Announcements

Vukile Property Fund Limited – Senior Secured Floating Rate Notes, New Ratings Accorded

Johannesburg, 8 May 2017 — Global Credit Ratings (“GCR”) has accorded final, public long term credit ratings of ‘AA+(ZA)’ with a Stable outlook to the following Group 1 Notes issued by Vukile Property Fund Limited (“the Issuer”):

  • R378m Senior Secured Note, stock code VKE09, maturity 8 July 2020; and
  • R122m Senior Secured Note, stock code VKE10, maturity 8 July 2022.

GCR concurrently affirmed the final, public long term credit ratings of ‘AA+(ZA)’ with a Stable outlook to the following Group 1 Notes issued by the Issuer:

  • R380m Senior Secured Note, stock code VKE06, maturity 8 May 2018; and
  • R200m Senior Secured Note, stock code VKE07, maturity 8 June 2020.

The Senior Secured Notes are jointly referred to as the Group 1 Notes. The VKE03 Group 1 Notes matured on 8 May 2017.

The final, public ratings accorded to the Group 1 Notes relate 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

Vukile’s refocused investment strategy has seen it transition into a retail-oriented fund, having achieved its objective of improving the overall quality and size of the portfolio. Post finalisation of the forthcoming transaction with GemGrow Properties Ltd, Vukile’s total property investments are expected to be valued at c.R14.7bn at year-end FY17 (FY13: R7.7bn).

The current Group 1 Property Portfolio is of a diversified mix, measured in Open Market Value, comprising of office/commercial (0.4%), industrial (8.8%), retail (72.0%) mixed use (16.8%) and residential (1.9%) properties. Group 1 Property Portfolio properties are valued every six months on a rotational basis by independent external valuers (Knight Frank and Quadrant Properties). Vacancy rates as a percentage of rentals on Vukile’s Group 1 Property Portfolio have decreased to 5.0% at March 2017 from 6.3% at March 2016.

The property lease expiry profile of the Group 1 Property Portfolio (measured in GLA) is: 47.0% in 2018, 14.9% in 2019, 8.1% in 2020, and 23.4% from 2021 onwards with the remaining 6.6% being vacant and/or mothballed. The arrears for the Group 1 Property Portfolio have increased from R13.3m (March 2014) to R15.5m (September 2014) to R21.5m (February 2015), then decreased to R16.8m (March 2016), and finally increased to R25.6m (March 2017). At March 2017, the top 10 tenants of the Group 1 Property Portfolio contributed 40.1% in Gross Rentals with the same tenants occupying 36.9% of GLA.

The rating of the Group 1 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 a Positive 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 a final, public long term rating of ‘AA+(ZA)’ to the VKE09 and VKE10 Group 1 Notes, with a Stable outlook. GCR concurrently affirmed the final, public long term rating of ‘AA+(ZA)’ to the existing Group 1 Notes (VKE06 and VKE07), with a Stable outlook.

RATINGS HISTORY

Stock code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
VKE06
12 May 2015
AA+(ZA)
n.a
Stable
VKE07
12 May 2015
AA+(ZA)
n.a
Stable
VKE09
8 May 2017
AA+(ZA)
n.a
Stable
VKE10
8 May 2017
AA+(ZA)
n.a
Stable
   
Stock code
Last Rating
Long Term Rating
Short Term Rating
Outlook
VKE06
31 January 2017
AA+(ZA)
n.a
Stable
VKE07
31 January 2017
AA+(ZA)
n.a
Stable
VKE09
8 May 2017
AA+(ZA)
n.a
Stable
VKE10
8 May 2017
AA+(ZA)
n.a
Stable

ANALYTICAL CONTACTS

Primary Analyst

Corné Els

Structured Finance Analyst

+27 11 784 1771

CorneE@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – revised Sep ’16

Vukile Property Fund Ltd Group 1 Notes Pre-funding Report – May ’16, and the subsequent rating announcement.

Global Master Criteria for Rating Corporate Entities – Feb ’17

Global Summary Criteria for Rating Property Funds – Feb ’17

Vukile Property Fund Ltd Rating Report – Mar ’17

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 RATING ANNOUNCEMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

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.
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.
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.
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.
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.
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.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Rent Payment from a lessee to the lessor for the temporary use of an asset.
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.
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.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
Vacancy In commercial property, usually expressed as a percentage of unoccupied floor space in relation to the GLA.


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 Issuer and the Arranger 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 Issuer and the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.

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

The information received from the Arranger / Issuer:

  • Signed and Executed Applicable Pricing Supplements of the VKE09 and VKE10 Notes.
  • Compliance Certificate dated 8 May 2017.
  • Property valuation documents of the Group 1 Property Portfolio.
  • Large lease expiries of the Group 1 Property Portfolio per March 2017.
  • Income and expenses per property per March 2017.
  • Tenancy lease schedules per March 2017.
  • Property risk grades.
  • Forecast income and expenses per property as at April 2017.
  • Vacancy and arrear levels per property as at March 2017.
  • The Issuer’s Integrated Annual Report for the year ended 31 March 2016.
  • Updated legal opinion from the Transaction legal counsel.
image_pdfPDF View

Leave a Reply



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.