Published October 22, 2008

Credit agencies turn glum on 2 Reits

By EMILYN YAP

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CREDIT rating agencies have turned more pessimistic on two real estate investment trusts (Reits) in Singapore: Frasers Commercial Trust (FCT) and MacarthurCook Industrial Reit (MI-Reit).

Standard & Poor's (S&P) Ratings Services yesterday changed its CreditWatch status on BB-rated FCT from positive to developing. The revision arose from concerns over FCT's debt of $70 million, which will be due on Nov 22.

'FCT has yet to finalise its refinancing plans to the level of certainty we expected,' said S&P credit analyst Wee Khim Loy.

FCT owes $70 million to the Commonwealth Bank of Australia, due next month. In addition, it owes the bank $400 million and $150 million, which will fall due in July and December 2009 respectively.

According to S&P, FCT has said it is making progress in obtaining firm commitment from a consortium of banks to refinance the debts. This is helped by the financial flexibility and satisfactory credit profile of Frasers Centrepoint Ltd (which owns 18.27 per cent of FCT) and Fraser and Neave Ltd (which owns Frasers Centrepoint).

S&P expects FCT to have firm committed refinancing arrangements ready by Oct 31. Otherwise, FCT's rating may be placed on CreditWatch negative or lowered.

Separately, Moody's Investors Service yesterday placed MI-Reit's Baa3 corporate family rating on review for a possible downgrade.

With 'dramatically changed market conditions', MI-Reit is 'likely to retain much greater asset and tenant concentration than is consistent with a Baa3 rating', said Moody's lead analyst for the trust, Kathleen Lee.

The review also recognised refinancing risks facing MI-Reit. The trust has 91 per cent of its total debt or $201 million falling due next April, which is not covered by available committed facilities.

Nonetheless, Moody's noted that MI-Reit's credit metrics still have reasonable headroom against its bank loan covenants. Its revenue stream is also supported by a relatively long- lease maturity profile, mitigating the effects of low asset diversification and moderate tenant concentration.

Moody's review will focus on MI-Reit's progress in securing committed financing for debt maturing in April next year. It will also consider management's strategy in improving the asset portfolio and revenue streams in the next 1-2 years.