Moody's Investors Service has affirmed CapitaLand Ascendas REIT's (CLAR) A3 issuer and senior unsecured ratings.
At the same time, the agency has also affirmed the provisional (P)A3 senior unsecured ratings on the REIT's SGD5 billion multicurrency medium-term note (MTN) programme, SGD7 billion Euro MTN programme, and the Baa2 rating on its subordinated perpetual securities.
The outlook remains stable, said Moody’s.
"The rating affirmation reflects CLAR's established market position in Singapore and diversified portfolio of good-quality industrial assets, which support stable income generation for the trust amid an increasingly challenging macroeconomic environment," said Yu Sheng Tay, a Moody's Analyst.
"The stable outlook reflects our view that CLAR will remain financially prudent in the execution of its growth strategy, such that its credit metrics will stay within the parameters of its A3 ratings", Tay added.
Moody's expects the REIT to generate EBITDA of around SGD860 million and SGD920 million in 2022 and 2023, respectively, compared with SGD836 million in 2021.
The increase is driven by full-year earnings contribution from new acquisitions as well as a modest margin improvement in 2023, as the REIT raised service charges for its Singapore leases to offset rising utility costs in October 2022.
Despite the earnings increase, Moody's expects CLAR's interest coverage to weaken to around 4.5x in 2022-23 from 5.1x in 2021 amid a rising interest rate environment and higher debt incurrence to fund its investments.
Nonetheless, interest coverage continues to have sufficient headroom against the downgrade threshold of 3.5x, said Moody’s.
Consequently, Moody's expects the trust's leverage, as measured by net debt/EBITDA, to increase to 8.3x in 2022 before moderating to less than 8.0x in 2023-24 as earnings increase. Its leverage stood at 7.7x at the end of 2021.
“CLAR has limited headroom to accommodate further debt-funded investments under its leverage downgrade threshold of 8.0x-8.5x”, said the agency.
“However, Moody's believes that the trust has avenues to reduce its leverage through future divestment of assets and equity issuances”, it added.
The REIT was last done on the Singapore Exchange at SGD2.77, which presently implies a distribution yield of 5.68% according to data on the Singapore REITs table.