Published on 12 May 2015
RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Midciti Sukuk Berhad’s (Midciti) Sukuk Murabahah
Programme of up to RM3.0 billion Nominal Value (2014/2044). As Midciti
Sukuk is a special-purpose financing vehicle for KLCC Real Estate
Investment Trust (KLCC REIT or the REIT), the ratings of the Sukuk Murabahah reflect the credit profile of KLCC REIT.
Based on RAM’s methodology on parent-subsidiary
rating links, we have established the relationship between Petroliam
Nasional Berhad (PETRONAS) as ”close” given the strong parental support
from PETRONAS and its representation on KLCC Stapled Group’s (Stapled
Group or Group) board of directors. Furthermore, PETRONAS is also the
head lessee for most of the REIT’s assets, with long-term, triple-net
lease agreements. The longer-than-industry-average 15-year head leases
for both the Petronas Twin Towers and Menara 3 Petronas help mitigate
any volatility within the industry and also ensure the predictability of
the REIT’s cashflow through the triple-net lease arrangements.
During the reviewed period, KLCC REIT maintained its
leverage ratio at a healthy 0.17 times. Underscored by a net property
income (NPI) margin that has consistently stayed above 95% and more than
RM400 million of annual cashflow in the last 2 years, coupled with
RM4.25 million of expected capital expenditure for the refurbishment of
Menara ExxonMobil in FY Dec 2016, the REIT’s fixed charge coverage still
came up to a robust 5.18 times as at end-FY Dec 2014; the ratio is
expected to increase beyond 7 times in the near term. Meanwhile, the
REIT’s funds from operations financing coverage ratio stood at 0.30
times, i.e. above the peer average.
The ratings also reflect the high-quality assets of
the REIT. The assets of KLCC REIT are situated in the prime KLCC
development area, connected by major road networks and public
transportation systems, thus providing an added advantage over other
comparable properties. This enables the REIT to command rental rates
that are higher than those of the other offices of similar grade in the
vicinity. The REIT also benefits from a strong, visible pipeline of
assets from KLCC (Holdings) Sdn Bhd (KLCCH) and KLCC Property Holdings
Berhad (KLCCP). KLCCP owns a stable of 4 matured assets while KLCCH is
the master developer of the KLCC area. The latter has just formed 2
major joint ventures to develop a mixed project and an office building.
As part of the Group’s expansion plan, it has already
secured the unitholders’ approval for a 1-year extension on its mandate
to undertake a rights placement for up to RM1.2 billion. The proceeds
have been earmarked for future investments. The new units will only be
issued once the Group has identified the assets to be acquired. “Going
forward, the REIT is expected to maintain its stable showing, supported
by the steady performance of its office properties and backed by
long-term lease agreements,” observes Siew Suet Ming, RAM’s Head of
Structured Finance Ratings.
KLCC REIT’s units are stapled together with KLCCP’s
shares by a stapling deed, forming the Stapled Group, which is
75.5%-owned by PETRONAS. This enables the Group to benefit from the tax
profile of a REIT structure through relevant tax exemptions and allows
the unitholders access to stable REIT distributions as well as capital
growth while benefiting from the development potential of the assets and
the Group’s organic growth.
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