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Rating Action:

Moody's affirms Suntec REIT's ratings; outlook stable

02 Jun 2014

Singapore, June 02, 2014 -- Moody's Investors Service has affirmed the Baa2 issuer rating of Suntec Real Estate Investment Trust (Suntec REIT) and the Baa2 senior unsecured rating of notes issued by Suntec REIT MTN Pte. Ltd., a wholly-owned subsidiary of HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of Suntec REIT.

Moody's has also affirmed the provisional (P)Baa2 rating of the USD1.5 billion multicurrency euro medium term note (EMTN) programme established by Suntec REIT MTN Pte. Ltd.

The ratings outlook is stable.

RATINGS RATIONALE

Suntec REIT's Baa2 issuer rating is based on the trust's stable and recurring income from its portfolio of high-quality and centrally located assets in Singapore and Australia.

"While Suntec REIT's earnings have been adversely affected by renovations at Suntec City mall, which commenced in 2Q 2012 and are scheduled for completion by end-2014, we expect the trust's rental income to improve, as the renovations are progressively completed," says Jacintha Poh, a Moody's Analyst.

"Suntec REIT's full year EBITDA should improve to SGD240-SGD260 million in the fiscal year ended 31 December 2014 and to SGD260-SGD280 million in 2015, from SGD213 million in 2013," adds Poh.

The issuer rating also takes into account the trust's strong track record of access to funding through the debt and equity markets.

Suntec REIT has no refinancing requirements until the fiscal year between 1 January 2016 and 31 December 2016 (FY2016), as it has raised SGD1.46 billion through medium-term note issuances, syndicated bank loans and a private share placement, to refinance all debt maturing in FY2014 and FY2015. As a result, its weighted average debt expiry improved to 4.2 years from 2.4 years at 31 December 2013.

In addition, the use of proceeds from its share placement to prepay its SGD350 million of secured loans due in FY2015 has improved Suntec REIT's secured debt/total deposited asset ratio to less than 4%, from 6.9% as at 31 December 2013.

However, Suntec REIT's rating is constrained by its partial ownership of assets, which limits operational control over the properties in its portfolio. Its rating is also constrained by its weaker financial profile since the renovation work started at Suntec City mall.

Nonetheless, as previously mentioned, Moody's expects Suntec REIT's financial metrics to improve after the renovations are completed.

Specifically, Moody's expects the trust's adjusted debt/total deposited assets to improve to 36%-38% in the next 12-18 months, from 39.2% at 31 December 2013. Moreover, its adjusted net debt/EBITDA should recover to approximately 12x from 15.9x and its EBITDA/interest expense should improve to 3.6x-3.8x from 3.4x over the same periods.

Suntec REIT's net debt/EBITDA has been elevated and Moody's expects the trust to manage the ratio closer to 10x, on a stabilized basis, which is a level that is more in line with similarly-rated peers.

The rating outlook is stable, reflecting Moody's expectation that Suntec REIT will maintain a credit profile within the parameters of its current rating, even during this period, as its largest asset, Suntec City mall, undergoes a major asset enhancement initiative.

The rating could be upgraded if Suntec REIT's credit metrics improve, such that debt/total deposited assets is less than 35%, EBITDA interest coverage is in excess of 3x and net debt/EBITDA is around 8x on a consistent basis.

On the other hand, Suntec REIT's rating could be pressured downwards if: (1) the operating environment deteriorates, leading to higher vacancy levels and declines in operating cash flows, (2) the trust's profitability deviates significantly from our projections and/or, (3) the trust's financial metrics weaken, with debt/total deposited assets exceeding 45%, EBITDA interest coverage falling below 2.5x, secured debt/total deposited assets exceeding 15%-20% and net debt/EBITDA fails to move closer to 10x on a stabilized basis.

In addition, a more aggressive growth policy without long-term committed funding for new acquisitions 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.

Suntec REIT's portfolio consists of five commercial properties, four in Singapore and one currently under development in North Sydney. All five are strategically located in the central business district of their respective locations. The total appraised value of its assets was approximately SGD8.6 billion at 31 March 2014. Suntec REIT is managed by an external manager, ARA Trust Management (Suntec) Limited (unrated).

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
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 affirms Suntec REIT's ratings; outlook stable
No Related Data.
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