London, 06 September 2011 -- Moody's Investors Service today assigned a provisional national scale
long-term senior unsecured provisional rating of (P) A3.za
and provisional short-term rating of (P) P-2.za to
the new ZAR 5 billion Domestic MTN Programme of Redefine Properties Ltd
("Redefine" or "the Company"). This rating
refers to the issuance of senior notes under the MTN programme,
which constitute direct, unconditional, unsubordinated and
unsecured obligations of the issuer and rank pari passu and rateably without
any preference among themselves and, save for certain debts required
to be preferred by law, equally with all other unsecured and unsubordinated
obligations of the issuer from time to time outstanding. Absent
a change in the NSR, Redefine's domestic programmes to issue
senior unsecured debt ranking pari passu to other senior unsecured and
unsubordinated debt could be expected to be rated at the same level as
the NSR. Moody's notes that redemption at the option of the
senior noteholders shall apply if (i) a change of control occurs and it
causes the Company within a period of 60 days to no longer achieve a national
scale investment grade rating; or (ii) the Company breaches the financial
covenant, which specifies the South African loan to value ratio
shall not exceed 50% and is tested on a quarterly basis.
An option exists under the MTN Programme to issue subordinated debt,
but Moody's understands that it is not the Company's intention at present
to do so and Moody's does not rate any subordinated debt of the issuer.
Furthermore, if Moody's were to rate any issuance of subordinated
debt, it would not expect the rating to be at the same level as
for senior unsecured notes. Redefine's other ratings and outlook
remain unchanged at this point.
RATINGS RATIONALE
Redefine's Baa3/P-3 Issuer and Senior Unsecured ratings (and
its corresponding NSRs, A3.za and P-2.za) are
underpinned by Redefine's large portfolio of predominantly South
African properties with a good occupancy rate of 92% , as
reported by the company as of 28 February 2011 (H1 2010/11), producing
recurring contractual rental income with very high EBITDA margins and
relatively low volatility compared to its global peers. The company
has developed a diversified offshore property exposure via its 54%-owned
listed subsidiary Redefine Properties International Ltd with property
investments in the UK, Germany, Switzerland and Australia.
Redefine also has investments in five other listed property companies.
The ratings also incorporate relatively strong credit metrics (all metrics
as adjusted by Moody's. Furthermore, the company's
approach to development risk is conservative, with no more than
5% of the total property portfolio's assets representing
developments at any one time. However, the key constraint
on the ratings is the very large proportion of secured debt in the company's
capital structure, and the small percentage of assets that are currently
unencumbered (around 6%), although Moody's understands
that the Domestic MTN Programme will be used to execute the Company's
plan to refinance some of its property assets with unsecured borrowings
in the next six months.
The stable outlook reflects Moody's view that the South African
economy is emerging from recession and the property sector continues to
improve. Moody's believes that Redefine will continue to
produce steady rental income, make well-conceived investments
and produce good operating returns. However, the stable outlook
assumes the absence of large, transformational acquisitions.
The stable outlook also assumes that management will successfully execute
on its business and financial plan, that it will increase the proportion
of unencumbered assets to total consolidated assets towards 30%
in the short term, and that the company will maintain an adequate
liquidity profile at all times.
Upward pressure on the ratings could occur if Redefine: (i) shows
a good track record as a rated entity; (ii) continues to produce
consistent credit metrics, maintaining leverage, defined as
adjusted total debt/gross assets materially lower than 40%,
and fixed charge coverage above 2.7x; (iii) increases the
proportion of unencumbered assets to total assets on a consolidated basis
to substantially above 30%; and (iv) improves the ratio of
secured debt/property assets to sustainably below 35%.
Downward pressure on the ratings could emerge if: (i) the proportion
of unencumbered assets to total consolidated assets does not trend towards
30%; (ii) the ratio of secured debt/property assets remains
above 45%; (iii) leverage in terms of adjusted total debt/gross
assets approaches 45%; (iv) fixed charge coverage declines
towards 2.2x; (v) unexpected difficulties integrating acquisitions
arise, having a negative impact on the operational performance or
cash flows of the company; or (vi) there is a deterioration of Redefine's
liquidity risk profile.
The principal methodology used in rating Redefine Properties Limited was
the Moody's Approach for REITs and Other Commercial Property Firms published
in July 2010. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Redefine Properties Limited, headquartered in Rosebank, Gauteng,
South Africa. In FY 2010, consolidated revenues amounted
to ZAR3.1 billion and the company reported total assets at FYE
2010 of ZAR36.1 billion. At that time the company had 482
commercial properties on a consolidated basis.
Moody's National Scale Ratings (NSRs) are intended as relative measures
of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally
comparable with the full universe of Moody's rated entities, but
only with NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country
modifier signifying the relevant country, as in ".mx"
for Mexico. For further information on Moody's approach to national
scale ratings, please refer to Moody's Rating Implementation Guidance
published in August 2010 entitled "Mapping Moody's National Scale
Ratings to Global Scale Ratings."
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the credit rating action. Please see the
ratings disclosure page on our website www.moodys.com for
further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
London
Lynn Valkenaar
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
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SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
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Moody's assigns A3.za national scale rating to Redefine Properties Ltd (South Africa) MTN Programme
