Key Points
- Moody's Investors Service has downgraded Suntec Real Estate Investment Trust's ("Suntec") corporate family rating to Baa2 from Baa1 and the senior unsecured ratings to Baa3 from Baa2.
- The outlook for both ratings is stable.
- Moody’s recent rating review was initiated subsequent to the announcement of the acquisition of a one-third interest in the Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall (the “Acquisition”), which has been completed with partial funding by a S$1,105 million term loan facility, and the remainder funded by S$417.9 million of net proceeds derived from the private placement of 313,000,000 new units in Suntec REIT.
- The downgrade reflects the substantially debt-funded acquisition of the one-third stake in MBFC, which will weaken Suntec's financial profile to levels more appropriately positioned at Baa2.
- The final funding structure, with approximately 71% of the acquisition debt-funded, is expected to increase the trust's Debt/Total Assets to between 38-40% from 33%, after taking into account the use of the proceeds from the repayment of a shareholder's loan from One Raffles Quay Pte Ltd to reduce existing borrowings.
- On the other hand, Moody's recognizes that the transaction has long-term strategic benefits, and provides Suntec with a larger exposure to Grade A properties in Singapore. The acquisition will also enable greater income diversification, with net property income contribution from Suntec City Mall and Suntec City Towers estimated to reduce from 75.9% to 58.9%. The benefits of the acquisition to Suntec's business profile are thus significant.
- Suntec's Baa2 corporate family rating is underpinned by the trust's stable and recurring cash flow streams derived from its quality properties. Although Suntec's assets are highly concentrated -- with an estimated 59% of its net property income coming from Suntec City after the acquisition of MBFC -- the situation is mitigated by its well-diversified and good quality tenants.
- The stable outlook reflects Moody's expectation of continued stable cash flow generation from its portfolio, supported by high occupancy and rental revenues. It also includes the assumption of further long-term acquisitive growth, which affords Suntec greater flexibility at its current rating level.
- SUNTEC Reit completes acquisition of a one-third interest in MBFC Towers 1 and 2, and the Marina bay Link Mall - 9 DEC 2010
- SUNTEC Reit issues 313,000,000 new units for Private Placement - 9 DEC 2010
- Suntec Reit successfully raised S$428.8 million through private placement - 29 NOV 2010
- SUNTEC Reit - Circular to shareholders in relation to proposed acquisition of a one-third stake in MBFC 1 - 8 NOV 2010
- SUNTEC Reit proposed acquisition of a one-third interest in Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall - 26 OCT 2010
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