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RAM Ratings reaffirms ratings of Axis REIT Sukuk’s RM110 mil First Sukuk

Published on 09 Sep 2020.

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RAM Ratings has reaffirmed the respective AAA, AA1, AA2 and AA3 ratings of the RM110 mil of Class A, Class B, Class C and Class D sukuk under Axis REIT Sukuk Berhad’s (ARSB or the Issuer) First Sukuk Issue (2012/2024). All ratings carry a stable outlook. The transaction is backed by four properties comprising three industrial and industrial-office mixed properties as well as a retail property, i.e. Axis Northport Distribution Centre 1 (formerly Axis Steel Centre), Bukit Raja Distribution Centre, Axis Vista and Tesco Bukit Indah (collectively referred to as the Secured Properties). 

The reaffirmation of the ratings is premised on our view that the portfolio’s strong credit attributes and performance will continue to anchor its cash-generating ability and marketability. The Secured Properties’ weighted-average remaining lease period of 13.2 years as at end-June 2020 is longer than standard lease terms, providing the transaction with cashflow visibility and certainty. As our adjusted portfolio valuation stayed unchanged at RM217.3 mil (relative to latest market value of RM349.6 mil), the resultant cumulative loan-to-value ratios of 43.7%, 46.0%, 48.3% and 50.6% and debt service coverage ratios of 2.5 times, 2.4 times, 2.2 times and 2.1 times remain commensurate with the respective ratings of the Class A to Class D sukuk.

The portfolio’s net property income (NPI) stayed above our sustainable cash flow assumption of RM20 mil per annum, having clocked in at RM21.1 mil in 2019 (2018: RM21.0 mil). Taking into account projected capital expenditure that will be entirely funded by rental income, the NPI should still come in above our sustainable assumption this year. While the economic crisis at hand poses downside risks to the portfolio’s top line, the Secured Properties’ tenants have honoured their rental obligations to date. As the majority of the underlying tenants operate in essential services sectors, i.e. logistics and warehousing as well as hypermarkets, they have been less affected by Covid-19-induced pre-emptive measures. 

Given the still-fluid situation, it remains to be seen if the capacity of tenants to meet rental payments will weaken in the long run. The Issuer’s robust finance service coverage ratio (FSCR) for the First Sukuk Issue provides some buffer to this end – the ratio was 4.16 times as at end-December 2019 (end-December 2018: 4.08 times). Likewise, Axis Real Estate Investment Trust’s FSCR was sturdy at 3.65 times as at the same date (end-December 2018: 3.48 times). Both indicators were well above the covenanted 1.5 times. We continue to derive some comfort from the tenants’ reputation as established multinational or logistics companies, which moderates sector and tenant concentration risks inherent to the transaction as three of the four properties are industrial properties and/or are single-tenanted.

 

Analytical contact
Loh Kit Yoong
(603) 3385 2493
kityoong@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



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