Published June 13, 2009

P-Reit downgraded by Fitch Ratings

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(Singapore)

FITCH Ratings yesterday downgraded Parkway Life Real Estate Investment Trust (P-Reit).

In the downgrade, P-Reit's long-term issuer default rating (IDR) and its $500 million multicurrency medium term note (MTN) programme were downgraded to 'BBB' from 'BBB+'.

While P-Reit has good interest coverage, low cost of debt, low refinancing risk, stable rental mechanism, a diversified source of patients and strong position in the healthcare industry, it has a weak sponsor in Parkway Holdings (PHL), the owner of Parkway Hospital Singapore Pte Ltd (PHSPL), the operator of P-Reit's three Singapore hospitals, Fitch said.

This has a negative impact on the credit profile of P-Reit, given that it still relies heavily on lease payments from PHSPL.

Although the financial ratios of P-Reit are sound and it is bolstered by a defensive rental mechanism, the majority of its gross revenue (80 per cent) is still based on the three Singapore hospitals, which are operated by PHSPL, in turn wholly owned by PHL.

'On a standalone basis, Fitch thinks PHSPL is profitable through its three Singapore hospitals and has good credit metrics. Nevertheless, PHSPL is a wholly owned subsidiary of PHL and is not ring-fenced from its parent,' the rating report said.

'Any deterioration of PHL's credit quality could lead to an increased consolidation risk between PHL and PHSPL, and hence negatively affect PHSPL's ability to service lease payment to P-Reit.'

Fitch said it has noted that the leverage of PHL has significantly increased following the extra debt incurred for the Novena Hospital project, and the key financial ratios of PHL have 'deteriorated'. -- Reuters