Standard & Poor's Reaffirms Cambridge Industrial Trust ("CIT") BBB-/Stable/-- Rating

Standard & Poor's Reaffirms Cambridge Industrial Trust ("CIT") BBB-/Stable/-- Rating:

Key Points

• Cambridge Industrial Trust Management Limited, as manager of CIT, would like to announce that Standard & Poor's has reaffirmed the BBB-/Stable/-- credit rating of CIT in its report dated 1 June 2011.

Moody’s rating for Suntec Reit - 15 DEC 2010

Moody’s rating for Suntec Reit:

• Press Release 
• Moody's Statement

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.

Related Posts

• 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

Moody's upgrades CapitaCommercial Trust's ratings to Baa1 - 8 DEC 2010

Moody's upgrades CapitaCommercial Trust's ratings to Baa1; outlook stable.  

• Press Release

Key Points

• Moody's Investors Service has upgraded CapitaCommercial Trust's ("CCT") corporate family rating to Baa1 from Baa2 and the senior unsecured ratings to Baa2 from Baa3. The outlook for both ratings is stable.
• The upgrade reflects CCT's operating and financial strength, as evidenced by its strong, predictable cash flows and high occupancy rates over the 2008/09 economic downturn.
• CCT's track record and prudent approach towards managing its capital structure and pursuing its acquisitions also help maintain a strong and stable financial profile.

CDL Hospitality Real Estate Investment Trust obtains ‘BBB-’ Investment Grade Rating Affirmation by Fitch Ratings - 3 DEC 2010

CDL Hospitality Real Estate Investment Trust obtains ‘BBB-’ Investment Grade Rating Affirmation by Fitch Ratings.

• Press Release

Key Points

• M&C REIT Management Limited, as manager of CDL Hospitality Real Estate Investment Trust (“H-REIT”) (the “H-REIT Manager”), wishes to announce that H-REIT has received a rating affirmation of investment grade Long Term Issuer Default Rating of ‘BBB-’ (BBB minus) by Fitch Ratings on 3 December 2010, with a Stable Outlook maintained.
  

MIT assigned a final rating of BBB+ by Fitch - 21 OCT 2010

Mapletree Industrial Trust gets final rating of BBB+; outlook stable from Fitch Inc. See press release.
 
Key Points

• Fitch has today assigned MIT a final rating of BBB+; outlook stable.

Author's Note
With this corporate rating by Fitch, MIT can now gear up to 60%, up from the 35% without rating.

Related Posts
All About REIT - The Basics Part 4: Gearing Limit

REIT Financial News - 27 AUG 2010: Moody’s upgrades A-REIT’s corporate family rating to A3

Moody’s upgrades A-REIT’s corporate family rating to A3. See:

• Moody's Press Release
• A-Reit Press Release

Key Points

• Moody’s Investors Services (“Moody’s”) has upgraded A-REIT’s corporate family rating to A3 with a stable outlook in a press release issued by Moody’s yesterday.
• This upgrade from Baa1 to A3 signifies the confidence Moody’s has in the quality and resilience of A-REIT’s portfolio as well as the prudent and proactive capital and risk management that the Manager has in place.
• As at 30 June 2010, A-REIT has a portfolio of 92 properties with total asset of S$4.9bn and portfolio occupancy of 95.6%. 
• On the investment front, the Manager is currently developing Phase 2 of Plot 8 Changi Business Park for S$37.4m, which is expected to be completed in 1Q 2011. 
• A-REIT has improved its financial flexibility and capital structure and currently has a weighted average term of debt of 3.5 years and diversified funding sources such that each funding source accounts for not more than 24% of A-REIT’s debt structure.
  
   

REIT Financial News - 28 JUN 2010: Moody's changes CCT's rating outlook to positive

Moody's changes CCT's rating outlook to positive. See:

• Press Release

Key Points

• Moody's Investors Service has today changed the rating outlook of CCT to positive from stable. 
• Moody's has affirmed CCT's Baa2 corporate family rating and Baa3 senior unsecured debt rating. 
• The change in outlook reflects CCT's demonstration of operational resiliency through the economic downturn, as evidenced by the high occupancy and decent rental growth of its Grade A office portfolio.
• The change in outlook further reflects CCT's improved capital structure, as it had successfully recapitalized its balance sheet -- through an equity issuance in June 2009 -- and its improving liquidity profile, including the increased use of medium-term unsecured financing.
• CCT's credit metrics have materially improved with Debt / EBITDA falling to 6.5x as of end of 1Q 2010 from 12x in 2008, and EBITDA/Interest increasing to 3.2x from 2.5x. CCT's level of encumbered asset also declined to 50% as of end of 1Q 2010 from its peak of 90% in 2008.
• CCT's current improved financial profile could weaken moderately due to continuing assets growth, the change in outlook factors in Moody's expectation that CCT's strategy to reconstitute its portfolio will enhance the quality of its property portfolio and thus its cash flow generation.

