Asia Square Tower 2 (Photo: REITsWeek)Asia Square Tower 2, a property under CapitaLand Commercial Trust (Photo: REITsWeek)

Moody's Investors Service has downgraded CapitaLand Commercial Trust's issuer rating from ‘A3’ to ‘Baa2’, the agency announced on 25 September.

At the same time, the REIT’s senior unsecured medium term note (MTN) program rating has also been downgraded from (P) A3 to (P) Baa2, with outlook on all ratings changed from negative to stable.

The ratings downgrade have come in the wake of news that the REIT will acquire Asia Square Tower 2 for a total acquisition cost of SGD2.1 billion, of which SGD1.1 billion will be debt funded.

Read: CapitaLand office REIT acquires Asia Square Tower 2 for SGD2 billion

"The downgrade reflects our view that despite the improvement in the overall quality of its asset portfolio following the acquisition, [CapitaLand Commercial Trust’s] weakened financial profile is more appropriately positioned at the Baa2 level," says Saranga Ranasinghe, a Moody's Assistant Vice President and Analyst.

The REIT has said in its announcement that the acquisition of Tower 2 will be funded by a combination of a fully-underwritten and renounceable rights issue for net proceeds of around SGD690 million, bank borrowings of around SGD1.1 billion, and cash on hand of around SGD340 million from previous asset divestments.

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By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.