Moody's assigns Redefine Baa3 rating, stable outlook

Posted On Friday, 01 July 2011 02:00 Published by eProp Commercial Property News
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Moody's Investors Service has assigned long-term and short-term issuer ratings of Baa3 and Prime-3 to Redefine Properties, the second largest property fund on the JSE.

Marc Wainer

Concurrently, Moody's has also assigned long-term and short-term national scale ratings of A3.za and prime-2.za (P-2.za). The outlook on the ratings is stable.

The agency indicated on Thursday that the ratings were underpinned by Redefine's large portfolio of predominantly South African properties with a good occupancy rate that produced "very high" earnings before interest, taxes, depreciation, and amortisation (ebitda) margins with relatively low volatility compared to its global peers.

Redefine has developed a diversified offshore property exposure via its 54%-owned listed subsidiary, Redefine Properties International, with property investments in the UK, Germany, Switzerland and Australia. Redefine also has investments in five other listed property companies.

The ratings also incorporated relatively strong credit metrics, Moody's noted. The key constraint on the ratings was the "very large" proportion of secured debt in the company's capital structure, and the small percentage of assets that were currently unencumbered at around 6%. But the agency noted that the property fund had already started executing plans to refinance some of its property assets with unsecured borrowings in the next six months.

Redefine's ratings were also supported by the company's recurring, contractual rental income.

"Moody's considers Redefine's liquidity risk profile adequate with cash inflows, including committed undrawn facilities, exceeding committed cash outflows for the next 12 to 18 months. The company's debt maturities in 2011 and 2012 represent only 5% and 10% respectively of total borrowings and Moody's expects adequate headroom under its financial covenants to be preserved at all times," the ratings agency said.

The stable outlook reflected Moody's view that the SA economy was emerging from recession and that the property sector continued to improve. Moody's said Redefine would continue to produce steady rental income, make well-conceived investments and produce good operating returns. However, the stable outlook assumed the absence of large, transformational acquisitions.

The stable outlook also assumed that management would successfully execute on its business and financial plan, that it would increase the proportion of unencumbered assets to total consolidated assets towards 30% in the short term, and that the company would maintain an adequate liquidity profile at all times.

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