Standard & Poor’s Ratings has given Lend Lease Europe’s proposed GBP notes issue a ‘BBB-‘ credit rating, citing the management’s past performance which included “forays into activities outside its core competencies” and the loss of GPT.
Yesterday, Standard & Poor’s Ratings said Lend Lease’s ‘BBB-/Stable/A-3’ ratings reflect an integrated and diverse global property group, with operations in property construction and development, project management, and investment management.
“Earnings in fiscal 2006 were evenly spread across three geographic regions, namely Asia Pacific, Europe, and the Americas,” Standard & Poor’s Ratings credit analyst Craig Parker said.
“However, in the past, Lend Lease’s management has not always been focused, with forays into activities outside its core competencies.
“It will now require delicate handling to ensure a solid pipeline of mostly retail-development projects that Lend Lease can spin off into managed investment trusts in order to recreate the dependable revenue it lost from the management of General Property Trust,” Parker added.
In the 2006 financial year, Lend Lease booked an operating profit after tax to $354.2 million stated under AIFRS – an increase of 25% when compared with $285.7 million in 2005.
And last month, Lend Lease began to increase its portfolio by placing the highest bid at $514 million for Somerset Central, one of the last remaining significant retail development opportunities on Orchard Road in Singapore.
Parker said recent acquisitions are in line with management’s strategy to incrementally grow income-producing assets, expand its communities and PFI business, and maintain a strong backlog of work within moderately conservative financial parameters.
According to Standard & Poor’s Ratings, Lend Lease is targeting a minimum of 15%-20% of total EBITDA being derived from recurring/annuity style earnings, such as funds management and investment income, over the long term. At June 30, 2006, these annuity earnings comprised 28% of total EBITDA, with Lend Lease undertaking further investments in retail shopping centre funds during 2006.
Lend Lease also targeted a debt-to-total tangible asset ratio in the range of 30%-40%, and this ratio was 14.4% at June 30, 2006. The Standard & Poor’s measured lease-adjusted debt-to-capital ratio was 28.9% at June 30, 2006.
Last month, Lend Lease’s chief executive Greg Clarke said in terms of outlook, while there is increased uncertainty concerning the interest rate environment and the global economic impact of continued high oil prices, the fundamentals for the company’s core businesses and chosen market sectors are still strong.
“Notwithstanding these uncertainties, Lend Lease remains well positioned to achieve earnings growth from operations over the short to medium term.” he concluded.
Standard & Poor’s Ratings’ said Lend Lease’s moderate financial policy is spearheaded by a desire to maintain an EBITDA interest cover target ratio of greater than 6x; this ratio was 7.8x at June 30, 2006.
“Standard & Poor’s calculation of Lend Lease’s EBITDA interest cover was 7.2x at June 30, 2006. Lend Lease’s calculation excludes one-off profits/(losses) from EBITDA. We expect Lend Lease to exhibit a debt-to-EBITDA ratio of about 2x while targeting a minimum 6x interest cover ratio, and debt-to-EBITDA was 2.1x at June 30, 2006,” the report added.
The debt issue is guaranteed by Lend Lease Corp. Ltd., Lend Lease (US) Capital Inc., and Lend Lease Finance Ltd.
Meanwhile earlier this month, Standard & Poor’s Ratings raised its ratings on Lend Lease’s Australian Prime Property Fund – Retail (APPF Retail) to ‘A/A-1’ from ‘A-/A-2’.
"The fund’s underlying credit quality remains strong and highly stable, reflecting a portfolio of high-quality and well-located retail property assets," Standard & Poor’s Ratings’ credit analyst Brenda Wardlaw said. "A high degree of operating stability is further supported by the portfolio’s geographic diversity, diverse tenant base, long and well-spread lease-expiry profile, and very low vacancy rates. The fund continues to achieve earnings and asset growth through redeveloping its existing assets."
By Adam Parsons
