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Rating Action:

Moody's affirms Ascott REIT's Baa3 issuer rating and assigns (P)Baa3 to Ascott REIT's Multicurrency MTN Program

06 Nov 2015

Singapore, November 06, 2015 -- Moody's Investors Service has affirmed Ascott Residence Trust's (Ascott REIT) Baa3 issuer rating and assigned a provisional (P)Baa3 rating to its SGD1.0 billion Multicurrency Medium Term Securities Program of Ascott REIT MTN Pte. Ltd.

The program was established by Ascott REIT through its wholly owned subsidiary - Ascott REIT MTN Pte. Ltd. - and is unconditionally and irrevocably guaranteed by DBS Trustee Limited, in its capacity as the trustee of Ascott REIT.

The provisional rating is only applicable to the issuance of senior unsecured notes from the Multicurrency Medium Term Securities Program.

The outlook for the ratings is stable.

RATINGS RATIONALE

Ascott REIT's Baa3 issuer rating reflects its established market position, reinforced by an enlarged portfolio of assets that is diversified across Asia-Pacific, Europe and America. This partially mitigates the operational volatility inherent in the short leases of hospitality assets. In addition, the rating takes into account the support of Ascott REIT's strong sponsor, The Ascott Limited, where the trust can leverage on its sponsor's expertise, track record, and strong network of relationship banks. The rating also reflects the trust's stable and healthy financial profile, supported by a track record of prudent financial management.

Nonetheless, Ascott REIT's rating is constrained by its high proportion of secured borrowings when compared to its rated peers and the inherent liquidity risks associated with S-REITs, as a result of their high dividend payout ratios and minimum cash balances.

In 3Q2015, the REIT acquired six properties in Australia, Japan and the US and the remaining 40% interest in two Japan properties, amounting to approximately SGD500 million. In September, the REIT also divested six rental housing properties in Japan for JPY4,475 million (approximately SGD52.6 million).

As a result of these recent acquisitions, the REIT's leverage increased in 3Q 2015 to approximately 44% adjusted debt / total deposited assets, which is close to the 45% rating downgrade trigger. However, its EBITDA interest coverage ratio remains consistent with its current ratings at approximately 3.6x.

"While we note the increase in leverage, which is currently at the high end of our rating parameters for its Baa3 ratings, we expect the REIT to manage its leverage ratio down to approximately 42%-43% adjusted debt/total deposited assets over the coming 12 months. Furthermore, we expect its EBITDA interest coverage ratio to continue to remain consistent with its current ratings at above 3x level," says Jacintha Poh, a Moody's Assistant Vice President and Analyst.

"Nonetheless, given the limited headroom under its leverage ratio, we would expect Ascott REIT to fund any upcoming acquisitions with equity in order to maintain its leverage level consistent with the current Baa3 ratings," says Clara Kim, a Moody's Analyst.

In June 2015, Ascott REIT issued SGD250 million of perpetual securities, following their maiden issuance of SGD150 million in October last year, to partially fund its acquisitions. In assessing the debt leverage and interest coverage ratios, Moody's adjusts half of the perpetual securities as debt, and the other half as equity. Similarly, Moody's has included half of the perpetual securities' distribution in interest expense in our adjusted metrics.

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.

An upgrade in the rating is unlikely given the limited headroom under its leverage triggers, however, positive momentum could arise should Ascott REIT: (1) improves its liquidity and financial flexibility by lowering its encumbered assets ratio and reliance on secured borrowings, such that adjusted secured debt/total deposited assets is less than 15%; and/or (2) improves its credit metrics, such that adjusted debt/total deposited assets stays below 35%, and EBITDA interest coverage exceeds 4x on a consistent basis.

On the other hand, the 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, with adjusted debt/total deposited assets exceeding 45% and EBITDA interest coverage falling below 3x on a consistent basis.

In addition, further acquisitions made without long-term committed funding in place, and a disruption in its access to funding could place the trust's rating under pressure.

The principal methodology used in these 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 Residence Trust is a hospitality real estate investment trust focusing on serviced residences, listed in the Singapore Exchange since March 2006. It has an asset portfolio of 90 serviced residences across 38 cities in 14 countries, with an appraised value of SGD4.7 billion as of 30 September 2015. The trust is sponsored by The Ascott Limited (unrated), an indirectly wholly owned subsidiary of CapitaLand Limited (unrated), which in turn owns 46% of Ascott REIT.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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

Laura Acres
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 affirms Ascott REIT's Baa3 issuer rating and assigns (P)Baa3 to Ascott REIT's Multicurrency MTN Program
No Related Data.
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