Moody’s Takes Multiple Rating Actions on Singapore REITs

Moody’s Investors Service has taken multiple rating actions on some of its rated Singapore Real Estate Investment Trusts (S-REITs) following reductions in secured debt levels over recent years, thus mitigating the need for notching of several S-REITs’ issuer ratings from their corporate family ratings.

Moody’s rating actions follow a sizeable reduction in secured over unsecured debt among many rated S-REIT’s over recent years, which no longer necessitates unsecured debt ratings and issuer ratings to be notched down from the corporate family ratings.

Moody’s said it believes that this trend is sustainable, as REIT’s are expected to continue to opt predominantly for unsecured debt financing going forward.

“The secured debt to total deposited assets (sum of investment properties value and cash) ratio of our investment-grade S-REITs has declined to 11 per cent at end-2012 from 21 per cent in 2007, and we expect this to drop to 9 per cent by the end of 2013,” said Jacintha Poh, a Moody’s analyst.

S-REIT’s whose issuer ratings were upgraded, such as CapitaMall Trust (CMT), Ascendas REIT (A-REIT) and CapitaCommercial Trust (CCT), have all successfully reduced secured debt to levels which no longer put unsecured creditors in a significantly weaker position within the overall debt structure.

CMT’s secured debt to total deposited assets ratio currently stands at 7.5 per cent, A-REIT’s at 11.7 per cent and CCT’s at 11.5 per cent which is well below the threshold at which legal subordination of unsecured creditors starts to weigh on ratings.

“We see this move to be credit positive for the S-REITs, as it improves their financial flexibility and diversifies their funding sources. The key reasons for this ability to acquire unsecured funding include supportive liquidity and low interest rate environments, which are expected, in turn, to continue for the next 12-18 months,” added Poh.

Debt held by Singapore property trusts make up 31 per cent of total assets, higher than the ratios for Hong Kong, Taiwan and South Korea, according to data compiled by Bloomberg. Still, it is lower than the 39 per cent for debt held by Australian REITs, or 44 per cent for Japanese trusts, the data showed.

Singapore REITs posted a one-year total return of 45 per cent, trailing Japan’s 63 per cent in Asia, according to data compiled by Bloomberg. The measure tracking REITs in Singapore climbed 29 per cent in the past year, compared with the 8.2 per cent increase in the Singapore benchmark Straits Times Index.

A total of 30 REITs and property trusts were listed in the citystate with a combined value of S$56.0 billion, making up 6 per cent of the total market capitalisation of stocks traded, Lawrence Wong, head of listings at the Singapore Exchange, said in a statement on February 27, adding that Singapore has the highest number of cross-border asset REITs in Asia.

More REITs are expected. Singapore Press Holdings said a week ago it is exploring a real estate investment trust. Bank Julius Baer & Co estimates the trust may have S$3.1 billion of assets.

The REITs raised S$3.4 billion or 68 per cent of the S$5.0 billion of stock sold in Singapore IPOs in the past 12 months, according to data compiled by Bloomberg.

The biggest share sale was the S$1.6 billion raised by Mapletree Greater China Commercial Trust, a REIT that owns assets including the Festival Walk shopping mall in Hong Kong and an office complex in Beijing. The trust, which was also Asia’s biggest share sale this year, surged 13 per cent since its trading debut on March 7.