Singapore, September 01, 2016 -- Moody's Investors Service has affirmed Ascott Residence Trust's
(Ascott REIT) Baa3 issuer rating.
Moody's has also affirmed the provisional (P)Baa3 senior unsecured rating
on the SGD1.0 billion multicurrency medium term securities program
issued by Ascott REIT MTN Pte. Ltd. — a wholly owned
subsidiary of Ascott REIT — and the Baa3 ratings on the senior unsecured
notes issued under the program.
At the same time, Moody's has changed the outlook on all the ratings
above to negative from stable.
RATINGS RATIONALE
"The change in the ratings outlook to negative reflects the continued
weakening of Ascott REIT's leverage profile," says Jacintha
Poh, a Moody's Vice President and Senior Analyst. "The
trust's adjusted debt/total deposited assets for example,
was at around 46% as of 30 June 2016, a result which exceeded
the parameters for its Baa3 ratings."
"Nevertheless, Ascott REIT's adjusted debt/total deposited
assets should improve to around 43%-44%, depending
on the proportion of equity funding used for its committed purchase of
Ascott Orchard Singapore," adds Poh, who is also the
Lead Analyst for Ascott REIT.
Moody's points out that if the acquisition of Ascott Orchard Singapore,
at a remaining cost of SGD385 million in 2017, is not done with
a significant proportion of equity funding, the trust's ratings
will come under negative rating pressure.
Moody's notes that Ascott REIT's leverage profile has been
weakening since it became increasingly acquisitive in 2014, but
the deterioration has been most significant over the 12 months to 30 June
2016 as the trust funded about half of its acquisitions made during the
period with debt, one-third with a perpetual issuance and
the rest with equity.
Its interest coverage ratio — as measured by adjusted EBITDA/interest
expense — has also weakened, falling to around 3.5x
for the 12 months ended 30 June 2016, from 4.1x for the 12
months ended 30 June 2015.
For full year 2016, Moody's expects that Ascott REIT's
leverage ratios will remain elevated with adjusted debt/total deposited
assets at around 45% and normalized adjusted net debt/EBITDA at
around 8.5x. The trust's adjusted EBITDA/interest
expense will remain around 3.8x.
In assessing debt leverage and interest coverage ratios, we adjust
half of Ascott REIT's perpetual issuances as debt, and the
other half as equity. Similarly, we have included half of
the perpetual securities' distribution as interest expense in the computation
of adjusted metrics.
Ascott REIT's Baa3 ratings reflect its established market position,
reinforced by an enlarged portfolio of assets that is diversified across
Asia Pacific, Europe and the US. The rating also takes into
account the support of the trust's strong sponsor, The Ascott
Limited, where it can leverage on its sponsor's expertise,
track record, and strong network of relationship banks.
While Ascott REIT's ratings are supported by its well staggered debt maturity
profile and manageable refinancing risk over the next 12-18 months,
it is constrained by the trust's high proportion of secured borrowings
when compared to other rated Singapore REITs.
Given the negative outlook, upgrade pressure is unlikely.
However, the outlook could return to stable if Ascott REIT:
(1) improves its credit metrics such that adjusted debt/total deposited
assets does not exceed 40%-45%, adjusted net
debt/EBITDA does not exceed 8.5x-9.0x and EBITDA
interest coverage is maintained above 3.0x on a sustained basis;
(2) continues to maintain a well-managed debt maturity profile;
and/or (3) improves its financial flexibility by lowering its encumbered
asset ratio and reducing its reliance on secured borrowings, such
that adjusted secured debt/total deposited assets is less than 15%.
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 remain weak, with adjusted debt/total deposited
assets exceeding 45%, adjusted net debt/EBITDA exceeding
9.0x and EBITDA interest coverage falling below 3.0x.
The principal methodology used in these ratings was Global Rating Methodology
for REITs and Other Commercial Property Firms published in July 2010.
Please see the Ratings Methodologies 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. At 30 June 2016, it had an asset
portfolio of 90 hospitality properties across 38 cities in 14 countries,
with an appraised value of SGD4.9 billion. The trust is
sponsored by The Ascott Limited, an indirectly wholly owned subsidiary
of CapitaLand Limited (unrated), which owns in turn 44% 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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
Vice President - Senior 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
