Johannesburg, 31 January 2017 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term credit rating of ‘AA+(ZA)’ with a Stable outlook to the following Group 1 Notes issued by the Issuer, Vukile Property Fund Limited (‘Vukile’):
- R240m Senior Secured Notes, stock code VKE03, maturity 8 May 2017;
- R380m Senior Secured Notes, stock code VKE06, maturity 8 May 2018; and
- R200m Senior Secured Notes, stock code VKE07, maturity 8 June 2020.
GCR has been advised that Vukile has concluded discussions with Synergy Income Fund Limited (‘Synergy’) and Arrowhead Properties Limited. The transaction was approved by the Competition Commission in December 2016. The transaction entails Vukile acquiring the bulk of Synergy’s retail assets in return for the sale by Vukile to Synergy of the majority of Vukile’s office and industrial assets. This has materially changed the Group 1 Property Portfolio that serves as security for the abovementioned Group 1 Notes. GCR has been advised that Vukile has sold and acquired the following properties:
|Properties Sold (‘Sold’)|
|Legal Description||Building / Property Name|
|1.||Erven 10430, 10431, 10432, 10479 and 25285 Bellville||22,311 m2||R351,600,000||Cape Town Bellville Louis Leipoldt|
|Properties Sold to Synergy (‘Sold’)|
|Legal Description||Building / Property Name|
|1.||Erven 1227 New Germany||30,790 m2||R119,500,000||* KF||Durban Valley View Industrial Park|
|2.||Erven 210 Meadowdale Ext 1||35,016 m2||R173,400,000||* KF||Germiston Meadowdale R24|
|3.||Erven 294, 295 and 441 Kya Sand Ext 27||32,006 m2||R142,200,000||* QP||Randburg Trevallyn Industrial Park|
|4.||Erven 6 Epsom Downs||10,184 m2||R84,000,000||* KF||Sandton Bryanston St Andrews Complex|
|5.||Erven 431 Hyde Park||4,110 m2||R53,900,000||* KF||Sandton Hyde Park 50 Sixth Road|
|6.||Erven 1225 and 1226 Sunninghill Ext 98||8,140 m2||R87,000,000||* QP||Sandton Sunninghill Place|
|7.||Portions 2 and 5 of Erven 246 Edenburg||2,410 m2||R30,850,000||‡ QP||Sandton Rivonia 36 Homestead Road|
|8.||Portion 13 of Erven 13 Bryanston||4,585 m2||R57,500,000||‡ KF||Sandton Bryanston Grosvenor Shopping Centre|
|9.||Erven 3261 Pretoria||12,093 m2||R138,000,000||‡ KF||Pretoria High Court Chambers|
|10.||Erven 42903 East London||9,040 m2||R78,900,000||‡ KF||East London Vincent Office Park|
|11.||Erven 18005, 18006 & 23181 Parow||19,834 m2||R71,300,000||‡ KF||Cape Town Parow Industrial Park|
|Properties Acquired by Vukile (‘Acquired’) at March 2016 Market Value|
|Legal Description||Building / Property Name||Type|
|1.||Erven 3 Elim-Hubyeni||11,874 m2||R127,500,000||† QP||Elim Hubyeni Shopping Centre||Retail|
|2.||Erven 1522 Del Judor Ext 16||17,032 m2||R224,000,000||† KF||Highland Mews Shopping Centre||Retail|
|3.||Erven 4483, 4486 and 4489 Gugulethu||24,955 m2||R415,000,000||† QP||Gugulethu Square||Retail|
|4.||Erven 3013 Makhado-A||5,308 m2||R55,900,000||† KF||Nzhelele Valley Shopping Centre||Retail|
|5.||Erven 493 and 114 Unundi BA+||22,325 m2||R262,300,000||† KF||King Senzangakhona Centre||Retail|
|‡||30 September 2015|
|*||31 March 2016|
|+||5 April 2016|
|†||31 July 2016|
|Acquired Properties Lease Expiry Profile by GLA|
|1.||Erven 3 Elim-Hubyeni|
|2.||Erven 1522 Del Judor Ext 16|
|3.||Erven 4483, 4486 and 4489 Gugulethu|
|4.||Erven 3013 Makhado-A|
|5.||Erven 493 and 114 Unundi BA|
|Post Transaction Closing Lease Expiry Profile by GLA|
|Group 1 Property Portfolio|
Vukile has acquired a 100% share in each of the abovementioned retail properties. Vukile reported the Group 1 Property Portfolio Loan to Value as 24.3%, after the sale and acquisition of the abovementioned properties, based on the most recent Open Market Valuations.
