Published on 17
May 2017.
RAM Ratings has reaffirmed the AAA/Stable
rating of Midciti Sukuk Berhad’s (Midciti Sukuk) Sukuk
Murabahah Programme
(the Sukuk) of up to RM3.0 billion in Nominal Value (2014/2044). As Midciti
Sukuk is a special-purpose financing vehicle of KLCC Real Estate Investment
Trust (KLCC REIT or the REIT), the rating of the Sukuk reflects the credit
profile of the REIT.
During the review period, KLCC REIT
maintained its leverage ratio at a healthy 0.16 times, underscored by a net
property income (NPI) margin that has consistently stayed above 95%, which is
reflective of the REIT’s triple-net lease (TNL) arrangements with Petroliam
Nasional Berhad (PETRONAS) for most its assets. Given the REIT's strong and
stable operating cashflows of more than RM400 million per annum, its coverage
ratios are anticipated to remain resilient, with its fixed-charge coverage
ratio and funds from operations financing coverage ratio staying at current
levels of above 7 times and 0.34 times, respectively. KLCC REIT’s balance sheet
remains lowly leveraged at 0.16 times – principal of RM300 million due on 25
April 2017 has been partially refinanced, keeping its annual rollover rate at
about 31% over the next 2 years.
The remaining lease terms of more than 9
years of both the PETRONAS Twin Towers and Menara 3 PETRONAS – that are longer
than the industry average – mitigate current weaknesses in the office and
retail property sectors. Despite increased vacancies in both the Menara 3
PETRONAS retail podium and Menara ExxonMobil within the REIT’s portfolio as at
1Q FY Dec 2017, occupancy rates are envisaged to improve in 2H 2017, given that
the management has already identified potential tenants for the vacant space.
That said, the loss of rental income in fiscal 2017 is unlikely to be material and
will only have a minimal impact on KLCC REIT as respective gross rental
revenues from Menara 3 PETRONAS retail podium and Menara ExxonMobil accounted
for only about 6-7% of the REIT’s total revenue for fiscal 2016.
Based on RAM’s methodology for parent-subsidiary
rating links, we view the relationship between PETRONAS and the REIT as
“close”, underpinned by strong parental support from the former and its
representation on the boards of KLCC Property Holdings Berhad (KLCCP) and the
manager of KLCC REIT. Further, PETRONAS is also the head lessee of most of the
REIT’s assets, with long-term, TNL agreements. Going forward, we expect the
REIT to maintain its stable earnings growth, supported by its high asset
quality backed by long-term lease agreements.
Midciti Sukuk is the financing vehicle of
KLCC REIT and has no operations of its own. It depends on inter-company
payments to meet its obligations. Following a corporate restructuring by KLCCP
that had led to the establishment of the REIT in April 2013, the KLCCP Stapled
Group was formed, where the shares of KLCCP were stapled to units of the REIT
by a single “stapling deed”.
Analytical contact
Irene Wong
(603) 7628 1076
irene@ram.com.my
Irene Wong
(603) 7628 1076
irene@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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