TEXT-Fitch affirms Cathay No.2 REIT at 'A(twn)';otlk stbl

(The following statement was released by the rating agency)

Oct 05 - Fitch Ratings has affirmed Cathay No.2 Real Estate Investment Trust (Cathay No.2 REIT) Fund's ratings at National Long-Term 'A(twn)' and Short-Term 'F1(twn)'. The Outlook is Stable.

The ratings reflect the strong capabilities of the REIT's management team and adequate net operating cashflow generated by its portfolio of three buildings - MinSheng Building (MinSheng), World Building (World) and AnHo Building (AnHo) - located in Taipei.

As of end-July 2012 contributions as a share of total revenue from MinSheng, World and AnHo were 52%, 27% and 21%, respectively. Fitch projects the properties would this year generate rental revenue, based on the REIT's H112 financial report, similar to 2011's levels, 18% higher than the agency's stabilised assumptions at closing in 2006.

Occupancy for MinSheng, World and AnHo was 95.1% in June 2012 and has been stable at above 90% since 2010. The majority of the lease contracts due in 2012 have been renewed at unchanged rental rates.

"The long occupancy history of the major tenants largely mitigates the risk of lease expiry concentration in 2013, which makes up 45% of the portfolio," says April Chen, Associate Director in Fitch's Structured Finance team.

The 10 largest tenants of the three buildings contribute more than 56% of the total portfolio rental revenue and all have been tenants in the buildings for eight to more than 20 years. The high tenancy retention, along with expected moderate economic growth rate in Taiwan for 2012 and 2013, underpin Fitch's view that a significant number of tenants will renew their leases in 2013.

The REIT was established under the Taiwan Real Estate Securitisation Law in October 2006 with Mega International Commercial Bank ('AA(twn)'/Stable/'F1+(twn)') acting as trustee, and Cathay Real Estate Management as property manager. The REIT has outstanding equity of TWD7.2bn face value and is listed on the Taiwan Stock Exchange.

The ratings address the REIT's capacity for timely payment of its financial commitments, assuming that it has reached its ultimate borrowing limit of 35% of total fund's assets according to the REIT documents. However, the REIT has not incurred borrowing to date, and management indicated that there is no plan to incur debt in the near term. The ratings do not address the REIT's return on equity.

((Bangalore Ratings Team, Hotline: +91 80 4135 5898 swati.ray@thomsonreuters.com,Group id:BangaloreRatings@thomsonreuters.com,Reuters Messaging: swati.ray.thomsonreuters.com@reuters.net))