TEXT-S&P Assigns 'A' Rtg To Tokyu REIT's Series 3 Unsecured Bonds
(The following was released by the rating agency)
TOKYO (Standard & Poor's) Oct. 16, 2012--Standard & Poor's Ratings Services today said that it has assigned its 'A' rating to Japan-based Tokyu REIT Inc.'s (TRE; A/Negative/A-1) proposed series 3 senior unsecured bonds, due October 2022. The rating reflects TRE's relatively strong business position and relatively conservative financial policy.
The ratings on TRE reflect its relatively strong business position in the Japanese REIT (J-REIT) market, backed by the real estate management expertise and brand recognition that its sponsor, Tokyu Corp. (not rated), has gained through the sponsor's railway and retail businesses; the high quality of TRE's property portfolio; and its high financial flexibility, based on a favorable amount of liquidity on hand. Conversely, risk factors constraining TRE's credit quality are its declining rental revenues, reflecting tenant vacancies and rent reductions amid continued challenging business conditions; its slightly high debt-to-capital ratio as well as weaker profitability and interest coverage indicators; and a degree of asset concentration risk, although this risk is declining slightly.
As of the end of TRE's 18th six-month fiscal term (ended July 31, 2012), the J-REIT owned a portfolio of 15 office buildings and 11 retail properties, one of which includes a fixed-term leasehold for commercial use ("sokochi"). The properties are located mainly in Tokyo's five central wards--which TRE defines as Chiyoda, Chuo, Minato, Shinjuku, and Shibuya wards--and areas along the Tokyu railway network in the Tokyo metropolitan area. The portfolio's total purchase price is about JPY199.7 billion. We believe TRE's overall cash flow is unlikely to decline significantly, reflecting the high quality of its portfolio. However, cash flows from some properties have weakened due to the evacuation of major tenants and a decline in rent levels. As such, we believe that it may take a year or so for TRE's profits to recover.
RELATED CRITERIA AND RESEARCH
"Key Credit Factors: Global Criteria For Rating Real Estate Companies," June 21, 2011
"2008 Corporate Criteria: Analytical Methodology," April 15, 2008
"Rating Policy For Japanese Real Estate Investment Trusts," May 9, 2001
Tokyu REIT Inc.
Series 3, JPY3 bil. 1.47% bonds due Oct. 21, 2022 A