Moody's Investors Service has upgraded the ratings of Aldar Properties, an Abu Dhabi real estate company, from Ba1 to Baa3.

Concurrently, the ratings agency upgraded the rating of the $750 million Trust Certificates due in 2018 to Baa3 from Ba2. The outlook on all ratings is stable.

Moody's said today's upgrade primarily reflected Aldar's significant progress towards leverage reduction. The UAE developer had reported a debt of around Dh9.6 billion (around $2.6 billion) as of September 30, 2014, which is more than Dh4.2 billion ($1.14 billion) lower than fiscal year-end (FYE) 2013.

Scheduled and contracted payments from the Abu Dhabi government to Aldar for 2015 alone amount to around Dh4.1 billion ($1.1 billion) and Moody's expects that the company will use these payments to further reduce net debt to below Dh5 billion by 2015.

"We have upgraded Aldar's ratings to reflect its success in reducing financial leverage, lessening development risk and increasing recurring rental income, following the opening of Yas Mall and other investment properties," remarked Martin Kohlhase, a vice president for Moody's and senior credit officer based in Dubai.

"Recurring income from investment properties tends to be low risk, stable and allows better visibility in terms of future earnings," he added.

As part of today's rating action, Moody's has converted Aldar's corporate family rating into a Baa3 senior unsecured issuer rating, in line with the rating agency's policy for issuers migrating from non-investment grade to investment grade.

In addition, Aldar's has reduced development risk year on year and ramped up income from recurring rental revenues, supported by the recent opening of Yas Mall, a material revenue generator.

Moody's said it has stabilised the outlook as Aldar has embarked on new developments, albeit at a much more moderate pace than in the past.

This limits further rating upside for the time being. In Moody's opinion, the company will over the course of 2015 reach its long-term absolute debt equilibrium (debt-to-asset ratio of not more than 40 per cent) that may result in a formulation of a dividend payout policy by the board.-TradeArabia News Service