The upgrade is testament to the fund's clear strategic focus on strong underlying property fundamentals and strength of the fund's balance sheet. The conservative balance sheet management which ensured low gearing levels and levels of asset encumbrance provides the flexibility required to further grow the fund and certainty to existing and future debt investors.
GCR further noted that the upgrade comes on the back of the fund's growth following major acquisitions including the recently announced Zenprop and Griffin transactions. These two portfolios raised the fund's asset base to c.R16.4bn, effectively doubling the size of the fund from R8.7bn at 31 March 2015. This places IPF in the upper end of the middle tier of domestic REITs in terms of scale.
With regards to the Zenprop transaction specifically, the acquisition adds quality, defensiveness and income predictability to an already robust portfolio, enhancing the weighted average lease expiry and tenant quality.
IPF's portfolio reflects a high proportion of single-tenanted buildings, and while A grade tenancies were diluted to 63% by the higher retail exposure, the incorporation of Zenprop properties should see it revert to the 70% level. Vacancies have been kept at very low levels over the review period (2.8%), and are expected to ease further with the inclusion of the Zenprop assets, while the fairly long average lease expiry reflects the quality of properties held and strong management execution.
GCR also noted that these factors, together with the ability to sustain high quality cash flows despite the challenging operating environment could even result in an upward review in the medium-term.
