Singapore, May 03, 2013 -- Moody's Investors Service says that while Ascott Residence Trust's
(Ascott REIT, Baa3 stable) proposed acquisition of interests in
three serviced residence properties in China and 11 rental housing properties
in Japan, will enhance the quality of the trust's property
portfolio, its leverage is expected to increase.
"Because Ascott REIT's leverage is expected to increase only
marginally, its rating is unaffected by its planned acquisitions
in China and Japan," says Poh.
According to Ascott REIT's announcement on 2 May, the trust
has entered into various conditional sale and purchase agreements,
to acquire shareholding interests in Citadines Biyun Shanghai for SGD53.8
million, Somerset Heping Shenyang for SGD59.4 million,
Citadines Xinghai Suzhou for SGD14.7 million and 11 rental housing
properties across six cities in Japan for SGD37.1 million.
The acquisitions are expected to increase the trust's asset base
by 11% to SGD3.1 billion from SGD2.8 billion as at
31 December 2012, while its property portfolio is expected to increase
by 1,576 apartments units to 8,632 units in over 32 cities,
from 25 cities previously.
"Ascott REIT's successful acquisition of the three serviced
residence properties in China and 11 rental housing properties in Japan
will not only increase the scale of its portfolio, it will also
reduce its exposure to the weaker European markets," says
Jacintha Poh, a Moody's Analyst.
Moody's notes that with the acquisition, the trust's
share of assets in Asia will increases to 63% from 59% as
at 31 December 2012.
"The acquisitions will also allow Ascott REIT to deepen its presence
in China's growing property market, and expand its footprint
in the stable home rental market in Japan," adds Poh.
The three serviced residences in China will continue to be managed by
its sponsor, The Ascott Limited (unrated), under existing
management contracts, while five out of the 11 rental housing properties
in Japan are on master leases with remaining tenures of approximately
five to eight years. Generally, the rental housing properties
cater to Japanese on long stays of one to two years, and have steady
occupancy rates exceeding 95%, as well as resilient rental
rates.
Ascott REIT will be funding the total proposed acquisition cost of SGD166.8
million, which includes a transaction expense of SGD1.8 million,
partly with the net proceeds from its equity placement in January totalling
SGD147.8 million. The remaining SGD19 million will be funded
by existing debt facilities.
On a pro-forma basis, assuming that the equity placement
of 114,943,000 new units and acquisitions were completed on
31 December 2012, the trust's debt/total assets ratio would
increase to 41.2% from 40.1%. Both
results are within its current rating parameters.
Ascott REIT's Baa3 rating may be upgraded if the trust: (1)
improves its liquidity and financial flexibility by reducing its encumbered
assets and lowering its reliance on secured borrowings, and (2)
improves its other credit metrics such that its debt/total assets is less
than 35%, its EBITDA interest coverage exceeds 3x and its
debt/EBITDA ratio is below 7x, on a consistent basis.
On the other hand, Ascott REIT's rating could be pressured
downwards if: (1) the operating environment deteriorates,
leading to higher vacancy levels and declines in operating cash flows,
and/or (2) the trust's financial metrics weaken, such that
its debt/total assets exceeds 45%, its EBITDA interest coverage
falls below 2.5x and its debt/EBITDA exceeds 9x on a consistent
basis.
In addition, further acquisitions made without long-term
committed funding in place, and disruptions in its access to funding
could place the trust's rating under pressure.
The principal methodology used in this rating was Global Rating Methodology
for REITs and Other Commercial Property Firms published in July 2010.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Ascott REIT is a Singapore-based Real Estate Investment Trust,
focusing on income-producing assets such as serviced residences,
rental housing and other hospitality properties. The trust operates
its serviced residences under the Ascott, Citadines and Somerset
brands. It is sponsored by The Ascott Limited (unrated),
an indirect wholly owned subsidiary of CapitaLand Limited (unrated).
CapitaLand in turn owns 49.4% of Ascott REIT.
Jacintha Poh
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's: Ascott REIT's leverage rises slightly on acquistions