MP REIT – BT
Moody’s downgrades MP Reit’s ratings
Moody’s Investor Services has on Monday downgraded the corporate family and unsecured ratings of Macquarie Prime Reit (MP Reit) to Baa2 and Baa3 respectively. The outlook for the ratings is stable.
The credit rating agency said this concludes the rating review for downgrade which commenced on Feb 26 2008 after MP Reit announced a comprehensive strategic review.
‘The downgrade reflects overall weaker financial flexibility for the trust, which has resulted in its recent refinancing requiring a second ranking security being granted over its assets, due to the strategic review’ says Kathleen Lee, Moody’s vice president and lead analyst for the trust.
‘In addition, whilst the refinancing is welcome, it highlights the relatively limited access the trust has to bank / debt markets given the security and the fact the new loan is only for two years,’ adds Ms Lee.
As a result over 90 per cent of its debt is now maturing at the end of 2010 in a rather unusual lumpy maturity profile and with a large exposure to the currently shut CMBS market.
‘The need for a second ranking security and the large amount of debt maturing at one time is highly unusual for an investment grade entity’, commented Ms Lee.
The rating downgrade was also in part driven by the ongoing strategic review which creates significant uncertainty surrounding the reit’s future operating and strategic profile.
On the other hand, the rating continues to be supported by MP Reit’s good quality asset profile, its ability to generate stable and recurring incomes and its sound financial metrics with TD/TA leverage at 28%, EBITDA/Interest at 4/0x and Debt/EBITDA at 8.3x. This operating profile and financial metrics remain solidly investment grade and counterbalance the weaknesses outlined.
The outlook is stable reflecting these strengths and the limited refinancing risk before 2010.
Upward pressure on the rating is unlikely in the next near term given the ongoing strategic review, the Reit’s limited financial flexibility and the lumpy debt maturity profile.
On the other hand, downward rating pressure could emerge if the strategic review results in asset sales narrowing the Reits operating profile or an increase in leverage.
Credit metrics that may evidence such pressure could include fixed-charge coverage (EBITDA/ interest) falling below 3.0x, debt to EBITDA exceeding 10.0x and total debt to assets exceeding 45% on a sustained basis. A change in the ownership of the manager or the relationship with Macquarie Bank might also be negative but would depend on who was replacing them.
MP Reit was listed on the main board of the Singapore Stock Exchange in September 2005. Its original portfolio consists of strata ownership of two parts of two landmark retail /office properties, Wisma Atria and Ngee Ann City, both on Orchard Road, Singapore’s premier street for shopping and tourism. In 2007, MP expanded its geographical reach by adding 7 retail properties in Japan and another retail property in Chengdu (China) which raised the value of its portfolio from S$1.93 billion to S$2.21 billion as at end-2007.