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00823 LINK REIT
RTNominal down33.650 -0.650 (-1.895%)
Research Report

29/07/2020 17:20

Link REIT's London deal enhances diversity - S&P

[ET Net News Agency, 29 July 2020] S&P Global Ratings said today that Link Real Estate
Investment Trust's (Link REIT; A/Stable/--)(00823) proposal to buy an office building in
London will expend a portion of its acquisition headroom, which is moderately narrowing
due to challenges in the market. However, the trust's credit profile continues to be
commensurate with our rating.
Before factoring in the London and recent Sydney acquisitions, the credit rating agency
forecast the trust's ratio of funds from operations (FFO) to debt to be 17%-19% in fiscal
year ending March 2021, compared with 22.7% in fiscal 2020, primarily reflecting its
revised operating assumptions.
S&P expects FFO to decline by about 15%, as business disruption caused by COVID-19
social distancing measures may lead to negative rental reversions and lower occupancies in
fiscal 2021, partially offset by new revenue streams from these two stable assets.
S&P estimated the London acquisition to mildly lower Link REIT's FFO-to-debt ratio by
1%-2%, in addition to the 1%-2% decline from the Sydney deal. As such, the agency now
expects the trust's FFO-to-debt ratio to be 14%-16% in fiscal 2021. The level is still
comfortably above our downgrade threshold.
S&P said Link REIT built up its rating buffer over the past few years, attributable to
its active tenant management, yield-enhancing renovations, and prudent financial
management. The trust's nondiscretionary-focused portfolio offers down-cycle resilience,
which helps mitigate macroeconomic uncertainties and support its rating level above the
downgrade trigger of 12%.
S&P added that the acquisition will modestly enhance Link REIT's geographic and product
diversity, and is in line with its strategy to expand into quality properties in key
gateway cities. The deal will also mark the trust's second expansion outside Greater
China, after its acquisition of 100 Market Street in Sydney, Australia, in April.
On 26 July 2020, Link REIT proposed to acquire The Cabot, an office tower in London, for
a total consideration of about GBP380 million. The freehold office tower is located within
London's business district of Canary Wharf, with good accessibility and houses reputable
tenants under a long lease structure. The deal is expected to be closed by August 2020.
(KL)

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