Published on 18 Dec 2019.
RAM Ratings has reaffirmed the AAA/Stable rating of Suria KLCC Sdn Bhd’s (Suria KLCC or the Company) RM600 mil Islamic Medium-term Notes Programme (2014/2044). Concurrently, we have withdrawn the P1 rating of its RM300 mil Islamic Commercial Papers Programme (2014/2021). Suria KLCC is the owner and property manager of the iconic Suria KLCC Mall (the Mall), located within the prime Kuala Lumpur City Centre (KLCC) development.
The rating reaffirmation reflects our expectation that Suria KLCC’s healthy credit metrics - as reflected by its stable and robust debt and interest coverage ratios and low gearing level - will more than support the issue rating. The Company registered a gearing ratio of 0.12 times as at end-August 2019 (end-December 2018: 0.12 times) and an annualised funds from operations (FFO) debt coverage ratio of 0.44 times in 8M FY Dec 2019 (FY Dec 2018: 0.51 times). While the Mall’s average occupancy rate had declined to 85.75% (2018: 97.68%) following the exit of anchor tenant Parkson Grand (12% of total NLA), the Company had still managed to achieve a commendable average rental reversion of 6%, keeping its operating profit before depreciation, interest and tax (OPBDIT) margin healthy at 84.20%. The high proportion of fixed rental leases within the Company’s overall portfolio also provides better cashflow stability and visibility amid the challenging retail environment.
RAM expects a pick-up in the Mall’s earnings in 2020 after the completion of the first phase of its tenant reconfiguration exercise by December 2019, as higher rentals from new tenants kick in. The segmental composition of new tenants would likely constitute fashion, cosmetic and food and beverage retailers. Suria KLCC’s lease maturity profile is viewed as well spread, given that 65% of leases expiring in 2019 have been renewed, with a healthy rental reversion rate. Ongoing major developments in the vicinity should also enable the Mall to draw increased shopper traffic, which should translate into stronger earnings growth for the Company over the long term.
In view of its superior credit metrics and healthy cash balances, the Company distributed a respective 89.93% and 69.51% of its profits to shareholders in FY 2018 and 8M FY 2019. We expect Suria KLCC to continue to maximise dividend payouts, as provided under its Shareholders’ Agreement, without compromising the strength of its balance sheet. The Company’s credit metrics are anticipated to remain sound despite budgeted annual capex over the next three years. That said, the Company’s debt maturity profile is considered lumpy, with a single bullet payment due in 2024.
The ratings benefit from an uplift, given our view that Suria KLCC is highly 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, as 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 major lessee of the iconic Petronas Twin Towers, whose 15-year lease ends in 2027. In addition, the Company accounts for about a third of the revenue and assets of its immediate major shareholder, KLCCP.
Teoh Tze Yit
(603) 3385 2531
(603) 3385 2577
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Ratings on Suria KLCC Sdn Bhd