Johannesburg, 17 May 2019 – GCR Ratings has today affirmed the national scale ratings assigned to Oryx Properties Limited of BBB+(NA) and A2(NA) in the long term and short term respectively, with the outlook placed on Negative. The ratings are valid until march 2019.
SUMMARY RATING RATIONALE
GCR Ratings (“GCR”) has accorded the above credit ratings to Oryx Properties Limited (“Oryx”) based on the following key criteria:
The Negative Outlook relates to the continued weak liquidity profile. Notwithstanding the recent refinancing of NAD200m in maturing facilities, Oryx does not maintain unutilised funding facilities, which exposes the fund to upcoming maturities within the 12 and 24 month timeframes. The liquidity assessment is further tempered by Oryx’s inability to raise the full amount of capital sought from its rights issue, signalling weak investor appetite.
Moreover, given the ongoing investment spend, Oryx’s gearing has risen significantly, which places pressure on the rating. Thus, the fund registered a net LTV ration of 44.5% at 1H FY19 (FY18: 36.7%), while net interest cover decreased to 2.2x (FY18 2.5x). GCR estimates that the repayment of debt utilising some of the rights issue proceeds (NAD164m received) has seen the net LTV ratio fall to just above 40% at the end of April 2019, but this still remains relatively high, particularly in light ongoing investment requirements. Positively, the LTV and interest cover metrics remain within covenant levels, with some headroom.
Oryx’s rating is supported by its leading position in the Namibian property sector. In this regard, its in-depth market knowledge and strong support from local industry players provide a core competitive advantage. However, the rating remains constrained by the funds small size (NAD3.3bn in investment assets) and the high concentration, with the majority of asset being in Windhoek and the very large single asset exposure to Maerua Mall. The recent investment into Eastern European property assets is intended to lessen the exposure to Namibia, but it remains small.
Oryx’s property performance is underpinned by long standing leases with leading South African and Namibian corporates. Although vacancies increased to 6.85% at 1H FY19, compared to negligible levels prior to FY17, they are concentrated in a few buildings, with the core retail portfolio evidencing low vacancies. Moreover, with the impending sale of a South African property the vacancy rate is projected to decrease to between 3%-4%. Investments in management infrastructure and power generation initiatives are bearing fruit, as evidenced in a decline in the property expense ratio to 30.8% at 1H FY19, from 34% at FY18.
Negative rating action could result if liquidity coverage is not sustainably improved, or if gearing levels increase and place further pressure on credit metrics, especially if metrics near covenant levels. Positive ratings progression would be dependent on a larger and more diverse portfolio. A sustained reduction in the LTV ratio, combined with an improvement in interest coverage could also support the rating.
NATIONAL SCALE RATINGS HISTORY
| NATIONAL SCALE RATINGS HISTORY | |||
| Initial rating (February 2015) | Last rating (March 2019) | ||
| Long term: BBB+(NA); Short term: A2(NA) | Long term: BBB+(NA); Short term: A2(NA) | ||
| Outlook: Stable | Outlook: Rating Watch | ||
ANALYTICAL CONTACTS
Primary Analyst Committee Chairperson
Eyal Shevel Sheri Morgan
Sector Head: Corporate Ratings Senior Analyst: Corporate Ratings
(011) 784-1771 (011) 784-1771
shevel@gcrratings.com morgan@gcrratings.c
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Global Criteria for Rating Property Funds and Commercial Real Estate Companies, updated February 2018
Oryx rating reports, 2015-18
Rating announcement issued 22 March 2019
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GLOSSARY
| Debt | An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period. |
| Diversification | Spreading risk by constructing a portfolio that contains different investments, 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. |
| Downgrade | The assignment of a lower credit rating to a corporate or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade. |
| Equity | Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit. |
| Gearing | With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA. |
| 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. |
| Margin | A term whose meaning depends on the context. In the widest sense, it means the difference between two values. |
| 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. |
| Risk | The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk. |
| Shareholder | An individual, entity or financial institution that holds shares or stock in an organisation or company. |
| 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. |
SALIENT FEATURES 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; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
Oryx Properties Limited participated in the rating process, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Oryx Properties Limited.
The information received from Oryx Properties Limited and other reliable third parties to accord the credit ratings included;
• Audited financial results of Company per 30 June 2018, plus four years comparative audited accounts;
• Unaudited interim results of Company per 30 December 2018;
• Full details of the property portfolio;
• Results of the rights issue in March 2019, as well as other refinancing initiatives
• Full detail of funding facilities
• Rights issue circular.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
