Moody's lowers outlook on MCT to negative amid Covid-19 pandemic

MOODY'S Investors Service has lowered its outlook on Mapletree Commercial Trust (MCT) to negative from stable amid the novel coronavirus pandemic. 

This reflects the expectation that MCT's credit metrics could weaken as heightened social-distancing measures and weaker consumer sentiment will curb retail spending at VivoCity and could sustainably increase vacancy and lower rental income, said Moody's analyst Tan Junling on Monday. 

In addition, MCT's cash flows could be adversely impacted by Singapore's legislation that allows tenants to defer rent payments for an initial six months.

The outlook for office space demand has also weakened, given the global recession and as work-from-home arrangements threaten to become the new normal for many companies, the analyst added. 

"The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets... The commercial property sector has been affected by the shock, given its sensitivity to consumer demand and sentiment," Moody's said. 

It added that the expected weakening in MCT's credit profile and its exposure to Singapore have "left it vulnerable to shifts in market sentiment in these unprecedented operating conditions", and that the trust remains vulnerable to the outbreak continuing to spread.

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Moody's base case scenario assumes an approximate 6 per cent decline in MCT's earnings before interest, taxes, depreciation, and amortisation (Ebitda) for the fiscal year ending March 2021, causing the trust's adjusted net debt/Ebitda to weaken to around 9.3 times from 8.6 times in fiscal 2020. 

Meanwhile, Moody's has affirmed the Baa1 issuer rating of MCT. 

According to the credit ratings agency, MCT's rating continues to reflect the trust's recurring income from a portfolio of good-quality commercial properties in Singapore with a diversified tenant profile, improved portfolio diversification and earnings growth following the acquisition of Mapletree Business City I and Mapletree Business City II, as well as its track record of prudent financial management and strong financial flexibility. 

That said, Moody's noted that MCT's liquidity is inadequate over the next 12-18 months, owing to upcoming debt maturities of S$160 million in August 2020 and S$439.3 million in April 2021. Nonetheless, it expects that refinancing risk will be mitigated by the trust's ability to draw on about S$550 million of uncommitted facilities as at March 31, as well as its track record of access to funding.

Separately, Moody's has affirmed the (P)Baa1 senior unsecured ratings on the medium-term note programmes of MCT and Mapletree Commercial Trust Treasury Company (MCTTC), as well as the Baa1 ratings on the senior unsecured notes drawn down from the programme. 

MCTTC is a wholly-owned subsidiary of MCT, with its notes and programmes guaranteed by MCT. 

As at 10.56am on Tuesday, units in MCT were trading at S$1.95, up S$0.04 or 2.1 per cent.