FCT – BT

Moody’s confirms FCT’s Baa1 rating; outlook negative

MOODY’S Investors Service yesterday confirmed the Baa1 corporate family rating of Frasers Centrepoint Trust (FCT). The outlook for the rating is negative.

This concludes the review for possible downgrade initiated on Oct 20, 2008, said Moody’s.

‘The rating confirmation reflects FCT’s good franchise value and relatively stable income stream supported by its well-located suburban retail assets. In Moody’s opinion, these assets are at the lower end of the asset risk spectrum as they mainly provide tenants with non-discretionary household items,’ said Kathleen Lee, a Moody’s vice-president/senior analyst and lead analyst for the trust.

‘The confirmation also factors in the trust’s manageable debt maturities and with banks with good relationships with its sponsor, Fraser Centrepoint Ltd (‘FCL’), to facilitate gradual conversion of its short-term debts to term and/or committed banking facilities, which will support its ongoing capital expenditure needs,’ noted Ms Lee. ‘FCT’s conservative financial policy also generates good credit metrics relative to its peers,’ she added. A reflection of this is the debt/Ebitda of six to seven times.

The outlook for the rating is negative reflecting the trust’s asset concentration exposing it to the weak economic environment and property market conditions in Singapore. Furthermore, these conditions render uncertainties in the level of tenant occupation and achieved rentals at Northpoint upon completion of the renovation works expected by Q2 2009.

A return to a stable outlook is unlikely at this stage given the inherent weaknesses in the trust’s operating profile and its limited financial flexibility amid the weak operating environment. Conversely, the ratings could face downward pressure if progress is not made in securing committed medium-term bank facilities to fund the trust’s ongoing capital expenditure over the next few months, and/or should headroom in its unitholders’ funds covenant fall away due to material asset impairments or worse-than-expected rental or occupancy conditions.