Moody's affirmed the Baa3 issuer rating on ESR-REIT, with a stable outlook following its proposed acquisition of Viva Industrial Trust.
The affirmation is based on the "meaningful improvement" in ESR-REIT's business profile owing to its larger scale, market share and portfolio diversification post merger, a Moody's assistant vice president and analyst, Rachel Chua, said. The improvement will, in turn, provide the trust with greater flexibility to cushion the blow of future bolt-on acquisitions or operating headwinds, added Chua.
The rating agency also cited ESR-REIT's weaker operating performance in 2018, its modest scale and a heightened desire to grow through larger-scale acquisitions as factors constraining its ratings.
Moody's also noted that the trust is inherently exposed to liquidity risks, just as all other Singaporean real estate investment trusts are, due to its high dividend payout ratio and minimal cash balance.
The stable outlook reflects Moody's expectations that ESR-REIT will continue to generate a stable cash flow from its enlarged portfolio after the merger and maintain its credit profile while pursuing growth.
