Singapore, October 01, 2020 -- Moody's Investors Service has downgraded the issuer and senior unsecured
ratings of CapitaLand Mall Trust (CMT) to A3 from A2.
Moody's has also downgraded (1) CMT MTN Pte. Ltd.'s
senior unsecured ratings (including backed) to A3 from A2, (2) the
backed senior unsecured multicurrency medium-term note program
ratings of the notes issued by CMT MTN Pte. Ltd.,
a wholly-owned subsidiary of CMT, to (P)A3 from (P)A2,
and (3) the senior unsecured rating on the retail bond program issued
by CMT, to (P)A3 from (P)A2.
The outlook on all of CMT's ratings has been changed to negative
from rating under review.
Moody's has upgraded the issuer rating of CapitaLand Commercial
Trust (CCT) to Baa1 from Baa2.
Moody's has also upgraded (1) CCT MTN Pte. Ltd.'s
backed senior unsecured debt ratings to Baa1 from Baa2, and (2)
the backed senior unsecured medium-term note program ratings of
the notes issued by CCT MTN Pte. Ltd., a wholly-owned
subsidiary of CCT, to (P)Baa1 from (P)Baa2.
The outlook on all of CCT's ratings has been changed to stable from
ratings under review.
These actions conclude the ratings under review initiated on 24 January
2020.
The ratings actions follow extraordinary general meeting of CMT and the
extraordinary general meeting and trust scheme meeting of CCT on 29 September
2020 in relation to the proposed merger of CMT and CCT. The merger
is to be effected through the acquisition by CMT of all the issued and
paid-up units in CCT. The transaction is expected to close
by November 2020.
The total consideration for the proposed transaction is approximately
SGD6.3 billion, which is estimated based on the closing price
of CMT at SGD1.90 as at 26 August 2020. Under the proposed
transaction, each CCT unitholder will receive 0.720 new CMT
units and SGD0.2590 in cash for each CCT unit held. CMT
will fund the cash component of the proposed transaction by drawing down
on its existing credit facilities.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL433941
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
-- CapitaLand Mall Trust
"The downgrade reflects our expectation that CMT's credit metrics
will weaken and remain at levels no longer consistent with its A2 rating,
driven by the merger with CCT, which has a weaker leverage profile,
coupled with the incurrence of around SGD1 billion in incremental debt
to fund the merger's cash consideration," says Junling Tan,
a Moody's Analyst.
The A3 rating also takes into account the enlarged entity's (1)
more diversified portfolio, (2) balanced exposure across integrated
developments, retail and office assets, and (3) reduction
in the trust's asset concentration risk. The merger of CMT and
CCT is expected to create the second largest REIT in the Asia Pacific
region, with the total portfolio property value of the merged entity
increasing to around SGD22.4 billion and market capitalization
increasing to SGD12.7 billion as at 30 June 2020.
The negative outlook reflects the uncertainty surrounding (1) the extent
of the coronavirus related disruption and its impact on the earnings and
performance of retail properties; and (2) CMT's long-term
financial policy and business strategy.
"The curtailment of international travel, social distancing
measures and weaker consumer sentiment due to coronavirus disruption,
will also curb retail spending at retail malls and could sustainably increase
vacancy and lower rental income," adds Tan.
On a pro forma basis, Moody's expects CMT's adjusted net debt/ EBITDA
to weaken to 9.6x and 10.0x in 2020 and 2021 respectively,
before gradually recovering to around 9.0x in 2022. The
deterioration is caused by the incremental debt to fund the merger and
the decline in EBITDA due to the coronavirus disruption.
CMT's liquidity profile is inadequate. As of 30 June 2020,
on a proforma basis, the enlarged trust's cash and cash equivalents
of around SGD285 million and undrawn committed facilities were insufficient
to cover SGD1.44 billion of its upcoming debt maturities over the
next 12-18 months. Nonetheless, the refinancing risk
is mitigated by the trust's track record of access to funding and established
banking relationships. The refinancing risk will also be mitigated
by its financially strong and committed sponsor, CapitaLand Limited,
a Temasek Holdings (Private) Limited (Aaa stable) linked entity.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered the governance risk stemming from related-party
transactions between CMT and its sponsor, CapitaLand Limited.
This risk is mitigated by the regulatory oversight provided by the Monetary
Authority of Singapore and exercised through the board, which for
the majority consists of independent directors. Further,
there is an alignment of interest between CMT and its sponsor because
the latter has a 28.49% stake in the trust.
-- CapitaLand Commercial Trust
"The upgrade reflects our expectation that CCT will reduce its leverage
following the merger such that it will be able to maintain its current
credit profile despite transfer of assets to the enlarged CMT.
The upgrade also incorporates one-notch uplift in CCT's rating
because of our expectation of strong linkages and integration between
the enlarged CMT and CCT after the merger," adds Tan,
who is also Moody's Lead Analyst for CCT.
Following the merger, CCT will be de-listed and become a
private sub-trust of CMT. CCT will transfer its holdings
of MSO Trust (100% interest in CapitaGreen), RCS Trust (60%
interest in Raffles City Singapore) and Glory Office Trust (45%
interest in CapitaSpring, target completion 2H2021) to CMT.
