Below-Grade Rating Issued for REIT Offer
A $100-million preferred stock offering to help feed the growth of Irvine Apartment Communities was given a speculative “Ba1” rating Friday by Moody’s Investors Service.
Irvine Apartment, a real estate investment trust, was created four years ago to allow the public to invest in apartments once owned entirely by the Irvine Co.
Its first preferred stock offering will occur in December or January. The non-investment-grade rating by Moody’s could mean a sale on less favorable terms for Irvine Apartment, especially if Standard & Poor’s Corp. and Fitch Investors Service also rate the securities as speculative.
S&P; and Fitch are expected to rate the stock in about 10 days.
Irvine Apartment is growing rapidly in Orange County, where it has exclusive rights to build apartments for the Irvine Co. on its huge ranch. The REIT also has begun expanding in La Jolla and upscale Northern California areas.
Moody’s praised the REIT’s managers, “healthy financial indicators and its good market and property fundamentals.” But it expressed concern that the company has only a minority interest in the partnership that operates the apartments.
Moody’s also worried about the company’s heavy focus on a single region, its dependence on the Irvine Co. for expansion sites, its debt and the general risks of acquiring and developing real estate.
James E. Mead, Irvine Apartment’s finance chief, noted that Irvine Co.’s 55% interest in the operating partnership is nonvoting and said his company has no more debt than most REITs. Mead said Orange County’s economy is so strong that the concentration of business here is an asset. He also noted that the Irvine Co. has always included apartments in its mix of property development.
When Irvine Apartment sold $100 million in bonds a month ago, they were rated at the low end of investment grade. Moody’s on Friday reaffirmed its rating--”Baa2”--on that debt.
Irvine Apartment’s common stock rose 38 cents a share to close at $31.50 on the New York Stock Exchange.
