Orxy accorded maiden BBB+
Global Credit Ratings last week assigned first-time national scale ratings to Oryx Properties Limited of BBB+ and A2 in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until 02/2016. Explaining the rationale behind the rating, Global Credit Ratings said, “Oryx is a leading player in the Namibian property sector, with a property portfolio of just under N$2 billion and is strongly supported by domestic financial institutions and shareholders. Thus, while properties are geographically concentrated in Windhoek, the fund’s local knowledge remains its core competitive advantage, driving robust distribution growth and value enhancement over the review period.
” Global Credit Ratings (GCR) had found that Orxy evidenced a high quality tenant profile, with around 87% of leases with South African national retailers or large local companies. Moreover, close relationships with most tenants has seen over 90% of expiring leases retained in each year and the overall vacancy rate reported at below 1%. Where vacancies have arisen, the space has been quickly let, the ratings agency remarked. Nevertheless, Oryx’s performance was highly reliant on its largest property, Maerua Mall, which accounts for 48% of portfolio value. This posed concentration risk, particularly in light of the increased competition in the retail sector the ratings agency found. “Operating income increased at a Compound Annual Growth Rate (GACR) of 20% over the review period to a high N$152 million in the financial year 2014, driven by a mix of expansionary activity and rental escalations. However, rising interest charges mitigated the impact on distributions, and interest coverage has decreased steadily from 6.2 times in the financial year 2010 to 3 times in financial year 2014, albeit still above the benchmark for highly rated funds,” GCR said. According to GCR, 13% Compound Annual Growth Rate compared to 20% CAGR in operating profit. “Although liquidity for smaller acquisitions and refurbishments is readily available, for larger transactions GCR considered Oryx’s financial position to be somewhat constrained by the high Loan-to-Value and fully encumbered asset base. The DMTN programme could alleviate this constraint somewhat, as it would introduce a new pool of funders, being asset managers, as well as allowing Oryx to borrow on an unsecured basis. In addition, management has indicated that larger projects will combine a greater weighting of equity funding,” GCR said. Positive rating action is premised upon sustained long term growth in operating income and distributions. A large acquisition that significantly increases the size of the fund and strengthens its financial position, without impacting gearing levels substantially, could also see the rating improve,” GCR remarked positively.