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Announcement:

Moody's: Suntec REIT's EBITDA to recover by 2014

16 Sep 2013

Singapore, September 16, 2013 -- Moody's Investors Service says Suntec Real Estate Investment Trust's (Suntec REIT, Baa2 stable) EBITDA will increase to SGD200-SGD260 million by the end of this year, and will recover to historical levels of SGD240-SGD260 million in 2014, as the company completes renovations for its largest asset, Suntec City Mall, in Singapore.

"Our expectation that Suntec REIT's EBITDA will improve is based on the higher rents for the section of the mall that has already been renovated, and on the REIT manager's targeting of higher-end fashion retailers for the third and last area of the mall to be renovated and completed at the end of next year," says Jacintha Poh, a Moody's Analyst.

Moody's analysis is contained in its just-released report titled "Suntec REIT's EBITDA Will Recover By 2014 as Mall Renovation Ends," and is co-authored by Poh and Clara Kim, an Associate Analyst.

Suntec REIT hopes to increase overall rents by 25% once all sections of the mall are renovated and open in 2015. Rents for the first part of the mall to be revamped have already risen by 15.7%.

The first renovated section of the mall opened in June with a committed occupancy rate of 99.6% and average monthly rents of SGD13.09 per square foot compared with SGD11.31 in the unrenovated sections.

Moody's expects the second renovated section to attract similar rental rates and for occupancy rates to increase to over 90% at the end of this year from the pre-commitment level of 70.1% at the end of the second quarter.

"Consequently, we expect Suntec REIT's credit metrics to improve in the next 12-18 months, reflecting the recovery of its EBITDA," adds Poh.

Moody's believes Suntec REIT's debt/EBITDA ratio should return to pre-renovation levels of 11.0x in 2015 from 16.0x at end-June.

The REIT's EBITDA interest coverage ratio should also improve to 3.7x-4.1x from 2.7x-3.0x.

"While we expect the REIT to fully draw down on the SGD500 million, five-year unsecured loan facility that it secured in the second quarter of this year to cover the planned capex of SGD175 million for the second and third phases of the renovations and to repay the SGD350 million in loans due in October, we believe its debt metrics will remain within the parameters of its Baa2 rating," says Poh.

Moody's notes that Suntec REIT's EBITDA has been decreasing since renovation work began in H2 2012. Moreover, the decline in rental revenues was most significant in H1 2013, as the first and second phases of work were carried out simultaneously, resulting in the closure of a large section of the mall.

Consequently, EBITDA fell 37% to SGD194 million as of end-June, from the same period last year.

"Suntec City Mall has historically contributed over 40% of Suntec REIT's total revenue. We expect the mall's contribution to return to this level once all sections of the building open after the renovations," says Poh.

Moody's report says Suntec REIT's office portfolio will continue to provide a steady income stream, and which would provide a floor for the REIT's earnings; preventing EBITDA from falling beyond the SGD194 million recorded in June.

In June, occupancy rates for its office portfolio -- based entirely in Singapore -- were strong, at 99.4% for Suntec City, 99.8% at One Raffles Quay, and 100% for both MBFC1 and Park Mall.

Moody's notes that Suntec REIT's renovations will increase the retail net lettable area of its largest asset by 125,000 square feet to 980,000 square feet. It will also increase the visibility and accessibility of retailers on upper floors and expand and upgrade the mall's dining and entertainment sections.

To date, the REIT has attracted new fashion tenants to the first renovated section, including Uniqlo (unrated), H&M (unrated) and Lowrys Farm (unrated).

Subscribers can access the report at https://www.moodys.com/research/Suntec-REITs-EBITDA-Will-Recover-By-2014-as-Mall-Renovation-Credit-Focus--PBC_158314.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Jacintha Poh
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: (65) 6398-8308

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: Suntec REIT's EBITDA to recover by 2014
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