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Fitch Assigns Mapletree Industrial Trust's New Notes 'BBB+' Rating
March 24, 2017 / 5:05 AM / 6 months ago

Fitch Assigns Mapletree Industrial Trust's New Notes 'BBB+' Rating

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, March 24 (Fitch) Fitch Ratings has assigned Singapore-based Mapletree Industrial Trust's (MIT; BBB+/Stable) new SGD100 million seven-year unsecured and unsubordinated notes due in March 2024 a rating of 'BBB+'. MIT has to-date issued a total of SGD405 million of unsecured unsubordinated medium-term notes (MTNs) from its SGD1 billion multi-currency MTN programme. The new notes, which have a fixed 3.16% coupon, and the outstanding notes, are issued by Mapletree Industrial Trust Treasury Company Pte. Ltd., a subsidiary of MIT, and guaranteed by DBS Trustee Limited. DBS Trustee Limited acts as trustee for MIT. The notes constitute direct, unconditional, unsubordinated and unsecured obligations of Mapletree Industrial Trust Treasury Company and the guarantor. MIT expects to use the issue proceeds to refinance part of its SGD185 million debt that falls due in in the fiscal year ending 31 March 2018 (FY18). MIT's funding costs are likely to increase in FY18, albeit from a low of 2.6% in 3QFY17, as current debt maturities are refinanced in a rising interest rate environment. Fitch estimates that the new issue will lengthen MIT's weighted average debt maturity to around 3.5 years, from the reported 3.2 years at end-2016. MIT has sufficient unutilised credit facilities to meet its current debt maturities and capex commitments in FY18. KEY RATING DRIVERS Strong Performance to Continue: Fitch expects MIT's strong performance to continue in FY18. MIT's portfolio-wide rental rates have broadly increased each quarter since its listing in 2010; in 3QFY17 portfolio rent rose 1.6% to SGD1.93 per square foot per month from SGD1.90 in 4QFY16, in spite of the high supply of industrial properties in Singapore and sluggish demand. MIT's performance was supported by rental income from the first phase of its SGD226 million build-to-suit (BTS) development project for Hewlett-Packard Inc. (HP), which was completed during the period. The second phase is on-track to be completed in 2Q17. High Lease Expiries in FY18: Almost a third of MIT's portfolio is due for renewal in FY18 amid a continued glut in industrial space in Singapore, which may result in more pressure on portfolio rental income at existing properties. However we expect additional revenue from MIT's new developments, such as the BTS project for HP, as well as built-in annual rent escalations in such contracts, to help to moderate the pressure on portfolio rental growth. MIT's tenant concentration increased marginally following the commencement of HP's lease, with its 10 largest tenants accounting to 20% of rental income in 3QFY17, compared with around 17% previously. However the risk is mitigated by the long-term lease with HP (with an initial tenor of 10.5 years plus options to renew) as well as the tenant's financial strength. Robust Finances, Rating Headroom: MIT's ratings benefit from its strong financial profile, with continued EBITDA growth in the last few years, and EBITDA margin of around 65%. MIT's FFO fixed-charge coverage stood at 8.5x for the 12 months to end-December 2016, with net debt over investment property value at 28%, and FFO-adjusted net leverage at 4.5x. These parameters are robust relative to MIT's peers, and are well within the rating thresholds. DERIVATION SUMMARY MIT's 'BBB+' IDR compares well with its peers, Global Logistic Properties Limited (GLP, BBB+/Stable) and STAG Industrial, Inc (BBB/Stable). GLP is a leading industrial land lord in China, Brazil, and Japan, and is the third-largest in the US. MIT is considerably smaller than GLP. However over 40% of GLP's assets are in riskier emerging markets (China and Brazil) than Singapore, where MIT's assets are. GLP is also more acquisitive, and has more development risk than MIT. These factors, together with MIT's considerably stronger financial profile, result in both being rated at the same level. STAG has a portfolio of mostly secondary-market single-tenanted logistics properties in the US. Fitch expects STAG's same-store net operating income to decline at a low single-digit rate through 2017, as occupancy losses offset its solidly positive leasing spreads. Compared with STAG, MIT has a larger operating scale and a portfolio of well-seasoned assets with higher tenant granularity. MIT also has a substantially stronger financial profile, justifying a rating that is one notch above STAG's. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for MIT include; - Revenue to grow by 5.3% in FY18; rental rates and occupancy to remain under pressure for most asset types, but income from new developments to mitigate this in FY18 - EBITDA margin to remain higher than 64%, supported by an increasing share of cash flows from new developments - Maintenance capex to remain at around 3% of revenue; we estimate that a further SGD150 million of capex could be spent on MIT's ongoing development projects in FY18 and FY19 RATING SENSITIVITIES No positive rating action is expected in the medium term given MIT's geographic concentration in Singapore and limited scale relative to higher-rated global property investment companies. Future developments that may, individually or collectively, lead to negative rating action include: - FFO fixed-charge coverage sustained below 5x - FFO-adjusted net leverage sustained above 6x and the ratio of net debt to investment property value sustained above 40%-45% - The rating of MIT's senior unsecured notes may be downgraded if the ratio of unencumbered assets / unsecured debt falls below 2x (end-3QFY17: 3.3x) - A sustained and material weakening in the competitive position of MIT's assets, as evidenced in weaker rental renewal rates and occupancy levels, resulting in EBITDA margin sustained below 60% LIQUIDITY Strong Liquidity, Market Access: MIT's liquidity is strong. The trust had sufficient approved but undrawn credit facilities at its disposal at end-2016, which together with the new SGD100 million notes will help to comfortably meet its debt maturities of SGD185 million in FY18, and fund the balance of MIT's development capex. Fitch believes MIT's relationship with its sponsor, Mapletree Investments Pte Ltd, which is owned by the Singapore government's (AAA/Stable) investment company Temasek Holdings, underpins its strong access to capital and credit markets. Contact: Primary Analyst Hasira De Silva, CFA Director +65 6796 7240 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Bernard Kie Associate Director +6221 2988 6815 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 Date of Relevant Rating Committee: 23 August 2016 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. 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