3 reasons why Keppel REIT ratings could clinch a Moody's ratings upgrade

Review cites impressive performance and management.

In a release, Moody's Investors Service announced that it has placed Keppel REIT's Baa3 issuer rating on review for possible upgrade. The rating action reflects Keppel REIT's enlarged and high-quality asset portfolio, strong operating performance and proactive capital management.

"Keppel REIT has transformed into one of the largest office real estate investment trusts in Singapore, with an asset size of over SGD6.6 billion as at end-March 2013. All of the trust's properties are strategically located in the central business districts of Singapore and Australia. They are also new, with an average age of approximately five years," says Jacintha Poh, a Moody's Analyst.

"Furthermore, the trust's proactive capital management, as evidenced by its early refinancing of debt maturing in the year of 2013, and its recent share placements also support our review for upgrade. In addition, Keppel REIT has proven its ability to obtain funds at low interest rates, allowing the trust to maintain a high interest coverage ratio of approximately 4.8x," adds Poh.

Moody's review will focus on Keppel REIT's ability to continue pursuing its long term growth plan, while maintaining a leverage position of between 40% and 45% -- a level which would support an upgrade to Baa2 -- in light of the trust's announcement on 26 June of an additional acquisition of a commercial property in Melbourne.

"The funding choices that the trust makes in terms of its latest property acquisition will be viewed as a strong sign of its commitment to maintaining leverage within our threshold," Moody's said.

Moody's will also review the trust's ongoing early refinancing efforts, in particular its plan to refinance a large portion of the SGD722 million of debt coming due in FY2014 (January - December 2014).

Moody's said the principal methodology used in this rating was the Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010.