Emira’s bond rating gets affirmation by GCR for its stable outlook

GLOBAL Credit Ratings (GCR) affirmed Emira Property Fund’s bond credit ratings of A (ZA) and A1(ZA), respectively, with a stable outlook, because the firm was expected to withstand short-lived Covid-19 related disruptions, a statement said yesterday.

Ratings were affirmed due to the “sound performance of Emira’s small but relatively diverse portfolio, which continues to underpin the ratings, despite heightened funding and asset risk faced by the South African property sector.”

GCR also affirmed the long-term issue rating of AA+(ZA)(EL) assigned to Emira’s senior secured notes, with a stable outlook.

The stable outlook was a result of GCR’s expectations that Emira would sustain sound through-the-cycle earnings from its rebalanced portfolio which, coupled with initiatives to conserve cash and sustain liquidity, should enable Emira to withstand the shortlived Covid-19 related disruptions, the rating agency said.

The rebalanced Emira portfolio is weighted towards retail (48 percent versus 41 percent at December 2018), although the Reit also has moderate exposures to office, industrial and a small residential investment.

At the first half of the 2020 financial year, the US investment still accounted for 9 percent of the overall portfolio, providing only minimal diversification from the challenging domestic operating environment.

“That said, GCR has noted the investment is considered core to the fund, and is expected to continue to be cautiously expanded over the medium term,” the rating agency said.

As anticipated, gross rental income contracted in the first half, although the base portfolio continued to generate positive growth, on the back of sound escalations, high tenant retention and low vacancy rates.

Margin progression, however, would continue to be constrained by a rising cost base, largely attributed to rates and utilities, amidst pressure on rental rates. This would be exacerbated in the short term by the restrictive measures to contain the Covid-19 pandemic, GCR said.

Emira was moderately geared in comparison to peers, with a loan-tovalue ratio of 35.1 percent at the end of the first half.

Debt maturities in the coming 12 months with an aggregate of R1.2 billion were expected to be refinanced, sustaining Emira’s relatively smooth debt maturity profile.

“The stable outlook takes into account our expectations that Emira will sustain sound through-the-cycle earnings from its rebalanced portfolio. Coupled with initiatives taken to conserve cash and sustain liquidity, this should enable the Reit to withstand short-lived Covid-19 related disruptions,” GCR said.