Moody's revised its outlook on Hong Kong-based Yuexiu Real Estate Investment Trust's Baa3 issuer rating to stable from negative, following an announcement by the company that it will use the majority of the net proceeds generated from the sale of a project in Guangzhou, China, to repay existing debt.
The rating agency also revised its outlook and affirmed the provisional (P)Baa3 senior unsecured rating on Yuexiu REIT MTN Co. Ltd.'s medium-term-note program and the Baa3 senior unsecured rating on the guaranteed medium-term notes issued under the program.
The rating agency said the Guangzhou project sale represents the REIT's commitment to reduce leverage. The rating agency believes the sale proceeds will decrease leverage, assessed by adjusted net debt/EBITDA, to 8.8x and 8.7x in 2019 and 2020, respectively, from about 9.9x for the year ended June 30.
Moody's also expects any cash flow loss due to the asset sale to be compensated through strong expected operating cash flows from its remaining properties over the next 12 to 18 months.