GCR assigns strong first-time credit rating to Delta Property Fund

CEO Sandile Nomvete heads the Black-owned Delta Property Fund which received strong ratings from Global Credit Rating (GCR despite its relative infancy.

Global Credit Rating (GCR) said on Wednesday that Delta Property Fund had received a “strong” first-time credit rating despite its relative infancy, reflecting the fund’s high quality and long-dated leases with government departments.

Delta‚ which listed on the JSE in November 2012‚ was accorded investment-grade ratings of BBB+(ZA) and A2(ZA)‚ with the ratings on a stable outlook.

Delta is the first in a recent spate of property listings to receive a GCR rating‚ which allows the fund better access to capital markets. To diversify funding and access cheaper capital‚ some established listed property companies have tapped into capital markets for the first time over the past few years.

Credit ratings take into account a company’s ability to pay off its debts and meet its obligations timeously.

In its inaugural issuance in July‚ Delta raised R190m from the issue of a six-month unsecured note with a fixed rate of 6.19%.

The fund‚ which lets about 70% of its portfolio to the government‚ including the South African Revenue Service‚ has plans to grow its property portfolio to R7bn by 2017‚ from R4.4bn now and R2.1bn at listing.

GCR senior analyst Richard Hoffman said on Wednesday Delta received the strong ratings despite its relative infancy.

Delta’s quality‚ long-dated leases “are the key driver of the fund’s operating cash flows‚ ensuring strong certainty of rental inflows into the future and‚ accordingly‚ robust debt serviceability”.

Hoffman said Delta had a strong niche position with its focus on mainly single-tenanted buildings occupied by the government. This focus ensured low vacancies and strong rental yields and escalations.

He said Delta’s black economic empowerment (BEE) credentials facilitated its “robust lease arrangements” by allowing it to have favourable relations with key government departments.

Delta has shown a continued “rapid expansion” of its portfolio since listing and had also increased its non-government exposure through private sector office rentals and the acquisition of retail and industrial properties.

But the fast growth has led to a sharp rise in operating costs‚ which means managing the rapid growth of the portfolio “remains a key challenge”. The entire sector is also facing inflationary pressures that affect yields.

Hoffman said significant funding was needed to support Delta’s growth‚ and this had been sourced from the equity markets and bank debt funding.

Hoffman said Delta was well positioned to acquire more government-tenanted properties given its BEE advantage‚ established relationships and operating infrastructure.

A stabilisation of Delta’s portfolio‚ with reduced growth and consistent performance‚ would be positive from a ratings perspective.

“In this regard‚ the full realisation of earnings from the enlarged portfolio and the simultaneous reduction in gearing metrics — earnings-based ones in particular — would improve debt service cover and reduce credit risk in general.”