CCT's adjusted net debt/ EBITDA will improve to 8.4x in 2020
from 9.9x in 2019, after it transfers debt related to RCS
Trust and Glory Office Trust to CMT. There is no outstanding debt
at MSO Trust. Given the transfer of assets, Moody's
expects CCT will eventually reduce its debt with corresponding increase
in debt at the enlarged entity. Consequently, Moody's
expects CCT to maintain its adjusted net debt/EBITDA of around 10.0x-11.0x
over the next 12-18 months. In absence of any debt reduction
at CCT, its adjusted net debt/EBITDA will deteriorate to around
13.0x and 12.0x in 2021 and 2022 respectively, accounting
for the decline in full-year EBITDA derived from MSO Trust,
RCS Trust and Glory Office Trust.
The stable outlook reflects (1) CCT will reduce its borrowings in line
with the reduction in its assets base over the next 12-18 months;
and (2) CCT has minimal exposure to tenants in sectors severely affected
by coronavirus-related disruptions, such as food & beverage,
retail and tourism. The stable outlook also reflects the likelihood
that the one notch uplift in CCT's rating can be maintained even
if Moody's downgrade the rating of the enlarged CMT.
CCT's liquidity is inadequate. As of 30 June 2020, CCT's
cash and cash equivalents and undrawn committed facilities were insufficient
to cover its upcoming debt maturities of SGD725 million over the next
12-18 months. Nonetheless, the refinancing risk is
mitigated by the trust's track record of access to funding and established
banking relationships. The refinancing risk will also be mitigated
by its ownership of the enlarged CMT, which is owned by CapitaLand
Limited, a Temasek Holdings (Private) Limited (Aaa stable) linked
entity.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered the governance risk stemming from related-party
transactions between CCT and its sponsor, CapitaLand Limited.
This risk is mitigated by the regulatory oversight provided by the Monetary
Authority of Singapore and exercised through the board, which for
the majority consists of independent directors. Further,
there is an alignment of interest between CCT and its sponsor because
the latter has a 29.42% stake in the trust. Following
the merger, the rating will take into account the concentrated ownership
structure and its status as an unlisted private sub trust of CMT.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
-- CapitaLand Mall Trust
Given the negative outlook, a rating upgrade is unlikely.
However, the outlook could return to stable if (1) the operating
environment improves significantly over the next 12 months; (2) CMT
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; and (3) the enlarged
trust improves its liquidity position such that its cash and committed
credit facilities are sufficient to cover its debt maturing over the next
12 months.
The rating could be downgraded if (1) the operating environment deteriorates,
leading to higher vacancy levels and a decline in operating cash flow
or a fall in asset valuations; (2) the enlarged trust fails to maintain
a well-managed debt maturity profile; (3) credit metrics of
the enlarged trust weaken, such that adjusted debt/total deposited
assets exceeding 45%, adjusted net debt/EBITDA remains above
8.5x, or adjusted EBITDA/interest coverage falls below 3.0x.
In addition, any material change to CMT's business risk profile
from acquisitions and/or expansions into higher risk jurisdictions could
put the trust's rating under pressure.
-- CapitaLand Commercial Trust
A rating upgrade over the next 18-24 months is unlikely,
given that the weak operating environment will result in CCT's credit
metrics remaining weak relative to its ratings, especially if it
fails to reduce its borrowings. However, the ratings could
be upgraded over a longer term on improvement of the operating environment
and completion of debt reduction resulting in improvement in its credit
metrics such that its net debt/EBITDA falls below 9.5x on a sustained
basis and there is improvement in its liquidity position. The upgrade
will also require that the enlarged CMT's rating is at least maintained
at or above A3.
CCT's rating could be downgraded if (1) the operating environment deteriorates,
leading to higher vacancy levels and declining operating cash flow;
or (2) CCT fails to reduce its borrowings in line with Moody's expectation
such that its credit metrics remain weak, with adjusted debt/total
deposited assets exceeding 45%, adjusted net debt/EBITDA
staying above 10.5x and adjusted EBITDA interest coverage falling
below 3.0x. A downgrade of enlarged CMT's rating below
Baa1 will also result in downgrade of CCT's rating.
The principal methodology used in these ratings was REITs and Other Commercial
Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
CapitaLand Mall Trust (CMT) is Singapore's largest retail REIT by market
capitalization. The trust was listed on the Singapore Stock Exchange
in 2002. As of 30 June 2020, the trust had a portfolio of
15 suburban and downtown core shopping malls located across Singapore,
with a total appraised value of around SGD11.4 billion.
CapitaLand Commercial Trust (CCT) was listed on the Singapore Exchange
Securities Trading Limited in 2004. The trust has a portfolio of
ten office and commercial buildings, eight of which are well-located
in Singapore's central business district and two in Frankfurt.
As of 30 June 2020, CCT's asset portfolio had a total appraised
value of SGD10.9 billion.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit
ratings. Additionally, the List of Affected Credit Ratings
includes additional disclosures that vary with regard to some of the ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL433941
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Endorsement
• Lead Analyst
• Releasing Office
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Junling Tan
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
