RCS Trust

We placed RCS on CreditWatch with negative implications because we believe that the credit profile of its parent, CMT, will likely erode following the proposed merger between CMT and CCT. Singapore's real GDP to contract by 5% in 2020 and grow by 6.7% in 2021. A recession in Singapore will likely pressure rental rate growth. Rental reversion for RCS' retail portion will decline by 3%-5% for at least the next six months. The negative reversion trend will gradually ease after that as malls have reopened since July and shopper traffic is recovering. Rental reversion for RCS' office portion will decline by a low single-digit percentage over the next 12 months due to COVID-19. Rental will increase thereafter as the economy

...COVID-19 and the proposed debt-funded merger between RCS Trust's sponsors, CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT), have negative implications on RCS. CMT may take on an additional Singapore dollar (S$) 1 billion in debt to partly fund the proposed acquisition of CCT, resulting in higher leverage and lower cash flow adequacy ratios for the merged REIT. CMT's credit profile has also deteriorated owing to the COVID-19 outbreak. Overall, we estimate CMT's ratio of funds from operations (FFO) to debt will materially weaken to about 9% through 2021, from our previous expectation of 12%-13%. That level does not commensurate with our expectations of CMT's credit profile prior to the proposed merger. Since the rating on RCS receives an uplift from its stronger sponsor, CMT, the weakening in the sponsor's credit profile after the merger may have a negative impact on RCS. RCS will remain highly strategic to the combined group post-merger. CMT will have full ownership of...

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