GCR has reviewed Investec Property Fund Limited’s (“IPF”) national scale ratings to A-(ZA) (single A minus) and A1-(ZA) (single A one minus) for the long and short term respectively, from BBB+(ZA) (triple B plus) and A2(ZA) (single A two) previously. The outlook on both ratings remains stable. The ratings are indicative of high credit quality and sound protection factors. However, risk factors are variable and amplified during periods of economic stress.
Key competitive advantages derive from linkages with Investec Property Limited, which lends the strong credentials of its development team towards the management of IPF’s portfolio. This has seen the fund more than double in size to just over R4bn since its listing in April 2011. As acquisitions were largely funded by equity, gearing ratios remain low, with the net LTV reported at 15% as at 1H F13 (FYE12: 16%). IPF’s portfolio consists of quality properties that return strong and predictable cash flows, on the back of long term leases and low vacancy levels. Although a number of buildings are single tenanted, counterparty exposure is mitigated by the predominantly A-graded nature of the respective tenants.
Shareholder support, reaffirmed by Investec Limited’s (“Investec”) retention of its majority stake after a R1.5bn rights offer, also provides a strong underpin to the ratings. Other synergies within the Investec stable buttress liquidity, and coupled with access to capital markets, serve to broaden its financing options. Although the Investec relationship provides comfort, a significant offsetting factor remains IPF’s limited track record and relative size. According to management, strong acquisitive growth should see the portfolio attain critical mass in the medium term. The aggressive expansion envisioned, however, serves to elevate investment risk, especially given that a number of smaller domestic funds will also be targeting growth.
Projections indicate strong top line growth, supported by acquisitions and sound earnings potential. Despite increased exposure to retail, the operating margin is expected to remain above the 60% benchmark for highly rated property groups. Debt serviceability is projected to be robust in F13, with stable levels to be maintained over the medium term. Gearing metrics are expected to remain conservative, with the LTV not expected to exceed the comfort level of 30%. The high ratio of unencumbered assets lends additional financial flexibility and also implies above average recoveries for prospective unsecured bond holders.
According to GCR, a further upgrade will be dependent on steady earnings growth over the medium term, supported by the positive impact of new acquisitions. However, LTV metrics materially exceeding internal targets in the face of a challenging operating environment or unanticipated investment risks could place downward pressure on the ratings.
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.
These cookies are necessary for the website to function and cannot be switched off in our systems. They are normally set in response to actions made by you, amounting to a request for services, such as setting your privacy preferences, logging-in or completing forms. You can set your browser to block or alert you about these cookies, but please note that parts of the website may no longer function correctly. Note: These cookies do not store any personally identifiable information.
These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors navigate the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies, the site will not be performance optimised for your use.