Higher leverage offsets Mapletree Logistics Trust's acquisition upsides: Fitch Ratings

Michelle Zhu

Published Tue, Dec 14, 2021 · 03:21 AM

LEVERAGE headroom is likely to fall for Mapletree Logistics Trust (MLT) M44U following a slew of larger-than-expected acquisitions, including that of 17 modern logistics warehouses across Japan, China and Vietnam.

This is according to analysts of Fitch Ratings, who now project the trust's net debt to Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio to hit 8.9 times by FY2022 as a result of the acquisitions, and average at around 8.7 times over FY2022 to FY2024 versus 8.1 times previously.

In a report dated Monday (Dec 13), the analysts opined that this ratio will remain under 9 times, which is the level that Fitch would consider taking a negative rating action.

This is assuming that the trust's annual acquisitions do not exceed S$2.2 billion, and that it continues to maintain a loan-to-value ratio at around 40 per cent through new equity issuance, as well as an average asset net property income (NPI) yield of at least 4.6 per cent for its acquisitions.

Going forward, the analysts think MLT's leverage could fluctuate on the timing of equity issuance, acquisition completions and the ability to ramp up new assets. They also believe MLT's risk to higher leverage from more acquisitions is balanced out by MLT's track record of raising equity or disposing mature assets to fund 50 to 60 per cent of the value of its new investments.

The trust's present leverage is deemed as more in line with "BBB" category names such as Starhill Global Real Estate Investment Trust, in Fitch's view.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

The ratings agency sees MLT's present "BBB+/Stable" rating as constrained by its higher leverage compared to its similar-sized yet higher-rated peers such as property development companies Mirvac and The British Land Company, due to their ability to maintain net debt to Ebitda under 8 times.

The analysts are nonetheless positive on MLT's recent acquisitions, which is estimated to boost the trust's Ebitda by 21 per cent in FY2023 upon full-year consolidation. Its sponsor's strong pipeline of projects also provides the trust strong growth prospects over the medium term, they added.

"The acquisitions have improved MLT's asset granularity, with the contribution from its top 10 assets falling to 33 per cent of total portfolio value, on a pro forma basis, from 35 per cent at FY2021," said the analysts.

"We believe MLT is well-positioned at its 'BBB+' rating because its leverage is mitigated by increasing asset granularity and geographical diversification, and strong financing flexibility evidenced by a high Ebitda/interest coverage ratio of around 5 times and strong access to capital and credit markets."

Reuse this content Feedback