Related Market Sector:
Fitch Ratings-Taipei/Hong Kong-26 November 2009: Fitch Ratings has today affirmed Cathay
No.2 Real Estate Investment Trust Fund's (Cathay
No.2 or "the REIT") National Long-term rating at 'A(twn)' and National Short-term rating at 'F1(twn)'. The Outlook remains Negative.
The rating affirmations follow the agency's surveillance review of Cathay
No.2. It reflects the capabilities of the management team and the adequate net operating cashflow generated by the three underlying office buildings ("the portfolio") held by the REIT, namely MinSheng Building (MinSheng), World Building (World) and AnHo Building (AnHo) in Taipei. Despite rental discounts offered to several tenants and lower-than-expected occupancy rates in the past year, the REIT's rental revenue and net income were still in line with Fitch's expectations. The revenue contributions from MinSheng, World and AnHo were 47%, 29% and 24%, respectively, according to the lease information as of end-September 2009.
The portfolio's occupancy rate was 86.2% at end-September, which was down from 96.6% at closing. Furthermore, around 26% (in terms of gross rental revenue) of the leases in the portfolio will expire in 2010. Although the property manager believes that most tenants will renew their leases upon expiry, it is likely that certain rental discounts will be offered to retain these tenants upon the renewals, as observed in the past year. Moreover, whether certain tenants will terminate their leases early or reduce their rented space (like last year) is still unclear. Hence, the Negative Outlook is maintained to reflect the agency's concerns about the potential downward pressures on the occupancy rates and rental rates of the underlying properties. The resolution of the Negative Outlook would hinge on the continuous increase of the portfolio's occupancy rate, without jeopardising the portfolio's current rental level.
Cathay
No.2 was established under the Taiwan Real Estate Securitisation Law in October 2006 with Mega International Commercial Bank ('AA(twn)'/'F1+(twn)'/Stable Outlook) acting as the trustee, and Cathay Real Estate Management as the property manager. The REIT has TWD7.2bn outstanding equity issuance and is publicly listed on the Taiwan Stock Exchange.
The ratings do not address the REIT's equity return but its capacity for timely payment of its financial commitments, assuming that it has reached its ultimate borrowing limit of 35% stipulated in the REIT documents, and measured as total debts to total assets. However, to date, the REIT has never utilised its gearing, and there is no crystallised investment proposal which would make it activate its gearing.
Contacts: Tino Jang, Taipei, +886 2 8175 7611; Henry Hung, Taipei, +886 2 8175 7612.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935,
Email:
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