MIREIT’s credit rating was downgraded by Moody’s to B1. The main reason for the downgrade is the impending refinancing need of MIREIT for its debt of $220.8 million due in April 2009. This is also our main concern regarding MIREIT. Although we understand the REIT manager has been in talks with various parties, nothing has been announced thus far.

Financial results are in line with expectations. Revenue for 3QFY09 is up 54.0%, net property income increases 49.1% and DPU increases 22.4%. MIREIT has maintained a quarterly DPU of 2.35 cents for FY09. Quarterly payout ratio was 92.7%, 87.7% and 98.5%. We believe the REIT manager has anticipated higher operating cost and therefore has maintained a fixed quantum of quarterly DPU so that there is buffer to withstand any volatility. With the retained cash on hand, MIREIT should be able to maintain at least the same amount of DPU for 4QFY09.

Funding remains the key concern. Besides refinancing its existing debt, MIREIT also has funding needs of $91 million in the third quarter of 2009 when construction of IBP is expected to complete. Current gearing is 39.7%, and will increase to approximately 47% if the $91 million is funded by debt.

Although revenue growth is backed by built-in rental escalation, we have assumed some degree of revenue softening. We maintain revenue assumptions for FY09F and lowered our revenue forecast for FY10F by 3%. Our DPU forecasts for FY09F and FY10F are 9.62cents and 8.58cents, a reduction of 4.5% for FY10F. We lower our fair value from $0.60 to $0.30. Downgrade from Buy to Hold.

MI-Reit ups Q3 distribution; refinancing talks still on

MACARTHURCOOK Industrial Reit (MI-Reit) yesterday reported improved results for the third quarter ended Dec 31, 2008, helped by rental income from additional properties acquired.

But good news has yet to come on debt refinancing – the Reit is still negotiating with lenders on a $220.8 million facility coming due in April.

For the third quarter ended Dec 31, 2008, MI-Reit reaped a net property income of $9.39 million – up 49 per cent from a year ago.

This ‘was largely driven by rental income from the nine additional properties acquired during the last financial year’, said Nick McGrath, CEO of trust manager MacarthurCook Investment Managers (Asia).

Distribution to unitholders rose 23 per cent to $6.15 million. This translates to a distribution per unit (DPU) of 2.35 cents, exceeding the 1.92 cents in 3Q 2008.

The trust manager expects MI-Reit to deliver a DPU that is in line with its recent performance for the rest of the financial year.

But MI-Reit is still in talks with its lenders to refinance an existing facility worth $220.8 million. The facility will mature on April 17 and had been drawn to $201.3 million as at Dec 31.

Just last week, Moody’s Investors Service cut the Reit’s corporate family rating from Ba2 to B1 to reflect the refinancing risk. The rating also remains on review for a possible downgrade. As at Dec 31, the Reit had $225.0 million repayable within a year and its gearing ratio stood at 39.7 per cent.

MI-Reit also believes that capital values of industrial properties fell during Q3 2009 ‘although there is little transactional evidence to support a change in values’.

This being so, the trust manager decided to conduct and adopt internal valuations for all its properties. For four of them, values were lower than those produced by external valuations earlier. As a result, MI-Reit’s total portfolio fair value as at Dec 31 was $556.3 million, marginally below the $560.1 million from external valuations.

Units of MI-Reit gained two cents or 8.7 per cent to close at 25 cents yesterday.

Moody’s downgrades MI-Reit again

MOODY’S Investors Service has downgraded Mac- arthurcook Industrial Reit (MI-Reit) for the second time in 10 weeks.

In the latest move, the ratings agency cut the trust’s corporate family rating from Ba2 to B1. And the rating remains on review for possible downgrade, Moody’s added.

‘The downgrade reflects MI-Reit’s heightened liquidity pressure as the refinancing of its $201 million loan maturing in April 2009 remains unresolved,’ Moody’s vice-president and senior analyst Kathleen Lee said in a statement yesterday.

MI-Reit’s units closed at 23.5 cents on the Singapore Exchange yesterday – an 80 per cent slide from $1.20 last Feb 29.

Many Singapore Reits are saddled with refinancing difficulties in the current tight credit market, as well as operating weakness amid the recession.

MI-Reit said on Nov 26, 2008 that it expected to finalise negotiations on refinancing its debt maturities by the end of January this year.

