Published on 04 Jan 2019.
RAM Ratings has reaffirmed the AAA/Stable/P1 ratings of Suria KLCC Sdn Bhd’s (the Company) Sukuk Murabahah Programme of up to RM600 million (the Sukuk Programme). Suria KLCC is the owner and manager of the six-storey Suria KLCC Mall (the Mall), located within the Kuala Lumpur City Centre (KLCC) development.
The reaffirmation of the ratings is premised on our expectation that Suria KLCC will maintain its robust financial profile, underscored by the superior asset quality of its sole asset, despite the weak retail industry. The Company’s overall performance in FY Dec 2017 stayed stable, as reflected in its operating profit before depreciation, interest and tax (OPBDIT) margin of 84% (9M FY Dec 2018: 83%). As at end-August 2018, the Mall maintained a commendable average occupancy rate of 98% while its average rental rate edged up a marginal 0.26% compared to FY Dec 2017 (2017: 97% and +0.13% y-o-y). Its lease maturity profile remained well-spread out, with the majority of leases expiring in 2018 having been renewed at a positive rental reversion rate.
While the Mall is expected to undergo a reconfiguration exercise following the gradual exit of a key tenant, this should have a marginal impact on its earnings in the near term. Furthermore, an earlier plan to relocate the cineplex tenant has been pushed back further. While delayed, the relocation will give the Mall the opportunity to rearrange the space into smaller retail lots. Overall, the reconfiguration exercise, coupled with the conversion of the cineplex tenant’s space into retail lots, should provide some upside potential to the Mall’s rental income post-completion over the medium term.
The Company leverage level remained low, with gearing and leverage ratios staying largely stable at a respective 0.13 and 0.11 times as at end-September 2018 (end-December 2017: 0.12 and 0.11 times). Its debt servicing ability is still robust, with interest coverage and funds from operations debt coverage ratios kept at 13.50 and 0.43 times, respectively, on the same date (end-December 2017: 13.39 and 0.49 times). The Sukuk Programme – Suria KLCC’s sole source of funding – will mature in 2024. Although lumpy, the Programme faces minimal refinancing risk in the near term. As at end-September 2018, the Company had a substantial cash holding of RM216 million against minimal short-term obligations of RM7 million. Furthermore, its internal funds should be sufficient to cover budgeted capital expenditure of RM136 million over the next three years.
The ratings benefit from an uplift, premised on our view that Suria KLCC is high likely to receive parental support, when required, from its indirect shareholder, KLCC (Holdings) Sdn Bhd (KLCCH or the Group), and ultimate shareholder, Petroliam Nasional Berhad (Petronas), notwithstanding a 40% stake in the Company held by CBRE Global Investors – a subsidiary of CBRE Group, Inc. Suria KLCC is 60%-owned by KLCC Property Holdings Berhad (KLCCP), in which Petronas has a 75.5% direct and indirect stake. Petronas holds a direct 10.8% interest in KLCCP, along with another 64.7% indirectly through wholly owned KLCCH. The relationship (as defined in RAM’s Criteria on Parent-Subsidiary Rating Links) between Suria KLCC and its indirect shareholders is deemed close, given that the Mall is a core component of the KLCC development – a prime real estate investment of KLCCH and a project closely associated with Petronas, the 15-year major lessee of the iconic Petronas Twin Towers. In addition, the Company accounts for about a third of the revenue and assets of its immediate major shareholder, KLCCP.
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Ratings on Suria KLCC Sdn Bhd