Rating Action: Moody's assigns A3 to Ascendas REIT's euro medium term securities drawdown
Global Credit Research - 19 Aug 2020
Singapore, August 19, 2020 -- Moody's Investors Service has assigned an A3 senior unsecured rating to the proposed SGD100 million notes issued by Ascendas Real Estate Investment Trust (Ascendas REIT A3 stable), under its existing euro medium term securities program, which is rated (P)A3 by Moody's.
The notes have a fixed coupon rate of 2.65% per annum and mature on 26 August 2030.
Ascendas REIT will use the proceeds from the notes to refinance existing borrowings and for general corporate and working capital purposes.
RATINGS RATIONALE
Ascendas REIT's A3 issuer rating is underpinned by its (1) diversified portfolio of high-quality industrial assets across Singapore, Australia, the UK and the US; (2) established market position as one of the largest industrial REITs in Singapore; (3) stable operating track record and resilient income from its properties that captures the growth in the third-party logistics, e-commerce, pharmaceutical, medical and IT sectors; and (4) prudent financial policies in maintaining healthy credit metrics while continuing to grow through acquisitions.
At the same time, Ascendas REIT's ratings are constrained by its acquisitive growth strategy and use of short-term revolving credit facilities.
"We expect Ascendas REIT's credit metrics will remain within the parameters of its A3 ratings over the next 12-18 months -- with adjusted net debt/EBITDA below 8.0x and adjusted EBITDA/interest expense above 3.5x -- because the trust has a diversified asset portfolio, wide array of tenants and relatively small exposure to sectors severely affected by coronavirus-related disruptions," says Junling Tan, a Moody's Analyst.
For the 12 months ended June 2020, Ascendas REIT had adjusted debt/total deposited assets of around 40%, adjusted net debt/EBITDA of 7.7x and adjusted EBITDA interest coverage of around 4.0x.
Moody's has considered the governance risk stemming from related-party transactions between Ascendas REIT and its sponsor, CapitaLand Limited. This risk is mitigated by the regulatory oversight provided by the Monetary Authority of Singapore and exercised through the board, which for the majority consists of independent directors. Further, there is an alignment of interest between Ascendas REIT and its sponsor because the latter has a 19% stake in the trust.
Ascendas REIT's liquidity is inadequate over the next 12-18 months. At 30 June 2020, the trust had cash and cash equivalents of SGD361 million compared to utilized revolving credit facilities of SGD199 million and upcoming debt maturities of SGD683 million over the next 12-18 months. Nonetheless, Moody's expects this refinancing risk will be mitigated by the trust's track record of access to funding and established banking relationships.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The rating could be upgraded if Ascendas REIT continues to improve its geographic diversification while strengthening its credit metrics, such that its adjusted debt/total deposited assets falls below 35% and adjusted net debt/EBITDA drops below 6.0x on a sustained basis.
On the other hand, Ascendas REIT's rating could be downgraded if (1) the operating environment deteriorates, leading to higher vacancy levels and a decline in operating cash flow or a fall in asset valuations; or (2) the trust's credit metrics weaken, such that adjusted net debt/EBITDA rises above 8.0x or adjusted EBITDA/interest coverage falls below 3.5x.
In addition, a material change in Ascendas REIT's business risk profile resulting from an expansion into higher risk jurisdictions could also pressure the trust's rating.
The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Ascendas Real Estate Investment Trust (Ascendas REIT) was listed on the Singapore Stock Exchange in November 2002. At 30 June 2020, the trust had a diversified portfolio of 96 properties in Singapore, 35 in Australia, 38 in the UK and 28 in the US, with a total appraised value of SGD12.8 billion.
The trust's sponsor, CapitaLand Limited, is a 51%-owned subsidiary of Temasek Holdings (Private) Limited (Aaa stable), which is in turn wholly owned by the Government of Singapore (Aaa stable). At 30 June 2020, CapitaLand held a 19% stake in Ascendas REIT.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.
The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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Junling Tan Analyst Corporate Finance Group Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Vikas Halan Associate Managing Director Corporate Finance Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077
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