Announcements

GCR affirms the Rating of Investec Property Fund’s Senior Secured Notes.

Johannesburg, 5 June 2017 — Global Credit Ratings (“GCR”) has affirmed the final, public long-term credit rating of ‘AA(ZA)’ with a ‘Stable’ Outlook accorded to the following Senior Secured Notes issued by Investec Property Fund (“IPF” or the “Issuer”):

  • R100,000,000 Senior Secured Notes, stock code IPF12, coupon 3M JIBAR + 1.50%, due 13 April 2018.

The IPF12 Notes, amounting to R100m, issued under IPF’s DMTN programme (the “Transaction”) are referred to as the “Senior Secured Notes”. In April 2017, IPF redeemed R50m in IPF03 Senior Secured Notes and R226m in IPF06 Senior Secured Notes upon their maturity.

The final, public rating accorded to the IPF12 Senior Secured Notes relates to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity).

RATING RATIONALE

IPF is a limited liability Real Estate Investment Trust whose mandate is to procure and manage income generative real estate with potential for capital gain. Listed on the JSE in April 2011, the fund owns a range of retail, commercial and industrial properties. IPF’s entire portfolio FY17 vacancies (based on 31 March 2017 reviewed condensed financial results) were reported at a continued industry low of 1.4% (FY16: 1.1%) of gross lettable area (“GLA”) with the weighted average lease expiry (“WALE”) averaging 3.1 years at FY17 (FY16: 3.7 years), reflecting the quality of assets in IPF’s portfolio.

With regards to the properties held by the Security SPV, the open market value of the properties was reported at R1.03bn (as valued by Mills Fitchet Magnus Penny (Proprietary) Limited) in April 2016, with the corresponding director’s valuation reported at R1.1bn as at 31 April 2017. IPF’s secured portfolio tenancy and lease expiration profile has remained unchanged as at end April 2017 since the last rating review (conducted in May 2016), with the weighted average remaining lease term equating to around 3.6 years.

The rating of the Senior Secured Notes was derived by applying a notching up approach, starting from the long-term senior unsecured corporate credit rating of the Issuer. Based on the fundamentals and prospects of IPF, GCR affirmed the Issuer’s credit ratings of ‘A(ZA)’/‘A1(ZA)’ on the long and short-term national scales respectively, with a ‘Stable’ Outlook in August 2016. With regards to the Senior Secured Notes, a rating uplift of 3 national scale notches was deemed appropriate for this particular Transaction, given the ‘Excellent Recovery Prospects’ equating to a ‘AA(ZA)’ rating on the Notes.

For more information on the Transaction and specific details of the Senior Secured Notes, please refer to the Investec Property Fund Limited R100m Senior Secured Notes – Surveillance Report, to be published on 6 June 2017. The Surveillance Report will be available to subscribers of GCR’s structured finance subscription service.

NATIONAL SCALE RATINGS HISTORY

Stock Code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
IPF12
15 April 2015
AA-(ZA)
n.a
Stable
Stock Code
Last Rating
Long Term Rating
Short Term Rating
Outlook
IPF12
31 May 2016
AA(ZA)
n.a
Stable

ANALYTICAL CONTACTS

Primary Analyst

Mark Vrdoljak

Senior Credit Analyst

+27 11 784 1771

markvrd@globalratings.net

Secondary Analyst

Tinashe Mujuru

Structured Finance Analyst

+27 11 784 1771

tinashem@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structure Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

  • Criteria for Rating Property Funds (Feb’17);
  • Criteria for Rating Corporate Entities (Feb’17);
  • Global Structurally Enhanced Corporate Bonds Rating Criteria (Sep’16);
  • IPF Limited’s Corporate Rating Report (Aug’16);
  • IPF Limited R416m Senior Secured Notes – New Issuance Report (Apr’15);
  • IPF Press Release relating to the Montague Gardens Property Release (Jun’15);

IPF R376m Senior Secured Notes – Surveillance Report (May’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/RATING-SCALES-DEFINITIONS. 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 STRUCTURED FINANCE GLOSSARY

Asset An item with economic value that an entity owns or controls.
Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Capital The sum of money that is used to generate proceeds.
Corporate Credit Rating A credit rating accorded to a corporate entity.
Coupon Interest payment on a security.
Default A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Gross Lettable Area Used in commercial property to indicate the amount of floor space rented or available for rental.
Income Money received, especially on a regular basis, for work or through investments.
Issuer The party indebted or the person making repayments for its borrowings.
Lease Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Loss A tangible or intangible, financial or non-financial loss of economic value.
Market An assessment of the property value, with the value being compared to similar properties in the area.
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.
Notching A movement in ratings.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Property Movable or immovable asset.
Rating Outlook A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
Real Estate Property that consists of land and / or buildings.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Senior A security that has a higher repayment priority than junior securities.
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.
Stock Code A unique code allocated to a publicly listed security.
Structured Finance A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
Transaction A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.
Trust A third party that acts in the best interest of another party, according to the trust deed, usually the investors. Owner of a securitisation vehicle that acts in the best interest of the Noteholders.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.
Weighted The weight that a single obligation has in relation to the aggregated pool of obligations. For example, a single mortgage principal balance divided by the aggregated mortgage pool principal balance.
Weighted Average An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities.

For a detailed glossary of terms utilised in this announcement please click here

SALIENT POINTS 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.

The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The rating above was solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the rating.

The credit rating has been disclosed to the Issuer and the Arranger with no contestation of the rating.

The information received from the Arranger and other reliable third parties to accord the credit rating included:

• Independent property valuations on all six properties (as at 31 March 2016).

• Reviewed Preliminary Condensed Consolidated financial statements relating to the Issuer per 31 March 2017.

• Audited Annual Financial Statements for the financial years ended March 2012 – 2016.

• A signed final Legal opinion prepared in April 2015.

• Tenant lease schedules for the properties secured.

• Tenant gradings relating to the properties secured.

• Building gradings relating to the properties secured.

• Insurance policies relating to the properties secured.

• Letter confirming no properties (securing the Noteholder obligations) have been dual ceded.

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