[ET Net News Agency, 20 December 2019] Link Real Estate Investment Trust's (Link
REIT)(00823) proposed acquisition of an office building in Sydney will modestly diversify
the company's income sources, S&P Global Ratings said.
The credit rating agency believes the acquisition is in line with Link REIT's inorganic
growth strategy that focuses on bolt-on acquisitions in gateway cities.
The addition of the 100 Market Street property will expand Link REIT's geographic
presence into Australia and add a good margin-generating asset to the group. The office
tower is within the city's central business district and has good transport access. S&P
expects a top-up of 3%-5% to the company's annual EBITDA pro-forma the acquisition.
The property is a small but sustainable earnings source outside mainland China and the
group's home market of Hong Kong. The agency expects the acquisition's impact on Link
REIT's credit metrics to be manageable.
Notwithstanding the improvement in scale and profitability, the higher debt incurred
will weigh on Link REIT's funds from operations (FFO) in fiscal 2020 (ending March 31,
2021). That's because the A$683 million deal will be mainly financed through debt.
Nevertheless, S&P believes the financial flexibility that the company has built up over
the past two years will enable it to fully absorb the impact. S&P estimated the REIT's
pro-forma FFO-to-debt ratio will fall within 17%-19% following the acquisition, from about
22% as of 31 March 2019, depending on the financing structure.
The rating on Link REIT (A/Stable/--) still has some buffer when compared with S&P's
downside trigger of 12%. S&P expects the REIT to remain prudent while seeking acquisition
opportunities for expansion outside Hong Kong. (KL)