Property funds on even keel – Moody’s

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Growthpoint and Redefine, two of the largest property funds listed on the JSE, have received unchanged credit ratings with stable outlooks from Moody’s Investors Service.

The long-term issuer rating in domestic currency for both funds was unchanged at Baa3.

The credit ratings agency said on Wednesday that its stable outlook for Growthpoint reflected its view that it would continue to produce steady consolidated revenues and operating profits, and its assumption that management would maintain an adequate liquidity profile by refinancing upcoming debt maturities timeously.

Positive pressure could develop on the outlook or ratings as Growthpoint built a strong liquidity profile while maintaining solid credit metrics.

Moody’s said upward pressure on the ratings could occur if the fund continued to produce steady revenues and operating profits. It would also help if it became clear that the company could maintain a low leverage, as measured by the ratio of adjusted total debt to gross assets sustainably lower than 40 percent, fixed charge coverage above 2.7 times and a prudent liquidity profile.

Downward pressure on its ratings could be influenced by a deterioration of its liquidity risk profile; unexpected difficulties integrating acquisitions that negatively affected operational and cash flow performance; the ratio of secured debt to property assets rising above 35 percent; leverage going above 45 percent; or fixed charge cover falling towards 2.2 times.

Moody’s said its stable outlook for Redefine reflected its view that the fund would continue to produce steady rental income, make well-conceived investments and produce good operating returns. This outlook also assumed the absence of large transformational acquisitions and that the management would maintain an adequate liquidity profile, it said.

Moody’s said upward pressure on Redefine’s ratings could occur if its portfolio size and diversification materially improved; the fund showed a good track record as a rated entity; it continued to produce consistent credit metrics and maintained leverage, defined as adjusted total debt to gross assets, of sustainably below 30 percent and fixed charge coverage above 3.5 times; and improved the ratio of secured debt to property assets to substantially below 25 percent.

It said downward pressure on Redefine’s ratings could emerge if adjusted total debt to gross assets exceeded 35 percent on a sustained basis; fixed charge coverage trended towards 2.5 times; the ratio of secured debt to property assets remained above 35 percent; unexpected difficulties arose in integrating acquisitions; or there was a deterioration of Redefine’s liquidity risk profile.

Redefine closed 2.26 percent up at R9.50 and Growthpoint gained 1.3 percent to R23.30.


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