The Cape Town Bellville Louis Leipoldt property is expected to be transferred in February 2017. Furthermore, Vukile bought the remaining 50% of the Pinetown Pine Crest property, which is expected to be transferred in February 2017.
GCR analysed the Group 1 Property Portfolio with the following assumptions:
- The properties sold have been transferred;
- The properties acquired have been transferred;
- Vukile’s remaining 50% shareholding in the Pinetown Pine Crest property has been maintained.
Elim Hubyeni Shopping Centre (Limpopo) is situated in a rural high density area that services a low LSM demographic, and has 75% national retailers/tenants. There is, however, some competition from the adjacent Elim Mall (opened in March 2013), where the same tenants account for c. 17.9% (GLA). GCR assumed that those tenants that signed leases pre-2013, will not renew. The lease expiry profile of Elim Hubyeni Shopping Centre is: 13.3% that expire before March 2017, with the remaining 2.5% at March 2018 and 2.1% after March 2018.
Highland Mews Shopping Centre (Mpumalanga) is situated in a medium to high density area that services a low to medium LSM demographic, and has 80% national retailers/tenants. Gugulethu Square (Western Cape) is situated in a medium density area that services a low to medium LSM demographic, and has 90% national retailers/tenants. Nzhelele Valley Shopping Centre (Limpopo) is situated in a rural medium density area, and services a low LSM demographic that has 88% national retailers/tenants. King Senzangakhona Centre (Kwa-Zulu Natal) is situated in a rural medium density area, and services a low to medium LSM demographic, with approximately 84% of its GLA let to national retailers/tenants.
The Group 1 Property Portfolio of the Transaction has evolved into a predominant retail portfolio, comprising a mix of retail (90.8% Market Value, 80.9% of GLA), office/commercial (1.0% Market Value, 0.5% of GLA), and industrial properties (8.7% Market Value, 18.1% of GLA).
The mixed use properties consist of the Randburg Office Tower (10,453 m2), which has been converted to a residential apartment block, (Randburg Square Apartments). Randburg Square Apartments reported a 9.4% vacancy at December 2016. Management subsequently informed GCR of full occupancy at end January 2017. The apartment block is only scheduled to be externally valued in March 2017, and therefore GCR did not factor in the value for the apartment block, or the related cash flows.
The Group 1 Property Portfolio reported R20.3m in arrears at December 2016. Total exposure to Edcon Holdings Ltd, measured in GLA, has increased to 13,552 m2 (4.68% post-transaction closing). Total exposure to SA Post Office, measured in GLA, decreased marginally to 1,363 m2 (0.47% post-transaction closing).
Vukile’s properties are valued every six months on a rotational basis by independent external valuers (Broll, Jones Lang LaSalle, Knight Frank and Quadrant Properties).
The rating of the Secured Notes is derived by applying a notching approach, starting from the long term senior unsecured corporate credit rating of the Issuer. The Issuer is currently rated ‘A(ZA)’ and ‘A1(ZA)’ on the long and short term scales respectively, with the long term rating being on Stable outlook. Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rate of 100% carries the qualification “Excellent Recovery Prospects”. A four notch rating uplift on the national scale is deemed to be appropriate for the Transaction. Accordingly, GCR has accorded and affirmed a final, public Long Term rating of ‘AA+(ZA)’ to the Group 1 Notes, with a Stable outlook.
Senior Structured Finance Analyst
+27 11 784 1771
Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – revised Sep ’16;
Vukile Property Fund Ltd Senior Secured Surveillance Report – May ’16 and subsequent ratings announcement;
Global Criteria for Rating Corporate Entities – Feb ’16;
Global Summary Criteria for Rating Property Funds – May ’16; and
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.
|Arrears||General term for non-performing obligations, i.e. obligations that are overdue.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Cash Flow||A financial term for monetary changes in operations, investing and financing activities.|
|Corporate Credit Rating||A credit rating accorded to a corporate entity.|
|Credit||A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company|
|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.|
|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.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|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.|
|Loan||A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.|
|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.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Notching||A movement in ratings.|
|Property||Movable or immovable asset.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|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.|
|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.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
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.
The Arranger and the Issuer participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.
The rating/s above were solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.
The credit rating/s has been disclosed to the Arranger and the Issuer with no contestation of the rating.
The information received from the Arranger / Issuer:
- Rent Rolls for the Group 1 Property Portfolio;
- Property register;
- Budgets 2017 Financial Year;
- Arrears for the Group 1 Property Portfolio.
Vukile Property Fund Limited – Group 1 Notes Ratings Affirmed, post the sale and acquisition of properties.