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Rating Action:

Moody's downgrades Suntec REIT's ratings to Baa3; outlook stable

30 Jun 2017

Singapore, June 30, 2017 -- Moody's Investors Service has downgraded Suntec Real Estate Investment Trust's (Suntec REIT) issuer rating to Baa3 from Baa2.

At the same time, Moody's has downgraded backed senior unsecured rating on the euro medium term note program established by Suntec REIT MTN Pte. Ltd. — a wholly-owned subsidiary of Suntec REIT — to (P)Baa3 from (P)Baa2, as well as backed senior unsecured ratings on the notes issued under the program to Baa3 from Baa2.

The outlook on all ratings is stable.

RATINGS RATIONALE

"The ratings downgrade to Baa3 with a stable outlook reflects our view that Suntec REIT's weakened financial profile will not materially improve over the next 18-24 months," says Saranga Ranasinghe, a Moody's Assistant Vice President and Analyst.

Moody's notes that Suntec REIT's leverage profile has weakened, following the debt-funded acquisition of an effective 25% stake in Southgate Complex in the Australian city of Melbourne for AUD154.9 million (approximately SGD159.5 million) in November 2016. Moody's adjusted net debt/EBITDA for the 12 months ended 31 March 2017 was 11.9x.

"In the absence of a substantial debt reduction exercise, we expect that Suntec REIT's leverage — as measured by net debt/EBITDA — will remain elevated at 11x-12x over the next 18-24 months; a level which is high relative to Baa-rated REITS globally," adds Ranasinghe, who is also Moody's Lead Analyst for Suntec REIT.

In assessing the company's debt leverage, Moody's has included the share of debt taken at all joint ventures. As such, the amount of debt expected to be taken at the trust's 30% stake in Park Mall Investment Limited was included in the analysis, as well as the debt at Suntec REIT's one-third stake in One Raffles Quay Pte Ltd and 60.8% stake in Suntec Singapore Convention & Exhibition Centre.

Moody's also expects that the trust's adjusted debt/deposited assets will remain at 36%-38% in 2017-18 which is relatively low compared with similarly rated peers, while EBITDA/interest coverage will stay at 3.4x-3.6x.

The weakness in the trust's financial profile is balanced by the stable and recurring income generated from its portfolio of high-quality and centrally-located assets in Singapore and Australia. Although the trust derives the bulk of its income from its largest asset — Suntec City — concentration risk is mitigated by its diversified asset types (retail, office and convention center) and good quality tenant base.

The ratings also reflect Suntec REIT's strong track record of access to funding via the debt and equity markets.

At the same time, Suntec REIT's ratings are constrained by its partial ownership in its assets, which limits operational control over the properties. The ratings are also constrained by the inherent liquidity risks associated with Singapore REITs, as a result of their high dividend payout ratios and minimum cash balances.

At 31 March 2017, Suntec REIT held cash and equivalents of SGD149 million versus total gross debt of SGD3.3 billion. The trust has successfully refinanced all debt due in the next 12 months.

The ratings outlook is stable, reflecting Moody's expectations that Suntec REIT will continue to generate stable cash flow from its portfolio, driven by steady occupancy levels and positive rental reversions. Moody's also expects that Suntec REIT will maintain its financial discipline when pursuing growth, and keep its credit profile within targeted parameters.

The ratings could be upgraded if Suntec REIT successfully improves its credit profile, such that its net debt/EBITDA recovers to below 10x, while maintaining adjusted debt/deposited assets below 40%.

However, Suntec REIT's ratings could be pressured downwards if: (1) the operating environment deteriorates, leading to higher vacancy levels and declines in operating cash flow, and/or (2) the trust undertakes any debt funded acquisitions and/or asset enhancement initiatives such that the trust's financial metrics weaken, with adjusted debt/deposited assets exceeding 40%, net debt/EBITDA staying above 12x, EBITDA interest coverage falling below 3x.

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 Rating Methodologies page on www.moodys.com for a copy of this methodology.

Suntec Real Estate Investment Trust (Suntec REIT) is a Singapore-focused REIT, listed on the Singapore Stock Exchange in December 2004. It has a portfolio of six commercial properties: four in Singapore, one in Sydney, and one in Melbourne.

The appraised value of its assets totaled approximately SGD9.3 billion at 31 March 2017.

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 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.

Saranga Ranasinghe
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
Client Service: 852 3551 3077

Laura Acres
MD - Corporate Finance
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

No Related Data.
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