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Rating Action:

Moody's upgrades Aldar's ratings to Baa3; stable outlook

26 Nov 2014

$750 million of rated debt affected

London, 26 November 2014 -- Moody's Investors Service has today upgraded to Baa3 from Ba1 the ratings of Aldar Properties PJSC (Aldar), an Abu Dhabi real estate company. Concurrently, Moody's upgraded to Baa3 from Ba2 the rating of the $750 million Trust Certificates due in 2018 and issued by Sukuk Funding (No. 3) Limited. The outlook on all ratings is stable.

"We have upgraded Aldar's ratings to reflect its success in reducing financial leverage, lessening development risk and increasing recurring rental income, following the opening of Yas Mall and other investment properties," says Martin Kohlhase, a Moody's Vice President -- Senior Credit Officer based in Dubai. "Recurring income from investment properties tends to be low risk, stable and allows better visibility in terms of future earnings."

As part of today's rating action, Moody's has converted Aldar's corporate family rating into a Baa3 senior unsecured issuer rating, in line with the rating agency's policy for issuers migrating from non-investment grade to investment grade.

RATINGS RATIONALE

Today's upgrade primarily reflects Aldar's significant progress towards leverage reduction. Aldar reported debt of around AED9.6 billion (around $2.6 billion) as of 30 September 2014, which is more than AED4.2 billion lower than fiscal year-end (FYE) 2013. Scheduled and contracted payments from the Abu Dhabi government to Aldar for 2015 alone amount to around AED4.1 billion and Moody's expects that the company will use these payments to further reduce net debt to below AED 5.0 billion by FYE2015.

In addition, Aldar's has reduced development risk year on year and ramped up income from recurring rental revenues, supported by the recent opening of Yas Mall, a material revenue generator. These two factors further buttress the positioning of the ratings in investment grade. The value of properties under development and in inventory was AED5.3 billion as of 30 September 2014, compared to AED12.7 at FYE2013. The still buoyant Abu Dhabi real estate market can in Moody's view absorb additional capacity, which will allow Aldar to either offload properties earmarked for sale or rent out units reserved for its investment property portfolio.

Following the opening of Yas Mall in late November 2014, Moody's expects that Yas Mall will contribute to Aldar's recurring revenues, which were around AED1.5 billion in the first nine months of 2014 (or around AED2.1 billion annualized), with ca. AED400 million per annum from 2015 onwards. Overall, the portfolio of investment properties is well diversified in terms of asset classes (i.e., retail, residential, hospitality, office, education), but exclusively located in the emirate of Abu Dhabi.

The liquidity profile is stronger than in previous years. The proportion of short-term debt was 16% at September 2014 end (59% at FYE2013) and is the result of Aldar's efforts to extend its debt maturity profile.

The alignment of the instrument rating with the issuer rating at Baa3 reflects the lower proportion of secured debt to total assets. Although secured debt (by land) makes up around 45% of the total debt and ranks ahead of the essentially unsecured $750 million sukuk, Moody's has assumed that debt secured by government receivables (which is currently 23% of total debt) will fall to zero over time. The ratio of secured debt (by land) to total assets is about 11%, thus presenting excess collateral value.

As Moody's views the likelihood of Aldar requiring financial support at the Baa3 level as diminished, ratings no longer incorporate a one-notch uplift from shareholder support, but nevertheless assume that the company is embedded in a supportive environment, which is credit positive. This is underpinned by the 29.8% shareholding of Mubadala Development Company PJSC (Aa2 stable) and the government-related projects that Aldar is able to obtain through this connection.

RATIONALE FOR STABLE OUTLOOK

Moody's has stabilized the outlook as Aldar has embarked on new developments, albeit at a much more moderate pace than in the past. This limits further rating upside for the time being. In Moody's opinion, the company will over the course of 2015 reach its long-term absolute debt equilibrium (debt-to-asset ratio of not more than 40%) that may result in a formulation of a dividend payout policy by the board.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's could upgrade Aldar's ratings to Baa2 if it achieves and maintains (1) net debt/EBITDA below 3.0x; (2) fixed charge cover above 5.0x; and (3) EBITDA margin above 50% and preserves its lower business risk profile by maintaining the more moderate pace of developing seen at present.

The ratings could be lowered if on a sustainable basis (1) net debt/EBITDA is above 4.0x; (2) fixed charge cover declines to below 4.0x; (3) EBITDA margin falls below 40%; (4) Aldar were to introduce a shareholder-friendly dividend payout policy with FFO payout approaching 90%; and (5) the committed development pipeline as a percentage of total assets grew higher than 20%.

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 Credit Policy page on www.moodys.com for a copy of this methodology.

Aldar Properties PJSC (Aldar) is one of Abu Dhabi's leading real estate developers, operator of investment properties and land bank owners. Aldar builds infrastructure and public projects - such as housing for the local population - on behalf of the government, manages seven hotels and two hotel apartment units totalling 2,536 keys, and holds more than 4,500 residential units as investment property, 479,000 square meters of retail space in addition to 188,000 square meters of office space under management. Aldar's land bank encompasses 77 million square meters, which has been partially developed with infrastructure. For the first nine months of 2014, the company reported AED5.3 billion ($1.4 billion) of revenues. Mubadala Development Company PJSC (Mubadala; Aa2 stable) owns 29.8% of the company's capital.

The Local Market analyst for this rating is Martin Kohlhase, 971.4.237.9544.

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.

Lynn Valkenaar
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Aldar's ratings to Baa3; stable outlook
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