S&P Global Ratings has given CapitaLand Mall Trust (CMT) an 'A-' long-term issuer credit rating to the REIT on September 30.
The ratings agency has assigned CMT’s guaranteed senior unsecured multicurrency medium-term note (MTN) and euro MTN programmes 'A-' as well.
“The stable outlook on CMT reflects our expectation that the REIT will successfully integrate CapitaLand Commercial Trust's (CCT) assets. We also anticipate CMT will maintain or enhance its solid asset quality and stable profitability over the next 24 months,” says primary credit analyst Fiona Chen.
The rating on CMT reflects the agency’s view of the REIT’s leading-market position following its merger with CCT.
Following the merger, the enlarged REIT will be the second-largest in Asia Pacific behind Hong Kong-based Link REIT, and largest in Singapore by market capitalisation.
However, the enlarged REIT’s portfolio size, which will double to $22.4 billion post-merger, is smaller and less geographically diversified than that of its international peers such as Simon Property Group and Brookfield Property Partners.
“The global peers operate in deeper real estate markets and need a larger scale to maintain strong market positions,” says Chen.
“CMT will have a dominant market position in the smaller and dense Singapore market, which has high barriers of entry. This factor will partially offset CMT's smaller scale and greater concentration to a single country.”
Chen also believes that the enlarged REIT will likely enjoy “stable performance” and outperform its peers in the next 12-24 months.
“CMT's retail and commercial portfolios have shown good stability and resilience through industry cycles, with sustained high occupancies and satisfactory increases in rent on lease renewal. This is due to good quality assets protected by "flight to quality" sentiment,” Chen adds.
While CMT’s assets are not immune to the disruption arising from the acceleration of online shopping and e-commerce due to Covid-19, its strategically-located and high quality retail assets make it more resilient to market headwinds.
Chen says she also expects CMT’s retail operation to “gradually rebound” following the easing of social distancing restrictions and recovery in shopper traffic in Singapore.
“Over the next six to 12 months, we anticipate a gradual recovery in the more centrally located malls, which are dependent on office workers returning to work following relaxation of remote working requirements. We forecast CMT's 2021 net profits interest (NPI) will recover to $530-540 million, still about 5% lower than the 2019 level,” she says.
“The stable outlook on CMT reflects our expectation that the REIT will integrate CCT's assets before the long stop date of Nov. 30, 2020. We also anticipate CMT will maintain its solid asset quality, stable profitability, and operate in line with its financial policy of maintaining a gearing ratio of below 40% over the next 24 months,” she adds.
Units in CMT and CCT closed 6 cents lower or 3.0% down at $1.93, and 5 cents lower or 3.0% down at $1.64 respectively, on September 30.