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Rating Action:

Moody's affirms CapitaLand Integrated Commercial Trust's A3 rating; outlook remains negative

28 Mar 2022

Singapore, March 28, 2022 -- Moody's Investors Service has affirmed the A3 issuer rating and (P)A3 senior unsecured MTN rating of CapitaLand Integrated Commercial Trust (CICT).

At the same time, Moody's has affirmed the A3 senior unsecured (including backed) and (P)A3 multicurrency medium-term note program ratings of the notes issued by CMT MTN Pte. Ltd., a wholly-owned subsidiary of CICT.

The outlook remains negative for both CICT and CMT MTN Pte. Ltd..

"The rating affirmation reflects CICT's leading market position and portfolio of quality assets that are well-located and diversified across retail, office and integrated development segments," says Yu Sheng Tay, a Moody's Analyst.

"The negative outlook continues to reflect CICT's elevated leverage and uncertainty around the trust's ability to balance deleveraging with its growth strategy," adds Tay.

RATINGS RATIONALE

The rating action follows CICT's announcement on 25 March 2022 that it will acquire a 70% stake in 79 Robinson Road, a Grade A office building, for a total acquisition outlay of SGD869.2 million. The property had a long weighted average lease expiry profile of 5.8 years and committed occupancy of 92.9% as of 31 December 2021. The acquisition is expected to be completed by June 2022.

CICT intends to fund the proposed acquisition through debt and the net sale proceeds of around SGD335 million from the divestment of JCube completed on 10 March 2022.

The acquisition of 79 Robinson Road follows CICT's approximately SGD1.15 billion acquisition of Australian assets, around half of which were funded by proceeds from the sale of One George Street and an equity placement, and the rest by debt. Consequently, Moody's estimates that CICT's leverage, as measured by net debt/EBITDA will rise to 9.9x in 2022, from 9.0x in 2021. However, CICT's EBITDA interest coverage will stay stable at around 5.0x in 2022.

CICT's net debt/EBITDA is high for its A3 rating, but Moody's forecasts the metric will improve to below 9.0x in 2023 and 2024 on the back of earnings recovery and full-year contributions from the recent acquisitions. CICT's EBITDA interest coverage will remain strong at more than 5.0x over the same period.

Pro forma for the acquisition, CICT will have a portfolio of 26 properties in Singapore, Australia and Germany. Through its quality assets, CICT is well positioned to capture earnings recovery stemming from a reduction in rental relief, stronger office demand and further easing of coronavirus measures in Singapore.

CICT is executing a portfolio reconstitution strategy to divest underperforming assets and acquire higher-yielding assets. The trust has funded its acquisitions with a mix of divestment proceeds, debt and equity. However, the reliance on debt for future acquisitions will delay Moody's expectation of deleveraging at CICT and exerts downward pressure on its rating.

Moody's expects CICT's liquidity to remain excellent in 2022-23. As of 31 December 2021, CICT had SGD365 million of cash, and together with undrawn committed credit facilities, these sources are sufficient to cover its debt maturities and capital expenditures over the next 12 months.

In terms of environmental, social and governance (ESG) factors, Moody's has considered governance risk around related-party transactions between CICT and its sponsor, CapitaLand Investment. Nonetheless, this risk is mitigated by the regulatory oversight provided by the Monetary Authority of Singapore and exercised through the board, which mainly consists of independent directors. Further, there is an alignment of interest between CICT and its sponsor because the latter had an approximately 23% stake in the trust as of 24 February 2022.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A rating upgrade is unlikely because of the negative outlook. However, the outlook could return to stable if CICT executes its growth strategy prudently and improves its credit metrics, such that adjusted debt/total deposited assets remains below 45% and adjusted net debt/EBITDA falls below 8.5x, both on a sustained basis.

Moody's could downgrade CICT's rating if the operating environment further deteriorates, leading to higher vacancy levels, a decline in operating cash flow and a fall in asset valuations; or if CICT's credit metrics weaken such that its adjusted debt/total deposited assets exceeds 45%, its adjusted net debt/EBITDA remains above 8.5x or its adjusted EBITDA interest coverage falls below 3.0x. Any significant change in CICT's business risk profile due to acquisitions or expansions into higher-risk jurisdictions could strain the trust's rating.

The principal methodology used in these ratings 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.

CapitaLand Integrated Commercial Trust (CICT) is Singapore's largest retail REIT by market capitalization. The trust was listed on the Singapore Stock Exchange in 2002. Pro forma for its announced acquisitions, the trust will have 21 properties in Singapore, two in Germany and three in Australia, primarily focused on the retail and office segments. The portfolio has an estimated value of around SGD24 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

YuSheng Tay
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore, 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore, 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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