Waterway Point, of which a stake is being acquired by Frasers Centrepoint Trust. (Photo: REITsWeek)Waterway Point, of which a stake has been acquired by Frasers Centrepoint Trust. (Photo: REITsWeek)

Moody's Investors Service has affirmed Frasers Centrepoint Trust's (FCT) Baa2 issuer rating, with a stable outlook.

"The rating affirmation reflects FCT's portfolio of good-quality suburban malls, which supports stable income generation and a strong financial profile”, said Yu Sheng Tay, a Moody's Analyst.

"The stable outlook reflects our expectation that FCT's operating performance will remain strong over the next 12-18 months. At the same time, we expect FCT to grow its portfolio in a financially prudent manner”, Tay added.

Rationale

Moody's expects FCT's leverage, as measured by net debt/EBITDA, to increase to around 8.3x in the fiscal year ending 30 September 2023 from 7.8x in fiscal 2022.

This is due to the REIT’s proposed acquisition of an additional 10% stake in Sapphire Star Trust (SST) for around SGD74 million in purchase consideration.

FCT currently owns 40% of SST, which owns the Singapore suburban mall Waterway Point.

At the same time, Moody's expects FCT's interest coverage to weaken to around 4.4x in fiscal 2023 and 2024 from 5.2x in fiscal 2022 amid a rising interest rate environment.

Nonetheless, FCT's leverage and interest coverage have ample capacity against their downgrade thresholds of 9.0x and 3.0x, respectively.

Moody's expects FCT to exercise financial prudence in the execution of its growth plans.

The REIT remains opportunistic for acquisitions to grow its portfolio and could also undertake asset enhancement initiatives to improve its existing properties, said the agency.

As of 30 September 2022, FCT had cash and cash equivalents of SGD38 million along with undrawn committed long-term credit facilities of around SGD340 million.

These cash sources are insufficient to meet FCT's upcoming debt maturities of around SGD627 million over the next 18 months.

Nonetheless, FCT has long-term banking relationships and a track record of accessing debt and equity capital markets. The REIT also has uncommitted facilities of around SGD277 million.

Moody's expects REIT to proactively address its debt maturities.

FCT was last done on the Singapore Exchange at SGD2.02, which presently implies a distribution yield of 6.05% according to data on the Singapore REITs table.

By Shariffa Al-Habshee

Shariffa joined REITsWeek in 2017, and monitors Asia-Pacific REITs for the publication.