Announcements

GCR affirms Safari Investments Limited’s rating of BBB(ZA), Outlook Positive.

Johannesburg, 12 Sep 2017 – Global Credit Ratings has today affirmed Safari Investments Limited’s national scale Issuer ratings of BBB(ZA), and A2(ZA) in the long term and short term respectively. The ratings have been accorded a Positive outlook.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Safari Investments Limited (“Safari”) based on the following key criteria:

Safari’s portfolio predominantly consists of retail centres located in township arears with the potential for high growth. With ongoing extensions and new developments, its portfolio value amounted to R2.6bn at FY17, of these R2.3bn are income generating assets. With only seven income generating properties, the portfolio is relatively concentrated, which does constrain the rating. Nevertheless, all properties contribute strongly to revenue and the recently completed Platz am Meer centre in Namibia now provides an element of geographic diversification.

Safari is managed by a team with strong property development credentials and proven asset management expertise. The portfolio’s robust performance is evidenced by its low vacancy level of 2%, strong trading densities and robust rental escalations across all properties. In addition, the tenant mix consists 89% of national tenants. Rental income rose by 20% to R203m in FY17. Approximately 8% of the income growth is attributed to the initial inflows derived from Platz am Meer, indicating that the bulk of rental income growth is derived from the standing portfolio. Property expenses were higher in FY17, due to costs associated with bringing Platz am Meer online, marketing expenses (amidst the more competitive retail environment), as well as repairs and maintenance due to a fire at Atlyn. Nevertheless, Safari still reported a strong operating margin of 70.3% (FY16: 71.8%), in line with highly rated REITs.

Debt increased to R948m (FY16: R634m), with the net LTV climbing to 36% (FY16: 29%) and net debt to net operating income rising to 661% (FY16: 519%). As Safari still has a fairly large development pipeline and intentions to expand through potential acquisitions, the fund has raised R757m through a rights issue in August 2017, the proceeds of which were predominantly utilised to settle outstanding debt. According to management, this reduced the net LTV ratio to around 8%, with management intending to manage the metric around the 25% level over the rating horizon, providing substantial flexibility for Safari to pursue its fairly long development pipeline as well as excess capacity for potential acquisitions (should they arise).

Shareholders have demonstrated strong support to Safari by reinvesting a portion of dividends and supporting equity issuances. Moreover, Safari has been able to attract new shareholders, as with the recent Southern Palace Capital and SA Corporate Real Estate Limited investments. Notwithstanding Safari’s dominant position in key nodes and sound performance, the challenges in the retail operating environment remain persistent, underpinned by slowing consumer spend.

Upward rating movement is dependent on the continued steady growth in lettable area and rental rates, which would see the fund’s earnings capacity and valuations improve. Acquisitions or development activity could bolster the rating, provided they are undertaken in line with the conservative gearing levels that have been demonstrated. Conversely, any decline in earnings, due to the impact of the weak consumer environment, or challenges at any individual centres could negatively impact the rating. A potential transaction funding structure that raises gearing levels materially could also place downward pressure on the ratings.

NATIONAL SCALE RATINGS HISTORY  
   
Initial (July 2014)  
Long-term: BBB (ZA), Short-term: A2(ZA)  
Rating outlook: Stable  
Last rating (Sep 2016)  
Long term: BBB (ZA), Short term: A2(ZA)  
Rating outlook: Stable  
   

ANALYTICAL CONTACTS

Primary Analyst
Eyal Shevel
Sector Head: Corporate and Public Sector Ratings
(011) 784-1771
shevel@globalratings.net
 
Committee Chairperson
Sheri Few
Senior Analyst: Corporate Ratings
(011) 784-1771
few@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2017

Global Criteria for Rating Property Funds, updated February 2017

Safari issuer rating reports (2014-16)

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 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.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
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.
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.
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. 
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.
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.

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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

Safari Investments 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 ratings has been disclosed to Safari Investments Limited with no contestation of the rating.

The information received from Safari Investments Limited and other reliable third parties to accord the credit ratings included;

  • the 2017 Integrated Report and AFS, as well as preceding Integrated Reports and AFSs for four years;
  • 2017 results presentation;
  • a comprehensive listing of the company’s property portfolio;
  • comprehensive details of Safari’s 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 Safari Investments Limited’s rating of BBB(ZA), Outlook Positive.

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