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The review of Hospitality Property Fund’s (“HPF”) issuer ratings follows the buyout of its minority shareholders by Tsogo Sun Hotels Limited (“TSH” or “the group”). Subsequently, HPF has been delisted from the JSE and is therefore no longer classified as a REIT. In the absence of any insulation provided by the REIT status, GCR has revised the rating criteria applicable to the fund and now utilises the Criteria for Rating Corporate Entities, with the analytical entity being TSH.
The Negative Outlook reflects the elevated credit risks arising from the significant ongoing disruptions to the hospitality industry because of COVID-19, and uncertain outlook on TSH’s operating performance. GCR could take negative rating action if the COVID-19 pandemic persists through most of 2021 and the volumes in the hospitality industry remain around historical lows. This would likely transpire in continued operating losses and further material write-downs in property values, resulting in deteriorating leverage metrics.