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Announcement:

Moody's: Ascott REIT's rating unaffected by issuance of perpetual securities to fund acquisitions

24 Oct 2014

Singapore, October 24, 2014 -- Moody's Investors Service says that Ascott Residence Trust's (Ascott REIT) Baa3 corporate family rating is unaffected by the trust's issuance of SGD150 million in perpetual securities with a fixed coupon rate of 5% to fund its acquisition of a hotel in Tokyo and three serviced residences in Greater Sydney.

In addition, the rating outlook remains stable.

"Ascott REIT's financial metrics will remain well within its rating threshold, after the acquisitions. It has used the proceeds from the issuance of the perpetual securities to partially fund its acquisition of a hotel in Tokyo. It will also use the proceeds to fully fund the acquisition of three serviced residences in Greater Sydney," says Jacintha Poh, a Moody's Assistant Vice-President and Analyst.

Moody's points out that the hotel will cost JPY8billion (SGD95.2 million), and the three serviced residences will cost AUD83 million (SGD93 million).

"We do not rate the perpetual securities. We consider the hybrid instrument as comprising debt and equity in equal proportions when assessing Ascott REIT's overall credit profile. The perpetual distributions are also equally split, and divided between interest charges and distributions," adds Poh.

Upon completion of the acquisitions, Ascott REIT's asset portfolio will grow to SGD4.2 billion from SGD3.6 billion at end-June 2014.

On a stabilized basis, Moody's expects the trust's key financial metrics in 2015 to weaken or remain relatively unchanged from levels seen in June 2014, namely, its: (1) debt/total deposited assets should increase to 38%-40% in 2015 from 35.9% in June 2014, (2) debt/EBITDA should weaken to 8.3x-8.5x from 7.5x, and (3) EBITDA interest coverage ratio should remain relatively stable at 3.8x-4.0x.

Nonetheless, Ascott REIT continues to maintain good geographical diversity, lowering concentration risk to any single economy, and partially mitigating operational volatility inherent in shorter leases for the hospitality sector.

The trust will continue to enjoy income stability, as supported by properties under master leases and management contracts with minimum guaranteed income. These properties and contracts will contribute 53% of its gross profit based on pro-forma 2013 financials; an improvement from the 51% seen in 2013.

Last week, Ascott REIT completed the Tokyo acquisition, partially funded by onshore borrowings and the remaining funded by the proceeds from the perpetual securities issued. The trust announced yesterday that it would use the remaining proceeds from the perpetual securities to fully fund the acquisition in Greater Sydney.

The rating outlook is stable, reflecting Moody's expectation that Ascott REIT will continue to generate stable cash flows from its portfolio, maintain financial discipline in its pursuit of growth, and keep its credit profile within targeted parameters.

Ascott REIT's Baa3 rating may be upgraded if the trust: (1) improves its liquidity position and financial flexibility by reducing its holdings of encumbered assets, and lowering its reliance on secured borrowings, and (2) improves its other credit metrics such that its debt/total deposited assets is less than 35%, its EBITDA interest coverage exceeds 3x and its debt/EBITDA ratio falls 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 deposited 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 indirectly wholly owned subsidiary of CapitaLand Limited (unrated), which in turn owns 45.6% of Ascott REIT.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jacintha Poh
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

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: (852) 3551-3077

Moody's: Ascott REIT's rating unaffected by issuance of perpetual securities to fund acquisitions
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