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GCR affirms SA Corporate Real Estate Limited’s rating of A(ZA), Outlook Stable.

Global Credit Ratings (GCR) has affirmed SA Corporate Real Estate Limited’s national scale Issuer ratings of A(ZA), and A1(ZA) in the long term and short term respectively. The ratings have been accorded a Stable outlook.

“The ongoing redevelopment of existing assets, and sale of those with weaker prospects, has seen a substantial increase in the quality of SAC’s portfolio,” says Eyal Shevel, Sector Head of Corporate and Public Sector ratings at GCR.

“This, combined with a stronger focus on tenant retention, has allowed SAC to maintain vacancy rates below the industry average. Whilst some rental reversions have been necessary in the industrial and commercial portfolios, retail assets continue to show strong escalations.”

While, the acquisition of AFHCO has given it exposure to the inner city residential and retail sectors, whose performance is less correlated to the traditional sectors, tenants in the AFHCO portfolio have become much more price sensitive, resulting in a spike in standing portfolio residential vacancies. This is of concern as much of the development pipeline is focused on bringing new residential units to the market, although mainly outside of the inner city.

The relatively conservative funding mix, has seen the net LTV remain around 30% and net debt to EBITDA below 400%, both well within GCR’s benchmarks for an ‘A’ rated REIT.  Nevertheless, SAC is forecasting gearing to increase in Financial Year 2017 and Financial Year 2018, given the large acquisition pipeline (primarily residential units), albeit the LTV ratio should remain in the 33-37% range.

“Upward rating movement will be premised on the successful transfer and tenanting of the new residential properties. This would bolster property income and help mitigate the slowdown in other property sectors. It would also demonstrate SAC’s ability to leverage existing capabilities to enter new market segments.” concludes Shevel.

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