure on the rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jun/2010)|
|Long term: A-(ZA); Short term: A1-(ZA)|
|Last rating (Mar/2013)|
|Long term: A(ZA); Short term: A1(ZA)|
|+27 11 784 1771|
|Sector Head: Corporates|
|+27 11 784 1771|
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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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Resilient Property Income Fund 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 Resilient Property Income Fund Limited with no contestation of the rating.
The information received from Resilient Property Income Fund Limited and other reliable third parties to accord the credit rating included the 2013 audited financial statements (plus four years of comparative numbers), corporate governance and enterprise risk framework, reviewed financial results for 1H 2014, detailed budgets for 2014, industry comparative data and regulatory framework, as well as a breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.
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.