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RPT-Fitch Affirms Ratings on Singapore REITs
July 15, 2014 / 7:00 AM / 3 years ago

RPT-Fitch Affirms Ratings on Singapore REITs

(Repeat for additional subscribers)

July 15 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) of Mapletree Industrial Trust (MIT, BBB+/Stable), Parkway Life Real Estate Investment Trust (PREIT, BBB/Stable), CDL Hospitality Trust (CDL, BBB-/Stable) and Far East Hospitality Trust (FEHT, BBB-/Stable). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

The affirmations follow a portfolio review by Fitch, which included an analysis of forecasted operating and financial profiles for each real estate investment trust (REIT) over the next two to three years. The affirmations reflect Fitch’s expectations that the REITs’ operating profiles are likely to remain stable, and that healthy refinancing flexibility and low interest rate risk is likely to offset high fund flows from operations (FFO) adjusted net leverage.

Rating differentials continue to be largely driven by the relative differences in the REITs’ operating profiles. These include differences in the relative stability of their earnings through economic cycles, in the scale as well as tenant and geographic diversity of their property portfolios, and in the characteristics of their lease structures.

Refinancing risk and liquidity are expected to remain satisfactory for each REIT over the next 24 months, while exposure to interest rate risk and foreign currency risk is low.

RATING SENSITIVITIES

MIT

Positive: No positive rating action is expected in the medium term given MIT’s geographic concentration in Singapore and small scale in relation to global property investment companies.

Negative: Future developments that may, individually or collectively, lead to negative rating action include

- Heightened interest rate risk as evidenced by FFO fixed-charge coverage sustained below 5x

- FFO adjusted net leverage sustained above 6x and the ratio of gross debt net of readily available cash to investment property value (LTV) sustained above 40%-45%

- Unencumbered assets / unsecured debt below 2x

- A sustained and material weakening in the competitive position of MIT’s assets, as evidenced in weaker rental renewal rates and occupancy levels, resulting in EBITDA margin sustained below 60%

PREIT

Positive: No upgrade is expected over the medium-term due to PREIT’s smaller scale and limited asset diversity compared to higher-rated peers.

Over the longer term, future developments that may, individually or collectively lead to a positive rating action include

- Greater property portfolio size and asset diversity in line with higher-rated peers, while maintaining a strong lease structure with high downside protection and EBITDA margins sustained over 75%

- Sustained low interest rate risk with FFO fixed-charge coverage sustained above 4x while maintaining an appropriate level of fixed-rate debt.

- FFO adjusted net leverage sustained below 6x and LTV sustained below 35%-40%

- Unencumbered assets / unsecured debt sustained above 2x

Negative: Future developments that may, individually or collectively, lead to negative rating action include

- Heightened interest rate risk as evidenced by FFO fixed charge coverage sustained below 4x

- FFO adjusted net leverage sustained above 6.5x and LTV sustained above 40%-45%

- Unencumbered assets / unsecured debt sustained below 2x

- A material weakening in PREIT’s lease structure, such as shorter tenors and less downside protection, and EBITDA margins sustained below 75%

CDL

Positive: No positive rating action is expected in the medium-term despite CDL’s low FFO adjusted net leverage, owing to the potential for operating weaknesses resulting from a modest oversupply of hotel rooms in Singapore through 2017.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include

- Heightened interest rate risk as evidenced by FFO fixed charge cover sustained below 4x

- FFO adjusted net leverage sustained above 6.5x and LTV sustained above 40%-45%

- Unencumbered assets / unsecured debt sustained below 2x

- A sustained weakening in CDL’s competitive position, evidenced in sustained and materially weaker revenue per available room (RevPAR) across its properties

FEHT

Positive: No positive rating action expected owing to FEHT’s high FFO adjusted net leverage and the potential operating weaknesses resulting from a modest oversupply of hotel rooms in Singapore through 2017

Negative: Future developments that may, individually or collectively, lead to a negative rating action include

- Heightened interest rate risk as evidenced by FFO fixed charge cover sustained below 4x

- FFO adjusted net leverage sustained above 6.5x and LTV sustained above 40%-45%

- Unencumbered assets / unsecured debt sustained below 2x

- A sustained weakening in FEHT’s competitive position, evidenced in sustained and materially weaker RevPAR across its properties

FULL LIST OF RATING ACTIONS

MIT

- Long-Term IDR: affirmed at ‘BBB+'; Outlook Stable

- Outstanding senior unsecured debentures of SGD170m maturing in 2019 and 2022: affirmed at ‘BBB+’

PREIT

- Long-Term IDR: affirmed at ‘BBB’; Outlook Stable

- Senior unsecured rating: affirmed at ‘BBB’

- Medium-term note programme of SGD500m: affirmed at ‘BBB’

CDL

- Long-Term IDR: affirmed at ‘BBB-'; Outlook Stable

FEHT

- Long-Term Foreign Currency IDR: affirmed at ‘BBB-'; Outlook Stable

- Long-Term Local Currency IDR: affirmed at ‘BBB-'; Outlook Stable

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