Moody's Investors Service has on Wednesday downgraded Macarthurcook Industrial REIT's ('MI-REIT') corporate family rating ('CFR') to Ba2. The rating remains on review for possible downgrade.
'The downgrade reflects Moody's views that MI-REIT is not likely to meet the scale and diversity targets that were built into its original rating when it was first assigned ', says Kathleen Lee, Moody's lead analyst for the trust.'As a result MI-REIT shows high levels of asset and tenant concentration, more consistent with a Ba2 rating,' adds Lee.
'In addition, the trust has an outstanding sale & lease-back arrangement with a call and put option in respect of 4A International Business Park (entered into since August 2007) which if completed by end-December 2009, on fully-debt financed terms, would result in a material weakening of its credit metrics', continues Lee.
'There also remains considerable uncertainty as to how this acquisition will be funded if the put option is exercised by the vendor,' she added.
'The rating remains on review for downgrade primarily reflecting ongoing concerns surrounding MI-REIT's significant refinancing risk with 91% of its total debts, or S$201 million, falling due in April 2009, amid very challenging credit markets conditions', says Ms Lee.
'The absence of available committed facilities and the REIT's lack of extensive relationships with banks have significantly constrained MI-REIT's liquidity profile and increase the risk of further downgrades' adds Ms Lee.
Moody's acknowledges that MI-REIT's rating continues to be supported by its steady revenue streams supported by a relatively long lease maturity profile and adequate lease deposits that partially mitigates the trust's low asset diversification and moderate tenant concentration.
The review will continue to focus on:
1) MI-REIT's progress in securing committed financing to meet its debt maturities in April 2009 as well as the final contracted terms & conditions once refinancing is raised, and
2) the funding plan for the committed acquisition. The ratings could decline rapidly if material progress on securing committed financing for its April 2009 debt maturities is not made over the course of the next 2 months.
Headquartered in Singapore, MI-REIT is a real estate unit trust that was formed primarily to own and invest in a diversified portfolio of industrial properties. The company reported total assets of approximately S$568 million and gross revenue of $12.4 million for the first quarter ended 30 September 2008.
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