TEXT-S&P summary: CapitaCommercial Trust

(The following statement was released by the rating agency)

Aug 16 -

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Summary analysis -- CapitaCommercial Trust ------------------------ 16-Aug-2012

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CREDIT RATING: BBB+/Stable/-- Country: Singapore

Primary SIC: Real estate

investment

trusts

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Credit Rating History:

Local currency Foreign currency

20-Oct-2010 BBB+/-- BBB+/--

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Rationale

The rating on CapitaCommercial Trust (CCT) reflects our opinion that the

REIT's asset portfolio is of good quality and its market position in the

Singapore commercial space sector is solid. The unencumbered nature of almost

70% of CCT's total investment properties portfolio (valued at Singapore dollar

{S$} 6.2 billion as of June 30, 2012) supports the REIT's strong financial

flexibility and underpins the rating. CCT's limited geographic diversity,

significant exposure to the cyclical office space sector in Singapore, and

"intermediate" financial risk profile--with a target gearing (defined as the

ratio of loans to total investment properties) of 30%-45%--temper these

strengths.

We expect the CCT portfolio manager's good leasing record to continue when

CapitaGreen, a Grade A office building, is complete in 2014. In our view,

CCT's dominant market position in Singapore's Grade A office space would

strengthen because CapitaGreen will add a net lettable area of 700,000 square

feet to CCT's existing portfolio of three million square feet in lettable

space. As of June 30, 2012, the lease expiry profile of CCT's portfolio and

rent reviews are well staggered between 2012 and 2016. The REIT's overall

occupancy level of 96.2% is higher than the industry average of 91.6%. This

reflects the manager's good tenant-retention strategy and strong leasing

record.

In our base-case scenario, we expect CCT's gearing to increase to about

32%-35% over the next 12-24 months, after the completion of CapitaGreen. The

gearing is 30.1% as of June 30, 2012. We expect downward pressure on CCT's

portfolio occupancy and lease rates, given the global economic uncertainties.

About 40% of CCT's tenants are in the financial services, information

technology and telecommunications, and energy sectors. We project that CCT's

ratio of funds from operations (FFO) to debt will weaken to about 9%-10% and

EBITDA interest cover will be about 3.8x-4x in this period. These ratios are

still within our threshold for CCT to have an intermediate financial risk

profile. For the 12 months ended June 30, 2012, CCT's ratio of FFO to debt was

11% and EBITDA interest cover was 4.6x.

CCT's discretionary cash flow is minimal, given its low earnings retention.

This is typical of unit trust structures. Nevertheless, we expect the REIT's

strong financial flexibility to allow it to have continued access to debt and

equity markets. Such access will reduce the impact of CCT's minimal

discretionary cash flow position and the inherent volatility in office lease

rates in Singapore.

Liquidity

CCT's liquidity is "adequate", as defined in our criteria. As of June 30,

2012, the REIT has a cash balance of S$132.1 million. We estimate that CCT's

liquidity sources will exceed liquidity uses by about 1.2x over the next 12

months. Our view is based on the following assumptions:

-- CCT will have a FFO of S$200 million-S$230 million in 2012;

-- The trust has S$1.7 billion in untapped balance under its S$2 billion

medium-term note program; and

-- It will distribute S$200 million-S$210 million to unitholders.

On Aug. 14, 2012, CCT announced plans to refinance S$147 million of bonds that

are due in 2013 by issuing S$175 million of convertible bonds due in 2017.

Upon completion of this transaction in September 2012, CCT will not have any

major debt maturing in the next 24 months other than the S$50 million

medium-term notes due in June 2013.

We also believe that CCT's unencumbered assets of S$4.7 billion provide the

REIT with strong financial flexibility in the unlikely event of a liquidity

crunch. We expect CCT to adhere to its articulated financial policies when

using cash and taking on additional debt to finance the rest of its commitment

in CapitaGreen.

Outlook

The stable outlook reflects our view that CCT's property portfolio is of good

quality, its operating strategies are sound, and it has strong financial

flexibility. We could lower the rating if a fall in occupancy and negative

rental reversions cause CCT's cash flow metrics to weaken on a sustained

basis, such that its adjusted EBITDA interest cover falls below 2.5x and

FFO-to-debt ratio deteriorates to less than 9%.

We could raise the rating if CCT expands its asset base in high-quality

properties and continues its conservative financial policies, such that the

FFO-to-debt ratio improves to about 15% on a sustained basis.

Related Criteria And Research

-- Key Credit Factors: Global Criteria For Rating Real Estate Companies,

June 21, 2011

-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,

May 27, 2009

Source: http://news.yahoo.com/text-p-summary-capitacommercial-trust-073153894--sector.html

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