Author's Note
CCT closes at 1.22 today. In terms of closing price, this is the highest since around august 2008 after factoring in the rights issue.

REIT Financial News - Moody's upgrades AIMS-AMP Capital Industrial Reit (Formerly MI-REIT) to Ba2

Moody's Investors Service upgraded AIMS-AMP Capital Industrial REIT (formerly known as MacarthurCook Industsrial REIT)'s corporate family rating to Ba2 from Caa1. See report.

Key Points

• Corporate rating upgraded from Caa1 to Ba2.
• Outlook stable.
• Upgrade reflects the Reit's remarkably improved liquidity profile and capital structure following the successful completion of its recapitalization plan and refinance of the maturing Singapore dollar loan.
  

REIT Financial News - Standard & Poor's Ratings Services affirms Frasers Commercial Trust's Long-term Corporate Credit Rating (BB) and Revises Outlook to Stable

Standard & Poor's Ratings Services affirms Frasers Commercial Trust's Long-term Corporate Credit Rating (BB) and Revises Outlook to Stable. See report.

All About REIT - The Basics Part 4: Gearing Limit

Previously we have touched on the topic of gearing, about its definition and how to determine it from the balance sheet. In this posting I am going to touch on the closely related topic of gearing limit.

Now a REIT can fund the acquisition of a property by using equity or debt. Using equity usually means raising cash by issuing more shares either via rights issue or private placement. So using equity usually leads to near term dilution of DPU. Using debt, on the other hand, usually leads to increase in DPU, as long as rental yield of the acquired property is higher than the interest of the debt. So ideally, a REIT can keep borrowing more and more to fund more and more acquisitions to grow the DPU indefinitely. Of course in reality things do not happen this way as once the debt of the REIT is above its asset value, it will put the REIT in a very risky situation. The REIT may also face serious cash flow problem when loan interest starts to rise and rental yield starts to decline.

According to the MAS Code on Collective Investment Schemes, there is actually a gearing limit for the REITs. Following is the extract of the related section Aggregate Leverage Limit, under section 9.2:

"The total borrowings and deferred payments (together the “aggregate leverage”) of a property fund should not exceed 35% of the fund's deposited property. The aggregate leverage of a property fund may exceed 35% of the fund’s deposited property (up to a maximum of 60%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds 35% of the fund’s deposited property."

Simply put it, if the REIT has a corporate rating by Fitch, Moody's or S&P, its gearing limit can go up to 60%. Otherwise it can only be up to 35%. The corporate rating may not be easily determined as it is not a standard reported item. You may need to look through the announcements or press releases, or in the earnings presentation slides, normally under the section on Capital Management. Fortunately we do not have to go through that for all the REITs as those which are currently or has ever been above 35% in gearing would definitely already have a corporate rating. Following table shows the corporate rating, if any, the latest gearing, and the gearing limit:

[Update as at 28 Nov 2009]

REIT	Rating	Gearing	Limit
AscendasReit	Baa1 - Moody	30.50%	60.00%
AscottReit	Baa3 - Moody	41.50%	60.00%
Cambridge	BBB- - S&P	42.60%	60.00%
CapitaRChina		34.40%	35.00%
CapitaComm	Baa2 - Moody	31.20%	60.00%
CDL H-Trust	BBB- - Fitch	20.20%	60.00%
CapitaMall	A2 - Moody	30.40%	60.00%
FirstReit		15.60%	35.00%
Fortune		25.70%	35.00%
FrasersComm	BB - S&P	38.90%	60.00%
FrasersCT	Baa1 - Moody	29.90%	60.00%
K-Reit	Baa3 - Moody	29.50%	60.00%
LippoMapleTrust		11.80%	35.00%
MapleTreeLog	Baa2 - Moody	38.10%	60.00%
MacCookReit	Caa1 - Moody	44.70%	60.00%
PLife	BBB - Fitch	23.20%	60.00%
Saizen	Caa1 - Moody	43.50%	60.00%
Starhill Gbl	Baa1 - Moody	27.20%	60.00%
Suntec	Baa1 - Moody	34.30%	60.00%

The highest gearing I have seen was that of MapleTree Logistic Trust in 2008, well above the 50% mark. This was later brought down to the 30++ % level after a rights issue exercise. So when the gearing of a REIT is near its limit, you will have to be prepared for possible recapitalization exercise (rights issue or private placement).

Related Posts

• All about REIT - The Basics Part 5: Sponsors
• All about REIT - The Basics Part 3: Gearing
• Other articles from All about REIT