First-time rating
London, 30 June 2011 -- Moody's Investors Service has today assigned long-term and short-term
Issuer Ratings of Baa3 and Prime-3 (P-3) to Redefine Properties
Ltd ("Redefine"). Concurrently, Moody's
has also assigned long-term and short-term National Scale
Ratings ("NSR") of A3.za and Prime-2.za
(P-2.za). The outlook on the ratings is stable.
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.
RATINGS RATIONALE
The Baa3/P-3 Issuer and Senior Unsecured ratings (and its corresponding
NSRs) are underpinned by Redefine's large portfolio of predominantly
South African properties with a good occupancy rate (92% and 90%,
as reported by the company as of 28 February 2011 (H1 2010/11) and 31
August 2010 (FYE 2010) respectively), that produces very high EBITDA
margins with 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). At H1 2010/11 fixed charge cover
was good at 3.0x, net adjusted debt/recurring EBITDA was
low at 4.0x and adjusted total debt/gross assets was 33%.
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 company has already started executing
its plans to refinance some of its property assets with unsecured borrowings
in the next six months.
Redefine's ratings are also supported by the company's recurring,
contractual rental income. In H1 2010/11, LTM revenues of
ZAR3.3 billion (ZAR3.1 billion -- FYE 2010) were comprised
of 86% contractual rental income, 9% income from the
listed securities of commercial property investment companies and 5%
in trading and fee income, with 93% of distributable net
profit generated in South Africa. In addition, the company
is highly profitable compared to its global peers as measured by its EBITDA
margin, which was around 89% for the last twelve months to
H1 2010/11 and for FY 2010. 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.
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 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 July 2010.
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 ".za"
for South Africa. 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
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
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 www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Lynn Valkenaar
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns a Baa3 rating to Redefine Properties Ltd (South Africa); stable outlook
