Link REIT’s increased debt leverage: Moody’s

HONG KONG. — Moody’s Investors Service says that Link Real Estate Investment Trust’s (Link REIT) interim results for the six months between April 1, 2017, and September 30, 2017, (H1 2018) – including its increased debt leverage – were in line with Moody’s expectations and continue to support its A2 issuer rating and the stable outlook on the rating.

“Link REIT’s adjusted debt/EBITDA increased to 4.8x for the 12 months to 30 September 2017 from 4.1x for the fiscal year ended March 31, 2017, mainly because of the higher debt to fund its acquisition of the Metropolitan Plaza in Guangzhou,” says Stephanie Lau, a Moody’s vice president and senior analyst.

“Nevertheless, this level of leverage remains in line with its A2 rating category.In addition, Link REIT’s robust EBITDA growth, strong occupancy levels and stable margins continue to support its credit profile,” adds Lau.

Link REIT’s reported debt increased notably by 21,4 percen to HKD33,4 billion at September 30,2017 from HKD27,5 billion at 31 March 2017, driven by its RMB4,0 billion acquisition of Metropolitan Plaza, which was completed in May 2017. On the other hand, Link REIT reported strong interim operating performance, which partly mitigated the increase in debt. For instance, year-on-year, its revenue grew 7,4 percent and adjusted EBITDA increased 9,1 percent for H1 2018.

Such earnings growth was supported by a 7,9 percent year-on-year increase in overall retail rentals – excluding asset disposals – and strong occupancy rates, which were maintained at 96,3 percent in Hong Kong, as well as stable margins. The trust’s adjusted EBITDA/interest improved slightly to 8.5x from 8.4x during the same period.

Moody’s expects that Link REIT’s adjusted debt/EBITDA and EBITDA/interest will remain at 4.5x-5.0x and 8.0x-8.5x respectively over the next 12-18 months. Link REIT completed six asset enhancement projects during the six months ended 30 September 2017. Another 14 projects are underway, which will support its rental income growth over the next 12-18 months.

The company maintains a strong liquidity profile. Its cash on hand of HKD615 million at September 30, 2017, undrawn committed facilities of HKD4,0 billion as of the same date, and expected operating cash flow will be sufficient to cover its short-term debt of around HKD2,9 billion and committed capital expenditure over the next 12 months.

The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Link Real Estate Investment Trust listed on the Hong Kong Stock Exchange on November 25, 2005 as part of a divestment exercise by the Hong Kong Housing Authority. It operates an internal manager model that aligns the interests of unit holders and creditors. At September 30, 2017, the trust owned 155 assets in Hong Kong, one in Guangzhou, one in Beijing and one in Shanghai.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. — Moody’s.

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