Link Finance (Cayman) 2009 Limited (The) — Moody’s assigns A2 to Link REIT’s guaranteed USD MTN drawdown

Rating Action: Moody’s assigns A2 to Link REIT’s guaranteed USD MTN drawdownGlobal Credit Research – 10 Jan 2022Hong Kong, January 10, 2022 — Moody’s Investors Service has assigned an A2 rating to the proposed USD senior unsecured notes to be issued by The Link Finance (Cayman) 2009 Limited, a wholly-owned financing subsidiary of the Link Real Estate Investment Trust (Link REIT, A2 stable).The notes are irrevocably and unconditionally guaranteed by The Link Holdings Limited, Link Properties Limited, and HSBC Institutional Trust Services (Asia) Limited in its capacity as trustee, and with recourse limited to the assets, of Link REIT.The notes will be issued under The Link Finance (Cayman) 2009 Limited’s USD5 billion guaranteed medium-term note program, rated (P)A2.The rating outlook is stable.The proceeds will be used for general corporate purposes.RATINGS RATIONALE »Link REIT’s A2 issuer rating reflects the stability of its core retail property portfolio across economic cycles, its management’s track record of asset enhancements, its good financial metrics and excellent liquidity, » says Stephanie Lau, a Moody’s Vice President and Senior Credit Officer.Link REIT’s high business stability is underpinned by the non-discretionary goods and services offered by its tenants and the highly diversified tenant mix in its malls in Hong Kong SAR, China (Aa3 stable).Meanwhile, Moody’s has considered Link REIT’s concentrated operations in Hong Kong and the risks related to the trust’s expansion and investment strategy.Moody’s expects Link REIT’s annual revenue and adjusted EBITDA to grow by 5%-10% over the next 12-18 months from HKD10.7billion and HKD8.0bn respectively in fiscal 2021 ended March 2021, mainly driven by rental income contribution from its newly acquired assets and the smaller effect of a concession granted to tenants.The proposed bond issuance will not have a material impact on Link REIT’s financial leverage as the proceeds will be used primarily for refinancing.Moody’s projects Link REIT’s adjusted net debt/EBITDA will increase to about 5.6x-5.8x in the next 12-18 months from 4.8x for the 12 months that ended 30 September 2021, mainly reflecting its acquisitions totaling HKD9.8 billion, which were announced in the fourth quarter of 2021. Still, this level of leverage supports the trust’s A2 rating.In terms of governance considerations, Moody’s considers Link REIT’s diversified shareholder base, which results in low concentration of voting power and sufficient board oversight, given the dominance of independent nonexecutive directors on its board.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGLink REIT’s stable rating outlook reflects Moody’s expectation that the trust will adopt a cautious approach toward its debt-funded acquisitions, which will prevent a material adverse change in its business mix or financial leverage.An upgrade of Link REIT’s rating is unlikely over at least the next 12-18 months. In the medium term, upward rating pressure could emerge if Link REIT further enhances its overall asset quality, rental income scale and stability, and improves its leverage through a conservative investment strategy.Downward rating pressure could emerge if (1) Link REIT is unable to maintain stable operations, or (2) its business and development risks increase significantly through aggressive debt-funded acquisitions outside of its core operations in Hong Kong, such that its adjusted net debt/EBITDA exceeds 7.0x and its adjusted EBITDA/interest coverage falls below 3.0x-3.5x on a sustained basis.The principal methodology used in this rating was REITs and Other Commercial Real Estate Firms Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1272320. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Link Real Estate Investment Trust listed on the Hong Kong Stock Exchange on 25 November 2005 as part of a divestment exercise by the Hong Kong Housing Authority. It operates an internal manager model that aligns the interests of unit holders and creditors. As of November 2021, upon the completion of its recently announced acquisitions, the trust had a portfolio of 129 assets in Hong Kong, nine in China and five in overseas countries.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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