This article is from the Australian Property Journal archive
RATINGS agency Standard & Poor’s has revised the outlook for $10 billion Defence Housing Australia to negative, and warns that its credit ratings could be lowered if the agency is privatised.
S&P Global Ratings the ratings on DHA are influenced by those on the government. DHA manages over 18,872 properties worth approximately $10 billion.
“In our opinion, there is an “extremely high” likelihood that the Australian government would provide extraordinary support to DHA.
“As a result, we have revised the outlook on DHA to negative and affirmed the ‘AA+’ ratings,” S&P said.
The ratings agency said the negative outlook on DHA reflects that on the Commonwealth of Australia and the expectation that DHA will remain the government’s primary provider of accommodation for ADF personnel.
“While the role of DHA will continue to evolve over time, we expect it to remain “very important” to the government,”
Whilst the close ties between DHA and the government has resulted in the negative outlook, DHA’s credit rating has benefited from its ties to ‘AA+’.
“We raise the ratings on DHA by six notches above its stand-alone credit profile, which we assess as ‘bbb+’. This uplift is the result of our assessment of an “extremely high” likelihood that the Australian government would provide extraordinary support, which reflects DHA’s important role in delivering key policy objectives of the Australian government as the sole provider of a number of services to Defence personnel, including the provision of housing and administration of a range of ADF allowances.
“Supporting this is also our view of DHA’s integral link with the Commonwealth of Australia, as evidenced by DHA being included in the Australian government’s budget and our view that DHA is essentially an extension of the government itself,” S&P said.
S&P warns that the ratings could be lowered if the sovereign ratings were lowered, or if it consider there to be a weakening in DHA’s “very important” role or “integral” link with the government.
“This could occur if DHA is privatized and the service agreement with Defence is re-established on weaker terms. All else being equal, the stand-alone credit profile (SACP) would need to be lowered to ‘bb’ before a downward rating action could occur,” S&P said.
Earlier last year the government considered selling off DHA by cashing in on the $10 billion plus property portfolio. However in May, the government changed its mind and said it would retain the agency.
S&P also warned that DHA’s rating could be lowered if DHA materially increases its development activity, its exposure to non-contracted rental income, or if the adjusted funds from operation (FFO)-to-debt decline to less than 9%.
At the same time, its rating could be upgraded if its FFO-to-debt is sustained above 15%.
“We view upward rating pressure as a result of a strengthening of DHA’s business risk profile as less likely over the medium term,” S&P said.
Australian Property Journal