Moody’s pointed out that the trust is still negotiating with its incumbent lenders. ‘However, the terms and conditions – as well as the time frame to complete the negotiation – are still uncertain for the time being,’ Ms Lee said.

Yesterday’s downgrade reflects the fact that besides debt maturities due in April, MI-Reit has an unfunded finance need of $91 million to purchase plot 4A at International Business Park in Jurong by the fourth quarter this year.

‘This presents an additional funding challenge … in the prevailing weak credit environment,’ Moody’s said.

Its ratings downgrade reflects its concern that MI-Reit’s strategic direction and asset profile are increasingly uncertain due to the trust’s lack of access to capital, limited operating scale and modest franchise, it explained.

The review for a possible further downgrade will focus on two things – progress in, and terms of, refinancing efforts for MI-Reit’s debt maturing on April 17; and funding for the International Business Park plot under a sale and lease-back call-and-put option by Q4.

In August 2007, MI-Reit said it had agreed to buy Plot 4A from Eurochem Corporation, a member of Tolaram Group.

The project comprises a 13-storey office building with a basement car park, slated for completion in 2009. Eurochem will lease back the asset from MI-Reit under the deal.

Moody’s said MI-Reit’s rating could be downgraded again if material progress on securing committed finance for its April 2009 debt maturities is not made in the next two months.

Moody’s downgraded the trust to Ba2 on Nov 26 last year.

Moody’s downgrades MI-Reit

Moody’s Investors Service on Thursday downgraded Macarthurcook Industrial Reit’s (MI-Reit’s) corporate family rating from Ba2 to B1.

The rating continues to be on review for possible downgrade, Moody’s said.

‘The ratings downgrade reflects MI-REIT’s heightened liquidity pressure as the refinancing of its S$201 million loan maturing in April 2009 remains unresolved,’ Moody’s vice-president and senior analyst Kathleen Lee said.

The trust had announced on Nov 26, 2008, that it expects to finalise negotiations on refinancing its debt maturities by the end of January 2009, though Moody’s notes that the trust is still negotiating with its incumbent lenders.

‘However, the terms and conditions – as well as the timeframe to complete the negotiation – are still uncertain for the time being,’ Ms Lee added.

The downgrade also reflects the fact that in addition to the debt maturities due in April, MI-REIT has unfunded financing needs of S$91 million to complete a put and call option over 4A International Business Park by fourth quarter 2009. ‘This presents an additional funding challenge facing the trust under the prevailing weak credit environment,’ the ratings agency noted.

MI-Reit to refinance $201m of debt by Jan

Disclosure comes after Moody’s cuts rating, with possible further downgrade

MACARTHURCOOK Industrial Reit (MI-Reit) said yesterday it aims to refinance some $201 million of debt due in April 2009 by the end of January next year.

MI-Reit announced the plan a day after Moody’s Investors Service downgraded the Reit’s corporate family rating to Ba2 and said it remains for a possible further downgrade.

‘The rating remains on review for downgrade primarily to reflect ongoing concerns surrounding MI-Reit’s significant refinancing risk, with 91 per cent of its total debts, or $201 million, falling due in April 2009 amid very challenging credit markets conditions,’ said Kathleen Lee, Moody’s lead analyst for the trust.

She also said the trust has an outstanding put- and-call option on plot 4A of International Business Park, which if completed by end-December 2009 on fully debt-financed terms, will result in a ‘material weakening of (the Reit’s) credit metrics’.

‘There also remains considerable uncertainty as to how this acquisition will be funded if the put option is exercised by the vendor,’ Ms Lee said.

In response, MI-Reit said yesterday it expects to finalise negotiations to refinance the bulk of its debt maturities by the end of January 2009.

And as for the new acquisition, finance will be sought via negotiations with banks, MI-Reit told BT.

The planned $91 million acquisition will lift the trust’s gearing from around 39 per cent now to about 47 per cent.

Moody’s said it also downgraded MI-Reit because it feels the Reit is not likely to meet the scale and diversity targets that were built into its original rating.

The Reit now shows high levels of asset and tenant concentration, more consistent with a Ba2 rating, Moody’s said.

MI-Reit, one of the smallest industrial Reits in Singapore, owns 21 properties worth a total of $559.9 million.

But being small does not mean the trust is riskier, MI-Reit told BT yesterday.

MI-Reit shares lost 0.5 cent to close at a one-year low of 25.5 cents yesterday. The stock has lost 76.8 per cent this year.