Singapore, March 25, 2020 -- Moody's Investors Service has downgraded Frasers Centrepoint Trust's
(FCT) issuer rating to Baa2 from Baa1.
At the same time, the outlook on the rating has been changed to
negative from stable.
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The retail sector has
been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment.
More specifically, FCT's credit metrics remain weak for its
Baa2 rating which has left it vulnerable to shifts in market sentiment
in these unprecedented operating conditions, and the trust remains
exposed to the outbreak continuing to spread.
"The downgrade to Baa2 reflects our view that FCT's credit
metrics are unlikely to recover to levels appropriate for a higher rating
over the next 12-18 months," says Sweta Patodia,
a Moody's Analyst.
Pre-coronavirus, Moody's expected FCT's EBITDA
to be around SGD170 million for the fiscal year ending September 2020,
and its leverage, as measured by net/EBITDA, to be below 7.5x
by September 2020.
"The current economic environment may require FCT to offer rental
rebates and negative rental reversions in order to ensure continued occupancy
at its retail malls," adds Patodia, who is also Moody's
Lead Analyst for FCT.
As a result, Moody's base case now assumes that FCT will generate
around SGD150 million of EBITDA in fiscal 2020, which in turn will
result in net debt/EBITDA of around 8.3x.
While Moody's expects FCT's net debt/EBITDA to recover to
around 8.0x by fiscal 2021, the rating will have limited
capacity to withstand any further deterioration in operating performance
or increase in borrowings.
"The negative outlook reflects our expectation that a prolonged
outbreak of the virus will delay the recovery in FCT's credit metrics",
adds Patodia.
FCT's Baa2 issuer rating reflects the trust's stable income stream
from good-quality, well-located suburban retail malls
in Singapore, which have resilient operating track records.
But the trust's scale is small compared to its similarly rated peers,
and it faces concentration risk from its largest asset, Causeway
Point, which constrain its rating.
FCT has weak liquidity. At 31 December 2019, FCT had cash
and cash equivalents of SGD13.2 million against SGD188 million
of debt maturities over the next 12 months. The trust expects to
refinance its imminent note maturities by drawing down on its SGD310 million
of revolving credit facilities, although Moody's notes that
these are uncommitted and short term in nature.
In terms of environmental, social and governance (ESG) risks,
FCT's rating also considers the significant related-party transactions
between the trust and its sponsor, Frasers Property Limited.
However, this risk is mitigated by the regulatory oversight provided
by the Monetary Authority of Singapore and exercised through the board,
which mainly consists of independent directors.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. Today's action reflects the impact on
FCT of the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
Given the negative outlook, a rating upgrade is unlikely.
Moody's would revise the outlook to stable if FCT's improves
its financial profile, such that its adjusted net debt/EBITDA falls
below 8.5x on a sustained basis.
Moody's could further downgrade FCT's rating if: (1)
the operating environment further deteriorates, leading to higher
vacancy levels and a decline in the trust's operating cash flow;
(2) the trust's financial metrics significantly weaken, such
that its adjusted net debt/EBITDA rises above 8.5x and/or EBITDA
interest cover falls below 3x; (3) the trust fails to meet the 45%
gearing ratio stipulated by the Monetary Authority of Singapore;
or (4) its proportion of secured debt increases such that it makes up
the majority of its total outstanding debt.
The principal methodology used in this rating was REITs and Other Commercial
Real Estate Firms published in September 2018. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Frasers Centrepoint Trust is a Singapore real estate investment trust
listed on the Singapore Exchange since 5 July 2006. The trust has
a portfolio of six suburban malls, namely Causeway Point,
Northpoint City North Wing (including Yishun 10 retail podium),
Anchorpoint, YewTee Point, Bedok Point and Changi City Point.
The trust's assets had a total appraised value of SGD2.8 billion
at 30 September 2019.
FCT also owns a 1) 31.15% stake in Hektar Real Estate Investment
Trust, which is a retail-focused REIT in Malaysia and is
listed on the Bursa Malaysia Securities Berhad; 2) 40% stake
in Sapphire Start Trust (SST) which holds Waterway Point; and 3)
24.82% stake in PGIM Real Estate Asia Retail Fund Limited
(PGIM ARF), which owns a portfolio of five retail malls and an office
building in Singapore, and two retail malls in Malaysia.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Sweta Patodia
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
Client Service: 852 3551 3077
Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077
