Announcements Corporate Rating Alerts

GCR upgrades Equites’ rating to AA-(ZA)/ A1+(ZA) on sustained strong portfolio performance amidst the ongoing coronavirus pandemic

Rating Action

Johannesburg, 19 August 2021 – GCR Ratings (“GCR”) has upgraded the national scale long and short-term issuer ratings of Equites Property Fund Limited (“Equites” or “the REIT”) to AA-(ZA) and A1+(ZA), from A+(ZA) and A1(ZA) respectively. The Outlook has been revised to Stable from Positive previously.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
Equites Property Fund Limited Long Term Issuer National AA-(ZA) Stable Outlook
Short Term Issuer National A1+(ZA)

Rating Rationale

The upgrade to Equites’ rating reflects the sustained improvement in portfolio quality, supported by positive externalities impacting the logistics sector as the domestic operating environment still faces pandemic related tailwinds. This has been characterised by growth in rental income, elimination of vacancies and stability of margins, notwithstanding its ongoing property development strategy.

The REIT has a growing property portfolio which was valued at R18.9bn at FY21 (FY20: R14.5bn), with 95% comprising A-grade, blue-chip tenants. The strong tenant profiles coupled with a boom in demand for logistics space in both the South African and UK markets sustained robust performance. The weighted average lease expiry improved significantly to 15.4 years (FY20: 10.2 years), while escalations for the SA portfolio remain comfortably above inflation, which together with the continuous completion of developments and acquisitions will continue to be the driving force behind growth in rental income. Although sector and tenant concentration are noted as constraints to the assessment, the diversity of tenants’ business lines and persistently strong collection rates that averaged above 99% throughout the pandemic, mitigate these risks. Vacancies were reduced to below 1% of the portfolio from 3.4% previously, while margins are expected to remain stable owing to the triple-net-lease operating structure.

Equites’ financial profile is characterised by rising gross debt, which was reported at R6.8bn (FY20: R4.8bn) and is channelled to fund growth through developments and acquisitions. Nonetheless, traditional leverage metrics such as the LTV and interest cover remain well managed and are forecast to remain in the 30%-35% and 3.0-3.5x range respectively, with comfortable headroom relative to covenant limits. GCR’s calculated net debt to operating income ratio of 6.6x (FY20: 6.2x), remains relatively elevated as development funding is acquired upfront while the cash flows are only realised upon completion of the construction work. Shareholders have demonstrated support through the successful R1bn accelerated book build in July 2021 and would be expected to back an additional equity raise in the short term given the current value of the REIT’s share price relative to net asset value. The REIT has historically managed to refinance debt ahead of its maturity and the DMTN programme has added to the diversity of funding sources available.

Liquidity cover is underpinned by funds made available through the recently completed book build, and strong access to funding through both debt and equity markets, where the REIT is building a good track record. Furthermore, Equites has capacity to generate strong cash flows from rental income and asset disposals. GCR estimates a uses versus sources coverage ratio of 1.3x over the coming 12 months. This is set to improve with the impending refinancing of some existing facilities in August 2021, which will see debt maturities termed out by a further three to five years.

Outlook Statement

The Stable outlook reflects the expectation that the REIT’s portfolio quality will remain resilient relative to peers, backed by high occupancy rates with high quality tenants and largely pre-let development-led growth. Proactive management of the financial profile is expected to maintain the LTV ratio at the top end of the 30%-35% range, while earnings-based gearing is expected to improve over the long run.

Rating Triggers

The rating may be upgraded if Equites 1) increases its exposure to more stable and developed markets, while maintaining the quality of assets and tenants and increasing portfolio diversity, or 2) achieves a sustained moderation of the net debt to operating income and LTV ratios.

Negative rating action is considered unlikely, however, it may be triggered by an unexpected decline in portfolio quality or deterioration of the leverage profile.

Analytical Contacts

Primary analyst Tinashe Mujuru Credit Analyst: Corporate Analyst
Johannesburg, ZA TinasheM@GCRratings.com +27 11 784 1771
Committee chair Matthew Pirnie Group Head of Ratings
Johannesburg, ZA MatthewP@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
GCR Rating Scales Symbols and Definitions, May 2019
Criteria for Rating Real Estate Investment Trusts and Other Commercial Property Companies, May 2019
GCR’s Country Risk Score report, July 2021
GCR’s Property Sector Risk Score report, March 2021

Ratings History

Equites Property Fund Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National A(ZA) Stable Outlook October 2018
Short Term Issuer National A1(ZA)
Long Term Issuer Last National A+(ZA) Positive Outlook September 2020
Short Term Issuer National A1(ZA)

Risk Score Summary

Rating factors and sub-factors Risk scores
Operating environment 15.50
Country risk score 8.75
Sector risk score 6.75
Business profile 0.75
Portfolio quality 0.75
Management and governance 0.00
Financial profile (1.00)
Leverage and Capital Structure (0.50)
Liquidity (0.50)
Comparative profile 0.00
Group support 0.00
Peer analysis 0.00
Total Score 15.25

Glossary

Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Bond A long-term debt instrument issued by either a company, institution or the government to raise funds.
Diversification Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.
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.
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.
Issuer The party indebted or the person making repayments for its borrowings.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
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.
Long Term Rating See GCR Rating Scales, Symbols and Definitions.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Maturity The length of time between the issue of a bond or other security and the date on which it becomes payable in full.
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.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
REIT Real Estate Investment Trust. A company that owns, operates or finances income-producing real estate.
Rent Payment from a lessee to the lessor for the temporary use of an asset.
Short Term Rating See GCR Rating Scales, Symbols and Definitions.
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.

Salient Points 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Equites Property Fund Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Equites Property 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 information received from Equites Property Fund Limited and other reliable third parties to accord the credit ratings included:

  • The 2021 audited annual financial statements (plus four years of audited comparative numbers)
  • The latest integrated report
  • A breakdown of utilised and available debt facilities at 31 July 2021
  • Analyst Presentations, SENS announcements and roadshows
  • 2-Year forecasts
  • Property portfolio breakdown at July 2021


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.